SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-Q\A
                                (AMENDMENT NO. 1)

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

                    FOR QUARTERLY PERIOD ENDED MARCH 31, 1998

                          COMMISSION FILE NUMBER 1-8137

                                       OR

               TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                          AMERICAN PACIFIC CORPORATION
             (Exact name of registrant as specified in its charter)

        DELAWARE                                  59-6490478
(State or other jurisdiction                    (IRS Employer
   of incorporation or                        Identification No.)
       organization)

3770 HOWARD HUGHES PARKWAY, SUITE 300
LAS VEGAS, NV                                      89109
(Address of principal executive offices)         (Zip Code)

                                 (702) 735-2200
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE
             (Former name, former address and former fiscal year, if
                           changed since last report.)

            Indicate by check mark whether the  registrant has filed all reports
required to be filed by Sections 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 / /

                      Applicable Only to Corporate Issuers

            Indicate  the number of shares  outstanding  of each of the issuer's
classes of common  stock,  as of the latest  practicable  date:  8,219,537 AS OF
APRIL 30, 1998.

                                       -1-
<PAGE>
                          PART I. FINANCIAL INFORMATION

ITEM 1.        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

               The  information  required  by Rule  10-01 of  Regulation  S-X is
               provided on pages 5 through 12 of this Report on Form 10-Q.

ITEM 2.        MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND
               RESULTS OF OPERATIONS

               The  information  required  by  Item  303  of  Regulation  S-K is
               provided on pages 14 through 19 of this Report on Form 10-Q.

                           PART II. OTHER INFORMATION

ITEM 1.        LEGAL PROCEEDINGS

               The  information  required  by  Item  103  of  Regulation  S-K is
               provided on page 10 of this Report on Form 10-Q.

ITEM 2.        CHANGES IN SECURITIES

               None.

ITEM 3.        DEFAULTS UPON SENIOR SECURITIES

               None.

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

               The  following  matters  were  submitted  to a vote  of  Security
               Holder's at the Registrant's  Annual Meeting of Stockholders held
               on March 10, 1998:

                        1) Election of the  following  four Class A Directors to
               serve for a term of three years expiring in 2001:

                                        Number of
               Nominee                  Votes For      Number of Votes Withheld
               -------                  ---------      ------------------------

               Thomas A. Turner         6,719,289             410,614
               John R. Gibson           6,727,099             402,804
               David N. Keys            6,730,179             399,724
               Eugene A. Cafiero        6,342,167             787,736

                        2) Approval of the  adoption  of the  Registrant's  1997
               Stock Option Plan:

               Number of      Number of         Number of       Number of Broker
               Votes for      Votes Against     Abstentions     Non-Votes
               ---------      -------------     -----------     ---------
               3,258,898        1,744,958          30,709        2,095,338

                        3) Approval of the grant of non-qualified  stock options
               to the non-employee  members of the Board of Directors  currently
               holding office:

                                       -2-
<PAGE>
               Number of      Number of         Number of       Number of Broker
               Votes for      Votes Against     Abstentions     Non-Votes
               ---------      -------------     -----------     ---------
               4,027,804         972,921          33,840        2,095,338

                        4) Approval of the grant of non-qualified  stock options
               to John R. Gibson,  Chief  Executive  Officer and  President  and
               David N.  Keys,  Executive  Vice  President  and Chief  Financial
               Officer:

               Number of      Number of         Number of       Number of Broker
               Votes for      Votes Against     Abstentions     Non-Votes
               ---------      -------------     -----------     ---------

                4,312,448        970,066           30,185        1,817,204

ITEM 5.        OTHER INFORMATION

               None.

ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K

               a)    (i)   The   following   Exhibits   were   filed   with  the
                           Registrant's  original  filing,  portions  of each of
                           which  were   omitted   pursuant  to  a  request  for
                           confidential treatment:

                           10.1   Long-Term   Pricing   Agreement  dated  as  of
                                  December    12,    1997    between     Thiokol
                                  Corporation-Propulsion     Group    and    the
                                  Registrant.

                           10.2   Partnershipping   Agreement   between  Alliant
                                  Techsystems   Incorporated   ("Alliant")   and
                                  Western  Electrochemical  Company  and  letter
                                  dated November 24, 1997 from the Registrant to
                                  Alliant  and  revised  Exhibit B with  respect
                                  thereto.

                     (ii)  The following  exhibit was filed in  connection  with
                           the Registrant's original electronic filing:

                              27.  Financial Data Schedule.

            b)       The  following  Reports on Form 8-K were  filed  during the
                     three-month period ended March 31, 1998:

                     1)       Form 8-K dated  February 19, 1998,  reporting  the
                              Registrant's   intention   to   effect  a  private
                              placement offering of $75 million principal amount
                              of senior notes during March 1998.

                     2)       Form  8-K  dated  February  19,  1998,   reporting
                              certain pro forma financial information.

                     3)       Form 8-K  dated  March  27,  1998,  reporting  the
                              acquisition  of certain  assets and the completion
                              of a private  placement  of $75 million  principal
                              amount of senior notes.


                                       -3-
<PAGE>
                                   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.




                                          AMERICAN PACIFIC CORPORATION




Date:  June 12, 1998                      /S/ JOHN R. GIBSON
                                          ------------------
                                          John R. Gibson
                                          Chief Executive Officer and President


Date:  June 12, 1998                      /S/ DAVID N. KEYS
                                          -----------------
                                          David N. Keys
                                          Executive Vice President,
                                          Chief Financial Officer,  Secretary
                                          and Treasurer; Principal Financial
                                          and Accounting Officer



                                       -4-

<PAGE>
                          AMERICAN PACIFIC CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)
<TABLE>
<CAPTION>

                                                            FOR THE THREE MONTHS                            FOR THE SIX MONTHS
                                                               ENDED MARCH 31,                                ENDED MARCH 31,
                                                          1998               1997                   1998                    1997
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                    <C>                <C>                  <C>                    <C>         
Sales and Operating Revenues                           $14,119,000        $9,382,000           $ 25,387,000           $ 17,778,000
Cost of Sales                                            9,129,000         8,025,000             17,235,000             15,108,000
                                                       -----------------------------------------------------------------------------
   Gross Profit                                          4,990,000         1,357,000              8,152,000              2,670,000

