UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended March 31, 2008

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-08137

AMERICAN PACIFIC CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	59-6490478
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3770 Howard Hughes Parkway, Suite 300
Las Vegas, Nevada 89169
(Address of principal executive offices) (Zip Code)

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

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”. “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer: o	Accelerated filer: þ	Non-accelerated filer: o	Smaller reporting company: o
		(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     The number of shares of the registrant’s common stock outstanding as of April 30, 2008 was 7,447,671.

AMERICAN PACIFIC CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements	1
Condensed Consolidated Statements of Operations (unaudited)	1
Condensed Consolidated Balance Sheets (unaudited)	2
Condensed Consolidated Statements of Cash Flows (unaudited)	3
Notes to Condensed Consolidated Financial Statements (unaudited)	4
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	36
ITEM 4. Controls and Procedures	36
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings	37
ITEM 1A. Risk Factors	37
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	48
ITEM 3. Defaults Upon Senior Securities	48
ITEM 4. Submission of Matters to a Vote of Security Holders	48
ITEM 5. Other Information	48
ITEM 6. Exhibits	48
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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,
	2008		2007		2008		2007
Revenues	$	48,347	$	43,589	$	95,237	$	78,477
Cost of Revenues		31,737		27,378		61,198		49,358
Gross Profit		16,610		16,211		34,039		29,119
Operating Expenses		11,242		10,091		21,447		18,604
Operating Income		5,368		6,120		12,592		10,515
Interest and Other Income, Net		268		90		646		184
Interest Expense		2,687		3,157		5,391		6,460
Debt Repayment Charges		—		2,714		—		2,714
Income before Income Tax		2,949		339		7,847		1,525
Income Tax Expense		1,316		221		3,351		768
Net Income	$	1,633	$	118	$	4,496	$	757
Earnings per Share:
Basic	$	0.22	$	0.02	$	0.60	$	0.10
Diluted	$	0.22	$	0.02	$	0.59	$	0.10
Weighted Average Shares Outstanding:
Basic		7,440,000		7,335,000		7,437,000		7,330,000
Diluted		7,592,000		7,429,000		7,588,000		7,398,000

See accompanying notes to condensed consolidated financial statements

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AMERICAN PACIFIC CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited, Dollars in Thousands, Except per Share Amounts)

	March 31,			September 30,
	2008			2007
ASSETS
Current Assets:
Cash and Cash Equivalents	$	27,403		$	21,426
Accounts Receivable, Net		25,385			25,236
Inventories		49,489			47,023
Prepaid Expenses and Other Assets		4,286			2,258
Deferred Income Taxes		5,504			2,101
Total Current Assets		112,067			98,044
Property, Plant and Equipment, Net		116,244			116,965
Intangible Assets, Net		3,631			5,767
Deferred Income Taxes		18,591			19,385
Other Assets		9,279			9,246
TOTAL ASSETS	$	259,812		$	249,407
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$	13,606		$	10,867
Accrued Liabilities		5,227			7,829
Accrued Interest		1,650			1,686
Employee Related Liabilities		5,346			7,222
Deferred Revenues and Customer Deposits		13,044			7,755
Current Portion of Environmental Remediation Reserves		613			726
Current Portion of Long-Term Debt		234			252
Total Current Liabilities		39,720			36,337
Long-Term Debt		110,247			110,373
Environmental Remediation Reserves		14,262			14,697
Pension Obligations and Other Long-Term Liabilities		17,594			12,311
Total Liabilities		181,823			173,718
Commitments and Contingencies
Shareholders’ Equity
Preferred Stock — $1.00 par value; 3,000,000 authorized; none outstanding		—			—
Common Stock — $0.10 par value; 20,000,000 shares authorized, 9,482,541 and 9,463,541 issued		948			946
Capital in Excess of Par Value		87,763			87,513
Retained Earnings		11,501			7,296
Treasury Stock - 2,034,870 shares		(16,982	)		(16,982	)
Accumulated Other Comprehensive Loss		(5,241	)		(3,084	)
Total Shareholders’ Equity		77,989			75,689
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	259,812		$	249,407

See accompanying notes to condensed consolidated financial statements

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AMERICAN PACIFIC CORPORATION

Condensed Consolidated Statements of Cash Flow

(Unaudited, Dollars in Thousands)

	Six Months Ended
	March 31,
	2008			2007
Cash Flows from Operating Activities:
Net Income	$	4,496		$	757
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and amortization		8,837			9,643
Non-cash interest expense		320			1,819
Share-based compensation		53			67
Non-cash component of debt repayment charge		—			2,309
Excess tax benefit from stock option exercises		(82	)		—
Deferred income taxes		(24	)		—
Changes in operating assets and liabilities:
Accounts receivable, net		(192	)		3,893
Inventories		(2,466	)		(15,977	)
Prepaid expenses and other current assets		(2,176	)		(144	)
Accounts payable		2,282			(505	)
Accrued liabilities		(2,557	)		(19	)
Accrued interest		(36	)		1,381
Employee related liabilities		(1,876	)		(91	)
Deferred revenues and customer deposits		5,289			5,218
Environmental remediation reserves		(548	)		(1,454	)
Pension obligations, net		461			19
Other		(562	)		(269	)
Net Cash Provided by Operating Activities		11,219			6,647
Cash Flows from Investing Activities:
Capital expenditures		(5,297	)		(2,565	)
Earnout payment for acquisition of AFC Business		—			(6,000	)
Discontinued operations — collection of note receivable		—			7,510
Net Cash Used by Investing Activities		(5,297	)		(1,055	)
Cash Flows from Financing Activities:
Proceeds from the issuance of long-term debt		—			110,000
Payments of long-term debt		(144	)		(108,472	)
Debt issuance costs		—			(4,574	)
Issuances of common stock		117			195
Excess tax benefit from stock option exercises		82			—
Net Cash Provided (Used) by Financing Activities		55			(2,851	)
Net Change in Cash and Cash Equivalents		5,977			2,741
Cash and Cash Equivalents, Beginning of Period		21,426			6,872
Cash and Cash Equivalents, End of Period	$	27,403		$	9,613
Cash Paid For:
Interest	$	5,107		$	3,260
Income taxes		853			81
Non-Cash Investing and Financing Transactions:
Capital leases originated	$	—		$	321
Additions to Property, Plant and Equipment not yet paid		1,066			384

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 (collectively, 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, 2007. The operating results for the three-month and six-month periods ended March 31, 2008 and cash flows for the six-month period ended March 31, 2008 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, 2007.
	Principles of Consolidation.  Our consolidated financial statements include the accounts of American Pacific Corporation and our wholly-owned subsidiaries. All intercompany accounts have been eliminated.
	Recently Issued or Adopted Accounting Standards.  In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes”. We adopted FIN 48 on October 1, 2007 (see Note 9).
	In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, (“SFAS No. 157”) which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles in the United States of America, and expands disclosures about fair value measurements. In February 2008, the FASB deferred the adoption of SFAS No. 157 for one year as it applies to certain items, including assets and liabilities initially measured at fair value in a business combination, reporting units and certain assets and liabilities measured at fair value in connection with goodwill impairment tests in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, and long-lived assets measured at fair value for impairment assessments under SFAS No. 144, “Accounting for the Impairment and Disposal of Long-Lived Assets.” SFAS No. 157 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 effective for us on October 1, 2008. We are currently evaluating the impact SFAS 157 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”). 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 must 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

