<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, 1999

                         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: 7,078,637 as of January 31,
2000.
<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 4 through 10 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 11 through 15 of this Report on Form 10-Q.

ITEM 3.  Quantitative and Qualitative Disclosure About Market Risk.
         ---------------------------------------------------------

         The Company has certain fixed-rate debt which it believes to have a
         fair value that approximates reported amounts. The Company believes
         that any market risk arising from these financial instruments is not
         material.


                          PART II.  OTHER INFORMATION

ITEM 1.  Legal Proceedings.
         -----------------

         The information required by Item 103 of Regulation S-K is provided on
         pages 8 and 9 of this report on Form 10-Q.

ITEM 2.  Changes in Securities and Use of Proceeds.
         -----------------------------------------

         None.

ITEM 3.  Defaults Upon Senior Securities.
         -------------------------------

         None.

ITEM 4.  Submission of Matters to a Vote of Security Holders.
         ---------------------------------------------------

         None.

ITEM 5.  Other Information.
         -----------------

         None.

ITEM 6.  Exhibits and Reports on Form 8-K.
         --------------------------------

      a)   10.1 Consulting Agreement (as amended) between the Registrant and
                Fred D. Gibson, Jr. dated January 1, 2000.

           27.  Financial Data Schedules. This Exhibit is filed in connection
                with the Registrant's electronic filing.

      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 8, 2000                   /s/ JOHN R. GIBSON
                                         ------------------
                                         John R. Gibson
                                         Chief Executive Officer and President


Date:  February 8, 2000                   /s/ DAVID N. KEYS
                                         -----------------------------------
                                         David N. Keys
                                         Executive Vice President,
                                         Chief Financial Officer,  Secretary
                                         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>
==========================================================================================
                                                              1999                1998
------------------------------------------------------------------------------------------
<S>                                                 <C>                       <C>

Sales and Operating Revenues                              $20,976,000         $18,854,000
Cost of Sales                                              12,403,000          11,588,000
                                                    --------------------------------------
Gross Profit                                                8,573,000           7,266,000
Operating Expenses                                          2,425,000           2,492,000
                                                    --------------------------------------
Operating Income                                            6,148,000           4,774,000
Net Interest and Other Expense                              1,124,000           1,473,000
                                                    --------------------------------------
Income Before Provision for Income Taxes                    5,024,000           3,301,000

Provision for Income Taxes
                                                    --------------------------------------
Net Income                                                $ 5,024,000         $ 3,301,000
                                                    --------------------------------------
Basic Net Income Per Share                                $       .64         $       .40
                                                    --------------------------------------
Average Shares Outstanding                                  7,802,000           8,189,000
                                                    --------------------------------------
Diluted Net Income Per Share                              $       .64         $       .40
                                                    --------------------------------------
Diluted Shares                                              7,878,000           8,244,000
                                                    --------------------------------------
</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,
                                                                1999                   1999
-----------------------------------------------------------------------------------------------------
<S>                                                     <C>                    <C>
ASSETS
Current Assets:
 Cash and Cash Equivalents                                       $ 48,318,000           $ 40,434,000
 Accounts and Notes Receivable                                     11,457,000              8,859,000
 Related Party Notes Receivable                                       435,000                447,000
 Inventories                                                        9,512,000              9,577,000
 Prepaid Expenses and Other Assets                                  1,327,000                680,000
 Restricted Cash                                                                           1,195,000
                                                       ----------------------------------------------
  Total Current Assets                                             71,049,000             61,192,000
Property, Plant and Equipment, Net                                 16,324,000             17,254,000
Intangible Assets, Net                                             33,103,000             34,210,000
Real Estate Equity Investments                                      9,620,000             11,237,000
Development Property                                                6,177,000              6,440,000
Other Assets, Net                                                   2,428,000              2,549,000
                                                       ----------------------------------------------
  TOTAL ASSETS                                                   $138,701,000           $132,882,000
                                                       ----------------------------------------------
</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,
                                                                     1999                    1999
---------------------------------------------------------------------------------------------------------
<S>                                                       <C>                           <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:

