<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 June 30, 1998           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 July 31, 1998, the Company had 10,672,815 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..............      7
 
  Item 2.         FINANCIAL STATEMENTS.............................     16
 
                  CONSOLIDATED BALANCE SHEETS......................     16
 
                  CONSOLIDATED STATEMENTS OF OPERATIONS............     18
 
                  CONSOLIDATED STATEMENTS OF CASH FLOWS............     19
 
                  CONSOLIDATED STATEMENT OF CHANGES IN
                  STOCKHOLDERS' EQUITY.............................     20
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......     21
 
PART II
 
  Item 1.         LEGAL PROCEEDINGS................................     22
 
  Item 2.         CHANGES IN SECURITIES............................     23
 
  Item 3.         DEFAULTS UPON SENIOR SECURITIES..................     23
 
  Item 4.         SUBMISSION OF MATTERS TO VOTE OF SECURITY 
                  HOLDERS..........................................     23
 
  Item 5.         OTHER INFORMATION................................     24
 
  Item 6.         EXHIBITS AND REPORTS ON FORM 8-K.................     24
 

SIGNATURES.........................................................     25


                        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, 1997 (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.

                                       i
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                     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; 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; or the failure to obtain any required approval or permit for the
proposed Eagle Mountain landfill project or development of the Company's Mill
Site real estate.  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.

                             ADDITIONAL INFORMATION

  A reader of this Form 10-Q Report is strongly encouraged to read the entire
report, together with the Company's 1997 Form 10-K Report and its Form 10-Q
Report for the period ended March 31, 1998 for background information and a
complete understanding as to material developments concerning the Company.


                                  INTRODUCTION
                                        
BUSINESS UPDATE

General

  Kaiser Ventures Inc. ("Kaiser" or the "Company") is an asset development
company pursuing project opportunities and investments in 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 11.46% 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 74%
interest in Mine Reclamation Corporation ("MRC"), the developer of the Eagle
Mountain Landfill Project (the "Landfill Project"); (iv) a 50% joint venture
interest in the West Valley MRF ("WVMRF"), a transfer station and recycling
facility located on land acquired from the Company; (v) approximately 629 acres
of the former Kaiser Steel Corporation ("KSC") steel mill site (the "Mill Site
Property"); and (vi) 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 

                                       1
<PAGE>

                     KAISER VENTURES INC. AND SUBSIDIARIES

 
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 redevelopment of industrial and commercial parcels of
land near TCS and the WVMRF.

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").  Currently, the Company's pro rata interest in
unclaimed water raises its effective interest in Fontana Union to 57.33%.  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").

  On July 1, 1995, MWD implemented changed rates and a new rate structure.  As a
result of these changes, the Company asserted that all the changed rates and
items implemented by MWD, which must be paid in order to receive untreated, non-
interruptible water from MWD, are to be included in the calculation of the MWD
rate payable under the terms of the Cucamonga Lease.  Cucamonga disputed the
Company's interpretation of the Cucamonga Lease.  Alternatively, the Company
asserted that the MWD rate as defined in the Cucamonga Lease had been
discontinued, requiring the parties to negotiate a new lease rate in accordance
with the terms of the Cucamonga Lease.  Because the Company and Cucamonga were
unable to resolve this dispute, in 1996 the Company instituted litigation
against Cucamonga in San Bernardino County Superior Court.  After a five-day
trial held in March 1998, the Court concluded that the rate on which the
Cucamonga Lease had been based was discontinued effective July 1, 1995.  The
Court's written Statement of Decision confirming its oral rulings announced from
the bench in March was released on June 16, 1998.  Significantly, in the process
of preparing and issuing its Statement of Decision, the Court rejected all of
the objections raised by Cucamonga and confirmed the Company's understanding of
the Court's rulings in the case.  Therefore, the terms of the Cucamonga Lease
require the parties to negotiate, in good faith, a new substitute rate.  If the
parties are unable to agree on a substitute rate, the matter is referred to
arbitration.  There is no specified time period in which the new substitute rate
must be established. Since the Court's Statement of Decision was not issued
until mid-June, formal negotiations did not take place with Cucamonga on the new
substitute rate during the second quarter.  However, preliminary steps to the
negotiation process are currently being undertaken.  The Company anticipates
that negotiations with Cucamonga will begin in the third quarter of 1998.  There
is no guarantee that such negotiations will be successful and that the matter
will not ultimately need to be resolved in arbitration.

  During the first quarter, MWD announced only minimal increases, if any, in its
various water rates for 1998.  In addition, effective July 1, 1998, Chino Basin
Municipal Water District (now called Inland Empire Utilities Agency) increased
its administrative charge by $2.25 per acre foot to $5.00 per acre foot.
Cucamonga has not disputed and has paid to the Company the administrative charge
of Chino Basin Municipal Water District as part of the rate payable pursuant to
the Cucamonga Lease.

  During the first quarter, the Company, through its wholly-owned subsidiary
Fontana Water Resources, Inc., initiated litigation under the California
Environmental Quality Act against San Bernardino County and various land owners
in connection with the proposed expansion of the Mid-Valley Sanitary Landfill
owned by San Bernardino County.  The Company believes the environmental impact
report prepared and certified for the proposed landfill expansion project is
deficient.  In summary, the Company is primarily concerned about water quality
and quantity issues.  San Bernardino County has 

                                       2
<PAGE>

                     KAISER VENTURES INC. AND SUBSIDIARIES

 
acknowledged the issues raised by the Company and others and has also publicly
acknowledged that the landfill is a source of contamination to groundwater. To
date, the Company has not experienced any reduction in revenues pursuant to the
Cucamonga Lease as a result of this contamination. Settlement negotiations have
commenced but there is no assurance that there will be a satisfactory settlement
of the litigation. The case is currently scheduled to be heard in San Bernardino
County Superior Court in November 1998.

Investment in Penske Motorsports, Inc.

  The Company owns 1,627,923 shares, or approximately 11.46% 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 ("MIS"), in Brooklyn, Michigan; (ii) The
California Speedway Corporation, which owns and operates TCS near Los Angeles,
California; (iii) Pennsylvania International Raceway, Inc. which owns and
operates the Nazareth Motor Speedway ("Nazareth") in Nazareth, Pennsylvania;
(iv) North Carolina Motor Speedway, Inc. which owns and operates the North
Carolina Motor Speedway ("NCMS") in Rockingham, North Carolina; (v) a forty-five
percent (45%) interest in Homestead-Miami, LLC, the operator of the Metro-Dade
Homestead Motorsports Complex: in Dade County, Florida; (vi) Motorsports
International Corp. ("MIC"), a motorsports apparel and memorabilia company; and
(vii) 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.

  For the second quarter of 1998, PMI announced gross revenues of $46.1 million
and a net profit of $10.9 million or $0.77 per share.  For the first six months
of the year, PMI announced net income of $9.2 million or $.65 per share.  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.  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."

  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 1998, as reported on the
NASDAQ National Market System.

<TABLE>
<CAPTION>
                  1998:                  Low           High
                                        -----         ------
                  <S>                   <C>           <C>
                  First Quarter         $24.75        $32.00
                  Second Quarter        $28.75        $33.88
</TABLE>

  On July 31, 1998, the reported closing price of PMI's common stock was $27.63.