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1.	INTERIM BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
	year that begins on October 1, 2008. We are currently evaluating whether to adopt the fair value option under SFAS No. 159 and what impact adoption would have on our consolidated financial statements.
	In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R will significantly change the accounting for business combinations. Under SFAS No. 141R, an acquiring entity is required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions.   SFAS No. 141R also includes a substantial number of new disclosure requirements. SFAS No. 141R applies to us prospectively for business combinations with acquisition dates on or after October 1, 2009. We expect that SFAS No. 141R will have an impact on accounting for business combinations once adopted, but the effect is dependent upon acquisitions at that time.
	In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS No. 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS No.160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest.  SFAS No. 160 is effective for us beginning on October 1, 2009. We currently have no entities or arrangements that will be affected by the adoption of SFAS No. 160. However, determination of the ultimate effect of this pronouncement will depend on our structure at the date of adoption.
2.	SHARE-BASED COMPENSATION
	We account for our share-based compensation arrangements under the provisions of SFAS No. 123 (Revised 2004), “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. The fair values of awards are recognized as additional compensation expense, which is classified as operating expenses, proportionately over the vesting period of the awards.
	Our share-based compensation arrangements are designed to advance the long-term interests of the Company, including by attracting and retaining employees and directors and aligning their interests with those of our stockholders. The amount, frequency, and terms of share-based awards may vary based on competitive practices, our operating results, government regulations and availability under our equity incentive plans. Depending on the form of the share-based award, new shares of our common stock may be issued upon grant, option exercise or vesting of the award. We maintain three share based plans, each as discussed below.
	The American Pacific Corporation Amended and Restated 2001 Stock Option Plan (the “2001 Plan”) permits the granting of stock options 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 ten years from the date of grant. As of March 31, 2008, there were 20,000 shares available for grant under the 2001 Plan. This plan was approved by our stockholders.

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2.	SHARE-BASED COMPENSATION (continued)
	The American Pacific Corporation 2002 Directors Stock Option Plan, as amended and restated (the “2002 Directors Plan”) compensates non-employee directors with stock options granted annually or upon other discretionary events. Options granted under the 2002 Directors Plan prior to September 30, 2007 generally vested 50% at the grant date and 50% on the one-year anniversary of the grant date, and expire ten years from the date of grant. Options granted under the 2002 Directors Plan in November 2007 vest 50% one year from the date of grant and 50% two years from the date of grant. As of March 31, 2008, there were 3 shares available for grant under the 2002 Directors Plan. This plan was approved by our stockholders.
	In November 2007, our board of directors adopted, and in March 2008, our stockholders approved, the American Pacific Corporation 2008 Stock Incentive Plan (the “2008 Plan”). The 2008 Plan provides for grants of stock options, restricted stock, restricted stock units and stock appreciation rights to employees, directors and consultants. A total of 350,000 shares of common stock are reserved for issuance under the 2008 Plan, provided that no more than 200,000 shares of common stock may be granted pursuant to awards of restricted stock or restricted stock units. As of March 31, 2008, there were 350,000 shares available for grant under the 2008 plan.
	A summary of our outstanding and vested stock option activity for the six months ended March 31, 2008 is as follows:

	Total Outstanding					Non Vested
				Weighted					Weighted
				Average					Average
				Exercise					Fair
				Price					Value
	Shares			Per Share		Shares			Per Share
Balance, September 30, 2007		430,000		$	7.05		9,500		$	3.77
Granted		24,997			16.93		24,997			7.86
Vested		—			—		(9,500	)		3.77
Exercised		(19,000	)		6.17		—			—
Expired / Cancelled		—			—		—			—
Balance, March 31, 2008		435,997			7.66		24,997			7.86

A summary of our exercisable stock options as of March 31, 2008 is as follows:

Number of vested stock options		411,000
Weighted-average exercise price per share	$	7.09
Aggregate intrinsic value	$	3,648
Weighted-average remaining contractual term in years		6.3

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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2.      SHARE-BASED COMPENSATION (continued)

	Six Months Ended
	March 31,
	2008			2007
Weighted-average grant date fair value per share of options granted	$	7.86		$	3.68
Significant fair value assumptions:
Expected term in years		5.75			5.25
Expected volatility		44.5	%		47.0	%
Expected dividends		0.0	%		0.0	%
Risk-free interest rates		3.4	%		4.7	%
Total intrinsic value of options exercised	$	201		$	108
Aggregate cash received for option exercises	$	117		$	195
Total compensation cost (included in operating expenses)	$	53		$	67
Tax benefit recognized		22			28
Net compensation cost	$	31		$	39
As of period end date:
Total compensation cost for non-vested awards not yet recognized	$	144		$	10
Weighted-average years to be recognized		1.1			0.5

3.      SELECTED BALANCE SHEET DATA

             Inventories.  Inventories consist of the following:

	March 31,		September 30,
	2008		2007
Finished goods	$	9,390	$	3,261
Work-in-process		24,710		29,225
Raw materials and supplies		15,389		14,537
Total	$	49,489	$	47,023

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,
	2008			2007
Perchlorate customer list	$	38,697		$	38,697
Less accumulated amortization		(38,697	)		(37,180	)
		—			1,517
Customer relationships and backlog		10,244			10,244
Less accumulated amortization		(6,613	)		(5,994	)
		3,631			4,250
Total	$	3,631		$	5,767

The perchlorate customer list is an asset of our Specialty Chemicals segment and is subject to amortization. Amortization expense was $542 and $975 for the three-month periods ended March 31, 2008 and 2007, respectively. Amortization expense was $1,517 and $1,950 for the six-month periods ended March 31, 2008 and 2007, respectively.

Customer relationships and backlog are assets of our Fine Chemicals segment and are subject to amortization. Amortization expense was $309 for each of the three-month periods ended March 31, 2008 and 2007, and $619 for each of the six-month periods ended March 31, 2008 and 2007.

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4.	COMPREHENSIVE INCOME
	Comprehensive income consists of the following:

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2008		2007		2008			2007
Net Income	$	1,633	$	118	$	4,496		$	757
Other Comprehensive Income (Loss) -
Foreign currency translation adjustment		—		5		(47	)		27
SERP Amendment, net of tax (See Note 10)		—		—		(2,110	)		—
Comprehensive Income	$	1,633	$	123	$	2,339		$	784

5.	EARNINGS PER SHARE
	Shares used to compute earnings per share are as follows:

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2008		2007		2008		2007
Net income	$	1,633	$	118	$	4,496	$	757
Basic Weighted Average Shares		7,440,000		7,335,000		7,437,000		7,330,000
Diluted:
Weighted average shares, basic		7,440,000		7,335,000		7,437,000		7,330,000
Dilutive effect of stock options		152,000		94,000		151,000		68,000
Weighted average shares, diluted		7,592,000		7,429,000		7,588,000		7,398,000
Basic earnings per share	$	0.22	$	0.02	$	0.60	$	0.10
Diluted earnings per share	$	0.22	$	0.02	$	0.59	$	0.10

	As of March 31, 2008, we had 24,997 antidilutive options outstanding. As of March 31, 2007, we had no antidilutive options outstanding. Stock options are antidilutive if the exercise price of the option exceeds the average fair market value of our stock for the period.
6.	DEBT
	Our outstanding debt balances consist of the following:

	March 31,			September 30,
	2008			2007
Senior Notes, 9%, due 2015	$	110,000		$	110,000
Capital Leases, due through 2009		481			625
Total Debt		110,481			110,625
Less Current Portion		(234	)		(252	)
Total Long-term Debt	$	110,247		$	110,373

Senior Notes. In February 2007, we issued and sold $110,000 aggregate principal amount of 9.0% Senior Notes due February 1, 2015 (collectively, with the exchange notes issued in August 2007 as referenced below, the “Senior Notes”). Proceeds from the issuance of the Senior Notes were used to repay our former credit facilities. The Senior Notes accrue interest at an annual rate of 9.0%, payable semi-annually in February and August. 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:

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6. DEBT (continued)

• 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 an applicable 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;

• until February 1, 2010, up to 35% of the principal amount of the Senior Notes at a redemption price of 109% with the proceeds of certain sales of our equity securities; and

• under certain changes of control, we must offer to purchase the Senior Notes at 101% of their aggregate principal amount, plus accrued interest.

The Senior Notes were issued pursuant to an indenture which contains certain customary events of default and certain other 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.

In connection with the closing of the sale of the Senior Notes, we entered into a registration rights agreement which required us to file a registration statement to 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. In July 2007, we filed a registration statement with the SEC with respect to an offer to exchange the Senior Notes as required by the registration rights agreement, which was declared effective by the SEC. In August 2007, we completed the exchange of 100% of the Senior Notes for substantially identical notes which are registered under the Securities Act of 1933, as amended.