 Accounts Payable and Accrued Liabilities                            $  9,655,000            $  6,909,000
 Current Portion of Long-Term Debt                                                              1,195,000
                                                          -----------------------------------------------
  Total Current Liabilities                                             9,655,000               8,104,000
 Long-Term Debt                                                        67,000,000              67,000,000
 Long-Term Payables                                                     1,650,000               2,005,000
                                                          -----------------------------------------------
  TOTAL LIABILITIES                                                    78,305,000              77,109,000
                                                          -----------------------------------------------
Commitments and Contingencies
Warrants to Purchase Common Stock                                       3,569,000               3,569,000
Shareholders' Equity:
Common Stock                                                              852,000                 847,000
Capital in Excess of Par Value                                         80,073,000              79,757,000
Accumulated Deficit                                                   (18,255,000)            (23,279,000)
Treasury Stock                                                         (5,776,000)             (5,034,000)
Receivable from the Sale of Stock                                         (67,000)                (87,000)
                                                          -----------------------------------------------
  Total Shareholders' Equity                                           56,827,000              52,204,000
                                                          -----------------------------------------------

  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                         $138,701,000            $132,882,000
                                                          -----------------------------------------------
</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>
-------------------------------------------------------------------------------------------------------------
                                                                             1999                  1998
-------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                      <C>
Cash Flows From Operating Activities                                     $  8,049,000         $  11,261,000
                                                                     ----------------------------------------
Cash Flows From Investing Activities:
 Capital Expenditures                                                        (166,000)           (1,705,000)
 Return of Capital on Real Estate Equity Investments                        1,617,000               464,000
                                                                     ----------------------------------------
Net Cash From Investing Activities                                          1,451,000            (1,241,000)
                                                                     ----------------------------------------
Cash Flows From Financing Activities:
 Debt Related Payments                                                     (1,195,000)
 Issuance of Common Stock                                                     321,000
 Treasury Stock Acquired                                                     (742,000)             (300,000)
                                                                     ----------------------------------------
Net Cash From Financing Activities                                         (1,616,000)             (300,000)
                                                                     ----------------------------------------
Net Change in Cash and Cash Equivalents                                     7,884,000             9,720,000
Cash and Cash Equivalents, Beginning of Period                             40,434,000            20,389,000
                                                                     ----------------------------------------
Cash and Cash Equivalents, End of Period                                 $ 48,318,000         $  30,109,000
                                                                     ----------------------------------------
</TABLE>

See the accompanying Notes to Condensed Consolidated Financial Statements


                                       7
<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, 1999, was
     derived from the Consolidated Financial Statements included in the
     Company's Annual Report on Form 10-K for the year ended September 30, 1999.
     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, 1999.
     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 period
     ended December 31, 1999 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 estimates and
     assumptions that affect the reported amounts of assets and liabilities and
     disclosure of contingent assets and liabilities at the date of the
     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, provisions, if any,
     for certain accrued liabilities, and estimated cash flows in assessing the
     recoverability of long-lived assets.  Actual results may differ from these
     and other estimates.

2.   NET INCOME PER COMMON SHARE

     Basic per share amounts are computed by dividing net income by average
     shares outstanding during the period.  Diluted per share amounts are
     computed by dividing net income by average shares outstanding plus the
     dilutive effect of common share equivalents.  The effect of stock options
     and warrants outstanding to purchase approximately 2.9 million shares of
     common stock were not included in diluted per share calculations during the
     three-month periods ended December 31, 1999 and 1998, since the average
     exercise price of such options and warrants was greater than the average
     price of the Company's common stock during these periods.

3.   INVENTORIES

     Inventories consist of the following:

<TABLE>
<CAPTION>
                                    December 31,      September 30,
                                       1999              1999
                                   ------------      -------------
<S>                                <C>               <C>
     Work-in-process               $  6,362,000       $  5,938,000
     Raw materials and supplies       3,150,000          3,639,000
                                   ------------       ------------
     Total                         $  9,512,000       $  9,577,000
                                   ------------       ------------
</TABLE>

4.   COMMITMENTS AND CONTINGENCIES

     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


                                       8
<PAGE>

     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. Accordingly, no accrual for potential costs has been made in
     the accompanying Condensed Consolidated Financial Statements.

