8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

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

Date of report (Date of earliest event reported): July 5, 2007

AMERICAN PACIFIC CORPORATION

(Exact name of Registrant as Specified in its Charter)

Delaware	1-8137	59-6490478
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

3770 Howard Hughes Parkway, Suite 300, Las Vegas, Nevada
(Address of Principal Executive Offices) 89169
(Zip Code)

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

N/A

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

EX-23.1

EX-99.1

EX-99.2

EX-99.3

Item 8.01 Other Events

As previously reported, on February 6, 2007, American Pacific Corporation, a Delaware Corporation (“Parent”) issued and sold $110 million aggregate principal amount of 9.0% Senior Notes due February 1, 2015 (the “Senior Notes”).

In connection with the issuance of the Senior Notes, the Parent’s U.S. subsidiaries (“Guarantor Subsidiaries”) jointly, fully, severally, and unconditionally guaranteed the Senior Notes. The Parent’s sole foreign subsidiary (“Non-Guarantor Subsidiary”) is not a guarantor of the Senior Notes. The Parent has no independent assets or operations. The Non-Guarantor Subsidiary was acquired on October 1, 2005, and, accordingly, had no operations or cash flows for the year ended September 30, 2004.

Pursuant to SEC guidance, we are required to file financial information of our Guarantor Subsidiaries pursuant to Rule 3-10 of Regulation S-X. We have included in this Current Report on Form 8-K the information required by Rule 3-10(f) of Regulation S-X in our consolidated financial statements.

The revised consolidated financial statements contained in exhibit 99.1 of this Current Report on Form 8-K supersede the corresponding section of our annual report on Form 10-K for the year ended September 30, 2006.

The revised condensed consolidated financial statements contained in exhibit 99.2 of this Current Report on Form 8-K supersede the corresponding section of our quarterly report on Form 10-Q for the quarter ended December 31, 2006.

The revised condensed consolidated financial statements contained in exhibit 99.3 of this Current Report on Form 8-K supersede the corresponding section of our quarterly report on Form 10-Q for the quarter ended March 31, 2007.

Item 9.01 Financial Statements and Exhibits.

(d)      Exhibits.

23.1	Consent of Independent Registered Public Accounting Firm.
99.1	Audited consolidated financial statements of American Pacific Corporation as of September 30, 2006 and 2005, and for each of the three years in the three-year period ended September 30, 2006, reflecting the addition of Note 15 to include financial information of the guarantor subsidiaries pursuant to Rule 3-10 of Regulation S-X, and including the Report of Independent Registered Public Accounting Firm dated January 6, 2007, except for Note 15, as to which the date is June 29, 2007.
99.2	Unaudited condensed consolidated financial statements of American Pacific Corporation as of December 31, 2006, and for each of the three-month periods ended December 31, 2006 and 2005, reflecting the addition of Note 13 to include financial information of the guarantor subsidiaries pursuant to Rule 3-10 of Regulation S-X.
99.3	Unaudited condensed consolidated financial statements of American Pacific Corporation as of March 31, 2007, and for each of the three-month and six-month periods ended March 31, 2007 and 2006, reflecting the addition of Note 13 to include financial information of the guarantor subsidiaries pursuant to Rule 3-10 of Regulation S-X.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	American Pacific Corporation
Date: July 5, 2007	By:	/s/ John R. Gibson
		John R. Gibson
		Chief Executive Officer

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EXHIBIT INDEX

Exhibit No.	Description
23.1	Consent of Independent Registered Public Accounting Firm.
99.1	Audited consolidated financial statements of American Pacific Corporation as of September 30, 2006 and 2005, and for each of the three years in the three-year period ended September 30, 2006, reflecting the addition of Note 15 to include financial information of the guarantor subsidiaries pursuant to Rule 3-10 of Regulation S-X, and including the Report of Independent Registered Public Accounting Firm dated January 6, 2007, except for Note 15, as to which the date is June 29, 2007.
99.2	Unaudited condensed consolidated financial statements of American Pacific Corporation as of December 31, 2006, and for each of the three-month periods ended December 31, 2006 and 2005, reflecting the addition of Note 13 to include financial information of the guarantor subsidiaries pursuant to Rule 3-10 of Regulation S-X.
99.3	Unaudited condensed consolidated financial statements of American Pacific Corporation as of March 31, 2007 and 2006, and for each of the three-month and six-month periods ended March 31, 2007 and 2006, reflecting the addition of Note 13 to include financial information of the guarantor subsidiaries pursuant to Rule 3-10 of Regulation S-X.

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EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-131945, 333-108790, 333-104732, 333-62566, and 333-53449 on the respective Forms S-8 of our report dated January 6, 2007 except for Note 15, as to which the date is June 29, 2007, relating to the consolidated financial statements of American Pacific Corporation (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standards No. 123 (Revised), Share-Based Payment, and an explanatory paragraph relating to the adoption of Financial Accounting Standards Board Interpretation No. 46 (Revised), Consolidation of Variable Interest Entities), appearing in the Current Report on Form 8-K dated June 29, 2007 of American Pacific Corporation.

/s/ Deloitte & Touche LLP  

Las Vegas, Nevada 

June 29, 2007 

EX-99.1

Exhibit 99.1

Item 8: Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

	Page
Report of Independent Registered Public Accounting Firm		2
Consolidated Balance Sheets		3
Consolidated Statements of Operations		4
Consolidated Statements of Changes in Stockholders’ Equity		5
Consolidated Statements of Cash Flows		6
Notes to Consolidated Financial Statements		7

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
American Pacific Corporation:

We have audited the accompanying consolidated balance sheets of American Pacific Corporation and subsidiaries (the “Company”) as of September 30, 2006 and 2005, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of American Pacific Corporation and subsidiaries as of September 30, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2006, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Notes 1 and 3 to the consolidated financial statements, on October 1, 2005, the Company adopted Statement of Financial Accounting Standards No. 123 (Revised), Share-Based Payment, which changed its method of accounting for share-based compensation.

As discussed in Note 1 to the consolidated financial statements, on March 31, 2004, the Company adopted Financial Accounting Standards Board Interpretation No. 46 (Revised), Consolidation of Variable Interest Entities, which changed its method of accounting for its 50% equity interest in Energetic Systems, Inc.

/s/ DELOITTE & TOUCHE LLP

Las Vegas, Nevada
January 6, 2007, except for Note 15, as to which the date is June 29, 2007

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AMERICAN PACIFIC CORPORATION
Consolidated Balance Sheets
September 30, 2006 and 2005
(Dollars in Thousands)

	2006			2005
ASSETS
Current Assets:
Cash and Cash Equivalents	$	6,872		$	37,213
Accounts Receivable		19,474			12,572
Notes Receivable		7,510			—
Inventories		39,755			13,818
Prepaid Expenses and Other Assets		1,845			1,365
Deferred Income Taxes		1,887			834
Total Current Assets		77,343			65,802
Property, Plant and Equipment, Net		119,746			15,646
Intangible Assets, Net		14,237			9,763
Deferred Income Taxes		21,701			19,312
Other Assets		6,428			4,477
TOTAL ASSETS	$	239,455		$	115,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$	11,158		$	5,231
Accrued Liabilities		11,257			2,786
Employee Related Liabilities		4,600			2,023
Environmental Remediation Reserves		1,631			4,967
Deferred Revenues		5,683			792
Current Portion of Debt		9,593			768
Total Current Liabilities		43,922			16,567
Long-Term Debt		97,771			—
Environmental Remediation Reserves		15,880			15,620
Pension Obligations and Other Long-Term Liabilities		9,998			8,144
Total Liabilities		167,571			40,331
Commitments and Contingencies
Stockholders’ Equity
Preferred Stock — No par value; 3,000,000 authorized; none outstanding		—			—
Common Stock — $.10 par value; 20,000,000 shares authorized, 9,359,041 and 9,331,787 issued		933			932
Capital in Excess of Par Value		86,724			86,187
Retained Earnings		2,312			6,206
Treasury Stock - 2,034,870 shares		(16,982	)		(16,982	)
Accumulated Other Comprehensive Loss		(1,103	)		(1,674	)
Total Shareholders’ Equity		71,884			74,669
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	239,455		$	115,000

See Notes to Consolidated Financial Statements

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AMERICAN PACIFIC CORPORATION
Consolidated Statements of Operations
For the Years Ended September 30, 2006, 2005, and 2004
(Dollars in Thousands, Except per Share Amounts)

	2006			2005			2004
Revenues	$	141,904		$	67,813		$	51,458
Cost of Revenues		97,043			43,916			34,402
Gross Profit		44,861			23,897			17,056
Operating Expenses		38,202			21,805			18,980
Environmental Remediation Charges		3,600			22,400			—
Operating Income (Loss)		3,059			(20,308	)		(1,924	)
Interest and Other Income		1,069			1,398			693
Interest Expense		11,431			—			—
Loss from Continuing Operations before Income Tax		(7,303	)		(18,910	)		(1,231	)
Income Tax Benefit		(4,300	)		(8,367	)		(2,160	)
Income (Loss) from Continuing Operations		(3,003	)		(10,543	)		929
Loss from Discontinued Operations, Net of Tax		(891	)		(702	)		(557	)
Extraordinary Gain, Net of Tax		—			1,554			—
Cumulative Effect of Accounting Change, Net of Tax		—			—			(769	)
Net Loss	$	(3,894	)	$	(9,691	)	$	(397	)
Basic Earnings (Loss) Per Share:
Income (Loss) from Continuing Operations	$	(0.41	)	$	(1.45	)	$	0.13
Loss from Discontinued Operations, Net of Tax		(0.12	)		(0.09	)		(0.08	)
Extraordinary Gain, Net of Tax		—			0.21			—
Cumulative Effect of Accounting Change, Net of Tax		—			—			(0.10	)
Net Loss	$	(0.53	)	$	(1.33	)	$	(0.05	)
Diluted Earnings (Loss) Per Share:
Income (Loss) from Continuing Operations	$	(0.41	)	$	(1.45	)	$	0.13
Loss from Discontinued Operations, Net of Tax		(0.12	)		(0.09	)		(0.08	)
Extraordinary Gain, Net of Tax		—			0.21			—
Cumulative Effect of Accounting Change, Net of Tax		—			—			(0.10	)
Net Loss	$	(0.53	)	$	(1.33	)	$	(0.05	)
Weighted Average Shares Outstanding:
Basic		7,305,000			7,294,000			7,281,000
Diluted		7,305,000			7,294,000			7,328,000

See Notes to Consolidated Financial Statements

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AMERICAN PACIFIC CORPORATION
Consolidated Statements of Changes in Stockholders’ Equity
For the Years Ended September 30, 2006, 2005 and 2004
(Dollars in Thousands)

	Common
	Shares												Accumulated
	Outstanding,		Par										Other			Total
	Net of		Value of		Capital in								Compre-			Stock-
	Treasury		Common		Excess of		Retained			Treasury			hensive			holders’
	Shares		Stock		Par Value		Earnings			Stock			Loss			Equity
BALANCES, October 1, 2003		7,242,829	$	898	$	83,554	$	16,180		$	(14,230	)	$	(1,568	)	$	84,834
Comprehensive Income (Loss):
Net Loss								(397	)								(397	)
Additional Minimum Pension Liability, Net of Tax														373			373
Total Comprehensive Loss																	(24	)
Issuance of Common Stock		49,088		34		2,257											2,291
Reclassification of Warrants								3,569									3,569
Dividends								(3,080	)								(3,080	)
Equity Investment Consolidation								(375	)								(375	)
Tax Benefit From Stock Options						337											337
Treasury Stock Acquired											(2,752	)					(2,752	)
BALANCES, September 30, 2004		7,291,917		932		86,148		15,897			(16,982	)		(1,195	)		84,800
Comprehensive Income (Loss):
Net Loss								(9,691	)								(9,691	)
Currency Translation														7			7
Additional Minimum Pension Liability, Net of Tax														(486	)		(486	)
Total Comprehensive Loss																	(10,177	)
Issuance of Common Stock		5,000				24											24
Tax Benefit From Stock Options						15											15
BALANCES, September 30, 2005		7,296,917		932		86,187		6,206			(16,982	)		(1,674	)		74,669
Comprehensive Income (Loss):
Net Loss								(3,894	)								(3,894	)
Currency Translation														15			15
Additional Minimum Pension Liability, Net of Tax														556			556
Total Comprehensive Loss																	(3,338	)
Issuance of Common Stock		27,254		1		157											158
Tax Benefit From Stock Options						21											21
Share-based Compensation						359											359
BALANCES, September 30, 2006		7,324,171	$	933	$	86,724	$	2,312		$	(16,982	)	$	(1,103	)	$	71,884

See Notes to Consolidated Financial Statements

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AMERICAN PACIFIC CORPORATION
Consolidated Statements of Cash Flows
For the Years Ended September 30, 2006, 2005 and 2004
(Dollars in Thousands)

	2006			2005			2004
Cash Flows from Operating Activities:
Net Loss	$	(3,894	)	$	(9,691	)	$	(397	)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities:
Depreciation and amortization		20,181			5,639			5,424
Non-cash interest expense		3,967			—			—
Share-based compensation		359			—			—
Deferred income taxes		(3,442	)		(8,241	)		(1,598	)
Tax benefit from stock option exercises		21			15			337
Gain on sale of assets		(610	)		—			—
Extraordinary gain, net		—			(1,554	)		—
Cumulative effect of accounting change, net		—			—			769
Changes in operating assets and liabilities:
Accounts receivable		(1,135	)		9,437			(4,070	)
Inventories		(11,821	)		2,156			1,331
Prepaid expenses		(1,131	)		—			—
Accounts payable and accrued liabilities		6,860			41			(1,025	)
Deferred revenues		975			—			—
Environmental remediation reserves		(3,076	)		20,587			—
Pension obligations, net		650			926			(384	)
Discontinued operations, net		1,287			(31	)		1,037
Other		299			(131	)		(24	)
Net Cash Provided by Operating Activities		9,490			19,153			1,400
Cash Flows from Investing Activities:
Acquisition of businesses		(108,011	)		(4,505	)		—
Capital expenditures		(15,018	)		(1,686	)		(470	)
Proceeds from sale of assets		2,395			—			—
Discontinued operations, net		(411	)		212			(998	)
Net Cash Used in Investing Activities		(121,045	)		(5,979	)		(1,468	)
Cash Flows from Financing Activities:
Proceeds from the issuance of long-term debt		85,000			—			—
Payments of long-term debt		(678	)		—			—
Debt issuance costs		(3,119	)		—			—
Issuance of common stock		158			24			2,291
Treasury stock acquired		—			—			(2,752	)
Dividends		—			—			(3,080	)
Discontinued operations, net		(147	)		238			246
Net Cash Provided (Used) by Financing Activities		81,214			262			(3,295	)
Net Change in Cash and Cash Equivalents		(30,341	)		13,436			(3,363	)
Cash and Cash Equivalents, Beginning of Year		37,213			23,777			27,140
Cash and Cash Equivalents, End of Year	$	6,872		$	37,213		$	23,777

See Notes to Consolidated Financial Statements

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AMERICAN PACIFIC CORPORATION
Consolidated Statements of Cash Flows (Continued)
For the Years Ended September 30, 2006, 2005 and 2004
(Dollars in Thousands)

	2006		2005		2004
Cash Paid (Refunded) For:
Interest	$	7,376	$	—	$	—
Income taxes		407		—		551
Non-Cash Transactions:
Issuance of Seller Subordinated Note, net of discount	$	19,400	$	—	$	—
AFC Earnout Payment due seller (included in accrued liabilities)		6,000		—		—
Capital leases originated		527		—		—
Initial consolidation of ESI under FIN 46(R) —
Fair value of assets		—		—		11,958
Fair value of liabilities		—		—		3,231
Reclassification of warrants		—		—		3,569

See Notes to Consolidated Financial Statements

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AMERICAN PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004
(Dollars in Thousands, Except Per Share Amounts)

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
	Principles of Consolidation: Our consolidated financial statements include the accounts of American Pacific Corporation, our wholly-owned subsidiaries, and variable interest entities. In connection with our acquisition of the fine chemicals business (the “AFC Business”) of GenCorp, Inc. (“GenCorp”), through the purchase of substantially all the assets of Aerojet Fine Chemicals LLC and the assumption of certain of its liabilities, we began consolidating our newly-formed, wholly-owned subsidiary, Ampac Fine Chemicals (“AFC”) on November 30, 2005 (see Note 2). All significant intercompany accounts have been eliminated.
	In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities,” which addresses consolidation by business enterprises of variable interest entities that either: (1) do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) hold a significant variable interest in, or have significant involvement with, an existing variable interest entity. In December 2003, FASB Interpretation No. 46 (Revised December 2003), “Consolidation of Variable Interest Entities” (“FIN 46(R)”), was issued to clarify the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”, as amended by FASB Statement No. 94, “Consolidation of All Majority-Owned Subsidiaries.”
	Prior to March 31, 2004, we treated our 50% equity interest in the Energetic System (“ESI”) joint venture as an unconsolidated operation whose financial performance was accounted for using the equity method and disclosed, but not consolidated in our financial results. However under FIN 46(R), we are required to consolidate the ESI joint venture due to a number of factors including our majority ownership of the joint venture’s debt securities.
	We consolidated the ESI joint venture as of March 31, 2004. We reported a cumulative effect of an accounting change of $769 (net of tax benefit of $414) on our 2004 second quarter statement of operations to reflect the loss that we would have incurred had the ESI joint venture been consolidated since its inception. The consolidation of the ESI joint venture significantly changed various line items of our balance sheet, statement of operations and cash flow presentations as compared to financial presentations in earlier reports.
	In June 2006, our board of directors approved and we committed to a plan to sell ESI, based on our determination that ESI’s product lines were no longer a strategic fit with our business strategies. Revenues and expenses associated with ESI’s operations are presented as discontinued operations for all periods presented. ESI was formerly reported within our Specialty Chemicals operating segment. Effective September 30, 2006, we completed the sale of our interest in ESI. (See Note 14).
	Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Judgments and assessments of uncertainties are required in applying our accounting policies in many areas. For example, key assumptions and estimates are particularly important when determining our projected liabilities for pension benefits, useful lives for depreciable and amortizable assets, deferred tax assets and long-lived assets, including intangible assets. Other areas in which significant uncertainties exist include, but are not limited to, costs that may be incurred in connection with environmental matters and the resolution of litigation and other contingencies. Actual results may differ from estimates on which our consolidated financial statements were prepared.

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Revenue Recognition: Revenues for Specialty Chemicals, Fine Chemicals, and water treatment equipment are recognized when persuasive evidence of an arrangement exists, shipment has been made, title passes, the price is fixed or determinable and collectibility is reasonably assured. Certain products shipped by our Fine Chemicals segment are subject to customer acceptance periods. We record deferred revenues upon shipment of the product and recognize these revenues in the period when the acceptance period lapses or acceptance has occurred. Some of our perchlorate and fine chemical products customers have requested that we store materials purchased from us in our facilities (“Bill and Hold” transactions). We recognize the revenue from these Bill and Hold transactions at the point at which title and risk of ownership transfer to our customers. These customers have specifically requested in writing, pursuant to a contract, that we invoice for the finished product and hold the finished product until a later date.

Revenues from our Aerospace Equipment segment are derived from contracts that are accounted for in conformity with the American Institute of Certified Public Accountants (“AICPA”) audit and accounting guide, “Audits of Federal Government Contracts” and the AICPA’s Statement of Position No. 81-1, “Accounting for Performance of Construction-Type and Certain Production Type Contracts.” We account for these contracts using the percentage-of-completion method and measure progress on a cost-to-cost basis. The percentage-of-completion method recognizes revenue as work on a contract progresses. Revenues are calculated based on the percentage of total costs incurred in relation to total estimated costs at completion of the contract. For fixed-price and fixed-price-incentive contracts, if at any time expected costs exceed the value of the contract, the loss is recognized immediately.

Environmental Remediation: We are subject to environmental regulations that relate to our past and current operations. We record liabilities for environmental remediation costs when our assessments indicate that remediation efforts are probable and the costs can be reasonably estimated. When the available information is sufficient to estimate the amount of the liability, that estimate is used. When the information is only sufficient to estimate a range of probable liability, and no amount within the range is more likely than the other, the low end of the range is used. Estimates of liabilities are based on currently available facts, existing technologies and presently enacted laws and regulations. These estimates are subject to revision in future periods based on actual costs or new circumstances. Accrued environmental remediation costs include the undiscounted cost of equipment, operating and maintenance costs, and fees to outside law firms or consultants, for the estimated duration of the remediation activity. Estimating environmental cost requires us to exercise substantial judgment regarding the cost, effectiveness and duration of our remediation activities. Actual future expenditures could differ materially from our current estimates.

We evaluate potential claims for recoveries from other parties separately from our estimated liabilities. We record an asset for expected recoveries when recovery of the amounts are probable.

Related Party Transactions: Accounts Receivable at September 30, 2004, includes $45 related to an interest bearing demand note from our former Chairman (see Note 4). Our other related party transactions generally fall into the following categories; payments of professional fees to firms affiliated with certain members of our Board, and payments to certain directors for consulting services outside of the scope of their duties as directors. For the years ended September 30, 2006, 2005 and 2004, such transactions totaled approximately $83, $97, and $200.

Cash and Cash Equivalents: All highly liquid investment securities with a maturity of three months or less when acquired are considered to be cash equivalents. We maintain cash balances that exceed federally insured limits; however, we have incurred no losses on such accounts.

Fair Value Disclosure of Financial Instruments: We estimate the fair value of cash and cash equivalents, accounts and notes receivable, accounts payable and accrued liabilities approximates their carrying value due to their short-term nature. We estimate that the fair value of our long-term debt approximates its carrying value because these debt instrument bear interest at a variable rate which resets quarterly based on the then market rate.

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Concentration of Credit Risk: Financial instruments that have potential concentrations of credit risk include cash and cash equivalents and accounts receivable. We place our cash and cash equivalents with high quality credit institutions. Our accounts receivable have concentration risk because significant amounts relate to customers in the aerospace and defense or pharmaceutical industries. From time to time we make sales to a customer that exceeds 10% of our then outstanding accounts receivable balance. At September 30, 2006, one Aerospace Equipment customer accounted for 13% and three separate Fine Chemicals customers accounted for 23%, 13% and 12% of our consolidated trade accounts receivable. At September 30, 2005, no single customer exceeded 10% of our consolidated trade accounts receivable.

Inventories: Inventories are stated at the lower of cost or market. Inventoried costs include materials, labor and manufacturing overhead. General and administrative costs are expensed as incurred. Raw materials cost of the specialty chemicals segment inventories is determined on a moving average basis. We provide reserves for obsolete inventories if inventory quantities exceed our estimates of future demand. At September 30, 2006 and 2005, we had no reserve for obsolete inventories.

Property, Plant and Equipment: Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated productive lives of the assets of 3 to 10 years for machinery and equipment, 8 to 31 years for buildings and improvements, and 5 to 14 years for land improvements.

Intangible Assets: Intangible assets are recorded at cost and are amortized using the straight-line method over their estimated period of benefit of 1 to 10 years. We evaluate the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of our intangible assets are subject to amortization. No impairments of intangible assets have been identified during any of the periods presented.

Impairment of Long-Lived Assets: We test our property, plant and equipment and amortizable intangible assets for recoverability when events or changes in circumstances indicate that their carrying amounts may not be recoverable. Examples of such circumstances include, but are not limited to, operating or cash flow losses from the use of such assets or changes in our intended uses of such assets. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If we determine that an asset is not recoverable, then we would record an impairment charge if the carrying value of the assets exceeds its fair value.

Earnings (Loss) Per Share: Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average shares outstanding during the year. Diluted earnings (loss) per share is calculated by dividing net income by the weighted average shares outstanding plus the dilutive effect of common share equivalents, which is computed using the treasury stock method.

Foreign Currency: We acquired foreign operations in the United Kingdom (“U.K.”) with our ISP Acquisition in October 2004 (See Note 2). We translate our foreign subsidiary’s assets and liabilities into U.S. dollars using the year-end exchange rate. Revenue and expense amounts are translated at the average exchange rate for the year. Foreign currency translation gains or loss are reported as cumulative currency translation adjustments as a component of stockholders’ equity. Gains or losses resulting from transactions in foreign currencies are reported as other expenses and are not material for all years presented.

Recently Issued or Adopted Accounting Standards: In November 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs—an amendment of ARB No. 43, Chapter 4”. The statement clarifies that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The statement was effective for us on October 1, 2005 and had no material impact on our consolidated financial statements.

