<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C.  20549

                                   FORM 10-Q

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

                  FOR QUARTERLY PERIOD ENDED DECEMBER 31, 1995

                         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:  8,105,621 AS OF JANUARY 31,
1996.
<PAGE>
 
                         PART I.  FINANCIAL INFORMATION

ITEM 1.  Financial Statements
         --------------------

         The information required by Rule 10-01 of Regulation S-X is provided on
         pages 4 through 9 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 10 through 14 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
         pages 8 through 9 of this Report on Form 10-Q.

ITEM 2. through ITEM 5.

         Not applicable or none.

ITEM 6.  Exhibits and Reports on Form 8-K

         a)  The following Exhibit is filed in connection with the Registrant's
             electronic filing:

               27.  Financial Statement Schedules

         b)  None.

                                       2
<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:  February 13, 1996                 s/c C. Keith Rooker
                                         ---------------------------
                                         C. Keith Rooker
                                         Executive Vice President


Date:  February 13, 1996                 s/c David N. Keys
                                         ---------------------------
                                         David N. Keys
                                         Vice President,
                                         Chief Financial Officer and
                                         Treasurer;  Principal
                                         Financial and Accounting
                                         Officer

                                       3
<PAGE>
 
                          AMERICAN PACIFIC CORPORATION
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    FOR THE THREE MONTHS ENDED DECEMBER 31,
                                  (UNAUDITED)
<TABLE>
<CAPTION>
 
                                               1995           1994
                                            ----------    -----------
<S>                                         <C>           <C>
Sales and Operating Revenues                $9,776,000    $ 9,309,000
Cost of Sales                                7,903,000      7,736,000
                                            ----------    -----------
    Gross Profit                             1,873,000      1,573,000
 
Operating Expenses                           2,350,000      2,608,000
                                            ----------    -----------
Operating Loss                                (477,000)    (1,035,000)
Net Interest and Other
 Expense (Income)                              415,000       (307,000)
                                            ----------    -----------
Loss Before Credit for Income
 Taxes                                        (892,000)      (728,000)
 
Credit for Income Taxes                       (304,000)      (248,000)
                                            ----------    ----------- 
Net Loss                                    $ (588,000)   $  (480,000)
                                            ----------    -----------
Net Loss Per Common Share                   $     (.07)   $      (.06)
                                            ----------    ----------- 
Weighted Average Common and
  Common Equivalent Shares
   Outstanding                               8,104,000      8,246,000
                                            ----------    -----------
 
 
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.

                                       4
<PAGE>
 
                          AMERICAN PACIFIC CORPORATION
                     Condensed Consolidated Balance Sheets
                                  (Unaudited)
<TABLE>
<CAPTION>
 
 
                                            December 31,   September 30,
                                                1995           1995
                                            ------------   -------------
<S>                                         <C>            <C>
ASSETS
 
Current Assets:
 Cash and Cash Equivalents                  $ 18,098,000    $ 24,540,000
 Short-term Investments                        2,000,000       2,000,000
 Accounts and Notes Receivable                 8,060,000       2,534,000
 Income Tax Receivable                         2,570,000       2,570,000
 Related Party Notes Receivable                  838,000         888,000
 Inventories                                   7,629,000       7,094,000
 Prepaid Expenses and Other Assets             1,372,000         986,000
                                            ------------   -------------
            Total Current Assets              40,567,000      40,612,000
 
Property, Plant and Equipment, Net            79,864,000      80,944,000
Development Property                          10,041,000      10,296,000
Real Estate Equity Investments                18,720,000      17,725,000
Other Assets                                   4,321,000       4,469,000
Restricted Cash                                4,613,000       3,743,000
                                            ------------   -------------
            TOTAL ASSETS                    $158,126,000    $157,789,000
                                            ------------   ------------- 
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.

