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


                                   FORM 10-Q


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


For the Quarter Ended March 31, 1998          Commission File Number 0-18858



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


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


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


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


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

                      Yes  X       No
                          ___            

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

                      Yes  X       No
                          ---         

On May 4, 1998, the Company had 10,672,815 shares of Common Stock, $.03 par
value, outstanding (including 136,919 shares deemed outstanding and held in
reserve by the Company for issuance to the former general unsecured creditors of
Kaiser Steel Corporation pursuant to its Plan of Reorganization).
<PAGE>
 
                        TABLE OF CONTENTS TO FORM 10-Q
                                        
<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......................   6
 
  Item 2.  FINANCIAL STATEMENTS......................................   13
 
           CONSOLIDATED BALANCE SHEETS...............................   13
 
           CONSOLIDATED STATEMENTS OF OPERATIONS.....................   15
 
           CONSOLIDATED STATEMENTS OF CASH FLOWS.....................   16
 
           CONSOLIDATED STATEMENT OF CHANGES IN
            STOCKHOLDERS' EQUITY.....................................   17
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................   18
 
PART II
 
  Item 1.  LEGAL PROCEEDINGS.........................................   19
 
  Item 2.  CHANGES IN SECURITIES.....................................   20
 
  Item 3.  DEFAULTS UPON SENIOR SECURITIES...........................   20
 
  Item 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.........   20
 
  Item 5.  OTHER INFORMATION.........................................   20
 
  Item 6.  EXHIBITS AND REPORTS ON FORM 8-K..........................   20
 
SIGNATURES...........................................................   21

</TABLE> 
                                       i
<PAGE>
 
                        AVAILABILITY OF PREVIOUS REPORTS
                        --------------------------------
                                        
     THE COMPANY WILL FURNISH WITHOUT CHARGE, TO EACH STOCKHOLDER, UPON WRITTEN
REQUEST OF ANY SUCH PERSON, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997 (THE "10-K REPORT") AS FILED WITH THE
SECURITIES EXCHANGE AND COMMISSION, INCLUDING THE FINANCIAL STATEMENT SCHEDULES
THERETO.  THOSE REQUESTING A COPY OF THE 10-K REPORT THAT ARE NOT CURRENTLY
STOCKHOLDERS OF THE COMPANY MAY ALSO OBTAIN A COPY DIRECTLY FROM THE COMPANY.
REQUESTS FOR A COPY OF THE 10-K REPORT SHOULD BE DIRECTED TO VICE PRESIDENT-
CORPORATE RELATIONS, AT 3633 EAST INLAND EMPIRE BOULEVARD, SUITE 850, ONTARIO,
CALIFORNIA 91764.

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

                                      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 or development of the Company's Mill
Site real estate.  Readers are cautioned not to put undue reliance on forward-
looking statements.  The Company disclaims any intention to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.

                            ADDITIONAL INFORMATION

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


                                 INTRODUCTION
                                        
BUSINESS UPDATE

General

  Kaiser Ventures Inc. ("Kaiser" or the "Company") is an asset development 
company pursuing project opportunities and investments in water resources, 
motorsports, property redevelopment and solid waste management.  The Company's 
long-term emphasis is on the further development of its principal assets:  (i) a
50.88% interest in Fontana Union Water Company ("Fontana Union"), a mutual water
company; (ii) a 11.46% interest in Penske Motorsports, Inc. ("PMI"), a 
publicly-traded professional motorsports company that has developed the 
California Speedway ("TCS") on land acquired from the Company; (iii) 
approximately a 73% interest in Mine Reclamation Corporation ("MRC"), the 
developer of the Eagle Mountain Landfill Project (the "Landfill Project"); (iv)
a 50% joint venture interest in the West Valley MRF ("WVMRF"), a transfer
station and recycling facility located on land acquired from the Company; (v)
approximately 629 acres of the former Kaiser Steel Corporation ("KSC") steel
mill site (the "Mill Site Property"); and (vi) the 11,350 acre idle iron ore
mine in the California desert (the "Eagle Mountain Site"), which includes the
associated 460 acre town of Eagle Mountain ("Eagle Mountain Townsite") and the
land leased to MRC for the Landfill Project. The Company is also pursuing other
related longer-term growth opportunities on the balance of its Mill Site
Property, including the redevelopment of industrial and commercial parcels of
land near TCS and the WVMRF.

                                       1
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


Investment in Fontana Union Water Company

  The Company, through a wholly-owned subsidiary, Fontana Water Resources, Inc.,
leases its 50.88% ownership of the capital stock of Fontana Union, a mutual
water company, to Cucamonga pursuant to a 102-year take-or-pay lease expiring in
2092 (the "Cucamonga Lease").  Currently, the Company's pro rata interest in
unclaimed water raised its effective interest in Fontana Union to 57.33%.  Under
the terms of the Cucamonga Lease, Cucamonga's payments to the Company are based
upon established fixed quantities of water for most of the applicable sources,
multiplied by a fixed percentage of the rate for untreated and non-interruptible
water from the Metropolitan Water District of Southern California ("MWD") as
available through the Chino Basin Municipal Water District as it may change from
time-to-time (the "Lease Rate").

  On July 1, 1995, MWD implemented changed rates and a new rate structure.  As a
result of these changes, the Company asserted that all the changed rates and
items implemented by MWD, which must be paid in order to receive untreated, non-
interruptible water from MWD, are to be included in the calculation of the MWD
rate payable under the terms of the Cucamonga Lease.  Cucamonga disputed the
Company's interpretation of the Cucamonga Lease.  Alternatively, the Company
asserted that the MWD rate as defined in the Cucamonga Lease had been
discontinued, requiring the parties to negotiate a new lease rate in accordance
with the terms of the Cucamonga Lease.  Because the Company and Cucamonga were
unable to resolve this dispute, in 1996 the Company instituted litigation
against Cucamonga in San Bernardino County Superior Court.  After a five-day
trial held in March 1998, the Court concluded that the rate on which the
Cucamonga Lease had been based was discontinued effective July 1, 1995.
Therefore, the terms of the Cucamonga Lease require the parties to negotiate, in
good faith, a new substitute rate.  If the parties are unable to agree on a
substitute rate, the matter is referred to arbitration.  There is no specified
time period in which the new substitute rate must be established.  The Company
anticipates that negotiations with Cucamonga will begin in the second quarter of
1998.