Operating Expenses                                       2,247,000         2,269,000              4,430,000              4,632,000

Equity in Earnings of Real Estate Venture
                                                                             100,000                300,000                100,000
                                                       -----------------------------------------------------------------------------
Operating Income (Loss)                                  2,743,000          (812,000)             4,022,000             (1,862,000)

Net Interest and Other
   Expense                                                 750,000           293,000              1,463,000                533,000
                                                       -----------------------------------------------------------------------------

Income (Loss) Before Credit
   for Income Taxes                                      1,993,000        (1,105,000)             2,559,000             (2,395,000)

Credit for Income Taxes                                                     (376,000)                                     (816,000)
                                                       -----------------------------------------------------------------------------
Net Income (Loss) Before Extraordinary Loss
                                                       $ 1,993,000       $  (729,000)           $ 2,559,000     $       (1,579,000)

Extraordinary Loss-Debt Extinguishment
                                                         5,005,000                                5,005,000
                                                       -----------------------------------------------------------------------------

Net Loss                                               $(3,012,000)      $  (729,000)           $(2,446,000)     $      (1,579,000)
                                                       -----------------------------------------------------------------------------

Basic Net Loss Per Share:

   Income (Loss) Before Extraordinary Loss
                                                       $       .24       $      (.09)           $       .31       $           (.19)

   Extraordinary Loss                                  $      (.61)                             $      (.61)
                                                       -----------------------------------------------------------------------------

   Net Loss                                            $      (.37)      $      (.09)           $      (.30)      $           (.19)
                                                       -----------------------------------------------------------------------------

Average Shares Outstanding                               8,165,000         8,098,000              8,151,000              8,098,000
                                                       -----------------------------------------------------------------------------

Diluted Net Loss Per Share:

   Income (Loss) Before Extraordinary Loss
                                                       $       .24       $      (.09)           $       .31       $           (.19)

   Extraordinary Loss                                  $      (.60)                             $      (.61)
                                                       -----------------------------------------------------------------------------

   Net Loss                                            $      (.36)      $      (.09)           $      (.30)      $           (.19)
                                                       -----------------------------------------------------------------------------

Diluted Shares                                           8,337,000         8,098,000              8,280,000              8,098,000
                                                       ------------------------ ----------------------------------------------------
</TABLE>

See the accompanying Notes to Condensed Consolidated Financial Statements.


                                       -5-
<PAGE>
                          AMERICAN PACIFIC CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (unaudited)

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------
                                                  MARCH 31,             SEPTEMBER 30,
                                                   1998                     1997
-------------------------------------------------------------------------------------
ASSETS

CURRENT ASSETS:
<S>                                            <C>                      <C>
   Cash and Cash Equivalents                   $  19,029,000            $18,881,000
   Accounts and Notes Receivable                   9,297,000              5,551,000
   Related Party Notes Receivable                    588,000                637,000
   Inventories                                    12,217,000             11,116,000
   Prepaid Expenses and Other Assets               1,083,000                979,000
                                               ------------------------------------
      TOTAL CURRENT ASSETS                        42,214,000             37,164,000

Property, Plant and Equipment, Net                19,212,000             19,314,000
Intangible Acquisition Assets                     40,279,000              1,540,000
Development Property                               6,945,000              7,362,000
Real Estate Equity Investments                    17,517,000             20,248,000
Other Assets                                       2,793,000                873,000
Restricted Cash                                    1,168,000              3,580,000
                                               ------------------------------------
      TOTAL ASSETS                             $ 130,128,000            $90,081,000
                                               ------------------------------------
</TABLE>

See the accompanying Notes to Condensed Consolidated Financial Statements.



                                       -6-
<PAGE>
                          AMERICAN PACIFIC CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (unaudited)

<TABLE>
<CAPTION>


-------------------------------------------------------------------------------------------
                                                        MARCH 31,              SEPTEMBER 30,
                                                           1998                    1997
-------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
<S>                                                   <C>                      <C>
   Accounts Payable and Accrued Liabilities           $ 3,993,000              $ 7,519,000
   Current Portion of Long-Term Debt                    1,168,000                6,166,000
                                                      -------------------------------------
      TOTAL CURRENT LIABILITIES                         5,161,000               13,685,000

   Long-Term Debt                                      75,000,000               24,900,000
   Long-Term Payables                                   2,694,000                2,376,000

                                                      -------------------------------------
      TOTAL LIABILITIES                                82,855,000               40,961,000
                                                      -------------------------------------

Commitments and Contingencies

Warrants to Purchase Common Stock                       3,569,000                3,569,000

SHAREHOLDERS' EQUITY:
Common Stock                                              837,000                  829,000
Capital in Excess of Par Value                         79,152,000               78,561,000
Accumulated Deficit                                   (35,153,000)             (32,707,000)
Treasury Stock                                         (1,035,000)              (1,035,000)
Receivable from the Sale of Stock                         (97,000)                 (97,000)
                                                      -------------------------------------
      TOTAL SHAREHOLDERS' EQUITY                       43,704,000               45,551,000
                                                      -------------------------------------

                                                      -------------------------------------
      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY      $130,128,000             $90,081,000
                                                      -------------------------------------
</TABLE>


See the accompanying Notes to Condensed Consolidated Financial Statements.