Property Redevelopment

  Mill Site Redevelopment Plan.  After completion of the real estate
transactions with PMI, and taking into account the land to be used for the
materials recovery facility and transfer station located on the Mill 

                                       3
<PAGE>

                     KAISER VENTURES INC. AND SUBSIDIARIES

 
Site Property ("West Valley MRF"), the Company now owns approximately 629 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
500 useable acres available for development. Following is a summary of the
progress of the Company's redevelopment plans during the second quarter.

  Except as noted below, the balance of the Mill Site Property requires various
entitlements and permits from San Bernardino County prior to redevelopment.  The
first formal step in the entitlement and permitting process was commenced in the
second quarter of 1997 when the Company filed an application for a Specific Plan
with San Bernardino County for all of the Mill Site Property except for:  (i)
approximately 26 acres within the City of Rancho Cucamonga; (ii) approximately
135 acres constituting the East Slag Pile property; (iii) the remaining NAPA Lot
of approximately 15 acres (already permitted); and (iv) the balance of the Mill
Site reserved for possible expansion of the West Valley MRF, approximately 5
acres (already permitted).  The property being entitled and permitted which
totals, approximately 448 acres (net), is referred to as the "Kaiser Commerce
Center."

  The Specific Plan application identified a wide variety of potential uses for
the Kaiser Commerce Center.  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 within the Kaiser Commerce Center
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.  The Company is actively
pursuing lessees and purchasers of the property and has received numerous
inquiries from potential purchasers.

  Due to additional time spent preparing and reviewing various technical studies
in connection with the preparation of the required environmental impact report
for the Kaiser Commerce Center, the Company now anticipates that the entitlement
and permitting process should be completed in late 1998 or early 1999.  In
addition, the Company continues to evaluate and undertake the required
environmental remediation of portions of the Mill Site Property.

  In anticipation of the redevelopment the Mill Site Property, physical
demolition of one of the two large remaining buildings on the Mill Site
Property, except for the building's slab foundation, was completed in the second
quarter.  The other remaining major building, known as the Mill Warehouse, still
requires demolition prior to redevelopment of the Kaiser Commerce Center.  In
addition, the Company continues to terminate leases with tenants at the Mill
Site Property in anticipation of the redevelopment of the property.  It is
anticipated that virtually all tenants will be off the Mill Site Property no
later than the end of the third quarter, 1998.

  Separately, and in addition to the permitting and entitlement process with the
County, the Company continues to process approvals through the California
Transportation Department 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.

  As noted in previous reports filed with the Securities and Exchange
Commission, significant capital funds will be required to implement the
infrastructure and access improvements.  Consistent with the Company's overall
development strategy, the Company intends to minimize its capital investments
for these improvements by seeking public or private financing sources; by
structuring joint ventures and leases; or by contributing portions of the land
for an ownership interest in operating companies seeking 

                                       4
<PAGE>

                     KAISER VENTURES INC. AND SUBSIDIARIES

 
to develop the land. In this regard, Congress allocated approximately $1.5
million in the recent Federal highway and transportation legislation that became
law in June 1998 toward the costs of the planned improvements to the Etiwanda
and I-10 Freeway interchange. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for additional information.

Waste Management

West Valley Materials Recovery Facility

  The Company, through a wholly-owned subsidiary, and Burrtec Waste Industries,
Inc., through its wholly-owned subsidiary, each own a fifty percent (50%)
interest in West Valley MRF, LLC, a limited liability Company that owns the West
Valley MRF.  Phase 1 of the West Valley MRF, which includes a 62,000 square foot
building, sorting equipment, and related facilities for waste transfer and
recycling services, was constructed and equipped, in the last half of 1997.  It
became operational on a limited basis in late October 1997 and became fully
operational in January 1998.  The West Valley MRF currently receives and
processes approximately 800 to 1,000 tons per day of non-hazardous commercial
and municipal solid waste.

  In February 1998, San Bernardino County asserted that the West Valley MRF's
current operations are in violation of the MRF's conditional use permit because
much of the waste processed at the West Valley MRF is deposited into landfills
outside San Bernardino County.  One of the purported conditions in the West
Valley MRF's conditional use permit states that the residue from the MRF is to
be deposited into San Bernardino County landfills until November 23, 1998.  West
Valley MRF, LLC believes that this purported condition is invalid and not
enforceable and communicated its position to San Bernardino County.  San
Bernardino County has not responded to the West Valley MRF LLC's position, but
did initiate discussions with the West Valley MRF, LLC to determine if there can
be a mutually acceptable arrangement pursuant to which the West Valley MRF can
be integrated into the County's landfill system without adversely impacting the
economics of the West Valley MRF.  Such discussions are currently ongoing but
sporadic.  Litigation could result if these negotiations do not reach a mutually
acceptable conclusion.  In the unlikely event that San Bernardino pursues its
assertion of violation and their assertion is upheld, the violation could lead
to the revocation of the conditional use permit under which the West Valley MRF
operates.

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.  As a result of a series of private
placements, the Company's interest in MRC is now approximately 74%.

  EIR Litigation, Final Decision and Related Matters.  After the September 1997,
approval of the new environmental impact report for the Landfill Project
("EIR"), the litigation with respect to the EIR resumed.  On February 17, 1998,
Judge Judith McConnell of the San Diego County Superior Court issued her final
ruling with respect to the litigation before her on the new EIR.  Judge
McConnell reversed herself with respect to several of the items she initially
had determined to be defective in her December 31, 1997 tentative ruling, but
found that the new EIR was still inadequate in evaluating the Landfill Projects
impacts in two general areas:  (i) the threatened desert tortoise; and (ii)
impacts to 

                                       5
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                     KAISER VENTURES INC. AND SUBSIDIARIES

 
Joshua Tree National Park. Specifically, according to Judge McConnell, there was
no substantial evidence in the record to support the new EIR's conclusion that
the impact to the desert tortoise would be mitigated to a level below
significance. In particular the Court concluded that there was a lack of
required tortoise-proof fencing and cited the Desert Tortoise Recovery Plan that
recommends no new landfills be constructed in desert tortoise habitat. With
respect to Joshua Tree National Park, the Court found that the EIR improperly
split its analyses of the total "wilderness experience" into two parts:
wilderness resources and the wilderness experience. The Court also found that
there was no support for the conclusion that "non-wilderness" areas within the
Park should be treated any differently from other areas within the Park. The
Court also expressed concerns about the effect of the night time lighting on the
Park resulting from the possible expansion of the Eagle Mountain Townsite and
also concluded that the EIR failed to analyze the impact to biological resources
of the Park as a complete and interrelated system. In May 1998, the Court issued
its final order in the case.  As discussed below, this matter has been appealed.

  In connection with the EIR litigation, project opponents filed a motion with
the San Diego Superior Court in the second quarter seeking the award of
approximately $450,000 in attorneys' fees jointly against MRC, the Company and
Riverside County. On August 7, 1998, the Court awarded project opponents
approximately $238,000 in attorneys' fees. Payment of the awarded attorneys'
fees will be held in abeyance pending a decision in the appeal from the Superior
Court's decision. 

