<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 September 30, 1996        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 October 31, 1996, the Company had 10,516,594 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

<TABLE>
<CAPTION>

                                                                                    PAGE
                                                                                    ----
<S>               <C>                                                               <C>

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.............................................   13

                  CONSOLIDATED BALANCE SHEETS......................................   13

                  CONSOLIDATED STATEMENTS OF INCOME................................   15

                  CONSOLIDATED STATEMENTS OF CASH FLOWS............................   16

                  CONSOLIDATED STATEMENT OF CHANGES IN
                   STOCKHOLDERS' EQUITY.............................................  17

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......................   18

PART II

  Item 1.         LEGAL PROCEEDINGS................................................   20

  Item 2.         CHANGES IN SECURITIES............................................   20

  Item 3.         DEFAULTS UPON SENIOR SECURITIES..................................   20

  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.........................................................................   21
</TABLE>

                                       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, 1995, AND QUARTERLY REPORTS ON FORM 10-Q FOR THE
PERIOD ENDED MARCH 31, 1996 AND FOR THE PERIOD ENDED JUNE 30, 1996
(COLLECTIVELY, THE "REPORTS") AS FILED WITH THE SECURITIES EXCHANGE AND
COMMISSION, INCLUDING THE FINANCIAL STATEMENT SCHEDULES THERETO.  THOSE
REQUESTING A COPY OF THE REPORTS THAT ARE NOT CURRENTLY STOCKHOLDERS OF THE
COMPANY MAY ALSO OBTAIN A COPY DIRECTLY FROM THE COMPANY.  REQUESTS FOR COPIES
OF THE REPORTS 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 REPORTS SINCE THE INFORMATION CONTAINED HEREIN IS OFTEN AN UPDATE OF THE
INFORMATION IN SUCH REPORTS.

                                      ii
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

     SOME OF THE STATEMENTS IN THIS FORM 10-Q REPORT CONTAIN FORWARD-LOOKING
INFORMATION 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.
WHEN USED OR INCORPORATED BY REFERENCE IN THIS REPORT, 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 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; AND THE DISCOVERY OF UNANTICIPATED
ENVIRONMENTAL CONDITIONS ON ANY OF THE COMPANY'S PROPERTIES.

                                  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; (ii) a 10.56% interest in Penske Motorsports, Inc. ("PMI"), a publicly
traded motorsports company; (iii) approximately 750 acres 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 developer
of the Eagle Mountain Landfill Project (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.

  Since the filing of the second quarter 1996 Form 10-Q Report, there have been
particularly significant developments with regard to the continued redevelopment
of the Mill Site Property due to the anticipated sale of approximately 54 acres
of the Mill Site Property to PMI for approximately $13.4 million and with
respect to the Landfill Project. See, "Introduction - Business Update - Property
Redevelopment - Sale of Speedway Business Park" 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 1995 Form 10-K Report and first and second
quarter 1996 Form 10-Q Reports for background information and a complete
understanding as to material developments concerning the Company.

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 County Water District ("Cucamonga") pursuant to a
102-year take-or-pay lease (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").

  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 the 

                                       1
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

Lease Rate increased by at least 2.7% or by 5.1% or greater if the Cucamonga
Lease is interpreted as the Company asserts to include all the changed rates and
items implemented by MWD, as of July 1, 1995. Cucamonga continues to pay under
the terms of the Cucamonga Lease, but at the 2.7% rate increase as opposed to
the higher Lease Rate that the Company maintains it is entitled to receive
pursuant to the Cucamonga Lease. In addition, in the third quarter Chino Basin
Municipal Water District increased its administrative charge to $2.00 per acre
foot which Cucamonga agrees is a component of the Lease Rate. Finally, the
Company also continues to investigate the reasons for the drop in water levels
in the Colton/Rialto Basin wells which will result in a reduction in the
revenues from the Cucamonga Lease by approximately $300,000 in 1996. It is
currently unknown if the drop in water levels in the Colton/Rialto Wells is just
a short term fluctuation or a longer term change.

INTEREST IN PENSKE MOTORSPORTS, INC.

  The Company currently owns approximately a 10.56% interest in PMI. PMI is
traded on the NASDAQ National Market under the symbol "SPWY." As discussed in
more detail below under "Property Redevelopment - Sale of Speedway Business
Park," the Company anticipates increasing its ownership in PMI from 1,373,625
shares to 1,627,925 shares (approximately 12.2% of PMI's outstanding shares) in
connection with the expected sale of approximately 54 acres (net) of the Mill
Site Property, (known as the Speedway Business Park), to The California Speedway
Corporation. The approximately $13,352,700 purchase price is to be paid in cash
of $5,000,000 (subject to closing adjustments) plus PMI restricted common stock
of approximately 254,300 shares. The transaction is scheduled to close during
December, 1996.

  The Company acquired its original interest in PMI in November, 1995, in
exchange for approximately 475 acres of the Mill Site Property on which the
California Speedway is being built. PMI is a leading owner and operator of
speedway facilities as well as a promoter of racing events. PMI, through
subsidiaries, owns: Michigan International Speedway; Nazareth Motor Speedway;
TCS (which is under construction); a 4.5% interest in North Carolina Motor
Speedway; Motorsports International Corp., a motorsports apparel and memorabilia
company; and Competition Tire West and Competition Tire South, distributors of
Goodyear racing tires in the mid-west and southern regions of the United States.
California Speedway is to be a two mile tri-oval similar to Michigan
International Speedway and is anticipated to be completed in the Spring of 1997.
The date of the first scheduled race at the California Speedway, a NASCAR
Winston Cup race, is June 22, 1997. A second race, a CART PPG Indy Car World
Series Event, is scheduled to be held on September 28, 1997.