                                       -7-
<PAGE>
                          AMERICAN PACIFIC CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)
<TABLE>
<CAPTION>


---------------------------------------------------------------------------------------------------------------------------
                                                           FOR THE THREE-MONTHS                      FOR THE SIX-MONTHS
                                                              ENDED MARCH 31,                          ENDED MARCH 31,
                                                        1998             1997                    1998               1997
---------------------------------------------------------------------------------------------------------------------------
Cash Provided by (Used For)
<S>                                                <C>               <C>                  <C>                 <C>         
   Operating Activities                            $  5,059,000      $ 7,197,000          $   (411,000)       $  6,343,000
                                                  -------------------------------------------------------------------------

Cash Flows Provided by (Used for)
   Investing Activities:
   Capital Expenditures                                (679,000)        (389,000)           (1,648,000)         (1,301,000)
   Payment for Acquisition of Intangible            (39,000,000)                           (39,000,000)
   Real estate equity investment
     capital activity                                 1,018,000         (248,000)            2,731,000            (520,000)
                                                  -------------------------------------------------------------------------
Net Cash Used For
   Investing Activities                             (38,661,000)        (637,000)          (37,917,000)         (1,821,000)
                                                  -------------------------------------------------------------------------

Cash Flows From
   Financing Activities:
   Principal Payments on Debt                       (30,000,000)      (6,168,000)          (31,166,000)         (6,168,000)
   Issuance of Senior Notes                          75,000,000                             75,000,000
   Premium Paid on Debt
       Extinguishment                                (3,250,000)                            (3,250,000)
   Debt Issue Costs                                  (2,707,000)                            (2,707,000)
   Issuance of Common Stock                             599,000                                599,000              70,000
   Treasury Stock Acquired                                                                                        (156,000)
                                                  -------------------------------------------------------------------------
Net Cash Provided by (Used For)
 Financing Activities                                39,642,000       (6,168,000)           38,476,000          (6,254,000)
                                                  -------------------------------------------------------------------------

Net Increase (Decrease) in Cash and
 Cash Equivalents                                     6,040,000          392,000               148,000          (1,732,000)
Cash and Cash Equivalents,
 Beginning of Period                                 12,989,000       16,377,000            18,881,000          18,501,000
                                                  -------------------------------------------------------------------------
Cash and Cash Equivalents, End of
 Period                                            $ 19,029,000      $16,769,000          $ 19,029,000        $ 16,769,000
                                                  ------------------------------------------------------------------------
Supplemental Disclosure of Cash
 Flow Information:

Interest Paid (net of amounts
 capitalized)                                      $  1,650,000      $   851,000          $   1,650,000       $     851,000
                                                  -------------------------------------------------------------------------
</TABLE>

See the accompanying Notes to Condensed Consolidated Financial Statements.



                                       -8-
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):


1.          BASIS OF REPORTING

            The accompanying  Condensed  Consolidated  Financial  Statements are
            unaudited and do not include  certain  information  and  disclosures
            included  in the  Annual  Report  on Form 10-K of  American  Pacific
            Corporation  (the  "Company").  The Condensed  Consolidated  Balance
            Sheet as of  September  30, 1997 was derived  from the  Consolidated
            Financial Statements included in the Company's Annual Report on Form
            10-K for the year ended September 30, 1997.  Such statements  should
            therefore be read in  conjunction  with the  Consolidated  Financial
            Statements and Notes thereto included in the Company's Annual Report
            on Form 10-K for the year ended  September  30, 1997. In the opinion
            of Management,  however, all adjustments  (consisting only of normal
            recurring  accruals)  necessary  for a fair  presentation  have been
            included.  The operating  results and cash flows for the three-month
            and  six-month  periods  ended  March 31,  1998 are not  necessarily
            indicative  of the results that will be achieved for the full fiscal
            year or for future periods.

            The preparation of financial statements in conformity with generally
            accepted accounting  principles requires management to make estimate
            and  assumptions  that  affect  the  reported  amounts of assets and
            liabilities  and disclosure of contingent  assets and liabilities at
            the  date of  financial  statements  and  the  reported  amounts  of
            revenues  and  expenses  during the  reporting  period.  Significant
            estimates  used by the Company  include  estimated  useful lives for
            depreciable  and  amortizable   assets,   the  estimated   valuation
            allowance  for  deferred  tax assets,  and  estimated  cash flows in
            assessing the  recoverability of long-lived  assets.  Actual results
            may differ from estimates.

2.          NET INCOME (LOSS) PER COMMON SHARE

            During the first  quarter of fiscal 1998,  the Company  adopted SFAS
            No. 128 "Earnings per Share." SFAS No. 128 requires the presentation
            of basic net income  (loss) per share and diluted net income  (loss)
            per share.  Basic per share  amounts are  computed  by dividing  net
            income  (loss) by average  shares  outstanding  during  the  period.
            Diluted net income (loss) per share amounts are computed by dividing
            net income (loss) by average  shares  outstanding  plus the dilutive
            effect of common share equivalents. Since the Company incurred a net
            loss before  extraordinary loss during the three-month and six-month
            periods  ended March 31, 1997,  diluted per share  calculations  are
            based  upon  average  shares   outstanding   during  these  periods.
            Accordingly,  the effect of stock  options and warrants  outstanding
            for  3,525,000  shares at March 31, 1997 was not included in diluted
            net  loss  per  share   calculations.   Diluted  net  income  before
            extraordinary  loss  and  diluted  net  loss per  share  during  the
            three-month and six-month periods ended March 31, 1998 is determined
            considering the dilutive  effect of stock options and warrants.  The
            effect  of  stock  options  and  warrants  outstanding  to  purchase
            approximately 2,900,000 shares was not included in diluted per share
            calculations  during the  three-month  and  six-month  periods ended
            March 31, 1998 as the  average  exercise  price of such  options and
            warrants was greater than the average price of the Company's  common
            stock.