  During the first quarter, MWD announced only minimal increases, if any, in its
various water rates for 1998.

  During the first quarter, the Company's subsidiary, Fontana Water Resources,
Inc., initiated litigation under the California Environmental Quality Act
against San Bernardino County and various land owners in connection with the
proposed expansion of the Mid-Valley Sanitary Landfill owned by San Bernardino
County.  The Company believes the environmental impact report prepared and
certified for the proposed landfill expansion project is deficient.  In summary,
the Company is concerned about water quality and quantity issues involving the
Colton/Rialto groundwater basin, over which the existing Mid-Valley Sanitary
Landfill and proposed expansion are located.  Pursuant to the terms of the
Cucamonga Lease, the Company is paid annually for 3,100 acre feet of water from
this groundwater basin.  San Bernardino County has acknowledged the issues
raised by the Company and others and has commenced negotiations to settle the
litigation.  However, there is no assurance that there will be a satisfactory
settlement of the litigation.

Investment in Penske Motorsports, Inc.

  The Company owns 1,627,923 shares, or approximately 11.46% of the common stock
of PMI.  The Company's ownership interest in PMI was acquired as a result of:
(i) its contribution in November, 1995, to PMI of approximately 480 acres, as
adjusted, of the Central Mill Site Property on which the California Speedway
("TCS") has been built; and (ii) the subsequent sale of the Speedway Business
Park, totaling approximately 54 acres to PMI in December, 1996.  PMI is traded
on the NASDAQ National Market under the symbol "SPWY".

                                       2
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

  PMI is a leading promoter and marketer of professional motorsports in the
United States as well as an owner and operator of speedway facilities.  PMI
currently owns:  (i) Michigan International Speedway, Inc. which owns and
operates the Michigan Speedway ("MIS"), in Brooklyn, Michigan; (ii) The
California Speedway Corporation, which owns and operates TCS near Los Angeles,
California; (iii) Pennsylvania International Raceway, Inc. which owns and
operates the Nazareth Motor Speedway ("Nazareth") in Nazareth, Pennsylvania;
(iv) North Carolina Motor Speedway, Inc. which owns and operates the North
Carolina Motor Speedway ("NCMS") in Rockingham, North Carolina; (v) a fortyfive
percent (45%) interest in Homestead-Miami, LLC, the operator of the Metro-Dade
Homestead Motorsports Complex: in Dade County, Florida; (vi) Motorsports
International Corp. ("MIC"), a motorsports apparel and memorabilia company; and
(vii) Competition Tire West, Inc. and Competition Tire South, Inc., distributors
of Goodyear racing tires in the mid-west and southern regions of the United
States.

  In March 1998, PMI announced the sale of its seven percent (7%) interest in
Grand Prix of Long Beach, Inc. (Nasdaq:GPLB), the organizer and operator of the
annual CART PPG Cup Race run on the streets of Long Beach, California and the
owner and operator of Gateway International Raceway in Madison, Illinois and
Memphis Motorsports Park in Millington, Tennessee to Dover Downs Entertainment,
Inc.

  For the first quarter of 1998, PMI announced gross revenues of $10.1 million
and a net loss of $1.6 million or $0.12 per share. Due to the seasonal nature of
racing, losses are anticipated in the first and fourth quarter of the year and
profits in the second and third quarters. As a result, the Company's reported
share of PMI's net income/loss will reflect the seasonal nature of PMI's
business. The Company began accounting for its share of PMI's net income as of
April 1, 1996. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

  The following table sets forth the range of the low and high reported bid
price of PMI's common stock for the first quarter of 1998, as reported on the
NASDAQ National Market System.

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

  On May 11, 1998, the reported closing price of PMI's common stock was $32.75.

Property Redevelopment

  Mill Site Redevelopment Plan.  After completion of the transactions with PMI,
and taking into account the land to be used for the materials recovery facility
and transfer station located on the Mill Site Property ("West Valley MRF"), the
Company now owns approximately 629 acres (gross).  However, depending upon the
final redevelopment plan and after taking into account slope loss, rail road
easements, the San Sevaine flood control channel, proposed streets and highway
improvements, the sewer treatment facility, and other similar items, the Company
anticipates having approximately 500 useable acres available for development.
Following is a summary of the progress of the Company's redevelopment plans
during the first quarter.

  The Company is continuing to move forward with its plans to redevelop the
balance of the Mill Site Property.  Except as noted below, the balance of the
Mill Site Property requires various entitlements and permits from San Bernardino
County prior to redevelopment.  The first formal step in the entitlement and
permitting process was commenced in the second quarter of 1997 when the Company
filed an application

                                       3
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

for a Specific Plan with San Bernardino County for all of the Mill Site Property
except for: (i) approximately 26 acres within the City of Rancho Cucamonga; (ii)
approximately 135 acres constituting the East Slag Pile property; (iii) the
remaining NAPA Lot of approximately 15 acres (already permitted); and (iv) the
balance of the Mill Site reserved for possible expansion of the West Valley MRF,
approximately 5 acres (already permitted).

  The 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. The Company is actively pursuing and has received numerous 
inquiries from potential purchasers regarding the Mill Site Property.

  The entire entitlement and permitting process currently is anticipated to be
completed in the third or early fourth quarter of 1998. In addition, the Company
will continue to evaluate and undertake the required environmental remediation
of portions of the Mill Site Property.

  In anticipation of the redevelopment of the Mill Site Property, physical
demolition of one of the large remaining buildings commenced during the first
quarter, with demolition anticipated to be complete by mid-summer 1998. In
addition, as part of the planned redevelopment of the site, the Company gave
notice to all of the tenants of the Mill Site Property that they must vacate the
property no later than the end of the third quarter, 1998.