  Currently, PMI is paying to the Company a quarterly fee of $162,500 which will
expire at the end of the first quarter of 1997.  On October 31, 1996, PMI
announced record gross revenues of $24.0 million and record net income of $6.5
million or $.50 per share for the third quarter of 1996 and gross revenues of
$52.2 million and net income of $12.2 million for the first nine months of 1996.
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."

PROPERTY REDEVELOPMENT

  After the contribution of approximately 475 acres of the Mill Site Property in
exchange for its interest in PMI, the Company currently owns approximately 700
acres of the Mill Site Property.  This acreage will decrease to approximately
650 acres with the conclusion of the anticipated sale of approximately 54 acres
to PMI as discussed below. The Company is currently undertaking efforts to
obtain the entitlements and permits necessary to develop the balance of the Mill
Site Property for a variety of possible commercial, industrial and recreational
uses.  These efforts include possible changes that would alter and improve the
access to portions of the Mill Site Property.  In addition to these entitlement
and permitting activities, the 

                                       2
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


Company has also begun preliminary exploratory discussions with a number of
prospective users for the balance of the Mill Site Property. As discussed in
detail in the Company's 1995 Form 10-K Report, the Company is also pursuing
several other projects for the redevelopment of the Mill Site Property,
including a rail-served municipal solid waste transfer and recovery facility,
and several industrial and commercial lots adjoining the motorsports complex.
Material developments with respect to these projects are described below.

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").  The transfer station and material recovery
facility are fully permitted, other than necessary construction and ancillary
permits.  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, but should be completed as a part of the construction of
Phase 1 of the Mill Site MRF as described in more detail below.

  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). In the third quarter, the
Company's Board of Directors approved the restructuring of the Joint Venture,
and its terms as well as the construction of Phase 1 of the Mill Site MRF,
subject to obtaining acceptable third-party financing and the finalization of
the legal documentation between the Company and Burrtec.

  The Company and Burrtec are also continuing 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 are nearing completion.  The total
estimated cost for the 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.

SALE OF SPEEDWAY BUSINESS PARK

  The Company and The California Speedway Corporation have entered into an
agreement for the sale of the Speedway Business Park. The Speedway Business
Park, which encompasses approximately 54 acres (net),is located on the east side
of the Kaiser Mill Site Property between the speedway property and Cherry
Avenue. These lots, which were graded in connection with the construction of
California Speedway, include property adjoining the main entrance to the
speedway. The sales price is approximately $13,352,000, and is subject to normal
closing adjustments. The sales price will be paid in cash of $5,000,000 at the
close of the transaction with the balance of the purchase price being the
issuance of approximately 254,300 in shares of restricted PMI common stock. This
stock will increase the Company's percentage ownership interest in PMI to
approximately 12.2%. The sale, which is subject to several contingencies, is
expected to close during December 1996. The Company has already satisfied most
of the major contingencies to the proposed sale.

                                       3
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


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

  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. As of October 31, 1996, the Company had
invested $4,477,000 in additional equity in MRC by participating in two private
placements of MRC common stock. Currently, the Company's ownership interest in
MRC is approximately 73%. Because additional funding will be necessary to
complete all permitting activities, MRC has approved a third private placement
of $2.2 million, to be completed in early 1997, of which it is expected that the
Company will invest up to an additional $1.65 million through Eagle Mountain
Reclamation, Inc. The Company's first payment of approximately $1.05 million
will be made in the first quarter 1997, with a second payment of approximately
$600,000 due in the second quarter of 1997. Even with the anticipated successful
completion of a third private placement, additional financing will be required
to complete the permitting of the Landfill Project, to fund anticipated
litigation costs and to ultimately construct the Landfill Project.

  MRC continues to pursue the activities necessary to re-permit the Landfill
Project. The draft 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 first released to the public
for comment in July, 1996. The public comment period is now over and a large
number of comments were received. The comments are being reviewed and responses
being prepared by the independent consultant for inclusion in the final EIR/EIS.

  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. 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. Once the final EIR/EIS is completed and released, which is
currently anticipated to be late this year or early next year, the Landfill
Project will be reviewed by the Riverside County Planning Commission and
forwarded with recommendations to the Riverside County Board of Supervisors. It
has been anticipated that the Supervisors would act during the first half of
1997.

  However, at an October 29, 1996, meeting of the Riverside County Board of
Supervisors, the Board voted to delay the consideration of proposals relating to
any private or public/private landfill project for at least six months. This
action was as a result of an investigation by the Federal Bureau of
Investigation of Western Waste Industries, Inc. which was proposing a major
expansion of its El Sobrante landfill in western Riverside County. Neither the
Company nor MRC have any connection with Western Waste Industries, Inc.
Regardless of this fact, the Board decided to delay its consideration of all
private and public/private landfill projects given the ongoing investigation,
which includes the review of the records of the Board of Supervisors and certain
County staff members. As noted above, MRC is proceeding with completion of the
final EIR/EIS and is scheduled for Planning Commission review in early 1997. As
the 

                                       4
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

Company currently understands the October 29, 1996 decision, it may result only
in minimal delay, if any, in the Board's consideration of the Eagle Mountain
Landfill Project. However, the full ramifications of the Board's vote are
unknown and further delays are possible.

  As discussed in more detail in the Company's 1995 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. The current anticipated time schedule for Landfill Project is
based on forward-looking information and as a result, the time schedule may not
be achieved, as in the past, because of the risks associated with the Project as
well as the time consuming procedural steps that must be followed.

