<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 June 30, 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: 8,135,037 as of July 31,
1999.

                                      -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 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 15 of this Report on Form 10-Q.



                          PART II.  OTHER INFORMATION

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

         None.

ITEM 2.  Changes in Securities
         ---------------------

         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  Employment Agreement dated May 11, 1999 between the Registrant
                  and John R. Gibson.

            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:  August 2, 1999            /S/ JOHN R. GIBSON
                                 ------------------
                                 John R. Gibson
                                 Chief Executive Officer and President


Date:  August 2, 1999            /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
                                  (Unaudited)

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                                   For the three months ended            For the nine months
                                                            June 30,                        ended June 30,
                                                    1999                1998             1999            1998
-----------------------------------------------------------------------------------------------------------------
<S>                                           <C>                 <C>               <C>             <C>
Sales and Operating Revenues                   $    18,659,000     $    13,136,000   $ 54,404,000    $ 38,523,000
Cost of Sales                                       12,429,000           9,047,000     34,987,000      26,282,000
                                               ---------------     ---------------   ------------    ------------
 Gross Profit                                        6,230,000           4,089,000     19,417,000      12,241,000

Operating Expenses                                   2,548,000           2,361,000      7,505,000       6,791,000
                                               ---------------     ---------------   ------------    ------------

Operating Income                                     3,682,000           1,728,000     11,912,000       5,450,000

Equity in Earnings of Real Estate Venture                                                                 300,000

Net Interest and Other Expense                       1,326,000           1,514,000      4,191,000       2,977,000
                                               ---------------     ---------------   ------------    ------------

Income Before Provision for Income Taxes             2,356,000             214,000      7,721,000       2,773,000

Provision for Income Taxes
                                               ---------------     ---------------   ------------    ------------

Net Income Before Extraordinary Loss                 2,356,000             214,000      7,721,000       2,773,000

Extraordinary Loss-Debt Extinguishment                 174,000                            174,000       5,005,000
                                               ---------------     ---------------   ------------    ------------

Net Income (Loss)                              $     2,182,000     $       214,000   $  7,547,000    $ (2,232,000)
                                               ---------------     ---------------   ------------    ------------

Basic Net Income (Loss) Per Share:

 Income Before Extraordinary Loss              $           .29     $           .03   $        .95    $        .34

 Extraordinary Loss                                       (.02)                              (.02)           (.61)
                                               ---------------     ---------------   ------------    ------------

 Net Income (Loss)                             $           .27     $           .03   $        .93    $       (.27)
                                               ---------------     ---------------   ------------    ------------

Average Shares Outstanding                           8,134,000           8,250,000      8,156,000       8,184,000
                                               ---------------     ---------------   ------------    ------------

Diluted Net Income (Loss) Per Share:

 Income Before Extraordinary Loss              $           .28     $           .02   $        .93    $        .33

 Extraordinary Loss                                       (.02)                              (.02)           (.60)
                                               ---------------     ---------------   ------------    ------------


 Net Income (Loss)                             $           .26     $           .02   $        .91    $       (.27)
                                               ---------------     ---------------   ------------    ------------

Diluted Shares                                       8,272,000           8,563,000      8,269,000       8,384,000
                                               ---------------     ---------------   ------------    ------------
</TABLE>

See the accompanying Notes to Condensed Consolidated Financial Statements.

                                      -4-
<PAGE>

                          AMERICAN PACIFIC CORPORATION
                     Condensed Consolidated Balance Sheets
                                  (Unaudited)


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                                                    June 30,                       September 30,
                                                                      1999                             1998
----------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                               <C>
ASSETS

Current Assets:
 Cash and Cash Equivalents                                      $   35,924,000                    $   20,389,000
 Accounts and Notes Receivable                                      11,667,000                         8,927,000
 Related Party Notes Receivable                                        458,000                           536,000
 Inventories                                                         9,439,000                        13,730,000
 Prepaid Expenses and Other Assets                                   1,032,000                           839,000
 Restricted Cash                                                     1,186,000                         1,176,000
                                                                --------------                    --------------
  Total Current Assets                                              59,706,000                        45,597,000