                                       5
<PAGE>
 
                          AMERICAN PACIFIC CORPORATION
                     Condensed Consolidated Balance Sheets
                                  (Unaudited)
<TABLE>
<CAPTION>
 
 
                                            December 31,    September 30,
                                               1995            1995
                                            ------------    -------------
<S>                                         <C>              <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current Liabilities:
 Accounts Payable and Accrued               
  Liabilities                               $  6,812,000    $  5,672,000
 Notes Payable and Current
  Portion of Long-Term Debt                    8,500,000       8,500,000
                                            ------------    ------------
     Total Current Liabilities                15,312,000      14,172,000
 
Long-Term Debt                                34,133,000      34,054,000
Deferred Income Taxes                         10,264,000      10,568,000
Minimum Pension Liability                      1,175,000       1,175,000
                                            ------------    ------------ 
     TOTAL LIABILITIES                        60,884,000      59,969,000
                                            ------------    ------------ 
Commitments and Contingencies
 
Warrants to Purchase Common Stock              3,569,000       3,569,000
 
SHAREHOLDERS' EQUITY:
 
Common Stock                                     823,000         822,000
Capital in Excess of Par Value                78,323,000      78,285,000
Retained Earnings                             15,601,000      16,189,000
Treasury Stock                                  (818,000)       (789,000)
Receivable from the Sale of Stock                (97,000)        (97,000)
Excess Additional Pension Liability             (159,000)       (159,000)
                                            ------------    ------------ 
     Total Shareholders' Equity               93,673,000      94,251,000
                                            ------------    ------------ 
     TOTAL LIABILITIES AND              
      SHAREHOLDERS' EQUITY                  $158,126,000    $157,789,000
                                            ------------    ------------ 
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.

                                       6
<PAGE>
 
                          AMERICAN PACIFIC CORPORATION
                Condensed Consolidated Statements of Cash Flows
                    For the Three Months ended December 31,
                                  (Unaudited)
<TABLE>
<CAPTION>
 
 
                                               1995            1994
                                            ------------    ----------- 
<S>                                         <C>             <C>
Cash Provided by (Used For) Operating
 Activities                                  $(5,058,000)   $    53,000
                                             -----------    ----------- 
Cash Flows Used for Investing
 Activities:
  Capital Expenditures,
   Development Property       
   Additions and Real
   Estate Equity Investments                  (1,394,000)    (2,604,000)
 
  Treasury Stock Acquired                        (29,000)      (370,000)
                                             -----------    -----------
Net Cash Used For Investing Activities        (1,423,000)    (2,974,000)
                                             -----------    ----------- 
Cash Flows From Financing Activities:
 Issuance of Common Stock                         39,000         26,000
                                             -----------    ----------- 
Net Cash Provided By                              
 Financing Activities                             39,000         26,000
                                             -----------    ----------- 
Net Decrease in Cash and Cash
 Equivalents                                  (6,442,000)    (2,895,000)
Cash and Cash Equivalents, Beginning of      
 Period                                       24,540,000     22,884,000
                                             -----------    -----------
Cash and Cash Equivalents, End of Period     $18,098,000    $19,989,000
                                             -----------    ----------- 
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.

                                       7
<PAGE>
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

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, 1995 was
    derived from the Consolidated Financial Statements included in the Company's
    Annual Report on Form 10-K for the year ended September 30, 1995.  The
    Condensed Consolidated Financial Statements for the three-month periods
    ended December 31, 1995 and 1994 are unaudited.  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, 1995.  In the opinion of Management, however,
    all adjustments (consisting only of normal recurring accruals) necessary for
    a fair presentation have been included.

2.  NET LOSS PER COMMON SHARE

    Net loss per common share for the three-month periods ended December 31,
    1995 and 1994 is determined based upon the weighted average number of common
    and common equivalent shares (if such shares are dilutive) outstanding.
    Common share equivalents consist of outstanding stock options and warrants.

3.  INVENTORIES

    Inventories consist of the following:

<TABLE>
<CAPTION>
 
                                     December 31,   September 30,
                                         1995           1995
                                     ------------   -------------
    <S>                               <C>            <C>
 
    Work-in-process                   $4,379,000      $3,828,000
    Raw materials and supplies         3,250,000       3,266,000
                                      ----------      ----------
    Total                             $7,629,000      $7,094,000
                                      ----------      ----------
</TABLE>

4.  COMMITMENTS AND CONTINGENCIES

    In fiscal 1993, three shareholder lawsuits, purporting to be class actions,
    were filed in the United States District Court for the District of Nevada
    against the Company and certain of its directors and officers.  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 neither the Company nor
    its directors and officers made misleading or inadequate statements
    regarding Halotron.  The summary 

                                       8
<PAGE>
 
    judgment ruling and the results of the trial relating to Halotron are
    expected to be subject to post-verdict motions and appeals.