     In 1999, two lawsuits were filed in Utah state court against the Company
     and certain unrelated equipment and product manufacturers claiming
     unspecified monetary damages as a result of a fire and explosion on July
     30, 1997, at the Company's AP production facility that resulted in the
     death of one employee and the injury of three employees.  The Company
     believes that it has statutory immunity as an employer under the applicable
     worker's compensation laws of the State of Utah and that there was no
     negligence on the part of the Company that contributed to the incident.
     The lawsuits are currently in a discovery phase.

     The Company is a party to an agreement with Utah Power and Light Company
     ("UPL") for its electrical requirements.  The agreement provides for the
     supply of power for a minimum of a ten-year period, which began in 1988,
     and obligates the Company to purchase minimum amounts of power, while
     assuring the Company competitive pricing for its electricity needs for the
     duration of the agreement.  Under the terms of the agreement, the Company's
     minimum monthly charge for firm and interruptible demand is approximately
     $22,000.  The agreement has a three year notice of termination provision
     and, on April 7, 1999, UPL provided written notice of termination effective
     April 7, 2002.  The Company is in the process of negotiating for its
     expected power requirements beyond April 7, 2002.

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.  At September 30,
     1999, the balance of the valuation allowance was approximately $9.5
     million.  The Company's effective tax rate will be approximately 0% until
     its net operating losses expire or the Company believes the valuation
     allowance is no longer required.

6.   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 earnings of GRLLC (after
     amortization of differences in basis) on a current quarterly basis.
     Summarized financial information for GRLLC as of and for the three-month
     periods ended December 31, 1999 and 1998 was as follows:

<TABLE>
<CAPTION>
                                             December 31, 1999           December 31, 1998
                                          ----------------------      -----------------------
<S>                                       <C>                         <C>
        Income Statement:
           Revenues                             $12,838,000                  $13,550,000
           Gross Profit                           1,533,000                    1,059,000
           Operating Expenses                       417,000                      419,000
           Net Income                           $ 1,125,000                  $   662,000
</TABLE>

7.   SEGMENT INFORMATION

          The Company's three reportable operating segments are specialty
     chemicals, environmental protection equipment and real estate sales and
     development.  These segments are based upon business units that


                                       9
<PAGE>

     offer distinct products and services, are operationally managed separately
     and produce products using different production methods.

          The Company evaluates the performance of each operating segment and
     allocates resources based upon operating income or loss before an
     allocation of interest expense and income taxes. The accounting policies of
     each reportable operating segment are the same as those of the Company.

          The Company's specialty chemicals segment manufacturers and sells
     perchlorate chemicals used principally in solid rocket propellants for the
     space shuttle and defense programs, sodium azide used principally in the
     inflation of certain automotive airbag systems and Halotron /(TM)/ I, a
     clean gas fire extinguishing agent designed to replace Halon 1211. The
     specialty chemicals segment production facilities are located in Iron
     County, Utah.

          The Company's environmental protection equipment operating segment
     designs, manufactures and markets systems for the control of noxious odors,
     the disinfection of waste water streams and the treatment of seawater.
     These operations are also located in Iron County, Utah.

          At December 31, 1999, the Company's real estate operating segment had
     approximately 73 remaining acres of improved land in the Gibson Business
     Park near Las Vegas, Nevada, that is held for development and sale. Recent
     activity has consisted of sales of land parcels. Although not included in
     operating activities, this segment also has an equity investment in a
     residential joint venture that is located across the street from the Gibson
     Business Park. (See Note 6).

          Additional information about the Company's operations in different
     segments for the three months ended December 31, is provided below.

<TABLE>
<CAPTION>
                                                                 =============================
                                                                      1999           1998
                                                                 -----------------------------
<S>                                                              <C>               <C>
Revenues:
 Specialty chemicals                                               $ 19,354,000   $ 16,486,000
 Environmental protection                                               472,000        707,000
 Real estate                                                          1,150,000      1,661,000
                                                                 -----------------------------
 Total revenues                                                    $ 20,976,000   $ 18,854,000
                                                                 -----------------------------
Operating income (loss):
 Specialty chemicals                                               $  5,676,000   $  3,713,000
 Environmental protection                                               (38,000)        (7,000)
 Real estate                                                            728,000      1,311,000
                                                                 -----------------------------
 Total segment operating income                                       6,366,000      5,017,000
Unallocated net expenses (principally net interest)                   1,342,000      1,716,000
                                                                 -----------------------------
Income before income taxes                                         $  5,024,000   $  3,301,000
                                                                 =============================
</TABLE>

