SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-Q/A
                                (AMENDMENT NO. 2)

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

                  FOR QUARTERLY PERIOD ENDED DECEMBER 31, 1997

                          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:  8,137,537 as of
January 31, 1998.

<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 16 of this Report on Form 10-Q.

                           PART II. OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

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

ITEM 2.     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)  The  following   Exhibit  was  filed  in  connection   with  the
            Registrant's original electronic filing:

                27.  Financial Data Schedule.

            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:       July 9, 1998                           /S/ JOHN R. GIBSON
                                                   ----------------------
                                                   John R. Gibson
                                                   Chief Executive Officer and
                                                   President



Date:       July 9, 1998                           /S/ DAVID N. KEYS
                                                   ---------------------
                                                   David N. Keys
                                                   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)

----------------------------------------------------------------------------
                                                   1997                1996
----------------------------------------------------------------------------

Sales and Operating Revenues                  $ 11,268,000        $ 8,396,000
Cost of Sales                                    8,106,000          7,083,000
                                              ------------        -----------

   Gross Profit                                  3,162,000          1,313,000

Operating Expenses                               2,183,000          2,363,000
                                              ------------        -----------

Operating Income (Loss)                            979,000         (1,050,000)

Equity in Earnings of Real Estate Venture          300,000

Net Interest and Other Expense                     713,000            240,000
                                              ------------        -----------

Income (Loss) Before Provision
   (Credit) for Income Taxes                       566,000         (1,290,000)

Provision (Credit) for Income Taxes                                  (440,000)

                                              ------------        -----------
Net Income (Loss)                             $    566,000        $  (850,000)
                                              ------------        -----------

Basic Net Income (Loss) Per Share             $        .07        $      (.10)
                                              ------------      --------------

Average Shares Outstanding                       8,138,000          8,099,000
                                              ------------      -------------

Diluted Net Income (Loss) Per Share           $        .07        $      (.10)
                                              ------------      --------------

Diluted Shares                                   8,217,000          8,099,000
                                              ------------      --------------

See the accompanying Notes to Condensed Consolidated Financial Statements.




                                        4

<PAGE>
                          AMERICAN PACIFIC CORPORATION
                      Condensed Consolidated Balance Sheets
                                  (Unaudited)


--------------------------------------------------------------------------------
                                               DECEMBER 31,      SEPTEMBER 30,
                                                   1997             1997
--------------------------------------------------------------------------------
ASSETS

CURRENT ASSETS:
   Cash and Cash Equivalents                  $12,989,000       $18,881,000
   Accounts and Notes Receivable                9,905,000         5,551,000
   Related Party Notes Receivable                 612,000           637,000
   Inventories                                 10,880,000        11,116,000
   Prepaid Expenses and Other Assets            1,511,000           979,000
                                              ----------------------------------
      TOTAL CURRENT ASSETS                     35,897,000        37,164,000

Property, Plant and Equipment, Net             19,632,000        19,314,000
Development Property                            7,053,000         7,362,000
Real Estate Equity Investments                 18,535,000        20,248,000
Other Assets                                    2,329,000         2,413,000
Restricted Cash                                 6,408,000         3,580,000

                                              ----------------------------------
      TOTAL ASSETS                            $89,854,000       $90,081,000
                                              ----------------------------------


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,
                                                         1997               1997
-------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
<S>                                                  <C>                <C>
   Accounts Payable and Accrued Liabilities          $ 7,229,000        $ 7,519,000
   Current Portion of Long-Term Debt                   5,000,000          6,166,000
                                                     ------------------------------
      TOTAL CURRENT LIABILITIES                       12,229,000         13,685,000

   Long-Term Debt                                     25,006,000         24,900,000
   Long-Term Payables                                  2,933,000          2,376,000

                                                     ------------------------------
      TOTAL LIABILITIES                               40,168,000         40,961,000
                                                     ------------------------------