  In addition, landfill opponents are seeking to hold MRC and the Company in
contempt of court as a result of alleged violations of Judge McConnell's 1994
and 1998 orders.  The opponents seek the imposition of a fine of $1,000 for each
item undertaken since the issuance of Judge McConnell's order in 1994.  In
summary, the Company undertook maintenance activities in connection with its
private rail line, with such activities most recently being conducted in
anticipation of the forecasted El Nino weather impacts.  These maintenance
activities involved such items as cleaning out culverts, placing rip-rap around
culverts to prevent wash outs and weed abatement. Landfill opponents maintain
that such activities were undertaken in connection with the Landfill Project in
violation of Judge McConnell's orders that prohibit physical activities that are
a part of the Landfill Project.  While landfill opponents argue otherwise, the
Company believes it has done nothing in violation of Judge McConnell's orders
and that it has the right to maintain its property in the normal course of
business.  A hearing on the matter is currently set for September 3, 1998.

  Evaluation of Alternatives and Course of Action.  As a result of Judge
McConnell's final ruling, the Company and MRC evaluated their available
alternatives with respect to the Landfill Project.  These alternatives included,
but were not limited, to:  (i) appealing the Court's decision in whole or in
part; (ii) taking the actions believed necessary to correct the deficiencies the
Court found to exist in the EIR; (iii) postpone or terminate the Landfill
Project; or (iv) a combination of these or other alternatives.

  In summary, after an evaluation of the various alternatives, the Company and
MRC authorized in April 1998:  (i) the filing of an appeal of the San Diego
County Superior Court decision; (ii) continuing to pursue the Federal land
exchange; and (iii) a private placement of MRC common stock to existing MRC
shareholders of approximately $2.1 million.  An appeal has been filed by MRC and
the Company, with Riverside County joining in the appeal.  The opening brief in
the appeal is scheduled to be submitted by the end of August 1998, with all
briefing anticipated to be completed by year end. A decision in the case is
currently anticipated by the end of the second quarter of next year.  In
addition, the approved $2.1 million private placement was completed in the
second quarter with the Company purchasing approximately $1.6 million of the
offering.  The Company continues to evaluate alternatives with respect to the
Landfill Project including those outlined above.  It is anticipated that
additional financing for MRC will be required in the third quarter of this year.

                                       6
<PAGE>

                     KAISER VENTURES INC. AND SUBSIDIARIES

 
  Risks.  As is discussed in more detail in the Company's 1997 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 successful legal challenges that have occurred to
date and the controversies that generally surround landfill projects, future
legal challenges are likely.  There is no guarantee that the Landfill Project
will be successfully permitted and ultimately operational.


                                     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 asset development
company pursuing project opportunities and investments in 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 11.46% 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 74%
interest in Mine Reclamation Corporation ("MRC"), the developer of the Eagle
Mountain Landfill Project (the "Landfill Project"); (iv) a 50% joint venture
interest in the West Valley MRF ("WVMRF"), a transfer station and recycling
facility located on land acquired from the Company; (v) approximately 629 acres
of the former Kaiser Steel Corporation ("KSC") steel mill site (the "Mill Site
Property"); and (vi) 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
redevelopment of industrial and commercial parcels of land near TCS and the
WVMRF.

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, including water and waste water treatment revenues: housing
rental income, aggregate and 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 (i.e., PMI) and, starting in 1998, joint
ventures (i.e., West Valley MRF) 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 

                                       7
<PAGE>

                     KAISER VENTURES INC. AND SUBSIDIARIES

 
arrangements, royalty revenues from the sale of slag to outside contractors,
royalty revenues from the sale of recyclable revert materials and other
miscellaneous short-term activities.

Summary of Revenue Sources

  Due to the developmental 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.  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 June 30, 1998 and 1997

  An analysis of the significant components of the Company's resource revenues
for the quarters ended June 30, 1998 and 1997 follows:

<TABLE>
<CAPTION>
                                           1998         1997     % Inc. (Dec)
                                        ----------   ---------   ------------
   <S>                                  <C>          <C>         <C>
   Ongoing Operations                              
    Water resource....................  $1,169,000   $1,164,000        --
    Property redevelopment............     332,000      389,000       (15%)
    Income (loss) from equity method                             
     Investments......................   1,261,000    1,250,000         1%
                                        ----------   ----------       ---
                                                                 
        Total ongoing operations......   2,762,000    2,803,000        (1%)
                                        ----------   ----------       ---
                                                                 
   Interim Activities                                            
    Lease, service and other..........     304,000      418,000       (27%)
                                        ----------   ----------       ---
                                                                 
        Total resource revenues.......  $3,066,000   $3,221,000        (5%)
                                        ==========   ==========       ===
                                                     
   Revenues as a Percentage of Total                 
    Resource Revenues:                               
    Ongoing operations................          90%          87%
    Interim activities................          10%          13%
                                        ----------   ----------
                                                     
        Total resource revenues.......         100%         100%
                                        ==========   ==========
</TABLE>

  Resource Revenues.  Total resource revenues for the second quarter of 1998
were $3,066,000, compared to $3,221,000 for 1997.  Revenues from ongoing
operations decreased 1% during the quarter to $2,762,000 from $2,803,000 in
1997, and revenues from interim activities decreased 27% to $304,000 from
$418,000 in 1997.  Revenues from ongoing operations as a percentage of total
revenues increased to 90% in 1998 from 87% in 1997.

                                       8
<PAGE>

                     KAISER VENTURES INC. AND SUBSIDIARIES

 
  Ongoing Operations.  Water lease revenues under the Company's 102-year take-
or-pay lease with Cucamonga were $1,169,000 during the first quarter of 1998
compared to $1,164,000 for 1997.  The slight increase in water revenues during
the quarter primarily reflects:  (a) an increase, as of July 1, 1997, in the
effective non-interruptible untreated water rate being paid by Cucamonga to
$351.75 from $351.00 per acre foot; and (b) an increase, effective January 1,
1998, in the Company's effective interest in Fontana Union to 57.33% from
55.66%, due to a decline in the number of Fontana Union shareholders taking
water.

  During the first six months in 1998, the Company continued its litigation with
Cucamonga in San Bernardino County Superior Court to resolve a dispute over the
interpretation of the Cucamonga Lease.  The dispute centers on the Company's
assertion that either the MWD Rate in the Cucamonga Lease was discontinued on
July 1, 1995, or that the Lease Rate should be interpreted to include all the
changed rates and items implemented by Metropolitan Water District of Southern
California ("MWD") since July 1, 1995. A five-day trial on the matter was held
in March 1998.  After the trial, the Court ruled, in favor of the Company, that
the rate on which the Cucamonga Lease had been based was discontinued effective
July 1, 1995.  Therefore the terms of the Cucamonga Lease require the parties to
in good faith negotiate a new substitute rate.  If the parties are unable to
agree on a substitute rate, the matter in effect goes to arbitration.  There is
no specified time period in which the new MWD Lease rate must be established.
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 June
30, 1998, is approximately $1,450,000.