                                       5
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

                                     PART I

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

GENERAL

  Kaiser Ventures Inc. ("Kaiser" or the "Company") is an emerging company
pursuing project opportunities and investments in activities related to water
resources, property redevelopment and solid waste management. The Company's 
long-term emphasis is on the development of its principal assets: (i) a 50.88%
interest in Fontana Union Water Company ("Fontana Union"), a mutual water
company; (ii) a 10.56% interest in Penske Motorsports, Inc. ("PMI"), a public
professional motorsports company that is developing the California Speedway on
land acquired from Kaiser; (iii) approximately a 73% interest in Mine
Reclamation Corporation ("MRC"), the developer of the Eagle Mountain Landfill
Project (the "Landfill Project"); (iv) approximately 750 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 on the Mill
Site Property ("Mill Site MRF"); and the redevelopment of industrial and
commercial parcels of land adjoining the California Speedway and the Mill Site
MRF.

  Subsequent to the end of the third quarter, the Company formally agreed to
sell approximately 54.2 net acres of the Mill Site Property, known as the
Speedway Business Park, to PMI for $5.0 million in cash and approximately $8.35
million in PMI stock.  It is anticipated that the transaction will close during
the fourth quarter and will result in a one time gain of approximately $6.7
million.  Once this transaction is completed, the Company's interest in PMI will
increase to approximately 12.2%.  See the "Introduction - Business Update"
section of this report for more information regarding this transaction.

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
currently reflect 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").  Joint venture revenues 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, revenues from the sale of recyclable materials and other
miscellaneous interim 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.

  In addition, due to the concentration of motor sport 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 events in the first and fourth
quarters at its existing facilities (including the California Speedway). 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 QUARTER ENDED SEPTEMBER 30, 1996 AND 1995

  An analysis of the significant components of the Company's resource revenues
for the quarter ended September 30, 1996 and 1995 follows:

<TABLE>
<CAPTION>
                                                                   QUARTER ENDED SEPTEMBER 30,
                                                                   ---------------------------
                                                             1996               1995         % INC (DEC)
                                                             ----               ----         -----------
<S>                                                     <C>                <C>               <C> 
ONGOING OPERATIONS
 Water resource......................................... $  944,000         $1,103,000            (14%)
 Joint venture..........................................    642,000                  -            100%
 Property redevelopment.................................    295,000            246,000             20%
                                                         ----------         ----------         

   TOTAL ONGOING OPERATIONS.............................  1,881,000          1,349,000             39%
                                                         ----------         ----------         

INTERIM ACTIVITIES
 Lease and royalty......................................    293,000            307,000             (5%)
 Service................................................     57,000            101,000            (44%)
 Miscellaneous..........................................    114,000            302,000            (62%)
                                                         ----------         ----------         

   TOTAL INTERIM ACITIVITIES............................    464,000            710,000            (35%)
                                                         ----------         ----------         

   TOTAL RESOURCE REVENUES.............................. $2,345,000         $2,059,000             14%
                                                         ==========         ==========
REVENUES AS A PERCENTAGE OF TOTAL
RESOURCE REVENUES:
 Ongoing operations.....................................        80%                66%
 Interim activities.....................................        20%                34%
                                                         ----------         ----------         

    TOTAL RESOURCE REVENUES.............................       100%               100%
                                                         ==========         ==========
</TABLE>


  Resource Revenues. Total resource revenues for the third quarter of 1996 were
$2,345,000, as compared to $2,059,000 for the third quarter of 1995. Revenues
from ongoing operations increased 39% during the third quarter of 1996 to
$1,881,000 from $1,349,000 in the third quarter of 1995, while revenues from
interim activities declined 35% to $464,000 from $710,000 in the third quarter
of 1995. 

                                       7
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


Revenues from ongoing operations as a percentage of total revenues increased to
80% in the third quarter of 1996 from 66% in the third quarter of 1995.

  Ongoing Operations. Water lease revenues under the Company's 102-year take-or-
pay lease with Cucamonga were $944,000 during the third quarter of 1996 as
compared to $1,103,000 for the third quarter of 1995. The 14% decrease in water
revenues during the quarter reflects both an adjustment to reflect the actual
amounts being paid by Cucamonga and a reduction, affecting all parties under the
Rialto Basin judgment, in the amount of water that Cucamonga through Fontana
Union can draw from the Colton/Rialto Basin due to low water levels. Although
the Company is continuing to bill Cucamonga at what it believes is the correct
Metropolitan Water District of Southern California ("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 received. The total amount of lease
payments in dispute as of September 30, 1996 is approximately $550,000. In
addition, MWD has stated that it may refine its rate structure further. The
annual impact of the Colton/Rialto Basin water reduction is estimated to be
approximately $300,000; of which $75,000 was recorded during the third quarter.

  Joint venture revenue increased to $642,000 as a result of the $162,000
quarterly project service fee due from PMI plus $480,000 pertaining to the
Company's 10.56% share of PMI's net income for the third quarter, net of
expenses. 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.

  Property redevelopment revenue was $295,000 for the third quarter of 1996 as
compared to $246,000 for the third quarter of 1995. Higher iron ore sales from
one of the Company's California mines more than offset reductions in tenant
rental income at Eagle Mountain.

  Interim Activities. Revenues from interim activities for the third quarter of
1996 were $464,000 as compared to $710,000 for the third quarter of 1995. The
35% decrease in revenues from interim activities in the third quarter of 1996 is
primarily attributable to lower levels of service revenues under the amended
Services Agreement with California Steel Industries ("CSI"); lower scrap sales
and slag royalties; and lower miscellaneous revenues.

  Resource Operating Costs. Resource operating costs are those costs directly
related to the resource revenue sources. Total resource operating costs for the
third quarter of 1996 declined to $856,000 from $978,000 in the third quarter of
1995. Operations and maintenance costs for the third quarter of 1996 were
$303,000 compared to $403,000 for the third quarter of 1995. This 25% decrease
in operations and maintenance costs was primarily due to lower expenses
associated with the reduced levels of services being provided to CSI and lower
property taxes associated with the portion of the Mill Site Property that was
contributed to PMI for the development of TCS. Administrative support expenses
for the third quarter of 1996 decreased slightly to $553,000 from $575,000 for
the third quarter of 1995.