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

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

Waste Management

West Valley Materials Recovery Facility

  The Company, through a wholly-owned subsidiary, and Burrtec Waste Industries,
Inc., through its wholly-owned subsidiary, each own a fifty percent (50%)
interest in West Valley MRF, LLC, a limited liability Company that owns the West
Valley MRF.  Phase 1 of the West Valley MRF, which includes a 62,000 square foot
building, sorting equipment, and related facilities for waste transfer and
recycling services, was constructed and equipped, in the last half of 1997.  It
became operational on a limited basis in late October 1997 and became fully
operational in January 1998.  The West Valley MRF currently receives and
processes approximately 800 to 1,000 tons per day of non-hazardous commercial
and municipal solid waste.  During the first quarter, the West Valley MRF
generated $1.6 million in net revenues and the Company recognized, under the
equity method of accounting, net income of $30,000 from West Valley MRF.

                                       4
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


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

Eagle Mountain Landfill Project

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

  EIR Litigation and Final Decision. After the September 1997, approval of the
new environmental impact report for the Landfill Project ("EIR"), the litigation
with respect to the EIR resumed. On February 17, 1998, Judge Judith McConnell of
the San Diego County Superior Court issued her final ruling with respect to the
litigation before her on the new EIR. Judge McConnell reversed herself with
respect to several of the items she initially had determined to be defective in
her December 31, 1997 tentative ruling, but found that the new EIR was still
inadequate in evaluating the Landfill Projects impacts in two general areas: (i)
the threatened desert tortoise; and (ii) impacts to Joshua Tree National Park.
Specifically, according to Judge McConnell, there was no substantial evidence in
the record to support the new EIR's conclusion that the impact to the desert
tortoise would be mitigated to a level below significance. In particular the
Court concluded that there was a lack of required tortoise-proof fencing and
cited the Desert Tortoise Recovery Plan that recommends no new landfills be
constructed in desert tortoise habitat. With respect to Joshua Tree National
Park, the Court found that the EIR improperly split its analyses of the total
"wilderness experience" into two parts: wilderness resources and the wilderness
experience. The Court also found that there was no support for the conclusion
that "non-wilderness" areas within the Park should be treated any differently
from other areas within the Park. The Court also expressed concerns about the
effect of the night time lighting on the Park resulting from the possible
expansion of the Eagle Mountain Townsite and also concluded that the EIR failed
to analyze the impact to biological resources of the Park as a complete and
interrelated system.

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

                                       5
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES
                       

  In summary, after an evaluation of the various alternatives, the Company and
MRC authorized in April 1998:  (i) the filing of an appeal of the San Diego
County Superior Court decision; (ii) continuing to pursue the Federal land
exchange; and (iii) a private placement of MRC common stock to existing MRC
shareholders of approximately $2.1 million.  The Company has approved the
purchase of up to 80% of this private placement.  The Company will continue to
evaluate alternatives with respect to the Landfill Project including those
outlined above.  It is anticipated that additional financing for MRC will be
required in the third quarter of this year.

  Risks.  As is discussed in more detail in the Company's 1997 Form 10-K Report,
there are numerous risks associated with MRC and the Landfill Project which must
be overcome to achieve the financing, permitting, construction and operation of
the Landfill Project.  There have been and will continue to be opponents to the
Landfill Project.  Given the successful legal challenges that have occurred to
date and the controversies that generally surround landfill projects, future
legal challenges are likely.  There is no guarantee that the Landfill Project
will be successfully permitted and ultimately operational.


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

                         Section 1:  Operating Results

General

  Kaiser Ventures Inc. ("Kaiser" or the "Company") is an asset development
company pursuing project opportunities and investments in water resources,
motorsports, property redevelopment and solid waste management.  The Company's
long-term emphasis is on the further development of its principal assets:  (i) a
50.88% interest in Fontana Union Water Company ("Fontana Union"), a mutual water
company; (ii) a 11.46% interest in Penske Motorsports, Inc. ("PMI"), a publicly-
traded professional motorsports company that has developed the California
Speedway ("TCS") on land acquired from the Company; (iii) approximately a 73%
interest in Mine Reclamation Corporation ("MRC"), the developer of the Eagle
Mountain Landfill Project (the "Landfill Project"); (iv) a 50% joint venture
interest in the West Valley MRF ("WVMRF"), a transfer station and recycling
facility located on land acquired from the Company; (v) approximately 629 acres
of the former Kaiser Steel Corporation ("KSC") steel mill site (the "Mill Site
Property"); and (vi) the 11,350 acre idle iron ore mine in the California desert
(the "Eagle Mountain Site"), which includes the associated 460 acre town of
Eagle Mountain ("Eagle Mountain Townsite") and the land leased to MRC for the
Landfill Project.  The Company is also pursuing other related longer-term growth
opportunities on the balance of its Mill Site Property, including the
redevelopment of industrial and commercial parcels of land near TCS and the
WVMRF.

Primary Revenue Sources

Ongoing Operations

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

                                       6
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES
                       

equity investments (i.e., PMI) and, starting in 1998, joint ventures (i.e., West
Valley MRF) which the Company accounts for under the equity method.

Interim Activities

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

Summary of Revenue Sources

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

  In addition, due to the concentration of motorsport racing events between
April and September, PMI's operations have been, and will continue to be, highly
seasonal.  As a result, the Company's reported share of undistributed equity in
the earnings of PMI will likely be positive (income) in the second and third
quarters and negative (loss) in the first and fourth quarters.