  Property redevelopment revenues were $332,000 for the second quarter of 1998
compared to $389,000 for 1997.  The 15% decrease from 1997 is primarily a result
of lower tenant revenue and aggregate sales at Eagle Mountain ($40,000) and
decreases in iron ore sales from the California Mines ($13,000).

  Income from equity method investments was $1,261,000 for the second quarter of
1998 compared to $1,250,000 for 1997. The increase of $11,000 reflects stable
earnings at PMI, plus equity income from the WVMRF which opened in January of
this year ($10,000).

  Interim Activities.  Revenues from interim activities for the second quarter
of 1998 were $304,000 compared to $418,000 for 1997.  The 27% decrease in
revenues from interim activities in 1998 is primarily attributable to:  (a)
lower revenues from tenant rental and services plus scrap and metallics sales at
the Mill Site due to the continuing real estate re-development activities there
($98,000); and (b) lower tenant service and miscellaneous revenue at Eagle
Mountain ($16,000).

  Resource Operating Costs.  Resource operating costs are those costs directly
related to the resource revenue sources.  Total resource operating costs for the
second quarter of 1998 decreased to $850,000 from $874,000 in 1997.  Operations
and maintenance costs for 1998 were $317,000 compared to $326,000 for 1997.  The
3% decrease in 1998 operations and maintenance costs was primarily due to lower
maintenance and supplies costs for buildings and equipment ($9,000).
Administrative support expenses for the second quarter of 1998 decreased 3% to
$533,000 from $548,000 for 1997.  This decrease was primarily due to lower
employee compensation expenses ($33,000) and lower insurance expense ($30,000)
being partially offset by higher depreciation expense relating to the recently
completed sewer plant improvements at the Mill Site ($25,000) and higher legal
expenses at both Eagle Mountain and the Mill Site ($20,000).

                                       9
<PAGE>

                     KAISER VENTURES INC. AND SUBSIDIARIES

 
  Corporate General and Administrative Expenses.  Corporate general and
administrative expenses for the second quarter of 1998 increased 4% to
$1,103,000 from $1,059,000 for 1997.  The increase is primarily due to higher
professional and outside consulting expenses ($98,000) being partially offset by
lower insurance, depreciation and office expenses ($52,000).

  Net Interest Expense.  Net interest expense for the second quarter of 1998 was
$259,000 compared to $237,000 in 1997.  The increase was due primarily to:
higher interest expense ($43,000) associated with $2,750,000 in additional long
term debt ($7,750,000 in additional borrowings Company's Union Bank of
California ("Union Bank") revolving-to-term credit facility less the payoff of
the Lusk debt ($5,000,000) and lower capitalized interest expense relating to
the development of the Mill Site ($58,000) being partially offset by a decrease
in the amortization of deferred loan fees ($71,000).

  Pre-Tax Loss and Income Tax Provision.  The Company recorded income before
income tax provision of $854,000 for the second quarter of 1998, a 19% decrease
from $1,051,000 recorded in 1997.  An income tax provision of $363,000 was
recorded in the second quarter of 1998 as compared with a $447,000 tax provision
in 1997.  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.  For second quarter of 1998, the Company reported net income of
$491,000, or $.05 per share, a 19% decrease from the net income of $604,000, or
$.06 per share, reported for 1997.

Analysis of Results for the Six Months Ended June 30, 1998 and 1997

  An analysis of the significant components of the Company's resource revenues
for the first six months ended June 30, 1998 and 1997 follows:

<TABLE>
<CAPTION>
                                           1998         1997     % Inc. (Dec)
                                        ----------   ---------   ------------
   <S>                                  <C>          <C>         <C>
   Ongoing Operations
    Water resource....................  $2,338,000   $2,297,000        2%
    Property redevelopment............     677,000      731,000       (7%)
    Income (loss) from equity method                             
     Investments......................   1,113,000    1,227,000       (9%)
                                        ----------   ----------      ---
                                                                 
        Total ongoing operations......   4,128,000    4,255,000       (3%)
                                        ----------   ----------      ---
                                                                 
   Interim Activities                                            
    Lease, service and other..........     611,000      803,000      (24%)
                                        ----------   ----------      ---
                                                                 
        Total resource revenues.......  $4,739,000   $5,058,000       (6%)
                                        ==========   ==========      ===
                                                     
   Revenues as a Percentage of Total                 
    Resource Revenues:                               
    Ongoing operations................          87%          84%
    Interim activities................          13%          16%
                                        ----------   ----------
                                                     
        Total resource revenues.......         100%         100%
                                        ==========   ==========
</TABLE>

  Resource Revenues.  Total resource revenues for the first six months of 1998
were $4,739,000, compared to $5,058,000 for 1997.  Revenues from ongoing
operations decreased 3% during the six months to $4,128,000 from $4,255,000 in
1997, and revenues from interim activities decreased 24% to 

                                      10
<PAGE>

                     KAISER VENTURES INC. AND SUBSIDIARIES

 
$611,000 from $803,000 in 1997. Revenues from ongoing operations as a percentage
of total revenues increased to 87% in 1998 from 84% in 1997.

  Ongoing Operations.  Water lease revenues under the Company's 102-year take-
or-pay lease with Cucamonga were $2,338,000 during the first six months of 1998
compared to $2,297,000 for 1997.  The 2% increase in water revenues during the
quarter primarily reflects:  (a) an increase, as of July 1, 1997, in the
effective non-interruptible untreated water rate being paid by Cucamonga to
$351.75 from $351.00 per acre foot; and (b) an increase, effective January 1,
1998, in the Company's effective interest in Fontana Union to 57.33% from
55.66%, due to a decline in the number of Fontana Union shareholders taking
water.

  During the first six months in 1998, the Company continued its litigation with
Cucamonga in San Bernardino County Superior Court to resolve a dispute over the
interpretation of the Cucamonga Lease.  The dispute centers on the Company's
assertion that either the MWD Rate in the Cucamonga Lease was discontinued on
July 1, 1995 or that the Lease Rate should be interpreted to include all the
changed rates and items implemented by Metropolitan Water District of Southern
California ("MWD") since July 1, 1995.  A five-day trial on the matter was held
in March, 1998.  After the trial, the Court ruled, in favor of the Company, that
the rate on which the Cucamonga Lease had been based was discontinued effective
July 1, 1995.  Therefore the terms of the Cucamonga Lease require the parties to
in good faith negotiate a new substitute rate.  If the parties are unable to
agree on a substitute rate, the matter in effect goes to arbitration.  There is
no specified time period in which the new MWD Lease rate must be established.
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 June
30, 1998, is approximately $1,450,000.

  Property redevelopment revenues were $677,000 for the first six months of 1998
compared to $731,000 for 1997.  The 7% decrease from 1997 is primarily a result
of lower aggregate sales and tenant revenue at Eagle Mountain ($44,000) and
decreases in iron ore sales from the California Mines ($27,000) being partially
offset by an increase in revenue from the sewer treatment plant ($21,000).

  Income from equity method investments was $1,113,000 for the first six months
of 1998 compared to $1,227,000 for 1997.  The 9% decrease is primarily due to
the elimination of the management fee which the Company received from PMI
through March 31, 1997, ($162,000) partially offset by a increase in the
reported income of PMI ($8,000) plus equity income from the WVMRF which opened
in January of this year ($40,000).