  Corporate General and Administrative Expenses.  Corporate general and
administrative expenses for the third quarter of 1996 increased 5% to $812,000
from $771,000 for the third quarter of 1995 due primarily to higher outside
professional and legal expenses.

  Net Interest Expense.  Net interest expense for the third quarter of 1996, was
$156,000, a decline of 23% from $202,000 in the third quarter of 1995.  The
reduction was due primarily to the capitalization of interest expense associated
with the development of certain parcels of the Mill Site Property and higher
interest income being partially offset by the increased amortization of deferred
loan fees associated with the Union Bank credit facility.

                                       8
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES



  Income and Income Tax Provision. The Company recorded income before income tax
provision of $521,000 for the third quarter of 1996, a 382% increase from the
$108,000 recorded in the third quarter of 1995. A provision for income taxes of
$225,000 was recorded in the third quarter of 1996 as compared with $46,000 in
the third quarter of 1995. Over 90% of the tax provision in 1996 and 1995 is not
currently payable due primarily to utilization of the Company's net operating
loss carryforwards ("NOLs"). Consequently, pretax income is an important
indicator of the Company's performance.

  Net Income. For the third quarter of 1996, the Company reported net income of
$296,000, or $.03 per share, a 377% increase from the $62,000, or $.01 per
share, reported for the third quarter of 1995.

ANALYSIS OF RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995

  An analysis of the significant components of the Company's resource revenues
for the nine months ended September 30, 1996 and 1995 follows:
<TABLE> 
<CAPTION> 
                                                                  9 MONTHS ENDED SEPTEMBER 30,
                                                            ------------------------------------------
                                                            1996               1995         % INC(DEC)
                                                            ----               ----         ----------
<S>                                                     <C>                <C>              <C> 
ONGOING OPERATIONS
 Water resource......................................... $3,060,000         $3,260,000             (6%)
 Joint venture..........................................  1,526,000                  -            100%
 Property redevelopment.................................    835,000            766,000              9%
                                                         ----------         ----------         

   TOTAL ONGOING OPERATIONS.............................  5,421,000          4,026,000             35%
                                                         ----------         ----------         

INTERIM ACTIVITIES
 Lease and royalty......................................    849,000          1,191,000            (29%)
 Service................................................    171,000            334,000            (49%)
 Miscellaneous..........................................    361,000            657,000            (45%)
                                                         ----------         ----------         

   TOTAL INTERIM ACTIVITIES............................   1,381,000          2,182,000            (37%)
                                                         ----------         ----------         

   TOTAL RESOURCE REVENUES.............................. $6,802,000         $6,208,000             10%
                                                         ==========         ==========
REVENUES AS A PERCENTAGE OF TOTAL
RESOURCE REVENUES:
 Ongoing operations.....................................        80%                65%
 Interim activities.....................................        20%                35%
                                                         ----------         ----------         

    TOTAL RESOURCE REVENUES.............................       100%               100%
                                                         ==========         ==========
</TABLE>

  Resource Revenues. Total resource revenues for the first nine months of 1996
were $6,802,000, as compared to $6,208,000 for the first nine months of 1995.
Revenues from ongoing operations increased 35% during the first nine months of
1996 to $5,421,000 from $4,026,000 in the first nine months of 1995, while
revenues from interim activities declined 37% to $1,381,000 from $2,182,000 in
the first nine months of 1995. Revenues from ongoing operations as a percentage
of total revenues increased to 80% in the first nine months of 1996 from 65% in
the first nine months of 1995.

  Ongoing Operations.  Water lease revenues under the Company's 102-year take-
or-pay lease with Cucamonga were $3,060,000 during the first nine months of 1996
as compared to $3,260,000 for the first nine months of 1995.  The 6% decrease in
water revenues during the nine months reflects both an 

                                       9
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


adjustment to reflect the actual amounts being paid by Cucamonga and a
reduction, affecting all parties under the Rialto Basin judgment, in the amount
of water that Cucamonga through Fontana Union can draw from the Rialto Basin due
to low water levels. Although the Company is continuing to bill Cucamonga at
what it believes is the correct lease 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 received. The total amount of lease payments in dispute as
of September 30, 1996 is approximately $550,000. In addition, MWD has stated
that it may refine its rate structure further. The annual impact of the Rialto
Basin water reduction is estimated to be approximately $300,000; of which
$225,000 was recorded during the first nine months of 1996. Offsetting these
reductions was the July, 1995 increase in water rates of 2.7% by MWD which the
Company believes should be 5.1% for purposes of the CCWD Lease. As noted above,
the Company believes the true increase should be at least 5.1% and has billed
CCWD accordingly. There was no reduction in the Company's 55.53% effective
interest in Fontana Union for 1996. As previously disclosed, the Company's
effective interest in Fontana Union may decline over time due to an increase in
the number of Fontana Union shareholders taking water. However, the Company's
effective interest in Fontana Union's water cannot fall below its equity
interest of 50.88%.

  Joint venture revenue increased to $1,526,000 as a result of the $487,000 in
project service fees from PMI plus $1,039,000 pertaining to the Company's 10.56%
share of PMI's net income for the second and third quarters of 1996, net of
expenses. 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.

  Property redevelopment revenues were $835,000 for the first nine months of
1996 as compared to $766,000 for the first nine months of 1995.  The 9% increase
from the first nine months of 1995 primarily represents higher iron ore sales
from one of the Company's California mines.

  Interim Activities.  Revenues from interim activities for the first nine
months of 1996 were $1,381,000 as compared to $2,182,000 for the first nine
months of 1995.  As noted above, the 37% decrease in revenues from interim
activities in the first nine months of 1996 is primarily attributable to lower
levels of service revenues under the amended Services Agreement with California
Steel Industries ("CSI"); lower tenant rental income on the portion of the Mill
Site Property that was contributed to PMI in November 1995, for the development
of TCS; lower scrap sales and slag royalties; and lower miscellaneous revenues.