    As a result of the above-described shareholder lawsuits, the Company has
    incurred legal and other costs and may incur material legal and other costs
    associated with the ultimate resolution of the shareholder lawsuits in
    future periods.  Certain of these costs may be reimbursable under policies
    providing for insurance coverage.  The Company has adopted certain policies
    in its Charter and Bylaws as a result of which the Company may have the
    obligation to indemnify its affected officers and directors to the extent,
    if at all, the existing insurance coverages are insufficient.  The Company's
    insurance carriers have reserved the right to exclude or disclaim coverage
    under certain circumstances.  The Company is currently unable to predict or
    quantify the amount or the range of such costs, if any, or the period of
    time during which such costs will be incurred.

    The Company was served with a complaint on December 10, 1993 in a lawsuit
    brought by limited partners in a partnership of which one of the Company's
    former subsidiaries, divested in 1985, was a general partner.  The
    plaintiffs allege that the Company is liable to them in the amount of
    approximately $5.9 million on a guarantee executed in 1982.  The Company
    believes that the claim against it is wholly without merit.

    The Company and its subsidiaries are also involved in other lawsuits.  The
    Company believes that these other lawsuits, individually or in the
    aggregate, will not have a material adverse effect on the Company or any of
    its subsidiaries.

                                       9
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

RESULTS OF OPERATIONS

SALES AND OPERATING REVENUES AND GROSS PROFIT

Sales and operating revenues were $9,776,000 and $9,309,000 during the three-
month periods ended December 31, 1995 and 1994.  Gross profit as a percentage of
sales and operating revenues was 19 percent in the first quarter of fiscal 1996
compared to 17 percent in the first quarter of fiscal 1995.  A discussion of
sales and operating revenues and gross profit percentages relating to the
Company's principal operating activities is provided below.

PERCHLORATE CHEMICAL OPERATIONS

In May 1994, Western Electrochemical Company ("WECCO"), an indirect wholly-owned
subsidiary of the Company, and Thiokol executed an amendment (the "Amendment")
to an existing long-term purchase contract for the sale of ammonium perchlorate
("AP").  The Amendment confirmed that the purchase contract had a continuous
term commencing with the first production of AP at the WECCO plant in August
1989 and ending September 30, 1996, (approximately two months subsequent to the
estimated original term of the Advance Agreement).  The Amendment provides for
WECCO to receive revenues from sales of AP of approximately $33 million, $28
million and $20 million during the fiscal years ended and ending September 30,
1994, 1995 and 1996, respectively.

Sales of all perchlorate chemicals amounted to approximately $5,145,000 and
$7,100,000 during the three-month periods ended December 31, 1995 and 1994,
respectively.  In October 1995, WECCO received a purchase order for the delivery
of AP from October 1996 through 1999 having a value in the range of $8 million
to $10 million.  This contract includes options that could increase the total
order substantially during the 1997-1999 period, and that could extend the
contract to the year 2005.  Other than this purchase order, WECCO has no
significant backlog of perchlorate chemical sales subsequent to September 30,
1996.

SODIUM AZIDE OPERATIONS

Sodium azide sales (net of a five percent royalty and certain commissions) were
$3,345,000 and $1,111,000 during the three-month periods ended December 31, 1995
and 1994, respectively.  Commercial shipments of sodium azide began in April
1994.  The level of sodium azide sales has not been sufficient to absorb
operational costs associated with the  production and sale of sodium azide.  The
Company's plans with respect to its sodium azide project continue to be grounded
in the Company's objective of becoming the primary supplier to the U.S.
automotive airbag inflator market.  The Company believes that the level of
sodium azide sales will continue to increase.  There can be no assurance in that
regard however, and, as a consequence, the Company cannot predict over what
period of time, if at all, such increases in sales levels will occur.  In
addition, by reason of a highly competitive market environment there appears to
be considerable market pressure on the price of sodium azide.  At the time the
Company began this project in 1990, prices for sodium azide to the airbag market
were approximately $8.00 per pound.  Prices currently appear to be in the range
of $4.50 to $6.00 per pound.  The Company believes the price reduction in sodium
azide is due to the unlawful pricing practices of Japanese producers. 