  Interim Activities.  Revenues from interim activities for the first six months
of 1998 were $611,000 compared to $803,000 for 1997.  The 24% decrease in
revenues from interim activities in 1998 is primarily attributable to:  (a)
lower revenues from tenant rental and services, scrap and metallics sales at the
Mill Site due to the continuing real estate re-development activities there
($161,000); and (b) lower tenant service and miscellaneous revenue at Eagle
Mountain ($33,000).

  Resource Operating Costs.  Resource operating costs are those costs directly
related to the resource revenue sources.  Total resource operating costs for the
first six months of 1998 increased to $1,884,000 from $1,707,000 in 1997.
Operations and maintenance costs for 1998 were $651,000 compared to $631,000 for
1997.  The 3% increase in 1998 operations and maintenance costs was primarily
due to higher maintenance and supplies costs for buildings and equipment
($22,000).  Administrative support expenses for the first six months of 1998
increased 15% to $1,233,000 from $1,076,000 for 1997.  This 

                                      11
<PAGE>

                     KAISER VENTURES INC. AND SUBSIDIARIES

 
increase was primarily due to higher outside legal costs, principally associated
with the CCWD lease rate dispute ($187,000), and higher depreciation expense
mainly related to the recently completed sewer plant improvements at the Mill
Site ($54,000) being partially offset by lower insurance expense ($57,000) and
lower employee compensation expenses ($33,000).

  Corporate General and Administrative Expenses.  Corporate general and
administrative expenses for the first six months of 1998 decreased 3% to
$2,113,000 from $2,175,000 for 1997.  The decrease is primarily due to lower
payroll and related expenses due to the retirement, at the end of 1997, of the
Company's president and the distribution of his duties amongst the remaining
officers ($39,000) plus lower insurance, depreciation and office expenses
($47,000) being partially offset by higher professional and outside consulting
expenses ($29,000).

  Net Interest Expense.  Net interest expense for the first six months of 1998
was $474,000 compared to $420,000 in 1997.  The increase was due primarily to:
higher interest expense ($69,000) associated with the $2,750,000 in additional
long term debt ($7,750,000 in additional borrowings Company's Union Bank
revolving-to-term credit facility less the payoff of the Lusk debt ($5,000,000);
and lower capitalized interest expense relating to the development of the Mill
Site ($180,000); being partially offset by a decrease in the amortization of
deferred loan fees ($198,000).

  Pre-Tax Loss and Income Tax Provision.  The Company recorded income before
income tax provision of $268,000 for the first six months of 1998, a 65%
decrease from the $756,000 recorded in 1997.  An income tax provision of
$116,000 was recorded in the first six months of 1998 as compared with the
$326,000 recorded in 1997.

  Net Income.  For first six months of 1998, the Company reported net income of
$152,000, or $.01 per share, a 65% decrease from the net income of $430,000, or
$.04 per share, reported for 1997.

                         Section 2:  Financial Position
                                        
  Cash, Cash Equivalents and Short-Term Investments.  The Company defines cash
equivalents as highly liquid debt instruments with original maturities of 90
days or less.  Cash and cash equivalents decreased $488,000 to $3,842,000 at
June 30, 1998 from $4,330,000 at December 31, 1997.  Included in cash and cash
equivalents is $2,327,000 and $1,984,000 held solely for the benefit of MRC at
June 30, 1998 and December 31, 1997, respectively.  The decrease in cash and
cash equivalents is primarily due to:  (a) capital expenditures ($2,438,000);
(b) environmental remediation costs ($1,537,000); (c) payoff of the Lusk debt
($5,000,000); and (d) a decrease in accounts payable and accrued liabilities
($93,000) being mostly offset by:  (a) net collections of accounts and notes
receivable ($462,000); (b) borrowings under the Company's Union Bank revolving-
to-term credit facility ($7,500,000); (c) equity funding by the MRC minority
partners ($506,000); and (d) the issuance of common stock ($442,000).

  Working Capital.  During the first six months of 1998, current assets
decreased $1,021,000 to $6,258,000 while current liabilities decreased $93,000
to $11,871,000.  The decrease in current assets resulted from the $488,000
decrease in cash and cash equivalents plus a $223,000 decline in accounts
receivable, and the collection of $310,000 on the note receivable from the Mill
Site land sale to McLeod Properties.  The decrease in current liabilities
resulted primarily from the payment of yearend accruals.  Included in current
liabilities as of June 30, 1998 is $1,145,000 in accounts payable and accrued
liabilities relating to MRC.  As a result, working capital decreased during the
first six months of 1998 by $928,000 to a negative $5,613,000 at June 30, 1998.

  Real Estate.  Real Estate increased $240,000 during 1998 due to continue
redevelopment of the Mill Site properties.
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


  Investments.  There was a $1,113,000 increase in the Company's investments in
PMI and WVMRF during the first six months of 1998.  The increase is due to the
Company's recording of its equity share of PMI's and WVMRF's income of the first
six months of 1998 of $1,073,000 and $40,000, respectively.

  Other Assets.  The increase in other assets ($2,119,000) is primarily related
to:  (a) capitalized landfill permitting and development costs incurred by MRC
($2,198,000); partially offset by an increase in accumulated depreciation as of
June 30, 1998 ($221,000).

  Environmental Remediation.  As is discussed extensively in Part I, "Property
Redevelopment, Mill Site Environmental", 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 $18 million and $29
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 order to provide better information
regarding these future remediation and other environmental costs, the Company
has elected to restate its balance sheets to show as a separate liability rather
than, as previously, an offset to land, the amount of future environmental
related costs reflected in its financial statements.  The restatement reflects
the original $34.7 million remediation adjustment to land; 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 $24.6 million in remediation and other environmental
costs expended through June 30, 1998.  The Company's decision to restate its
balance sheet is based upon, among other things, the more extensive
investigation and remediation activities that have been pursued over the past
three years and the Company's ability to better estimate the probable range of
future remediation and other environmental costs.

  As of June 30, 1998, the total short-term and long-term environmental
liabilities including remediation reflected on the Company's balance sheet were
approximately $29.2 million, the high end of the probable range of future
remediation and other environmental costs, which declined from the $30.7 million
as of December 31, 1997.  The decrease is a result of the $1,536,000 in
remediation and other environmental costs incurred in the first six months of
1998 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 June 30, 1998, the Company had $11,750,000 in long-term
debt solely comprised of borrowings under the Company's $30,000,000 revolving-
to-term credit facility with Union Bank.  The Lusk debt, associated with the
purchase of West End and Valley Blvd properties ($5.1 million as of December 31,
1997), was paid-off with borrowings under the Union Bank revolving-to-term
credit facility at the end of the second quarter.

  Other Long-term Liabilities.  The $1,342,000 increase in other long-term
liabilities is primarily due to the reduction of the environmental remediation
liability as a result of $1,537,000 in environmental remediation undertaken
during the first quarter of 1998 being partially offset by an increase of
$111,000 in other long term liabilities.

                                      13
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


  Minority Interest and Other Liabilities.  As of June 30, 1998, the Company has
recorded $3,384,000 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.