Results of Operations

Analysis of Results for the Quarters Ended March 31, 1998 and 1997

  An analysis of the significant components of the Company's resource revenues
for the quarters ended March 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
 
                                                       1998               1997           % Inc. (Dec)
                                                       ----               ----           ------------
   <S>                                              <C>                <C>               <C>
Ongoing Operations
 Water resource..................................   $1,169,000         $1,133,000               3%
 Property redevelopment..........................      345,000            342,000               1%
 Income (loss) from equity method
 investments.....................................     (148,000)           (23,000)           (543%)
                                                    ----------         ----------            ----
 
   Total ongoing operations......................    1,366,000          1,452,000              (6%)
                                                    ----------         ----------             ----
Interim Activities
 Lease, service and other........................      329,000            385,000             (15%)
                                                    ----------         ----------             ----
 
   Total resource revenues.......................   $1,695,000         $1,837,000              (8%)
                                                    ==========         ==========             ====
 
Revenues as a Percentage of Total
Resource  Revenues:
 Ongoing operations..............................          81%                79%
 Interim activities..............................          19%                21%
                                                    ----------         ----------
   Total resource revenues.......................         100%               100%
                                                    ==========         ==========
</TABLE>

                                       7
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES
                       
                      
  Resource Revenues.  Total resource revenues for the first quarter of 1998 were
$1,695,000, compared to $1,837,000 for 1997.  Revenues from ongoing operations
decreased 6% during the quarter to $1,366,000 from $1,452,000 in 1997, and
revenues from interim activities decreased 15% to $329,000 from $385,000 in
1997.  Revenues from ongoing operations as a percentage of total revenues
increased to 81% in 1998 from 79% in 1997.

  Ongoing Operations.  Water lease revenues under the Company's 102-year take-
or-pay lease with Cucamonga were $1,169,000 during the first quarter of 1998
compared to $1,133,000 for 1997.  The 3% increase in water revenues during the
quarter primarily reflects:  (a) an increase, as of July 1, 1997, in the
effective non-interruptible untreated water rate being paid by Cucamonga to
$351.75 from $351.00 per acre foot; and (b) an increase, effective January 1,
1998, in the Company's effective interest in Fontana Union to 57.33% from
55.66%, due to a decline in the number of Fontana Union shareholders taking
water.

  During the first quarter in 1998, the Company continued its litigation with
Cucamonga in San Bernardino County Superior Court to resolve a dispute over the
interpretation of the Cucamonga Lease.  The dispute centers on the Company's
assertion that either the MWD Rate in the Cucamonga Lease was discontinued on
July 1, 1995 or that the Lease Rate should be interpreted to include all the
changed rates and items implemented by Metropolitan Water District of Southern
California ("MWD") since July 1, 1995. A five-day trial on the matter was held
in March, 1998.  After the trial, the Court ruled, in favor of the Company, that
the rate on which the Cucamonga Lease had been based was discontinued effective
July 1, 1995.  Therefore the terms of the Cucamonga Lease require the parties to
in good faith negotiate a new substitute rate.  If the parties are unable to
agree on a substitute rate, the matter in effect goes to arbitration.  There is
no specified time period in which the new MWD Lease rate must be established.
Cucamonga continues to pay under the terms of the Cucamonga Lease, but at a rate
substantially less than the Lease Rate that the Company maintains it is entitled
to receive pursuant to the Cucamonga Lease.  Although the Company is continuing
to bill Cucamonga at what it believes is the correct Lease Rate, the Company has
elected to reserve the full amount in dispute and report revenues on the basis
of amounts received.  The total amount of lease payments in dispute as of March
31, 1998 is approximately $1,341,000.

  Property redevelopment revenues were $345,000 for 1998 compared to $342,000
for 1997.  The 1% increase from 1997 is primarily a result of increased revenue
from the sewer treatment plant ($23,000), mostly offset by decreases in iron ore
sales from the California Mines and tenant revenue at Eagle Mountain ($19,000).

  Income from equity method investments decreased to a loss of $148,000 for the
first quarter of 1998 compared to a loss of $23,000 for 1997. The decrease of
$125,000 reflects the elimination of the management fee which the Company
received from PMI through March 31, 1997, ($162,000), partially offset by a
decrease in the reported first quarter net loss of PMI ($7,000), plus equity
income from the newly completed WVMRF ($30,000).

  Interim Activities.  Revenues from interim activities for the first quarter of
1998 were $329,000 compared to $385,000 for 1997.  The 15% decrease in revenues
from interim activities in 1998 is primarily attributable to: (a) lower revenues
from tenant rental and services, scrap and metallics sales at the Mill Site due
to continued re-development activities ($34,000); and (b) lower tenant service
and miscellaneous revenue at Eagle Mountain ($23,000).

  Resource Operating Costs.  Resource operating costs are those costs directly
related to the resource revenue sources.  Total resource operating costs for the
first quarter of 1998 increased to $1,035,000 from $833,000 in 1997.  Operations
and maintenance costs for 1998 were $334,000 compared to $305,000 for

                                       8
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES
                       

1997. The 10% increase in 1998 operations and maintenance costs was primarily
due to higher maintenance and supplies costs for buildings and equipment
($32,000). Administrative support expenses for the first quarter of 1998
increased 33% to $701,000 from $528,000 for 1997. This increase was primarily
due to higher outside legal costs associated with the CCWD lease rate dispute
($145,000), higher insurance expense relating to the addition of environmental
pollution insurance coverage for the Mill Site ($21,000) and higher depreciation
expense relating to the newly completed sewer plant improvements at the Mill
Site ($20,000).

  Corporate General and Administrative Expenses.  Corporate general and
administrative expenses for the first quarter of 1998 decreased 10% to
$1,008,000 from $1,116,000 for 1997.  The decrease is primarily due to lower
payroll and related expenses due to the retirement of the president and the
distribution of his duties amongst the remaining officers ($32,000) and lower
professional and outside consulting expenses ($79,000).

  Net Interest Expense.  Net interest expense for the first quarter of 1998 was
$238,000 compared to $183,000 in 1997.  The increase was due primarily to: (a)
increased interest expense ($27,000) associated with the $1,000,000 in
additional borrowings under the Union Bank of California ("Union Bank") credit
facility; (b) lower capitalized interest expense relating to the development of
the Mill Site ($123,000); and (c) lower interest income ($32,000) being
partially offset by a decrease in the amortization of deferred loan fees
($127,000).

  Pre-Tax Loss and Income Tax Provision.  The Company recorded a loss before
income tax provision of $586,000 for the first quarter of 1998, a 99% increase
from the $295,000 loss recorded in 1997.  An income tax benefit of $247,000 was
recorded in the first quarter of 1998 as compared with a $121,000 tax benefit in
1997.

  Net Loss.  For first quarter of 1998, the Company reported a net loss of
$339,000, or $.03 per share, a 95% increase from the net loss of $174,000, or
$.02 per share, reported for 1997.