Revolving Credit Facility. On February 6, 2007, we entered into an Amended and Restated Credit Agreement (the “Revolving Credit Facility”) with Wachovia Bank, National Association, and certain other lenders, which provides a secured revolving credit facility in an aggregate principal amount of up to $20,000 with an initial maturity of 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 are, at our option, either 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 is tied to our total leverage ratio (as defined in the Revolving Credit Facility). In addition, we pay commitment fees, other fees related to the issuance and maintenance of letters of credit, and certain agency fees.

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6.	DEBT (continued)
	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, 2008, under our Revolving Credit Facility, we had no borrowings outstanding, availability of $18,354 and we were in compliance with its various financial covenants. Availability 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, 2008, we had $1,848 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.
	Debt Repayment Charges. In February 2007, in connection with issuance of our Senior Notes and the repayment of our then existing credit facilities, we recorded a charge for $2,309 to write-off the unamortized balance of debt issue costs associated with those facilities and paid a pre-payment penalty of $405 to terminate one of the then existing credit facilities.
7.	COMMITMENTS AND CONTINGENCIES
	Environmental Matters.
	Review of Perchlorate Toxicity by the EPA. The perchlorate 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 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 with perchlorate 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 of 24.5 ppb.  A decision as to whether or not to establish a minimum

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7.	COMMITMENTS AND CONTINGENCIES (continued)
	contaminate level is pending.  The outcome of the federal EPA action, 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 (“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 Corporation (“KMCC”) also operated a perchlorate production facility in Henderson, Nevada (“KMCC Site”) from 1967 to 1998. In addition, between 1956 and 1967, American Potash operated a perchlorate production facility and, for many years prior to 1956, other entities also manufactured perchlorate chemicals at the KMCC Site. 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 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. 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. The 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 KMCC Site did impact the Las Vegas Wash and Lake Mead. KMCC’s successor, Tronox LLC, operates an ex situ perchlorate groundwater remediation facility at their Henderson site. 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 the 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 AMPAC 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

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7.	COMMITMENTS AND CONTINGENCIES (continued)
	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 phase and the operating and maintenance phase. During 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, 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, 2008, the aggregate range of anticipated environmental remediation costs was from approximately $11,900 to approximately $17,900, and the accrued amount was $14,875. A summary of our environmental reserve activity for the six months ended March 31, 2008 is shown below:

Balance, September 30, 2007	$	15,423
Additions or adjustments		—
Expenditures		(548	)
Balance, March 31, 2008	$	14,875

AFC Environmental Matters. Our Fine Chemicals segment, Ampac Fine Chemicals LLC (“AFC”), is located on land leased from Aerojet-General Corporation (“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 of 1980 (“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 LLC as part of its operations, CERCLA, among other things, provides for joint and severable liability for environmental liabilities including, for example, environmental remediation expenses.

As part of the agreement by which we acquired the business of AFC from GenCorp Inc. (“GenCorp”), 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 AFC, 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 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. Although we are not currently party to any material pending legal proceedings, we are from time to time subject to claims and lawsuits related to our business operations. We accrue for

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7.	COMMITMENTS AND CONTINGENCIES (continued)
	loss contingencies when a loss is probable and the amount can be reasonably estimated. Legal fees, which can be material in any given period, are expensed as incurred. We believe that current claims or lawsuits against us, individually and in the aggregate, will not result in loss contingencies that will have a material adverse effect on our financial condition, cash flows or results of operations.
8.	SEGMENT INFORMATION
	We report our business in four operating segments: Fine Chemicals, Specialty 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 income 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.
	Fine Chemicals. Our Fine Chemicals segment includes the operating results of our wholly-owned subsidiary Ampac Fine Chemicals LLC. 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.
	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.
	Aerospace Equipment. Our Aerospace Equipment segment includes the operating results of our wholly-owned subsidiary Ampac-ISP Corp. (“ISP”). ISP 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 real estate activities are substantially complete.
	Our revenues are characterized by individually significant orders and relatively few customers. As a result, in any given reporting period, certain customers may 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,
	2008			2007			2008			2007
Fine chemicals customer		15	%					20	%
Fine chemicals customer		22	%		26	%		22	%		15	%
Fine chemicals customer		18	%		12	%		12	%		16	%
Specialty chemicals customer		14	%		18	%		19	%		14	%
Specialty chemicals customer					11	%					14	%

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8.	SEGMENT INFORMATION (continued)
	The following provides financial information about our segment operations:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2008			2007			2008			2007
Revenues:
Fine Chemicals	$	30,504		$	22,366		$	57,266		$	39,957
Specialty Chemicals		12,787			16,132			28,336			27,922
Aerospace Equipment		4,235			4,465			7,970			8,441
Other Businesses		821			626			1,665			2,157
Total Revenues	$	48,347		$	43,589		$	95,237		$	78,477
Segment Operating Income (Loss):
Fine Chemicals	$	4,144		$	2,926		$	8,805		$	5,845
Specialty Chemicals		4,891			6,418			10,770			9,911
Aerospace Equipment		405			111			578			297
Other Businesses		17			154			(1	)		747
Total Segment Operating Income		9,457			9,609			20,152			16,800
Corporate Expenses		(4,089	)		(3,489	)		(7,560	)		(6,285	)
Operating Income	$	5,368		$	6,120		$	12,592		$	10,515
Depreciation and Amortization:
Fine Chemicals	$	3,018		$	3,048		$	6,390		$	6,745
Specialty Chemicals		832			1,286			2,090			2,568
Aerospace Equipment		39			34			96			66
Other Businesses		3			3			6			6
Corporate		130			128			255			258
Total Depreciation and Amortization	$	4,022		$	4,499		$	8,837		$	9,643

9.	INCOME TAXES
	We adopted the provisions of FIN 48 on October 1, 2007. As a result of the implementation of FIN 48, we made a comprehensive review of our portfolio of uncertain tax positions in accordance with recognition standards established by FIN 48. In this regard, an uncertain tax position represents our expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. Upon the adoption of FIN 48, we recorded a liability for unrecognized tax benefits of $3,949, of which $291 would impact our effective tax rate if we were to sustain the positions as filed. We expect that it is reasonably possible that our liability for unrecognized tax benefits will be reduced by $62 during the next twelve months due to the expiration of certain statutes of limitations.
	We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of October 1, 2007, we had accrued approximately $154 for the payment of tax-related interest and no amounts for penalties. For the six months ended March 31, 2008, we accrued an additional $36 of interest related to unrecognized tax benefits.
	We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and the U.K. With few exceptions, we are no longer subject to federal or state income tax examinations for years before 2004.

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10.	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, the “Pension Plans”).
	We maintain a Supplemental Executive Retirement Plan (the “SERP”). Prior to November 2007, the SERP included our former and current Chief Executive Officers. In November 2007, our board of directors approved the amendment and restatement of the SERP. Under the terms of the amended and restated SERP, certain of our officers and their beneficiaries are entitled to receive a monthly annuity benefit following their retirement from the Company. The amendment and restatement of the SERP, which became effective as of October 1, 2007, amends, among other provisions, the list of participants in the SERP to include three additional executive officers of the Company and the method of calculating a participant’s benefit under the SERP. As a result of the SERP amendment and restatement, effective October 1, 2007, we recorded an increase in our SERP liability of $3,516 which represents the actuarial value of the amended SERP benefits applied to prior service periods of the participants (“Prior Service Costs”). An entry for the corresponding amount was recorded as an increase to Accumulated Other Comprehensive Loss. Unrecognized Prior Service Costs will be amortized as additional pension expense over the average estimated remaining service period of the participants of eight years.
	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. 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 provide healthcare and life insurance benefits to substantially all of our employees.
	Net periodic pension cost related to the Pension Plans consists of the following:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2008			2007			2008			2007
Pension Plans:
Service Cost	$	507		$	487		$	1,014		$	974
Interest Cost		563			529			1,126			1,058
Expected Return on Plan Assets		(521	)		(468	)		(1,042	)		(936	)
Recognized Actuarial Losses		107			153			214			305
Amortization of Prior Service Costs		14			15			28			30
Net Periodic Pension Cost	$	670		$	716		$	1,340		$	1,431
Supplemental Executive Retirement Plan:
Service Cost	$	89		$	—		$	176		$	—
Interest Cost		87			35			173			70
Expected Return on Plan Assets		—			—			—			—
Recognized Actuarial Losses		—			11			—			22
Amortization of Prior Service Costs		110			6			216			12
Net Periodic Pension Cost	$	286		$	52		$	565		$	104