  Impact of the Year 2000 Issue.  The Year 2000 Issue is the result of computer 
programs being written using two digits rather than four to define the 
applicable year.  Any computer programs that have date-sensitive software may 
recognize a date using "00" as the year 1900 rather than the year 2000.  This 
could result in a system failure or miscalculations causing disruptions of 
operations, including, among other things, a temporary inability to process 
transactions, send invoices, or engage in similar normal business activities.

  Based on a recent assessment, the Company determined that all of the software 
currently in use on its computer system will properly utilize dates beyond 
December 21, 1999.  The Company has determined that it has no exposure to 
contingencies related to the Year 2000 Issue for the services it has sold.

  The Company has initiated informal communications with all of its significant 
business associates to determine the extent to which the Company is vulnerable 
to those third parties' failure to remediate their own Year 2000 Issue.  The 
Company believes that the failure of its customers to convert their computer 
systems to be compliant with the Year 2000 Issue will not have a material effect
on the Company.

                          Section 3:  Business Outlook
                                        
  The statements contained in this Business Outlook are based upon current
operations and expectations.  In addition to the forward-looking statements and
information contained elsewhere in this 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 102-year take-or-pay lease with Cucamonga
and the 11.46% 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 addition, the Company continues to evaluate these
completed projects and investments in light of how to best provide maximum value
to its shareholders.

  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 nearly 8.6% per year during the past 25 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 significantly less than 5.0% per year for the next 2-4 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.  The ruling in favor of the Company should result
in the receipt of all or a portion of the $1,450,000 of lease payments in
dispute as of June 30, 1998, which the Company has fully reserved.

  In regard to the Company's 11.46% 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 will be the
continued success of TCS that is on land acquired from the Company.  The
continued success of TCS, coupled with the results of the other major racing
events scheduled for PMI's MIS, Nazareth, North Caroline and Homestead 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 approximately 448 acres (net) of the Company's Mill Site
Property and the re-permitting of the Eagle Mountain Landfill by MRC, the
Company's 74% owned subsidiary.  If it is successful in completing the
development of these 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 

                                      14
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


Mill Site Property that could materially impact the Company's future revenues
and net income from these projects.

  In regard to the redevelopment of approximately 448 acres (net) of the Mill
Site Property, the Company is currently undertaking efforts to obtain the
entitlement and permits necessary for a variety of possible commercial,
industrial and recreational uses.  These efforts, which will continue throughout
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 1998, up to approximately $6.1 million
for required environmental remediation and approximately $1.5 million for real
estate entitlement and improvement expenditures.  The $6.1 million to be spent
in 1998 for required environmental remediation is a component of the $18-29
million estimate to complete all remaining required remediation for the Mill
Site Property.  In addition, substantial capital expenditures beyond the $1.5
million projected for 1998 will be required to complete the necessary on-site
and off-site improvements for the redevelopment of remaining Mill Site property.

  Although neither the Company nor any subsidiary of the Company has any
obligation to invest funds in MRC, the Company has continued to make investments
in MRC.  Through a series of private placements with existing MRC shareholders,
from July 1995 through December 31, 1997, a total of $10.8 million has been
raised by MRC, with Kaiser contributing approximately $8.1 million of that
amount.  The Company has agreed to advance funds to MRC for at least the first
three-quarters of 1998.  The Company's initial 1998 advances, which constituted
a portion of the recently completed $2.1 million private placement totaled
approximately $1.6 million.  It is anticipated that the Company may invest
additional funds in MRC during the remainder of 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 $30,000,000 revolving-to-term credit
facility (less $4,850,000 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 1998, a total of approximately $8 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 sale 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 June 30, 1998, are estimated
to be approximately $113 million for federal purposes and $2.4 million for
California purposes.  The federal NOLs expire in varying amounts over a period
from year 2000 to 2010 while the California NOLs expire from 2000 through 2002.

  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.

                                      15
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


                          CONSOLIDATED BALANCE SHEETS
                                     as of
                                        
<TABLE>
<CAPTION>
                                                    June 30,       December 31,
                                                      1998             1997
                                                  ------------     ------------
                                                   (Unaudited)
<S>                                               <C>              <C>
ASSETS                                      
                                            
Current Assets                              
   Cash and cash equivalents..................    $  3,842,000     $  4,330,000
   Accounts receivable and other, net of    
    allowance for doubtful accounts of      
    $1,746,000 and $1,535,000, respectively...       2,316,000        2,539,000
   Note receivable............................         100,000          410,000
                                                  ------------     ------------
                                            
                                                     6,258,000        7,279,000
                                                  ------------     ------------
                                            
Investment in common stock of Penske        
 Motorsports, Inc.............................      44,954,000       43,881,000
                                                  ------------     ------------
                                            
Investment in Fontana Union Water Company.....      16,108,000       16,108,000
                                                  ------------     ------------
                                            
Investment in West Valley MRF.................       2,549,000        2,509,000
                                                  ------------     ------------
                                            
Real Estate                                 
   Land and improvements......................      15,621,000       15,621,000
   Real estate in development.................      40,334,000       40,094,000
                                                  ------------     ------------
                                            
                                                    55,955,000       55,715,000
                                                  ------------     ------------
                                            
Other Assets                                
   Note Receivable............................         789,000          860,000
   Landfill permitting and development........      11,805,000        9,607,000
   Buildings and equipment (net)..............       3,081,000        3,064,000
   Other assets...............................         217,000          242,000
                                                  ------------     ------------
                                            
                                                    15,892,000       13,773,000
                                                  ------------     ------------
                                            
Total Assets..................................    $141,716,000     $139,265,000
                                                  ============     ============
</TABLE>


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

                                      16
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


                          CONSOLIDATED BALANCE SHEETS
                                     as of
                                        

<TABLE>
<CAPTION>
                                                                June 30,        December 31,
                                                                  1998              1997
                                                              ------------      ------------
                                                               (Unaudited)
<S>                                                           <C>               <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current Liabilities
   Accounts payable.......................................    $  1,633,000      $  1,479,000
   Accrued liabilities....................................       4,184,000         4,311,000
   Current portion of long-term debt......................             ---           120,000
   Environmental remediation..............................       6,054,000         6,054,000
                                                              ------------      ------------
 
                                                                11,871,000        11,964,000
                                                              ------------      ------------
 
Long-term Liabilities
   Deferred gain on sale of real estate...................         656,000           656,000
   Accrued liabilities....................................       1,796,000         1,685,000
   Deferred tax liabilities...............................       2,223,000         2,223,000
   Long-term debt.........................................      11,750,000         8,982,000
   Environmental remediation..............................      23,136,000        24,673,000
                                                              ------------      ------------
 
                                                                39,561,000        38,219,000
                                                              ------------      ------------
 
Total Liabilities.........................................      51,432,000        50,183,000
                                                              ------------      ------------
 
Minority Interest.........................................       3,384,000         2,878,000
                                                              ------------      ------------
 
Commitments and Contingencies
 
Stockholders' Equity
   Common stock, par value $.03 per share, authorized
    13,333,333 shares; issued and outstanding
    10,693,557 and 10,591,240 respectively................         321,000           318,000
   Capital in excess of par value.........................      74,883,000        74,342,000
   Retained earnings since November 15, 1988..............      11,696,000        11,544,000
                                                              ------------      ------------
 