                         Section 2:  Financial Position
                                        
  Cash, Cash Equivalents and Short-Term Investments.  The Company defines cash
equivalents as highly liquid debt instruments with original maturities of 90
days or less.  Cash and cash equivalents decreased $1,859,000 to $2,471,000 at
March 31, 1998 from $4,330,000 at December 31, 1997.  Included in cash and cash
equivalents is $1,259,000 and $1,984,000 held solely for the benefit of MRC at
March 31, 1998 and December 31, 1997, respectively.  The decrease in cash and
cash equivalents is primarily due to: (a) $1,498,000 in capital expenditures;
(b) $285,000 in environmental remediation costs; and (c) a decrease in accounts
payable and accrued liabilities ($193,000) being partially offset by net
collections of $351,000 in accounts and notes receivable.

  Working Capital.  During the first quarter of 1998, current assets decreased
$2,210,000 to $5,069,000 while current liabilities decreased $253,000 to
$11,711,000.  The decrease in current assets resulted primarily from the
$1,859,000 decrease in cash and cash equivalents plus a $173,000 decline in
accounts receivable, and the collection of $178,000 on the note receivable from
the Mill Site land sale to McLeod Properties.  The decrease in current
liabilities resulted primarily from payments of yearend accruals.  Included in
current liabilities as of March 31, 1998 is $1,227,000 in accounts payable and
accrued liabilities relating to MRC.  As a result, working capital decreased
during the first quarter of 1998 by $1,957,000 to a negative $6,641,000 at March
31, 1998.

  Real Estate.  Real Estate increased $86,000 during 1998 due to continue
redevelopment of the Mill Site properties.

                                       9
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES
                       

  Investments.  There was a $149,000 decrease in the Company's investments in
PMI and WVMRF during the first quarter of 1998.  The decrease is due to the
Company's recording of its equity share of PMI's 1998 first quarter loss
($179,000) and its equity share of WVMRF's 1998 first quarter income ($30,000).

  Other Assets.  The increase in other assets ($1,654,000) is primarily related
to: (a) capitalized landfill permitting and development costs incurred by MRC
($1,278,000); (b) recording of the deferred tax benefit resulting from the first
quarter loss ($254,000); and (c) sewer plant improvements at the Mill Site
($236,000). These increases were partially offset by an increase in accumulated
depreciation as of March 31, 1998 ($103,000).

  Environmental Remediation.  As is discussed extensively in Part I, "Property
Redevelopment, Mill Site Environmental", the Company estimates, based upon
current information, that its future remediation and other environmental costs
for the balance of its land and related matters, including groundwater and other
possible third party claims, will be between approximately $20 million and $31
million, depending both upon the ultimate extent of the environmental
remediation and clean-up effort involved and which approved remediation
alternatives are eventually selected.  In order to provide better information
regarding these future remediation and other environmental costs, the Company
has elected to restate its balance sheets to show as a separate liability rather
than, as previously, an offset to land, the amount of future environmental
related costs reflected in its financial statements.  The restatement reflects
the original $34.7 million remediation adjustment to land; the $6.6 million
groundwater remediation reserve recorded in 1988 when the Company emerged from
bankruptcy as the reorganized successor of KSC; and the net $12.5 million in
environmental insurance litigation settlement proceeds received in 1995 being
offset by approximately $23.4 million in remediation and other environmental
costs expended through March 31, 1998.  The Company's decision to restate its
balance sheet is based upon, among other things, the more extensive
investigation and remediation activities that have been pursued over the past
three years and the Company's ability to better estimate the probable range of
future remediation and other environmental costs.

  As of March 31, 1998, the total short-term and long-term environmental
liabilities including remediation reflected on the Company's balance sheet were
approximately $30.4 million, the high end of the probable range of future
remediation and other environmental costs, which declined from the $30.7 million
as of December 31, 1997.  The decrease is a result of the $285,000 in
remediation and other environmental costs incurred in the first quarter of 1998
on the Mill Site property.

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

  Long-term Debt. As of March 31, 1998, the Company had $8,982,000 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 $4,000,000 borrowed
under the $30,000,000 revolving-to-term credit facility with Union Bank.  The
Lusk debt has been classified as long-term debt due to the Company's intent and
ability to refinance the obligation on a long-term basis utilizing the Union
Bank revolving-to-term credit facility.

  Long-term Liabilities. The $223,000 decrease in other long-term liabilities is
primarily due to the reduction of the environmental remediation liability as a
result of $285,000 in environmental remediation

                                       10
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES
                       

undertaken during the first quarter of 1998 being partially offset by an
increase of $62,000 in other long term liabilities.

  Minority Interest and Other Liabilities.  As of December 31, 1997, the Company
has recorded $2,914,000 of minority interest relating to MRC in which the
Company had approximately a 73% equity interest.

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

                          Section 3:  Business Outlook
                                        
  The statements contained in this Business Outlook are based upon current
operations and expectations.  In addition to the forward-looking statements and
information contained elsewhere in this 10-K Report, these statements are
forward-looking and, therefore, actual results may differ materially.

  On-Going Operations.  As noted above, the Company's revenues from ongoing
operations are generally derived from the development of the Company's major
long-term projects and investments.  The development of a number of these
projects and investments, such as the 102-year take-or-pay lease with Cucamonga
and the 11.46% equity ownership in PMI, are essentially complete and the Company
is recognizing significant revenues and income from these investments.  The
Company expects revenues from these projects and investments to increase
moderately over time as certain key economic factors impacting these projects
and investments increase.  In addition, the Company continues to evaluate these
completed projects and investments in light of how to best provide maximum value
to its shareholders.