                                       10
<PAGE>
 
In response to such practices, in January 1996, the Company filed an antidumping
petition with the United States International Trade Commission and the United
States Department of Commerce.

Depreciation expense relating to sodium azide production increased in the third
quarter of fiscal 1995 as the sodium azide facility completed its transition
from construction to production activities.  On an annualized basis, cost of
sales associated with sodium azide activities increased by approximately $3
million beginning April 1, 1995 as a result of this increase in depreciation
expense.  The Company expects depreciation expense related to sodium azide
production to approximate $6 million in fiscal 1996.

REAL ESTATE OPERATIONS

The Company's real estate development properties consist of approximately 4,700
acres in Iron County, Utah near Cedar City, Utah and a 420-acre tract (Gibson
Business Park) in Clark County, Nevada.  All development property is held in fee
simple.  Substantially all of the Gibson Business Park land is pledged as
collateral for certain debt (the "Azide Notes").  The Company is actively
marketing its Nevada property for sale and development.  About 240 acres of its
Clark County land has been transferred to a limited liability corporation for
the purpose of residential development, construction, and sale.  The Iron County
site is primarily dedicated to the Company's growth and diversification.  Real
estate and related sales amounted to $992,000 and $42,000 during the three-month
periods ended December 31, 1995 and 1994, respectively.  The nature of real
estate development and sales is such that the Company is unable reliably to
predict any pattern of future real estate sales.

ENVIRONMENTAL PROTECTION EQUIPMENT OPERATIONS

Environmental protection equipment sales were approximately $132,000 and
$992,000 during the three-month periods ended December 31, 1995 and 1994,
respectively.  The Company is continuing its evaluation of future operating
activities in this business segment.  Effective December 31, 1994, the Company
laid off the work force associated with assembly activities (approximately four
hourly employees) and terminated the assembly facility lease (saving $67,000 in
annual operating rents).  Operating activities in this segment are now being
conducted at the Company's Iron County facilities.  As of January 31, 1996, this
segment had a backlog of approximately $2,500,000.  In addition, the Company has
submitted a number of bids, although there can be no assurance that any of these
bids will result in future orders.

HALOTRON OPERATIONS

Sales of Halotron amounted to approximately $93,000 in the first quarter of
fiscal 1996 compared to $31,000 in the first quarter of fiscal 1995.  In
December 1995, the Company, in concert with Buckeye Fire Equipment Company,
successfully completed Underwriters Laboratories (UL) fire tests of a line of
portable fire extinguishers using Halotron I.  Domestic distribution of the
Buckeye Halotron extinguisher line should begin early in 1996.  The Company and
Buckeye recently signed an agreement that calls for the Company to supply
Buckeye's requirements of Halotron I during calendar 1996.  This agreement
includes Buckeye's estimate of its requirements, which approximate sales of
Halotron I of $2.2 million per calendar quarter, although actual requirements
may be more or less than these estimates.

                                       11
<PAGE>
 
OPERATING EXPENSES

Operating expenses were $2,350,000 and $2,608,000 during the three-month periods
ended December 31, 1995 and 1994, respectively.  The decrease is primarily due
to the Company's implementation of cost control, containment and reduction
measures.

During the third quarter of fiscal 1995, the Company reduced total full-time
employee equivalents by approximately ten percent through involuntary
terminations and an offering of enhanced retirement benefits to a certain class
of employees.  The Company recognized a charge to operating expense of
approximately $226,000 as a result of these terminations and the acceptance of
the offer of enhanced retirement benefits by certain employees.

NET INTEREST AND OTHER EXPENSE (INCOME)

The increase in net interest and other expense in the first quarter of fiscal
1996 compared to the first quarter of fiscal 1995 is primarily due to the fact
that interest capitalization ceased on the remaining portion of the sodium azide
facility undergoing construction activities in the third quarter of fiscal 1995.

CREDIT FOR INCOME TAXES

The Company's effective income tax rates were approximately 34% during the
three-month periods ended December 31, 1995 and 1994.

NET INCOME (LOSS) PER COMMON SHARE AND OPERATING RESULTS

Although the Company's net income (loss) and 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, the
Company may incur material legal and other costs associated with litigation;
(ii) the timing of real estate and related sales is not predictable; (iii) the
recognition of revenues from environmental protection equipment orders not
accounted for as long-term contracts depends upon the timing of shipment of the
equipment; (iv) weighted average common and common equivalent shares for
purposes of calculating 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) as discussed
above, the magnitude of AP orders for periods subsequent to September 30, 1996
is uncertain.