                                      10
<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 certain automotive airbag
safety systems, and Halotron, a chemical used in fire extinguishing 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 believes that North American AP demand is currently approximately 20
to 25 million pounds annually.  However, supply capacity was previously
substantially in excess of these estimated demand levels.  In an effort to
rationalize the economics of the AP market, the Company entered into a Purchase
Agreement with Kerr-McGee.  On March 12, 1998, the Company sold $75.0 million of
unsecured senior notes (the "Notes"), consummated an acquisition (the
"Acquisition") of certain assets from Kerr-McGee and purchased and retired the
remaining $25.0 million principal amount balance outstanding of subordinated
secured notes (the "Azide Notes").  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 mostly of AP sales, accounted for approximately 74% and 66%
of revenues during the three-month periods ended December 31, 1999 and 1998,
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 15% and 20% of revenues during
the three-month periods ended December 31, 1999 and 1998, respectively.  The
Company's principal sodium azide customer accounted for approximately 85% of
such revenues.

Sales of Halotron amounted to approximately 3% and 1% of revenues during the
three-month periods ended December 31, 1999 and 1998, respectively.  Halotron is
designed to replace halon-based fire extinguishing 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 5% and 9% of revenues
during the three-month periods ended December 31, 1999 and 1998, 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 or the
recognition of the equity in earnings of real estate ventures.

Environmental protection equipment sales accounted for approximately 3% and 4%
of revenues during the three-month periods ended December 31, 1999 and 1998,
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 of the raw materials used in
the Company's manufacturing processes have historically been available in
commercial quantities with

                                      11
<PAGE>

relatively stable pricing, and the Company has had no difficulty obtaining
necessary raw materials. The costs of operating the Company's specialty chemical
plants are, however, largely fixed.

Income Taxes.  The Company's effective income tax rates were 0% during the
------------
three-month periods ended December 31, 1999 and 1998.  The Company's effective
income tax rate was 0% during these periods as a result of the establishment of
a $10.4 million deferred tax valuation allowance in the fourth quarter of fiscal
1997.  The Company's effective tax rate will be 0% until the Company's net
operating losses expire or the valuation allowance is no longer necessary.

Net Income.  Although the Company's net income and diluted net income per 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 litigation and contingencies; (ii) the timing of
real estate and related sales and the 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 per 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 orders in the future is
uncertain.  (See "Forward Looking Statements/Risk Factors" below.)

RESULTS OF OPERATIONS

Three Months Ended December 31, 1999 Compared to Three Months Ended December 31,
1998

Sales and Operating Revenues.  Sales increased $2.1 million, or 11%, during the
----------------------------
three months ended December 31, 1999, to $21.0 million from $18.9 million in the
corresponding period of the prior year.  This increase was principally
attributable to increased sales of specialty chemicals.  Specialty chemical
sales increased approximately $2.9 million principally due to increased AP and
Halotron(TM) shipments.  AP shipments during the first quarter of this year were
particularly strong and are not expected to continue at this relative level
during the remainder of fiscal 2000.  The increase in specialty chemical sales
was partially offset by decreases in real estate and environmental protection
equipment sales.

Cost of Sales.  Cost of sales increased $0.8 million, or 7%, in the three months
-------------
ended December 31, 1999, to $12.4 million from $11.6 million in the
corresponding period of the prior year.  Such increase was principally due to an
increase in costs associated with specialty chemical sales resulting primarily
from increased sales volumes as discussed above.

Operating Expenses.  Operating (selling, general and administrative) expenses
------------------
decreased $0.1 million, or 4%, in the three months ended December 31, 1999, to
$2.4 million from $2.5 million in the corresponding period of 1998.

Net Interest Expense.  Net interest and other expense decreased to $1.1 million
--------------------
in the three months ended December 31, 1999, from $1.5 million in the
corresponding period of the prior year, as a result of lower average debt
balances and higher average cash and equivalents balances.