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	In December 2004, the FASB issued SFAS No. 123R (revised 2004), “Share-Based Payment” which requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments granted to employees and directors. This statement was effective for us on October 1, 2005; see Note 3 for additional information.
	In July 2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes”, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently evaluating the impact of this standard on our consolidated financial statements.
	In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (“SAB 108”), which documents the SEC staff’s views regarding the process of quantifying financial statement misstatements. Under SAB 108, we must evaluate the materiality of an identified unadjusted error by considering the impact of both the current year error and the cumulative error, if applicable. This also means that both the impact on the current period income statement and the period-end balance sheet must be considered. SAB 108 is effective for fiscal years ending after November 15, 2006. Any past adjustments required to be recorded as a result of adopting SAB 108 will be recorded as a cumulative effect adjustment to the opening balance of retained earnings. We do not believe the adoption of SAB 108 will have a material impact on our consolidated financial statements.
	In September 2006, FASB issued Statement No. 158 (SFAS 158) “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)”, which requires companies to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income, which is effective for the Company as of November 30, 2007. SFAS 158 also requires companies to measure the funded status of the plan as of the date of its fiscal year-end, with limited exceptions, which is effective at the end of fiscal years ending after December 15, 2006. We are currently evaluating the impact the adoption of SFAS 158 will have on our consolidated financial statements.
2.	ACQUISITIONS
	AFC Business Acquisition: In July 2005, we entered into an agreement to acquire, and on November 30, 2005, we completed the acquisition of the AFC Business of GenCorp through the purchase of substantially all of the assets of Aerojet Fine Chemicals, LLC and the assumption of certain of its liabilities. The assets were acquired and liabilities assumed by our newly formed, wholly-owned subsidiary, Ampac Fine Chemicals or AFC. AFC is a manufacturer of active pharmaceutical ingredients and registered intermediates under cGMP guidelines for customers in the pharmaceutical industry. Its facilities in California offer specialized engineering capabilities including high containment for high potency compounds, energetic and nucleoside chemistries, and chiral separation using the first commercial-scale simulated moving bed in the United States.
	The total consideration for the AFC Business acquisition is comprised of the following:

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Cash	$	88,500
Fair value of Seller Subordinated Note (Face value $25,500)		19,400
Capital expenditures adjustment		17,431
Working capital adjustment		(1,268	)
Earnout Adjustment		5,000
Other direct acquisition costs		4,348
Total purchase price	$	133,411

Subordinated Seller Note — The fair value of the Seller Subordinated Note was determined by discounting the required principal and interest payments at a rate of 15%, which the Company believes is appropriate for instruments with comparable terms.

Capital Expenditures Adjustment — The capital expenditures adjustment represents net reimbursements to GenCorp for their cash capital investments, as defined in the acquisition agreements, during the period July 2005 through the closing date on November 30, 2005.

Working Capital Adjustment — The working capital adjustment represents a net adjustment to the purchase price based on actual working capital as of the closing date compared to a target working capital amount specified in the acquisition agreements.

Earnout and EBITDAP Adjustments — The acquisition agreements include a reduction of the purchase price if AFC did not achieve a specified level of earnings before interest, taxes, depreciation, amortization, and pension expense (“EBITDAP”) for the three months ended December 31, 2005, equal to four times the difference between the targeted EBITDAP and the actual EBITDAP achieved, not to exceed $1,000. This target was not met, and accordingly, we received $1,000 from GenCorp. In addition to the amounts paid at closing, the purchase price was subject to an additional contingent cash payment of up to $5,000 based on targeted financial performance of AFC during the year ending September 30, 2006. If the full Earnout Adjustment became payable to GenCorp, the EBITDAP Adjustment also became refundable to GenCorp. During the year ended September 30, 2006, the AFC financial performance target was exceeded. Accordingly, we recorded a $6,000 payable to GenCorp as of September 30, 2006 (classified as accrued liabilities) comprised of the $5,000 Earnout Payment and the $1,000 refund of the EBITDAP Adjustment.

Direct Acquisition Costs — The Company estimates its total direct acquisition costs, consisting primarily of legal and due diligence fees, to be approximately $4,348.

In connection with the AFC Business acquisition, we entered into Credit Facilities and a Seller Subordinated Note, each discussed in Note 6. The total purchase price was funded with net proceeds from the Credit Facilities of $81,881, the Seller Subordinated Note of $25,500 and existing cash.

This acquisition is being accounted for using the purchase method of accounting, under which the total purchase price is allocated to the fair values of the assets acquired and liabilities assumed. The allocation of the purchase price and the related determination of the useful lives of acquired assets are preliminary and subject to change based on a final valuation of the assets acquired and liabilities assumed. The allocation is preliminary pending completion of fixed asset and intangible asset appraisals and the actuarial calculation of the defined benefit pension plan obligation. We have engaged outside consultants to assist in the allocation of the purchase price. We have received a draft of the valuation report from the consultants and are in the process of reviewing the report and the related assumptions. We expect that the purchase price allocations will be completed during our first quarter of fiscal 2007. Changes, if any, to our preliminary allocations would result in reclassifications between property, plant and equipment and intangibles or adjustments to the related expected remaining useful lives.

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The preliminary allocation of the purchase price is comprised of the following:

Historical book value of Aerojet Fine Chemicals as of November 30, 2005	$	93,181
Less liabilities not acquired
Payable to GenCorp		24,916
Cash overdraft		3,761
Adjusted historical book value of Aerojet Fine Chemicals as of November 30, 2005		121,858
Estimated fair value adjustments relating to:
Inventories		(84	)
Prepaid expenses		(29	)
Property, plant and equipment		(353	)
Customer relationships, average life of 5.5 years		9,930
Backlog, average life of 1.5 years		3,300
Accrued liabilities		651
Pension assets / liabilities		(1,823	)
Other		(39	)
	$	133,411

Intangible assets, consisting of customer relationships and existing customer backlog, have definite lives and will be amortized over their estimated useful lives using the straight-line method.

The following pro forma information has been prepared from our historical financial statements and those of the AFC Business. The unaudited pro forma information gives effect to the combination as if it had occurred on October 1, 2004.

	2006			2005
Revenues	$	160,146		$	132,257
Loss from Continuing Operations		(4,814	)		(20,283	)
Net Loss		(5,705	)		(19,431	)
Basic and Diluted Loss per Share:
Loss from contunuing Operations	$	(0.66	)	$	(2.78	)
Net Loss		(0.78	)		(2.66	)

	The pro forma financial information is not necessarily indicative of what the financial position or results of operations would have been if the combination had occurred on the above-mentioned dates. Additionally, it is not indicative of future results of operations and does not reflect any additional costs, synergies or other changes that may occur as a result of the acquisition.
	ISP Acquisition: October 1, 2004, we acquired the former Atlantic Research Corporation’s in-space propulsion business (“ISP” or “ISP Acquisition”) from Aerojet-General Corporation for $4,505.
	We accounted for this acquisition using the purchase method of accounting. The fair value of the current assets acquired and current liabilities assumed was approximately $6,972. Since the purchase price was less than the fair value of the net current assets acquired, non-current assets were recorded at zero and an after-tax extraordinary gain of $1,554 was recognized (net of approximately $913 of income tax expense).
3.	SHARE-BASED COMPENSATION
	On October 1, 2005, we adopted SFAS No. 123R, “Share-Based Payment” (“SFAS No. 123R”) which requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. We have elected to use the Modified Prospective Transition method such that SFAS No. 123R applies to the unvested portion of previously issued awards, new awards and to awards modified, repurchased or canceled after the effective date. Accordingly, commencing October 1, 2005, we recognized share-based compensation for all current award grants and for the unvested portion of previous award grants based on grant date fair values. Prior to fiscal 2006, we accounted for share-based awards under the Accounting

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Principles Board Opinion No. 25 intrinsic value method, under which no compensation expense was recognized because all historical options granted were at an exercise price equal to the market value of our stock on the grant date. Prior period financial statements have not been adjusted to reflect fair value share-based compensation expense under SFAS No. 123R.

Our share-based payment arrangements are designed to attract and retain employees and directors. The amount, frequency, and terms of share-based awards may vary based on competitive practices, our operating results, and government regulations. New shares are issued upon option exercise or restricted share grants. We do not settle equity instruments in cash. We maintain two share based plans, each as discussed below.

The American Pacific Corporation 2001 Stock Option Plan, as amended (the “2001 Plan”), permits the granting of incentive stock options meeting the requirements of Section 422 of the Internal Revenue Code and nonqualified options that do not meet the requirements of Section 422 to employees, officers, directors and consultants. Options granted under the 2001 Plan generally vest 50% at the grant date and 50% on the one-year anniversary of the grant date, and expire in ten years. As of September 30, 2006, there were 39,000 shares available for grant under the 2001 Plan. This plan was approved by our stockholders.

The American Pacific Corporation 2002 Directors Stock Option Plan (the “2002 Directors Plan”) compensates outside Directors with annual grants of stock options or upon other discretionary events. Options are granted to each eligible director at a price equal to the fair market value of our common stock on the date of the grant. Options granted under the 2002 Directors Plan generally vest 50% at the grant date and 50% on the one-year anniversary of the grant date, and expire in ten years. As of September 30, 2006, there were 25,000 shares available for grant under the 2002 Directors Plan. This plan was approved by our stockholders.

A summary of our outstanding and vested stock option activity for the year ended September 30, 2006 is as follows:

	Total Outstanding					Non Vested
				Weighted					Weighted
				Average					Average
				Exercise					Fair
				Price					Value
	Shares			Per Share		Shares			Per Share
Balance, October 1, 2005		523,500		$	7.08		143,750		$	3.06
Granted		37,500			4.21		37,500			2.00
Vested		—			—		(142,500	)		2.95
Exercised		(25,500	)		6.17		—			—
Expired / Cancelled		(20,000	)		6.34		(20,000	)		2.90
Balance, September 30, 2006		515,500			6.95		18,750			1.95

A summary of our exercisable stock options as of September 30, 2006 is as follows:

Number of vested stock options		496,750
Weighted average exercise price per share	$	7.47
Aggregate intrinsic value	$	344
Weighted average remaining contractual term in years		7.34

We determine the fair value of share-based awards at their grant date, using a Black-Scholes option-pricing model applying the assumptions in the following table. Actual compensation, if any, ultimately realized by optionees may differ significantly from the amount estimated using an option valuation model.

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The following stock option information is as of September 30:

	2006			2005			2004
Weighted average grant date fair value per share of options granted	$	2.00		$	3.00		$	4.18
Significant fair value assumptions:
Expected term in years		5.25			4.50			4.50
Expected volatility		47.0	%		50.0	%		50.0	%
Expected dividends		0.0	%		0.0	%		0.0	%
Risk-free interest rates		4.4	%		3.9	%		3.0	%
Total intrinsic value of options exercised	$	54		$	12		$	908
Aggregate cash received for option exercises	$	158		$	24		$	2,291
Total compensation cost (included in operating expenses)	$	359		$	—		$	—
Tax benefit recognized		141			—			—
Net compensation cost	$	218		$	—		$	—
As of period end date:
Total compensation cost for non-vested awards not yet recognized	$	6
Weighted-average years to be recognized		0.2

SFAS No. 123R requires us to present pro forma information for periods prior to the adoption as if we had accounted for all stock-based compensation under the fair value method. Had share-based compensation costs been recorded prior to the year ended September 30, 2006, the effect on our net income and earnings per share would have been as follows for the years ended September 30:

	2005			2004
Net loss, as reported	$	(9,691	)	$	(397	)
Pro forma compensation, net of tax		(324	)		(167	)
Pro forma net loss	$	(10,015	)	$	(564	)
Basic loss per share:
As reported	$	(1.33	)	$	(0.05	)
Pro Forma	$	(1.37	)	$	(0.08	)
Diluted loss per share
As reported	$	(1.33	)	$	(0.05	)
Pro forma	$	(1.37	)	$	(0.08	)

4.	BALANCE SHEET DATA
	The following tables provide additional disclosure for accounts receivable, inventories and property, plant and equipment at September 30:

	2006		2005
Accounts Receivable:
Trade Receivables	$	17,438	$	8,001
Unbilled Receivables		1,985		4,300
Employee and Other Receivables		51		271
Total	$	19,474	$	12,572

Unbilled receivables represent unbilled costs and accrued profits related to revenues recognized on contracts that we account for using the percentage-of-completion method. Substantially all of these amounts are expected to be billed or invoiced within the next 12 months. We assess the collectibility of our accounts receivable based on historical collection experience and provide allowances for estimated credit losses. Typically, our customers consist of large corporations, many of which are government contractors procuring products from us on behalf of or for the benefit of government agencies. At September 30, 2006, and 2005, we recorded no bad debt allowance.

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	2006			2005
Inventories:
Finished goods	$	7,170		$	2,475
Work-in-progress		20,196			2,940
Raw materials and supplies		12,664			8,403
Allowance for obsolete inventory		(275	)		—
Total	$	39,755		$	13,818
Property, Plant and Equipment:
Land	$	3,116		$	391
Buildings and improvements		39,566			4,803
Machinery and equipment		99,097			25,317
Construction in progress		3,517			1,152
Total Cost		145,296			31,663
Less: accumulated depreciation		(25,550	)		(16,017	)
Total	$	119,746		$	15,646

	Depreciation expense for continuing operations was approximately $11,525, $1,739, and $1,524 for the years ended September 30, 2006, 2005 and 2004, respectively.
5.	INTANGIBLE ASSETS
	We account for our intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” Intangible assets consist of the following as of September 30:

	2006			2005
Perchlorate customer list	$	38,697		$	38,697
Less accumulated amortization		(33,280	)		(29,380	)
		5,417			9,317
Customer relationships and backlog		13,230			—
Less accumulated amortization		(4,756	)		—
		8,474			—
Pension-related intangible		346			446
Total	$	14,237		$	9,763

The perchlorate customer list is an asset of our Specialty Chemicals segment and is subject to amortization. Amortization expense was $3,900 for each of the three years ended September 30, 2006, 2005 and 2004.

The pension-related intangible is an actuarially calculated amount related to unrecognized prior service cost for our defined benefit pension plan and supplemental executive retirement plan.

In connection with our acquisition of the AFC Business, we acquired intangible assets with preliminary estimated fair values of $9,930 for customer relationships and $3,300 for existing customer backlog. These assets have definite lives and are assigned to our Fine Chemicals segment. Amortization expense for the year ended September 30, 2006 was $4,756.

Estimated future amortization expense for our intangible assets, excluding the pension-related intangible is as follows:

Years ending September 30:
2007	$	8,541
2008		4,024
2009		2,507
2010		2,507
2011		1,182
Total	$	18,761

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6.	DEBT
	Our outstanding debt balances consist of the following as of September 30:

	2006			2005
Credit Facilities:
First Lien Term Loan, 9.37%	$	64,350		$	—
First Lien Revolving Credit, 9.37%		—			—
Second Lien Term Loan plus accrued PIK Interest of $170, 14.37%		20,170			—
Subordinated Seller Note plus accrued PIK Interest of $2,226, 10.42%, Net of Discount of $5,424		22,304			—
Capital Leases		540			—
ESI Debt — Discontinued Operations		—			768
Total Debt		107,364			768
Less Current Portion		(9,593	)		(768	)
Total Long-term Debt	$	97,771		$	—

Credit Facilities: In connection with our acquisition of the AFC Business, discussed in Note 2, on November 30, 2005, we entered into a $75,000 first lien credit agreement (the “First Lien Credit Facility”) with Wachovia Capital Markets, LLC and other lenders. We also entered into a $20,000 second lien credit agreement (the “Second Lien Credit Facility,” and together with the First Lien Credit Facility, the “Credit Facilities”) with Wachovia Capital Markets, LLC, and certain other lenders. The Credit Facilities are collateralized by substantially all of our assets and the assets of our domestic subsidiaries.

The First Lien Credit Facility provides for term loans in the aggregate principal amount of $65,000. The term loans will be repaid in twenty consecutive quarterly payments in increasing amounts, with the final payment due and payable on November 30, 2010. The First Lien Credit Facility also provides for a revolving credit line in an aggregate principal amount of up to $10,000 at any time outstanding, which includes a letter of credit sub-facility in the aggregate principal amount of up to $5,000 and a swing-line sub-facility in the aggregate principal amount of up to $2,000. The initial scheduled maturity of the revolving credit line is November 30, 2010. The revolving credit line may be increased by an amount of up to $5,000 within three years from the date of the Credit Facilities.

The Second Lien Credit Facility provides for term loans in the aggregate principal amount of $20,000 with all principal and accrued payment-in-kind (“PIK”) interest due on November 30, 2011. We are required to pay a premium for certain prepayments, if any, of the Second Lien Credit Facility made before November 30, 2008.

The interest rates per annum applicable to loans under the Credit Facilities are, at our option, the Alternate Base Rate (as defined in the Credit Facilities) or LIBOR Rate (as defined in the Credit Facilities) plus, in each case, an applicable margin. Under the First Lien Credit Facility such margin is tied to our total leverage ratio. A portion of the interest payment due under the Second Lien Credit Facility will accrue as PIK interest and is added to the then outstanding principal. In addition, under the revolving credit facility, we will be required to pay (i) a commitment fee in an amount equal to the applicable percentage per annum on the average daily unused amount of the revolving commitments and (ii) other fees related to the issuance and maintenance of the letters of credit issued pursuant to the letters of credit sub-facility. Additionally, we will be required to pay to the administrative agent certain agency fees.

Certain events, including asset sales, excess cash flow, recovery events in respect of property, and debt and equity issuances will require us to make payments on the outstanding obligations under the Credit Facilities. These prepayments are separate from the events of default and any related acceleration described below.

The Credit Facilities include certain negative covenants restricting or limiting our ability to, among other things:

• incur debt, incur contingent obligations and issue certain types of preferred stock;

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• create liens;

• pay dividends, distributions or make other specified restricted payments;

• make certain investments and acquisitions;

• enter into certain transactions with affiliates;

• enter into sale and leaseback transactions; and

• merge or consolidate with any other entity or sell, assign, transfer, lease, convey or otherwise dispose of assets.

Financial covenants under the Credit Facilities include quarterly requirements (which vary from period to period as defined in the Credit Facilities) for Total Leverage Ratio, First Lien Coverage Ratio, Fixed Charge Coverage Ratio, Consolidated Capital Expenditures and minimum Consolidated EBITDA. As of September 30, 2006, the most restrictive covenants, which are under the First Lien Credit Facility, were Total Leverage Ratio of 3.75:1.0 and First Lien Coverage Ratio of 2.75:1.0. The Credit Facilities also contain usual and customary events of default (subject to certain threshold amounts and grace periods). If an event of default occurs and is continuing, we may be required to repay the obligations under the Credit Facilities prior to their stated maturity and the commitments under the First Lien Credit Facility may be terminated.

On November 30, 2005, we borrowed $65,000 under the First Lien Credit Facility term loan and $20,000 under the Second Lien Credit Facility. Net proceeds of $81,881, after debt issuance costs of $3,119, were used to fund a portion of the AFC Business acquisition price. Debt issue costs are classified as other assets and are amortized over the term of the Credit Facilities using the interest method.

As of September 30, 2006, we had no outstanding borrowings under the First Lien revolving credit line. As of September 30, 2006, we were in compliance with the various covenants contained in the Credit Facilities.

Seller Subordinated Note: In connection with our acquisition of the AFC Business, discussed in Note 2, we issued an unsecured seller subordinated note in the principal amount of $25,500 to Aerojet-General Corporation, a subsidiary of GenCorp. The note accrues PIK Interest at a rate equal to the three-month U.S. dollar LIBOR as from time to time in effect plus a margin equal to the weighted average of the interest rate margin for the loans outstanding under the Credit Facilities, including certain changes in interest rates due to subsequent amendments or refinancing of the Credit Facilities. All principal and accrued and unpaid PIK Interest will be due on November 30, 2012. Subject to the terms of the Credit Facilities, we may be required to repay up to $6,500 of the note and accrued PIK Interest thereon after September 30, 2007. The note is subordinated to the senior debt under or related to the Credit Facilities, our other indebtedness in respect to any working capital, revolving credit or term loans, or any other extension of credit by a bank or insurance company or other financial institution, other indebtedness relating to leases, indebtedness in connection with the acquisition of businesses or assets, and the guarantees of each of the previously listed items, provided that the aggregate principal amount of obligations of the Company or any of our Subsidiaries shall not exceed the greater of (i) the sum of (A) the aggregate principal amount of the outstanding First Lien Obligations (as such term is defined in the Intercreditor Agreement referred to in the Credit Facilities) not in excess of $95,000 plus (B) the aggregate principal amount of the outstanding Second Lien Obligations (as defined in the Intercreditor Agreement) not in excess of $20,000, and (ii) an aggregate principal balance of Senior Debt (as defined in the note) which would not cause the Company to exceed as of the end of any fiscal quarter a Total Leverage Ratio of 4.50 to 1.00 (as such term is defined in, and as such ratio is determined under, the First Lien Credit Facility) (disregarding any obligations in respect of Hedging Agreements (as defined in the First Lien Credit Facility) constituting First Lien Obligations or Second Lien Obligations or any increase in the amount of the Senior Debt resulting from any payment-in-kind interest added to principal each to be disregarded in calculating the aggregate principal amount of such obligations).

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Principal maturities (excluding accrued PIK interest and the discount recorded for the Seller Subordinated Note) for term loans under the Credit Facilities and the Seller Subordinated Note are as follows:

Years ending September 30:
2007	$	9,595
2008		12,712
2009		5,843
2010		32,431
2011		10,811
Thereafter		39,000
Total	$	110,392

Letters of Credit: As of September 30, 2006, we had $2,531 in outstanding standby letters of credit which mature through May 2012. These letters of credit principally secure performance of certain environmental protection equipment sold by us and payment of fees associated with the delivery of natural gas and power.

Interest Rate Swap Agreements: In May 2006, we entered into two interest rate swap agreements, expiring on June 30, 2008, for the purpose of hedging a portion of our exposure to changes in variable rate interest on our Credit Facilities. Under the terms of the swap agreements, which have an aggregate notional amount of $42,175 at September 30, 2006, we pay fixed rate interest and receive variable rate interest based on a specific spread over three-month LIBOR. The differential to be paid or received is recorded as an adjustment to interest expense. The swap agreements do not qualify for hedge accounting treatment. We record an asset or liability for the fair value of the swap agreements, with the effect of marking these contracts to fair value being recorded as an adjustment to interest expense. The aggregate fair value of the swap agreements at September 30, 2006, which is recorded as other long-term liabilities was $314.

7.	EARNINGS (LOSS) PER SHARE
	Shares used to compute earnings (loss) per share from continuing operations are as follows for the years ending September 30:

	2006			2005			2004
Income (Loss) from Continuing Operations	$	(3,003	)	$	(10,543	)	$	929
Basic:
Weighted Average Shares		7,305,000			7,294,000			7,281,000
Diluted:
Weighted Average Shares, Basic		7,305,000			7,294,000			7,281,000
Dilutive Effect of Stock Options		—			—			47,000
Weighted Average Shares, Diluted		7,305,000			7,294,000			7,328,000
Basic Earnings (Loss) per Share from Continuing Operations	$	(0.41	)	$	(1.45	)	$	0.13
Diluted Earnings (Loss) per Share from Continuing Operations	$	(0.41	)	$	(1.45	)	$	0.13

	As of September 30, 2006 and 2005, we had 515,500 and 523,500, respectively, antidilutive options outstanding. The stock options are antidilutive because we are reporting a loss from continuing operations and the exercise price of certain options exceeds the average fair market value of our stock for the period. These options could be dilutive in future periods if our operations are profitable and our stock price increases.
8.	STOCKHOLDERS’ EQUITY
	Preferred Stock and Purchase Rights: We have authorized 3,000,000 shares of preferred stock, of which 125,000 shares have been designated as Series A, and 125,000 shares have been

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designated as Series B. At September 30, 2006 and 2005, no shares of preferred stock are issued and outstanding.