Total Stockholders' Equity................................      86,900,000        86,204,000
                                                              ------------      ------------
 
Total Liabilities and Stockholders' Equity................    $141,716,000      $139,265,000
                                                              ============      ============
</TABLE>


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

                                      17
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


                     CONSOLIDATED STATEMENTS OF OPERATIONS
                   for the Three and Six Months Ended June 30
                                  (Unaudited)
                                        
<TABLE>
<CAPTION>
                                                    Three Months Ended        Six Months Ended
                                                         June 30                  June 30
                                                 -----------------------   -----------------------
                                                    1998         1997         1998         1997
                                                 ----------   ----------   ----------   ----------
<S>                                              <C>          <C>          <C>          <C>
Resource Revenues                                               
 Ongoing Operations                                             
  Water resource...............................  $1,169,000   $1,164,000   $2,338,000   $2,297,000
  Property redevelopment.......................     332,000      389,000      677,000      731,000
  Income from equity method investments........   1,261,000    1,250,000    1,113,000    1,227,000
                                                 ----------   ----------   ----------   ----------
                                                                                         
   Total ongoing operations....................   2,762,000    2,803,000    4,128,000    4,255,000
                                                 ----------   ----------   ----------   ----------
                                                                                         
 Interim Activities                                                                      
  Lease, service and other.....................     304,000      418,000      611,000      803,000
                                                 ----------   ----------   ----------   ----------
                                                                                         
   Total resource revenues.....................   3,066,000    3,221,000    4,739,000    5,058,000
                                                 ----------   ----------   ----------   ----------
                                                                                         
Resource Operating Costs                                                                 
 Operations and maintenance....................     317,000      326,000      651,000      631,000
 Administrative support expenses...............     533,000      548,000    1,233,000    1,076,000
                                                 ----------   ----------   ----------   ----------
                                                                                         
   Total resource operating costs..............     850,000      874,000    1,884,000    1,707,000
                                                 ----------   ----------   ----------   ----------
                                                                                         
Income from Resources..........................   2,216,000    2,347,000    2,855,000    3,351,000
                                                                                         
 Corporate general and administrative expenses.   1,103,000    1,059,000    2,113,000    2,175,000
                                                 ----------   ----------   ----------   ----------
                                                                                         
Income from Operations.........................   1,113,000    1,288,000      742,000    1,176,000
                                                                                         
 Net Interest expense..........................     259,000      237,000      474,000      420,000
                                                 ----------   ----------   ----------   ----------
                                                                                         
Income before Income Tax Provision.............     854,000    1,051,000      268,000      756,000
                                                                                         
 Income tax provision                                                                    
  Currently payable............................       7,000       16,000       14,000       23,000
  Deferred tax expense credited to equity......     356,000      431,000      102,000      303,000
                                                 ----------   ----------   ----------   ----------
                                                                                         
Net Income.....................................  $  491,000   $  604,000   $  152,000   $  430,000
                                                 ==========   ==========   ==========   ==========
                                                                                         
Basic Earnings Per Share.......................  $      .05   $      .06   $      .01   $      .04
                                                 ==========   ==========   ==========   ==========
                                                                                         
Diluted Earnings Per Share.....................  $      .05   $      .06   $      .01   $      .04
                                                 ==========   ==========   ==========   ==========
                                                                                        
Basic Weighted Average Number of Shares                                                 
 Outstanding...................................  10,678,000   10,514,000   10,644,000   10,510,000
                                                                                        
Diluted Weighted Average Number of Shares                                               
 Outstanding...................................  10,852,000   10,762,000   10,828,000   10,747,000
</TABLE>


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

                                      18
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                        for the Six Months Ended June 30
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                         1998          1997    
                                                      -----------   ----------- 
<S>                                                   <C>           <C>         
Cash Flows from Operating Activities                                            
 Net income........................................   $   152,000   $   430,000 
 Equity income in Penske Motorsports, Inc and      
  West Valley MRF, LLC.............................    (1,113,000)   (1,065,000)
                                                                                
 Deferred tax expense..............................       102,000       303,000 
 Depreciation and amortization.....................       220,000       378,000 
 Allowance for doubtful accounts...................        (3,000)      353,000 
 Changes in assets:                                                             
   Receivables and other...........................       226,000      (736,000)
 Changes in liabilities:                                                       
   Current liabilities.............................      (343,000)      129,000
   Long-term accrued liabilities...................       206,000           ---
                                                      -----------   -----------
                                                                               
 Net cash flows from operating activities..........      (553,000)     (208,000)
                                                      -----------   -----------
                                                                               
Cash Flows from Investing Activities                                           
 Minority interest and other liabilities...........       506,000       667,000
 Note receivable collections.......................       381,000           ---
 Capital expenditures..............................    (2,428,000)   (4,819,000)
 Environmental remediation expenditures............    (1,197,000)     (968,000)
 Other investments.................................           ---      (225,000)
                                                      -----------   -----------
                                                                               
 Net cash flows from investing activities..........    (2,738,000)   (5,345,000)
                                                      -----------   -----------
                                                                               
Cash Flows from Financing Activities                                           
 Issuance of common stock..........................       205,000        75,000
 Principal payments on note payable................    (5,102,000)     (120,000)
 Borrowings under revolver-to-term credit facility.     7,750,000     2,000,000
 Payment of loan fees..............................       (50,000)     (150,000)
                                                      -----------   -----------
                                                                               
 Net cash flows from financing activities..........     2,803,000     1,805,000
                                                      -----------   -----------
                                                                               
Net Changes in Cash and Cash Equivalents...........      (488,000)   (3,748,000)
                                                                               
Cash and Cash Equivalents at Beginning of Year.....     4,330,000     8,482,000
                                                      -----------   -----------
                                                                               
Cash and Cash Equivalents at End of Quarter........   $ 3,842,000   $ 4,734,000
                                                      ===========   ===========
</TABLE>


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

                                      19
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                     for the Six Months Ended June 30, 1998
                                  (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, 1997....  10,591,240   $318,000   $74,342,000   $11,544,000   $86,204,000
                                                                                      
   Issuance of shares of                                                              
     Common stock...............     102,317      3,000       439,000           ---       442,000
                                                                                      
   Provision for income tax                                                           
     Credited to equity.........         ---        ---       102,000           ---       102,000
                                                                                      
   Net Income...................         ---        ---           ---       152,000       152,000
                                  ----------   --------   -----------   -----------   -----------
                                                                                      
Balance at June 30, 1998........  10,693,557   $321,000   $74,883,000   $11,696,000   $86,900,000
                                  ==========   ========   ===========   ===========   ===========
</TABLE>

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

                                      20
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


Note 1.  BASIS OF PRESENTATION

     The unaudited, consolidated financial statements as of June 30, 1998 and
for the three and six month periods ended June 30, 1998 and 1997, 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,
1997. 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 June
30, 1998, and results of operations and cash flows for the three and six month
periods ended June 30, 1998 and 1997.


