<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, 1997           Commission File Number 0-18858



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



         DELAWARE                                   94-0594733
--------------------------------             ----------------------------
(State or other jurisdiction of                   (I.R.S. Employer
 incorporation or organization)                  Identification No.)


                    3633 East Inland Empire Blvd., Suite 850
                           Ontario, California  91764
             ----------------------------------------------------
             (Address of principal executive offices and zip code)

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


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

                                                
                                        Yes   X       No
                                             ---

Indicate by check mark whether registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.


                                        Yes   X       No
                                             ---

On August 6, 1997, the Company had 10,521,975 shares of Common Stock, $.03 par
value, outstanding (including 136,919 shares deemed outstanding and held in
reserve by the Company for issuance to the former general unsecured creditors of
Kaiser Steel Corporation pursuant to its Plan of Reorganization).
<PAGE>
 
                        TABLE OF CONTENTS TO FORM 10-Q
<TABLE>
<CAPTION>
 
                                                                            PAGE
                                                                            ----
<S>                                                                         <C> 
INTRODUCTION

  BUSINESS UPDATE..........................................................   1

PART I

  Item 1.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS............................   8

  ITEM 2.  FINANCIAL STATEMENTS............................................  18
           
           CONSOLIDATED BALANCE SHEETS.....................................  18

           CONSOLIDATED STATEMENTS OF INCOME...............................  20

           CONSOLIDATED STATEMENTS OF CASH FLOWS...........................  21

           CONSOLIDATED STATEMENT OF CHANGES IN
            STOCKHOLDERS' EQUITY...........................................  22

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS......................  23

PART II

  ITEM 1.  LEGAL PROCEEDINGS...............................................  26

  ITEM 2.  CHANGES IN SECURITIES...........................................  26

  ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.................................  26

  ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS...............  26

  ITEM 5.  OTHER INFORMATION...............................................  26

  ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K................................  27


SIGNATURES.................................................................  28
</TABLE>

                                       i
<PAGE>
 
                       AVAILABILITY OF PREVIOUS REPORTS
                       --------------------------------
                                        
     THE COMPANY WILL FURNISH WITHOUT CHARGE, TO EACH STOCKHOLDER, UPON WRITTEN
REQUEST OF ANY SUCH PERSON, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996 (THE "10-K REPORT") AS FILED WITH THE
SECURITIES EXCHANGE AND COMMISSION, INCLUDING THE FINANCIAL STATEMENT SCHEDULES
THERETO.  THOSE REQUESTING A COPY OF THE 10-K REPORT THAT ARE NOT CURRENTLY
STOCKHOLDERS OF THE COMPANY MAY ALSO OBTAIN A COPY DIRECTLY FROM THE COMPANY.
REQUESTS FOR A COPY OF THE 10-K REPORT SHOULD BE DIRECTED TO VICE PRESIDENT-
CORPORATE RELATIONS, AT 3633 EAST INLAND EMPIRE BOULEVARD, SUITE 850, ONTARIO,
CALIFORNIA 91764.

     THE READER IS ENCOURAGED TO READ THIS FORM 10-Q REPORT IN CONJUNCTION WITH
THE 10-K REPORT SINCE THE INFORMATION CONTAINED HEREIN IS OFTEN AN UPDATE OF THE
INFORMATION IN SUCH REPORT.


                                      ii
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

                          FORWARD-LOOKING STATEMENTS

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


                                  INTRODUCTION

BUSINESS UPDATE

GENERAL

     Kaiser Ventures Inc. ("Kaiser" or the "Company" which shall be deemed to
include its wholly-owned subsidiaries unless otherwise provided herein)
continues to work on the development, as necessary, of its principal assets: (i)
a 50.88% interest in Fontana Union Water Company ("Fontana Union"), a mutual
water company which is leased to Cucamonga County Water District ("Cucamonga")
pursuant to a 102-year take-or-pay lease; (ii) an approximately 11.50% interest
in Penske Motorsports, Inc. ("PMI"), a publicly traded motorsports company;
(iii) approximately 668 acres (gross) of the former Kaiser Steel Corporation
("KSC") steel mill site (the "Mill Site Property"); (iv) an approximate 73%
interest in Mine Reclamation Corporation ("MRC"), the Company seeking to permit
a rail-haul municipal solid waste landfill in Riverside County (the "Landfill
Project"); and (v) the 11,350 acre idle iron ore mine in the California desert
(the "Eagle Mountain Site"), which includes the associated 460 acre town of
Eagle Mountain ("Eagle Mountain Townsite") and the land leased to MRC for the
Landfill Project. The Company also has approximately $107,000,000 of federal net
operating loss tax carryforwards as of December 31, 1996, which arose primarily
as a result of the bankruptcy reorganization of KSC. The Company is the
reorganized successor of KSC.

     Since the filing of the 1996 Form 10-K Report and the first quarter 1997
10-Q Report, there have been significant developments with regard to the
expansion of PMI's business and the continued redevelopment of the Mill Site
Property. Specifically, PMI substantially expanded its business with the
successful

                                       1
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

opening of the California Speedway ("TCS") and with the acquisition of interests
in companies with existing races and/or race tracks in California, Tennessee,
Illinois, North Carolina and Florida and the Company reached final agreement
with Burrtec Waste Industries, Inc. and began construction of the West Valley
materials recovery facility and transfer station (the "West Valley MRF"). See
the more detailed discussion on each of these developments below. In addition, a
reader of this Form 10-Q Report is strongly encouraged to read the entire
report, together with the Company's 1996 Form 10-K Report and first quarter 10-Q
Report for 1997 for background information and a complete understanding as to
material developments concerning the Company.

INVESTMENT IN FONTANA UNION WATER COMPANY

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

     The Company is continuing with its litigation against Cucamonga in San
Bernardino County Superior Court to resolve a dispute over the interpretation of
the Cucamonga Lease and the Lease Rate. In July the Company and Cucamonga
participated in a court mandated mediation conference but the parties were
unable to reach any settlement of the litigation. Trial on the matter will
likely commence in late 1997 or early 1998.

INVESTMENT IN PENSKE MOTORSPORTS, INC.

     The Company currently owns 1,627,923 shares, or approximately 11.50% of the
outstanding common stock of PMI. PMI is traded on the NASDAQ National Market
under the symbol "SPWY". 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 TCS has been
built; and (ii) the subsequent sale of the Speedway Business Park, totaling
approximately 54 acres to PMI in December, 1996. As discussed in more detail
below, the Company's percentage ownership in PMI was reduced from approximately
12.29% to 11.50% during the second quarter as a result of PMI's acquisition of
the majority ownership of North Carolina Motorspeedway, Inc., the owner and
operator of an approximately 1 mile oval track in Rockingham, North Carolina.

     PMI is a leading promoter and marketer of professional motorsports in the
United States as well as an owner and operator of speedway facilities. As of
June 30, 1997, PMI owned: (i) Michigan International Speedway, Inc. which owns
and operates the Michigan Speedway, 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 in Nazareth, Pennsylvania; (iv) approximately seventy
percent (70%) of the stock of North Carolina Motor Speedway, Inc. which owns and
operates the North Carolina Motor Speedway, Rockingham, North Carolina; (vi)
Motorsports International Corp., 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.

     In the second quarter, PMI issued 907,000 shares of its common stock to
acquire the majority interest in North Carolina Motorspeedway, Inc., resulting
in the dilution of the Company's percentage ownership in

                                       2
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

PMI to approximately 11.50%. North Carolina Motorspeedway hosts two NASCAR
Winston Cup series races, two NASCAR Busch Grand National Races and the annual
Unocal 76/Rockingham Pit Crew Championship.

     In addition, PMI announced, on July 23, 1997, that it and International
Speedway Corporation (NASDAQ/NM:ISCA) had each acquired a forty percent (40%)
interest in Homestead-Miami Speedway, LLC, the operators of Metro-Dade Homestead
Motorsports Complex in Dade County, Florida. Ralph Sanchez, the founder of
Homestead and his partner, H. Wayne Huizenga, will each maintain a ten percent
(10%) ownership interest. Homestead is a 344 acre facility completed in 1995
with a recently reconfigured 1.5 mile oval track and a 2.21 mile road course.
Among the annual events held at Homestead are the Marlboro Grand Prix of Miami
(CART), the Jiffy Lube Miami 300 (NASCAR Busch Series) and the Florida Dodge
Dealers 400 (NASCAR Craftsman Truck Series).
     