	On August 3, 1999, our Board of Directors adopted a Shareholder Rights Plan and declared a dividend of one preference share purchase right (a “Right”) for each outstanding share of our Common Stock, par value $0.10 per share (the “Common Shares”). The dividend was paid to stockholders of record on August 16, 1999. Each Right entitles the registered holder to purchase from us one one-hundredth of a share of Series D Participating Preference Stock, par value $1.00 per share, at a price of $24.00 per one one-hundredth of a Preference Share, subject to adjustment under certain circumstances. The description and terms of the Rights are set forth in a Rights Agreement dated as of August 3, 1999, between us and American Stock Transfer & Trust Company, as Rights Agent. The Rights may also, under certain conditions, entitle the holders (other than any Acquiring Person, as defined), to receive our Common Stock, Common Stock of an entity acquiring us, or other consideration, each having a market value of two times the exercise price of each Right.
	Three hundred and fifty-thousand (350,000) Preference Shares have been designated as Series D Preference Shares and are reserved for issuance under the Plan. The Rights are redeemable at a price of $0.001 per Right under the conditions provided in the Plan. If not exercised or redeemed (or exchanged by us), the Rights expire on August 2, 2009.
	Warrants: In February 1992, we issued $40,000 in Azide Notes with Warrants. The remaining principal balance of the outstanding Azide Notes was repurchased in 1998. The Warrants granted the right to purchase a maximum of 2,857,000 shares of Common Stock at an exercise price of $14.00 per share. We accounted for the proceeds of the financing applicable to the Warrants as temporary capital. The value assigned to the Warrants was determined in accordance with Accounting Principle Board Opinion No. 14 “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants” and was based upon the relative fair value of the Warrants and indebtedness at the time of issuance. The Warrants expired on December 31, 2003 and the amount of the Warrants was transferred to retained earnings on their expiration.
	Dividend and Share Repurchase Program: In January 2003, our Board of Directors approved a Dividend and Stock Repurchase Program (the “Program”) which is designed to allocate a portion of our annual free cash flows (as calculated) for the purposes of paying cash dividends and repurchasing our Common Stock. In accordance with the provisions of the Program, on December 18, 2003, our Board of Directors declared a cash dividend of $0.42 per share to stockholders of record on December 29, 2003 for fiscal 2003. The total amount of the cash dividend paid in January 2004 was $3,080. By reason of the application of the program formula, no dividends were paid for fiscal 2004 and 2005. In November 2005, we entered into First and Second Lien Credit Facilities which substantially limits our ability to pay dividends after that date and while borrowings are outstanding under these facilities. In compliance with the Credit Facilities, no dividends were paid in fiscal 2006.
9.	INCOME TAXES
	The components of the income tax benefit for continuing operations are as follows for the years ended September 30:

	2006			2005			2004
Current	$	(1,179	)	$	(507	)	$	(526	)
Deferred		(3,121	)		(7,860	)		(1,634	)
Income tax benefit	$	(4,300	)	$	(8,367	)	$	(2,160	)

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Deferred tax assets are comprised of the following at September 30:

	2006			2005
Deferred tax assets:
Property	$	3,546		$	5,763
Intangible assets		6,216			3,951
Pension obligations		2,167			2,095
Environmental remediation reserves		9,613			7,707
Tax credits and carryforwards		785			842
Accrued expenses		1,284			596
Inventory capitalization		652			477
Other		803			—
Subtotal		25,066			21,431
Valuation allowance		(785	)		(431	)
Deferred tax assets		24,281			21,000
Deferred tax liabilities:
Prepaid expenses		(586	)		(239	)
Other		(107	)		(615	)
Deferred tax liabilities		(693	)		(854	)
Net deferred tax assets	$	23,588		$	20,146

As of September 30, 2006 and 2005, respectively, we have aggregate operating loss carryforwards of $6,413 and $6,398 for certain U.S. states and $1,649 and $619 for the U.K. We do not anticipate future taxable income in these states or the U.K., and accordingly have provided valuation allowances of $785 and $431 as of September 30, 2006 and 2005, respectively. We have not provided U.S. federal income benefit for the U.K. because we intend to permanently reinvest any earnings from the U.K.

A reconciliation of the federal statutory rate to our effective tax (benefit) rate from continuing operations is as follows for the years ended September 30:

	2006			2005			2004
Federal income tax at the statutory rate		(35.0	%)		(35.0	%)		(35.0	%)
State income tax, net of federal benefit		(3.1	%)		(2.5	%)		(4.1	%)
Nondeductible expenses		1.0	%		0.6	%		3.7	%
Valuation allowance		1.8	%		1.3	%		40.0	%
Change in state income tax rate		(13.7	%)		0.0	%		0.0	%
Basis differences in partnerships		(5.6	%)		0.0	%		0.0	%
Change in deferred tax liability estimate		0.0	%		0.0	%		(168.7	%)
Other		(4.3	%)		(8.6	%)		(11.4	%)
Effective tax rate		(58.9	%)		(44.2	%)		(175.5	%)

	The change in deferred tax liability estimate for the year ended September 30, 2004, represents an amount previously recorded for tax contingency reserves. During the fourth quarter of fiscal 2004, we concluded that these tax contingency reserves were no longer required and were reversed. Based on the analysis of deferred income taxes, we revised our estimate for deferred tax liability by approximately $2,100.
10.	EMPLOYEE BENEFIT PLANS
	We maintain three defined benefit pension plans which cover substantially all of our U.S. employees, excluding employees of our Aerospace Equipment Segment; the American Pacific Corporation Defined Benefit Pension Plan (“Ampac Plan”), the Ampac Fine Chemical LLC Pension Plan for Salaried Employees (“AFC Salaried Plan”), and the Ampac Fine Chemical LLC Pension Plan for Bargaining Unit Employees (“AFC Bargaining Plan”). Collectively, these three plans are referred to as the “Pension Plan”. The AFC Salaried Plan and the AFC Bargaining Plan were established in connection with our acquisition of the AFC business and include the assumed liabilities for pension benefits to existing employees at the acquisition date. Pension Plan benefits are paid based on an average of earnings, retirement age, and length of service, among other factors. In addition, we have a supplemental executive retirement plan (“SERP”) that includes our former and current Chief

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Executive Officer. We use a measurement date of September 30 to account for our Pension Plans and SERP.

We maintain two 401(k) plans in which participating employees may make contributions. One covers substantially all U.S. employees except AFC bargaining unit employees and the other covers AFC bargaining unit employees (collectively, the “401(k) Plans”). We make matching contributions for AFC and Aerospace Equipment U.S. employees. In addition, we make a profit sharing contribution for Aerospace Equipment U.S. employees. We made total contributions of $678 and $204 to the 401(k) Plans during the years ended September 30, 2006 and 2005, respectively.

We provide healthcare and life insurance benefits to substantially all of our employees.

The tables below provide relevant financial information about the Pension Plan and SERP as of and for the fiscal years ended September 30:

	Pension Plan						SERP
	2006			2005			2006			2005
Change in Benefit Obligation:
Benefit obligation, beginning of year	$	31,249		$	27,099		$	2,498		$	2,540
Business acquired, AFC		4,464			—			—			—
Service cost		1,863			1,072			—			—
Interest cost		2,024			1,653			140			148
Actuarial (gains) losses		(312	)		2,263			(148	)		(64	)
Benefits paid		(874	)		(838	)		(126	)		(126	)
Benefit obligation, end of year		38,414			31,249			2,364			2,498
Change in Plan Assets:
Fair value of plan assets, beginning of year		18,658			16,654			—			—
Business acquired, AFC		3,889			—			—			—
Actual return on plan assets		1,516			1,251			—			—
Employer contributions		1,835			1,591			126			126
Benefits paid		(874	)		(838	)		(126	)		(126	)
Fair value of plan assets, end of year		25,024			18,658			—			—
Reconciliation of Funded Status:
Funded status		(13,390	)		(12,591	)		(2,364	)		(2,498	)
Unrecognized net actuarial losses		8,477			9,098			365			537
Unrecognized prior service costs		289			347			57			99
Net amount recognized	$	(4,624	)	$	(3,146	)	$	(1,942	)	$	(1,862	)
Amounts Recognized:
Accrued benefit liabilities	$	(6,558	)	$	(5,646	)	$	(2,364	)	$	(2,498	)
Prepaid benefit costs		209			—			—			—
Intangible assets		289			347			57			99
Accumulated other comprehensive loss before tax		1,436			2,153			365			537
Net amount recognized	$	(4,624	)	$	(3,146	)	$	(1,942	)	$	(1,862	)

     The table below provides data for our defined benefit plans as of September 30:

	2006		2005
Plan Assets:
Ampac Plan	$	21,112	$	18,657
AFC Salaried Plan		2,354		—
AFC Bargaining Plan		1,558		—
Accumulated Benefit Obligation:
Ampac Plan		26,261		24,304
AFC Salaried Plan		2,628		—
AFC Bargaining Plan		1,372		—
Projected Benefit Obligation:
Ampac Plan		33,340		31,249
AFC Salaried Plan		3,702		—
AFC Bargaining Plan		1,372		—

Pension Plan assets include no shares of our common stock. Through consultation with investment advisors, expected long-term returns for each of the plans’ targeted asset classes were developed.

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Several factors were considered, including current market data such as yields/price-earnings ratios, and historical market returns over long periods. Using policy target allocation percentages and the asset class expected returns, a weighted average expected return was calculated. The actual and target asset allocation for the Pension Plan is as follows at September 30:

	Target			Actual
	2006			2006			2005
Equity securities		70	%		62	%		62	%
Debt securities		30	%		27	%		14	%
Other		0	%		11	%		24	%
Total		100	%		100	%		100	%

Net periodic pension expense is comprised of the following for the years ended September 30:

	Pension Plan												SERP
	2006			2005			2004			2006			2005			2004
Net Periodic Pension Cost:
Service cost	$	1,863		$	1,072		$	944		$	—		$	—		$	18
Interest cost		2,024			1,653			1,466			140			148			183
Expected return on plan assets		(1,791	)		(1,364	)		(1,165	)		—			—			—
Recognized actuarial losses		584			464			474			24			30			29
Amortization of prior service costs		58			58			58			43			43			43
Net periodic pension cost	$	2,738		$	1,883		$	1,777		$	207		$	221		$	273
Actuarial Assumptions:
Discount rate		6.00	%		5.75	%		6.00	%		6.00	%		5.75	%		6.00	%
Rate of compensation increase		4.50	%		4.50	%		4.50	%		4.50	%		4.50	%		4.50	%
Expected return on plan assets		8.00	%		8.00	%		8.00	%		8.00	%		8.00	%		8.00	%

During the year ending September 30, 2007, we expect to contribute $3,620 to the Pension Plan and $126 to the SERP. The table below sets forth expected future benefit payments for the years ending September 30:

	Pension Plan		SERP
Years ending September 30:
2007	$	1,214	$	126
2008		1,268		307
2009		1,304		307
20010		1,358		307
2011		1,403		307
2012-2016		7,833		1,533

11.	COMMITMENTS AND CONTINGENCIES
	Operating Leases: We lease our corporate offices and production facilities for our Aerospace Equipment segment under operating leases with lease periods extending through 2011. Total rental expense under operating leases was $981, $741, and $570 for the years ended September 30, 2006, 2005, and 2004, respectively.
	Estimated future minimum lease payments under operating leases as of September 30, 2006, are as follows:

Years ending September 30:
2007	$	1,013
2008		904
2009		526
2010		76
2011		4
Thereafter		—
Total	$	2,523

Purchase Commitments: Purchase commitments represent obligations under agreements which are not unilaterally cancelable by us, are legally enforceable, and specify fixed or minimum amounts or quantities of goods or services at fixed or minimum prices. As of September 30, 2006, we had no material purchase commitments.

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Employee Agreements: We have entered into employment contracts with our Chief Executive Officer and Chief Financial Officer, each with initial durations of three years. Significant contract provisions include annual base salaries, health care benefits, and non-compete provisions. These contracts are primarily “at will” employment agreements, under which we may terminate employment. If we terminate these officers without cause, then we are obligated to pay severance benefits specified in the contracts. In addition, certain other key divisional executives are eligible for severance benefits. Estimated minimum aggregate severance benefits under these agreements are $4,108.

Effective March 25, 2006, the employment of Dr. Seth Van Voorhees, as our Chief Financial Officer, Vice President and Treasurer, terminated. Dr. Van Voorhees was employed by us pursuant to an employment agreement dated December 1, 2005. Under the employment agreement, if we terminated Dr. Van Voorhees without cause or if Dr. Van Voorhees terminated his employment for good reason, Dr. Van Voorhees was entitled to receive severance payments in the form of salary continuation for three years. In addition, all unvested stock options granted to Dr. Van Voorhees would become fully vested. These severance benefits were not available to him if employment was terminated by us for cause, or if Dr. Van Voorhees terminated his employment without good reason. On December 6, 2006, we reached a settlement with Dr. Van Voorhees under which we will pay Dr. Van Voorhees $600 and the parties shall enter into a standard mutual release. In addition, we shall enter into a consulting agreement with Dr. Van Voorhees, for a period of two years, whereby Dr. Van Voorhees may act as a financial advisor to the Company under customary industry terms.

During the second quarter of 2004, we recorded a charge of $2,000, which is included in operating expenses, for estimated costs relating to the separation from us of our then Chief Financial Officer. The separation charge includes: (i) salary and benefits owed under the terms of an employment agreement and other severance costs, (ii) the present value of the estimated amount payable under the terms of the SERP, and (iii) compensation paid in lieu of compensation that would have been payable to him as a Director.

Environmental Matters:

Review of Perchlorate Toxicity by EPA —

Perchlorate (the “anion”) is not currently included in the list of hazardous substances compiled by the Environmental Protection Agency (“EPA”), but it is on the EPA’s Contaminant Candidate List. The EPA has conducted a risk assessment relating to perchlorate, two drafts of which were subject to formal peer reviews held in 1999 and 2002. Following the 2002 peer review, the EPA perchlorate risk assessment together with other perchlorate related science was reviewed by the National Academy of Sciences (“NAS”). This NAS report was released on January 11, 2005. The recommendations contained in this NAS report indicate that human health is protected in drinking water at a level of 24.5 parts per billion (“ppb”). Certain states have also conducted risk assessments and have set preliminary levels from 1 — 14 ppb. The EPA has established a reference dose for perchlorate of .0007 mg/kg/day which is equal to a Drinking Water Equivalent Level (“DWEL”) of 24.5 ppb. A decision as to whether or not to establish a Maximum Contaminate Level (“MCL”) is pending. The outcome of these federal EPA actions, as well as any similar state regulatory action, will influence the number, if any, of potential sites that may be subject to remediation action.

Perchlorate Remediation Project in Henderson, Nevada —

We commercially manufactured perchlorate chemicals at a facility in Henderson, Nevada (the “Ampac Henderson Site”) from 1958 until the facility was destroyed in May 1988, after which we relocated our production to a new facility in Iron County, Utah. Kerr-McGee Chemical Corp (“KMCC”) also operated a perchlorate production facility in Henderson, Nevada from 1967 to 1998. Between 1956 to 1967, American Potash operated a perchlorate production facility at the same site. For many years prior to 1956, other entities also manufactured perchlorate chemicals at that site. In 1998, Kerr-McGee Chemical LLC became the operating entity and it ceased the production of perchlorate

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at the Kerr McGee Henderson Site. Thereafter, it continued to produce other chemicals at this site until it was recently sold. As a result of a longer production history at Henderson, KMCC and its predecessor operations have manufactured significantly greater amounts of perchlorate over time than we did at the Ampac Henderson Site.

In 1997, the Southern Nevada Water Authority (“SNWA”) detected trace amounts of the perchlorate anion in Lake Mead and the Las Vegas Wash. Lake Mead is a source of drinking water for Southern Nevada and areas of Southern California. Las Vegas Wash flows into Lake Mead from the Las Vegas valley.

In response to this discovery by SNWA, and at the request of the Nevada Division of Environmental Protection (“NDEP”), we engaged in an investigation of groundwater near the Ampac Henderson site and down gradient toward the Las Vegas Wash. That investigation and related characterization which lasted more than six years employed experts in the field of hydrogeology. This investigation concluded that, although there is perchlorate in the groundwater in the vicinity of the Ampac Henderson Site up to 700 ppm, perchlorate from this Site does not materially impact, if at all, water flowing in the Las Vegas Wash toward Lake Mead. It has been well established, however, by data generated by SNWA and NDEP, that perchlorate from the Kerr McGee Henderson Site did materially impact the Las Vegas Wash and Lake Mead. Kerr McGee’s successor, Tronox LLC, operates an ex situ perchlorate groundwater remediation facility at their Henderson site and this facility has had a significant effect on the load of perchlorate entering Lake Mead over the last 5 years. Recent measurements of perchlorate in Lake Mead made by SNWA have been less than 10 ppb.

Notwithstanding these facts, and at the direction of NDEP and EPA, we conducted investigation of remediation technologies for perchlorate in groundwater with the intention of remediating groundwater near the Ampac Henderson Site. The technology that was chosen as most efficient and appropriate is in situ bioremediation (“ISB”). The technology reduces perchlorate in the groundwater by precise addition of an appropriate carbon source to the groundwater itself while it is still in the ground (as opposed to an above ground, more conventional, ex situ process). This induces naturally occurring organisms in the groundwater to reduce the perchlorate among other oxygen containing compounds.

In 2002, we conducted a pilot test in the field of the ISB technology and it was successful. On the basis of the successful test and other evaluations, in fiscal 2005 we submitted a Work Plan to NDEP for the construction of a Leading Edge Remediation Facility (“Athens System”) near the Ampac Henderson Site. The conditional approval of the Work Plan by NDEP in our third quarter of fiscal 2005 allowed us to generate estimated costs for the installation and operation of the Leading Edge and Source Remediation Facilities that will address perchlorate from the Ampac Henderson Site. We commenced construction of the Athens System in July 2005. In June 2006, we began operations of an interim Athens System that is, as of July 2006, reducing perchlorate concentrations in system extracted groundwater in Henderson. The permanent Athens System plant began operation in December 2006. The permanent facility will increase remediation capacity over the temporary facility.

Henderson Site Environmental Remediation Reserve —

During our fiscal 2005 third quarter, we recorded a charge for $22,400 representing our estimate of the probable costs of our remediation efforts at the Henderson Site, including the costs for equipment, operating and maintenance costs, and consultants. Key factors in determining the total estimated cost include an estimate of the speed of groundwater entering the treatment area, which was then used to estimate a project life of 45 years, as well as estimates for capital expenditures and annual operating and maintenance costs. The project consists of two primary phases; the initial construction of the remediation equipment and the operating and maintenance phase. We commenced the construction phase in late fiscal 2005, completed an interim system in June 2006, and completed the permanent facility in December 2006. During our fiscal 2006, we increased our total cost estimate for the construction phase by $3,600 due primarily to changes in the engineering designs, delays in receiving permits and the resulting extension of construction time. These

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estimates are based on information currently available to us and may be subject to material adjustment upward or downward in future periods as new facts or circumstances may indicate.

A summary of our environmental reserve activity for the year ended September 30, 2006 is shown below:

Balance, September 30, 2005	$	20,587
Additions or adjustments		3,600
Expenditures		(6,676	)
Balance, September 30, 2006	$	17,511

DTSC Matters —

The California Department of Toxic Substances Control (DTSC) contended that the AFC Business’ neutralization or stabilization of several liquid stream processes within a closed loop manufacturing system constitutes treatment of a hazardous waste without the required authorizations from DTSC. We disagree. On September 2, 2005, the DTSC Inspector issued an Inspection Report relevant to the DTSC’s June 2004 inspection of the AFC Business’ facility. The Inspection Report concluded that the referenced activities constitute treatment of hazardous waste and directed Aerojet Fine Chemicals to submit an application for a permit modification to treat hazardous waste.

On November 28, 2005, AFC and DTSC entered into a Consent Agreement (“Consent Agreement”) which, effective upon close of the sale of the AFC Business to us, authorizes AFC to continue operations for up to two years while the parties resolve whether the manufacturing processes are exempt from regulation by the DTSC. The Consent Agreement is deemed a full settlement of the DTSC Allegations and any other violations that could have been brought against AFC based upon information known to DTSC on the date of the Consent Agreement.

In September 2006, the Governor of California signed AB 2155, legislation sponsored by AFC, which specifically exempts the manufacturing operations described in the Consent Agreement from DTSC’s hazardous waste permitting requirements. The exemption for these operations will take affect on January 1, 2007.

Other AFC Environmental Matters —

AFC’s facility is located on land leased from Aerojet. The leased land is part of a tract of land owned by Aerojet designated as a “Superfund Site” under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The tract of land had been used by Aerojet and affiliated companies to manufacture and test rockets and related equipment since the 1950s. Although the chemicals identified as contaminants on the leased land were not used by Aerojet Fine Chemicals as part of its operations, CERCLA, among other things, provides for joint and severable liability for environmental liabilities including, for example, the environmental remediation expenses.

As part of the agreement to sell the AFC Business, an Environmental Indemnity Agreement was entered into whereby GenCorp agreed to indemnify us against any and all environmental costs and liabilities arising out of or resulting from any violation of environmental law prior to the effective date of the sale, or any release of hazardous substances by the AFC Business, Aerojet or GenCorp on the AFC premises or Aerojet’s Sacramento site prior to the effective date of the sale.

On November 29, 2005, EPA Region IX provided us with a letter indicating that the EPA does not intend to pursue any clean up or enforcement actions under CERCLA against future lessees of the Aerojet Fine Chemicals property for existing contamination, provided that the lessees do not contribute to or do not exacerbate existing contamination on or under the Aerojet Superfund site.

Other Matters:

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	We are from time to time involved in other claims or lawsuits. We believe that current claims or lawsuits against us, individually and in the aggregate, will not have a material adverse effect on our financial condition, cash flows or results of operations.
12.	SEGMENT INFORMATION
	We report our business in four operating segments: Specialty Chemicals, Fine Chemicals, Aerospace Equipment and Other Businesses. These segments are based upon business units that offer distinct products and services, are operationally managed separately and produce products using different production methods. Segment operating profit includes all sales and expenses directly associated with each segment. Environmental remediation charges, corporate general and administrative costs, which consist primarily of executive, investor relations, accounting, human resources and information technology expenses, and interest are not allocated to segment operating results.
	During fiscal 2006, we revised our method to measure segment operating results to a method management believes is a more meaningful measure of segment performance. Effective January 1, 2006, general corporate expenses are not allocated to our operating segments. Effective April 1, 2006, environmental remediation charges are not charged to our operating segments. Other environmental related costs, such as evaluation and on-going compliance at our various facilities continue to be allocated to segment results. Prior to the effective dates, we had included an allocation of corporate expenses to our operating segments and environmental remediation charges were allocated to our Specialty Chemicals segment. All periods presented have been reclassified to reflect our current method to measure segment operating results.
	Specialty Chemicals: Our Specialty Chemicals segment manufactures and sells: (i) perchlorate chemicals, used principally in solid rocket propellants for the space shuttle and defense programs, (ii) sodium azide, a chemical used in pharmaceutical manufacturing and historically used principally in the inflation of certain automotive airbag systems, and (iii) Halotronâ, clean gas fire extinguishing agents designed to replace halons.
	In June 2006, our board of directors approved and we committed to a plan to sell ESI, based on our determination that ESI’s product lines were no longer a strategic fit with our business strategies. The sale was completed effective September 30, 2006. Revenues and expenses associated with ESI’s operations are presented as discontinued operations for all periods presented. ESI, which manufactures and distributes packaged explosives, was formerly reported within our Specialty Chemicals segment (See Note 14).
	One perchlorates customer accounted for 18%, 50% and 51% of our consolidated revenues for the years ending September 30, 2006, 2005, and 2004, respectively.
	Fine Chemicals: On November 30, 2005, we created a new operating segment, Fine Chemicals, to report the financial performance of AFC (See Note 2). AFC is a manufacturer of active pharmaceutical ingredients and registered intermediates under cGMP guidelines for commercial customers in the pharmaceutical industry, involving high potency compounds, energetic and nucleoside chemistries, and chiral separation.
	We had one Fine Chemicals customer that accounted for 28% of our consolidated revenues for the year ended September 30, 2006.
	Aerospace Equipment: On October 1, 2004, we created a new operating segment, Aerospace Equipment, to report the financial performance of our ISP business (see Note 2). The ISP business manufactures and sells in-space propulsion systems, thrusters (monopropellant or bipropellant) and propellant tanks.
	Other Businesses: Our Other Businesses segment contains our water treatment equipment and real estate activities. Our water treatment equipment business designs, manufactures and markets

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systems for the control of noxious odors, the disinfection of water streams and the treatment of seawater. As of our fiscal year 2005, we had completed all planned sales of our improved land in the Gibson Business Park (near Las Vegas, Nevada) and we do not anticipate significant real estate sales activity in future financial reporting periods.