                                       -9-
<PAGE>
3.          INVENTORIES

            Inventories consist of the following:

                                              March 31,       September 30,
                                                1998              1997
                                                ----              ----

            Work-in-process                 $ 7,963,000        $ 3,349,000
            Raw materials and supplies        4,254,000          7,767,000
                                            -----------        -----------
            Total                           $12,217,000        $11,116,000
                                            -----------        -----------

4.          COMMITMENTS AND CONTINGENCIES

            In fiscal 1993, three shareholder  lawsuits were filed in the United
            States District Court for the District of Nevada against the Company
            and  certain  of  its   directors   and   officers   (the   "Company
            Defendants"). The complaints, which were consolidated,  alleged that
            the Company's public statements  violated Federal securities laws by
            inadequately  disclosing  information concerning its agreements with
            Thiokol  Corporation  ("Thiokol") and the Company's  operations.  On
            November  27,  1995,  the U.S.  District  Court  granted in part the
            Company's motion for summary  judgment,  ruling that the Company had
            not violated the Federal  securities laws in relation to disclosures
            concerning  the Company's  agreements  with  Thiokol.  The remaining
            claims,   which  related  to  allegedly   misleading  or  inadequate
            disclosures  regarding  Halotron,  were the  subject of a jury trial
            that ended on January 17, 1996. The jury reached a unanimous verdict
            that none of the Company  Defendants  made  misleading or inadequate
            statements regarding Halotron. The District Court thereafter entered
            judgment in favor of the Company  Defendants on the Halotron claims.
            The plaintiffs appealed the summary judgment ruling and the judgment
            on the jury verdict to the Ninth  Circuit of the United States Court
            of  Appeals.  On June 5,  1997,  the Court of Appeals  affirmed  the
            judgments  of the  United  States  District  Court  in  favor of the
            Company  Defendants.  On June  19,  1997,  the  plaintiffs  filed an
            Appellants  Petition for  Rehearing  and  Suggestion of Rehearing En
            Banc with the Court of Appeals.  On September 3, 1997,  the Court of
            Appeals  denied the Petition for  Rehearing.  In October  1997,  the
            plaintiffs  filed a Petition for Writ of Certiorari with the Supreme
            Court of the United States.  On February 23, 1998, the Supreme Court
            denied the Petition for Writ of Certiorari.

            Trace amounts of perchlorate chemicals have been found in Lake Mead.
            Clark County,  Nevada, where Lake Mead is situated,  is the location
            of  Kerr-McGee  Chemical   Corporation's   ("Kerr-McGee")   ammonium
            perchlorate ("AP") operations, and was the location of the Company's
            AP operations  until May 1988. The Company is cooperating with State
            and local agencies,  and with Kerr-McGee and other interested firms,
            in the  investigation  and  evaluation  of the  source or sources of
            these trace amounts,  possible  environmental impacts, and potential
            remediation methods. Until these investigations and evaluations have
            reached  definitive  conclusions,  it will not be  possible  for the
            Company to determine the extent to which, if at all, the Company may
            be called upon to  contribute  to or assist with future  remediation
            efforts,  or the  financial  impact,  if any,  of such  cooperation,
            contributions or assistance.


                                      -10-
<PAGE>
5.          INCOME TAXES

            The Company  established  a valuation  allowance  for  deferred  tax
            assets in the amount of $10.4 million as of September 30, 1997.  The
            Company's  effective  tax rate  will be 0% until  its net  operating
            losses  expire  or the  Company  has  taxable  income  in an  amount
            sufficient to eliminate the need for the valuation allowance.

6.          FINANCING ACTIVITIES

            On March 12, 1998, the Company sold $75.0 million  principal  amount
            of unsecured senior notes (the "Notes"),  consummated an acquisition
            (the  "Acquisition")  of certain  assets from  Kerr-McGee  described
            below and repurchased the remaining $25.0 million  principal  amount
            balance  outstanding  of  subordinated  secured  notes  (the  "Azide
            Notes").

            The Notes  mature on March 1,  2005.  Interest  on the Notes will be
            paid in  cash at a rate of  9-1/4%  per  annum  on each  March 1 and
            September  1,  commencing   September  1,  1998.  The   indebtedness
            evidenced by the Notes represents a senior  unsecured  obligation of
            the Company,  ranks pari passu in right of payment with all existing
            and future senior indebtedness of the Company and is senior in right
            of payment to all future  subordinated  indebtedness of the Company.
            The  Indenture  under which the Notes were issued  contains  various
            limitations  and  restrictions   including  (i)  change  in  control
            provisions,  (ii) limitations on indebtedness and (iii)  limitations
            on  restricted  payments such as dividends,  stock  repurchases  and
            investments.  The Company is obligated to register and have declared
            effective the Notes,  or exchange them for identical notes that have
            been registered,  with the Securities and Exchange Commission within
            certain predefined time parameters. In April 1998, the Company filed
            a Form S-4 under the Securities Exchange Act of 1933 for the purpose
            of registering the Notes. The registration is in process and has not
            been  declared  effective.  If the Company  does not  consummate  an
            effective  registration of the Notes within the required time frame,
            certain  additional  interest  will  accrue  at a rate of 0.50%  per
            annum.

            The Azide  Notes  were 11%  noncallable  subordinated  secured  term
            notes,  which were issued and sold in  February  1992 to finance the
            design,  construction  and  start-up of the  Company's  sodium azide
            facility.  A portion of the net proceeds  from sale of the Notes was
            applied  to  repurchase  the  Azide  Notes for  approximately  $28.2
            million  (approximately  113% of the  outstanding  principal  amount
            thereof). In connection with the repurchase,  the Company recognized
            an extraordinary  loss on debt  extinguishment of approximately $5.0
            million.  The extraordinary  loss consisted of the cash premium paid
            of $3.2  million  upon  repurchase  and a charge of $1.8  million to
            write-off the unamortized balance of debt issue and discount costs.

7.          ACQUISITION

            On March 12,  1998  (the  "Closing  Date"),  the  Company  acquired,
            pursuant to a purchase  agreement  (the "Purchase  Agreement")  with
            Kerr-McGee,  certain process data, technical  information,  customer
            lists,  marketing  contracts  and related  expertise  of  Kerr-McGee
            related its  production of AP (the "Rights") for a purchase price of
            $39.0 million. Under the Purchase Agreement, the Company acquired an
            option  (the  "Option")  to  purchase  all  or  any  portion  of the
            inventory of AP stored at Kerr-McGee's premises on the Closing Date,
            which is not  owned  by,  or  identified  to a firm  order  from,  a
            Kerr-McGee  customer (the  "Inventory").  The Option is  exercisable
            from time to time within the 12


                                      -11-
<PAGE>
            month period  commencing on the Closing Date (the "Option  Period").
            The Acquisition did not include Kerr-McGee's  production  facilities
            (the  "Production  Facilities")  and certain  water and power supply
            agreements  used by  Kerr-McGee  in the  production of AP. Under the
            Purchase Agreement,  Kerr-McGee ceased the production and sale of AP
            although  the  Production  Facilities  may  continue  to be  used by
            Kerr-McGee for production of AP under certain limited  circumstances
            described below. Under the Purchase Agreement, Kerr-McGee reserved a
            perpetual,  royalty-free,  nonexclusive  license  to use  any of the
            technology  forming part of the Rights as may be necessary or useful
            to use,  repair or sell the  Production  Facilities  (the  "Reserved
            License").