     On August 11, 1997, PMI announced that it and International Speedway
Corporation had each acquired a seven percent (7%) interest in Grand Prix
Association of Long Beach, Inc. (NASDAQ:GPLB) through the purchase of
stock in such company pursuant to a private placement. Grand Prix Association of
Long Beach is the owner and operator of the Toyota Grand Prix of Long Beach, the
annual CART PPG Cup race run on the streets of Long Beach, California since
1975. The Long Beach race is now the second largest open wheel car race in the
world next to the Indianapolis 500 mile race. In addition, the Grand Prix
Association of Long Beach owns and operates Gateway International Raceway in
Madison, Illinois and Memphis Motorsports Park in Millington, Tennessee.

     The construction of TCS was completed during the second quarter and its
inaugural races were held on the weekend of June 21, 1997.  The inaugural
weekend of TCS was a tremendous success with an estimated 170,000 individuals
attending the time trials and races at TCS.

     For the second quarter of 1997, PMI announced an 87% increase in gross
revenues to a record  $46.2 million and a 63% increase in net income to a record
$10.9 million or $.80 per share.  For the first six months of the year, PMI
announced net income of $9.4 million or $.70 per share.  Due to the seasonal
nature of racing, losses are generally anticipated in the first and fourth
quarters of the year while earnings are generally anticipated 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 and second quarter of 1997, as
reported on the NASDAQ National Market System.
<TABLE>
<CAPTION>
                     1997:                 LOW      HIGH
                                         -------   -------
                     <S>                 <C>       <C>
                     Second Quarter       $27.25    $32.38
                     First Quarter        $25.00    $30.75
</TABLE>

     On August 6, 1997, the closing price of PMI's common stock was $35.63.

PROPERTY REDEVELOPMENT

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

     The Napa Lots, which constitute a 31 acre portion of the Central Mill Site
Property, and the MRF site, as discussed below, have already received all of the
entitlements and permits necessary for their

                                       3
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

development. However, the balance of the Company's Mill Site Property requires
various entitlements and permits from San Bernardino County prior to
redevelopment. The formal entitlement and permitting process commenced on April
9, 1997, when the Company filed an application for a Specific Plan with San
Bernardino County for all of its property except for approximately 26 acres
within the City of Rancho Cucamonga and approximately 135 acres known as the
East Slag Pile property. The County is presently undertaking the steps necessary
to retain an independent consultant to prepare the required environmental impact
report for the Mill Site Property and related Specific Plan. It is anticipated
that the County will select the consultant and commence preparation of the
environmental impact report by the end of the third quarter of 1997. The entire
entitlement and permitting process is currently anticipated to be completed by
the end of the first quarter of 1998.

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

     In addition to the permitting and entitlement process with the County, the
Company continued its work during the second quarter with the California
Department of Transportation and San Bernardino County to design and obtain
approval for an improved interchange at Etiwanda and the I-10 Freeway and
related street improvements. Second quarter activity focused on efforts to
secure Federal, state and/or local funding assistance related to such proposed
improvements. Significant capital funds will be required to implement the
infrastructure and access improvements. The Company will seek to minimize its
capital investments for these improvements by seeking public or private
financing sources; by structuring joint ventures and leases; or by contributing
portions of the land for an ownership interest in operating companies seeking to
develop the land. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for additional information.

     In a separate decision, the Company also commenced the initial steps
necessary to demolish one of the major buildings remaining on the Mill Site, the
Fabrication #3 building, located on the southern portion of the West End
Property. Notices were sent to tenants of the building of the termination of
their leases. All affected tenants should be out by the end of the third quarter
with demolition of the building anticipated to commence before year-end.

     Finally, the Company continues to undertake the remedial activities
necessary to develop the Mill Site.

WEST VALLEY MATERIALS RECOVERY FACILITY

     The Company and Burrtec Waste Industries, Inc. ("Burrtec"), a privately-
held company, completed their revised agreement for the development,
construction and operation of the West Valley MRF effective as of June 19, 1997.
The West Valley MRF is a municipal solid waste transfer and recovery facility
that will be located on three parcels totaling approximately 30 acres of the
Mill Site Property. Phase 1 of the Mill Site MRF, which includes a 62,000 square
foot building, sorting equipment, and related facilities for waste transfer and
recycling services, is currently under construction and is expected to be
completed during the fourth quarter of this year. Most of the financing for
Phase 1's projected cost of approximately $10,300,000, including reimbursement
of many of the previously incurred development costs of Burrtec

                                       4
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

and the Company, was obtained through the issuance and sale of $9,500,000 in
California Pollution Control Financing Authority (the "Authority") Variable Rate
Demand Solid Waste Disposal Revenue Bonds Series 1997A (the "Bonds"). This tax-
exempt financing transaction represented by the Bonds, which effectively closed
on June 25, 1997, are limited obligations of the Authority payable solely from
and secured by a pledge and lien on, the loan repayments made by West Valley
MRF, LLC ("West Valley MRF, LLC" or the "Borrower"), the newly created
California limited liability company formed by a subsidiary of the Company and
of Burrtec, and funds that may be drawn on an irrevocable direct pay letter of
credit issued by Union Bank of California, N.A. ("Union Bank"). Neither the
faith and credit nor the taxing power of the State of California or any
political subdivision thereof is pledged to the payment of the principal or
interest on the Bonds. The Bonds are backed by a letter of credit issued by
Union Bank. Pursuant to a Guaranty Agreement with Union Bank the Company and
Kaiser Recycling Corporation are liable for fifty percent (50%) of the principal
and interest on the Bonds in the event of a default by Borrower. Burrtec and its
affiliates in effect are also liable under a separate Guaranty Agreement with
Union Bank for the other fifty percent (50%) of the principal and interest on
the Bonds in the event of a default by Borrower. Fitch Investors Service rated
the Bonds upon issuance as "AA-/F-1+."

     The initial variable weekly interest rate for the Bonds was 4.15%. As of
August 6, 1997, the variable weekly interest rate was 3.25%. The Bonds have a
stated maturity date of June 1, 2012, although the Borrower is required pursuant
to an agreement with Union Bank to annually redeem a portion of the Bonds on a
stated schedule. Beginning in 1998 the Borrower is required to redeem $100,000
in principal amount of the Bonds with the annual redemption increasing to a
maximum of $940,000 in the year 2011.

     West Valley MRF, LLC and Union Bank have executed a Reimbursement
Agreement, which among other things, sets the terms and conditions whereby the
Borrower is required to repay Union Bank in the event of a draw under the letter
of credit, grants the Bank certain security interests in the property of
Borrower, establishes the redemption schedule for the Bonds, and sets forth
certain financial and other covenants borrower must comply with during the term
of the Bonds. The Company and Kaiser Recycling Corporation ("KRC") have also
provided to Union Bank an Environmental Guaranty Agreement pursuant to which
they are jointly and severally liable for any liability that may be imposed on
Union Bank for pre-existing environmental conditions on the Borrower's property
acquired from KRC that the Borrower fails to timely address.

     As noted above, the Company and Burrtec reached formal agreement on the
terms of restructuring their previous joint venture as a limited liability
company. Effective June 19, 1997 KRC and West Valley Recycling & Transfer, Inc.
("WVRT"), Burrtec's wholly owned subsidiary, entered into a Members Operating
Agreement which is substantially the equivalent of a joint venture agreement but
for a limited liability company. Other ancillary and related agreements to the
Members Operating Agreement were also entered into as of June 19, 1997. Pursuant
to the terms of the Members Operating Agreement, KRC contributed an
approximately 23 acre parcel of the Mill Site on which Phase 1 of the West
Valley MRF is being constructed and WVRT contributed all of the goodwill of
Burrtec's recycling business presently operated out of Riverside County
entitling West Valley MRF, LLC to all revenues generated from such business
after the closing date. Under the terms of the Members Operating Agreement, KRC
and the Company remain responsible for any pre-existing environmental conditions
and WVRT is responsible for environmental issues that may arise related to the
future deposit or release, if any, of hazardous substances.