                                      12
<PAGE>

Segment Operating Income (Loss).  Operating income (loss) of the Company's
-------------------------------
industry segments during the three-month periods ended December 31, 1999 and
1998 was as follows:

<TABLE>
<CAPTION>
                                                     1999                    1998
                                             ---------------          ----------------
<S>                                          <C>                      <C>
Specialty chemicals                             $  5,676,000              $  3,713,000
Environmental protection equipment                   (38,000)                   (7,000)
Real Estate                                          728,000                 1,311,000
                                             ---------------           ---------------
          Total                                 $  6,366,000              $  5,017,000
                                             ===============             =============
</TABLE>

The increase in operating income in the Company's specialty chemical industry
segment was attributable to the increase in perchlorate and Halotron(TM) sales
referred to above.  The decrease in operating performance of the environmental
protection equipment segment was primarily due to decreased sales.  The decrease
in real estate segment operating income was attributable to decreased land
sales.

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, 1999 or
1998.  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

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.  In June 1999 and September
1998, the Company purchased and retired $3.0 million and $5.0 million,
respectively, in principal amount of Notes.  The Company incurred extraordinary
losses on debt extinguishment of approximately $0.2 million on each of these
transactions principally as a result of writing off costs associated with the
issuance of the Notes.

Cash flows provided by operating activities were $8.0 million and $11.3 million
during the three-months ended December 31, 1999 and 1998, respectively.  Cash
flows from operating activities decreased principally as a result of an increase
in certain working capital asset balances.  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 litigation, 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 $0.2 million during the three months ended December
31, 1999, compared to $1.7 million during the same period last year.  Capital
expenditures are budgeted to amount to approximately $3.0 million in fiscal 2000
and are expected to relate primarily to specialty chemical segment capital
improvement projects.

During the three-month period ended December 31, 1999, the Company received cash
of approximately $1.6 million relating to the return of capital invested in
GRLLC.  The Company currently anticipates that cash returns of invested capital
and equity in earnings will continue through the conclusion of the project
currently projected to be the end of calendar 2001.

In December 1999, in accordance with the requirements of the applicable
indenture, the Company made an offer to purchase $8.4 million in principal
amount of Notes at 102% of par, plus accrued interest.

                                      13
<PAGE>

Approximately $2.6 million in principal amount of Notes were tendered in
connection with this offer and, in January 2000, the Company paid approximately
$2.7 million (including accrued interest) to purchase these Notes.

During the three-month period ended December 31, 1999, the Company spent
approximately $0.7 million on the repurchase of its Common Stock.  In early
January 2000, the Company repurchased 710,000 shares of its Common Stock for a
total cost of approximately $5.9 million.  The Company intends to continue its
stock repurchase program but has not determined how many additional shares will
be purchased or the time period during which purchases, if any, will be made.

During 1999, the Company completed a review of its major manufacturing and
computing systems to identify areas that could be affected by Year 2000 issues.
Management believes that the Company's critical systems were Year 2000 compliant
as of December 31, 1999.

The Company believes that no material adverse impact has occurred relating to
its production capabilities, processes or other operational departments reliant
on computer systems resulting from the Year 2000 issues.  The Company also
believes that there has been no material impact from the Year 2000 issues on its
consolidated financial position, results of operations or cash flows.  However,
certain ongoing risks may exist relative to the non-compliance of third parties
with operational significance to the Company, such as key suppliers to its
manufacturing operations.  Accordingly, there can be no assurance that the
Company will not be adversely impacted in the future by Year 2000 issues.

As of January 31, 2000, the Company has incurred approximately $0.3 million of
costs directly associated with the Year 2000 issues.

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.

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 DOD
               or NASA that would cause a decrease in demand for AP, (c) the
               results achieved by the Suspension Agreement resulting from the
               Company's anti-dumping petition against foreign sodium azide
               producers and the possible termination of such agreement, (d)
               technological advances and improvements with respect to existing
               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, environmental effects 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 sodium azide market and
               the development or penetration of competing new products,
               particularly in the propulsion, airbag inflation and fire
               extinguishing businesses.

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       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 cost of financing,
               the performance of the managing partner of its residential real
               estate joint venture (GRLLC) 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 investigations
               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.

       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 provisions of SFAS No. 121.

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

      10.      Provisions of the Company's Certificate of Incorporation and By-
               laws and recently-adopted Series D Preferred Stock, dividend of
               preference stock purchase rights and related Rights Agreement
               could have the effect of making it more difficult for potential
               acquirors to obtain a control position in the Company.

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