The following provides financial information about our segment operations for the years ended September 30:

	2006			2005			2004
Revenues:
Specialty Chemicals	$	46,450		$	49,936		$	49,459
Fine Chemicals		74,026			—			—
Aerospace Equipment		17,394			12,429			—
Other Businesses		4,034			5,448			1,999
Total Revenues	$	141,904		$	67,813		$	51,458
Segment Operating Income (Loss):
Specialty Chemicals	$	14,755		$	12,504		$	12,232
Fine Chemicals		7,245			—			—
Aerospace Equipment		802			95			—
Other Businesses		264			3,300			316
Total Segment Operating Income (Loss)		23,066			15,899			12,548
Corporate Expenses		(16,407	)		(13,807	)		(14,472	)
Environmental Remediation Charges		(3,600	)		(22,400	)		—
Interest and Other Income (Expense), Net		(10,362	)		1,398			693
Loss from Continuing Operations before Tax	$	(7,303	)	$	(18,910	)	$	(1,231	)
Depreciation and Amortization:
Specialty Chemicals	$	5,149		$	5,080		$	4,908
Fine Chemicals		14,379			—			—
Aerospace Equipment		93			16			—
Other Businesses		11			20			—
Corporate		549			523			516
Total	$	20,181		$	5,639		$	5,424
Capital Expenditures:
Specialty Chemicals	$	816		$	1,351		$	127
Fine Chemicals		13,486			—			—
Aerospace Equipment		414			236			—
Other Businesses		2			—			—
Corporate		300			99			343
Total	$	15,018		$	1,686		$	470
Assets, at year end:
Specialty Chemicals	$	23,934		$	29,183		$	42,985
Fine Chemicals		158,151			—			—
Aerospace Equipment		9,411			9,865			—
Other Businesses		4			3,850			3,316
Corporate		47,955			72,102			55,275
Total	$	239,455		$	115,000		$	101,576

	Substantially all of our operations are located in the United States. Our operations in the U.K. are not material in terms of both operating results and assets. Export sales, consisting mostly of fine chemical and water treatment equipment sales, represent 19% of our consolidated revenues for the year ended September 30, 2006, with no single country accounting for more than 10% of our consolidated revenues. Export sales for the years ended September 30, 2005 and 2004 were less than 10% of consolidated revenues.
13.	INTEREST AND OTHER INCOME
	Interest and other income consists of the following:

- 28 -

	2006		2005		2004
Interest Income	$	459	$	636	$	623
Real Estate Partnership Income		580		762		—
Other		30		—		70
	$	1,069	$	1,398	$	693

	We owned a 70% interest as general and limited partner in Gibson Business Park Associates 1986-I (the “Partnership”), a real estate development limited partnership. The remaining 30% limited partners include certain current and former members of our Board of Directors. The Partnership, in turn, owned a 33% limited partner interest in 3770 Hughes Parkway Associates Limited Partnership, a Nevada limited partnership (“Hughes Parkway”). Hughes Parkway owns the building in which we lease office space in Las Vegas, Nevada.
	During the year ended September 30, 2005, we received a cash distribution of $762 from the Partnership which is recorded as other income.
	In October 2005, the Partnership sold its interest in Hughes Parkway, which resulted in a net gain and cash distribution to us of $2,395. Concurrent with, and as a condition of, the sale of the Partnership’s interest in Hughes Parkway, we renewed our office space lease through February 2009. We accounted for the transaction as a sale leaseback. Accordingly, we deferred a gain totaling $1,815 representing the present value of future lease payments. We amortize the deferred gain (as a reduction of rental expense), using the straight-line method over the term of the lease. We recognized the remaining gain of $580, which is reported in interest and other income for the year ended September 30, 2006.
14.	DISCONTINUED OPERATIONS
	In June 2006, our board of directors approved and we committed to a plan to sell ESI, based on our determination that ESI’s product lines were no longer a strategic fit with our business strategies. Revenues and expenses associated with ESI’s operations are presented as discontinued operations for all periods presented. ESI was formerly reported within our Specialty Chemicals segment.
	Effective September 30, 2006, we completed the sale of our interest in ESI for $7,510, which, after deducting direct expenses, resulted in a gain on the sale before income taxes of $258. The ESI sale proceeds are reflected as a note receivable as of September 30, 2006 and we collected the amount in full in October 2006.
	Summarized financial information for ESI is as follows:

	2006			2005			2004
Revenues	$	13,285		$	15,534		$	8,031
Discontinued Operations:
Operating loss before tax		(813	)		(1,008	)		(899	)
Benefit for income tax		(258	)		(306	)		(342	)
Net loss from discontinued operations		(555	)		(702	)		(557	)
Gain (Loss) on Sale of Discontinued Operations:
Gain on sale of discontinued operations before tax		258			—			—
Income tax expense		594			—			—
Net loss on sale of discontinued operations		(336	)		—			—
	$	(891	)	$	(702	)	$	(557	)

- 29 -

15.	GUARANTOR SUBSIDIARIES
	On February 6, 2007, American Pacific Corporation, a Delaware Corporation (“Parent”) issued and sold $110,000 aggregate principal amount of 9.0% Senior Notes due February 1, 2015 (the “Senior Notes”). The Senior Notes accrue interest at a rate per annum equal to 9.0%, to be payable semi-annually in arrears on each February 1 and August 1, beginning on August 1, 2007.
	In connection with the issuance of the Senior Notes, the Company’s U.S. subsidiaries (“Guarantor Subsidiaries”) jointly, fully, severally, and unconditionally guaranteed the Senior Notes. The Company’s sole foreign subsidiary (“Non-Guarantor Subsidiary”) is not a guarantor of the Senior Notes. The Parent has no independent assets or operations. The Non-Guarantor Subsidiary was acquired on October 1, 2005, and, accordingly, has no operations or cash flows for the year ended September 30, 2004. The following presents condensed consolidating financial information separately for the Parent, Guarantor Subsidiaries and Non-Guarantor Subsidiary:

Condensed Consolidating Balance Sheet -			Guarantor		Non-Guarantor
September 30, 2006	Parent		Subsidiaries		Subsidiary		Eliminations			Consolidated
Assets:
Cash and Cash Equivalents	$	—	$	6,758	$	114	$	—		$	6,872
Accounts Receivable		—		19,253		1,040		(819	)		19,474
Notes Receivable		—		7,510		—		—			7,510
Inventories		—		39,152		603		—			39,755
Prepaid Expenses and Other Assets		—		1,745		100		—			1,845
Deferred Income Taxes		—		1,887		—		—			1,887
Total Current Assets		—		76,305		1,857		(819	)		77,343
Property, Plant and Equipment, Net		—		119,623		123		—			119,746
Intangible Assets, Net		—		14,237		—		—			14,237
Deferred Income Taxes		—		21,701		—		—			21,701
Other Assets		—		6,428		—		—			6,428
Intercompany Advances		81,389		975		—		(82,364	)		—
Investment in Subsidiaries		97,320		56		—		(97,376	)		—
Total Assets	$	178,709	$	239,325	$	1,980	$	(180,559	)	$	239,455
Liabilitites and Stockholders’ Equity:
Accounts Payable and Other Current Liabilities	$	—	$	26,885	$	949	$	(819	)	$	27,015
Environmental Remediation Reserves		—		1,631		—		—			1,631
Deferred Revenues		—		5,683		—		—			5,683
Intercompany Advances		—		81,389		975		(82,364	)		—
Current Portion of Debt		9,422		171		—		—			9,593
Total Current Liabilities		9,422		115,759		1,924		(83,183	)		43,922
Long-Term Debt		97,403		368		—		—			97,771
Environmental Remediation Reserves		—		15,880		—		—			15,880
Other Long-Term Liabilities		—		9,998		—		—			9,998
Total Liabilities		106,825		142,005		1,924		(83,183	)		167,571
Total Stockholders’ Equity		71,884		97,320		56		(97,376	)		71,884
Total Liabilities and Stockholders’ Equity	$	178,709	$	239,325	$	1,980	$	(180,559	)	$	239,455

- 30 -

Condensed Consolidating Balance Sheet -			Guarantor		Non-Guarantor
September 30, 2005	Parent		Subsidiaries		Subsidiary		Eliminations			Consolidated
Assets:
Cash and Cash Equivalents	$	—	$	37,079	$	134	$	—		$	37,213
Accounts Receivable		—		12,304		984		(716	)		12,572
Inventories		—		13,437		381		—			13,818
Prepaid Expenses and Other Assets		—		1,277		88		—			1,365
Deferred Income Taxes		—		834		—		—			834
Total Current Assets		—		64,931		1,587		(716	)		65,802
Property, Plant and Equipment, Net		—		15,618		28		—			15,646
Intangible Assets, Net		—		9,763		—		—			9,763
Deferred Income Taxes		—		19,312		—		—			19,312
Other Assets		—		4,477		—		—			4,477
Intercompany Advances		—		259		—		(259	)		—
Investment in Subsidiaries		74,669		560		—		(75,229	)		—
Total Assets	$	74,669	$	114,920	$	1,615	$	(76,204	)	$	115,000
Liabilitites and Stockholders’ Equity:
Accounts Payable and Other Current Liabilities	$	—	$	9,960	$	796	$	(716	)	$	10,040
Environmental Remediation Reserves		—		4,967		—		—			4,967
Deferred Revenues		—		792		—		—			792
Intrecompany Advances		—		—		259		(259	)		—
Current Portion of Debt		—		768		—		—			768
Total Current Liabilities		—		16,487		1,055		(975	)		16,567
Long-Term Debt		—		—		—		—			—
Environmental Remediation Reserves		—		15,620		—		—			15,620
Other Long-Term Liabilities		—		8,144		—		—			8,144
Total Liabilities		—		40,251		1,055		(975	)		40,331
Total Stockholders’ Equity		74,669		74,669		560		(75,229	)		74,669
Total Liabilities and Stockholders’ Equity	$	74,669	$	114,920	$	1,615	$	(76,204	)	$	115,000

Condensed Consolidating Statement of Operations -				Guarantor			Non-Guarantor
Year Ended September 30, 2006	Parent			Subsidiaries			Subsidiary			Eliminations			Consolidated
Revenues	$	—		$	140,694		$	1,573		$	(363	)	$	141,904
Cost of Revenues		—			95,935			1,471			(363	)		97,043
Gross Profit		—			44,759			102			—			44,861
Operating Expenses		—			37,572			630			—			38,202
Environmental Remediation Charges		—			3,600			—			—			3,600
Operating Income (Loss)		—			3,587			(528	)		—			3,059
Interest and Other Income		11,409			1,065			4			(11,409	)		1,069
Interest Expense		11,409			11,431			—			(11,409	)		11,431
Loss from Continuing Operations before Income Tax and Equity Account for Subsidiaries		—			(6,779	)		(524	)		—			(7,303	)
Income Tax Benefit		—			(4,259	)		(41	)		—			(4,300	)
Loss from Continuing Operations before Equity Account for Subsidiaries		—			(2,520	)		(483	)		—			(3,003	)
Equity Account for Subsidiaries		(3,003	)		—			—			3,003			—
Net Loss from Continuing Operations	$	(3,003	)	$	(2,520	)	$	(483	)	$	3,003		$	(3,003	)

- 31 -

Condensed Consolidating Statement of Operations -				Guarantor			Non-Guarantor
Year Ended September 30, 2005	Parent			Subsidiaries			Subsidiary			Eliminations			Consolidated
Revenues	$	—		$	65,136		$	2,677		$	—		$	67,813
Cost of Revenues		—			41,094			2,822			—			43,916
Gross Profit		—			24,042			(145	)		—			23,897
Operating Expenses		—			21,582			223			—			21,805
Environmental Remediation Charges		—			22,400			—			—			22,400
Operating Loss		—			(19,940	)		(368	)		—			(20,308	)
Interest and Other Income		—			1,394			4			—			1,398
Interest Expense		—			—			—			—			—
Loss from Continuing Operations before Income Tax and Equity Account for Subsidiaries		—			(18,546	)		(364	)		—			(18,910	)
Income Tax Benefit		—			(8,367	)		—			—			(8,367	)
Loss from Continuing Operations before Equity Account for Subsidiaries		—			(10,179	)		(364	)		—			(10,543	)
Equity Account for Subsidiaries		(10,534	)		—			—			10,543			—
Net Loss from Continuing Operations	$	(10,534	)	$	(10,179	)	$	(364	)	$	10,543		$	(10,543	)
Condensed Consolidating Statement of Operations -				Guarantor			Non-Guarantor
Year Ended September 30, 2004	Parent			Subsidiaries			Subsidiary			Eliminations			Consolidated
Revenues	$	—		$	51,458		$	—		$	—		$	51,458
Cost of Revenues		—			34,402			—			—			34,402
Gross Profit		—			17,056			—			—			17,056
Operating Expenses		—			18,980			—			—			18,980
Operating Loss		—			(1,924	)		—			—			(1,924	)
Interest and Other Income		—			693			—			—			693
Interest Expense		—			—			—			—			—
Loss from Continuing Operations before Income Tax and Equity Account for Subsidiaries		—			(1,231	)		—			—			(1,231	)
Income Tax Benefit		—			(2,160	)		—			—			(2,160	)
Income from Continuing Operations before Equity Account for Subsidiaries		—			929			—			—			929
Equity Account for Subsidiaries		929			—			—			(929	)		—
Net Income from Continuing Operations	$	929		$	929		$	—		$	(929	)	$	929
Condensed Consolidating Statement of Cash Flows -				Guarantor			Non-Guarantor
Year Ended September 30, 2006	Parent			Subsidiaries			Subsidiary			Eliminations			Consolidated
Net cash provided (used) by operating activities	$	—		$	10,114		$	(624	)	$	—		$	9,490
Cash Flows from Investing Activities:														—
Acquisition of businesses		—			(108,011	)		—			—			(108,011	)
Capital expenditures		—			(14,906	)		(112	)		—			(15,018	)
Proceeds from sale of assets		—			2,395			—			—			2,395
Discontinued operations, net		—			(411	)		—			—			(411	)
Net Cash Used in Investing Activities		—			(120,933	)		(112	)		—			(121,045	)
Cash Flows from Financing Activities:
Proceeds from the issuance of long-term debt		85,000			—			—			—			85,000
Payments of long-term debt		(650	)		(28	)		—			—			(678	)
Debt issuance costs		(3,119	)		—			—			—			(3,119	)
Issuance of common stock		158			—			—			—			158
Intercompany advances, net		(81,389	)		80,673			716			—			—
Discontinued operations, net		—			(147	)		—			—			(147	)
Net Cash Provided by Financing Activities		—			80,498			716			—			81,214
Net Change in Cash and Cash Equivalents		—			(30,321	)		(20	)		—			(30,341	)
Cash and Cash Equivalents, Beginning of Year		—			37,079			134			—			37,213
Cash and Cash Equivalents, End of Year	$	—		$	6,758		$	114					$	- $6,872

- 32 -

Condensed Consolidating Statement of Cash Flows -				Guarantor			Non-Guarantor
Year Ended September 30, 2005	Parent			Subsidiaries			Subsidiary			Eliminations		Consolidated
Net cash provided (used) by operating activities	$	—		$	19,245		$	(92	)	$	—	$	19,153
Cash Flows from Investing Activities:													—
Acquisition of businesses		—			(4,505	)		—			—		(4,505	)
Capital expenditures		—			(1,656	)		(30	)		—		(1,686	)
Discontinued operations, net		—			212			—			—		212
Net Cash Used in Investing Activities		—			(5,949	)		(30	)		—		(5,979	)
Cash Flows from Financing Activities:
Issuance of common stock		24			—			—			—		24
Intercompany advances, net		(24	)		(232	)		256			—		—
Discontinued operations, net		—			238			—			—		238
Net Cash Provided by Financing Activities		—			6			256			—		262
Net Change in Cash and Cash Equivalents		—			13,302			134			—		13,436
Cash and Cash Equivalents, Beginning of Year		—			23,777			0			—		23,777
Cash and Cash Equivalents, End of Year	$	—		$	37,079		$	134		$	—	$	37,213
Condensed Consolidating Statement of Cash Flows -				Guarantor			Non-Guarantor
Year Ended September 30, 2004	Parent			Subsidiaries			Subsidiary			Eliminations		Consolidated
Net cash provided by operating activities	$	—		$	1,400		$	—		$	—	$	1,400
Cash Flows from Investing Activities:
Capital expenditures		—			(470	)		—			—		(470	)
Discontinued operations, net		—			(998	)		—			—		(998	)
Net Cash Used in Investing Activities		—			(1,468	)		—			—		(1,468	)
Cash Flows from Financing Activities:
Issuance of common stock		2,291			—			—			—		2,291
Treasury stock acquired		(2,752	)		—			—			—		(2,752	)
Dividends		(3,080	)		—			—			—		(3,080	)
Intercompany advances, net		3,541			(3,541	)		—			—		—
Discontinued operations, net		—			246			—			—		246
Net Cash Used by Financing Activities		—			(3,295	)		—			—		(3,295	)
Net Change in Cash and Cash Equivalents		—			(3,363	)		—			—		(3,363	)
Cash and Cash Equivalents, Beginning of Year		—			27,140			—			—		27,140
Cash and Cash Equivalents, End of Year	$	—		$	23,777		$	—		$	—	$	23,777

- 33 -

EX-99.2

Exhibit 99.2

Item 1: Financial Statements

Index to Condensed Consolidated Financial Statements

	Page
Condensed Consolidated Balance Sheets	2
Condensed Consolidated Statements of Operations	3
Condensed Consolidated Statements of Cash Flows	4
Notes to Condensed Consolidated Financial Statements	5

- 1 -

AMERICAN PACIFIC CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited, Dollars in Thousands, Except per Share Amounts)

	Three Months Ended
	December 31,
	2006		2005
Revenues	$	34,888	$	16,485
Cost of Revenues		21,980		12,139
Gross Profit		12,908		4,346
Operating Expenses		8,513		5,465
Operating Income (Loss)		4,395		(1,119	)
Interest and Other Income		94		875
Interest Expense		3,303		1,069
Income (Loss) from Continuing Operations before Incomes Tax		1,186		(1,313	)
Income Tax Benefit		547		(523	)
Income (Loss) from Continuing Operations		639		(790	)
Loss from Discontinued Operations, Net of Tax		—		(515	)
Net Income (Loss)	$	639	$	(1,305	)
Basic Earnings (Loss) Per Share:
Income (Loss) from Continuing Operations	$	0.09	$	(0.11	)
Loss from Discontinued Operations, Net of Tax		—		(0.07	)
Net Income (Loss)	$	0.09	$	(0.18	)
Diluted Earnings (Loss) Per Share:
Income (Loss) from Continuing Operations	$	0.09	$	(0.11	)
Loss from Discontinued Operations, Net of Tax		—		(0.07	)
Net Income (Loss)	$	0.09	$	(0.18	)
Weighted Average Shares Outstanding:
Basic		7,324,000		7,297,000
Diluted		7,367,000		7,297,000

See accompanying notes to condensed consolidated financial statements

- 2 -

AMERICAN PACIFIC CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited, Dollars in Thousands)

	December 31,			September 30,
	2006			2006
ASSETS
Current Assets:
Cash and Cash Equivalents	$	1,684		$	6,872
Accounts Receivable		17,538			19,474
Notes Receivable		—			7,510
Inventories		53,674			39,755
Prepaid Expenses and Other Assets		2,421			1,845
Deferred Income Taxes		1,887			1,887
Total Current Assets		77,204			77,343
Property, Plant and Equipment, Net		120,027			119,746
Intangible Assets, Net		9,966			14,237
Deferred Income Taxes		21,701			21,701
Other Assets		6,237			6,428
TOTAL ASSETS	$	235,135		$	239,455
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$	16,520		$	11,158
Accrued Liabilities		11,875			11,257
Employee Related Liabilities		2,842			4,600
Environmental Remediation Reserves		740			1,631
Deferred Revenues		3,433			5,683
Current Portion of Debt		3,902			9,593
Total Current Liabilities		39,312			43,922
Long-Term Debt		97,497			97,771
Environmental Remediation Reserves		15,758			15,880
Pension Obligations and Other Long-Term Liabilities		9,974			9,998
Total Liabilities		162,541			167,571
Commitments and Contingencies
Stockholders’ Equity
Preferred Stock — No par value; 3,000,000 authorized; none outstanding		—			—
Common Stock — $.10 par value; 20,000,000 shares authorized, 9,359,041 issued		933			933
Capital in Excess of Par Value		86,773			86,724
Retained Earnings		2,951			2,312
Treasury Stock - 2,034,870 shares		(16,982	)		(16,982	)
Accumulated Other Comprehensive Loss		(1,081	)		(1,103	)
Total Shareholders’ Equity		72,594			71,884
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	235,135		$	239,455

See accompanying notes to condensed consolidated financial statements

- 3 -

AMERICAN PACIFIC CORPORATION
Condensed Consolidated Statements of Cash Flow
(Unaudited, Dollars in Thousands)

	Three Months Ended
	December 31,
	2006			2005
Cash Flows from Operating Activities:
Net Income (Loss)	$	639		$	(1,305	)
Adjustments to Reconcile Net Income (Loss) to Net Cash Used by Operating Activities:
Depreciation and amortization		5,144			2,740
Non-cash interest expense		1,075			374
Share-based compensation		49			135
Gain on sale of assets		—			(630	)
Changes in operating assets and liabilities:
Accounts receivable		1,956			(371	)
Inventories		(13,919	)		(6,695	)
Prepaid expenses		(576	)		(2,161	)
Accounts payable and accrued liabilities		4,821			3,461
Deferred revenues		(2,250	)		(256	)
Environmental remediation reserves		(1,013	)		(2,747	)
Pension obligations, net		257			23
Discontinued operations, net		—			805
Other		(164	)		893
Net Cash Used by Operating Activities		(3,981	)		(5,734	)
Cash Flows from Investing Activities:
Acquisition of businesses		—			(111,471	)
Capital expenditures		(1,430	)		(2,443	)
Proceeds from sale of assets		—			2,395
Discontinued operations, net		7,510			(200	)
Net Cash Provided (Used) by Investing Activities		6,080			(111,719	)
Cash Flows from Financing Activities:
Proceeds from the issuance of long-term debt		—			85,000
Payments of long-term debt		(7,287	)		(162	)
Debt issuance costs		—			(1,677	)
Discontinued operations, net		—			(10	)
Net Cash Provided (Used) by Financing Activities		(7,287	)		83,151
Net Change in Cash and cash Equivalents		(5,188	)		(34,302	)
Cash and Cash Equivalents, Beginning of Period		6,872			37,213
Cash and Cash Equivalents, End of Period	$	1,684		$	2,911
Cash Paid For:
Interest	$	2,206		$	39
Income Taxes		68			428
Non-Cash Transactions:
Capital leases originates	$	321		$	—

See accompanying notes to condensed consolidated financial statements

- 4 -

AMERICAN PACIFIC CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited, Dollars in Thousands, Except per Share Amounts)

1.	INTERIM BASIS OF PRESENTATION AND ACCOUNTING POLICIES
	Interim Basis of Presentation: The accompanying condensed consolidated financial statements of American Pacific Corporation and its subsidiaries (the “Company”, “we”, “us”, or “our”) are unaudited, but in our opinion, include all adjustments, which are of a normal recurring nature, necessary for the fair presentation of financial results for interim periods. These statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended September 30, 2006. The operating results and cash flows for the three-month period ended December 31, 2006 are not necessarily indicative of the results that will be achieved for the full fiscal year or for future periods.
	Accounting Policies: A description of our significant accounting policies is included in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2006.
	Principles of Consolidation: Our consolidated financial statements include the accounts of American Pacific Corporation and our wholly owned subsidiaries. In connection with our acquisition of the fine chemicals business (the “AFC Business”) of GenCorp, Inc. (“GenCorp”), through the purchase of substantially all of the assets of Aerojet Fine Chemicals LLC and the assumption of certain of its liabilities, we began consolidating our newly formed, wholly-owned subsidiary, Ampac Fine Chemicals (“AFC”) on November 30, 2005 (See Note 2). All significant intercompany accounts have been eliminated.
	Discontinued Operations: In June 2006, our board of directors approved and we committed to a plan to sell our 50% interest in the Energetic Systems (“ESI”) joint venture based on our determination that ESI’s product lines were no longer a strategic fit with our business strategies. We consolidated ESI in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46R (“FIN 46R”), “Consolidation of Variable Interest Entities,” which requires companies to consolidate variable interest entities that either: (1) do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) hold a significant variable interest in, or have significant involvement with, an existing variable interest entity. Revenues, expenses and cash flows associated with ESI’s operations are presented as discontinued operations for all periods presented. Effective September 30, 2006, we completed the sale of our interest in ESI. ESI was formerly reported within our Specialty Chemicals operating segment. See Note 12.
	Recently Issued or Adopted Accounting Standards: In July 2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes”, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently evaluating the impact of this standard on our consolidated financial statements.
	In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (“SAB 108”), which documents the SEC staff’s views regarding the process of quantifying financial statement misstatements. Under SAB 108, we must evaluate the materiality of an identified unadjusted error by considering the impact of both the current year error and the cumulative error, if applicable. This also means that both the impact on the current period income

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statement and the period-end balance sheet must be considered. SAB 108 is effective for fiscal years ending after November 15, 2006. Any past adjustments required to be recorded as a result of adopting SAB 108 will be recorded as a cumulative effect adjustment to the opening balance of retained earnings. We do not believe the adoption of SAB 108 will have a material impact on our consolidated financial statements.

In September 2006, FASB issued Statement No. 158 (“SFAS 158”) “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)”, which requires companies to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. This statement becomes effective for us on September 30, 2007. We are currently evaluating the impact the adoption of SFAS 158 will have on our consolidated financial statements.

2.	ACQUISITIONS
	AFC Business Acquisition: In July 2005, we entered into an agreement to acquire, and on November 30, 2005, we completed the acquisition of the AFC Business of GenCorp through the purchase of substantially all of the assets of Aerojet Fine Chemicals, LLC and the assumption of certain of its liabilities. The assets were acquired and liabilities assumed by our newly formed, wholly-owned subsidiary, Ampac Fine Chemicals or AFC. AFC is a manufacturer of active pharmaceutical ingredients and registered intermediates under the U.S. Food and Drug Administration’s (“FDA”) current good manufacturing practices (“cGMP”) guidelines for customers in the pharmaceutical industry. Its facilities in California offer specialized engineering capabilities including high containment for high potency compounds, energetic and nucleoside chemistries, and chiral separation using the first commercial-scale simulated moving bed in the United States.
	The total consideration for the AFC Business acquisition is comprised of the following:

Cash	$	88,500
Fair value of Seller Subordinated Note (Face value $25,500)		19,400
Capital expenditures adjustment		17,431
Working capital adjustment		(1,268	)
Earnout adjustment		5,000
Other direct acquisition costs		4,348
Total purchase price	$	133,411

Subordinated Seller Note – The fair value of the Seller Subordinated Note was determined by discounting the required principal and interest payments at a rate of 15%, which the Company believes is appropriate for instruments with comparable terms.