  In regard to the lease with Cucamonga, the most significant economic factor
affecting future water lease revenues is likely to be adjustments in the MWD
rate for untreated and non-interruptible water as available through the Chino
Basin Municipal Water District (the "Lease Rate") upon which the lease payments
are calculated.  The MWD rate established for untreated, non-interruptible water
is based on a number of factors, including MWD's need for funds to finance
capital improvements and to cover large fixed overhead costs.  After increasing
at an average of nearly 8.6% per year during the past 25 years, MWD is
projecting that the MWD rate for untreated, non-interruptible water, including
all of the changed rates and charges implemented by MWD since July 1, 1995, will
likely increase at significantly less than 5.0% per year for the next 2-4 years.
This reduction is due to a reduced capital budget, lower overhead, lower
borrowing costs and reduced levels of inflation.  Also affecting the Company's
future water lease revenues is the dispute with Cucamonga regarding the
calculation of the Lease Rate.  The ruling in favor of the Company should result
in the receipt of all or a portion of the $1,341,000 of lease payments in
dispute as of March 31, 1998, which the Company has fully reserved.

  In regard to the Company's 11.46% investment in PMI, the most significant
factors affecting the Company's future equity income from PMI will be the
increased revenues and net income generated by PMI from the expansion of its
professional motorsports operations.  Critical to this expansion will be the
continued success of TCS that is on land acquired from the Company.  The
continued success of TCS, coupled with the results of the other major racing
events scheduled for PMI's MIS, Nazareth, North Caroline and Homestead speedways
and PMI's other motorsports, related operations, will determine the amount of
income from equity method investments the Company reports in the future.

  The Company is also spending a significant amount of capital in the continued
development of its two other major project and investment opportunities: the
redevelopment of approximately 375 acres (net) 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

                                       11
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

                          
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 approximately 375 acres (net) of the Mill
Site Property, the Company is currently undertaking efforts to obtain the
entitlement and permits necessary for a variety of possible commercial,
industrial and recreational uses.  These efforts, which will continue throughout
1998, include the approval of possible changes that would alter and improve the
existing access to portions of the Mill Site Property.  In support of these
efforts, the Company expects to spend, in 1998, up to approximately $6.1 million
for required environmental remediation and approximately $1.5 million for real
estate entitlement and improvement expenditures.  The $6.1 million to be spent
in 1998 for required environmental remediation is a component of the $20-31
million estimate to complete all remaining required remediation for the Mill
Site Property.  In addition, substantial capital expenditures beyond the $1.5
million projected for 1998 will be required to complete the necessary on-site
and off-site improvements for the redevelopment of remaining Mill Site property.

  Although neither the Company nor any subsidiary of the Company has any
obligation to invest funds in MRC, the Company has continued to make investments
in MRC.  Through a series of private placements with existing MRC shareholders,
from July 1995 through December 31, 1997, a total of $10.8 million has been
raised by MRC, with Kaiser contributing approximately $8.1 million of that
amount. The Company has agreed to advance funds to MRC for at least the first
three quarters of 1998.  It is anticipated that the initial 1998 advances will
total approximately $1,680,000 and that the Company may invest additional funds
in MRC during the remainder of 1998.

  Capital Resources.  The Company expects that its current cash balances and
short-term investments together with:  (a) cash provided from operating
activities; (b) amounts available under its $30,000,000 revolving-to-term credit
facility (less $4,850,000 reserved for financial assurances required by the DTSC
and relating to environmental remediation on the Mill Site Property) will be
sufficient to satisfy both the Company's near-term operating cash requirements
and to enable the Company to continue to fund the development of its long-term
projects and investments.  As was discussed in more detail above, the Company
expects to commit, in 1998, a total of approximately $8 million for capital
projects and investments.  To the extent that additional capital resources are
required, such capital will be raised through bank borrowings, partnerships,
joint venture arrangements, additional equity or the sale or monetization of
assets.

  Improved Cash Flow from Use of Net Operating Loss Tax Carryforwards.  Due to
the Company's status as successor to KSC and its use of KSC-related NOLs, income
taxes actually paid by the Company are substantially less than the income tax
provision reported in its financial statements.  The tax benefit associated with
the utilization of these NOLs is reflected as an increase to stockholders'
equity rather than as an increase to net income.  The Company expects that its
use of these NOLs will substantially reduce the cash paid for income taxes until
these NOLs are fully utilized.  The total NOLs at March 31, 1998, are estimated
to be approximately $113 million for federal purposes and $2.4 million for
California purposes.  The federal NOLs expire in varying amounts over a period
from year 2000 to 2010 while the California NOLs expire from 2000 through 2002.

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

                                       12
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


                          CONSOLIDATED BALANCE SHEETS
                                     as of
                                        
<TABLE>
<CAPTION>
                                                                   March 31,                  December 31,
                                                                     1998                         1997
                                                                     ----                         ----
<S>                                                                <C>                        <C>
                                                                   (Unaudited)
ASSETS
 
Current Assets
  Cash and cash equivalents...............................         $  2,471,000                  $  4,330,000
  Accounts receivable and other, net of allowance for
   doubtful accounts of $1,634,000 and $1,535,000,
   respectively...........................................            2,366,000                     2,539,000
  Note receivable.........................................              232,000                       410,000
                                                                   ------------                  ------------
 
                                                                      5,069,000                     7,279,000
                                                                   ------------                  ------------
 
Investment in common stock of Penske Motorsports, Inc.....           43,702,000                    43,881,000
                                                                   ------------                  ------------
 
Investment in Fontana Union Water Company.................           16,108,000                    16,108,000
                                                                   ------------                  ------------
 
Investment in West Valley MRF.............................            2,539,000                     2,509,000
                                                                   ------------                  ------------
 
Real Estate
  Land and improvements...................................           15,621,000                    15,621,000
  Real estate in development..............................           40,180,000                    40,094,000
                                                                   ------------                  ------------
 
                                                                     55,801,000                    55,715,000
                                                                   ------------                  ------------
 
Other Assets
  Note Receivable.........................................              860,000                       860,000
  Landfill permitting and development.....................           10,885,000                     9,607,000
  Buildings and equipment (net)...........................            3,198,000                     3,064,000
  Other assets............................................              484,000                       242,000
                                                                   ------------                  ------------
 
                                                                     15,427,000                    13,773,000
                                                                   ------------                  ------------
 
Total Assets..............................................         $138,646,000                  $139,265,000
                                                                   ============                  ============
</TABLE>