     The Members Operating Agreement also addresses such items as the terms and
conditions for the contribution of up to approximately 7 acres of additional
property by KRC to West Valley MRF, LLC; future capital and financing
transactions; the governance of West Valley MRF, LLC through the creation and
operation of an Executive Committee; voting rights; indemnification obligations
between the members

                                       5
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

of West Valley MRF, LLC; the daily operation of West Valley MRF by WVRT pursuant
to a separate Operation and Maintenance Agreement; distribution of cash flow in
various circumstances; rights of first refusal and various rights related to a
sale or deemed sale of a member's ownership interest in West Valley MRF, LLC and
the terms of any such sale, including a non-completion provision in certain
circumstances; events of default; remedies upon the occurrence of an event of
default by KRC or WVRT including the possible purchase of a member's interest in
West Valley MRF, LLC at a discount from appraised value; and termination and
dissolution of West Valley MRF, LLC. The Company and Burrtec have each given
their separate Performance Guaranty Agreement pursuant which they respectively
guaranty the prompt performance of their respective subsidiary's obligations
under the Members Operating Agreement and in the case of Burrtec, also under the
Operations and Maintenance Agreement which deals with the daily operation of the
West Valley MRF by WVRT.

NAPA LOTS

     On April 9, 1997, the Company and Budway Enterprises, Inc. ("Budway"), a
distributor of steel and other products, entered into an agreement for the sale
of one of the Napa Lots of approximately 15.5 acres for approximately
$2,870,000, or $4.25 a square foot. The sales price, subject to normal closing
adjustments, is comprised of a minimum $1,000,000 cash down payment at the close
of the transaction plus a five year promissory note from Budway. As currently
structured, Budway's note requires a $25,000 per quarter principal payment plus
interest at the rate of ten percent (10%). The Company will subordinate the
Budway note to the construction and permanent financing for the improvements to
be built by Budway on the lot. This sale is subject to several contingencies
including Budway obtaining appropriate construction financing. Although
originally anticipated to close on or before July 31, 1997, Budway has extended
the closing date until the end of the third quarter by the deposit into escrow
of additional earnest money. The Company currently estimates the gain on the
sale to be approximately $200,000 which will be recorded when the transaction is
consummated.

WASTE MANAGEMENT

EAGLE MOUNTAIN LANDFILL PROJECT

     In 1988, the Company entered into a 100-year lease agreement (the "MRC
Lease") with MRC. MRC is seeking to develop the Company's former iron ore mine
near Eagle Mountain, California into a large, regional rail-haul, municipal
solid waste landfill. MRC became a subsidiary of the Company when the Company's
subsidiary, Eagle Mountain Reclamation, Inc., acquired a 70% interest in MRC
during the first quarter of 1995 in exchange for the elimination of the minimum
monthly rent due the Company under the MRC Lease. The elimination of the minimum
monthly rent did not change the future royalty payments due the Company once the
landfill commences operations.

     Financing.  Since its initial acquisition of an equity interest in MRC, the
Company, through its wholly-owned subsidiary, Eagle Mountain Reclamation, Inc.,
has made additional equity investments in MRC through a series of private
placements with other MRC shareholders.  Currently, the Company's ownership
interest in MRC is approximately 73%.  Because additional funding was needed to
continue permitting activities, MRC completed a private placement of $2.5
million during the first quarter of 1997.  The Company's portion of this $2.5
million private placement was approximately $1.9 million and has been paid.  MRC
is now in the process of completing a new private placement for $2.4 million
with the Company agreeing to provide MRC with up to 75%, or approximately $1.8
million, of the $2.4 million.  It is also currently anticipated that the Company
may make additional equity contributions of approximately

                                       6
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

$1.9 million in 1998. Financing in addition to that noted above will be required
to complete the permitting of the Landfill Project, to fund anticipated
litigation costs and to ultimately construct the Landfill Project.

     Permitting/Development Agreement. After the release of the final
environmental impact report/environmental impact statement ("EIR/EIS") in
January 1997, the Riverside Planning Commission held a total of seven public
meetings on the Landfill Project. Extensive public comment on the Landfill
Project was received and considered by the Planning Commission. After a complete
and thorough review of the Landfill Project by the Riverside County Planning
Commission, on May 7, 1997 the Planning Commission by a 4 to 1 vote recommended
to the Riverside County Board of Supervisors approval of the Landfill Project.
The Landfill Project is currently being considered by the Riverside Board of
Supervisors. To date the Board has held a total of four public meetings. Again,
extensive positive and negative public comment was received and considered
during the public hearings before the Board of Supervisors. It is anticipated
that a vote on the Landfill Project will be taken by the Riverside Board of
Supervisors by the end of August, 1997 although there is no assurance that the
vote may not be delayed beyond such date. If a positive vote is received, the
revised EIR would be again reviewed by Judge McConnell of the San Diego Superior
Court so that she may make a determination as to whether the EIR complies with
her previous decisions and applicable law. MRC would also begin the process of
reactivating or obtaining, as applicable, the various technical permits
necessary to commence construction of the Landfill Project. This process is
anticipated to take up to one year.

     Concurrently with the hearing process before Riverside County, the final
terms of the Development Agreement for the Landfill Project are being
negotiated. In summary, the Development Agreement provides the mechanism by
which MRC acquires long term vested land use rights for a landfill, provides for
payments to the County pursuant to a separate Purchase and Sale Agreement and
generally governs the relationship among the parties to the Agreement. The
Development Agreement also addresses such items as the indemnification
obligations to Riverside County, the financial assurances to be provided to
Riverside County, the reservation and availability of landfill space for
Riverside County waste, events of default and remedies as well as a number of
other items. The final terms of the Development Agreement will not be determined
until the conclusion of the vote by the Riverside Board of Supervisors. The
execution of the Development Agreement being negotiated will be contingent upon
approval of the Landfill Project by the Riverside Board of Supervisors and upon
the consummation of the proposed Federal land exchange which is necessary for
the Project to proceed.

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

                                       7
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

                         SECTION 1:  OPERATING RESULTS

     Kaiser Ventures Inc. ("Kaiser" or the "Company") is an emerging asset
development company pursuing project opportunities and investments in activities
related to water resources, motorsports, property redevelopment and solid waste
management. The Company's long-term emphasis is on the further development of
its principal assets: (i) a 50.88% interest in Fontana Union Water Company
("Fontana Union"), a mutual water company; (ii) a 11.50% interest in Penske
Motorsports, Inc. ("PMI"), a publicly-traded professional motorsports company
that has developed the California Speedway ("TCS") on land acquired from the
Company; (iii) approximately a 73% interest in Mine Reclamation Corporation
("MRC"), the developer of the Eagle Mountain Landfill Project (the "Landfill
Project"); (iv) approximately 668 acres of the former Kaiser Steel Corporation
("KSC") steel mill site (the "Mill Site Property"); and (v) the 11,350 acre idle
iron ore mine in the California desert (the "Eagle Mountain Site"), which
includes the associated 460 acre town of Eagle Mountain ("Eagle Mountain
Townsite") and the land leased to MRC for the Landfill Project. The Company is
also pursuing other related longer-term growth opportunities on the balance of
its Mill Site Property, including the development of a transfer station and
materials recovery facility ("Mill Site MRF") and the redevelopment of
industrial and commercial parcels of land near TCS and the Mill Site MRF.

PRIMARY REVENUE SOURCES

ONGOING OPERATIONS

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

INTERIM ACTIVITIES

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

SUMMARY OF REVENUE SOURCES

     Due to the development nature of certain Company projects and the Company's
continuing 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

                                       8
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

well as the recent developments regarding its long-term ongoing and interim
revenue sources. See "Part I, Item 1. Business" 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. Except for a limited number of event week-ends in October, 1997 at TCS
and PMI's recently acquired North Carolina Speedway, PMI has no current plans to
host events in the first and fourth quarters at its existing facilities. As a
result, the Company's reported share of undistributed equity in the earnings of
PMI will likely be positive (income) in the second and third quarters and
negative (loss) in the first and fourth quarters.