Capital Expenditures Adjustment – The capital expenditures adjustment represents net reimbursements to GenCorp for their cash capital investments, as defined in the acquisition agreements, during the period July 2005 through the closing date on November 30, 2005.

Working Capital Adjustment – The working capital adjustment represents a net adjustment to the purchase price based on actual working capital as of the closing date compared to a target working capital amount specified in the acquisition agreements.

Earnout and EBITDAP Adjustments – The acquisition agreements included a reduction of the purchase price if AFC did not achieve a specified level of earnings before interest, taxes, depreciation, amortization, and pension expense (“EBITDAP”) for the three months ended December 31, 2005, equal to four times the difference between the targeted EBITDAP and the actual EBITDAP achieved, not to exceed $1,000. This target was not met, and accordingly, we received $1,000 from GenCorp. In addition to the amounts paid at closing, the purchase price was subject to an additional contingent cash payment of up to $5,000 based on targeted financial performance of AFC during the year ending September 30, 2006. If the full Earnout Adjustment became payable to GenCorp, the EBITDAP Adjustment also became refundable to GenCorp.

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During the year ended September 30, 2006, the AFC financial performance target was exceeded. Accordingly, we recorded a $6,000 payable to GenCorp as of September 30, 2006 and December 31, 2006 (classified as accrued liabilities) comprised of the $5,000 Earnout Payment and the $1,000 refund of the EBITDAP Adjustment. We paid GenCorp $6,000 in February 2007.

Direct Acquisition Costs – Total direct acquisition costs, consisting primarily of legal and due diligence fees, were $4,348.

In connection with the AFC Business acquisition, we entered into Credit Facilities and a Seller Subordinated Note, each discussed in Note 7. The total purchase price was funded with net proceeds from the Credit Facilities of $81,881, the Seller Subordinated Note of $25,500 and existing cash.

This acquisition was accounted for using the purchase method of accounting, under which the total purchase price was allocated to the fair values of the assets acquired and liabilities assumed. We engaged outside consultants to assist in the valuation of property, plant and equipment and intangible assets. As of September 30, 2006, the allocation of the purchase price and the related determination of the useful lives of property, plant and equipment were preliminary and subject to change based on the then pending final valuation report. As a result of the final valuation report, during the first quarter of fiscal 2007, we recorded a reclassification of assigned purchase price from intangible assets to property, plant and equipment, and finalized our estimates of the related remaining useful lives. The final allocation of the purchase price is comprised of the following:

Historical book value of Aerojet Fine Chemicals as of November 30, 2005	$	93,181
Less liabilities not acquired
Payable to GenCorp		24,916
Cash overdraft		3,761
Adjusted historical book value of Aerojet Fine Chemicals as of November 30, 2005		121,858
Estimated fair value adjustments relating to:
Inventories		(84	)
Prepaid expenses		(29	)
Property, plant and equipment		2,633
Customer relationships, average life of 5.5 years		7,957
Backlog, average life of 1.5 years		2,287
Accrued liabilities		651
Pension assets / liabilities		(1,823	)
Other		(39	)
	$	133,411

Intangible assets, consisting of customer relationships and existing customer backlog, have definite lives and will be amortized over their estimated useful lives using the straight-line method.

3.

SHARE-BASED COMPENSATION

On October 1, 2005, we adopted SFAS No. 123R (“SFAS No. 123R”), “Share-Based Payment”, which requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. We have elected to use the Modified Prospective Transition method such that SFAS No. 123R applies to the unvested portion of previously issued awards, new awards and to awards modified, repurchased or canceled after the effective date. Accordingly, commencing October 1, 2005, we recognize share-based compensation for all current award grants and for the unvested portion of previous award grants based on grant date fair values. Prior to fiscal 2006, we accounted for share-based awards under the Accounting Principles Board Opinion No. 25 intrinsic value method, under which no compensation expense was recognized because all historical options granted were at an exercise price equal to the market value of our stock on the grant date. Prior period financial statements have not been adjusted to reflect fair value share-based compensation expense under SFAS No. 123R.

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Our share-based payment arrangements are designed to attract and retain employees and directors. The amount, frequency, and terms of share-based awards may vary based on competitive practices, our operating results, and government regulations. New shares are issued upon option exercise or restricted share grants. We do not settle equity instruments in cash. We maintain two share based plans, each as discussed below.

The American Pacific Corporation 2001 Stock Option Plan, as amended (the “2001 Plan”), permits the granting of incentive stock options meeting the requirements of Section 422 of the Internal Revenue Code and nonqualified options that do not meet the requirements of Section 422 to employees, officers, directors and consultants. Options granted under the 2001 Plan generally vest 50% at the grant date and 50% on the one-year anniversary of the grant date, and expire in ten years. As of December 31, 2006, there were 20,000 shares available for grant under the 2001 Plan. This plan was approved by our shareholders.

The American Pacific Corporation 2002 Directors Stock Option Plan (the “2002 Directors Plan”) compensates outside Directors with annual grants of stock options or upon other discretionary events. Options are granted to each eligible director at a price equal to the fair market value of our common stock on the date of the grant. Options granted under the 2002 Directors Plan generally vest 50% at the grant date and 50% on the one-year anniversary of the grant date, and expire in ten years. As of December 30, 2006, there were 25,000 shares available for grant under the 2002 Directors Plan. This plan was approved by our shareholders.

A summary of our outstanding and vested stock option activity for the three months ended December 31, 2006 is as follows:

	Total Outstanding				Non Vested
			Weighted					Weighted
			Average					Average
			Exercise					Fair
			Price					Value
	Shares		Per Share		Shares			Per Share
Balance, September 30, 2006		515,500	$	6.95		18,750		$	1.95
Granted		19,000		7.64		19,000			3.63
Vested		—		—		(28,250	)		2.51
Exercised		—		—		—			—
Expired / Cancelled		—		—		—			—
Balance, December 31, 2006		534,500		6.97		9,500			3.63

A summary of our exercisable stock options as of December 31, 2006 is as follows:

Number of vested stock options		525,000
Weighted-average exercise price per share	$	6.96
Aggregate intrinsic value	$	651
Weighted-average remaining contractual term in years		7.4

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We determine the fair value of share-based awards at their grant date, using a Black-Scholes option-pricing model applying the assumptions in the following table. Actual compensation, if any, ultimately realized by optionees may differ significantly from the amount estimated using an option valuation model.

	Three Months Ended
	December 31,
	2006			2005
Weighted-average grant date fair value per share of options granted Significant fair value assuptions:	$	3.68		$	2.00
Expected term in years		5.25			4.75
Expected volatility		47.0	%		50.0	%
Expected dividends		0.0	%		0.0	%
Risk-free interest rates		4.7	%		4.4	%
Total intrinsic value of options exercised	$	—		$	—
Aggregate cash received for option exercises	$	—		$	—
Total compensation cost (included in operating expenses)	$	49		$	134
Tax benefit recognized		18			53
Net compensation cost	$	31		$	81
As of period end date:
Total compensation cost for non-vested awards not yet recognized	$	28		$	290
Weighted-average years to be recognized		0.8			0.7

4.	SELECTED BALANCE SHEET DATA
	Inventories: Inventories consist of the following:

	December 31,			September 30,
	2006			2006
Finished goods	$	5,440		$	7,170
Work-in-process		32,005			20,196
Raw materials and supplies		16,509			12,664
Allowance for obsolete inventory		(280	)		(275	)
Total	$	53,674		$	39,755

Intangible Assets: We account for our intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” Intangible assets consist of the following:

	December 31,			September 30,
	2006			2006
Perchlorate customer list	$	38,697		$	38,697
Less accumulated amortization		(34,255	)		(33,280	)
		4,442			5,417
Customer relationships and backlog		10,244			13,230
Less accumulated amortization		(5,066	)		(4,756	)
		5,178			8,474
Pension-related intangible		346			346
Total	$	9,966		$	14,237

The perchlorate customer list is an asset of our Specialty Chemicals segment and is subject to amortization. Amortization expense was $975 for both the three months ended December 31, 2006 and 2005.

The pension-related intangible is an actuarially calculated amount related to unrecognized prior service cost for our defined benefit pension plan and supplemental executive retirement plan.

In connection with our acquisition of the AFC Business, we acquired intangible assets with fair values of $7,957 for customer relationships and $2,287 for existing customer backlog. These assets have

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definite lives and are assigned to our Fine Chemicals segment. Amortization expense for the three months ended December 31, 2006 and 2005 was $310 and $476, respectively.

5.	COMPREHENSIVE INCOME (LOSS)
	Comprehensive income (loss) consists of the following:

	Three Months Ended
	December 31,
	2006		2005
Net Income (Loss)	$	639	$	(1,305	)
Other Comprehensive Income (Loss) -
Foreign currency translation adjustment		22		(46	)
Comprehensive Income (Loss)	$	661	$	(1,351	)

6.	EARNINGS (LOSS) PER SHARE
	Shares used to compute earnings (loss) per share from continuing operations are as follows:

	Three Months Ended
	December 31,
	2006		2005
Income (Loss) from Continuing Operations	$	639	$	(790	)
Basic:
Weighted average shares		7,324,000		7,297,000
Diluted:
Weighted average shares, basic		7,324,000		7,297,000
Dilutive effect of stock options		43,000		—
Weighted average shares, diluted		7,367,000		7,297,000
Basic loss per share from continuing operations	$	0.09	$	(0.11	)
Diluted loss per share from continuing operations	$	0.09	$	(0.11	)

	As of December 31, 2006 and 2005, we had 226,000 and 561,000 antidilutive options outstanding. The stock options are antidilutive because we are reporting a loss from continuing operations or the exercise price of certain options exceeds the average fair market value of our stock for the period. These options could be dilutive in future periods if our operations are profitable or our stock price increases.
7.	DEBT
	Our outstanding debt balances consist of the following:

	December 31,			September 30,
	2006			2006
Credit Facilities:
First Lien Term Loan, 9.4%, due through 2010	$	57,120		$	64,350
First Lien Revolving Credit		—			—
Second Lien Term Loan plus accrued PIK Interest of $221 and $170, 14.4%, due 2011		20,221			20,170
Subordinated Seller Note plus accrued PIK Interest of $2,965 and $2,226, 10.4%,
Net of Discount of $5,211 and $5,424, due 2012		23,254			22,304
Capital Leases		804			540
Total Debt		101,399			107,364
Less Current Portion		(3,902	)		(9,593	)
Total Long-term Debt	$	97,497		$	97,771

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Credit Facilities: In connection with our acquisition of the AFC Business, discussed in Note 2, on November 30, 2005, we entered into a $75,000 first lien credit agreement (the “First Lien Credit Facility”) with Wachovia Bank, National Association and other lenders. We also entered into a $20,000 second lien credit agreement (the “Second Lien Credit Facility,” and together with the First Lien Credit Facility, the “Credit Facilities”) with Wachovia Bank, National Association, and certain other lenders. The Credit Facilities are collateralized by substantially all of our assets and the assets of our domestic subsidiaries. Concurrent with the issuance of our senior notes in February 2007, we amended our First Lien Credit Facility and repaid and terminated our Second Lien Credit Facility.

Seller Subordinated Note: In connection with our acquisition of the AFC Business, discussed in Note 2, we issued an unsecured subordinated seller note in the principal amount of $25,500 to Aerojet-General Corporation, a subsidiary of GenCorp. The note accrued payment-in-kind interest (“PIK Interest”) at a rate equal to the three–month U.S. dollar LIBOR as from time to time in effect plus a margin equal to the weighted average of the interest rate margin for the loans outstanding under the Credit Facilities, including certain changes in interest rates due to subsequent amendments or refinancing of the Credit Facilities. The note was subordinated to the senior debt under or related to the Credit Facilities and certain other indebtedness, subject to certain terms and conditions.

In connection with our February 2007 refinancing activities, we negotiated an early retirement of the Seller Subordinated Note at a discount of approximately $5,000 from the face amount of the note. On February 6, 2007, we paid GenCorp $23,735 representing full settlement of the Seller Subordinated Note and accrued interest.

Senior Notes: On February 6, 2007, we issued and sold $110,000 aggregate principal amount of 9.0% Senior Notes due February 1, 2015 (the “Senior Notes”). The Senior Notes accrue interest at a rate per annum equal to 9.0%, to be payable semi-annually in arrears on each February 1 and August 1, beginning on August 1, 2007. The Senior Notes are guaranteed on a senior unsecured basis by all of our existing and future material U.S. subsidiaries. The Senior Notes are:

• ranked equally in right of payment with all of our existing and future senior indebtedness;

• ranked senior in right of payment to all of our existing and future senior subordinated and subordinated indebtedness;

• effectively junior to our existing and future secured debt to the extent of the value of the assets securing such debt; and

• structurally subordinated to all of the existing and future liabilities (including trade payables) of each of our subsidiaries that do not guarantee the Senior Notes.

The Senior Notes may be redeemed, in whole or in part, under the following circumstances:

• at any time prior to February 1, 2011 at a price equal to 100% of the purchase amount of the Senior Notes plus a “make-whole” premium as defined in the related indenture;

• at any time on or after February 1, 2011 at redemption prices beginning at 104.5% and reducing to 100% by February 1, 2013; and

• until February 1, 2010, up to 35% of the principal amount of the Senior Notes with the proceeds of certain sales of its equity securities.

In addition, if we experience certain changes of control, we must offer to purchase the Notes at 101% of their aggregate principal amount, plus accrued interest.

The Senior Notes were issued pursuant to an Indenture (the “Indenture”) that contains certain covenants limiting, subject to exceptions, carve-outs and qualifications, our ability to:

• incur additional debt;

• pay dividends or make other restricted payments;

• create liens on assets to secure debt;

• incur dividend or other payment restrictions with regard to restricted subsidiaries;

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• transfer or sell assets;

• enter into transactions with affiliates;

• enter into sale and lease back transactions;

• create an unrestricted subsidiary;

• enter into certain business activities; or

• effect a consolidation, merger or sale of all or substantially all of our assets.

The Indenture also contains certain customary events of default.

In connection with the closing of the sale of the Senior Notes, we entered into a registration rights agreement and agreed to use our reasonable best efforts to:

• file a registration statement with respect to an offer to exchange the Senior Notes for notes that have substantially identical terms as the Senior Notes and are registered under the Securities Act of 1933, as amended (the “Securities Act”);

• cause the registration statement to become effective within 210 days after the closing; and

• consummate the exchange offer within 240 days after the closing.

If we cannot effect an exchange offer within the time periods listed above, we have agreed to file a shelf registration statement for the resale of the Senior Notes. If we do not comply with certain of our obligations under the registration rights agreement (a “Registration Default”), the annual interest rate on the Senior Notes will increase by 0.25%. The annual interest rate on the Senior Notes will increase by an additional 0.25% for any subsequent 90 day period during which the Registration Default continues, up to a maximum additional interest rate of 1.00% per year. If we correct the Registration Default, the interest rate on the Senior Notes will revert immediately to the original rate.

Revolving Credit Facility: On February 6, 2007, we entered into an Amended and Restated Credit Agreement which provides a secured revolving credit facility in an aggregate principal amount of up to $20.0 million (the “Revolving Credit Facility”) with an initial maturity in 5 years. We may prepay and terminate the Revolving Credit Facility at any time. The annual interest rates applicable to loans under the Revolving Credit Facility will be at our option, the Alternate Base Rate or LIBOR Rate (each as defined in the Revolving Credit Facility) plus, in each case, an applicable margin. The applicable margin will be tied to our total leverage ratio (as defined in the Revolving Credit Facility). In addition, we will pay commitment fees, other fees related to the issuance and maintenance of the letters of credit, and certain agency fees.

The Revolving Credit Facility is guaranteed by and secured by substantially all of the assets of our current and future domestic subsidiaries, subject to certain exceptions as set forth in the Revolving Credit Facility. The Revolving Credit Facility contains certain negative covenants restricting and limiting our ability to, among other things:

• incur debt, incur contingent obligations and issue certain types of preferred stock;

• create liens;

• pay dividends, distributions or make other specified restricted payments;

• make certain investments and acquisitions;

• enter into certain transactions with affiliates;

• enter into sale and leaseback transactions; and

• merge or consolidate with any other entity or sell, assign, transfer, lease, convey or otherwise dispose of assets.

Financial covenants under the Revolving Credit Facility include quarterly requirements for total leverage ratio of less than or equal to 5.25 to 1.00, and interest coverage ratio of at least 2.50 to 1.00. The Revolving Credit Facility also contains usual and customary events of default (subject to certain threshold amounts and grace periods). If an event of default occurs and is continuing, we may be required to repay the obligations under the Revolving Credit Facility prior to its stated maturity and the

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related commitments may be terminated. We were in compliance with the financial covenants of our Revolving Credit Facility as of the inception date, February 6, 2007.

Letters of Credit: As of December 31, 2006, we had $2,332 in outstanding standby letters of credit which mature through May 2012. These letters of credit principally secure performance of certain environmental protection equipment sold by us and payment of fees associated with the delivery of natural gas and power.

Interest Rate Swap Agreements: In May 2006, we entered into two interest rate swap agreements, expiring on June 30, 2008, for the purpose of hedging a portion of our exposure to changes in variable rate interest on our Credit Facilities. Under the terms of the swap agreements, which have an aggregate notional amount of $41,769 at December 31, 2006, we pay fixed rate interest and receive variable rate interest based on a specific spread over three-month LIBOR. The differential to be paid or received is recorded as an adjustment to interest expense. The swap agreements do not qualify for hedge accounting treatment. We record an asset or liability for the fair value of the swap agreements, with the effect of marking these contracts to fair value being recorded as an adjustment to interest expense. The aggregate fair values of the swap agreements at December 31, 2006 and September 30, 2006, which are recorded as other long-term liabilities, were $215 and $314, respectively.

8.	COMMITMENTS AND CONTINGENCIES
	Environmental Matters:
	Review of Perchlorate Toxicity by the EPA –
	Perchlorate (the “anion”) is not currently included in the list of hazardous substances compiled by the U.S. Environmental Protection Agency (“EPA”), but it is on the EPA’s Contaminant Candidate List. The EPA has conducted a risk assessment relating to perchlorate, two drafts of which were subject to formal peer reviews held in 1999 and 2002. Following the 2002 peer review, the EPA perchlorate risk assessment together with other perchlorate related science was reviewed by the National Academy of Sciences (“NAS”). This NAS report was released on January 11, 2005. The recommendations contained in this NAS report indicate that human health is protected in drinking water at a level of 24.5 parts per billion (“ppb”). Certain states have also conducted risk assessments and have set preliminary levels from 1 – 14 ppb. The EPA has established a reference dose for perchlorate of .0007 mg/kg/day which is equal to a Drinking Water Equivalent Level (“DWEL”) of 24.5 ppb. A decision as to whether or not to establish a Maximum Contaminate Level (“MCL”) is pending. The outcome of these federal EPA actions, as well as any similar state regulatory action, will influence the number, if any, of potential sites that may be subject to remediation action.
	Perchlorate Remediation Project in Henderson, Nevada –
	We commercially manufactured perchlorate chemicals at a facility in Henderson, Nevada (the “Ampac Henderson Site”) from 1958 until the facility was destroyed in May 1988, after which we relocated our production to a new facility in Iron County, Utah. Kerr-McGee Chemical Corp (“KMCC”) also operated a perchlorate production facility in Henderson, Nevada from 1967 to 1998. Between 1956 to 1967, American Potash operated a perchlorate production facility at the same site. For many years prior to 1956, other entities also manufactured perchlorate chemicals at that site. In 1998, Kerr-McGee Chemical LLC became the operating entity and it ceased the production of perchlorate at the Kerr McGee Henderson Site. Thereafter, it continued to produce other chemicals at this site until it was recently sold. As a result of a longer production history at Henderson, KMCC and its predecessor operations have manufactured significantly greater amounts of perchlorate over time than we did at the Ampac Henderson Site.
	In 1997, the Southern Nevada Water Authority (“SNWA”) detected trace amounts of the perchlorate anion in Lake Mead and the Las Vegas Wash. Lake Mead is a source of drinking water for Southern

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Nevada and areas of Southern California. The Las Vegas Wash flows into Lake Mead from the Las Vegas valley.

In response to this discovery by SNWA, and at the request of the Nevada Division of Environmental Protection (“NDEP”), we engaged in an investigation of groundwater near the Ampac Henderson site and down gradient toward the Las Vegas Wash. That investigation and related characterization which lasted more than six years employed experts in the field of hydrogeology. This investigation concluded that, although there is perchlorate in the groundwater in the vicinity of the Ampac Henderson Site up to 700 ppm, perchlorate from this Site does not materially impact, if at all, water flowing in the Las Vegas Wash toward Lake Mead. It has been well established, however, by data generated by SNWA and NDEP, that perchlorate from the Kerr McGee Henderson Site did materially impact the Las Vegas Wash and Lake Mead. Kerr McGee’s successor, Tronox LLC, operates an ex situ perchlorate groundwater remediation facility at their Henderson site and this facility has had a significant effect on the load of perchlorate entering Lake Mead over the last 5 years. Recent measurements of perchlorate in Lake Mead made by SNWA have been less than 10 ppb.

Notwithstanding these facts, and at the direction of NDEP and the EPA, we conducted an investigation of remediation technologies for perchlorate in groundwater with the intention of remediating groundwater near the Ampac Henderson Site. The technology that was chosen as most efficient and appropriate is in situ bioremediation (“ISB”). The technology reduces perchlorate in the groundwater by precise addition of an appropriate carbon source to the groundwater itself while it is still in the ground (as opposed to an above ground, more conventional, ex situ process). This induces naturally occurring organisms in the groundwater to reduce the perchlorate among other oxygen containing compounds.

In 2002, we conducted a pilot test in the field of the ISB technology and it was successful. On the basis of the successful test and other evaluations, in fiscal 2005 we submitted a work plan to NDEP for the construction of a remediation facility near the Ampac Henderson Site. The conditional approval of the work plan by NDEP in our third quarter of fiscal 2005 allowed us to generate estimated costs for the installation and operation of the remediation facility that will address perchlorate from the Ampac Henderson Site. We commenced construction July 2005. In December 2006, we began operations, reducing perchlorate concentrations in system extracted groundwater in Henderson.

Henderson Site Environmental Remediation Reserve –

During our fiscal 2005 third quarter, we recorded a charge for $22,400 representing our estimate of the probable costs of our remediation efforts at the Henderson Site, including the costs for equipment, operating and maintenance costs, and consultants. Key factors in determining the total estimated cost include an estimate of the speed of groundwater entering the treatment area, which was then used to estimate a project life of 45 years, as well as estimates for capital expenditures and annual operating and maintenance costs. The project consists of two primary phases; the initial construction of the remediation equipment and the operating and maintenance phase. During our fiscal 2006, we increased our total cost estimate for the construction phase by $3,600 due primarily to changes in the engineering designs, delays in receiving permits and the resulting extension of construction time. We commenced the construction phase in late fiscal 2005, completed an interim system in June 2006, and completed the permanent facility in December 2006. These estimates are based on information currently available to us and may be subject to material adjustment upward or downward in future periods as new facts or circumstances may indicate.

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A summary of our environmental reserve activity for the three months ended December 31, 2006 is shown below:

Balance, September 30, 2006	$	17,511
Additions or adjustments		—
Expenditures		(1,013	)
Balance, December 31, 2006	$	16,498

AFC Environmental Matters –

AFC’s facility is located on land leased from Aerojet. The leased land is part of a tract of land owned by Aerojet designated as a “Superfund Site” under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The tract of land had been used by Aerojet and affiliated companies to manufacture and test rockets and related equipment since the 1950s. Although the chemicals identified as contaminants on the leased land were not used by Aerojet Fine Chemicals as part of its operations, CERCLA, among other things, provides for joint and severable liability for environmental liabilities including, for example, the environmental remediation expenses.

As part of the agreement to sell the AFC Business, an Environmental Indemnity Agreement was entered into whereby GenCorp agreed to indemnify us against any and all environmental costs and liabilities arising out of or resulting from any violation of environmental law prior to the effective date of the sale, or any release of hazardous substances by the AFC Business, Aerojet or GenCorp on the AFC premises or Aerojet’s Sacramento site prior to the effective date of the sale.

On November 29, 2005, EPA Region IX provided us with a letter indicating that the EPA does not intend to pursue any clean up or enforcement actions under CERCLA against future lessees of the Aerojet Fine Chemicals property for existing contamination, provided that the lessees do not contribute to or do not exacerbate existing contamination on or under the Aerojet Superfund site.