Commitments and Contingencies

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

SHAREHOLDERS' EQUITY:
Common Stock                                             829,000            829,000
Capital in Excess of Par Value                        78,561,000         78,561,000
Accumulated Deficit                                  (32,141,000)       (32,707,000)
Treasury Stock                                        (1,035,000)        (1,035,000)
Receivable from the Sale of Stock                        (97,000)           (97,000)
                                                     ------------------------------
      TOTAL SHAREHOLDERS' EQUITY                      46,117,000         45,551,000
                                                     ------------------------------

                                                     ------------------------------
      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY     $89,854,000        $90,081,000
                                                     ------------------------------
</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>


-------------------------------------------------------------------------------------------------
                                                                         1997             1996
-------------------------------------------------------------------------------------------------

<S>                                                               <C>                <C>        
Cash Used For Operating Activities                                $ (5,365,000)      $  (963,000)
                                                                  ---------------- --------------

Cash Flows Provided by (Used for) Investing Activities:
   Capital Expenditures                                               (969,000)         (912,000)
   Real estate equity investment capital activity                    1,713,000          (163,000)
                                                                  ---------------- --------------
Net Cash Provided by (Used For) Investing Activities                   744,000        (1,075,000)
                                                                  ---------------- --------------

Cash Flows From Financing Activities:
   Principal Payment on Debt                                        (1,166,000)
   Treasury Stock Acquired                                                              (156,000)
   Issuance of Common Stock                                                               70,000
                                                                  ---------------- --------------
Net Cash Used For Financing Activities                              (1,166,000)          (86,000)
                                                                  ---------------- --------------

Net Decrease in Cash and Cash Equivalents                           (5,892,000)       (2,124,000)
Cash and Cash Equivalents, Beginning of Period                      18,881,000        18,501,000
                                                                  ---------------- --------------
Cash and Cash Equivalents, End of Period                          $ 12,989,000       $16,377,000
                                                                  ---------------- --------------
</TABLE>

See the accompanying Notes to Condensed Consolidated Financial Statements.


                                        7


<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

1.          BASIS OF REPORTING

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

2.          NET INCOME (LOSS) PER COMMON SHARE

            During  the  first  quarter  of fiscal  1998,  the  Company  adopted
            Statement  of  Financial   Accounting  Standards  ("SFAS")  No.  128
            "Earnings  per Share."  SFAS No. 128 requires  the  presentation  of
            basic net income  (loss) per share and diluted net income (loss) per
            share.  Basic per share  amounts are computed by dividing net income
            (loss) by average shares outstanding during the period.  Diluted per
            share  amounts are computed by dividing net income (loss) by average
            shares   outstanding  plus  the  dilutive  effect  of  common  share
            equivalents.  Since  the  Company  incurred  a net loss  during  the
            three-month  period ended December 31, 1996,  both basic and diluted
            per share  calculations are based upon average shares outstanding of
            8,099,000  during this  period.  The effect of options and  warrants
            outstanding to purchase 3,230,000 shares was not included in diluted
            calculations during this period. Diluted net income per share during
            the first  quarter  of fiscal  1998 is  determined  considering  the
            dilutive  effect of  outstanding  stock  options and  warrants.  The
            effect of options and  warrants  outstanding  to purchase  3,160,000
            shares was not  included  in diluted  calculations  during the first
            quarter of fiscal 1998 since the exercise  price of such options and
            warrants was greater than the average price of the Company's  common
            shares.

3.          INVENTORIES

            Inventories consist of the following:

                                          December 31,          September 30,
                                             1997                  1997
                                             ----                  ----

            Work-in-process                    7,517,000      $  3,349,000
            Raw materials and supplies         3,363,000         7,767,000
                                          --------------      ------------
            Total                             10,880,000      $ 11,116,000
                                          --------------      ------------

                                        8
<PAGE>
4.          COMMITMENTS AND CONTINGENCIES

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

            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  impacts,  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  $10,431,000  as of September 30, 1997.  The
            Company's  effective  tax rate  will be 0% until  its net  operating
            losses  expire  or the  Company  has  taxable  income  necessary  to
            eliminate the need for the valuation allowance.