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10.	DEFINED BENEFIT PLANS (continued)
	For the six months ended March 31, 2008, we contributed $1,256 to the Pension Plans to fund benefit payments and anticipate making approximately $1,818 in additional contributions through September 30, 2008. For the six months ended March 31, 2008, we contributed $63 to the SERP to fund benefit payments and anticipate making approximately $63 in additional contributions through September 30, 2008.
11.	GUARANTOR SUBSIDIARIES
	As discussed in Note 6, on February 6, 2007, American Pacific Corporation, a Delaware corporation (the “Parent”) issued and sold $110,000 aggregate principal amount of 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. Each of the Parent’s subsidiaries is wholly-owned. 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:
	Condensed Consolidating Balance Sheet - March 31, 2008

			Guarantor			Non-Guarantor
	Parent		Subsidiaries			Subsidiary			Eliminations			Consolidated
Assets:
Cash and Cash Equivalents	$	—	$	27,312		$	91		$	—		$	27,403
Accounts Receivable, Net		—		25,183			1,138			(936	)		25,385
Inventories, Net		—		48,609			880			—			49,489
Prepaid Expenses and Other Assets		—		4,163			123			—			4,286
Deferred Income Taxes		—		5,504			—			—			5,504
Total Current Assets		—		110,771			2,232			(936	)		112,067
Property, Plant and Equipment, Net		—		116,097			147			—			116,244
Intangible Assets, Net		—		3,631			—			—			3,631
Deferred Income Taxes		—		18,591			—			—			18,591
Other Assets		—		9,279			—			—			9,279
Intercompany Advances		79,416		1,910			—			(81,326	)		—
Investment in Subsidiaries		108,573		(856	)		—			(107,717	)		—
Total Assets	$	187,989	$	259,423		$	2,379		$	(189,979	)	$	259,812
Liabilitites and Stockholders’ Equity:
Accounts Payable and Other Current Liabilities	$	—	$	25,440		$	1,325		$	(936	)	$	25,829
Environmental Remediation Reserves		—		613			—			—			613
Deferred Revenues		—		13,044			—			—			13,044
Intercompany Advances		—		79,416			1,910			(81,326	)		—
Current Portion of Debt		—		234			—			—			234
Total Current Liabilities		—		118,747			3,235			(82,262	)		39,720
Long-Term Debt		110,000		247			—			—			110,247
Environmental Remediation Reserves		—		14,262			—			—			14,262
Other Long-Term Liabilities		—		17,594			—			—			17,594
Total Liabilities		110,000		150,850			3,235			(82,262	)		181,823
Total Stockholders’ Equity		77,989		108,573			(856	)		(107,717	)		77,989
Total Liabilities and Stockholders’ Equity	$	187,989	$	259,423		$	2,379		$	(189,979	)	$	259,812

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11.	GUARANTOR SUBSIDIARIES (continued)
	Condensed Consolidating Statement of Operations - Three Months Ended March 31, 2008

			Guarantor			Non-Guarantor
	Parent		Subsidiaries			Subsidiary			Eliminations			Consolidated
Revenues	$	—	$	47,611		$	736		$	—		$	48,347
Cost of Revenues		—		31,053			684			—			31,737
Gross Profit (Loss)		—		16,558			52			—			16,610
Operating Expenses		—		11,091			151			—			11,242
Operating Income (Loss)		—		5,467			(99	)		—			5,368
Interest and Other Income		2,662		267			1			(2,662	)		268
Interest Expense		2,662		2,687			—			(2,662	)		2,687
Income (Loss) before Income Tax and Equity Account for Subsidiaries		—		3,047			(98	)		—			2,949
Income Tax Expense		—		1,316			—			—			1,316
Income (Loss) before Equity Account for Subsidiaries		—		1,731			(98	)		—			1,633
Equity Account for Subsidiaries		1,633		(98	)		—			(1,535	)		—
Net Income (Loss)	$	1,633	$	1,633		$	(98	)	$	(1,535	)	$	1,633

Condensed Consolidating Statement of Operations -
Six Months Ended March 31, 2008

			Guarantor			Non-Guarantor
	Parent		Subsidiaries			Subsidiary			Eliminations			Consolidated
Revenues	$	—	$	94,133		$	1,115		$	(11	)	$	95,237
Cost of Revenues		—		60,120			1,089			(11	)		61,198
Gross Profit		—		34,013			26			—			34,039
Operating Expenses		—		21,133			314			—			21,447
Operating Income (Loss)		—		12,880			(288	)		—			12,592
Interest and Other Income		5,332		646			—			(5,332	)		646
Interest Expense		5,332		5,391			—			(5,332	)		5,391
Income before Income Tax and Equity Account for Subsidiaries		—		8,135			(288	)		—			7,847
Income Tax Expense		—		3,351			—			—			3,351
Income before Equity Account for Subsidiaries		—		4,784			(288	)		—			4,496
Equity Account for Subsidiaries		4,496		(288	)		—			(4,208	)		—
Net Income (Loss)	$	4,496	$	4,496		$	(288	)	$	(4,208	)	$	4,496

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11.	GUARANTOR SUBSIDIARIES (continued)
	Condensed Consolidating Statement of Cash Flows - Six Months Ended March 31, 2008

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiary			Eliminations		Consolidated
Net cash Provided (Used) by Operating Activities	$	—		$	11,263		$	(44	)	$	—	$	11,219
Cash Flows from Investing Activities:													—
Acquisition of businesses		—			—			—			—		—
Capital expenditures		—			(5,288	)		(9	)		—		(5,297	)
Discontinued operations, net		—			—			—			—		—
Net Cash Used in Investing Activities		—			(5,288	)		(9	)		—		(5,297	)
Cash Flows from Financing Activities:
Proceeds from the issuance of long-term debt		—			—			—			—		—
Payments of long-term debt		—			(144	)		—			—		(144	)
Debt issuance costs		—			—			—			—		—
Issuance of common stock		117			—			—			—		117
Excess tax benefit from stock option exercises		82			—			—			—		82
Intercompany advances, net		(199	)		129			70			—		—
Net Cash Provided (Used) by Financing Activities		—			(15	)		70			—		55
Net Change in Cash and Cash Equivalents		—			5,960			17			—		5,977
Cash and Cash Equivalents, Beginning of Period		—			21,352			74			—		21,426
Cash and Cash Equivalents, End of Period	$	—		$	27,312		$	91		$	—	$	27,403

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11.	GUARANTOR SUBSIDIARIES (continued)
	Condensed Consolidating Balance Sheet - September 30, 2007