RESULTS OF OPERATIONS

ANALYSIS OF RESULTS FOR THE QUARTERS ENDED JUNE 30, 1997 AND 1996

     An analysis of the significant components of the Company's resource
revenues for the Quarters ended June 30, 1997 and 1996 follows:
<TABLE>
<CAPTION>
 
                                               1997           1996       % INC. (DEC)
                                           ------------   ------------   ------------
<S>                                        <C>            <C>            <C>
ONGOING OPERATIONS
 Water resource.........................    $1,164,000     $1,000,000         16%    
 Property redevelopment.................       389,000        277,000         40%    
 Income from equity method investments..     1,250,000        721,000         73%    
                                            ----------     ----------                 
                                                                                      
  TOTAL ONGOING OPERATIONS..............     2,803,000      1,998,000         40%    
                                            ----------     ----------                 
                                                                                      
INTERIM ACTIVITIES                                                                    
 Lease, service and other...............       418,000        410,000          2%    
                                            ----------     ----------                 
                                                                                      
  TOTAL RESOURCE REVENUES...............    $3,221,000     $2,408,000         34%    
                                            ==========     ==========                  
 
REVENUES AS A PERCENTAGE OF TOTAL
 RESOURCE REVENUES:
 Ongoing operations.....................            87%            83%
 Interim activities.....................            13%            17%
                                            ----------     ----------
 
  TOTAL RESOURCE REVENUES...............           100%           100%
                                            ==========     ==========
</TABLE>

     Resource Revenues. Total resource revenues for the second quarter of 1997
were $3,221,000, compared to $2,408,000 for 1996. Revenues from ongoing
operations increased 40% during the quarter to $2,803,000 from $1,998,000 in
1996, while revenues from interim activities increased 2% to $418,000 from
$410,000 in 1996. Revenues from ongoing operations as a percentage of total
revenues increased to 87% in 1997 from 83% in 1996.

     Ongoing Operations.  Water lease revenues under the Company's 102-year
take-or-pay lease with Cucamonga were $1,164,000 during the second quarter of
1997 compared to $1,000,000 for 1996. The 16% increase in water revenues during
the quarter reflects two increases; (a) an increase as of February 1, 1997 in
the effective non-interruptible untreated water rate being paid by Cucamonga
from $346.00 to $351.00 per acre foot and (b) a return to the maximum amount of
water that Cucamonga through Fontana Union can draw from the Colton/Rialto Basin
Wells. As previously disclosed, the annual amount of water available to Fontana
Union from such wells was temporarily limited to 720 acre feet from 3,000, until

                                       9
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

October 1, 1996, due to low water levels detected in the Colton/Rialto Basin
Wells during 1996. In addition, as also previously disclosed, Metropolitan Water
District of Southern California ("MWD"), effective July 1, 1995, implemented
changed rates and a changed rate structure which resulted in the continuing
lease interpretation dispute with Cucamonga regarding the extent of the MWD rate
increases. Although the Company is continuing to bill Cucamonga at what it
believes is the correct MWD rate under the lease with Cucamonga, the Company has
elected to reserve the full amount in dispute and report revenues on the basis
of amounts actually received from Cucamonga. The total amount of lease payments
in dispute as of June 30, 1997 is approximately $1,073,000. In addition, MWD has
stated that it may further refine its rate structure in the near future.

     Property redevelopment revenues were $389,000 for 1997 compared to $277,000
for 1996. The 40% increase from 1996 is primarily as a result of: (a) the
reclassification of the Mill Site sewer treatment plant to property
redevelopment revenues from interim activities as a result of the Company's
renovation of the plant and its renewed commitment to provide sewer services to
PMI and future Mill Site tenants ($80,000); and (b) higher rock and aggregate
sales ($36,000) at Eagle Mountain.

     Income from equity method investments increased to $1,250,000 for the
second quarter of 1997 compared to $721,000 for 1996. The increase of $529,000
reflects the 63% increase in the reported second quarter net income of PMI, of
which the Company recorded its 11.93% weighted average share, ($691,000)
partially offset by the elimination of the management fee the Company received
from PMI through March 31, 1997, ($162,000). The Company's equity interest in
PMI declined, as of May 19, 1997, from 12.29% to 11.50% as a result of the
approximate 907,000 shares that PMI issued in connection with the acquisition of
a majority interest in North Carolina Motor Speedway, Inc. The Company is
recording its investment in PMI on the equity method and began recording its
share of PMI's net income concurrent with conversion of the Company's preferred
stock into common stock at the end of the first quarter of 1996.

     Interim Activities. Revenues from interim activities for the second quarter
of 1997 were $418,000 compared to $410,000 for 1996. The 2% increase in revenues
from interim activities in 1997 is primarily attributable to increases in
railroad switching revenue ($54,000) and slag revenue ($53,000) offset by lower
revert, tenant service and scrap revenues ($39,000) and the reclassification of
the sewer treatment plant from interim activities to property redevelopment
revenues ($53,000).

      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 1997 increased to $874,000 from $830,000 in 1996.
Operations and maintenance costs for 1997 were $326,000 compared to $261,000 for
1996. The 25% increase in 1997 operations and maintenance costs was primarily
due to higher property tax expense associated with the completed offsite
improvements for portions of the Mill Site property ($32,000) and increased
maintenance and supplies costs for buildings and equipment ($30,000).
Administrative support expenses for the second quarter of 1997 decreased 4% to
$548,000 from $569,000 for 1996. The decrease was primarily due to decreases in
outside professional costs ($65,000) being partially offset by increases in
insurance expense relating to the addition of environmental pollution coverage
for the Mill Site ($23,000) and depreciation expense relating to the newly
completed railroad and sewer plant improvements at the Mill Site ($14,000).

     Corporate General and Administrative Expenses. Corporate general and
administrative expenses for the second quarter of 1997 increased 15% to
$1,059,000 from $920,000 for 1996. The increase is primarily due higher
professional and outside consulting expenses ($128,000).

                                       10
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

     Net Interest Expense. Net interest expense for the second quarter of 1997
was $237,000 compared to $139,000 in 1996. The increase was due primarily to the
interest expense associated with $3,000,000 in increased borrowings under the
Union Bank of California N.A. ("Union Bank") credit facility.

     Pre-Tax Income and Income Tax Provision. The Company recorded income before
income tax provision of $1,051,000 for the second quarter of 1997, a 103%
increase from the $519,000 recorded in 1996. An income tax expense of $447,000
was recorded in the second quarter of 1997 as compared with an income tax
provision $225,000 in 1996. Historically, over 90% of the tax provisions are not
currently payable due primarily to utilization of the Company's net operating
loss carryforwards ("NOL's"). Consequently, pretax income is an important
indicator of the Company's performance.

     Net Income. For second quarter of 1997, the Company reported net income of
$604,000, or $.06 per share, a 105% increase from the net income of $294,000, or
$.03 per share, reported for 1996.

ANALYSIS OF RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996

     An analysis of the significant components of the Company's resource
revenues for the six months ended June 30, 1997 and 1996 follows:
<TABLE>
<CAPTION>
                                               1997           1996       % INC. (DEC)
                                           ------------   ------------   -------------
<S>                                        <C>            <C>            <C>
ONGOING OPERATIONS
 Water resource.........................    $2,297,000     $2,116,000           9%  
 Property redevelopment.................       731,000        540,000          35%    
 Income from equity method investments..     1,227,000        884,000          39%    
                                            ----------     ----------                  
                                                                                       
  TOTAL ONGOING OPERATIONS..............     4,255,000      3,540,000          20%    
                                            ----------     ----------                  
                                                                                       
INTERIM ACTIVITIES                                                                     
 Lease, service and other...............       803,000        885,000          (9%)   
                                            ----------     ----------                  
                                                                                       
  TOTAL RESOURCE REVENUES...............    $5,058,000     $4,425,000          14%    
                                            ==========     ==========                   
 
REVENUES AS A PERCENTAGE OF TOTAL
 RESOURCE REVENUES:
 Ongoing operations.....................            84%            80%
 Interim activities.....................            16%            20%
                                            ----------     ----------
 
  TOTAL RESOURCE REVENUES...............           100%           100%
                                            ==========     ==========
</TABLE>

     Resource Revenues. Total resource revenues for the six months of 1997 were
$5,058,000, compared to $4,425,000 for 1996. Revenues from ongoing operations
increased 20% during the six months to

                                       11
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES
   
$4,255,000 from $3,540,000 in 1996, while revenues from interim activities
declined 9% to $803,000 from $885,000 in 1996. Revenues from ongoing operations
as a percentage of total revenues increased to 84% in 1997 from 80% in 1996.
  
     Ongoing Operations.  Water lease revenues under the Company's 102-year
take-or-pay lease with Cucamonga were $2,297,000 during the six months of 1997
compared to $2,116,000 for 1996. The 9% increase in water revenues during the
six months reflects two increases; (a) an increase as of February 1, 1997 in the
effective non-interruptible untreated water rate being paid by Cucamonga from
$346.00 to $351.00 per acre foot and (b) a return to the maximum amount of water
that Cucamonga through Fontana Union can draw from the Colton/Rialto Basin
Wells. As previously disclosed, the annual amount of water available to Fontana
Union was temporarily limited to 720 acre feet from 3,000, until October 1,
1996, due to low water levels detected in the Colton/Rialto Basin Wells during
1996. In addition, as also previously disclosed, Metropolitan Water District of
Southern California ("MWD"), effective July 1, 1995, implemented changed rates
and a changed rate structure which resulted in the continuing lease
interpretation dispute with Cucamonga regarding the extent of the MWD rate
increases. Although the Company is continuing to bill Cucamonga at what it
believes is the correct MWD rate under the lease with Cucamonga, the Company has
elected to reserve the full amount in dispute and report revenues on the basis
of amounts actually received from Cucamonga. The total amount of lease payments
in dispute as of June 30, 1997 is approximately $1,073,000. In addition, MWD has
stated that it may further refine its rate structure in the near future.