  Resource Operating Costs.  Resource operating costs are those costs directly
related to the resource revenue sources.  Total resource operating costs for the
first nine months of 1996 declined to $2,442,000 from $2,849,000 in the first
nine months of 1995.  Operations and maintenance costs for the first nine months
of 1996 were $812,000 compared to $1,186,000 for the first nine months of 1995.
As noted above, this 32% decrease in operations and maintenance costs was
primarily due to lower expenses associated with the reduced levels of services
being provided to CSI and lower property taxes associated with the portion of
the Mill Site Property that was contributed to PMI for the development of TCS.
In addition, Administrative support expenses for the first nine months of 1996
decreased 2% to $1,630,000 from $1,663,000 for the first nine months of 1995 due
primarily to lower depreciation expenses.

  Corporate General and Administrative Expenses.  Corporate general and
administrative expenses for the first nine months of 1996 increased 6% to
$2,690,000 from $2,530,000 for the first nine months of 1995 due primarily to
higher outside professional and legal expenses.

  Net Interest Expense.  Net interest expense for the first nine months of 1996,
was $406,000, a decline of 26% from $546,000 in the first nine months of 1995.
The reduction was due primarily to the capitalization of interest expense
associated with the development of certain parcels of the Mill Site 

                                       10
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


Property and higher interest income being partially offset by the increased
amortization of deferred loan fees associated with the Union Bank credit
facility.

  Income and Income Tax Provision. The Company recorded income before income tax
provision of $1,264,000 for the first nine months of 1996, a 347% increase from
the $283,000 recorded in the first nine months of 1995. A provision for income
taxes of $547,000 was recorded in the first nine months of 1996 as compared with
$123,000 in the first nine months of 1995. Over 90% of the tax provision in 1996
and 1995 is not currently payable and results in a direct credit to equity due
to utilization of the Company's net operating loss carryforwards ("NOLs").
Consequently, pretax income is an important indicator of the Company's
performance.

  Net Income.  For the first nine months of 1996, the Company reported net
income of $717,000, or $.07 per share, a 348% increase from the $160,000, or
$.02 per share, reported for the first nine months of 1995.

LIQUIDITY AND CAPITAL RESOURCES

  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 declined $4,167,000 to $6,770,000 at September 30, 1996 from
$10,937,000 at December 31, 1995. Included in cash and cash equivalents at
September 30, 1996 is $2,297,000 held solely for the benefit of MRC. The
decrease in cash and cash equivalents is due primarily to capital expenditures,
including environmental remediation at the Mill Site, of approximately
$9,117,000 and to additional investments of approximately $2,137,000 in MRC
being offset by net cash proceeds of approximately $3,400,000 from the CSI and
environmental insurance settlements and borrowings under the Union Bank credit
facility of $3,000,000.

  Working Capital.  During the first nine months of 1996, current assets
decreased $11,213,000 to $9,416,000 while current liabilities declined
$3,236,000 to $7,637,000.  The decrease in current assets resulted primarily
from the $4,167,000 decrease in cash and cash equivalents, discussed above, plus
a $7,046,000 decline in accounts receivable due primarily to the receipt of over
$6,000,000 in gross proceeds from the CSI and environmental insurance
settlements.  Included in current liabilities is $2,117,000 in accounts payable
and accrued liabilities relating to MRC.  As a result, working capital decreased
during the first nine months of 1996 by $7,977,000 to $1,779,000 at September
30, 1996.

  Real Estate.  Real Estate increased $9,117,000 during the first nine months of
1996 primarily due to the capitalization of environmental remediation and real
estate development costs relating the Mill Site Property.

  Investments.  The Company's investment in PMI increased $7,316,000 to
$30,307,000 primarily as a result of PMI's initial public offering in March 1996
and the Company's recording of its share of equity in PMI's earnings subsequent
to the public offering.  As a result of the initial public offering, the Company
increased its investment in PMI by approximately $6.5 million and recorded
corresponding increases in deferred income taxes and stockholders equity of
approximately $400,000 and $6.1 million, respectively.  The Company's investment
in PMI will increase further during the fourth quarter of 1996 as a result of
the additional PMI common stock that will be received from the sale of the
Speedway Business Park property to PMI.

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

                                       11
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


  Long-term Debt and Other Long-term Liabilities.  As of September 30, 1996, the
Company had $8,162,000 in long-term debt of which $5,162,000 pertains to the
note the Company issued as part of the purchase of properties from the Lusk
Joint Ventures in July, 1994 and $3,000,000 pertains to borrowings under its
$20.0 million revolving-to-term credit facility at September 30, 1996.

  Minority Interest and Other Liabilities.  At September 30, 1996, the Company
had recorded $1,553,000 of minority interest relating to MRC in which the
Company had approximately a 73% equity interest.

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

  Capital Resources.  The Company expects that its current cash balances and
short-term investments together with:  (a) cash provided from operating
activities; (b) proceeds from the CSI and environmental insurance litigation
settlements; and (c) amounts available under its $20,000,000 revolving-to-term
credit facility (less $475,000 in reductions in the borrowing base and
$5,505,000 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 the development of its long-term projects.  To the
extent that additional capital resources are required, such capital will be
raised through bank borrowings, partnerships, joint venture arrangements,
additional equity or asset sale or monetization.

  The Company expects to commit, for all of 1996, more than $17.5 million for
capital projects of which approximately $8.9 million will be for required
environmental remediation, approximately $5.6 million will be for real estate
improvement and development of certain parcels at the Company's Mill Site
Property, approximately $2.6 million will be for supporting MRC's landfill
permitting and development, and $410,000 for the Specific Plan and BLM Land
Exchange at Eagle Mountain.