			Guarantor			Non-Guarantor
	Parent		Subsidiaries			Subsidiary			Eliminations			Consolidated
Assets:
Cash and Cash Equivalents	$	—	$	21,352		$	74		$	—		$	21,426
Accounts Receivable		—		25,262			1,053			(1,079	)		25,236
Inventories		—		46,311			712			—			47,023
Prepaid Expenses and Other Assets		—		2,160			98			—			2,258
Deferred Income Taxes		—		2,101			—			—			2,101
Total Current Assets		—		97,186			1,937			(1,079	)		98,044
Property, Plant and Equipment, Net		—		116,814			151			—			116,965
Intangible Assets, Net		—		5,767			—			—			5,767
Deferred Income Taxes		—		19,385			—			—			19,385
Other Assets		—		9,246			—			—			9,246
Intercompany Advances		78,976		1,840			—			(80,816	)		—
Investment in Subsidiaries		106,713		(521	)		—			(106,192	)		—
Total Assets	$	185,689	$	249,717		$	2,088		$	(188,087	)	$	249,407
Liabilitites and Stockholders’ Equity:
Accounts Payable and Other Current Liabilities	$	—	$	27,914		$	769		$	(1,079	)	$	27,604
Environmental Remediation Reserves		—		726			—			—			726
Deferred Revenues		—		7,755			—			—			7,755
Intercompany Advances		—		78,976			1,840			(80,816	)		—
Current Portion of Debt		—		252			—			—			252
Total Current Liabilities		—		115,623			2,609			(81,895	)		36,337
Long-Term Debt		110,000		373			—			—			110,373
Environmental Remediation Reserves		—		14,697			—			—			14,697
Other Long-Term Liabilities		—		12,311			—			—			12,311
Total Liabilities		110,000		143,004			2,609			(81,895	)		173,718
Total Stockholders’ Equity		75,689		106,713			(521	)		(106,192	)		75,689
Total Liabilities and Stockholders’ Equity	$	185,689	$	249,717		$	2,088		$	(188,087	)	$	249,407

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11.	GUARANTOR SUBSIDIARIES (continued)
	Condensed Consolidating Statement of Operations - Three Months Ended March 31, 2007

			Guarantor		Non-Guarantor
	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 -
Six Months Ended March 31, 2007

			Guarantor		Non-Guarantor
	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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11.	GUARANTOR SUBSIDIARIES (continued)
	Condensed Consolidating Statement of Cash Flows - Six Months Ended March 31, 2007

				Guarantor			Non-Guarantor
	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

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in Thousands)

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the safe harbor created by those sections. These forward-looking statements include, but are not limited to: statements about our beliefs about the sufficiency of our reserves for estimated environmental liabilities, our expectation that our working capital may vary in the future, our potential incurrence of additional debt in the future, our belief that our cash flows will be adequate for the foreseeable future to satisfy the needs of our operations, our expectation that quarterly capital expenditures will increase during fiscal 2008, our expectation regarding cash expenditures for environmental remediation at our former Henderson, Nevada site over the next several years, our belief that demand for Grade I ammonium perchlorate will be relatively level as compared to fiscal 2007 and 2006, our statements regarding future average prices of Grade I ammonium perchlorate, our expectation that there will be no increases in demand for sodium azide in the near future and that Halotron volumes are expected to be relatively consistent in fiscal 2008 as compared to fiscal 2007, the expectation that our Aerospace Equipment segment will experience revenue growth over the remainder of fiscal 2008, our statements regarding factors that will affect our consolidated gross margins, and all plans, objectives, expectations and intentions contained in this report that are not historical facts. We usually use words such as “may,” “can,” “will,” “could,” “should,” “would,” “expect,” “anticipate,” “believe,” “estimate,” or “future,” or the negative of these terms or similar expressions to identify forward-looking statements. Discussions containing such forward-looking statements may be found throughout this document. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. Please see the section titled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q for further discussion of these and other factors that could affect future results. All forward-looking statements in this document are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement, unless otherwise required by law. Any business risks discussed later in this Item 2, among other things, should be considered in evaluating our prospects and future financial performance.

The following discussion and analysis is intended to provide a narrative discussion of our financial results and an evaluation of our financial condition and results of operations. The discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended September 30, 2007 filed with the Securities and Exchange Commission and condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. A summary of our significant accounting policies is included in Note 1 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended September 30, 2007.

OUR COMPANY

We are a leading manufacturer of fine and specialty chemicals within our focused markets. Our fine chemicals products represent the key active ingredient in certain anti-viral, oncology and central nervous system drug applications. Our specialty chemicals and aerospace equipment products are utilized in national defense programs and provide access to, and movement in, space, via solid propellant rockets and propulsion thrusters. Our technical and manufacturing expertise and customer service focus has gained us a reputation for quality, reliability, technical performance and innovation. Given the mission critical nature of our products, we maintain long-standing strategic customer relationships. We work collaboratively with our customers to develop customized solutions that meet rigorous federal regulatory standards. We generally sell our products through long-term contracts under which we are the sole-source or dual-source supplier.

We are the exclusive North American provider of Grade I ammonium perchlorate (“AP”), which is the predominant oxidizing agent for solid propellant rockets, booster motors and missiles used in space

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exploration, commercial satellite transportation and national defense programs. In order to diversify our business and leverage our strong technical and manufacturing capabilities, we have made two strategic acquisitions in recent years. Each of these acquisitions provided long-term customer relationships with sole-source and dual-source contracts and leadership positions in growing markets. On October 1, 2004, we acquired Aerojet-General Corporation’s in-space propulsion business, which is now our Aerospace Equipment segment. Our Aerospace Equipment segment is one of only two North American manufacturers of in-space liquid propulsion systems and propellant tanks. On November 30, 2005, we acquired the fine chemicals business of GenCorp Inc. (“GenCorp”), which is now our Fine Chemicals segment. Our Fine Chemicals segment is a leading manufacturer of certain active pharmaceutical ingredients (“APIs”) and registered intermediates for pharmaceutical and biotechnology companies.

OUR BUSINESS SEGMENTS

Our operations comprise four reportable business segments: (i) Fine Chemicals, (ii) Specialty Chemicals, (iii) Aerospace Equipment and (iv) Other Businesses. The following table reflects the revenue contribution percentage from our business segments and each of their major product lines:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2008			2007			2008			2007
Fine Chemicals		63	%		51	%		60	%		51	%
Specialty Chemicals:
Perchlorates		23	%		34	%		27	%		32	%
Sodium Azide		0	%		1	%		1	%		1	%
Halotron		3	%		2	%		2	%		2	%
Total Specialty Chemicals		26	%		37	%		30	%		35	%
Aerospace Equipment		9	%		10	%		8	%		11	%
Other Businesses:
Real Estate		1	%		1	%		1	%		1	%
Water Treatment Equipment		1	%		1	%		1	%		2	%
Total Other Businesses		2	%		2	%		2	%		3	%
Total Revenues		100	%		100	%		100	%		100	%

Fine Chemicals. Our Fine Chemicals segment includes our wholly-owned subsidiary Ampac Fine Chemicals LLC or “AFC”. Our Fine Chemicals segment is a manufacturer of APIs and registered intermediates. The pharmaceutical ingredients that we manufacture are used by our customers in drugs with applications in three primary areas: anti-viral, oncology, and central nervous system. We generate nearly all of our Fine Chemicals sales from manufacturing chemical compounds that are proprietary to our customers. We operate in compliance with the U.S. Food and Drug Administration’s (“FDA”) current good manufacturing practices or “cGMP”. Our Fine Chemicals segment’s strategy is to focus on high growth markets where our technology position, combined with our chemical process and development and engineering expertise, leads to strong customer allegiances and limited competition.

We have distinctive competencies and specialized engineering capabilities in performing chiral separations, and manufacturing highly potent/cytotoxic and energetic compounds and nucleosides. We have invested significant resources in our facilities and technology base. We believe we are the U.S. leader in performing chiral separations using the first commercial-scale simulated moving bed (“SMB”) technology in the U.S. and own and operate two large-scale SMB machines, both of which are among the largest in the world operating under cGMP. We have distinctive competency in handling energetic and toxic chemicals using our specialized high containment facilities in applications such as drugs used for oncology. We have significant experience and specially engineered facilities for energetic chemistry on a commercial-scale under cGMP. We use this capability in development and production of products used in anti-viral drugs, including HIV-related and influenza-combating drugs.

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We have established long-term, sole-source and dual-source contracts. In addition, the inherent nature of custom pharmaceutical fine chemical manufacturing encourages long-term customer relationships. We work collaboratively with our customers to develop reliable, safe and cost-effective, custom solutions. Once a customer establishes a production process with us, there are several potential barriers that discourage transferring the manufacturing method to an alternative supplier, including the following:

• Alternative Supply May Not Be Readily Available. We are currently the sole source supplier on several of our fine chemicals products.