Employment Matters: Effective March 25, 2006, the employment of Dr. Seth Van Voorhees, as our Chief Financial Officer, Vice President and Treasurer, terminated. Dr. Van Voorhees was employed by us pursuant to an employment agreement dated December 1, 2005. On December 6, 2006, we reached a settlement with Dr. Van Voorhees under which we paid Dr. Van Voorhees $600 and both parties entered into a standard mutual release.

Other Matters: We are from time to time involved in other claims or lawsuits. We believe that current claims or lawsuits against us, individually and in the aggregate, will not have a material adverse effect on our financial condition, cash flows or results of operations.

9.	SEGMENT INFORMATION
	We report our business in four operating segments: Specialty Chemicals, Fine Chemicals, Aerospace Equipment and Other Businesses. These segments are based upon business units that offer distinct products and services, are operationally managed separately and produce products using different production methods. Segment operating profit includes all sales and expenses directly associated with each segment. Environmental remediation charges, corporate general and administrative costs, which consist primarily of executive, investor relations, accounting, human resources and information technology expenses, and interest are not allocated to segment operating results.
	Specialty Chemicals: Our Specialty Chemicals segment manufactures and sells: (i) perchlorate chemicals, used principally in solid rocket propellants for the space shuttle and defense programs, (ii) sodium azide, a chemical used in pharmaceutical manufacturing and historically used principally in

- 15 -

the inflation of certain automotive airbag systems, and (iii) Halotronâ, clean gas fire extinguishing agents designed to replace halons.

One perchlorates customer accounted for 16% of our consolidated revenues for the three months ended December 31, 2006. No single perchlorate customer exceeded 10% of our consolidated revenues for the three months ended December 31, 2005.

Fine Chemicals: On November 30, 2005, we created a new operating segment, Fine Chemicals, to report the financial performance of AFC (See Note 2). AFC is a manufacturer of active pharmaceutical ingredients and registered intermediates under cGMP guidelines for commercial customers in the pharmaceutical industry, involving high potency compounds, energetic and nucleoside chemistries, and chiral separation.

For the three months ended December 31, 2006, three Fine Chemicals customers accounted for 20%, 14%, and 10% of our consolidated revenues. For the three months ended December 31, 2005, one Fine Chemicals customer accounted for 20% of our consolidated revenues.

Aerospace Equipment: The Aerospace Equipment, or ISP business, manufactures and sells in-space propulsion systems, thrusters (monopropellant or bipropellant) and propellant tanks.

Other Businesses: Our Other Businesses segment contains our water treatment equipment and real estate activities. Our water treatment equipment business designs, manufactures and markets systems for the control of noxious odors, the disinfection of water streams and the treatment of seawater.

The following provides financial information about our segment operations:

	Three Months Ended
	December 31,
	2006			2005
Revenues:
Specialty Chemicals	$	11,790		$	4,705
Fine Chemicals		17,591			5,172
Aerospace Equipment		3,976			4,645
Other Businesses		1,531			1,963
Total Revenues	$	34,888		$	16,485
Segment Operating Income (Loss):
Specialty Chemicals	$	3,493		$	420
Fine Chemicals		2,919			951
Aerospace Equipment		186			261
Other Businesses		593			517
Total Segment Operating Income		7,191			2,149
Corporate Expenses		(2,796	)		(3,268	)
Interest and Other Income (Expense), Net		(3,209	)		(194	)
Loss from Continuing Operations before Tax	$	1,186		$	(1,313	)
Depreciation and Amortization:
Specialty Chemicals	$	1,282		$	1,279
Fine Chemicals		3,697			1,300
Aerospace Equipment		32			17
Other Businesses		3			3
Corporate		130			141
Total Depreciation and Amortization	$	5,144		$	2,740

- 16 -

10.	INTEREST AND OTHER INCOME
	Interest and other income consist of the following:

	Three Months Ended
	December 31,
	2006		2005
Interest income	$	94	$	246
Gain on sale of Hughes Parkway		—		580
Other		—		49
	$	94	$	875

	We owned a 70% interest as general and limited partner in Gibson Business Park Associates 1986-1 (the “Partnership”), a real estate development limited partnership. The remaining 30% limited partners included certain current and former members of our board of directors. The Partnership, in turn, owned a 33% limited partnership interest in 3770 Hughes Parkway Associates Limited Partnership, a Nevada limited partnership (“Hughes Parkway”). Hughes Parkway owns the building in which we lease office space in Las Vegas, Nevada.
	In October 2005, the Partnership sold its interest in Hughes Parkway, which resulted in a net gain and cash distribution to us of $2,395. Concurrent with, and as a condition of, the sale of the Partnership’s interest in Hughes Parkway, we renewed our office space lease through February 2009. We accounted for the transaction as a sale leaseback. Accordingly, we deferred gain totaling $1,815 representing the present value of future lease payments. We amortize the deferred gain (as a reduction of rental expense), using the straight-line method over the term of the lease. We recognized the remaining gain of $580, which is reported as interest and other income.
11.	DEFINED BENEFIT PLANS
	We maintain three defined benefit pension plans which cover substantially all of our U.S. employees, excluding employees of our Aerospace Equipment Segment: the American Pacific Corporation Defined Benefit Pension Plan (“Ampac Plan”), the Ampac Fine Chemical LLC Pension Plan for Salaried Employees (“AFC Salaried Plan”), and the Ampac Fine Chemical LLC Pension Plan for Bargaining Unit Employees (“AFC Bargaining Plan”). Collectively, these three plans are referred to as the “Pension Plans”. The AFC Salaried Plan and the AFC Bargaining Plan were established in connection with our acquisition of the AFC business and include the assumed liabilities for pension benefits to existing employees at the acquisition date. In addition, we have a supplemental executive retirement plan (“SERP”) that includes our former and current Chief Executive Officer.
	Net periodic pension cost related to the Pension Plans consists of the following:

	Three Months Ended
	December 31,
	2006			2005
Pension Plans:
Service Cost	$	391		$	227
Interest Cost		425			349
Expected Return on Plan Assets		(376	)		(288	)
Recognized Actuarial Losses		123			12
Amortization of Prior Service Costs		12			98
Net Periodic Pension Cost	$	575		$	398
SERP:
Service Cost	$	—		$	—
Interest Cost		35			37
Expected Return on Plan Assets		—			—
Recognized Actuarial Losses		6			11
Amortization of Prior Service Costs		11			7
Net Periodic Pension Cost	$	52		$	55

- 17 -

	For the three months ended December 31, 2006, we contributed $479 to the Pension Plan to fund benefit payments and anticipate making approximately $2,226 in additional contributions through September 30, 2007. For the three months ended December 31, 2006, we contributed $32 to the SERP to fund benefit payments and anticipate making approximately $95 in additional contributions through September 30, 2007.
12.	DISCONTINUED OPERATIONS
	In June 2006, our board of directors approved and we committed to a plan to sell our interest in ESI, based on our determination that ESI’s product lines were no longer a strategic fit with our business strategies. Revenues and expenses associated with ESI’s operations are presented as discontinued operations for all periods presented. ESI was formerly reported within our Specialty Chemicals segment.
	Effective September 30, 2006, we completed the sale of our interest in ESI for $7,510, which, after deducting direct expenses, resulted in a gain on the sale before income taxes of $258. The ESI sale proceeds are reflected as a note receivable as of September 30, 2006 and we collected the amount in full in October 2006.
	Summarized financial information for ESI is as follows for the three months ended December 31, 2005:

Revenues	$	2,632
Discontinued Operations:
Operating loss before tax		(844	)
Benefit for income tax		(329	)
Net loss from discontinued operations	$	(515	)

13.

GUARANTOR SUBSIDIARIES

As discussed in Note 7, on February 6, 2007, American Pacific Corporation, a Delaware Corporation (“Parent”) issued and sold $110,000 aggregate principal amount of Senior Notes. In connection with the issuance of the Senior Notes, the Company’s U.S. subsidiaries (“Guarantor Subsidiaries”) jointly, fully, severally, and unconditionally guaranteed the Senior Notes. The Company’s sole foreign subsidiary (“Non-Guarantor Subsidiary”) is not a guarantor of the Senior Notes. The Parent has no independent assets or operations. The following presents condensed consolidating financial information separately for the Parent, Guarantor Subsidiaries and Non-Guarantor Subsidiary:

- 18 -

Condensed Consolidating Balance Sheet -			Guarantor			Non-Guarantor
December 31, 2006	Parent		Subsidiaries			Subsidiary			Eliminations			Consolidated
Assets:
Cash and Cash Equivalents	$	—	$	1,590		$	94		$	—		$	1,684
Accounts Receivable		—		17,628			1,123			(1,213	)		17,538
Inventories		—		52,878			796			—			53,674
Prepaid Expenses and Other Assets		—		2,355			66			—			2,421
Deferred Income Taxes		—		1,887			—			—			1,887
Total Current Assets		—		76,338			2,079			(1,213	)		77,204
Property, Plant and Equipment, Net		—		119,905			122			—			120,027
Intangible Assets, Net		—		9,966			—			—			9,966
Deferred Income Taxes		—		21,701			—			—			21,701
Other Assets		—		6,237			—			—			6,237
Intercompany Advances		74,159		1,551			—			(75,710	)		—
Investment in Subsidiaries		99,030		(5	)		—			(99,025	)		—
Total Assets	$	173,189	$	235,693		$	2,201		$	(175,948	)	$	235,135
Liabilities and Stockholders’ Equity:
Accounts Payable and Other Current Liabilities	$	—	$	31,795		$	655		$	(1,213	)	$	31,237
Environmental Remediation Reserves		—		740			—			—			740
Deferred Revenues		—		3,433			—			—			3,433
Intercompany Advances		—		74,159			1,551			(75,710	)		—
Current Portion of Debt		3,652		250			—			—			3,902
Total Current Liabilities		3,652		110,377			2,206			(76,923	)		39,312
Long-Term Debt		96,943		554			—			—			97,497
Environmental Remediation Reserves		—		15,758			—			—			15,758
Other Long-Term Liabilities		—		9,974			—			—			9,974
Total Liabilities		100,595		136,663			2,206			(76,923	)		162,541
Total Stockholders’ Equity		72,594		99,030			(5	)		(99,025	)		72,594
Total Liabilities and Stockholders’ Equity	$	173,189	$	235,693		$	2,201		$	(175,948	)	$	235,135

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Condensed Consolidating Balance Sheet -				Guarantor			Non-Guarantor
September 30, 2006	Parent			Subsidiaries			Subsidiary			Eliminations			Consolidated
Assets:
Cash and Cash Equivalents	$	—		$	6,758		$	114		$	—		$	6,872
Accounts Receivable		—			19,253			1,040			(819	)		19,474
Notes Receivable		—			7,510			—			—			7,510
Inventories		—			39,152			603			—			39,755
Prepaid Expenses and Other Assets		—			1,745			100			—			1,845
Deferred Income Taxes		—			1,887			—			—			1,887
Total Current Assets		—			76,305			1,857			(819	)		77,343
Property, Plant and Equipment, Net		—			119,623			123			—			119,746
Intangible Assets, Net		—			14,237			—			—			14,237
Deferred Income Taxes		—			21,701			—			—			21,701
Other Assets		—			6,428			—			—			6,428
Intercompany Advances		81,389			975			—			(82,364	)		—
Investment in Subsidiaries		97,320			56			—			(97,376	)		—
Total Assets	$	178,709		$	239,325		$	1,980		$	(180,559	)	$	239,455
Liabilitites and Stockholders’ Equity:
Accounts Payable and Other Current Liabilities	$	—		$	26,885		$	949		$	(819	)	$	27,015
Environmental Remediation Reserves		—			1,631			—			—			1,631
Deferred Revenues		—			5,683			—			—			5,683
Intercompany Advances		—			81,389			975			(82,364	)		—
Current Portion of Debt		9,422			171			—			—			9,593
Total Current Liabilities		9,422			115,759			1,924			(83,183	)		43,922
Long-Term Debt		97,403			368			—			—			97,771
Environmental Remediation Reserves		—			15,880			—			—			15,880
Other Long-Term Liabilities		—			9,998			—			—			9,998
Total Liabilities		106,825			142,005			1,924			(83,183	)		167,571
Total Stockholders’ Equity		71,884			97,320			56			(97,376	)		71,884
Total Liabilities and Stockholders’ Equity	$	178,709		$	239,325		$	1,980		$	(180,559	)	$	239,455
Condensed Consolidating Statement of Operations -				Guarantor			Non-Guarantor
Three Months Ended December 31, 2006	Parent			Subsidiaries			Subsidiary			Eliminations			Consolidated
Revenues	$	—		$	34,565		$	344		$	(21	)	$	34,888
Cost of Revenues		—			21,698			303			(21	)		21,980
Gross Profit		—			12,867			41			—			12,908
Operating Expenses		—			8,388			125			—			8,513
Operating Income (Loss)		—			4,479			(84	)		—			4,395
Interest and Other Income		3,255			93			1			(3,255	)		94
Interest Expense		3,255			3,303			—			(3,255	)		3,303
Income (Loss) from Continuing Operations before Income Tax and Equity Account for Subsidiaries		—			1,269			(83	)		—			1,186
Income Tax Expense		—			547			—			—			547
Income (Loss) from Continuing Operations before Equity Account for Subsidiaries		—			722			(83	)		—			639
Equity Account for Subsidiaries		639			—			—			(639	)		—
Net Income (Loss) from Continuing Operations	$	639		$	722		$	(83	)	$	(639	)	$	639
Condensed Consolidating Statement of Operations -				Guarantor			Non-Guarantor
Three Months Ended December 31, 2005	Parent			Subsidiaries			Subsidiary			Eliminations			Consolidated
Revenues	$	—		$	16,107		$	378		$	—		$	16,485
Cost of Revenues		—			11,802			337			—			12,139
Gross Profit		—			4,305			41			—			4,346
Operating Expenses		—			5,374			91			—			5,465
Operating Loss		—			(1,069	)		(50	)		—			(1,119	)
Interest and Other Income		1,069			874			1			(1,069	)		875
Interest Expense		1,069			1,069			—			(1,069	)		1,069
Loss from Continuing Operations before Income Tax and Equity Account for Subsidiaries		—			(1,264	)		(49	)		—			(1,313	)
Income Tax Benefit		—			(523	)		—			—			(523	)
Loss from Continuing Operations before Equity Account for Subsidiaries		—			(741	)		(49	)		—			(790	)
Equity Account for Subsidiaries		(790	)		—			—			790			—
Net Loss from Continuing Operations	$	(790	)	$	(741	)	$	(49	)	$	790		$	(790	)

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Condensed Consolidating Statement of Cash Flows -				Guarantor			Non-Guarantor
Three Months Ended December 31, 2006	Parent			Subsidiaries			Subsidiary			Eliminations		Consolidated
Net Cash Used by Operating Activities	$	—		$	(3,392	)	$	(589	)	$	—	$	(3,981	)
Cash Flows from Investing Activities:
Capital expenditures		—			(1,423	)		(7	)		—		(1,430	)
Discontinued operations, net		—			7,510			—			—		7,510
Net Cash Provided (Used) in Investing Activities		—			6,087			(7	)		—		6,080
Cash Flows from Financing Activities:
Payments of long-term debt		(7,230	)		(57	)		—			—		(7,287	)
Intercompany advances, net		7,230			(7,806	)		576			—		—
Net Cash Provided (Used) by Financing Activities		—			(7,863	)		576			—		(7,287	)
Net Change in Cash and Cash Equivalents		—			(5,168	)		(20	)		—		(5,188	)
Cash and Cash Equivalents, Beginning of Period		—			6,758			114			—		6,872
Cash and Cash Equivalents, End of Period	$	—		$	1,590		$	94		$	—	$	1,684
Condensed Consolidating Statement of Cash Flows -				Guarantor			Non-Guarantor
Three Months Ended December 31, 2005	Parent			Subsidiaries			Subsidiary			Eliminations		Consolidated
Net Cash Provided (Used) by Operating Activities	$	—		$	(5,890	)	$	156		$	—	$	(5,734	)
Cash Flows from Investing Activities:
Acquisition of businesses		—			(111,471	)		—			—		(111,471	)
Capital expenditures		—			(2,424	)		(19	)		—		(2,443	)
Proceeds from sale of assets		—			2,395			—			—		2,395
Discontinued operations, net		—			(200	)		—			—		(200	)
Net Cash Used in Investing Activities		—			(111,700	)		(19	)		—		(111,719	)
Cash Flows from Financing Activities:
Proceeds from the issuance of long-term debt		85,000			—			—			—		85,000
Payments of long-term debt		(162	)		—			—			—		(162	)
Debt issuance costs		(1,677	)		—			—			—		(1,677	)
Intercompany advances, net		(83,161	)		83,161			—			—		—
Discontinued operations, net		—			(10	)		—			—		(10	)
Net Cash Provided by Financing Activities		—			83,151			—			—		83,151
Net Change in Cash and Cash Equivalents		—			(34,439	)		137			—		(34,302	)
Cash and Cash Equivalents, Beginning of Period		—			37,079			134			—		37,213
Cash and Cash Equivalents, End of Period	$	—		$	2,640		$	271		$	—	$	2,911

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EX-99.3

Exhibit 99.3

Item 1: Financial Statements

Index to Condensed Consolidated Financial Statements

	Page
Condensed Consolidated Balance Sheets		2
Condensed Consolidated Statements of Operations		3
Condensed Consolidated Statements of Cash Flows		4
Notes to Condensed Consolidated Financial Statements		5

- 1 -

AMERICAN PACIFIC CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited, Dollars in Thousands, Except per Share Amounts)

	Three Months Ended					Six Months Ended
	March 31,					March 31,
	2007		2006			2007		2006
Revenues	$	43,589	$	39,777		$	78,477	$	56,262
Cost of Revenues		27,378		27,218			49,358		39,357
Gross Profit		16,211		12,559			29,119		16,905
Operating Expenses		10,091		10,816			18,604		16,281
Environmental Remediation Charge		—		2,800			—		2,800
Operating (Income) Loss		6,120		(1,057	)		10,515		(2,176	)
Interest and Other Income		90		48			184		923
Interest Expense		3,157		3,056			6,460		4,125
Debt Repayment Charges		2,714		—			2,714		—
Income Loss from Continuing Operations before Income Tax		339		(4,065	)		1,525		(5,378	)
Income Tax Expense (Benefit)		221		(1,459	)		768		(1,982	)
Income (Loss) from Continuing Operations		118		(2,606	)		757		(3,396	)
Income (Loss) from Discontinued Operations, Net of Tax		—		268			—		(247	)
Net Income (Loss)	$	118	$	(2,338	)	$	757	$	(3,643	)
Basic Earnings (Loss) Per Share:
Income (Loss) from Continuing Operations	$	0.02	$	(0.36	)	$	0.10	$	(0.47	)
Discontinued Operations, Net of Tax		—		0.04			—		(0.03	)
Net Income (Loss)	$	0.02	$	(0.32	)	$	0.10	$	(0.50	)
Diluted Earnings (Loss) Per Share:
Income (Loss) from Continuing Operations	$	0.02	$	(0.36	)	$	0.10	$	(0.47	)
Discontinued Operations, Net of Tax		—		0.04			—		(0.03	)
Net Income (Loss)	$	0.02	$	(0.32	)	$	0.10	$	(0.50	)
Weighted Average Shares Outstanding:
Basic		7,335,000		7,297,000			7,330,000		7,297,000
Diluted		7,429,000		7,297,000			7,398,000		7,297,000

See accompanying notes to condensed consolidated financial statements

- 2 -

AMERICAN PACIFIC CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited, Dollars in Thousands)

	March 31,			September 30,
	2007			2006
ASSETS
Current Assets:
Cash and Cash Equivalents	$	9,613		$	6,872
Accounts Receivable		15,603			19,474
Notes Receivable		—			7,510
Inventories		55,732			39,755
Prepaid Expenses and Other Current Assets		1,989			1,845
Deferred Income Taxes		1,887			1,887
Total Current Assets		84,824			77,343
Property, Plant and Equipment, Net		117,652			119,746
Intangible Assets, Net		8,682			14,237
Deferred Income Taxes		21,701			21,701
Other Assets		8,355			6,428
TOTAL ASSETS	$	241,214		$	239,455
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$	9,756		$	11,158
Accrued Liabilities		6,619			11,257
Employee Related Liabilities		4,509			4,600
Environmental Remediation Reserves		589			1,631
Deferred Revenues		10,901			5,683
Current Portion of Debt		229			9,593
Total Current Liabilities		32,603			43,922
Long-Term Debt		110,485			97,771
Environmental Remediation Reserves		15,468			15,880
Pension Obligations and Other Long-Term Liabilities		9,686			9,998
Total Liabilities		168,242			167,571
Commitments and Contingencies
Stockholders’ Equity
Preferred Stock — No par value; 3,000,000 authorized; none outstanding		—			—
Common Stock — $.10 par value; 20,000,000 shares authorized, 9,387,541 and 9,359,041 issued		936			933
Capital in Excess of Par Value		87,025			86,724
Retained Earnings		3,069			2,312
Treasury Stock - 2,034,870 shares		(16,982	)		(16,982	)
Accumulated Other Comprehensive Loss		(1,076	)		(1,103	)
Total Shareholders’ Equity		72,972			71,884
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	241,214		$	239,455

See ccompanying notes to condensed consolidated financial statements

- 3 -

AMERICAN PACIFIC CORPORATION
Condensed Consolidated Statements of Cash Flow
(Unaudited, Dollars in Thousands)

	Six Months Ended
	March 31,
	2007			2006
Cash Flows from Operating Activities:
Net Income (Loss)	$	757		$	(3,643	)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided (Used) by Operating Activities:
Depreciation and amortization		9,643			8,232
Non-cash interest expense		1,819			1,294
Share-based compensation		67			233
Non-cash component of debt repayment charges		2,309			—
Gain on sale of assets		—			(630	)
Changes in operating assets and liabilities:
Accounts receivable		3,893			(3,192	)
Inventories		(15,977	)		(5,853	)
Prepaid expenses and other current assets		(144	)		(2,418	)
Accounts payable, accrued liabilities, and employee related liabilities		766			2,727
Deferred revenues		5,218			(344	)
Environmental remediation reserves		(1,454	)		(1,197	)
Pension obligations, net		19			(367	)
Discontinued operations, net		—			675
Other		(269	)		657
Net Cash Provided (Used) by Operating Activities		6,647			(3,826	)
Cash Flows from Investing Activities:
Acquisition of business and earnout payment		(6,000	)		(108,451	)
Capital expenditures		(2,565	)		(7,904	)
Proceeds from sale of assets		—			2,395
Discontinued operations, net		7,510			(347	)
Net Cash Used by Investing Activities		(1,055	)		(114,307	)
Cash Flows from Financing Activities:
Proceeds from the issuance of long-term debt		110,000			85,000
Payments of long-term debt		(108,472	)		(325	)
Short-term borrowings, net		—			5,995
Debt issuance costs		(4,574	)		(1,716	)
Issuances of common stock		195			31
Discontinued operations, net		—			(68	)
Net Cash Provided (Used) by Financing Activities		(2,851	)		88,917
Net Change in Cash and cash Equivalents		2,741			(29,216	)
Cash and Cash Equivalents, Beginning of Period		6,872			37,213
Cash and Cash Equivalents, End of Period	$	9,613		$	7,997
Cash Paid For:
Interest	$	3,260		$	2,713
Income taxes		81			(353	)
Non-Cash Transactions:
Capital leases originated	$	321		$	—

See accompanying notes to condensed consolidated financial statements

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AMERICAN PACIFIC CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited, Dollars in Thousands, Except per Share Amounts)

1.	INTERIM BASIS OF PRESENTATION AND ACCOUNTING POLICIES
	Interim Basis of Presentation: The accompanying condensed consolidated financial statements of American Pacific Corporation and its subsidiaries are unaudited, but in our opinion, include all adjustments, which are of a normal recurring nature, necessary for the fair presentation of financial results for interim periods. These statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended September 30, 2006. The operating results for the three-month and six-month periods ended March 31, 2007 and cash flows for the six-month period ended March 31, 2007 are not necessarily indicative of the results that will be achieved for the full fiscal year or for future periods.
	Accounting Policies: A description of our significant accounting policies is included in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2006.
	Principles of Consolidation: Our consolidated financial statements include the accounts of American Pacific Corporation and our wholly-owned subsidiaries. In connection with our acquisition of the fine chemicals business (the “AFC Business”) of GenCorp, through the purchase of substantially all of the assets of Aerojet Fine Chemicals LLC and the assumption of certain of its liabilities, we began consolidating our newly formed, wholly-owned subsidiary, Ampac Fine Chemicals or AFC on November 30, 2005 (See Note 2). All intercompany accounts have been eliminated.
	Discontinued Operations: In June 2006, our board of directors approved and we committed to a plan to sell our 50% interest in the ESI joint venture based on our determination that ESI’s product lines were no longer a strategic fit with our business strategies. We consolidated ESI in accordance with FIN 46R, “Consolidation of Variable Interest Entities,” which requires companies to consolidate variable interest entities that either: (1) do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) hold a significant variable interest in, or have significant involvement with, an existing variable interest entity. Revenues, expenses and cash flows associated with ESI’s operations are presented as discontinued operations for all periods presented. Effective September 30, 2006, we completed the sale of our interest in ESI. ESI was formerly reported within our Specialty Chemicals segment. See Note 12.
	Recently Issued or Adopted Accounting Standards: In July 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes”, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently evaluating the impact of this standard on our consolidated financial statements.
	In September 2006, the SEC issued SAB 108, which documents the SEC staff’s views regarding the process of quantifying financial statement misstatements. Under SAB 108, we must evaluate the materiality of an identified unadjusted error by considering the impact of both the current year error and the cumulative error, if applicable. This also means that both the impact on the current period income statement and the period-end balance sheet must be considered. SAB 108 is effective for fiscal years ending after November 15, 2006. Any past adjustments required to be recorded as a result of adopting SAB 108 will be recorded as a cumulative effect adjustment to the opening balance of retained earnings. We do not believe the adoption of SAB 108 will have a material impact on our consolidated financial statements.