            Under the Purchase Agreement,  Kerr-McGee reserved the right to sell
            the Inventory to the extent not purchased by the Company pursuant to
            the Option,  to process and sell  certain  reclaimed  AP that is not
            suitable  for  use in  solid  fuel  rocket  motors  (the  "Reclaimed
            Product"),  and  to  produce  and  sell  AP (i)  to  fulfill  orders
            scheduled for delivery after the closing, subject to making payments
            to the  Company  with  respect to such  orders,  as  provided in the
            Purchase Agreement and (ii) in the event of the Company's  inability
            to meet  customer  demand or  requirements,  breach of the  Purchase
            Agreement or termination of the Company's AP business.

            The Purchase  Agreement  provides  that,  together with the Reserved
            License,  Kerr-McGee  is permitted in its  discretion  to (i) lease,
            sell,  dismantle,  demolish  and/or  scrap all or any portion of the
            Production  Facilities,  (ii) retain the  Production  Facilities for
            manufacture  of Reclaimed  Product and (iii) maintain the Production
            Facilities in a "standby" or "mothballed"  condition so they will be
            capable of being used to produce AP under the limited  circumstances
            referred to above.

            Under the Purchase Agreement, Kerr-McGee has agreed to indemnify the
            Company  against loss or liability from claims  associated  with the
            ownership  and  use of  the  Rights  prior  to  consummation  of the
            Acquisition  or  resulting  from  any  breach  of  its   warranties,
            representations  and covenants.  The Company has agreed to indemnify
            Kerr-McGee  against loss and liability from claims  associated  with
            the  ownership  and  use of the  Rights  after  consummation  of the
            Acquisition  or  resulting  from  any  breach  of  its   warranties,
            representations  and covenants.  In addition,  Kerr-McGee has agreed
            that it will,  at the Company's  request,  store any Inventory as to
            which  the  Option  is  exercised  until 90 days  after  the  Option
            expires,  introduce  the  Company  to  AP  customers  that  are  not
            currently  customers  of the  Company,  and consult with the Company
            regarding the production and marketing of AP. The Company has agreed
            that, at  Kerr-McGee's  request,  it will use reasonable  efforts to
            market  Reclaimed  Product  on  Kerr-McGee's  behalf for up to three
            years following consummation of the Acquisition.

            The purchase  price of $39.0 million was recognized as an Intangible
            Acquisition  Asset  and is  being  amortized  to cost of  sales on a
            straight line basis over a ten-year period.

8.          AGREEMENTS WITH AP CUSTOMERS

            In December 1997, in connection  with the  Acquisition,  the Company
            entered into an agreement with Thiokol with respect to the supply of
            AP through the year 2008. The agreement,  which was contingent  upon
            consummation  of the  Acquisition,  provides  that  during  its term
            Thiokol  will make all of its AP  purchases  from the  Company.  The
            agreement  also  establishes  a pricing  matrix  under which AP unit
            prices vary inversely with


                                      -12-
<PAGE>
            the quantity of AP sold by the Company to all of its customers.  The
            Company  understands  that, in addition to the AP purchased from the
            Company,  Thiokol may use AP inventoried by it in prior years and AP
            recycled by it from certain existing rocket motors.

            In December 1997, in connection  with the  Acquisition,  the Company
            entered into an  agreement  with  Alliant  Techsystems  Incorporated
            ("Alliant") to extend an existing  agreement  through the year 2008.
            The  agreement  establishes  prices for any AP  purchased by Alliant
            from the Company during the term of the agreement as extended. Under
            this  agreement  Alliant  agrees  to use its  efforts  to cause  the
            Company's AP to be qualified on all new and current  programs served
            by Alliant's Bacchus Works.

9.          REAL ESTATE EQUITY INVESTMENTS

            The  Company's  interest in Gibson Ranch Limited  Liability  Company
            ("GRLLC") is accounted for using the equity  method.  GRLLC operates
            on a calendar year.  The Company  recognizes its share of the equity
            in  GRLLC  on  a  current  quarterly  basis.   Summarized  financial
            information for GRLLC as of and for the six-month period ended March
            31, 1998 was as follows:

            Income Statement:
                  Revenues                    $15,780,000
                  Gross Profit                  2,597,000
                  Operating Expenses              741,000
                  Net Income                  $ 1,861,000

            Balance Sheet:
                  Assets                      $27,245,000
                  Liabilities                  12,952,000
                  Equity                      $14,293,000

GRLLC's  balance  sheet  is  not  classified.   Assets  consist  principally  of
inventories and liabilities consist principally of Notes and accounts payable.
Inventories were $25,576,000 at March 31, 1998.


                                      -13-
<PAGE>
MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

OVERVIEW

The Company is principally engaged in the production of AP for the aerospace and
national defense industries.  In addition, the Company produces and sells sodium
azide, the primary  component of a gas generant used in automotive airbag safety
systems,  and Halotron, a chemical used in fire suppression systems ranging from
portable fire extinguishers to airport firefighting  vehicles.  The perchlorate,
sodium azide and Halotron  facilities  are located on the Company's  property in
Southern  Utah  and  the  chemicals   produced  and  sold  at  these  facilities
collectively  represent the Company's specialty chemical segment.  The Company's
other lines of business include the development of real estate in Nevada and the
production of environmental  protection equipment,  including waste and seawater
treatment systems.