6.          ASSET PURCHASE AGREEMENT

            On October 10,  1997,  the Company  entered  into an Asset  Purchase
            Agreement  (the   "Agreement")   with   Kerr-McGee.   The  Agreement
            contemplates  that the Company will acquire  certain  process  data,
            technical information, customer lists, marketing



                                        9

<PAGE>
            contacts,  and related expertise used by Kerr-McGee primarily in the
            AP  industry.  The  Agreement  calls  for a  purchase  price  of $39
            million,  and grants the Company  the option to purchase  limited AP
            inventory of Kerr-McGee for additional consideration.

            Closing of the  transaction  is  subject to a number of  conditions,
            including the Company's securing of financing for 100 percent of the
            purchase price and Board of Director  approvals by both parties.  In
            December 1997, the Company  received  notification  that the Federal
            Trade Commission  ("FTC") had determined to grant early  termination
            of the waiting  period  relating to the Company's  and  Kerr-McGee's
            premerger  notification  filings with the FTC and the  Department of
            Justice under the  Hart-Scott-Rodino  Antitrust  Improvements Act of
            1976. The Company has entered into long-term pricing  agreements for
            AP with certain major customers that are contingent upon the closing
            of  the  transaction  and,  on a  continuing  basis,  that  will  be
            contingent upon agreement on the terms of specific purchase orders.

            There can be no  assurance  that the  conditions  to  closing of the
            transaction  will be satisfied,  or that the transaction will close.
            The  management of the Company will,  however,  make all  reasonable
            efforts to meet all conditions,  and to conclude  successfully  this
            transaction.

7.          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  period  ended
            December 31, 1997 was as follows:


            Income Statement:
                  Revenues                      $ 7,871,000
                  Gross Profit                    1,865,000
                  Operating Expenses                394,000
                  Net Income                      1,466,000

            Balance Sheet:
                  Assets                        $27,659,000
                  Liabilities                    13,334,000
                  Equity                        $14,325,000

            GRLLC's balance sheet is not classified.  Assets consist principally
            of  inventories  and  liabilities  consist  principally of Notes and
            accounts payable. Inventories were $25,751,000 at December 31, 1997.



                                       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 automotive airbag safety
systems,  and Halotron, a chemical used in fire suppression systems ranging from
portable fire extinguishers to airport firefighting  vehicles.  The perchlorate,
sodium azide and Halotron  facilities  are located on the Company's  property in
Southern  Utah  and  the  chemicals   produced  and  sold  at  these  facilities
collectively  represent the Company's specialty chemical segment.  The Company's
other lines of business include the development of real estate in Nevada and the
production of environmental  protection equipment,  including waste and seawater
treatment systems.

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

The Company believes that North American AP demand is currently approximately 22
to 24 million pounds  annually.  However,  supply capacity is  substantially  in
excess  of these  estimated  demand  levels.  In an effort  to  rationalize  the
economics of the existing AP market, the Company entered into the Agreement with
Kerr-McGee.  The Agreement  contemplates  that the Company will acquire  certain
process data, technical information,  customer lists,  marketing contracts,  and
related expertise used by Kerr-McGee primarily in the AP industry. The Agreement
calls for a purchase price of $39 million,  and grants the Company the option to
purchase limited AP inventory of Kerr-McGee for additional consideration.