                                       12
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


                          CONSOLIDATED BALANCE SHEETS
                                     AS OF

<TABLE>
<CAPTION>
                                           SEPTEMBER 30,    DECEMBER 31,
                                                1996            1995
                                           -------------    ------------
                                            (UNAUDITED)
<S>                                        <C>              <C> 
ASSETS
Current Assets
   Cash and cash equivalents..............  $  6,770,000     $10,937,000
   Accounts receivable and other, net of
    allowance for doubtful accounts of
    $833,000 and $494,000, respectively...     2,646,000       9,692,000
                                            ------------     ----------- 
                                               9,416,000      20,629,000
                                            ------------     -----------
 
Investment in common stock of Penske
 Motorsports, Inc. (Fair market value of 
 1,373,625 shares equal to $47,992,000 as
 of September 30, 1996)...................    30,307,000      22,991,000
                                            ------------     ----------- 
Investment in Fontana Union Water           
 Company..................................    16,108,000      16,108,000
                                            ------------     ----------- 
Real Estate
   Land and improvements..................    29,015,000      22,084,000
   Real estate under development..........     9,750,000       7,564,000
                                            ------------     -----------
 
                                              38,765,000      29,648,000
                                            ------------     -----------
 
Other Assets
   Landfill permitting and development....     4,947,000       1,660,000
   Buildings and equipment (net)..........     2,263,000       2,433,000
   Other assets and investments...........     1,045,000       1,154,000
                                            ------------     -----------
 
                                               8,255,000       5,247,000
                                            ------------     -----------
 
Total Assets..............................  $102,851,000     $94,623,000
                                            ============     ===========
</TABLE>

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

                                       13
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                                     as of
<TABLE>
<CAPTION>
                                                                  September 30,             December 31,
                                                                      1996                      1995
                                                                  -------------             ------------
                                                                   (Unaudited)
<S>                                                             <C>                         <C> 
LIABILITIES AND STOCKHOLDER'S EQUITY

Current Liabilities
   Accounts payable..........................................    $  3,431,000                $ 4,065,000
   Accrued liabilities.......................................       3,966,000                  6,568,000
   Current portion of long-term debt.........................         240,000                    240,000
                                                                 ------------                -----------
                                                                    7,637,000                 10,873,000
                                                                 ------------                -----------
Long-term Liabilities
   Accrued liabilities.......................................       1,291,000                  1,111,000
   Deferred tax liabilities..................................       1,118,000                    721,000
   Groundwater remediation reserve...........................       1,431,000                  1,431,000
   Environmental remediation reserve.........................       5,500,000                  5,500,000
   Long-term debt............................................       8,162,000                  5,342,000
                                                                 ------------                -----------

                                                                   17,502,000                 14,105,000
                                                                 ------------                -----------

Total Liabilities............................................      25,139,000                 24,978,000
                                                                 ------------                -----------

Minority Interest and Other Liabilities......................       1,553,000                    948,000

Commitments and Contingencies

Stockholders' Equity
   Common stock, par value $.03 per share, authorized
     13,333,333 shares; issued and outstanding
     10,488,114 and 10,470,614 respectively..................         315,000                    314,000
   Capital in excess of par value............................      67,000,000                 60,256,000
   Retained earnings since November 15, 1988.................       8,884,000                  8,127,000
                                                                 ------------                -----------
Total Stockholders' Equity...................................      76,159,000                 68,697,000
                                                                 ------------                -----------
Total Liabilities and Stockholders' Equity...................    $102,851,000                $94,623,000
                                                                 ============                ===========
</TABLE>
                                
                                         
The accompanying notes are an integral part of the consolidated financial
statements.

                                      14
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


                       CONSOLIDATED STATEMENTS OF INCOME
        FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
                                  (UNAUDITED)
<TABLE>
<CAPTION>
 
                                                       THREE MONTHS ENDED               NINE MONTHS ENDED          
                                                          SEPTEMBER 30                     SEPTEMBER 30            
                                                  -------------------------      -------------------------------
                                                      1996           1995            1996                1995       
                                                      ----           -----           ----                ----
<S>                                              <C>           <C>              <C>                <C> 
RESOURCE REVENUES                                                                                                  
 Ongoing Operations                                                                                                
  Water resource........................          $   944,000   $ 1,103,000      $ 3,060,000         $ 3,260,000   
  Joint ventures........................              642,000           ---        1,526,000                 ---   
  Property redevelopment................              295,000       246,000          835,000             766,000   
                                                  -----------   -----------      -----------         -----------   
                                                                                                                   
   Total ongoing operations.............            1,881,000     1,349,000        5,421,000           4,026,000   
                                                  -----------   -----------      -----------         -----------   
                                                                                                                   
 Interim Activities                                                                                                
  Lease and royalty.....................              293,000       307,000          849,000           1,191,000   
  Service...............................               57,000       101,000          171,000             334,000   
  Miscellaneous.........................              114,000       302,000          361,000             657,000   
                                                  -----------   -----------      -----------         -----------   
                                                                                                                   
   Total interim activities.............              464,000       710,000        1,381,000           2,182,000   
                                                  -----------   -----------      -----------         -----------   
                                                                                                                   
   Total resource revenues..............            2,345,000     2,059,000        6,802,000           6,208,000   
                                                  -----------   -----------      -----------         -----------   
                                                                                                                   
RESOURCE OPERATING COSTS                                                                                           
 Operations and maintenance.............              303,000       403,000          812,000           1,186,000   
 Administrative support expenses........              553,000       575,000        1,630,000           1,663,000   
                                                  -----------   -----------      -----------         -----------   
                                                                                                                   
   Total resource operating costs.......              856,000       978,000        2,442,000           2,849,000   
                                                  -----------   -----------      -----------         -----------   
                                                                                                                   