The Company  has  incurred  net losses  during its last three  fiscal  years and
operating losses during the fiscal years ended September 30, 1997 and 1995. As a
result, pre-tax income has not been sufficient to recover interest charges.

The Company believes that North American AP demand is currently approximately 22
to 24 million pounds annually.  However,  supply capacity has historically  been
substantially  in  excess  of these  estimated  demand  levels.  In an effort to
rationalize  the economics of the existing AP market,  the Company  entered into
the Purchase  Agreement with Kerr-McGee.  Upon  consummation of the Acquisition,
the Company effectively became the sole North American producer of AP.

SALES  AND  OPERATING  REVENUES.  Sales of the  Company's  perchlorate  chemical
products,  consisting  almost entirely of AP sales,  accounted for approximately
61% and 56% of revenues  during the  six-month  periods ended March 31, 1998 and
1997,  respectively.  In general,  demand for AP is driven by a relatively small
number of DOD and NASA contractors;  as a result, any one individual AP customer
usually accounts for a significant portion of the Company's revenues.

Sodium azide sales  accounted for  approximately  24% and 29% of revenues during
the six-month periods ended March 31, 1998 and 1997,  respectively.  The Company
has incurred  significant  operating losses in its sodium azide operation during
the last three fiscal years. Although the Company has achieved significant gains
in market share that appear to relate to an  anti-dumping  petition filed by the
Company  against  three  Japanese  sodium  azide  producers  and  the  resulting
suspension  agreement,  the  Company  believes  that  these  factors  were fully
incorporated into the market by the end of fiscal 1997. The Company's evaluation
of the sodium azide market  indicated that the cash flows associated with sodium
azide operations would not be sufficient to recover the Company's  investment in
sodium azide  related fixed assets and, as a result,  the Company  recognized an
impairment  charge with respect to those  assets of $52.6  million in the fourth
quarter of fiscal 1997. Depreciation expense is expected to decrease annually by
approximately $4.0 million as a result of the impairment charge.

Sales of Halotron  amounted to  approximately  1% and 5% of revenues  during the
six-month  periods  ended  March 31,  1998 and 1997,  respectively.  Halotron is
designed to replace halon-based fire suppression  systems.  Accordingly,  demand
for  Halotron  depends upon a number of factors  including  the  willingness  of
consumers to switch from halon-based  systems, as well as existing and potential
governmental regulations.

Real estate and related sales  amounted to  approximately  9% and 4% of revenues
during the six-month  periods ended March 31, 1998 and 1997,  respectively.  The
nature of real estate  development  and sales is such that the Company is unable
to  reliably  to  predict  any  pattern  of  future  real  estate  sales  or the
recognition of the equity in earnings of real estate ventures.

                                      -14-
<PAGE>
Environmental  protection  equipment sales accounted for approximately 5% and 6%
of  revenues  during  the  six-month  periods  ended  March  31,  1998 and 1997,
respectively.

COST OF SALES. The principal elements comprising the Company's cost of sales are
raw materials,  electric, power, labor,  manufacturing overhead and the basis in
real estate sold.  The major raw materials used by the Company in its production
processes are graphite,  sodium chlorate,  ammonia,  hydrochloric  acid,  sodium
metal, and nitrous oxide. Significant increases in the cost of raw materials may
have an adverse  impact on  margins if the  Company is unable to pass along such
increases to its customers, although all the raw materials used in the Company's
manufacturing   processes  have   historically   been  available  in  commercial
quantities,  and the  Company  has had no  difficulty  obtaining  necessary  raw
materials.

Raw  material,  electric  power and labor costs have not  changed  significantly
recently.  The costs of operating the Company's  specialty  chemical plants are,
however,  largely fixed.  Accordingly,  the Company  believes that the potential
additional  AP sales  volume  resulting  from the  Acquisition  should  generate
significant  incremental cash flow because of the operating leverage  associated
with the perchlorate  plant.  However,  amortization of the Acquisition costs is
expected to amount to approximately $4.0 million annually.

INCOME TAXES. The Company's  effective income tax rates were 0% during the three
and  six-month  periods  ended  March  31,  1998 and 34%  during  the  three and
six-month periods ended March 31, 1997. The Company's  effective income tax rate
decreased  to  17%  for  the  entire  1997  fiscal  year  as  a  result  of  the
establishment of a $10.4 million deferred tax valuation  allowance in the fourth
quarter.  The  Company's  effective  tax rate will be 0% until the Company's net
operating  losses  expire  or  the  Company  has  taxable  income  in an  amount
sufficient to eliminate the need for the valuation allowance.

NET INCOME  (LOSS).  Although the  Company's  net income  (loss) and diluted net
income  (loss) per common share have not been subject to seasonal  fluctuations,
they have been and are  expected to continue  to be subject to  variations  from
quarter to quarter and year to year due to the following factors,  among others:
(i) as  discussed  in  Note  4 of  Notes  to  Condensed  Consolidated  Financial
Statements,  the  Company  may incur  material  costs  associated  with  certain
contingencies;  (ii)  timing of real  estate  and  related  sales and  equity in
earnings of real estate  ventures is not  predictable;  (iii) the recognition of
revenues from  environmental  protection  equipment  orders not accounted for as
long-term  contracts depends upon orders generated and the timing of shipment of
the equipment;  (iv) weighted  average common and common  equivalent  shares for
purposes of  calculating  diluted net income (loss) per common share are subject
to  significant  fluctuations  based upon  changes  in the  market  price of the
Company's  Common Stock due to  outstanding  warrants  and options;  and (v) the
magnitude,  pricing and timing of AP, sodium azide,  Halotron, and environmental
protection equipment sales in the future is uncertain.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997

SALES AND OPERATING  REVENUES.  Sales increased $4.7 million,  or 50% during the
three  months  ended March 31, 1998 to $14.1  million  from $9.4  million in the
corresponding  period of the prior  year.  This  increase  was  attributable  to
increased  sales of  perchlorate,  sodium azide,  real estate and  environmental
protection  equipment.  Such  increase  was  partially  offset by a decrease  in
Halotron sales. Approximately $3.5 million of the $4.7 million increase in sales
was attributable to

                                      -15-
<PAGE>
increases in perchlorate sales. This increase was primarily  attributable to the
pendency and ultimate consummation of the Acquisition.