Property, Plant and Equipment, Net                                  18,484,000                        19,529,000
Intangible Assets, Net                                              35,234,000                        38,252,000
Development Property                                                 6,569,000                         7,036,000
Real Estate Equity Investments                                      12,543,000                        17,112,000
Other Assets, Net                                                    2,669,000                         3,233,000
                                                                --------------                    --------------
  TOTAL ASSETS                                                    $135,205,000                      $130,759,000
                                                                --------------                    --------------
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.

                                      -5-
<PAGE>

                          AMERICAN PACIFIC CORPORATION
                     Condensed Consolidated Balance Sheets
                                  (Unaudited)


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                                                          June 30,              September 30,
                                                                            1999                    1998
-------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                       <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
 Accounts Payable and Accrued Liabilities                            $    10,718,000           $    9,635,000
 Current Portion of Long-Term Debt                                         1,186,000                1,176,000
                                                                     ---------------           --------------
  Total Current Liabilities                                               11,904,000               10,811,000

 Long-Term Debt                                                           67,000,000               70,000,000
 Long-Term Payables                                                        1,799,000                2,350,000
                                                                     ---------------           --------------
  TOTAL LIABILITIES                                                       80,703,000               83,161,000
                                                                     ---------------           --------------

Commitments and Contingencies

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

Shareholders' Equity:
Common Stock                                                                 843,000                  842,000
Capital in Excess of Par Value                                            79,559,000               79,488,000
Accumulated Deficit                                                      (27,171,000)             (34,718,000)
Treasury Stock                                                            (2,211,000)              (1,486,000)
Receivable from the Sale of Stock                                            (87,000)                 (97,000)
                                                                     ---------------           --------------
  Total Shareholders' Equity                                              50,933,000               44,029,000
                                                                     ---------------           --------------

  TOTAL LIABILITIES AND SHAREHOLDERS'
                                                                     ---------------           --------------
  EQUITY                                                                $135,205,000             $130,759,000
                                                                     ---------------           --------------
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.


                                      -6-
<PAGE>

                          AMERICAN PACIFIC CORPORATION
                Condensed Consolidated Statements of Cash Flows
                                  (Unaudited)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                       For the three months              For the nine months
                                                          ended June 30,                   ended June 30,
                                                       1999            1998             1999            1998
----------------------------------------------------------------------------------------------------------------
<S>                                                <C>             <C>            <C>             <C>
Cash Provided by Operating Activities               $ 6,507,000     $ 8,916,000    $ 17,177,000    $  8,505,000
                                                    -----------     -----------    ------------    ------------
Cash Flows Provided by (Used For) Investing
 Activities:
 Capital Expenditures                                  (413,000)       (406,000)     (2,505,000)     (2,054,000)
 Payment for Acquisition of Intangible                                                              (39,000,000)
 Real Estate Equity Investment
 Capital Activity                                     3,189,000         360,000       4,569,000       3,091,000
                                                    -----------     -----------    ------------    ------------
Net Cash Provided by (Used For) Investing
 Activities                                           2,776,000         (46,000)      2,064,000     (37,963,000)
                                                    -----------     -----------    ------------    ------------
Cash Flows from Financing Activities:
 Debt Related Payments                               (3,053,000)                     (3,053,000)     (34,416,00)
 Issuance of Notes                                                                                   75,000,000
 Debt issue Costs                                                      (360,000)                     (3,067,000)
 Issuance of Common Stock                                27,000         192,000          72,000         791,000
 Treasury Stock Acquired                                                               (725,000)
                                                    -----------     -----------    ------------    ------------
Net Cash From Financing Activities                   (3,026,000)       (168,000)     (3,706,000)     38,308,000
                                                    -----------     -----------    ------------    ------------
Net Increase in Cash and
Cash Equivalents                                      6,257,000       8,702,000      15,535,000       8,850,000
Cash and Cash Equivalents,
Beginning of Period                                  29,667,000      19,029,000      20,389,000      18,881,000
                                                    -----------     -----------    ------------    ------------
Cash and Cash Equivalents,
End of Period                                       $35,924,000     $27,731,000    $ 35,924,000    $ 27,731,000
                                                    -----------     -----------    ------------    ------------
Supplemental Disclosure of Cash Flow
 Information:
Interest Paid (Net of Amounts Capitalized)          $                              $  3,238,000    $  1,650,000
                                                    -----------     -----------    ------------    ------------