• Regulatory Approval. Applications to and approvals from the FDA and other regulatory authorities generally require the chemical contractor to be named. Switching contractors may require additional regulatory approval and could take as long as 1-2 years.

• Significant Financial Costs. Switching contractors can result in significant costs associated with technology transfer, process validation and re-filing with the FDA and other regulatory authorities.

Specialty Chemicals. Our Specialty Chemicals segment is principally engaged in the production of Grade I ammonium perchlorate. In addition, we produce and sell sodium azide, a chemical used in pharmaceutical manufacturing, and Halotron, a chemical used in fire extinguishing systems ranging from portable fire extinguishers to airport firefighting vehicles.

We have supplied AP for use in space and defense programs for over 40 years and have been the exclusive AP supplier in North America since 1998. A significant number of existing and planned space launch vehicles use solid propellant and thus depend, in part, upon our AP. Many of the rockets and missiles used in national defense programs are also powered by solid propellants. Currently, our largest programs are the Minuteman missile, the Standard missile and the Atlas family of commercial rockets.

Alliant Techsystems, Inc. or “ATK” is our largest AP customer. We sell Grade I AP to ATK under a long-term contract that requires us to maintain a ready and qualified capacity for Grade I AP and that requires ATK to purchase its Grade I AP requirements from us, subject to certain terms and conditions. The contract, which expires in 2013, provides fixed pricing in the form of a price volume matrix for annual Grade I AP volumes ranging from 3 million to 20 million pounds. Prices vary inversely to volume and include annual escalations.

Aerospace Equipment. Our Aerospace Equipment segment includes our wholly-owned subsidiary Ampac-ISP Corp. Our Aerospace Equipment segment is one of two North American manufacturers of monopropellant or bipropellant propulsion systems and thrusters for satellites and launch vehicles, and is one of the world’s major producers of bipropellant thrusters for satellites. Our products are utilized on various satellite and launch vehicle programs such as Space Systems/Loral’s 1300 series geostationary satellites.

Other Businesses. Our Other Businesses segment includes the production of water treatment equipment, including equipment for odor control and disinfection of water, and real estate operations. In fiscal 2005, we completed the sale of all real estate assets that were targeted for sale and do not anticipate significant real estate sales activity in the future.

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RESULTS OF OPERATIONS

REVENUES

	March 31,				Increase			Percentage
	2008		2007		(Decrease)			Change
Three Months Ended:
Fine Chemicals	$	30,504	$	22,366	$	8,138			36	%
Specialty Chemicals		12,787		16,132		(3,345	)		(21	%)
Aerospace Equipment		4,235		4,465		(230	)		(5	%)
Other Businesses		821		626		195			31	%
Total Revenues	$	48,347	$	43,589	$	4,758			11	%
Six Months Ended:
Fine Chemicals	$	57,266	$	39,957	$	17,309			43	%
Specialty Chemicals		28,336		27,922		414			1	%
Aerospace Equipment		7,970		8,441		(471	)		(6	%)
Other Businesses		1,665		2,157		(492	)		(23	%)
Total Revenues	$	95,237	$	78,477	$	16,760			21	%

Fine Chemicals. The increases in Fine Chemicals segment revenues for the fiscal 2008 second quarter and six months ended March 31, 2008 reflect the continued strength in volumes for our anti-viral products and the timing of related revenue recognition. The increases in revenues from anti-viral products are offset partially by declines in revenues from oncology products due to the timing of customer orders. As is typical with the segment, the overall net growth reflects increases during the current year period for several products and decreases for other products. This occurs as a function of our customers’ ordering cycles and our timing of the production cycle. Production cycles are determined based on customer delivery requirements

Specialty Chemicals. Our Specialty Chemicals segment revenues include the operating results from our perchlorate, sodium azide and Halotron product lines, with perchlorates comprising 92% and 90% of Specialty Chemicals revenues in the fiscal 2008 and 2007 six-month periods, respectively.

The variances in Specialty Chemicals revenues reflect the following factors:

• A 17% decrease in perchlorate volume and an 11% decrease in the related average price per pound in the fiscal 2008 second quarter.

• An 18% increase in perchlorate volume, offset partially by a 13% decrease in the related average price per pound for the six months ended March 31, 2008.

• Sodium azide revenues decreased 68% in the fiscal 2008 six-month period compared to the prior year period.

• Halotron revenues increased 13% in the fiscal 2008 six-month period compared to the prior year six month period.

For the six months ended March 31, 2008, Specialty Chemicals revenues were consistent with the prior year period. This is in line with our expectation that annual demand for Grade I AP for fiscal 2008 will be consistent with fiscal 2007. The decrease in Grade I AP volume for the fiscal 2008 second quarter is due to the timing of customer orders within the fiscal year. The fiscal 2008 second quarter also reflects a decline in the average price per pound of perchlorates because this quarter included less specialized-blend materials than the comparable quarter.

Over the longer term, we expect demand for Grade I AP to be within the ranges of fiscal years 2006 and 2007. In addition, Grade I AP revenues are typically derived from a relatively few large orders. As a result, quarterly revenue amounts can vary significantly depending on the timing of individual orders throughout the year. Average price per pound may continue to fluctuate somewhat in future periods, depending upon product mix and volume.

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The decrease in sodium azide revenues in the fiscal 2008 periods is due to a reduction in volume for sodium azide used in a pharmaceutical application. We do not anticipate an increase in demand for sodium azide in the near future.

The increase in Halotron revenues is driven by timing of customer orders. Halotron volumes are expected to be relatively consistent in fiscal 2008 as compared to fiscal 2007.and the most effective use of AFC’s facilities.

Aerospace Equipment. The decreases in Aerospace Equipment revenues for the fiscal 2008 second quarter and six months ended March 31, 2008 are due primarily to timing. Order bookings received during the latter part of fiscal 2007 and the first half of fiscal 2008 are anticipated to result in year-over-year revenue growth for the remainder of fiscal 2008.

Other Businesses. The decline in our Other Businesses segment revenues for the first half of fiscal 2008 is due to the timing of water treatment equipment sales. The prior year first quarter included a single spare parts sale that was uncommonly large.

COST OF REVENUES AND GROSS MARGIN

	March 31,						Increase		Percentage
	2008			2007			(Decrease)		Change
Three Months Ended:
Revenues	$	48,347		$	43,589		$	4,758		11	%
Cost of Revenues		31,737			27,378			4,359		16	%
Gross Margin		16,610			16,211			399		2	%
Gross Margin Percentage		34	%		37	%
Six Months Ended:
Revenues	$	95,237		$	78,477		$	16,760		21	%
Cost of Revenues		61,198			49,358			11,840		24	%
Gross Margin		34,039			29,119			4,920		17	%
Gross Margin Percentage		36	%		37	%

For our fiscal 2008 second quarter, cost of revenues was $31,737 compared to $27,378 for the prior year second quarter. The consolidated gross margin percentage was 34% and 37% for our fiscal 2008 and 2007 second quarters, respectively. For the six months ended March 31, 2008, cost of revenues was $61,198 compared to $49,358 for the prior fiscal year period. The consolidated gross margin percentage was 36% and 37% for the fiscal 2008 and fiscal 2007 six-month periods, respectively.

One of the significant factors that affects, and should continue to affect, the comparison of our consolidated gross margins from period to period is the change in product mix between our two largest segments. Measured in terms of total revenues, our Fine Chemicals segment has grown as a percentage of total revenues, comprising 63% and 60% of consolidated revenues for the second quarter and the six months ended March 31, 2008, respectively, compared to 51% in each of the prior fiscal year periods. Conversely, our Specialty Chemicals segment accounted for 26% and 30% of our operations for the second quarter and the six months ended March 31, 2008, respectively, compared to 37% and 35% in the comparable prior year periods. Since our Specialty Chemicals segment typically has higher gross margins than our Fine Chemicals segment, the consolidated gross margin percentage is reduced by the growth of our Fine Chemicals segment in proportion to our total revenues.