The Company's efforts to produce, market and sell Halotron I and Halotron II are
dependent upon the political climate and environmental regulations that exist
and may vary from country to country.  Halotron I has been extensively and
successfully tested.  These products continue to undergo testing.  Although the
Company is satisfied with the progress and performance characteristics of
Halotron I and Halotron II, the magnitude of orders received, if any, in the
future will be dependent to a large degree upon political issues and
environmental regulations that are not within the Company's control, as well as
additional testing and qualification in certain jurisdictions and the ultimate
extent of market acceptance.

                                       12
<PAGE>
 
As a result of the uncertainties with respect to volume and price of sodium
azide referred to above, the Company may experience significant variations in
sodium azide sales and related operating results from quarter to quarter.  The
Company continues to believe, however, that, notwithstanding these
uncertainties, revenues and associated cash flows from its sodium azide
operations will be sufficient to recover the Company's investment in its sodium
azide facility, although there can be no assurance in that regard.

LITIGATION

See Note 4 of Notes to Condensed Consolidated Financial Statements for a
discussion of litigation.

INFLATION

Inflation did not have a significant effect on the Company's sales and operating
revenues or costs during the three-month periods ended December 31, 1995 or
1994.  The Company does not expect inflation to have a material effect on gross
profit in the future, because any increases in production costs should be
recovered through increases in product prices, although there can be no
assurance in that regard.

LIQUIDITY AND CAPITAL RESOURCES

On July 29, 1994, the Board of Directors of the Company authorized the
repurchase of up to 1.5 million shares of the Company's common stock through
open market purchases and private transactions.  Such authorization was briefly
suspended.  As of January 31, 1996, the Company had repurchased approximately
116,000 shares through this program.

As a result of the litigation described in Note 4 of Notes to Condensed
Consolidated Financial Statements, the Company may incur material legal and
other costs associated with the resolution of this matter in future periods.
Certain of these costs may be reimbursable under policies providing for
insurance coverage.  The Company has adopted certain policies in its Charter and
Bylaws as a result of which the Company may be required to indemnify its
affected officers and directors to the extent, if at all, that existing
insurance coverages are insufficient.  The Company has in force substantial
insurance covering this risk.  The Company's insurance carriers have reserved
the right to exclude or disclaim coverage under certain circumstances.  Defense
costs and any potential settlement or judgment costs associated with this
litigation, 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 that such costs will be incurred.

Cash flows provided by (used for) operating activities were ($5,058,000) during
the first quarter of fiscal 1996 compared to $53,000 during the first quarter of
fiscal 1995.  The decrease in cash flows is principally due to an increase in
accounts receivable balances of approximately $5,526,000.  Substantially all of
the receivables relating to this increase were collected in January 1996.  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 satisfactory resolution of the lawsuits discussed in
Note 4, the timing, pricing and magnitude of the receipt of orders for AP,
sodium azide and Halotron, and the Company's ability to achieve cost reductions
may have an effect on the use and availability of cash.

                                       13
<PAGE>
 
In February 1992, the Company concluded a $40,000,000 financing for the design,
construction and start-up of a sodium azide facility.  As a result of the
Company's decision to increase the production capacity of the plant and
construction cost overruns, the Company's cost estimates for the sodium azide
facility increased significantly during the construction process.  The majority
of the increase relates to the Company's decision to increase the productive
capacity of the plant, as discussed above.  In addition, certain estimates
increased throughout the construction process as a result of the highly
automated and technical nature of the operation.  Design and construction also
occurred over a longer period of time than was originally estimated, which
increased actual expenditures. Although production and sales have recently
increased, the facility has not been operated at significant production levels
in comparison to capacity and greater-than-expected capital costs have been and
may continue to be incurred.  Subject to the ongoing receipt and magnitude of
orders for sodium azide and the avoidance of further erosion of the selling
price per pound of sodium azide, the Company believes that the increased costs
associated with the sodium azide facility will be recovered through future
sodium azide sales, although there can be no assurance in this regard.

                                       14