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	In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. SFAS No. 157 will be first effective for our financial statements issued for the year ended September 30, 2008, and interim periods within that year. We are currently evaluating the impact that the adoption of SFAS No. 157 will have on our consolidated financial statements.
	In September 2006, FASB issued SFAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)”, which requires companies to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. This statement becomes effective for us on September 30, 2007. We are currently evaluating the impact the adoption of SFAS 158 will have on our consolidated financial statements.
	In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The fair value option established by SFAS No. 159 permits all companies to choose to measure eligible items at fair value at specified election dates. At each subsequent reporting date, a company shall report in earnings any unrealized gains and losses on items for which the fair value option has been elected. SFAS No. 159 is effective as of the beginning of our first fiscal year that begins on October 1, 2008. We are currently evaluating whether to adopt the fair value option under SFAS No. 159 and evaluating what impact adoption would have on our consolidated financial statements.
2.	ACQUISITIONS
	AFC Business Acquisition: In July 2005, we entered into an agreement to acquire, and on November 30, 2005, we completed the acquisition of the AFC Business of GenCorp through the purchase of substantially all of the assets of Aerojet Fine Chemicals, LLC and the assumption of certain of its liabilities. The assets were acquired and liabilities assumed by our newly formed, wholly-owned subsidiary, Ampac Fine Chemicals or AFC. AFC is a manufacturer of active pharmaceutical ingredients and registered intermediates under the FDA’s current good manufacturing practices or “cGMP” guidelines for customers in the pharmaceutical industry. Its facilities in California offer specialized engineering capabilities including high containment for high potency compounds, energetic and nucleoside chemistries, and chiral separation using the first commercial-scale simulated moving bed in the United States.
	The total consideration for the AFC Business acquisition is comprised of the following:

Cash	$	88,500
Fair value of Seller Subordinated Note (Face value $25,500)		19,400
Capital expenditures adjustment		17,431
Working capital adjustment		(1,268	)
Earnout adjustment		5,000
Other direct acquisition costs		4,348
Total purchase price	$	133,411

Subordinated Seller Note – The fair value of the Seller Subordinated Note was determined by discounting the required principal and interest payments at a rate of 15%, which the Company believes is appropriate for instruments with comparable terms. This note was paid in full in February 2007, see Note 7.

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Capital Expenditures Adjustment – The capital expenditures adjustment represents net reimbursements to GenCorp for their cash capital investments, as defined in the acquisition agreements, during the period July 2005 through the closing date on November 30, 2005.

Working Capital Adjustment – The working capital adjustment represents a net adjustment to the purchase price based on actual working capital as of the closing date compared to a target working capital amount specified in the acquisition agreements.

Earnout and EBITDAP Adjustments – The acquisition agreements included a reduction of the purchase price if AFC did not achieve a specified level of earnings before interest, taxes, depreciation, amortization, and pension expense (“EBITDAP”) for the three months ended December 31, 2005, equal to four times the difference between the targeted EBITDAP and the actual EBITDAP achieved, not to exceed $1,000. This target was not met, and accordingly, we received $1,000 from GenCorp. In addition to the amounts paid at closing, the purchase price was subject to an additional contingent cash payment of up to $5,000 based on targeted financial performance of AFC during the year ending September 30, 2006. If the full Earnout Adjustment became payable to GenCorp, the EBITDAP Adjustment also became refundable to GenCorp. During the year ended September 30, 2006, the AFC financial performance target was exceeded. Accordingly, we recorded a $6,000 payable to GenCorp as of September 30, 2006 (classified as accrued liabilities) comprised of the $5,000 Earnout Payment and the $1,000 refund of the EBITDAP Adjustment. We paid GenCorp $6,000 in February 2007.

Direct Acquisition Costs – Total direct acquisition costs, consisting primarily of legal and due diligence fees, were $4,348.

In connection with the AFC Business acquisition, we entered into Credit Facilities and a Seller Subordinated Note, each discussed in Note 7. The total purchase price was funded with net proceeds from the Credit Facilities of $81,881, the Seller Subordinated Note of $25,500 and existing cash.

This acquisition was accounted for using the purchase method of accounting, under which the total purchase price was allocated to the fair values of the assets acquired and liabilities assumed. We engaged outside consultants to assist in the valuation of property, plant and equipment and intangible assets. As of September 30, 2006, the allocation of the purchase price and the related determination of the useful lives of property, plant and equipment were preliminary and subject to change based on the then pending final valuation report. As a result of the final valuation report, during the first quarter of fiscal 2007, we recorded a reclassification of $2,986 of assigned purchase price from intangible assets to property, plant and equipment, and finalized our estimates of the related remaining useful lives.

The following table indicates the amounts assigned to each major asset and liability caption of AFC as of the acquisition date:

Accounts Receivable	$	7,746
Inventories		15,941
Other Current Assets		123
Property, Plant and Equipment		114,494
Customer relationships, average life of 5.5 years		7,957
Backlog, average life of 1.5 years		2,287
Other Assets		382
Total Assets Acquired		148,930
Accounts Payable and Accrued Liabilities		11,967
Deferred Revenues and Customer Deposits		2,549
Long-Term Liabilities		1,003
Total Liabilities Assumed		15,519
Purchase Price	$	133,411

Intangible assets, consisting of customer relationships and existing customer backlog, have definite lives and will be amortized over their estimated useful lives using the straight-line method.

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3.	SHARE-BASED COMPENSATION
	On October 1, 2005, we adopted SFAS No. 123R, “Share-Based Payment”, which requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. We have elected to use the Modified Prospective Transition method such that SFAS No. 123R applies to the unvested portion of previously issued awards, new awards and to awards modified, repurchased or canceled after the effective date. Accordingly, commencing October 1, 2005, we recognize share-based compensation for all current award grants and for the unvested portion of previous award grants based on grant date fair values. Prior to fiscal 2006, we accounted for share-based awards under the Accounting Principles Board Opinion No. 25 intrinsic value method, under which no compensation expense was recognized because all historical options granted were at an exercise price equal to the market value of our stock on the grant date. Prior period financial statements have not been adjusted to reflect fair value share-based compensation expense under SFAS No. 123R.
	Our share-based payment arrangements are designed to attract and retain employees and directors. The amount, frequency, and terms of share-based awards may vary based on competitive practices, our operating results, and government regulations. New shares are issued upon option exercise or restricted share grants. We do not settle equity instruments in cash. We maintain two share based plans, each as discussed below.
	The American Pacific Corporation 2001 Stock Option Plan, as amended (the “2001 Plan”), permits the granting of incentive stock options meeting the requirements of Section 422 of the Internal Revenue Code and nonqualified options that do not meet the requirements of Section 422 to employees, officers, directors and consultants. Options granted under the 2001 Plan generally vest 50% at the grant date and 50% on the one-year anniversary of the grant date, and expire in ten years. As of March 31, 2007, there were 20,000 shares available for grant under the 2001 Plan. This plan was approved by our shareholders.
	The American Pacific Corporation 2002 Directors Stock Option Plan (the “2002 Directors Plan”) compensates outside directors with annual grants of stock options or upon other discretionary events. Options are granted to each eligible director at a price equal to the fair market value of our common stock on the date of the grant. Options granted under the 2002 Directors Plan generally vest 50% at the grant date and 50% on the one-year anniversary of the grant date, and expire in ten years. As of March 31, 2007, there were 25,000 shares available for grant under the 2002 Directors Plan. This plan was approved by our shareholders.
	A summary of our outstanding and vested stock option activity for the six months ended March 31, 2007 is as follows:

	Total Outstanding					Non Vested
				Weighted					Weighted
				Average					Average
				Exercise					Fair
				Price					Value
	Shares			Per Share		Shares			Per Share
Balance, September 30, 2006		515,500		$	6.95		18,750		$	1.95
Granted		19,000			7.64		19,000			3.63
Vested		—			—		(28,250	)		2.51
Exercised		(28,500	)		6.83		—			—
Expired / Cancelled		—			—		—			—
Balance, March 31, 2007		506,000			6.98		9,500			3.63

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A summary of our exercisable stock options as of March 31, 2007 is as follows:

Number of vested stock options		496,500
Weighted-average exercise price per share	$	6.97
Aggregate intrinsic value	$	2,172
Weighted-average remaining contractual term in years		7.2

We determine the fair value of share-based awards at their grant date, using a Black-Scholes option-pricing model applying the assumptions in the following table. Actual compensation, if any, ultimately realized by optionees may differ significantly from the amount estimated using an option valuation model.

	Six Months Ended
	March 31,
	2007			2006
Weighted-average grant date fair value per share of options granted	$	3.68		$	2.00
Significant fair value assumptions:
Expected term in years		5.25			4.75
Expected volatility		47.0	%		50.0	%
Expected dividends		0.0	%		0.0	%
Risk-free interest rates		4.7	%		4.4	%
Total intrinsic value of options exercised	$	108		$	18
Aggregate cash received for option exercises	$	195		$	31
Total compensation cost (included in operating expenses)	$	67		$	233
Tax benefit recognized		28			86
Net compensation cost	$	39		$	147
As of period end date:
Total compensation cost for non-vested awards not yet recognized	$	10		$	191
Weighted-average years to be recognized		0.5			0.5

4.	SELECTED BALANCE SHEET DATA
	Inventories: Inventories consist of the following:

	March 31,			September 30,
	2007			2006
Finished goods	$	9,562		$	7,170
Work-in-process		31,125			20,196
Raw materials and supplies		15,424			12,664
Allowance for obsolete inventory		(379	)		(275	)
Total	$	55,732		$	39,755

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Intangible Assets: We account for our intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” Intangible assets consist of the following:

	March 31,			September 30,
	2007			2006
Perchlorate customer list	$	38,697		$	38,697
Less accumulated amortization		(35,230	)		(33,280	)
		3,467			5,417
Customer relationships and backlog		10,244			13,230
Less accumulated amortization		(5,375	)		(4,756	)
		4,869			8,474
Pension-related intangible		346			346
Total	$	8,682		$	14,237

	The perchlorate customer list is an asset of our Specialty Chemicals segment and is subject to amortization. Amortization expense was $975 for each of the three-month periods ended March 31, 2007 and 2006, and $1,950 for each of the six-month periods ended March 31, 2007 and 2006.
	The pension-related intangible is an actuarially calculated amount related to unrecognized prior service cost for our defined benefit pension plan and supplemental executive retirement plan.
	In connection with our acquisition of the AFC Business, we acquired intangible assets with fair values of $7,957 for customer relationships and $2,287 for existing customer backlog. These assets have definite lives and are assigned to our Fine Chemicals segment. Amortization expense for the three months ended March 31, 2007 and 2006 was $309 and $1,426, respectively. Amortization expense for the six months ended March 31, 2007 and 2006 was $619 and $1,902, respectively.
5.	COMPREHENSIVE INCOME (LOSS)
	Comprehensive income (loss) consists of the following:

	Three Months Ended					Six Months Ended
	March 31,					March 31,
	2007		2006			2007		2006
Net Income (Loss)	$	118	$	(2,338	)	$	757	$	(3,643	)
Other Comprehensive Income (Loss) -
Foreign currency translation adjustment		5		5			27		(41	)
Comprehensive Income (Loss)	$	123	$	(2,333	)	$	784	$	(3,684	)

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6.	EARNINGS (LOSS) PER SHARE
	Shares used to compute earnings (loss) per share from continuing operations are as follows:

	Three Months Ended					Six Months Ended
	March 31,					March 31,
	2007		2006			2007		2006
Income (Loss) from Continuing Operations	$	118	$	(2,606	)	$	757	$	(3,396	)
Basic:
Weighted average shares		7,335,000		7,297,000			7,330,000		7,297,000
Diluted:
Weighted average shares, basic		7,335,000		7,297,000			7,330,000		7,297,000
Dilutive effect of stock options		94,000		—			68,000		—
Weighted average shares, diluted		7,429,000		7,297,000			7,398,000		7,297,000
Basic (income) loss per share from continuing operations	$	0.02	$	(0.36	)	$	0.10	$	(0.47	)
Diluted (income) loss per share from continuing operations	$	0.02	$	(0.36	)	$	0.10	$	(0.47	)

	As of March 31, 2007, we had no antidilutive options outstanding. As of March 31, 2006, we had 555,500 antidilutive options outstanding. Stock options are antidilutive because we reported a loss from continuing operations or the exercise price of certain options exceeds the average fair market value of our stock for the period. These options could be dilutive in future periods if our operations are profitable or our stock price increases.
7.	DEBT
	Our outstanding debt balances consist of the following:

	March 31,			September 30,
	2007			2006
Senior Notes, 9%, due 2015	$	110,000		$	—
Credit Facilities:
First Lien Term Loan, 9.4%, due through 2010		—			64,350
First Lien Revolving Credit		—			—
Second Lien Term Loan plus accrued PIK Interest of $170, 14.4%, due 2011		—			20,170
Subordinated Seller Note plus accrued PIK Interest of $2,226, 10.4%,
Net of Discount of $5,424, due 2012		—			22,304
Capital Leases		714			540
Total Debt		110,714			107,364
Less Current Portion		(229	)		(9,593	)
Total Long-term Debt	$	110,485		$	97,771

Credit Facilities: In connection with our acquisition of the AFC Business, discussed in Note 2, on November 30, 2005, we entered into a $75,000 first lien credit agreement (the “First Lien Credit Facility”) with Wachovia Bank, National Association and other lenders. We also entered into a $20,000 second lien credit agreement (the “Second Lien Credit Facility,” and together with the First Lien Credit Facility, the “Credit Facilities”) with Wachovia Bank, National Association, and certain other lenders. The Credit Facilities are collateralized by substantially all of our assets and the assets of our domestic subsidiaries. Concurrent with the issuance of our Senior Notes in February 2007, we repaid our first lien term loan, amended our First Lien Credit Facility and repaid and terminated our Second Lien Credit Facility.

Seller Subordinated Note: In connection with our acquisition of the AFC Business, discussed in Note 2, we issued an unsecured subordinated seller note in the principal amount of $25,500 to Aerojet-General Corporation, a subsidiary of GenCorp. The note accrued payment-in-kind interest (“PIK Interest”) at a rate equal to the three–month U.S. dollar LIBOR as from time to time in effect plus a margin equal to the weighted average of the interest rate margin for the loans outstanding

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under the Credit Facilities, including certain changes in interest rates due to subsequent amendments or refinancing of the Credit Facilities. The note was subordinated to the senior debt under or related to the Credit Facilities and certain other indebtedness, subject to certain terms and conditions.

In connection with our February 2007 refinancing activities, we negotiated an early retirement of the Seller Subordinated Note at a discount of approximately $5,000 from the face amount of the note. On February 6, 2007, we paid GenCorp $23,735 representing full settlement of the Seller Subordinated Note and accrued interest.

Senior Notes: On February 6, 2007, we issued and sold $110,000 aggregate principal amount of 9.0% Senior Notes due February 1, 2015 (the “Senior Notes”). The Senior Notes accrue interest at a rate per annum equal to 9.0%, to be payable semi-annually in arrears on each February 1 and August 1, beginning on August 1, 2007. The Senior Notes are guaranteed on a senior unsecured basis by all of our existing and future material U.S. subsidiaries. The Senior Notes are:

• ranked equally in right of payment with all of our existing and future senior indebtedness;

• ranked senior in right of payment to all of our existing and future senior subordinated and subordinated indebtedness;

• effectively junior to our existing and future secured debt to the extent of the value of the assets securing such debt; and

• structurally subordinated to all of the existing and future liabilities (including trade payables) of each of our subsidiaries that do not guarantee the Senior Notes.

The Senior Notes may be redeemed, in whole or in part, under the following circumstances:

• at any time prior to February 1, 2011 at a price equal to 100% of the purchase amount of the Senior Notes plus a “make-whole” premium as defined in the related indenture;

• at any time on or after February 1, 2011 at redemption prices beginning at 104.5% and reducing to 100% by February 1, 2013; and

• until February 1, 2010, up to 35% of the principal amount of the Senior Notes with the proceeds of certain sales of its equity securities.

In addition, if we experience certain changes of control, we must offer to purchase the Notes at 101% of their aggregate principal amount, plus accrued interest.

The Senior Notes were issued pursuant to an Indenture (the “Indenture”) that contains certain covenants limiting, subject to exceptions, carve-outs and qualifications, our ability to:

• incur additional debt;

• pay dividends or make other restricted payments;

• create liens on assets to secure debt;

• incur dividend or other payment restrictions with regard to restricted subsidiaries;

• transfer or sell assets;

• enter into transactions with affiliates;

• enter into sale and leaseback transactions;

• create an unrestricted subsidiary;

• enter into certain business activities; or

• effect a consolidation, merger or sale of all or substantially all of our assets.

The Indenture also contains certain customary events of default.

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In connection with the closing of the sale of the Senior Notes, we entered into a registration rights agreement and agreed to use our reasonable best efforts to:

• file a registration statement with respect to an offer to exchange the Senior Notes for notes that have substantially identical terms as the Senior Notes and are registered under the Securities Act;

• cause the registration statement to become effective within 210 days after the closing; and

• consummate the exchange offer within 240 days after the closing.

If we cannot effect an exchange offer within the time periods listed above, we have agreed to file a shelf registration statement for the resale of the Senior Notes. If we do not comply with certain of our obligations under the registration rights agreement (a “Registration Default”), the annual interest rate on the Senior Notes will increase by 0.25%. The annual interest rate on the Senior Notes will increase by an additional 0.25% for any subsequent 90-day period during which the Registration Default continues, up to a maximum additional interest rate of 1.00% per year. If we correct the Registration Default, the interest rate on the Senior Notes will revert immediately to the original rate.

Revolving Credit Facility: On February 6, 2007, we entered into an Amended and Restated Credit Agreement which provides a secured Revolving Credit Facility in an aggregate principal amount of up to $20,000 with an initial maturity in 5 years. We may prepay and terminate the Revolving Credit Facility at any time. The annual interest rates applicable to loans under the Revolving Credit Facility will be at our option, the Alternate Base Rate or LIBOR Rate (each as defined in the Revolving Credit Facility) plus, in each case, an applicable margin. The applicable margin will be tied to our total leverage ratio (as defined in the Revolving Credit Facility). In addition, we will pay commitment fees, other fees related to the issuance and maintenance of the letters of credit, and certain agency fees.

The Revolving Credit Facility is guaranteed by and secured by substantially all of the assets of our current and future domestic subsidiaries, subject to certain exceptions as set forth in the Revolving Credit Facility. The Revolving Credit Facility contains certain negative covenants restricting and limiting our ability to, among other things:

• incur debt, incur contingent obligations and issue certain types of preferred stock;

• create liens;

• pay dividends, distributions or make other specified restricted payments;

• make certain investments and acquisitions;

• enter into certain transactions with affiliates;

• enter into sale and leaseback transactions; and

• merge or consolidate with any other entity or sell, assign, transfer, lease, convey or otherwise dispose of assets.

Financial covenants under the Revolving Credit Facility include quarterly requirements for total leverage ratio of less than or equal to 5.25 to 1.00, and interest coverage ratio of at least 2.50 to 1.00. The Revolving Credit Facility also contains usual and customary events of default (subject to certain threshold amounts and grace periods). If an event of default occurs and is continuing, we may be required to repay the obligations under the Revolving Credit Facility prior to its stated maturity and the related commitments may be terminated.

As of March 31, 2007, under our Revolving Credit Facility, we had no borrowings outstanding, availability of $17,668, and we were in compliance with its various financial covenants. Availibility is computed as the total commitment of $20,000 less outstanding borrowings and outstanding letters of credit, if any.

Letters of Credit: As of March 31, 2007, we had $2,332 in outstanding standby letters of credit which mature through May 2012. These letters of credit principally secure performance of certain water treatment equipment sold by us and payment of fees associated with the delivery of natural gas and power.

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	Interest Rate Swap Agreements: In May 2006, we entered into two interest rate swap agreements, expiring on June 30, 2008, for the purpose of hedging a portion of our exposure to changes in variable rate interest on our Credit Facilities. Under the terms of the swap agreements, we paid fixed rate interest and received variable rate interest based on a specific spread over three-month LIBOR. The differential to be paid or received was recorded as an adjustment to interest expense. The swap agreements do not qualify for hedge accounting treatment. We recorded an asset or liability for the fair value of the swap agreements, with the effect of marking these contracts to fair value being recorded as an adjustment to interest expense. The aggregate fair values of the swap agreements at September 30, 2006, which was recorded as other long-term liabilities, was $314. In connection with the refinancing of our Credit Facilities, we terminated our swap agreements at a cost of $268, which resulted in a gain of $46 that is recorded as a reduction of interest expense.
	Debt Issue Costs and Debt Repayment Charges: In connection with the repayment of our Credit Facilities, we recorded a charge for approximately $2,300 to write-off the unamortized balance of debt issue costs associated with those facilities. In addition, we paid a pre-payment penalty of approximately $400 to terminate the Second Lien Credit Facility. These charges are presented as Debt Repayment Charges in our statement of operations. In connection with the issuance of the Senior Notes, we incurred debt issuance costs of approximately $4,600 which were capitalized and classified as other assets on the balance sheet. These costs will be amortized as additional interest expense over the eight year term on the Senior Notes.
8.	COMMITMENTS AND CONTINGENCIES
	Environmental Matters:
	Review of Perchlorate Toxicity by the EPA –
	Perchlorate (the “anion”) is not currently included in the list of hazardous substances compiled by the EPA, but it is on the EPA’s Contaminant Candidate List. The EPA has conducted a risk assessment relating to perchlorate, two drafts of which were subject to formal peer reviews held in 1999 and 2002. Following the 2002 peer review, the EPA perchlorate risk assessment together with other perchlorate related science was reviewed by the National Academy of Sciences or NAS. This NAS report was released on January 11, 2005. The recommendations contained in this NAS report indicate that human health is protected in drinking water at a level of 24.5 parts per billion (“ppb”). Certain states have also conducted risk assessments and have set preliminary levels from 1 – 14 ppb. The EPA has established a reference dose for perchlorate of .0007 mg/kg/day which is equal to a DWEL of 24.5 ppb. A decision as to whether or not to establish a MCL is pending. The outcome of these federal EPA actions, as well as any similar state regulatory action, will influence the number, if any, of potential sites that may be subject to remediation action.
	Perchlorate Remediation Project in Henderson, Nevada –
	We commercially manufactured perchlorate chemicals at the Ampac Henderson Site from 1958 until the facility was destroyed in May 1988, after which we relocated our production to a new facility in Iron County, Utah. KMCC also operated a perchlorate production facility in Henderson, Nevada from 1967 to 1998. Between 1956 to 1967, American Potash operated a perchlorate production facility at the same site. For many years prior to 1956, other entities also manufactured perchlorate chemicals at that site. In 1998, Kerr-McGee Chemical LLC became the operating entity and it ceased the production of perchlorate at the Kerr McGee Henderson Site. Thereafter, it continued to produce other chemicals at this site until it was recently sold. As a result of a longer production history in Henderson, KMCC and its predecessor operations have manufactured significantly greater amounts of perchlorate over time than we did at the Ampac Henderson Site.
	In 1997, the SNWA detected trace amounts of the perchlorate anion in Lake Mead and the Las Vegas Wash. Lake Mead is a source of drinking water for Southern Nevada and areas of Southern California. The Las Vegas Wash flows into Lake Mead from the Las Vegas valley.

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In response to this discovery by SNWA, and at the request of the NDEP, we engaged in an investigation of groundwater near the Ampac Henderson site and down gradient toward the Las Vegas Wash. That investigation and related characterization which lasted more than six years employed experts in the field of hydrogeology. This investigation concluded that, although there is perchlorate in the groundwater in the vicinity of the Ampac Henderson Site up to 700 ppm, perchlorate from this Site does not materially impact, if at all, water flowing in the Las Vegas Wash toward Lake Mead. It has been well established, however, by data generated by SNWA and NDEP, that perchlorate from the Kerr McGee Henderson Site did materially impact the Las Vegas Wash and Lake Mead. Kerr McGee’s successor, Tronox LLC, operates an ex situ perchlorate groundwater remediation facility at their Henderson site and this facility has had a significant effect on the load of perchlorate entering Lake Mead over the last 5 years. Recent measurements of perchlorate in Lake Mead made by SNWA have been less than 10 ppb.