</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, 1998 was
     derived from the Consolidated Financial Statements included in the
     Company's Annual Report on Form 10-K for the year ended September 30, 1998.
     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, 1998.
     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
     nine-month periods ended June 30, 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, and estimated cash
     flows in assessing the recoverability of long-lived assets.  Actual results
     may differ from these and other estimates.


2.   NET INCOME (LOSS) PER COMMON SHARE

     Basic per share amounts are computed by dividing net income (loss) by
     average shares outstanding during the period.  Diluted per share amounts
     are computed by dividing net income (loss) 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 and nine-month periods ended June 30, 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>
                                       June 30,     September 30,
                                         1999           1998
                                      ----------     -----------
<S>                                  <C>           <C>
     Work-in-process                  $6,533,000     $ 8,685,000
     Raw materials and supplies        2,906,000       5,045,000
                                      ----------     -----------
     Total                            $9,439,000     $13,730,000
                                      ----------     -----------
</TABLE>

                                      -8-
<PAGE>

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 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.


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,
     1998, the balance of the valuation allowance was $11.0 million.  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.   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 three-month and nine-month periods ended June 30, 1999 was as follows:

<TABLE>
<CAPTION>
                                                 Three-Month Period Ended          Nine-Month Period Ended
                                                      June 30, 1999                      June 30, 1999
                                                     --------------                     --------------
<S>                                                 <C>                                <C>
Income Statement:
       Revenues                                      $    8,430,000                     $   31,662,000
       Gross Profit                                       2,921,000                          4,955,000
       Operating Expenses                                   380,000                          1,136,000
       Net Income                                         2,560,000                          3,906,000
</TABLE>

                                      -9-
<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 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 believes that North American AP demand is currently approximately 20
to 25 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 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 almost entirely of AP sales, accounted for approximately
65% and 63% of revenues during the nine-month periods ended June 30, 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 20% and 23% of revenues during
the nine-month periods ended June 30, 1999 and 1998, respectively.  In the
summer of 1998, shipments of sodium azide were negatively impacted by a labor
strike at certain General Motor's ("GM") facilities.  Shipments of sodium azide
increased significantly subsequent to the settlement of the strike.

Sales of Halotron amounted to approximately 2% and 3% of revenues during the
nine-month periods ended June 30, 1999 and 1998, 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 10% and 6% of revenues
during the nine-month periods ended June 30, 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 5%
of revenues during the nine-month periods ended June 30, 1999 and 1998,
respectively.  It is currently anticipated that sales of this segment will be
adversely affected in fiscal 1999 and perhaps beyond by the adverse economic
developments and conditions in the Company's foreign markets (particularly Asian
markets).

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 relatively stable pricing, and the Company has had no
difficulty obtaining necessary raw materials.

                                      -10-
<PAGE>

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 nine-
------------
month periods ended June 30, 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 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 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 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
sales in the future is uncertain.  (See "Forward Looking Statements/Risk
Factors" below.)

Results of Operations

Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998

Sales and Operating Revenues.  Sales increased $5.6 million, or 43%, during the
----------------------------
three months ended June 30, 1999, to $18.7 million from $13.1 million in the
corresponding period of the prior year.  This increase was principally
attributable to increased sales of specialty chemicals and real estate.  Sodium
azide sales increased approximately $0.9 million due to increased shipments.
Real estate sales increased approximately $3.7 million as a result of increased
land sales.