COST OF SALES. Cost of sales increased $1.1 million, or 14%, in the three months
ended  March 31, 1998 to $9.1  million  from $8.0  million in the  corresponding
period of the prior year.  This  increase  was  principally  due to increases in
perchlorate  and sodium azide sales volume.  As a percentage  of sales,  cost of
sales  decreased  in the three months ended March 31, 1998 to 65% as compared to
86% in the  corresponding  period  of the  prior  year.  This  decrease  was due
principally to the increase in  perchlorate  and sodium azide sales volume and a
reduction in  depreciation  expense as a result of the sodium  azide  impairment
charge referred to above.

OPERATING  EXPENSES.  Operating (selling,  general and administrative)  expenses
decreased  $.1 million,  or 1%, in the three months ended March 31, 1998 to $2.2
million from $2.3 million in the corresponding period of 1997.

NET INTEREST  EXPENSE.  Net interest and other expense increased to $.75 million
in the three months  ended March 31, 1998 from $.3 million in the  corresponding
period of the prior year  principally  as a result of the  cessation of interest
capitalization  on  the  Company's  Ventana  Canyon  residential  joint  venture
project.

EQUITY IN EARNINGS OF REAL ESTATE VENTURE.  The Company's share of equity in its
Ventana  Canyon  joint  venture  was $0 and $.1 million  during the  three-month
periods  ended  March 31,  1998 and 1997.  The joint  venture  has  historically
operated at or near a break-even point on residential activity and generated net
income on sales of improved land (see below).

SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO SIX MONTHS ENDED MARCH 31, 1997

SALES AND OPERATING  REVENUES.  Sales increased $7.6 million, or 43%, during the
six months  ended  March 31,  1998 to $25.4  million  from $17.8  million in the
corresponding  period of the prior year.  The  increase was  principally  due to
increased  sales of  perchlorate,  sodium azide,  real estate and  environmental
protection  equipment.  Such  increase  was  partially  offset by a decrease  in
Halotron sales. Approximately $5.0 million of the $7.6 million increase in sales
was attributable to increases in perchlorate  sales. This increase was primarily
attributable to the pendency and ultimate consummation of the Acquisition.

COST OF SALES.  Cost of sales increased $2.2 million,  or 14%, in the six months
ended March 31, 1998 to $17.2  million from $15.1  million in the  corresponding
period of the prior year.  The  increase in cost of sales was  primarily  due to
increases in perchlorate and sodium azide volume. As a percentage of sales, cost
of sales  decreased in the six months ended March 31, 1998 to 68% as compared to
85% in the corresponding period of the prior year. The decrease was attributable
to the increase in perchlorate  and sodium azide sales volume and a reduction in
depreciation  expense as a result of the sodium azide impairment charge referred
to above.  Cost of sales is expected to increase by  approximately  $4.0 million
annually as a result of the amortization of capitalized Acquisition costs.

OPERATING  EXPENSES.  Operating  expenses were $4.4 million during the six-month
period ended March 31, 1998 compared to $4.6 million in the corresponding period
of the prior year.

NET INTEREST  EXPENSE.  Net interest and other expense increased to $1.5 million
in the six months  ended March 31,  1998 from $.5  million in the  corresponding
period of the prior year  principally  as a result of the  cessation of interest
capitalization  on  the  Company's  Ventana  Canyon  residential  joint  venture
project.  Interest  expense will increase  significantly  in future periods as a
result of the  issuance of the Notes  described  in Note 6 of Notes to Condensed
Consolidated Financial Statements.

                                      -16-
<PAGE>

EQUITY IN EARNINGS OF REAL ESTATE VENTURE.  The Company's share of equity in its
Ventana  Canyon  joint  venture  was $.3  million  and $.1  million  during  the
six-months ended March 31, 1998 and 1997. The increase in the equity in earnings
of Ventana Canyon relates principally to the sale of improved land to an outside
developer in the first quarter of fiscal 1998.

Segment  Operating  Income  (Loss).  Operating  income  (loss) of the  Company's
industry segments during the six-month periods ended March 31, 1998 and 1997 was
as follows:

                                             1998               1997
                                             ----               ----

Specialty chemicals                     $ 2,102,000       $(1,650,000)
Environmental protection equipment           60,000          (362,000)
Real Estate                               1,271,000            64,000
                                        -----------       -----------

          Total                         $ 3,433,000       $(1,948,000)
                                        ===========       ===========

The increase in operating income in the Company's  specialty  chemical  industry
segment was  attributable  to the increase in   perchlorate  sales in the second
quarter of fiscal 1998 referred to above and a decrease in depreciation  expense
associated  with sodium azide  operations as a result of the  impairment  charge
discussed  above.  The increase in environmental  protection  equipment  segment
operating  income was primarily due to an increase in revenues.  The increase in
real estate segment  operating  income was  attributable to an increase in sales
from $.4 million  during the six months  ended  March 31,  1997 to $1.3  million
during the same period in 1998.


                                     -16-A-
<PAGE>
INFLATION

Inflation did not have a significant effect on the Company's sales and operating
revenues or costs during the  three-month  or six-month  periods ended March 31,
1998 or 1997.  Inflation  may have an  effect on gross  profit in the  future as
certain of the Company's  agreements with AP and sodium azide customers  require
fixed prices,  although certain of such agreements contain  escalation  features
that should  somewhat  insulate the Company from  increases in costs  associated
with inflation.

LIQUIDITY AND CAPITAL RESOURCES

As  discussed  in  Notes 6 and 7 of Notes to  Condensed  Consolidated  Financial
Statements,  in March 1998,  the Company sold Notes in the  principal  amount of
$75.0 million, acquired certain assets from Kerr-McGee for a cash purchase price
of $39.0  million  and paid $28.2  million to  repurchase  the  remaining  $25.0
million principal amount outstanding of the Azide Notes. Through March 31, 1998,
the Company has incurred approximately $2.7 million in costs associated with the
issuance  of the Notes.  In  connection  with the Azide  Notes  repurchase,  the
Company recognized an extraordinary loss on debt extinguishment of approximately
$5.0 million.