Notwithstanding these facts, and at the direction of NDEP and the EPA, we conducted an investigation of remediation technologies for perchlorate in groundwater with the intention of remediating groundwater near the Ampac Henderson Site. The technology that was chosen as most efficient and appropriate is in situ bioremediation or ISB. ISB reduces perchlorate in the groundwater by precise addition of an appropriate carbon source to the groundwater itself while it is still in the ground (as opposed to an above ground, more conventional, ex situ process). This induces naturally occurring organisms in the groundwater to reduce the perchlorate among other oxygen containing compounds.

In 2002, we conducted a pilot test in the field of the ISB technology and it was successful. On the basis of the successful test and other evaluations, in fiscal 2005 we submitted a work plan to NDEP for the construction of a remediation facility near the Ampac Henderson Site. The conditional approval of the work plan by NDEP in our third quarter of fiscal 2005 allowed us to generate estimated costs for the installation and operation of the remediation facility to address perchlorate at Ampac Henderson Site. We commenced construction in July 2005. In December 2006, we began operations, reducing perchlorate concentrations in system extracted groundwater in Henderson.

Henderson Site Environmental Remediation Reserve –

During our fiscal 2005 third quarter, we recorded a charge for $22,400 representing our estimate of the probable costs of our remediation efforts at the Henderson Site, including the costs for equipment, operating and maintenance costs, and consultants. Key factors in determining the total estimated cost include an estimate of the speed of groundwater entering the treatment area, which was then used to estimate a project life of 45 years, as well as estimates for capital expenditures and annual operating and maintenance costs. The project consists of two primary phases; the initial construction of the remediation equipment and the operating and maintenance phase. During our fiscal 2006, we increased our total cost estimate of probable costs for the construction phase by $3,600 due primarily to changes in the engineering designs, delays in receiving permits and the resulting extension of construction time. We commenced the construction phase in late fiscal 2005, completed an interim system in June 2006, and completed the permanent facility in December 2006. In addition, to the operating and maintenance costs, certain remediation activities are conducted on public lands under operating permits. In general, these permits require us to return the land to its original condition at the end of the permit period. Estimated costs associated with removal of remediation equipment from the land are not material and are included in our range of estimated costs. These estimates are based on information currently available to us and may be subject to material adjustment upward or downward in future periods as new facts or circumstances may indicate.

We accrue for anticipated costs associated with environmental remediation that are probable and estimable. On a quarterly basis, we review our estimates of future costs that could be incurred for remediation activities. In some cases, only a range of reasonably possible costs can be estimated. In establishing our reserves, the most probable estimate is used; otherwise, we accrue the minimum amount of the range. As of March 31, 2007, the aggregate range of anticipated environmental

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remediation costs was from approximately $13,000 to approximately $19,500, and the accrued amount was $16,057.

A summary of our environmental reserve activity for the six months ended March 31, 2007 is shown below:

Balance, September 30, 2006	$	17,511
Additions or adjustments		—
Expenditures		(1,454	)
Balance, March 31, 2007	$	16,057

	AFC Environmental Matters –
	AFC’s facility is located on land leased from Aerojet. The leased land is part of a tract of land owned by Aerojet designated as a “Superfund Site” under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The tract of land had been used by Aerojet and affiliated companies to manufacture and test rockets and related equipment since the 1950s. Although the chemicals identified as contaminants on the leased land were not used by Aerojet Fine Chemicals as part of its operations, CERCLA, among other things, provides for joint and severable liability for environmental liabilities including, for example, the environmental remediation expenses.
	As part of the agreement to sell the AFC Business, an Environmental Indemnity Agreement was entered into whereby GenCorp agreed to indemnify us against any and all environmental costs and liabilities arising out of or resulting from any violation of environmental law prior to the effective date of the sale, or any release of hazardous substances by the AFC Business, Aerojet or GenCorp on the AFC premises or Aerojet’s Sacramento site prior to the effective date of the sale.
	On November 29, 2005, EPA Region IX provided us with a letter indicating that the EPA does not intend to pursue any clean up or enforcement actions under CERCLA against future lessees of the Aerojet Fine Chemicals property for existing contamination, provided that the lessees do not contribute to or do not exacerbate existing contamination on or under the Aerojet Superfund site.
	Employment Matters: Effective March 25, 2006, the employment of Dr. Seth Van Voorhees, as our Chief Financial Officer, Vice President and Treasurer, terminated. Dr. Van Voorhees was employed by us pursuant to an employment agreement dated December 1, 2005. On December 6, 2006, we reached a settlement with Dr. Van Voorhees under which we paid Dr. Van Voorhees $600 and both parties entered into a standard mutual release.
	Other Matters: We are from time to time involved in other claims or lawsuits. We believe that current claims or lawsuits against us, individually and in the aggregate, will not have a material adverse effect on our financial condition, cash flows or results of operations.
9.	SEGMENT INFORMATION
	We report our business in four operating segments: Specialty Chemicals, Fine Chemicals, Aerospace Equipment and Other Businesses. These segments are based upon business units that offer distinct products and services, are operationally managed separately and produce products using different production methods. Segment operating profit includes all sales and expenses directly associated with each segment. Environmental remediation charges, corporate general and administrative costs, which consist primarily of executive, investor relations, accounting, human resources and information technology expenses, and interest are not allocated to segment operating results.

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Specialty Chemicals: Our Specialty Chemicals segment manufactures and sells: (i) perchlorate chemicals, used principally in solid rocket propellants for the space shuttle and defense programs, (ii) sodium azide, a chemical used in pharmaceutical manufacturing and historically used principally in the inflation of certain automotive airbag systems, and (iii) Halotronâ, clean gas fire extinguishing agents designed to replace halons.

Fine Chemicals: On November 30, 2005, we created a new operating segment, Fine Chemicals, to report the financial performance of AFC (See Note 2). AFC is a manufacturer of active pharmaceutical ingredients and registered intermediates under cGMP guidelines for commercial customers in the pharmaceutical industry, involving high potency compounds, energetic and nucleoside chemistries, and chiral separation.

Aerospace Equipment: The Aerospace Equipment, or ISP business, manufactures and sells in-space propulsion systems, thrusters (monopropellant or bipropellant) and propellant tanks.

Other Businesses: Our Other Businesses segment contains our water treatment equipment and real estate activities. Our water treatment equipment business designs, manufactures and markets systems for the control of noxious odors, the disinfection of water streams and the treatment of seawater.

Our revenues are characterized by individually significant orders and relatively few customers. As a result, in any given reporting period, certain customers account for more than ten percent of our consolidated revenues. The following table provides disclosure of the percentage of our consolidated revenues attributed to customers that exceed ten percent of the total in each of the given periods.

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2007			2006			2007			2006
Specialty chemicals customer		18	%		26	%		14	%		20	%
Specialty chemicals customer		11	%					13	%
Fine chemicals customer		26	%					15	%
Fine chemicals customer		12	%					16	%
Fine chemicals customer					27	%					20	%

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The following provides financial information about our segment operations:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2007			2006			2007			2006
Revenues:
Specialty Chemicals	$	16,132		$	16,479		$	27,922		$	21,184
Fine Chemicals		22,366			18,931			39,957			24,103
Aerospace Equipment		4,465			3,489			8,441			8,134
Other Businesses		626			878			2,157			2,841
Total Revenues	$	43,589		$	39,777		$	78,477		$	56,262
Segment Operating Income:
Specialty Chemicals	$	6,418		$	6,532		$	9,911		$	6,952
Fine Chemicals		2,926			(275	)		5,845			676
Aerospace Equipment		111			58			297			319
Other Businesses		154			154			747			671
Total Segment Operating Income		9,609			6,469			16,800			8,618
Corporate Expenses		(3,489	)		(4,726	)		(6,285	)		(7,994	)
Environmental Remediation Charges		—			(2,800	)		—			(2,800	)
Operating Income (Loss)	$	6,120		$	(1,057	)	$	10,515		$	(2,176	)
Depreciation and Amortization:
Specialty Chemicals	$	1,286		$	1,283		$	2,568		$	2,562
Fine Chemicals		3,048			4,048			6,745			5,348
Aerospace Equipment		34			18			66			35
Other Businesses		3			3			6			6
Corporate		128			140			258			281
Total Depreciation and Amortization	$	4,499		$	5,492		$	9,643		$	8,232

10.	INTEREST AND OTHER INCOME
	Interest and other income consist of the following:

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2007		2006		2007		2006
Interest income	$	90	$	48	$	184	$	294
Gain on sale of Hughes Parkway		—		—		—		580
Other		—		—		—		49
	$	90	$	48	$	184	$	923

We owned a 70% interest as general and limited partner in a real estate development limited partnership (the “Partnership”). The remaining 30% limited partners included certain current and former members of our board of directors. The Partnership, in turn, owned a 33% limited partnership interest in Hughes Parkway. Hughes Parkway owns the building in which we lease office space in Las Vegas, Nevada.

In October 2005, the Partnership sold its interest in Hughes Parkway, which resulted in a net gain and cash distribution to us of $2,395. Concurrent with, and as a condition of, the sale of the Partnership’s interest in Hughes Parkway, we renewed our office space lease through February 2009. We accounted for the transaction as a sale leaseback. Accordingly, we deferred gain totaling $1,815 representing the present value of future lease payments. We amortize the deferred gain (as a reduction of rental expense), using the straight-line method over the term of the lease. We recognized the remaining gain of $580, which is reported as interest and other income.

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11.	DEFINED BENEFIT PLANS
	We maintain three defined benefit pension plans which cover substantially all of our U.S. employees, excluding employees of our Aerospace Equipment Segment: the American Pacific Corporation Defined Benefit Pension Plan, the Ampac Fine Chemicals LLC Pension Plan for Salaried Employees, and the Ampac Fine Chemicals LLC Pension Plan for Bargaining Unit Employees. Collectively, these three plans are referred to as the “Pension Plans”. The AFC related plans were established in connection with our acquisition of the AFC business and include the assumed liabilities for pension benefits to existing employees at the acquisition date. In addition, we have a supplemental executive retirement plan or SERP that includes our former and current Chief Executive Officer.
	Net periodic pension cost related to the Pension Plans consists of the following:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2007			2006			2007			2006
Pension Plans:
Service Cost	$	487		$	309		$	974		$	535
Interest Cost		529			477			1,058			827
Expected Return on Plan Assets		(468	)		(393	)		(936	)		(682	)
Recognized Actuarial Losses		15			16			30			29
Amortization of Prior Service Costs		153			134			305			232
Net Periodic Pension Cost	$	716		$	543		$	1,431		$	941
Supplemental Executive Retirement Plan:
Service Cost	$	—		$	—		$	—		$	—
Interest Cost		35			38			70			74
Expected Return on Plan Assets		—			—			—			—
Recognized Actuarial Losses		11			11			22			21
Amortization of Prior Service Costs		6			7			12			16
Net Periodic Pension Cost	$	52		$	56		$	104		$	111

For the six months ended March 31, 2007, we contributed $1,107 to the Pension Plans to fund benefit payments and anticipate making approximately $1,598 in additional contributions through September 30, 2007. For the six months ended March 31, 2007, we contributed $63 to the SERP to fund benefit payments and anticipate making approximately $64 in additional contributions through September 30, 2007.

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12.	DISCONTINUED OPERATIONS
	In June 2006, our board of directors approved and we committed to a plan to sell our interest in ESI, based on our determination that ESI’s product lines were no longer a strategic fit with our business strategies. Revenues and expenses associated with ESI’s operations are presented as discontinued operations for all periods presented. ESI was formerly reported within our Specialty Chemicals segment.
	Effective September 30, 2006, we completed the sale of our interest in ESI for $7,510, which, after deducting direct expenses, resulted in a gain on the sale before income taxes of $258. The ESI sale proceeds are reflected as a note receivable as of September 30, 2006 and we collected the amount in full in October 2006.
	Summarized financial information for ESI is as follows:

	Three Months		Six Months
	Ended March 31, 2006
Revenues	$	4,147	$	6,779
Discontinued Operations:
Operating income (loss) before tax		439		(405	)
Provision (benefit) for income taxes		171		(158	)
Net income (loss) from discontinued operations	$	268	$	(247	)

13.

GUARANTOR SUBSIDIARIES

As discussed in Note 7, on February 6, 2007, American Pacific Corporation, a Delaware Corporation (“Parent”) issued and sold $110,000 aggregate principal amount of Senior Notes. In connection with the issuance of the Senior Notes, the Company’s U.S. subsidiaries (“Guarantor Subsidiaries”) jointly, fully, severally, and unconditionally guaranteed the Senior Notes. The Company’s sole foreign subsidiary (“Non-Guarantor Subsidiary”) is not a guarantor of the Senior Notes. The Parent has no independent assets or operations. The following presents condensed consolidating financial information separately for the Parent, Guarantor Subsidiaries and Non-Guarantor Subsidiary:

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Condensed Consolidating Balance Sheet -			Guarantor			Non-Guarantor
March 31, 2007	Parent		Subsidiaries			Subsidiary			Eliminations			Consolidated
Assets:
Cash and Cash Equivalents	$	—	$	9,541		$	72		$	—		$	9,613
Accounts Receivable		—		15,476			1,218			(1,091	)		15,603
Inventories		—		54,982			750			—			55,732
Prepaid Expenses and Other Assets		—		1,863			126			—			1,989
Deferred Income Taxes		—		1,887			—			—			1,887
Total Current Assets		—		83,749			2,166			(1,091	)		84,824
Property, Plant and Equipment, Net		—		117,532			120			—			117,652
Intangible Assets, Net		—		8,682			—			—			8,682
Deferred Income Taxes		—		21,701			—			—			21,701
Other Assets		—		8,355			—			—			8,355
Intercompany Advances		78,683		1,661			—			(80,344	)		—
Investment in Subsidiaries		104,289		(173	)		—			(104,116	)		—
Total Assets	$	182,972	$	241,507		$	2,286		$	(185,551	)	$	241,214
Liabilitites and Stockholders’ Equity:
Accounts Payable and Other Current Liabilities	$	—	$	21,177		$	798		$	(1,091	)	$	20,884
Environmental Remediation Reserves		—		589			—			—			589
Deferred Revenues		—		10,901			—			—			10,901
Intercompany Advances		—		78,683			1,661			(80,344	)		—
Current Portion of Debt		—		229			—			—			229
Total Current Liabilities		—		111,579			2,459			(81,435	)		32,603
Long-Term Debt		110,000		485			—			—			110,485
Environmental Remediation Reserves		—		15,468			—			—			15,468
Other Long-Term Liabilities		—		9,686			—			—			9,686
Total Liabilities		110,000		137,218			2,459			(81,435	)		168,242
Total Stockholders’ Equity		72,972		104,289			(173	)		(104,116	)		72,972
Total Liabilities and Stockholders’ Equity	$	182,972	$	241,507		$	2,286		$	(185,551	)	$	241,214

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Condensed Consolidating Balance Sheet -			Guarantor		Non-Guarantor
September 30, 2006	Parent		Subsidiaries		Subsidiary			Eliminations			Consolidated
Assets:
Cash and Cash Equivalents	$	—	$	6,758	$	114		$	—		$	6,872
Accounts Receivable		—		19,253		1,040			(819	)		19,474
Notes Receivable		—		7,510		—			—			7,510
Inventories		—		39,152		603			—			39,755
Prepaid Expenses and Other Assets		—		1,745		100			—			1,845
Deferred Income Taxes		—		1,887		—			—			1,887
Total Current Assets		—		76,305		1,857			(819	)		77,343
Property, Plant and Equipment, Net		—		119,623		123			—			119,746
Intangible Assets, Net		—		14,237		—			—			14,237
Deferred Income Taxes		—		21,701		—			—			21,701
Other Assets		—		6,428		—			—			6,428
Intercompany Advances		81,389		975		—			(82,364	)		—
Investment in Subsidiaries		97,320		56		—			(97,376	)		—
Total Assets	$	178,709	$	239,325	$	1,980		$	(180,559	)	$	239,455
Liabilitites and Stockholders’ Equity:
Accounts Payable and Other Current Liabilities	$	—	$	26,885	$	949		$	(819	)	$	27,015
Environmental Remediation Reserves		—		1,631		—			—			1,631
Deferred Revenues		—		5,683		—			—			5,683
Intercompany Advances		—		81,389		975			(82,364	)		—
Current Portion of Debt		9,422		171		—			—			9,593
Total Current Liabilities		9,422		115,759		1,924			(83,183	)		43,922
Long-Term Debt		97,403		368		—			—			97,771
Environmental Remediation Reserves		—		15,880		—			—			15,880
Other Long-Term Liabilities		—		9,998		—			—			9,998
Total Liabilities		106,825		142,005		1,924			(83,183	)		167,571
Total Stockholders’ Equity		71,884		97,320		56			(97,376	)		71,884
Total Liabilities and Stockholders’ Equity	$	178,709	$	239,325	$	1,980		$	(180,559	)	$	239,455
Condensed Consolidating Statement of Operations -			Guarantor		Non-Guarantor
Six Months Ended March 31, 2007	Parent		Subsidiaries		Subsidiary			Eliminations			Consolidated
Revenues	$	—	$	77,781	$	851		$	(155	)	$	78,477
Cost of Revenues		—		48,701		812			(155	)		49,358
Gross Profit		—		29,080		39			—			29,119
Operating Expenses		—		18,306		298			—			18,604
Operating Income (Loss)		—		10,774		(259	)		—			10,515
Interest and Other Income		6,373		182		2			(6,373	)		184
Interest Expense		6,373		6,460		—			(6,373	)		6,460
Debt Repayment Charges		—		2,714		—			—			2,714
Income (Loss) from Continuing Operations before Income Tax and Equity Account for Subsidiaries		—		1,782		(257	)		—			1,525
Income Tax Expense		—		768		—			—			768
Income (Loss) from Continuing Operations before Equity Account for Subsidiaries		—		1,014		(257	)		—			757
Equity Account for Subsidiaries		757		—		—			(757	)		—
Net Income (Loss) from Continuing Operations	$	757	$	1,014	$	(257	)	$	(757	)	$	757

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Condensed Consolidating Statement of Operations -				Guarantor			Non-Guarantor
Six Months Ended March 31, 2006	Parent			Subsidiaries			Subsidiary			Eliminations			Consolidated
Revenues	$	—		$	55,867		$	533		$	(138	)	$	56,262
Cost of Revenues		—			38,962			533			(138	)		39,357
Gross Profit		—			16,905			—			—			16,905
Operating Expenses		—			16,080			201			—			16,281
Environmental Remediation Charges		—			2,800			—			—			2,800
Operating Loss		—			(1,975	)		(201	)		—			(2,176	)
Interest and Other Income		4,125			922			1			(4,125	)		923
Interest Expense		4,125			4,125			—			(4,125	)		4,125
Loss from Continuing Operations before Income Tax and Equity Account for Subsidiaries		—			(5,178	)		(200	)		—			(5,378	)
Income Tax Benefit		—			(1,982	)		—			—			(1,982	)
Loss from Continuing Operations before Equity Account for Subsidiaries		—			(3,196	)		(200	)		—			(3,396	)
Equity Account for Subsidiaries		(3,396	)		—			—			3,396			—
Net Loss from Continuing Operations	$	(3,396	)	$	(3,196	)	$	(200	)	$	3,396		$	(3,396	)
Condensed Consolidating Statement of Operations -				Guarantor			Non-Guarantor
Three Months Ended March 31, 2007	Parent			Subsidiaries			Subsidiary			Eliminations			Consolidated
Revenues	$	—		$	43,216		$	507		$	(134	)	$	43,589
Cost of Revenues		—			27,003			509			(134	)		27,378
Gross Profit		—			16,213			(2	)		—			16,211
Operating Expenses		—			9,918			173			—			10,091
Operating Income (Loss)		—			6,295			(175	)		—			6,120
Interest and Other Income		3,118			89			1			(3,118	)		90
Interest Expense		3,118			3,157			—			(3,118	)		3,157
Debt Repayment Charges		—			2,714			—			—			2,714
Income (Loss) from Continuing Operations before Income Tax and Equity Account for Subsidiaries		—			513			(174	)		—			339
Income Tax Expense		—			221			—			—			221
Income (Loss) from Continuing Operations before Equity Account for Subsidiaries		—			292			(174	)		—			118
Equity Account for Subsidiaries		118			—			—			(118	)		—
Net Income (Loss) from Continuing Operations	$	118		$	292		$	(174	)	$	(118	)	$	118
Condensed Consolidating Statement of Operations -				Guarantor			Non-Guarantor
Three Months Ended March 31, 2006	Parent			Subsidiaries			Subsidiary			Eliminations			Consolidated
Revenues	$	—		$	39,760		$	155		$	(138	)	$	39,777
Cost of Revenues		—			27,160			196			(138	)		27,218
Gross Profit		—			12,600			(41	)		—			12,559
Operating Expenses		—			10,706			110			—			10,816
Environmental Remediation Charges		—			2,800			—			—			2,800
Operating Loss		—			(906	)		(151	)		—			(1,057	)
Interest and Other Income		3,056			48			—			(3,056	)		48
Interest Expense		3,056			3,056			—			(3,056	)		3,056
Loss from Continuing Operations before Income Tax and Equity Account for Subsidiaries		—			(3,914	)		(151	)		—			(4,065	)
Income Tax Benefit		—			(1,459	)		—			—			(1,459	)
Loss from Continuing Operations before Equity Account for Subsidiaries		—			(2,455	)		(151	)		—			(2,606	)
Equity Account for Subsidiaries		(2,606	)		—			—			2,606			—
Net Loss from Continuing Operations	$	(2,606	)	$	(2,455	)	$	(151	)	$	2,606		$	(2,606	)

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Condensed Consolidating Statement of Cash Flows -				Guarantor			Non-Guarantor
Six Months Ended March 31, 2007	Parent			Subsidiaries			Subsidiary			Eliminations		Consolidated
Net cash Provided (Used) by Operating Activities	$	—		$	7,110		$	(463	)	$	—	$	6,647
Cash Flows from Investing Activities:													—
Acquisition of businesses		—			(6,000	)		—			—		(6,000	)
Capital expenditures		—			(2,554	)		(11	)		—		(2,565	)
Discontinued operations, net		—			7,510			—			—		7,510
Net Cash Used in Investing Activities		—			(1,044	)		(11	)		—		(1,055	)
Cash Flows from Financing Activities:
Proceeds from the issuance of long-term debt		110,000			—			—			—		110,000
Payments of long-term debt		(108,327	)		(145	)		—			—		(108,472	)
Debt issuance costs		(4,574	)		—			—			—		(4,574	)
Issuance of common stock		195			—			—			—		195
Intercompany advances, net		2,706			(3,138	)		432			—		—
Net Cash Provided (Used) by Financing Activities		—			(3,283	)		432			—		(2,851	)
Net Change in Cash and Cash Equivalents		—			2,783			(42	)		—		2,741
Cash and Cash Equivalents, Beginning of Period		—			6,758			114			—		6,872
Cash and Cash Equivalents, End of Period	$	—		$	9,541		$	72		$	—	$	9,613

Condensed Consolidating Statement of Cash Flows -				Guarantor			Non-Guarantor
Six Months Ended March 31, 2006	Parent			Subsidiaries			Subsidiary			Eliminations		Consolidated
Net Cash Used by Operating Activities	$	—		$	(3,783	)	$	(43	)	$	—	$	(3,826	)
Cash Flows from Investing Activities:													—
Acquisition of businesses		—			(108,451	)		—			—		(108,451	)
Capital expenditures		—			(7,815	)		(89	)		—		(7,904	)
Proceeds from sale of assets		—			2,395			—			—		2,395
Discontinued operations, net		—			(347	)		—			—		(347	)
Net Cash Used in Investing Activities		—			(114,218	)		(89	)		—		(114,307	)
Cash Flows from Financing Activities:
Proceeds from the issuance of long-term debt		85,000			—			—			—		85,000
Payments of long-term debt		(325	)		—			—			—		(325	)
Short-term borrowings, net		6,000			(5	)		—			—		5,995
Debt issuance costs		(1,716	)		—			—			—		(1,716	)
Issuance of common stock		31			—			—			—		31
Intercompany advances, net		(88,990	)		88,776			214			—		—
Discontinued operations, net		—			(68	)		—			—		(68	)
Net Cash Provided by Financing Activities		—			88,703			214			—		88,917
Net Change in Cash and Cash Equivalents		—			(29,298	)		82			—		(29,216	)
Cash and Cash Equivalents, Beginning of Period		—			37,079			134			—		37,213
Cash and Cash Equivalents, End of Period	$	—		$	7,781		$	216		$	—	$	7,997

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