     Property redevelopment revenues were $731,000 for 1997 compared to $540,000
for 1996.  The 35% increase from 1996 is primarily as a result of:  (a) the
reclassification of the Mill Site sewer treatment plant to property
redevelopment revenues from interim activities as a result of the Company's
renovation of the plant and its renewed commitment to provide sewer services to
PMI and future Mill Site tenants ($136,000); and (b) higher iron ore and
aggregate sales ($55,000).

     Income from equity method investments increased to $1,227,000 for the six
months of 1997 compared to $884,000 for 1996.  The increase of $343,000 reflects
the increase in the net income of PMI for the six months, of which the Company
recorded its 12.11% share, ($506,000), partially offset by the elimination of
the management fee which the Company received from PMI through March 31, 1997,
($163,000).  The Company's equity interest in PMI declined, as of May 19, 1997,
from 12.29% to 11.50% as a result of the approximate 907,000 shares that PMI
issued in connection with the acquisition of a majority interest in North
Carolina Motor Speedway, Inc.  The Company is recording its investment in PMI on
the equity method and began recording its share of PMI's net income concurrent
with conversion of the Company's preferred stock into common stock at the end of
the first quarter of 1996.

     Interim Activities. Revenues from interim activities for the six months of
1997 were $803,000 compared to $885,000 for 1996. The 9% decrease in revenues
from interim activities in 1997 is primarily attributable to lower revert,
tenant service and scrap revenues ($138,000) and the reclassification of the
sewer treatment plant from interim activities to property redevelopment revenues
($106,000); offset by increases in tenant rental revenue ($40,000), railroad
switching revenue ($83,000), and slag revenue ($67,000).

     Resource Operating Costs. Resource operating costs are those costs directly
related to the resource revenue sources. Total resource operating costs for the
six months of 1997 increased to $1,707,000 from $1,554,000 in 1996. Operations
and maintenance costs for 1997 were $631,000 compared to $509,000 for 1996. The
24% increase in 1997 operations and maintenance costs was primarily due to
higher property tax expense associated with the completed offsite improvements
for portions of the Mill Site property ($60,000)

                                       12
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

and increased maintenance and supplies costs for buildings and equipment
($46,000). Administrative support expenses for the six months of 1997 increased
3% to $1,076,000 from $1,045,000 for 1996. The increase was primarily due to
increases in insurance expense relating to the addition of environmental
pollution coverage for the Mill Site ($52,000) and depreciation expense relating
to the newly completed railroad and sewer plant improvements at the Mill Site
($22,000), partially offset by lower salaries and outside professional costs
($42,000).

     Corporate General and Administrative Expenses. Corporate general and
administrative expenses for the six months of 1997 increased 16% to $2,175,000
from $1,878,000 for 1996. The increase is due to higher professional and outside
consulting expenses ($279,000).

     Net Interest Expense.  Net interest expense for the six months of 1997 was
$420,000 compared to $250,000 in 1996.  The increase was due primarily to the
interest expense associated with $3,000,000 in increased borrowings under the
Union Bank credit facility.

     Pre-Tax Income and Income Tax Provision. The Company recorded income before
income tax provision of $756,000 for the six months of 1997, a 2% increase from
the $743,000 pretax income recorded in 1996. An income tax provision of $326,000
was recorded in the six months of 1997 as compared with $322,000 in 1996.
Historically, over 90% of the tax provisions are not currently payable due
primarily to utilization of the Company's net operating loss carryforwards
("NOL's"). Consequently, pretax income is an important indicator of the
Company's performance.

     Net Income.  For six months of 1997, the Company reported net income of
$430,000, or $.04 per share, a 2% increase from the $421,000, or $.04 per share,
reported for 1996.

COMPREHENSIVE INCOME

     The Financial Accounting Standards Board ("FASB") proposed, in 1996, a new
accounting standard concerning the reporting of comprehensive income. In June
1997, FASB Statement No. 130, Comprehensive Income was issued. Comprehensive
income was defined in the proposed standard as the aggregate of all changes in
shareholders' equity that occurred during the reporting periods other than
changes resulting from equity transactions with shareholders. The Statement
currently excludes the two items that the Company had previously disclosed in
the Management's Discussion and Analysis section of its 1996 Form 10-K as
comprehensive income: the increase in investment in Penkse Motorsports, Inc. due
to the Initial Public Offering, and the deferred income tax credited to equity
as a result of the reorganization. The FASB may in the future, consider whether
items such as the increase in equity due to an Initial Public Offering could be
included in Comprehensive Income. As a result, the Company has elected not to
adopt FASB 130 prior to its required adoption date, which would be the Company's
fiscal year ending December 31, 1998.

                        SECTION 2:  FINANCIAL POSITION

     Cash, and Cash Equivalents. The Company defines cash equivalents as highly
liquid debt instruments with original maturities of 90 days or less. Cash and
cash equivalents decreased $3,748,000 to $4,734,000 at June 30, 1997 from
$8,482,000 at December 31, 1996. Included in cash and cash equivalents is
$1,823,000 and $1,766,000 held solely for the benefit of MRC at June 30, 1997
and December 31, 1996, respectively. The decrease in cash and cash equivalents
is due primarily to the $4,819,000 in capital expenditures and $968,000 in
environmental remediation, incurred during the first six months of 1997.

     Working Capital. During the six months of 1997, current assets decreased
$1,008,000 to $10,810,000 while current liabilities increased $910,000 to
$13,968,000. The decrease in current assets resulted primarily from the
$3,748,000 decrease in cash and cash equivalents, discussed above, partially
offset by a

                                       13
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

$2,740,000 increase in accounts receivable, associated with costs and expenses
that are reimbursable from PMI and the West Valley MRF, LLC. The increase in
current liabilities resulted primarily from increase in vendor payables related
to capital projects. Also included in current liabilities at June 30, 1997 and
December 31, 1996 is $6,286,000 and $5,757,000, respectively, for environmental
remediation expenditures expected to be incurred over the next 12 months.
Finally current liabilities at June 30, 1997, and December 31, 1996 include
$1,815,000 and $1,616,000, respectively, in accounts payable and accrued
liabilities relating to MRC. As a result, working capital decreased during the
six months of 1997 by $1,918,000 to a negative $3,158,000 at June 30, 1997.

     Real Estate. Real Estate decreased $1,275,000 during the six months of 1997
due to the closing of the Company's restructured joint venture with Burrtec
Waste Industries for the West Valley MRF and the resulting contribution of 23
acres of land into West Valley MRF, LLC, ($2,199,000) being partially offset by
capital expenditures related to continued redevelopment of the Mill Site
properties ($924,000).

     Investments. The increase in investment in PMI is related to the Company's
recording of its share of equity in PMI's undistributed income during the six
months of 1997 ($1,115,000). The increase in investment in West Valley MRF, LLC
($1,302,000) is due to contributing the land into the joint venture ($1,750,000)
offset by a reclass of $448,000 to accounts receivable relating to development
costs which are reimbursable from the joint venture.

     Other Assets. The increase in other assets is primarily related to
approximately $2.6 million of capitalized landfill permitting and development
costs incurred by MRC during the first six months of 1997, and $580,000 in
improvements to the sewer treatment plant.

     Environmental Remediation. As is discussed extensively in the Company's
1996 Form 10-K Report, the Company estimates, based upon current information,
that its future remediation and other environmental costs for the balance of its
land and related matters, including groundwater and other possible third party
claims, will be between approximately $20 million and $32 million, depending
both upon the ultimate extent of the environmental remediation and clean-up
effort involved and which approved remediation alternatives are eventually
selected. In addition, the Company elected, in 1996, to restate its balance
sheets to show 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
$22.3 million in remediation and other environmental costs expended through June
30, 1997.