INCOME FROM RESOURCES...................            1,489,000     1,081,000        4,360,000           3,359,000   
                                                                                                                   
 Corporate general and administrative                                                                              
   expenses.............................              812,000       771,000        2,690,000           2,530,000   
                                                  -----------   -----------      -----------         -----------   
                                                                                                                   
INCOME FROM OPERATIONS..................              677,000       310,000        1,670,000             829,000   
                                                                                                                   
 Net interest expense (income)..........              156,000       202,000          406,000             546,000   
                                                  -----------   -----------      -----------         -----------   
                                                                                                                   
INCOME BEFORE INCOME TAX PROVISION......              521,000       108,000        1,264,000             283,000   
                                                                                                                   
 Income tax provision                                                                                              
  Currently payable.....................               16,000         3,000           39,000               9,000   
  Deferred tax expense credited to                   
   equity...............................              209,000        43,000          508,000             114,000
                                                  -----------   -----------      -----------         -----------

NET INCOME..............................          $   296,000   $    62,000      $   717,000         $   160,000   
                                                  ===========   ===========      ===========         ===========   
                                                                                                                   
EARNINGS PER SHARE......................          $       .03   $       .01      $       .07         $       .02   
                                                  ===========   ===========      ===========         ===========   
                                                                                                                   
Weighted Average Number of Shares                                                                                  
 Outstanding............................           10,708,000    10,653,000       10,722,000          10,652,000    
</TABLE>

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

                                       15
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     FOR THE NINE MONTHS ENDED SEPTEMBER 30
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                       1996            1995
                                                                                       ----            ----
<S>                                                                               <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income.............................................................          $    717,000     $   160,000
 Provision for income tax which is credited to equity...................               508,000         114,000
 Equity income in Penske Motorsports Inc................................            (1,039,000)            ---
 Depreciation and amortization..........................................               538,000         379,000
 Gain on sale of equipment..............................................                   ---         (11,000)
 Allowance for doubtful accounts........................................               339,000         241,000
 Changes in assets:
   Accounts receivable and other........................................             6,707,000         355,000
   Other assets.........................................................                   ---          (4,000)
 Changes in liabilities:
   Long term accrued liabilities........................................               180,000             ---
   Current liabilities..................................................            (3,419,000)       (350,000)
                                                                                  ------------     -----------

 Net cash flows from operating activities...............................             4,531,000         884,000
                                                                                  ------------     -----------

CASH FLOWS FROM INVESTING ACTIVITIES
 Short-term investments and marketable securities.......................                   ---       3,550,000
 Minority interest and other liabilities................................               605,000       1,216,000
 Investment in Penske Motorsports, Inc..................................               236,000         (88,000)
 Capital expenditures...................................................           (12,261,000)     (6,162,000)
 Other investments......................................................              (219,000)       (209,000)
                                                                                  ------------     -----------

 Net cash flows from investing activities...............................           (11,639,000)     (1,693,000)
                                                                                  ------------     -----------

CASH FLOWS FROM FINANCING ACTIVITIES
 Issuance of common stock...............................................               121,000          13,000
 Borrowing under revolver-to-term credit facility.......................             3,000,000             ---
 Environmental insurance proceeds.......................................                   ---       8,101,000
 Principal payments on note payable.....................................              (180,000)       (180,000)
                                                                                  ------------     -----------

NET CASH FLOWS FROM FINANCING ACTIVITIES................................             2,941,000       7,934,000
                                                                                  ------------     -----------
NET CHANGES IN CASH AND CASH EQUIVALENTS................................            (4,167,000)      7,125,000

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..........................            10,937,000       3,205,000
                                                                                  ------------     -----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD..........................          $  6,770,000     $10,330,000
                                                                                  ============     ===========
</TABLE>

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

                                       16
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
                                  (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, 1995       10,470,614    $314,000    $60,256,000    $8,127,000    $68,697,000
                                   ----------    --------    -----------    ----------    -----------

   Increase in investment in
   Penske Motorsports, Inc.
   due to public offering.......          ---         ---      6,116,000           ---      6,116,000
 
   Issuance of shares of
     common stock...............       17,500       1,000        120,000           ---        121,000
 
   Net income...................          ---         ---            ---       717,000        717,000
 
   Provision for income tax,
     credited to equity.........          ---         ---        508,000           ---        508,000
 
Balance at September 30, 1996...   10,488,114    $315,000    $67,000,000    $8,844,000    $76,159,000
                                   ==========    ========    ===========    ==========    ===========
</TABLE>

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

                                       17
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


NOTE 1.  BASIS OF PRESENTATION

  The unaudited, consolidated financial statements as of September 30, 1996, and
for the three and nine-month periods ended September 30, 1996 and 1995, 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,
1995.  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
September 30, 1996, and results of operations and cash flows for the three and
nine-month periods ended September 30, 1996 and 1995.

  The Company has reclassified certain 1995 quarterly information to conform
with the 1996 presentation.


NOTE 2.  PENSKE MOTORSPORTS, INC.

  In March 1996, Penske Motorsports, Inc. ("PMI") effected a recapitalization
resulting in PMI ownership of the outstanding shares of Michigan International
Speedway, Inc., Pennsylvania International Raceway, Inc., The California
Speedway Corporation ("TCS"), Motorsports International Corp., Competition Tire
West, Inc. and Competition Tire South, Inc. Subsequent to the recapitalization,
PMI completed an initial public offering ("IPO") by issuing 3,737,500 shares of
common stock at a price to the public of $24 per share. The proceeds to PMI,
after underwriting discounts and commissions and other offering expenses, were
approximately $83.1 million. As a result of the IPO, the Company recorded,
during the second quarter of 1996, an increase in its equity investment in PMI
of $6,513,000 and corresponding increases in deferred income taxes and capital
in excess of par value of $397,000 and $6,116,000, respectively.