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 continued its litigation with Cucamonga in San Bernardino County
Superior Court to resolve a dispute over the interpretation of the Cucamonga
Lease. The dispute centers on the Company's assertion that either the MWD Rate
in the Cucamonga Lease was discontinued on July 1, 1995 or that the Lease Rate
should be interpreted to include all the changed rates and items implemented by
Metropolitan Water District of Southern California ("MWD") since July 1, 1995. A
five-day trial on the matter was held in March, 1998. After the trial, the Court
ruled, in favor of the Company, that the rate on which the Cucamonga Lease had
been based was discontinued effective July 1, 1995. Therefore the terms of the
Cucamonga Lease require the parties to in good faith negotiate a new substitute
rate. If the parties are unable to agree on a substitute rate, the matter in
effect goes to arbitration. There is no specified time period in which the new
MWD Lease rate must be established. 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 June 30, 1998 is approximately $1,450,000.


Note 3.  SUPPLEMENTAL CASH FLOW INFORMATION

     During the six months ended June 30, 1998 and 1997 the Company issued
$142,000 and $258,000 of common stock, respectively, for the payment of bonuses
and compensation.


Note 4.  LONG TERM DEBT

     At the end of the second quarter the Company paid off the remaining
$5,000,000 of Lusk Note, utilizing $5,000,000 in additional borrowings under the
Company's $30,000,000 revolving-to-term credit facility with Union Bank. As of
June 30, 1988 the Company has $11,750,000 of long term debt, all of which is
under its $30,000,000 revolving-to-term credit facility with Union Bank.

                                      21
<PAGE>

                     KAISER VENTURES INC. AND SUBSIDIARIES

 
Note 5.  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 $18 million and $29
million, depending upon which approved remediation alternatives are eventually
selected.

     Although ongoing environmental investigations are being conducted on the
Company's 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 and 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.  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
anticipated remediation activities, the primary one being the dedication of
approximately $4.8 million of Kaiser's Union Bank Credit facility.

     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.  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.  The City of Ontario, California has
commenced litigation against the Company alleging that the Company has
contaminated one of its municipal wells.


                                    PART II
                                        
Item 1.  LEGAL PROCEEDINGS

     As discussed in the Company's Form 10-K Report for 1997, 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 1998 except as noted below:

     Cucamonga Litigation.  During March 1998, a trial was held on the Company's
lease rate dispute with Cucamonga.  The San Bernardino County Superior Court
ruled in the Company's favor by finding that the July 1, 1995, rate
restructuring by Metropolitan Water District discontinued the rate payable under
the terms of the Cucamonga Lease.  The Court's written Statement of Decision was
released on June 16, 1998.  The parties are now required to attempt to negotiate
a substitute rate in accordance with the terms of the Cucamonga Lease.  For
additional information see in this 10-Q Report "Introduction - Business Update -
Investment in Fontana Union Water Company".

     Eagle Mountain Landfill Project EIR Litigation and Related Matters.  In
February 1998, the San Diego County Superior Court ruled adverse to the Company
and MRC in finding that the new

                                      22
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


environmental impact report for the Landfill Project continued to be deficient
in two major areas: (i) the analysis of the impacts to the protected desert
tortoise; and (ii) the impacts to Joshua Tree National Park. The Superior
Court's final order in the matter was issued in May, 1998. Related to the EIR
litigation, opponents to the landfill took action in the second quarter to seek
the award of up to approximately $450,000 in attorneys' fees and to seek to hold
MRC and the Company in contempt of Court for railroad maintenance activities
that are alleged to be in violation of the San Diego Superior Court's orders in
the case. On August 7, 1998, the court awarded approximately $238,000 in
attorneys' fees to project opponents. Payment of these fees will be held in
abeyance until a final decision in the current appeal. Although the final
resolution of this decision is uncertain due to the current appeal, management
believes the ultimate outcome will not have a material adverse financial impact
to the Company. For additional information on this litigation, see "Introduction
Business Update - Waste Management - Eagle Mountain" of this 10-Q Report, as
well as the Company's 1997 10-K Report.

     Settlements.  As discussed in extensive detail in the Company's 1997 Form
10-K Report, the Company, Kaiser Steel Corporation and KSC Recovery, Inc. (the
Kaiser Steel Corporation bankruptcy estate) were named or became cross-
defendants in certain litigation in the U.S. Federal District Court in Northern
California (Case No. C-93-1114 CW) commenced by IMACC Corporation against
Dorothy Warburton and others seeking a determination of liability, contribution
and indemnification for the costs of environmental remediation of two sites that
had been used by IMACC. At one time, Kaiser Steel Corporation operated the
business operated by IMACC at such sites. This litigation, except for attorneys'
fees disputes, was previously resolved. Two of the defendants in the litigation
through an insurance carrier asserted that IMACC and the Company were liable to
it for up to $1.7 million in attorneys' fees. This matter was tentatively
resolved in the second quarter. The Company will have no liability or required
contribution toward any settlement of this particular matter.

     In addition to the tentative settlement of the final IMACC matter, a
settlement was reached among all the parties in the Nippon Fire & Marine
Insurance Co. litigation (Federal District Court for the Central District of
California Case No. CV97-9558 CBM (VAPx)) in which it was asserted that the
Company, along with others, was liable for the theft of lap top computers from a
semi-truck owned by a former tenant that was parked on the Mill Site Property.
The value of the cargo was asserted to be approximately $1.8 million.  The
Company's contribution to the settlement was less than $50,000.


Item 2.  CHANGES IN SECURITIES

         None.


Item 3.  DEFAULTS UPON SENIOR SECURITIES

         Not applicable.


Item 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

         On June 30, 1998 the Company held its annual meeting of stockholders.
         The only action taken by the stockholders was a vote on the election of
         eleven directors for the Company for the ensuing year. The stockholders
         re-elected the current eleven members of the Board of Directors. The
         vote on each nominee to the Board was as follows:

                                      23
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
   Election to the Board of Directors Votes For   Votes For   Votes Withheld
   --------------------------------------------   ---------   --------------
   <S>                                            <C>         <C>
   Ronald E. Bitonti...........................   9,768,279        94,462
   Todd G. Cole................................   9,854,358         8,383
   Gerald A. Fawcett...........................   9,772,939        89,802
   Gary E. Gibbons.............................   9,773,274        89,467
   Reynold C. MacDonald........................   9,770,717        92,024
   William J. Morgan...........................   9,857,044         5,697
   Charles E. Packard..........................   9,856,974         5,767
   Thomas S. Rabone............................   9,767,818        94,923
   Lyle B. Stevenson...........................   9,771,776        90,965
   Richard E. Stoddard.........................   9,856,639         6,102
   Marshall F. Wallach.........................   9,856,917         5,824
</TABLE>


Item 5.  OTHER INFORMATION

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

         B.  During the second quarter, the Company's Special Committee
             continued its work, assisted by Merrill Lynch and other advisors,
             in evaluating strategic alternatives for the Company and its
             assets.


Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

         A.  Exhibits
             --------

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

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

             None.

                                      24
<PAGE>

                     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:  August 12, 1998                  /s/ James F. Verhey
                                         ----------------------------
                                         James F. Verhey
                                         Principal Financial Officer


                                      25