     As of June 30, 1997, the total short-term and long-term environmental
liabilities including remediation reflected on the Company's balance sheet was
approximately $31.5 million, the high end of the probable range of future
remediation and other environmental costs, which declined from the $32.2 million
as of December 31, 1996. The decrease is a result, primarily, of the $725,000 in
remediation and other environmental costs incurred in the six months of 1997 on
the Mill Site property.

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

                                       14
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

     Long-term Debt. As of June 30, 1997, the Company had $9,982,000 in long-
term debt comprised of $4,982,000 of debt issued as part of the purchase of
properties from the Lusk Joint Ventures in July 1994 and $5,000,000 borrowed
under the $30,000,000 revolving-to-term credit facility with Union Bank. The
Company increased its borrowing under the credit facility with Union Bank by
$2,000,000 in June 1997.

     Long-term Liabilities. The decrease in other long-term liabilities is
primarily due to the $1,228,000 in environmental remediation undertaken during
the six months of 1997.

     Minority Interest and Other Liabilities. As of June 30, 1997, the Company
has recorded $2,285,000 of minority interest relating to MRC in which the
Company had a pproximately a 73% equity interest.

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

     Stockholders' Equity. The $991,000 increase in stockholders' equity for the
six months ended June 30, 1997 included, net income ($430,000), issuance of 
common stock ($258,000), and deferred tax expense credited to equity due to 
the utilization of the Company's reorganization NOL carryfowards ($303,000). 
(See Note 2).

                    SECTION 3:  BUSINESS OUTLOOK

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

     On-Going Operations. As noted above, the Company's revenues from ongoing
operations are generally derived from the development of the Company's major
long-term projects and investments. The development of a number of these
projects and investments, such as the take-or-pay lease with Cucamonga and the
11.50% equity ownership in PMI, are essentially complete and the Company is
recognizing significant revenues and income from these investments. The Company
expects revenues from these projects and investments to increase moderately over
time as certain key economic factors impacting these projects and investments
increase.

     In regard to the lease with Cucamonga, the most significant economic factor
affecting future water lease revenues is likely to be adjustments in the MWD
rate for untreated and non-interruptible water as available through the Chino
Basin Municipal Water District (the "Lease Rate") upon which the lease payments
are calculated. The MWD rate established for untreated, non-interruptible water
is based on a number of factors, including MWD's need for funds to finance
capital improvements and to cover large fixed overhead costs. After increasing
at an average of over 9.0% per year during the past 35 years, MWD is projecting
that the MWD rate for untreated, non-interruptible water, including all of the
changed rates and charges implemented by MWD since July 1, 1995, will likely
increase at less than 5.0% per year for the next 3-5 years. This reduction is
due to a reduced capital budget, lower overhead, lower borrowing costs and
reduced levels of inflation. Also affecting the Company's future water lease
revenues is the dispute with Cucamonga regarding the calculation of the Lease
Rate. A ruling in favor of the Company would result in the receipt of all or a
portion of the $1,073,000 of lease payments in dispute as of June 30, 1997,
which the Company has fully reserved.

     In regard to the Company's 11.50% investment in PMI, the most significant
factors affecting the Company's future equity income from PMI will be the
increased revenues and net income generated by PMI from the expansion of its
professional motorsports operations. Critical to this expansion is the success
of TCS as well as PMI's ability to enhance the revenues and earnings from its
two recent major acquisitions: a 70% interest in North Carolina Motorspeedway,
Inc. and a 40% interest in Homestead-Miami Speedway, LLC.

                                       15
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

The success of the events at TCS and at the newly acquired race tracks, coupled
with the results of the other major racing events schedule for PMI's MIS and
Nazareth speedways and PMI's other motorsports related operations, will
determine the amount of income from equity method investments the Company
reports in the future.

     The Company is also spending a significant amount of capital in the
continued development of its two other major project and investment
opportunities: the redevelopment of the remaining approximately 668 acres
(gross) of the Company's Mill Site Property and the re-permitting of the Eagle
Mountain Landfill by MRC, the Company's 73% owned subsidiary. If it is
successful in completing the development of these two projects as planned, the
Company expects to generate significant future revenues and net income from
them. However, as is noted elsewhere in this Report, there are also numerous
risks associated with completing the re-permitting of the Eagle Mountain
Landfill and the redevelopment of the remaining Mill Site Property that could
materially impact the Company's future revenues and net income from these
projects.

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

     The West Valley MRF, which the Company and Burrtec Waste Industries Inc.
jointly own, is under construction on 23 acres of the Mill Site property
adjacent to TCS.  Financing for the construction of the West Valley MRF is in
place and the facility is expected to be in operation prior to the end of 1997.
The ultimate success of West Valley MRF is dependent upon the ability of Burrtec
Waste Industries Inc. to negotiate economically viable agreements with local
communities and waste handlers to bring their municipal and recyclable waste to
the West Valley MRF.

     In regard to the Eagle Mountain Landfill, MRC continues to pursue the
activities necessary to re-permit the Landfill Project. The final EIR/EIS was
completed and released in January 1997 and on May 7, 1997 the Riverside County
Planning Commission voted to approve the EIR and forward its recommendations to
the Riverside County Board of Supervisors. The Riverside Board of Supervisors is
currently considering the Landfill Project with a vote currently anticipated
during August, 1997. In addition, if the Landfill Project is approved, the
Company anticipates further litigation by the opponents to the Landfill Project
in state and federal court in an effort to block the Landfill Project. The
Company currently expects to spend approximately $3.7 million for support of
MRC's landfill re-permitting efforts in 1997 and approximately an additional
$1.9 million in 1998.

     Capital Resources. The Company expects that its current cash balances and
short-term investments together with: (a) cash provided from operating
activities; (b) amounts available under its revolving-to-term credit facility
with Union Bank (less $2,832,000 in reductions in the borrowing base and
$5,510,000 reserved for financial assurances required by the DTSC and relating
to environmental remediation on the
  
                                       16
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

Mill Site Property) will be sufficient to satisfy both the Company's near-term
operating cash requirements and to enable the Company to continue to fund the
development of its long-term projects and investments. As was discussed in more
detail above, the Company expects to commit, in 1997, a total of approximately
$14.2 million for capital projects and investments. To the extent that
additional capital resources are required, such capital will be raised through
bank borrowings, partnerships, joint venture arrangements, additional equity or
the sales or monetization of assets.

     Improved Cash Flow from Use of Net Operating Loss Tax Carryforwards. Due to
the Company's status as the reorganized 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, 1997, are estimated to be approximately $107,000,000 for federal
purposes and $11,000,000 for California purposes. The federal NOLs expire in
varying amounts over a period from year 2000 to 2010 while the California NOLs
expire in year 1997 and 2000.

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


                 (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)

                                       17
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                                     AS OF

<TABLE>
<CAPTION>
 
                                                JUNE 30,      DECEMBER 31,
                                                  1997            1996
                                             -------------   -------------
<S>                                          <C>              <C>
                                             (Unaudited)
ASSETS
 
Current Assets
   Cash and cash equivalents................ $  4,734,000     $  8,482,000
  Accounts receivable and other, net of
   allowance for doubtful accounts of 
   $1,387,000 and $1,034,000, respectively..    5,957,000        3,217,000
  Insurance settlement receivable...........      119,000          119,000
                                             ------------     ------------
                                               10,810,000       11,818,000
                                             ------------     ------------ 
Investment in common stock of Penske
 Motorsports, Inc. (Fair market value of    
 1,627,923 shares equal to $53,005,000 
 as of June 30, 1997).......................   38,863,000       39,978,000
                                             ------------     ------------
 Investment in Fontana Union Water           
 Company....................................   16,108,000       16,108,000
                                             ------------     ------------
Investment in West Valley MRF...............    2,326,000        1,024,000
                                             ------------     ------------
Real Estate
   Land and improvements....................   52,980,000       52,274,000
   Real estate under development............    4,412,000        6,393,000
                                             ------------     ------------
 
                                               57,392,000       58,667,000
                                             ------------     ------------
 
Other Assets
   Landfill permitting and development.....     8,287,000        5,645,000
   Buildings and equipment (net)...........     2,668,000        2,210,000
                                             ------------     ------------
 
                                               10,955,000        7,855,000
                                             ------------     ------------
 
Total Assets..............................   $137,569,000     $134,335,000
                                             ============     ============
</TABLE>


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

                                       18
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                                     AS OF