Cost of Sales.  Cost of sales increased $3.4 million, or 38%, in the three
-------------
months ended June 30, 1999, to $12.4 million from $9.0 million in the
corresponding period of the prior year.  Such increase was principally due to an
increase in costs associated with higher real estate and sodium azide sales.
The increase in sodium azide costs was primarily attributable to increased sales
volumes.

Operating Expenses.  Operating (selling, general and administrative) expenses
------------------
increased $0.1 million, or 4%, in the three months ended June 30, 1999, to $2.5
million from $2.4 million in the corresponding period of 1998.

Net Interest Expense.  Net interest and other expense decreased to $1.3 million
--------------------
in the three months ended June 30, 1999, from $1.5 million in the corresponding
period of the prior year as a result of the early extinguishment of
approximately $8.0 million in Notes (see below).

Nine Months Ended June 30, 1999 Compared to Nine Months Ended June 30, 1998

Sales and Operating Revenues.  Sales increased $15.9 million, or 41%, during the
----------------------------
nine months ended June 30, 1999, to $54.4 million from $38.5 million in the
corresponding period of the prior year.  This increase was principally due to
increased sales of specialty chemicals and real estate.  Perchlorate chemical
sales increased approximately $11.0 million during the nine months ended June
30, 1999, principally as a result of the consummation of the Acquisition.

Cost of Sales.  Cost of sales increased $8.7 million, or 33%, in the nine months
-------------
ended June 30, 1999, to $35.0 million from $26.3 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 and the basis in real estate
sold.  As a percentage of sales, costs of sales decreased in the nine months
ended June 30, 1999 to 64% as compared to 69% in the corresponding period of the
prior year.  The decrease was attributable to the

                                      -11-
<PAGE>

increase in perchlorate and sodium azide sales volume. Such decrease was
partially offset by the amortization of capitalized Acquisition costs beginning
April 1, 1998.

Operating Expenses.  Operating expenses were $7.5 million during the nine-month
------------------
period ended June 30, 1999 compared to $6.8 million in the corresponding period
of the prior year.  The increase in operating expenses was primarily
attributable to increased costs associated with the Company's investigation and
evaluation of perchlorate chemicals found in Lake Mead (see Note 4 of Notes to
Condensed Consolidated Financial Statements) and costs related to the Company's
strategic review process.

Net Interest Expense.  Net interest and other expense increased to $4.2 million
--------------------
in the nine months ended June 30, 1999, from $3.0 million in the corresponding
period of the prior year principally as a result of the issuance of the Notes.

Equity in Earnings of Real Estate Venture.  The Company's share of equity in its
-----------------------------------------
Ventana Canyon joint venture was $0 million and $0.3 million during the nine-
month periods ended June 30, 1999 and 1998, respectively.  The joint venture has
historically operated at or near a break-even point on residential activity and
has generated net income on sales of improved land.

Segment Operating Income (Loss).  Operating income (loss) of the Company's
-------------------------------
industry segments during the nine-month periods ended June 30, 1999 and 1998 was
as follows:

<TABLE>
<CAPTION>
                                                            1999                     1998
                                                       --------------           --------------
<S>                                                   <C>                      <C>
Specialty chemicals                                    $    9,403,000           $    3,882,000
Environmental protection equipment                           (239,000)                  36,000
Real Estate                                                 3,053,000                1,155,000
                                                       --------------           --------------
          Total                                        $   12,217,000           $    5,073,000
                                                       ==============           ==============
</TABLE>

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

Inflation

Inflation did not have a significant effect on the Company's sales and operating
revenues or costs during the three-month or nine-month periods ended June 30,
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 $17.2 million and $8.5 million
during the nine-months ended June 30, 1999 and 1998, respectively.  Cash flows
from operating activities increased principally as a result of increased sales
and margins in the Company's specialty chemicals and real estate operations and
a reduction of inventory 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 the timing, pricing and magnitude of orders for AP, sodium
azide and Halotron, may have an effect on the use and availability of cash.