In addition, consolidated gross margins for our fiscal 2008 second quarter and six months ended March 31, 2008 reflect:

• A decrease in the Fine Chemicals segment gross margin percentage of approximately two points for the fiscal 2008 second quarter and approximately three points for the six months ended March 31,

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2008, each compared to the comparable prior fiscal year period. The reductions in the Fine Chemicals segment gross margin percentages result from a decrease in manufacturing facility utilization during the fiscal 2008 periods as compared to the fiscal 2007 periods. Lower manufacturing facility utilization results in a reduction in gross margin percentages due the effect of applying manufacturing overhead costs to a smaller base. Although the manufacturing utilization rates were less when compared to the fiscal 2007 periods, they remained at high levels in the fiscal 2008 periods. The utilization rates variances we are experiencing are within our expectations for normal plant operations.

• Specialty Chemicals segment gross margin percentage improved two points for the fiscal 2008 second quarter and four points for the six months ended March 31, 2008, compared to the respective prior year periods. Mid fiscal 2008 second quarter, the Specialty Chemicals segment completed the amortization of the value assigned to the perchlorate customer list acquired in fiscal 1998. This reduction in amortization expense, which represents the largest component of the total change in Specialty Chemical segment gross margin percentage, improved the Specialty Chemical segment gross margin percentage by three points for the fiscal 2008 second quarter and two points for the six months ended March 31, 2008, compared to the respective prior year periods.

• An improvement in Aerospace Equipment segment gross margin percentage for both fiscal 2008 periods due to favorable performance on the segment’s primary production contracts.

OPERATING EXPENSES

	March 31,						Increase		Percentage
	2008			2007			(Decrease)		Change
Three Months Ended:
Operating Expenses	$	11,242		$	10,091		$	1,151		11	%
Percentage of Revenues		23	%		23	%
Six Months Ended:
Operating Expenses	$	21,447		$	18,604		$	2,843		15	%
Percentage of Revenues		23	%		24	%

For our fiscal 2008 second quarter, operating expenses increased $1,151 to $11,242 from $10,091 in the second quarter of fiscal year 2007. For the six months ended March 31, 2008, operating expenses increased $2,843 to $21,447 from $18,604 for the prior fiscal year period. These variances are primarily due to:

• An increase in Fine Chemicals segment operating expenses of $460 for the fiscal 2008 second quarter and $965 for the six months ended March 31, 2008 due to additional research and development and business development personnel costs and the related recruiting and relocation expenses.

• An increase in Specialty Chemicals segment operating expenses of $392 for the six months ended March 31, 2008 primarily due to increases in environmental compliance related expenses and product development costs.

• An increase in corporate operating expenses of $600 for the fiscal 2008 second quarter and $1,275 for the six months ended March 31, 2008, which latter increase is comprised primarily of $462 increase in retirement benefit expenses, $332 increase in corporate development costs, and $308 increase in Sarbanes-Oxley compliance costs.

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SEGMENT OPERATING INCOME

	March 31,						Increase			Percentage
	2008			2007			(Decrease)			Change
Three Months Ended:
Fine Chemicals	$	4,144		$	2,926		$	1,218			42	%
Specialty Chemicals		4,891			6,418			(1,527	)		(24	%)
Aerospace Equipment		405			111			294			265	%
Other Businesses		17			154			(137	)		(89	%)
Segment Operating Income		9,457			9,609			(152	)		(2	%)
Corporate Expenses		(4,089	)		(3,489	)		(600	)		17	%
Operating Income	$	5,368		$	6,120		$	(752	)		(12	%)
Six Months Ended:
Fine Chemicals	$	8,805		$	5,845		$	2,960			51	%
Specialty Chemicals		10,770			9,911			859			9	%
Aerospace Equipment		578			297			281			95	%
Other Businesses		(1	)		747			(748	)		(100	%)
Segment Operating Income		20,152			16,800			3,352			20	%
Corporate Expenses		(7,560	)		(6,285	)		(1,275	)		20	%
Operating Income	$	12,592		$	10,515		$	2,077			20	%

Segment operating income includes all sales and expenses directly associated with each segment. Environmental remediation charges, corporate general and administrative costs and interest are not allocated to segment operating results. Fluctuations in segment operating income are driven by changes in segment revenues, gross margins and operating expenses, each of which is discussed in greater detail above.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS

	Six Months Ended March 31,						Increase			Percentage
	2008			2007			(Decrease)			Change
Cash Provided (Used) By:
Operating activities	$	11,219		$	6,647		$	4,572			69	%
Financing activities		(5,297	)		(1,055	)		(4,242	)		(402	%)
Investing activities		55			(2,851	)		2,906			102	%
Net change in cash for period	$	5,977		$	2,741		$	3,236			118	%

Operating Activities. Cash flows from operating activities for the six months ended March 31, 2008 improved by $4,572 compared to the prior fiscal year six-month period.

Significant components of the change in cash flow from operating activities include:

• An increase in cash due to improved profitability of our operations of $1,719.

• An improvement in cash flow from working capital accounts of $4,111, excluding the effects of interest and income taxes.

• An increase in cash taxes paid of $772.

• An increase in cash used for interest payments of $1,442.

• A reduction in cash used for environmental remediation of $906.

• Other decreases in cash used for operating activities of $50.

Cash provided by working capital accounts improved during the six months ended March 31, 2008 primarily due to a reduction in rate of inventory growth, primarily at AFC, compared to the prior fiscal year

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six month period. The improvement in the inventory growth rate provided $13,511, which was offset by $9,400 of cash usages for increases in accounts receivables and prepaid expenses and decreases in current liabilities. We consider these working capital changes to be routine and within the normal production cycle of our products. The production of certain fine chemical products requires a length of time that exceeds one quarter. Therefore, in any given quarter, work-in-progress inventory can increase or decrease significantly. We expect that our working capital may vary normally by as much as $10,000 from quarter to quarter.

Cash tax payments have increased due to our improved profitability.

Cash used for interest increased primarily due to the timing of our interest payments. Our current debt instruments require semi-annual interest payments in February and August compared to the debt instruments in place through February of the prior fiscal year period which required interest payments at the end of each quarter.

Cash used for environmental remediation decreased because during the fiscal 2007 first quarter we were in the construction phase of our Henderson, Nevada remediation project compared to the lower cash requirements of the operating and maintenance phase which began in the fiscal 2007 second quarter.

Investing Activities. Cash used for capital expenditures increased for the six months ended March 31, 2008 primarily associated with more growth-related capital spending for our Fine Chemicals segment. We expect that the amount of quarterly capital expenditures will increase as we proceed through fiscal 2008 primarily in support of additional equipment at AFC and capital expenses associated with the relocation of our corporate offices.

In February 2007, we paid GenCorp $6,000 in connection with our acquisition of AFC. The acquisition agreements for AFC 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 ended 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.

Effective on September 30, 2006, we sold our 50% ownership stake in Energetic Systems, Inc. for $7,510. The cash was collected in the subsequent month, which is reflected in cash provided by investing activities for the six months ended March 31, 2007.

Financing Activities. Cash used for financing activities during the six months ended March 31, 2007 relates to the refinancing of our former credit facilities in February 2007.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2008, we had cash of $27,403. Our primary source of working capital is cash flow from our operations and our revolving credit line which had availability of $18,354 as of March 31, 2008. Availability is computed as the total commitment of $20,000 less outstanding borrowings and outstanding letters of credit, if any. In addition, we may incur additional debt to fund capital projects, strategic initiatives or for other general corporate purposes, subject to our existing leverage, the value of our unencumbered assets and borrowing limitations imposed by our lenders. The availability of our cash inflows is affected by the timing, pricing and magnitude of orders for our products. From time to time, we may explore options to refinance our borrowings.