<TABLE>
<CAPTION>
 
 
                                              JUNE 30,      DECEMBER 31,
                                                1997            1996
                                           --------------   -------------
<S>                                        <C>              <C>
                                            (Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current Liabilities
   Accounts payable.....................    $  2,796,000     $  2,936,000
   Accrued liabilities..................       4,646,000        4,125,000
   Current portion of long-term debt....         240,000          240,000
   Environmental remediation............       6,286,000        5,757,000
                                            ------------     ------------
 
                                              13,968,000       13,058,000
                                            ------------     ------------
 
Long-term Liabilities
   Accrued liabilities..................       1,699,000        1,685,000
   Deferred tax liabilities.............       1,958,000        1,958,000
   Long-term debt.......................       9,982,000        8,102,000
   Environmental remediation............      25,238,000       26,466,000
                                            ------------     ------------
 
                                              38,877,000       38,211,000
                                            ------------     ------------
 
Total Liabilities.......................      52,845,000       51,269,000
                                            ------------     ------------
 
Minority Interest.......................       2,285,000        1,618,000
                                            ------------     ------------
 
Commitments and Contingencies
 
Stockholders' Equity
   Common stock, par value $.03 per
    share, authorized
    13,333,333 shares; issued and
     outstanding                               
    10,515,775 and 10,488,114
     respectively.......................         316,000          315,000
   Capital in excess of par value.......      70,997,000       70,437,000
   Retained earnings since November 15,       11,126,000       10,696,000
    1988................................    ------------     ------------
 
Total Stockholders' Equity..............      82,439,000       81,448,000
                                            ------------     ------------
 
Total Liabilities and Stockholders'         $137,569,000     $134,335,000
 Equity.................................    ============     ============
</TABLE>



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

                                       19
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF INCOME 
           FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
                                  (UNAUDITED)
<TABLE>
<CAPTION>
 
                                                   THREE MONTHS ENDED               SIX MONTHS ENDED
                                                        JUNE 30                          JUNE 30
                                           --------------------------------   ----------------------------  
                                                1997               1996          1997             1996       
                                           --------------     -------------   -----------      -----------   
<S>                                        <C>                  <C>           <C>              <C>           
RESOURCE REVENUES                                                                                            
 Ongoing Operations                                                                                          
  Water resource........................      $ 1,164,000     $ 1,000,000     $ 2,297,000      $ 2,116,000   
  Property redevelopment................          389,000         277,000         731,000          540,000   
  Income from equity method investments.        1,250,000         721,000       1,227,000          884,000   
                                              -----------     -----------     -----------      -----------   
                                                                                                             
   Total ongoing operations.............        2,803,000       1,998,000       4,255,000        3,540,000   
                                              -----------     -----------     -----------      -----------   
                                                                                                             
 Interim Activities                                                                                          
  Lease, service and other..............          418,000         410,000         803,000          885,000   
                                              -----------     -----------     -----------      -----------   
                                                                                                             
   Total resource revenues..............        3,221,000       2,408,000       5,058,000        4,425,000   
                                              -----------     -----------     -----------      -----------   
                                                                                                             
RESOURCE OPERATING COSTS                                                                                     
 Operations and maintenance.............          326,000         261,000         631,000          509,000   
 Administrative support expenses........          548,000         569,000       1,076,000        1,045,000   
                                              -----------     -----------     -----------      -----------   
                                                                                                             
   Total resource operating costs.......          874,000         830,000       1,707,000        1,554,000   
                                              -----------     -----------     -----------      -----------   
                                                                                                             
INCOME FROM RESOURCES...................        2,347,000       1,578,000       3,351,000        2,871,000   
                                                                                                             
 Corporate general and administrative           1,059,000         920,000       2,175,000        1,878,000   
  expenses                                    -----------     -----------     -----------      -----------   
                                                                                                             
INCOME FROM OPERATIONS..................        1,288,000         658,000       1,176,000          993,000   
                                                                                                             
 Net Interest expense...................          237,000         139,000         420,000          250,000   
                                              -----------     -----------     -----------      -----------   
                                                                                                             
INCOME BEFORE INCOME TAX PROVISION......        1,051,000         519,000         756,000          743,000   
                                                                                                             
 Income tax provision                                                                                        
  Currently payable.....................           16,000          16,000          23,000           23,000   
  Deferred tax expense credited to                431,000         209,000         303,000          299,000   
   equity...............................      -----------     -----------     -----------      -----------   
                                                                                                             
NET INCOME..............................      $   604,000     $   294,000     $   430,000      $   421,000   
                                              ===========     ===========     ===========      ===========   
                                                                                                             
EARNINGS PER SHARE......................      $       .06     $       .03     $       .04      $       .04   
                                              ===========     ===========     ===========      ===========   
                                                                                                             
Weighted Average Number of Shares                                                                            
 Outstanding............................       10,762,000      10,711,000      10,747,000       10,730,000   
</TABLE>

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

                                       20
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE SIX MONTHS ENDED JUNE 30
                                  (UNAUDITED)

<TABLE>
<CAPTION>

                                                  1997           1996
                                              ------------   ------------


<S>                                           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income.................................. $   430,000    $   421,000
 Provision for income tax which is
  credited to equity.........................     303,000        299,000
 Equity income in Penske Motorsports           (1,065,000)      (559,000)
  Inc........................................
 Depreciation and amortization...............     378,000        336,000
 Allowance for doubtful accounts.............     353,000       (133,000)
 Changes inassets:
   Accounts receivable and other.............    (736,000)     7,419,000
 Changes in liabilities:
   Current liabilities.......................     129,000     (3,540,000)
                                              -----------    -----------

 Net cash flows from operating
  activities.................................    (208,000)     4,243,000
                                              -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES
 Minority interest and other liabilities.....     667,000        543,000
 Investment in Penske Motorsports, Inc.......         ---        249,000
 Environmental remediation expenditures......    (968,000)    (3,777,000)
 Capital expenditures........................  (4,819,000)    (5,101,000)
 Other investments...........................    (225,000)      (211,000)
                                              -----------    -----------

 Net cash flows from investing
  activities.................................  (5,345,000)    (8,297,000)
                                               ----------     ----------
CASH FLOWS FROM FINANCING ACTIVITIES
 Issuance of common stock....................      75,000        121,000
 Borrowings under revolver-to-term
  credit facility............................   2,000,000            ---
 Payment of loan fees........................    (150,000)           ---
 Principal payments on note payable..........    (120,000)      (120,000)
                                              -----------    -----------

NET CASH FLOWS FROM FINANCING ACTIVITIES.....   1,805,000          1,000
                                              -----------    -----------

NET CHANGES IN CASH AND CASH EQUIVALENTS.....  (3,748,000)    (4,053,000)

CASH AND CASH EQUIVALENTS AT BEGINNING         
 OF YEAR.....................................   8,482,000     10,863,000
                                              -----------    -----------
CASH AND CASH EQUIVALENTS AT END OF THE       
 PERIOD......................................  $4,734,000     $6,810,000
                                              ===========     ==========
</TABLE> 

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

                                       21
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                     FOR THE SIX MONTHS ENDED JUNE 30, 1997
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                           
                                       COMMON STOCK        CAPITAL IN
                                 -----------------------    EXCESS OF     RETAINED
                                    SHARES      AMOUNT      PAR VALUE     EARNINGS        TOTAL
                                 ------------------------------------------------------------------
<S>                              <C>            <C>        <C>           <C>            <C>
Balance at December 31, 1996...   10,488,114    $315,000   $70,437,000   $10,696,000    $81,448,000
 
   Issuance of shares of
       Common stock............       27,661       1,000       257,000           ---        258,000
 
   Provision for income tax
       Credited to equity......          ---         ---       303,000           ---        303,000
 
   Net Income..................          ---         ---           ---       430,000        430,000
                                  ----------   ---------   -----------   -----------    -----------
 
Balance at June 30, 1997.......   10,515,775    $316,000   $70,997,000   $11,126,000    $82,439,000
                                  ==========   =========   ===========   ===========    ===========
</TABLE>



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

                                       22
<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, 1997, and
for the three and six month periods ended June 30, 1997 and 1996, as well as
related notes should be read in conjunction with the audited consolidated
financial statements and related notes as of and for the year ended December 31,
1996. In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary (all of which are normal and/or
recurring in nature) to present fairly the Company's financial position at June
30, 1997, and results of operations and cash flows for the three and six month
periods ended June 30, 1997 and 1996.