Cash flows  provided by (used for) operating  activities  were ($.4) million and
$6.3 million during the six-months ended March 31, 1998 and 1997,  respectively.
Cash flows from operating  activities declined in the first six months of fiscal
1998  principally as a result of changes in certain  working  capital  balances,
most notably a significant  increase in  receivables  related to AP shipments in
late March 1998.  Such  receivables  are  scheduled to be collected in the third
quarter of fiscal 1998. The Company believes that its cash flows from operations
and  existing  cash  balances  will be adequate  for the  foreseeable  future to
satisfy the needs of its operations.  However,  the resolution of contingencies,
and the  timing,  pricing  and  magnitude  of orders  for AP,  sodium  azide and
Halotron, may have an effect on the use and availability of cash.

Capital  expenditures  were $1.6  million  during the six months ended March 31,
1998  compared  to $1.3  million  during  the same  period  last  year.  Capital
expenditures are budgeted to amount to approximately $2.5 million in fiscal 1998
and  relate  principally  to  specialty  chemical  segment  capital  improvement
projects.

During the three-month  and six-month  periods ended March 31, 1998, the Company
received  cash of  approximately  $2.7 million and $1.0  million,  respectively,
relating to the return of capital  invested in the Ventana Canyon joint venture.
The Company  currently  anticipates  that cash  returns of invested  capital and
equity in earnings will continue through the conclusion of the project currently
projected by the end of calendar 2001.

As a result of the litigation and contingencies  discussed in Note 4 of Notes to
Condensed Consolidated Financial Statements,  the Company has incurred legal and
other costs, and it may incur material legal and other costs associated with the
resolution of  contingencies  in future  periods.  Any such costs, to the extent
borne by the Company and not recovered through insurance, would adversely affect
the Company's liquidity.  The Company is currently unable to predict or quantify
the amount or range of such costs, if any, or the period of time over which such
costs will be incurred.

The Company is currently in the process of evaluating its computer  software and
databases to determine whether or not modifications  will be required to prevent
problems  related  to the Year 2000.  These  problems,  which  have been  widely
reported in the media, could cause


                                      -17-
<PAGE>
malfunctions in certain software and databases with respect to dates on or after
January 1,  2000,  unless  corrected.  Based upon its  evaluation  to date,  the
Company does not believe that the costs of any modifications required to correct
for Year 2000 problems will have a material impact on operations, although there
can be no assurance given with respect thereto.

FORWARD-LOOKING STATEMENTS/RISK FACTORS

Certain matters discussed in this Report may be forward-looking  statements that
are subject to risks and uncertainties that could cause actual results to differ
materially from those projected.  Such risks and uncertainties  include, but are
not limited to, the risk factors set forth below.






                                     -17-A-


<PAGE>
The following  risk factors,  among  others,  may cause the Company's  operating
results and/or financial position to be adversely affected from time to time:

                  1.   (a) Declining demand or downward pricing pressure for the
                       Company's  products  as a result of general  or  specific
                       economic  conditions,  (b) governmental  budget decreases
                       affecting  the  Department  of Defense or NASA that would
                       cause a  continued  decrease  in demand  for AP,  (c) the
                       results  achieved by the Suspension  Agreement  resulting
                       from the Company's anti-dumping petition and the possible
                       termination of such agreement, (d) technological advances
                       and  improvements or new competitive  products  causing a
                       reduction or  elimination  of demand for AP, sodium azide
                       or Halotron,  (e) the ability and desire of purchasers to
                       change existing products or substitute other products for
                       the Company's  products based upon perceived  quality and
                       pricing,  and (f) the fact  that  perchlorate  chemicals,
                       sodium azide,  Halotron and the  Company's  environmental
                       products   have   limited    applications    and   highly
                       concentrated customer bases.

                  2.   Competitive  factors  including,  but not limited to, the
                       Company's limitations  respecting financial resources and
                       its   ability   to   compete   against   companies   with
                       substantially   greater  resources,   significant  excess
                       market  supply in the AP and sodium azide markets and the
                       development  or  penetration  of competing  new products,
                       particularly in the propulsion, airbag inflation and fire
                       suppression businesses.

                  3.   Underutilization    of   the   Company's    manufacturing
                       facilities  resulting in  production  inefficiencies  and
                       increased  costs, the inability to recover facility costs
                       and reductions in margins.

                  4.   Risks   associated   with  the   Company's   real  estate
                       activities,  including,  but not limited  to,  dependence
                       upon the Las Vegas commercial, industrial and residential
                       real estate markets, changes in general or local economic
                       conditions,  interest  rate  fluctuations  affecting  the
                       availability  and the cost of financing,  the performance
                       of the managing  partner of its  residential  real estate
                       joint  venture   (Ventana   Canyon  Joint   Venture)  and
                       regulatory  and  environmental  matters  that  may have a
                       negative impact on sales or costs.

                  5.   The  effects  of, and changes  in,  trade,  monetary  and
                       fiscal   policies,   laws  and   regulations   and  other
                       activities   of   governments,    agencies   or   similar
                       organizations,    including,    but   not   limited   to,
                       environmental, safety and transportation issues.

                  6.   The  cost  and   effects  of  legal  and   administrative
                       proceedings, settlements and investigations, particularly
                       those   described   in  Note  4  of  Notes  to  Condensed
                       Consolidated  Financial  Statements and claims made by or
                       against  the  Company  relative  to patents  or  property
                       rights.


                                      -18-
<PAGE>

                  7.   Integration  of new  customers  and the  ability  to meet
                       additional production and delivery requirements resulting
                       from the Acquisition.

                  8.   The  results  of  the   Company's   periodic   review  of
                       impairment issues under the provision of SFAS No. 121.

                  9.   The dependence  upon a single facility for the production
                       of most of the Company's products.






                                      -19-