  As an additional result of the IPO, the Company began recording it's share of
net income in the earnings of PMI effective April 1, 1996. Due to the
concentration of motor sport 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 events in the first and fourth quarters at it existing
facilities (including TCS). 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.

  Subsequent to the end of the third quarter, the Company formally agreed to
sell approximately 54 acres (net) of the Mill Site Property, known as the
Speedway Business Park, to PMI for $5.0 million in cash and approximately $8.35
million in PMI stock or approximately 254,300 shares at $32.84/share. The
transaction will close during December, 1996 and will result in a gain of
approximately $6.7 million. Once this transaction is completed, the Company's
interest in PMI will increase to approximately 12.2%.

                                       18
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


NOTE 3.  WATER RESOURCE REVENUE

  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
102-year take-or-pay lease (the "Cucamonga Lease"). 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 the Lease Rate increased by at least 2.7% or by 5.1% or greater if the
Cucamonga Lease is interpreted as the Company asserts to include all the changed
rates and items implemented by Metropolitan Water District of Southern
California ("MWD"), as of July 1, 1995. Cucamonga continues to pay under the
terms of the Cucamonga Lease, but at the 2.7% rate increase as opposed to the
higher 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 under the lease with Cucamonga, 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 September 30, 1996 is approximately $550,000.


NOTE 4.  COMMITMENTS AND CONTINGENCIES

ENVIRONMENTAL CONTINGENCIES

  The Company currently estimates that as of September 30, 1996, its remediation
costs for the balance of its land will be between $13,000,000 and $23,000,000,
depending upon which approved remediation alternatives are eventually selected.
The Company anticipates recovery of these costs through redevelopment of the
property, primarily in connection with specific redevelopment projects or joint
ventures.  The West End and Valley Boulevard Properties do not have any known
material environmental problems and are not subject to the 1988 Consent Order
with the California Environmental Protection Agency, Department of Toxic
Substances Control ("DTSC").  Although extensive environmental investigations
have been conducted on the site and are ongoing, there can be no assurance that
the actual amount of environmental remediation expenditures will not
substantially exceed those currently anticipated or that additional areas of
contamination may not be identified.

  Furthermore, while the Company has monitored certain groundwater wells in the
past, the DTSC requested and the Company will implement a supplemental
groundwater monitoring system. The Company has settled obligations of
groundwater contamination with the California Regional Water Quality Control
Board. The settlement required a $1,500,000 cash payment by the Company which
was made in February, 1994, and the contribution of 1,000 acre feet of water
annually for 25 years to a water quality project. These water rights are
unrelated to those leased to Cucamonga County Water District. In 1995, the
Company contributed 18,000 acre feet of its water in storage thus satisfying the
first 18 years of its obligation. The Company remains contingently liable for
any impacts the groundwater plume may have on water wells owned by third
parties. Recently the City of Ontario, California commenced litigation against
the Company alleging that the Company has contaminated one of its municipal
wells. The Company disputes the allegation of the City of Ontario and believes
sufficient amounts have been accrued for this contingency.

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<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


                                    PART II


ITEM 1.  LEGAL PROCEEDINGS

  As discussed in the Company's Form 10-K Report for 1995 and its 1996 first and
second quarter Form 10-Q Report, 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 have been no
material developments in any legal proceeding except as noted below and as
discussed in the "Introduction - Business Update" section of this Form 10-Q
Report.

CITY OF ONTARIO LITIGATION

  In February, 1996, the City of Ontario, California served on the Company a
complaint filed in San Bernardino County Superior Court (City of Ontario v.
Kaiser Ventures Inc., et al.; Case No. RCV 17334).  In sum, the complaint
alleges there is a plume or plumes containing organic carbon, dissolved solids
and mercury originating from the Company's Mill Site Property due to activities
of KSC, and/or a former tenant of the Mill Site Property, that have impacted one
of the City of Ontario's water wells.  Ontario seeks reimbursement for remedial
costs, replacement of the allegedly impacted well and replacement or
refurbishment of related facilities.

  The Company challenged Ontario's ability to bring this litigation given the
KSC bankruptcy and the discharge granted to the Company.  In April, 1996,
Ontario brought a declaratory judgment action in the U.S. District Court for the
District of Colorado in Bankruptcy ("the U.S. Bankruptcy Court") against the
Company, (City of Ontario v. Kaiser Ventures Inc., Adversary Proceeding No. 96-
1215 MSK).  In the U.S. Bankruptcy Court action, Ontario in effect sought a
determination that the matters and damages alleged in its California lawsuit
were not discharged as a part of the KSC bankruptcy proceedings.

  Kaiser and the City have reached a settlement concerning the matter before the
U.S. Bankruptcy Court which settlement was approved by the U.S. Bankruptcy Court
in October.  Under the terms of the settlement, Kaiser has agreed to waive its
bankruptcy-related defenses to the City's prosecution of claims for groundwater
contamination caused by mercury or other priority pollutants.  In return, the
City agrees to dismiss the California litigation as to all claims related to
total dissolved solids, total dissolved carbons and sulfates, and to be bound
by the 1993 Settlement Agreement between Kaiser and the California Regional
Water Quality Control Board.  It is anticipated that the City will file a
revised complaint against the Company by year end.


ITEM 2.  CHANGES IN SECURITIES

         None.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         Not applicable.

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<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


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
             October 8, 1996, among the Company and The California Speedway
             Corporation and Penske Motorsports, Inc.

             Exhibit 27 - Financial Data Schedule for 3rd quarter 10-Q.

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

             None.



                                  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:  November 13, 1996              /s/ James F. Verhey
                                       ----------------------------
                                       James F. Verhey
                                       Principal Financial Officer

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