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

NOTE 2.  STOCKHOLDERS' EQUITY
      
     During 1997 and 1996 the Company recorded transactions directly to 
stockholders' equity other than changes resulting from net income or equity 
transactions with shareholders.  These transactions include deferred tax expense
credited to equity due to the utilization of the Company's reorganization NOL
carryforwards, and the increase in equity due to the Penske Motorsports, Inc.
Initial Public Offering in March 1996. These amounts for the three and six
months ended June 30, 1997 and 1996 are as follows:

<TABLE> 
<CAPTION> 
                                                                     THREE MONTHS ENDED            SIX MONTHS ENDED 
                                                                           JUNE 30                     JUNE 30      
                                                                    1997            1996          1997          1996
                                                                    ----            ----          ----          ---- 
<S>                                                              <C>             <C>            <C>           <C>   
Deferred tax expense credited to equity....................       $431,000        $209,000       $303,000     $  299,000
Investment increase in Penske Motorsports, Inc.............              -               -              -      6,116,000
                                                                  --------        --------       --------     ----------
                                                                  $431,000        $209,000       $303,000     $6,415,000   
                                                                  ========        ========       ========     ==========
</TABLE> 

NOTE 3.  CUCAMONGA LEASE

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

                                       23
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

the basis of amounts received. The total amount of lease payments in dispute as
of June 30, 1997 is approximately $1,073,000.

NOTE 4.  INVESTMENT IN WEST VALLEY MRF, LLC

     The Company and Burrtec Waste Industries, Inc. ("Burrtec"), a
privately-held company, completed their revised agreement for the development,
construction and operation of the West Valley MRF, a municipal solid waste
transfer and recovery facility. Effective June 19, 1997, Kaiser Recycling
Corporation ("KRC") and West Valley Recycling & Transfer, Inc. ("WVRT"),
Burrtec's wholly owned subsidiary, which are the members of the newly created
limited liability company, West Valley MRF, LLC, entered into a Members
Operating Agreement which is substantially the equivalent of a joint venture
agreement but for a limited liability company. The West Valley MRF is under
construction and is expected to be completed during the fourth quarter of this
year.

     Pursuant to the terms of the Members Operating Agreement, KRC contributed
an approximately 23 acre parcel of the Mill Site on which Phase 1 of the West
Valley MRF is being constructed and WVRT contributed all of the goodwill of
Burrtec's recycling business presently operated out of Riverside County
entitling West Valley MRF, LLC to all revenues generated from such business
after the closing date.

     Most of the financing for Phase 1's projected cost of approximately
$10,300,000, including reimbursement of many of the previously incurred
development costs of Burrtec and the Company, was obtained through the issuance
and sale of $9,500,000 in California Pollution Control Financing Authority (the
"Authority") Variable Rate Demand Solid Waste Disposal Revenue Bonds (West
Valley MRF, LLC Project) Series 1997A (the "Bonds"). The Bonds are secured by an
irrevocable letter of credit issued by Union Bank of California, N.A. ("Union
Bank"). The Bonds have a stated maturity date of June 1, 2012, although West
Valley MRF, LLC is required pursuant to its agreement with Union Bank to
annually redeem a portion of the Bonds on a stated schedule. Pursuant to a
Guaranty Agreement with Union Bank the Company and KRC are liable for fifty
percent (50%) of the principal and interest on the Bonds in the event of a
default by the West Valley MRF, LLC.

     The Company will be accounting for its investment in West Valley MRF, LLC
under the equity method.


NOTE 5.  INVESTMENT IN PENSKE MOTORSPORTS, INC.

     The Company currently owns 1,627,923 shares, or approximately 11.50% of the
outstanding common stock of PMI. Effective May 19, 1997, PMI issued
approximately 907,000 shares of its common stock to acquire the majority
interest in North Carolina Motorspeedway, Inc., the owner and operator of an
approximately 1 mile oval track in Rockingham, North Carolina. That transaction
resulted in the dilution of the Company's percentage of ownership in PMI from
12.29% to 11.50%. North Carolina Motorspeedway hosts two NASCAR Winston Cup
series races, two NASCAR Busch Grand National Races and the annual Unocal
76/Rockingham Pit Crew Championship.

                                       24
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


NOTE 6.  SUPPLEMENTAL CASH FLOW INFORMATION

     During the six months ended June 30, 1997 the Company issued $258,000 of
common stock for payment of 1996 bonuses and 1997 compensation.


NOTE 7.  COMMITMENTS AND CONTINGENCIES

     The Company guaranteed fifty percent (50%) of the principal and interest on
$9.5 million in tax exempt variable interest rate bonds issued in connection
with the construction of the West Valley MRF.

ENVIRONMENTAL CONTINGENCIES

     The Company estimates, based upon current information, that its future
remediation and other environmental costs, including groundwater and other
possible third party claims, will be between approximately $20 million and $31.5
million, depending both upon the ultimate extent of the environmental
remediation and the cleanup effort involved and which approved remediation
alternatives are eventually selected.

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

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

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




                  REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

                                       25
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

                                    PART II


ITEM 1.  LEGAL PROCEEDINGS

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


ITEM 2.  CHANGES IN SECURITIES

         None.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         Not applicable.


ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

         On June 23, 1997, the Company held its annual meeting of stockholders.
The only action taken by the stockholders was a vote on the election of nine
directors for the Company for the ensuing year. The stockholders re-elected the
nine current members of the Board of Directors. The vote on each nominee to the
Board was as follows:
<TABLE>
<CAPTION>
 
ELECTION TO THE BOARD OF DIRECTORS         VOTES FOR   VOTES WITHHELD
 VOTES FOR
<S>                                        <C>         <C>
Ronald E. Bitonti.......................   6,212,998        21,787
Todd G. Cole............................   6,215,139        19,646
Reynold C. MacDonald....................   6,220,871        13,914
William J. Morgan.......................   6,219,544        15,241
Charles E. Packard......................   6,230,128         4,657
Thomas S. Rabone........................   6,224,104        10,681
Lyle B. Stevenson.......................   6,219,371        15,414
Richard E. Stoddard.....................   6,229,619         5,166
Marshall F. Wallach.....................   6,229,942         4,843
</TABLE>


ITEM 5.  OTHER INFORMATION

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

                                       26
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
<TABLE> 
<CAPTION> 
         A.     Exhibits
                --------
<S>             <C> 
Exhibit 10.1    Members Operating Agreement dated June 19, 1997 between Kaiser
                Recycling Corporation and West Valley Recycling & Transfer, Inc.

Exhibit 10.1.1  Performance Guaranty and Indemnification Agreement (KRC
                Obligations) dated June 19, 1997 given by Kaiser Ventures Inc.
                for the benefit of West Valley MRF, LLC and West Valley
                Recycling & Transfer, Inc.

Exhibit 10.2    Loan Agreement dated as of June 1, 1997 between West Valley MRF,
                LLC and California Pollution Control Financing Authority.

Exhibit 10.2.1  Indenture Agreement dated as of June 1, 1997 between California
                Pollution Control Financing Authority and BNY Western Trust
                Company for the benefit of $9,500,000 California Pollution
                Control Financing Authority Variable Rate Demand Solid Waste
                Disposal Revenue Bonds (West Valley MRF, LLC Project) Series
                1997A

Exhibit 10.3    Remarketing Agreement dated as of June 1, 1997, and among West
                Valley MRF, LLC and Westhoff, Cone & Holmstedt and Smith Barney,
                Inc. with regard to $9,500,000 California Pollution Control
                Financing Authority Variable Rate Demand Stock Waste Disposal
                Revenue Bonds (West Valley MRF, LLC Project) Series 1997A

Exhibit 10.4    Reimbursement Agreement dated as of June 1, 1997 between West
                Valley MRF, LLC and Union Bank of California, N.A.

Exhibit 10.4.1  Guaranty and Mandatory DSR Agreement dated as of June 1, 1997
                given by Kaiser Ventures Inc. and Kaiser Recycling Corporation
                for the benefit of Union Bank of California, N.A.

Exhibit 10.5    Environmental Compliance Agreement dated as of June 19, 1997
                between West Valley MRF, LLC and Union Bank of California, N.A.

Exhibit 10.5.1  Environmental Guaranty Agreement dated as of June 19, 1997 given
                by Kaiser Ventures Inc. and Kaiser Recycling Corporation for the
                benefit of Union Bank of California, N.A.

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

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

                None.
</TABLE> 

                                       27
<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 13, 1997       /s/ James F. Verhey
                              -------------------
                              James F. Verhey
                              Principal Financial Officer

                                       28