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

                                       13
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


                          CONSOLIDATED BALANCE SHEETS
                                     as of
                                        


<TABLE>
<CAPTION>
                                                                   March 31,                  December 31,
                                                                     1998                        1997
                                                                     -----                       ----
<S>                                                                <C>                        <C>
                                                                   (Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current Liabilities
  Accounts payable.......................................          $  1,580,000               $  1,479,000
  Accrued liabilities....................................             4,017,000                  4,311,000
  Current portion of long-term debt......................                60,000                    120,000
  Environmental remediation..............................             6,054,000                  6,054,000
                                                                   ------------               ------------
 
                                                                     11,711,000                 11,964,000
                                                                   ------------               ------------
 
Long-term Liabilities
  Deferred gain on sale of real estate...................               656,000                    656,000
  Accrued liabilities....................................             1,747,000                  1,685,000
  Deferred tax liabilities...............................             2,223,000                  2,223,000
  Long-term debt.........................................             8,982,000                  8,982,000
  Environmental remediation..............................            24,388,000                 24,673,000
                                                                   ------------               ------------
 
                                                                     37,996,000                 38,219,000
                                                                   ------------               ------------
 
Total Liabilities........................................            49,707,000                 50,183,000
                                                                   ------------               ------------
 
Minority Interest........................................             2,914,000                  2,878,000
                                                                   ------------               ------------
 
Commitments and Contingencies
 
Stockholders' Equity
  Common stock, par value $.03 per share, authorized
   13,333,333 shares; issued and outstanding
   10,636,057 and 10,591,240 respectively................               319,000                    318,000
  Capital in excess of par value.........................            74,501,000                 74,342,000
  Retained earnings since November 15, 1988..............            11,205,000                 11,544,000
                                                                   ------------               ------------
 
Total Stockholders' Equity...............................            86,025,000                 86,204,000
                                                                   ------------               ------------
 
Total Liabilities and Stockholders' Equity...............          $138,646,000               $139,265,000
                                                                   ============               ============
</TABLE>




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

                                       14
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                      for the Three Months Ended March 31
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                                               1998                 1997
                                                                           -----------          -----------
<S>                                                                        <C>                  <C>
Resource Revenues
Ongoing Operations
  Water resource.................................................          $ 1,169,000          $ 1,133,000
  Property redevelopment.........................................              345,000              342,000
  Income (loss) from equity method investments...................             (148,000)             (23,000)
                                                                           -----------          -----------
 
     Total ongoing operations....................................            1,366,000            1,452,000
                                                                           -----------          -----------
 
 Interim Activities
  Lease, service and other.......................................              329,000              385,000
                                                                           -----------          -----------
 
     Total resource revenues.....................................            1,695,000            1,837,000
                                                                           -----------          -----------
 
Resource Operating Costs
 Operations and maintenance......................................              334,000              305,000
 Administrative support expenses.................................              701,000              528,000
                                                                           -----------          -----------
 
     Total resource operating costs..............................            1,035,000              833,000
                                                                           -----------          -----------
 
Income from Resources............................................              660,000            1,004,000
 
 Corporate general and administrative expenses...................            1,008,000            1,116,000
                                                                           -----------          -----------
 
Loss from Operations.............................................             (348,000)            (112,000)
 
 Net interest expense............................................              238,000              183,000
                                                                           -----------          -----------
 
Loss before Income Tax Provision.................................             (586,000)            (295,000)
 
 Income tax provision
  Currently payable..............................................                7,000                7,000
  Deferred tax expense (benefit).................................             (254,000)            (128,000)
                                                                           -----------          -----------
 
Net Loss.........................................................          $  (339,000)         $  (174,000)
                                                                           ===========          ===========
 
Basic Loss Per Share.............................................          $      (.03)         $      (.02)
                                                                           ===========          ===========
 
Diluted Loss Per Share...........................................          $      (.03)         $      (.02)
                                                                           ===========          ===========
 
Basic Weighted Average Number of Shares Outstanding..............           10,610,000           10,506,000
 
Diluted Weighted Average Number of Shares Outstanding............           10,785,000           10,725,000
</TABLE>

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

                                       15
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                      for the Three Months Ended March 31
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                                     1998                 1997
                                                                ------------         ------------
<S>                                                             <C>                  <C>
Cash Flows from Operating Activities
 Net loss..............................................         $  (339,000)         $  (174,000)
 Equity (loss) income in Penske Motorsports, Inc and
  West Valley MRF, LLC.................................             148,000              185,000
 Deferred tax (benefit) expense........................            (254,000)            (128,000)
 Depreciation and amortization.........................             113,000              213,000
 Allowance for doubtful accounts.......................              (6,000)             134,000
 Changes in assets:
   Receivables and other...............................             179,000             (126,000)
 Changes in liabilities:
   Current liabilities.................................              16,000              347,000
   Long-term accrued liabilities.......................              62,000                7,000
                                                                -----------          -----------
 
 Net cash flows from operating activities..............             (81,000)             458,000
                                                                -----------          -----------
 
Cash Flows from Investing Activities
 Minority interest and other liabilities...............              36,000              398,000
 Note receivable collections...........................             178,000                  ---
 Capital expenditures..................................          (1,595,000)          (2,570,000)
 Environmental remediation expenditures................            (330,000)            (924,000)
 Other investments.....................................                 ---              (85,000)
                                                                -----------          -----------
 
 Net cash flows from investing activities..............          (1,711,000)          (3,181,000)
                                                                -----------          -----------
 
Cash Flows from Financing Activities
 Issuance of common stock..............................              18,000                  ---
 Principal payments on note payable....................             (60,000)             (60,000)
 Payment of loan fees..................................             (25,000)            (100,000)
                                                                -----------          -----------
 
 Net cash flows from financing activities..............             (67,000)            (160,000)
                                                                -----------          -----------
 
Net Changes in Cash and Cash Equivalents...............          (1,859,000)          (2,883,000)
 
Cash and Cash Equivalents at Beginning of Year.........           4,330,000            8,482,000
                                                                -----------          -----------
 
Cash and Cash Equivalents at End of Quarter............         $ 2,471,000          $ 5,599,000
                                                                ===========          ===========
</TABLE>