Closing of the  transaction is subject to a number of conditions,  including the
Company's  securing of financing for 100 percent of the purchase price and Board
of Director  approvals by both parties.  In December 1997, the Company  received
notification  that the FTC had  determined  to grant  early  termination  of the
waiting period relating to the Company's and Kerr-McGee's premerger notification
filings with the FTC and the Department of Justice. The Company has entered into
long-term pricing agreements for AP with certain of its major customers that are
contingent upon the closing of the transaction and, on a continuing  basis, that
will be contingent upon agreement on terms of specific  purchase  orders.  There
can be no assurance  that the conditions to closing of the  transaction  will be
satisfied, or that the transaction will close.

SALES  AND  OPERATING  REVENUES.  Sales of the  Company's  perchlorate  chemical
products,  consisting  almost entirely of AP sales,  accounted for approximately
50% and 49% of revenues during the  three-month  periods ended December 31, 1997
and 1996,  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  32% and 37% of revenues during
the  three-month  periods ended  December 31, 1997 and 1996,  respectively.  The
Company has incurred significant  operating losses in its sodium azide operation
during  the  last  three  fiscal  years.   Although  the  Company  has  achieved
significant  gains in market  share  that  appear  to relate to an  anti-dumping
petition filed by the Company  against three Japanese sodium azide producers and
the resulting suspension agreement, the Company believes that these factors were
fully  incorporated  into the market by the end of fiscal  1997.  The  Company's
evaluation of the sodium


                                       11
<PAGE>
azide  market  indicated  that the  cash  flows  associated  with  sodium  azide
operations would not be sufficient to recover the Company's investment in sodium
azide  related  fixed  assets  and,  as a  result,  the  Company  recognized  an
impairment  charge with respect to those  assets of $52.6  million in the fourth
quarter of fiscal 1997. Depreciation expense is expected to decrease annually by
approximately $4.0 million as a result of the impairment charge.

Sales of Halotron  amounted to  approximately  1% and 5% of revenues  during the
three-month periods ended December 31, 1997 and 1996, 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  15% and 1% of revenues
during the three-month  periods ended December 31, 1997 and 1996,  respectively.
The  nature of real  estate  development  and sales is such that the  Company is
unable to reliably  to predict  any  pattern of future real estate  sales or the
recognition of the equity in earnings of real estate ventures.

Environmental  protection  equipment sales accounted for approximately 2% and 7%
of revenues  during the  three-month  periods ended  December 31, 1997 and 1996,
respectively.

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

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

INCOME  TAXES.  The  Company's  effective  income  tax rates  were 0% during the
three-month period ended December 31, 1997 and 34% during the three-month period
ended  December 31, 1996. The Company's  effective  income tax rate decreased to
17% for the entire 1997 fiscal year as a result of the  establishment of a $10.4
million  deferred tax valuation  allowance in the fourth quarter.  The Company's
effective tax rate will be 0% until the Company's net operating losses expire or
the Company has taxable income in an amount sufficient to eliminate the need for
the valuation allowance.

NET INCOME  (LOSS).  Although the  Company's  net income  (loss) and diluted net
income  (loss) per common share have not been subject to seasonal  fluctuations,
they have been and are  expected to continue  to be subject to  variations  from
quarter to quarter and year to year due to the following factors,  among others:
(i) as  discussed  in  Note  4 of  Notes  to  Condensed  Consolidated  Financial
Statements,  the  Company  may incur  material  costs  associated  with  certain
contingencies;  (ii)  timing of real  estate  and  related  sales and  equity in
earnings of real estate  ventures is not  predictable;  (iii) the recognition of
revenues from  environmental  protection  equipment  orders not accounted for as
long-term contracts depends upon orders generated


                                       12
<PAGE>
and the timing of shipment of the  equipment;  (iv) weighted  average common and
common equivalent  shares for purposes of calculating  diluted net income (loss)
per common share are subject to significant  fluctuations  based upon changes in
the market price of the Company's  Common Stock due to outstanding  warrants and
options;  and (v)  the  magnitude,  pricing  and  timing  of AP,  sodium  azide,
Halotron,  and  environmental  protection  equipment  sales  in  the  future  is
uncertain.

RESULTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1996

SALES AND OPERATING  REVENUES.  Sales increased $2.9 million,  or 35% during the
three months ended  December 31, 1997 to $11.3  million from $8.4 million in the
corresponding  period of the prior  year.  This  increase  was  attributable  to
increased sales of perchlorate,  sodium azide and real estate. Such increase was
partially offset by decreases in Halotron and environmental protection equipment
sales.

COST OF SALES. Cost of sales increased $1.0 million, or 14%, in the three months
ended  December 31, 1997 to $8.1 million from $7.1 million in the  corresponding
period of the prior year.  This  increase  was  principally  due to increases in
perchlorate  and sodium azide sales volume.  As a percentage  of sales,  cost of
sales  decreased in the three months ended  December 31, 1997 to 72% as compared
to 84% in the  corresponding  period of the prior year.  This  decrease  was due
principally to the increase in  perchlorate  and sodium azide sales volume and a
reduction in  depreciation  expense as a result of the sodium  azide  impairment
charge referred to above.

OPERATING  EXPENSES.  Operating (selling,  general and administrative)  expenses
decreased  $.2 million,  or 8%, in the three  months ended  December 31, 1997 to
$2.2 million from $2.4 million in the corresponding period of 1996.

NET INTEREST EXPENSE. Net interest and other expense increased to $.7 million in
the three months ended  December 31, 1997 from $.3 million in the  corresponding
period of the prior year  principally  as a result of the  cessation of interest
capitalization  on  the  Company's  Ventana  Canyon  residential  joint  venture
project.

EQUITY IN EARNINGS OF REAL ESTATE VENTURE.  The Company's share of equity in its
Ventana  Canyon  joint  venture  was $.3 and $0 million  during the  three-month
periods ended  December 31, 1997 and 1996.  The joint  venture has  historically
operated at or near a break-even point on residential activity and generated net
income on sales of improved  land. The increase in the equity in earnings of the
venture relates principally to the sale of improved land to an outside developer
in the first quarter of fiscal 1998.

Statement  Operating  Income  (Loss).  Operating  income (loss) of the Company's
industry  segments  during the  three-month  periods ended December 31, 1997 and
1996 was as follows:

                                          1997                   1996
                                       ----------         -------------


Specialty chemicals                    $   95,000         $   (870,000)
Environmental protection equipment       (164,000)            (139,000
Real Estate                             1,168,000              (76,000)
                                       ----------         -------------
          Total                        $1,099,000         $ (1,085,000)
                                       ==========         =============


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<PAGE>
The increase in operating income in the Company's  specialty  chemical  industry
segment  was  primarily  attributable  to a  decrease  in  depreciation  expense
associated  with sodium azide  operations as a result of the  impairment  charge
discussed  above.  The increase in operating income in the Company's real estate
segment relates  principally to an increase in sales from $.1 million during the
three  months ended  December  31, 1996 to $1.7 million  during the three months
ended December 31, 1997.


LIQUIDITY AND CAPITAL RESOURCES

Cash flows used by  operating  activities  were $5.4  million  and $1.0  million
during the three-month  periods ended December 31, 1997 and 1996,  respectively.
Cash flows from  operating  activities  declined in the first  quarter of fiscal
1998  principally as a result of changes in certain  working  capital  balances,
most notably a significant  increase in  receivables  related to AP shipments in
late  December,  1997.  Such  receivables  are  scheduled to be collected in the
second  quarter of fiscal 1998.  The Company  believes  that its cash flows from
operations  and existing  cash  balances  will be adequate  for the  foreseeable
future to  satisfy  the needs of its  operations.  However,  the  resolution  of
litigation and  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.


                                      13-A
<PAGE>
Capital  expenditures  were $1.0 million  during the three months ended December
31,  1997  compared to $.9  million  during the same  period last year.  Capital
expenditures are budgeted to amount to approximately $2.5 million in fiscal 1998
and  relate  principally  to  specialty  chemical  segment  capital  improvement
projects.