                                      -12-
<PAGE>

Capital expenditures were $2.5 million during the nine months ended June 30,
1999, compared to $2.1 million during the same period last year.  Capital
expenditures are budgeted to amount to approximately $3.5 million in fiscal 1999
and relate principally to specialty chemical segment capital improvement
projects.

During the nine-month period ended June 30, 1999, the Company received cash of
approximately $4.6 million 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 to be the end of calendar 2001.

As a result of the 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 Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year.  Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000.  This could result in a major system failure or
miscalculations.

The Company has completed an evaluation and is in the process of resolving the
problems that might be associated with the Year 2000 issue.  The Company's Year
2000 project has four major components:

  1. Evaluation of all major manufacturing and business computing systems to
     determine which systems are Year 2000 compliant.

  2. For each computing system found not to be Year 2000 compliant, development
     of a strategy to replace, modify or upgrade the system to a Year 2000
     compliant system.

  3. Evaluation of core vendors for Year 2000 compliance.

  4. Preparation of contingency plans.

The Company's evaluation found that the most critical digital control system,
which is used in the manufacture of specialty chemical products, is Year 2000
compliant.  The Company has received a letter of certification from its vendor,
and the Company has tested the system by turning the dates forward on the
computers to the year 2000, and all systems functioned normally.

The Company's accounting system is being upgraded to a Year 2000 compliant
version.  This upgrade is in process, and should be completed in the fourth
quarter of fiscal 1999.  New maintenance and manufacturing (MRP) software
packages have been implemented, and each is certified and tested as Year 2000
compliant.

The majority of PC computers used by the Company are Pentium class, running
Microsoft's Windows 95 operating system, and are Year 2000 compliant.  The
Company's file servers are running on Pentium computers with Microsoft NT 4.0,
and each of these is also certified Year 2000 compliant.  The Company also uses
Microsoft's office suite, which is Year 2000 compliant.

During the evaluation phase of its Year 2000 project, the Company identified
certain potential issues related to many of its programmable logic controller
units used in the manufacturing process and certain of the Company's laboratory
instruments and the computers and software with which they operate.  The Company
is in the process of updating the equipment that is not Year 2000 compliant and
expects this to be completed by the fourth quarter of fiscal 1999.

The Company has identified all critical vendors of raw materials, supplies and
services.  Each such vendor has been contacted and asked to describe to the
Company their year 2000 readiness program.  All such

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critical vendors have indicated to the Company that they are or will be prepared
for the Year 2000 issue. However, the Company can provide no assurance as to the
readiness of its critical vendors for the Year 2000 issue.

Plant personnel have completed a contingency plan for plant operations that is
currently being reviewed by senior management.  The Company expects to have a
complete Company contingency plan in place by the fourth quarter of fiscal 1999.

The Year 2000 issue and related risks could potentially have a material impact
on the Company's operations, working capital, results of operations and
financial condition.  In a worst case situation, long delays or interruptions in
deliveries of critical raw materials, supplies or services could materially
impact the Company's ability to produce and deliver products.  In addition,
problems encountered by the Company's customers could cause delays or possibly
cancellations of shipments and billings of the Company's products.  The Company
is considering these risks, among others, in the preparation of its contingency
plan.

The Company recently reevaluated its estimates and assumptions of the costs
directly associated with its Year 2000 project and currently estimates that
approximately $0.5 million in costs have been incurred that are directly
associated with the project.  Through June 30, 1999, the Company had incurred
approximately $0.4 million in costs that were directly related to its Year 2000
project.

Given the inherent risks for a project of this nature, the timing and costs
involved could differ materially from those anticipated by the Company.  There
can be no assurance that the Year 2000 project will be completed on schedule or
within budget.

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
               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.

                                      -14-
<PAGE>

       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 effects, if any, of problems associated with the Year 2000
               issue.

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

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

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