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

                                       16
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES
 
          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                   for the Three Months Ended March 31, 1998
                                  (Unaudited)
                                        
<TABLE>
<CAPTION>
                                                                        
                                                 Common Stock              Capital In          
                                        ---------------------------        Excess of          Retained
                                          Shares            Amount          Par Value         Earnings               Total
                                        --------------------------------------------------------------------------------------
<S>                                     <C>                <C>            <C>                <C>                  <C>
Balance at December 31, 1997            10,591,240         $318,000       $74,342,000        $11,544,000          $86,204,000
 
   Issuance of shares of
       Common stock.............            44,817            1,000           159,000                ---              160,000
 
   Net Income...................               ---              ---               ---           (339,000)            (339,000)
                                        ----------         --------       -----------        -----------          -----------
 
Balance at March 31, 1998               10,636,057         $319,000       $74,501,000        $11,205,000          $86,025,000
                                        ==========         ========       ===========        ===========          ===========
</TABLE>




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

                                       17
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


Note 1.  BASIS OF PRESENTATION

  The unaudited, consolidated financial statements as of March 31, 1998 and for
the three month periods ended March 31, 1998 and 1997, as well as related notes
should be read in conjunction with the audited consolidated financial statements
and related notes as of and for the year ended December 31, 1997.  In the
opinion of management, the accompanying unaudited financial statements contain
all adjustments necessary (all of which are normal and/or recurring in nature)
to present fairly the Company's financial position at March 31, 1998, and
results of operations and cash flows for the three month periods ended March 31,
1998 and 1997.


Note 2.  CUCAMONGA LEASE

  The Company, through a wholly-owned subsidiary, Fontana Water Resources, Inc.,
leases its 50.88% ownership of the capital stock of Fontana Union, a mutual
water company, to Cucamonga County Water District ("Cucamonga") pursuant to a
take-or-pay lease (the "Cucamonga Lease") that terminates in the year 2092. The
Company continued its litigation with Cucamonga in San Bernardino County
Superior Court to resolve a dispute over the interpretation of the Cucamonga
Lease.  The dispute centers on the Company's assertion that either the MWD Rate
in the Cucamonga Lease was discontinued on July 1, 1995 or that the Lease Rate
should be interpreted to include all the changed rates and items implemented by
Metropolitan Water District of Southern California ("MWD") since July 1, 1995. A
five-day trial on the matter was held in March, 1998.  After the trial, the
Court ruled, in favor of the Company, that the rate on which the Cucamonga Lease
had been based was discontinued effective July 1, 1995.  Therefore the terms of
the Cucamonga Lease require the parties to in good faith negotiate a new
substitute rate.  If the parties are unable to agree on a substitute rate, the
matter in effect goes to arbitration.  There is no specified time period in
which the new MWD Lease rate must be established.  Cucamonga continues to pay
under the terms of the Cucamonga Lease, but at a rate substantially less than
the Lease Rate that the Company maintains it is entitled to receive pursuant to
the Cucamonga Lease.  Although the Company is continuing to bill Cucamonga at
what it believes is the correct Lease Rate, the Company has elected to reserve
the full amount in dispute and report revenues on the basis of amounts received.
The total amount of lease payments in dispute as of March 31, 1998 is
approximately $1,341,000.


Note 3.  SUPPLEMENTAL CASH FLOW INFORMATION

  During the three months ended March 31, 1998 and 1997 the Company issued
$142,000 and $221,000 of common stock, respectively, for the payment of bonuses
and compensation.


Note 4.  COMMITMENTS AND CONTINGENCIES

Environmental Contingencies

  The Company estimates, based upon current information, that its future
remediation and other environmental costs, including groundwater and other
possible third party claims, will be between approximately $20 million and $31
million, depending upon which approved remediation alternatives are eventually
selected.

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<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

  Although ongoing environmental investigations are being conducted on the
Company's property, and management believes it is currently in a position to
estimate with some reasonable certainty future investigation and remediation
costs, there can be no assurance that the actual amount of environmental
remediation expenditures and incurred will not substantially exceed those
currently anticipated or that additional areas of contamination may not be
identified.  Accordingly, future facts and circumstances could cause these
estimates to change significantly.  The Company anticipates recovery of the
remediation costs incurred through redevelopment of the property, primarily in
connection with specific redevelopment projects or joint ventures.  Further, the
Company has provided certain financial assurances to the DTSC in connection with
anticipated remediation activities, the primary one being the dedication of
approximately $4.8 million of Kaiser's Union Bank Credit facility.

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

                                    PART II
                                        
Item 1.  LEGAL PROCEEDINGS

  As discussed in the Company's Form 10-K Report for 1997, the Company is
engaged in certain claims and litigation, which if resolved adverse to the
Company or the Company's interests, would have a material adverse impact on the
Company.  There were no material developments in any legal proceeding in the
first quarter of 1998 except as noted below:

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

  Eagle Mountain Landfill Project EIR Litigation.  In February 1998, the San
Diego County Superior Court ruled adverse to the Company and MRC in finding that
the new environmental impact report for the Landfill Project continued to be
deficient in two major areas:  (i) the analysis of the impacts to the protected
desert tortoise; and (ii) the impacts to Joshua Tree National Park.  For
additional information on this litigation, see "Introduction - Business Update -
Waste Management - Eagle Mountain" of this 10-Q Report, as well as the Company's
1997 10-K Report.

                                       19
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

Item 2.  CHANGES IN SECURITIES

         None.


Item 3.  DEFAULTS UPON SENIOR SECURITIES

         Not applicable.


Item 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

         None.


Item 5.  OTHER INFORMATION

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

         B.  During the first quarter, the Company's Special Committee continued
             its work in evaluating strategic alternatives for the Company and
             its assets.


Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

         A.  Exhibits
             --------

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

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

             None.


                  (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
                                        

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                     KAISER VENTURES INC. AND SUBSIDIARIES

                                   SIGNATURES

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

                                   KAISER VENTURES INC.



Dated:  May 14, 1998               /s/ James F. Verhey
                                   -------------------
                                   James F. Verhey
                                   Principal Financial Officer

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