During the three-month period ended December 31, 1997, the Company received cash
of approximately  $1.7 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 by the end of calendar 2001.

As a result of the litigation and contingencies  described in Note 4 of Notes to
Condensed Consolidated Financial Statements,  the Company has incurred legal and
other costs and may incur  material  legal and other costs  associated  with the
resolution of these matters in future periods. Certain of the costs, if any, may
be reimbursable under policies providing for insurance coverage. The Company has
adopted  certain  policies  in its  Charter  and Bylaws as a result of which the
Company may be required to indemnify its affected  officers and directors to the
extent, if at all, that existing insurance coverages relating to the shareholder
lawsuits  are  insufficient.  The  Company  has in force  substantial  insurance
covering this risk. The Company's  insurance carriers have reserved the right to
exclude or disclaim coverage under certain circumstances.  Defense costs and any
potential settlement or judgment costs associated with litigation, to the extent
borne by the Company and not recovered through insurance, would adversely affect
the Company's liquidity.  The Company is currently unable to predict or quantify
the amount or range of such costs, if any, or the period of time that litigation
related costs will be incurred.

The Company is currently in the process of evaluating its computer  software and
databases to determine whether or not modifications  will be required to prevent
problems  related  to the Year 2000.  These  problems,  which  have been  widely
reported  in the  media,  could  cause  malfunctions  in  certain  software  and
databases with respect to dates on or after January 1, 2000,  unless  corrected.
Based upon its  evaluation to date,  the Company does not believe that the costs
of any  modifications  required  to correct for Year 2000  problems  will have a
material  impact on operations,  although  there can be no assurance  given with
respect thereto.

As a condition of the Agreement with Kerr-McGee, the Company will be required to
obtain  financing for 100 percent of the purchase price.  The Company  currently
expects that such  financing  will be available on customary  commercial  terms,
although there can be no assurance given with respect thereto.

FORWARD-LOOKING STATEMENTS/RISK FACTORS

Certain matters discussed in this Report may be forward-looking  statements that
are subject to risks and uncertainties that could cause actual results to differ
materially from those projected.  Such risks and uncertainties  include, but are
not limited to, the risk factors set forth below.  The following  important risk
factors,  among  others,  may  cause  the  Company's  operating  results  and/or
financial position to be adversely affected from time to time:

          1.   Declining  demand or downward  pricing pressure for the Company's
               products as a result of general or specific economic  conditions,
               further governmental budget decreases affecting the Department of
               Defense or NASA which would cause a continued  decrease in demand
               for  AP,  the  results  achieved  by  the  Suspension   Agreement
               resulting  from  the  Company's  anti-dumping  petition  and  the
               possible


                                       14
<PAGE>
               termination  of  such  agreement,   technological   advances  and
               improvements or new competitive  products  causing a reduction or
               elimination  of demand  for AP,  sodium  azide or  Halotron,  the
               ability and desire of purchasers to change  existing  products or
               substitute  other products for the Company's  products based upon
               perceived  quality  and  pricing,  and the fact that  perchlorate
               chemicals, sodium azide, Halotron and the Company's environmental
               products  have  limited   applications  and  highly  concentrated
               customer bases.

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

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

          4.   Difficulties  in procuring  raw  materials,  supplies,  power and
               natural gas used in the production of perchlorates,  sodium azide
               and Halotron  products and used in the  engineering  and assembly
               process for environmental protection equipment products.

          5.   The Company's ability to control the amount of operating expenses
               and/or the impact of any non-recurring or unusual items resulting
               from  the  Company's  continuing  evaluation  of its  strategies,
               plans, organizational structure and asset valuations.

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

          7.   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.

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

          9.   The adoption of new, or changes in existing,  accounting policies
               and practices.

         10.   Closing of the Agreement to acquire the Kerr-McGee AP business.

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

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


                                       15