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The timing of our cash outflows is affected by payments and expenses related to the manufacture of our products, capital projects, interest on our debt obligations and environmental remediation or other contingencies, which may place demands on our short-term liquidity. Although we are not currently party to any material pending legal proceedings, we have incurred legal and other costs as a result of other contingencies and litigation in the past, and we may incur material legal and other costs associated with the resolution of litigation and contingencies in future periods. If such costs are material, to the extent not covered by insurance, they would adversely affect our liquidity.

We currently believe that our cash flows from operations, existing cash balances and existing or future debt arrangements will be adequate for the foreseeable future to satisfy the needs of our operations on both a short-term and long-term basis.

LONG-TERM DEBT AND REVOLVING CREDIT FACILITIES

Senior Notes. In February 2007, we issued and sold $110,000 aggregate principal amount of 9.0% Senior Notes due February 1, 2015 (collectively, with the exchange notes issued in August 2007 as referenced below, the “Senior Notes”). Proceeds from the issuance of the Senior Notes were used to repay our former credit facilities. The Senior Notes accrue interest at an annual rate of 9.0%, payable semi-annually in February and August. 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 an applicable 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;

• until February 1, 2010, up to 35% of the principal amount of the Senior Notes at a redemption price of 109% with the proceeds of certain sales of our equity securities; and

• under certain changes of control, we must offer to purchase the Senior Notes at 101% of their aggregate principal amount, plus accrued interest.

The Senior Notes were issued pursuant to an indenture, which contains certain customary events of default and certain other 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.

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In connection with the closing of the sale of the Senior Notes, we entered into a registration rights agreement which required us to file a registration statement to 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. In July 2007, we filed a registration statement with the SEC with respect to an offer to exchange the Senior Notes as required by the registration rights agreement, which was declared effective by the SEC. In August 2007, we completed the exchange of 100% of the Senior Notes for substantially identical notes which are registered under the Securities Act of 1933, as amended.

Revolving Credit Facility. On February 6, 2007, we entered into an Amended and Restated Credit Agreement (the “Revolving Credit Facility”) with Wachovia Bank, National Association, and certain other lenders, which provides a secured revolving credit facility in an aggregate principal amount of up to $20,000 with an initial maturity of 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 are, at our option, either 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 is tied to our total leverage ratio (as defined in the Revolving Credit Facility). In addition, we pay commitment fees, other fees related to the issuance and maintenance of 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, 2008, under our Revolving Credit Facility, we had no borrowings outstanding, availability of $18,354, and we were in compliance with its various financial covenants. Availability is computed as the total commitment of $20,000 less outstanding borrowings and outstanding letters of credit, if any.

ENVIRONMENTAL REMEDIATION – AMPAC HENDERSON SITE

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 our former facility in Henderson, Nevada (the “AMPAC 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 phase 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

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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, 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.

CONTRACTUAL OBLIGATIONS

Our contractual obligations are summarized in our Annual Report on Form 10-K for the year ended September 30, 2007. We have contractual obligations related to our Senior Notes, interest on Senior Notes, capital leases, interest on capital leases, operating leases and purchase commitments. As of March 31, 2008, there has been no material changes in our contractual obligations from September 30, 2007.

In addition, at March 31, 2008, we have recorded an estimated liability for environmental remediation of $14,875 (see Note 7 to the condensed consolidated financial statements included in Item 1 of this report) and aggregate defined benefit pension plan and supplemental executive retirement plan (“SERP”) obligations of $16,064 (see Note 10 to the condensed consolidated financial statements included in Item 1 of this report). We expect to spend approximately $1,000 for environmental remediation during fiscal 2008. We expect to contribute $3,200 to our defined benefit pension plans and SERP during fiscal 2008. We also maintain the Revolving Credit Facility, which provides revolving credit in an aggregate principal amount of up to $20,000 with an initial maturity in February 2012. At March 31, 2008, we had no balance outstanding under the Revolving Credit Facility. We may prepay and terminate the Revolving Credit Facility at any time.

OFF-BALANCE SHEET ARRANGEMENTS

Letters of Credit. As of March 31, 2008, we had $1,848 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.

Employee Agreements. We had an employment agreement in effect with our Chief Executive Officer which agreement expired on December 31, 2007. We have an employment agreement in place with our Chief Operating Officer, the term of which ends on September 30, 2010, unless amended or extended in accordance with the terms of the agreement or otherwise. Significant contract provisions include annual base salary, health care benefits, and non-compete provisions. Our on-going employment agreement is primarily an “at will” employment agreement, under which we may terminate the employment of our Chief Operating Officer for any or no reason. Generally, the agreement provides that a termination without cause obligates us to pay certain severance benefits specified in the contract. In addition, certain other key divisional executives are eligible for severance benefits. Estimated minimum aggregate severance benefits under these agreements and arrangements were $4,080 as of September 30, 2007. On December 31, 2007, as a result of the expiration of the employment agreement with our Chief Executive Officer, our estimated minimum aggregate severance benefits were reduced by $1,426.

DIVIDEND AND SHARE REPURCHASE PROGRAM

In January 2003, we adopted a Dividend and Stock Repurchase Program which was designed to allocate a portion of our annual free cash flow (as calculated) for the purposes of paying cash dividends and repurchasing our common stock. By reason of the application of the formula, no dividends have been declared since December 2003. Further, our prior and current credit facilities have significantly limited our ability to use cash to repurchase shares or pay dividends under the Dividend and Stock Repurchase

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Program. In January 2008, our board of directors determined that the program’s use of a fixed formula, given the historical application of such formula and significant changes in recent years in our financial position and operating activities, was no longer an appropriate means to return value to our stockholders. Our board of directors believes that greater value can be provided to our stockholders through diversifying our business, pursuing growth opportunities and making strategic acquisitions and investments, and by specifically determining and declaring, as and when appropriate, dividends and, as appropriate, approving particular repurchases of common stock. Consequently, our board of directors terminated our existing Dividend and Stock Repurchase Program in January 2008.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires that we adopt accounting policies and 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.

Application of the critical accounting policies discussed below requires significant judgments, often as the result of the need to make estimates of matters that are inherently uncertain. If actual results were to differ materially from the estimates made, the reported results could be materially affected. However, we are not currently aware of any reasonably likely events or circumstances that would result in materially different results.

Sales and Revenue Recognition. Revenues for our Specialty Chemicals segment, Fine Chemicals segment, 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. Almost all products sold 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 customer acceptance has occurred. Some of our perchlorate and fine chemical products customers have requested that we store materials purchased from us in our facilities. We recognize revenue prior to shipment of these bill and hold transactions when we have satisfied the criteria of Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements,” as amended by Staff Accounting Bulletin No. 104, “Revenue Recognition,” which include 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.

Depreciable or Amortizable Lives of Long-Lived Assets. Our depreciable or amortizable long-lived assets include property, plant and equipment and intangible assets, which are recorded at cost. Depreciation or amortization is recorded using the straight-line method over the shorter of the asset’s estimated economic useful life or the lease term, if the asset is subject to a capital lease. Economic useful life is the duration of time that we expect the asset to be productively employed by us, which may be less than its physical life. Significant assumptions that affect the determination of estimated economic useful life include: wear and tear, obsolescence, technical standards, contract life, and changes in market demand for products.

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The estimated economic useful life of an asset is monitored to determine its appropriateness, especially in light of changed business circumstances. For example, changes in technological advances, changes in the estimated future demand for products, or excessive wear and tear may result in a shorter estimated useful life than originally anticipated. In these cases, we would depreciate the remaining net book value over the new estimated remaining life, thereby increasing depreciation expense per year on a prospective basis. Likewise, if the estimated useful life is increased, the adjustment to the useful life decreases depreciation expense per year on a prospective basis.

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 asset exceeds its fair value.

Fair value is based on estimated discounted future cash flows expected to be generated by the asset or asset group. The assumptions underlying cash flow projections represent management’s best estimates at the time of the impairment review. Factors that management must estimate include: industry and market conditions, sales volume and prices, costs to produce and inflation. Changes in key assumptions or actual conditions which differ from estimates could result in an impairment charge. We use reasonable and supportable assumptions when performing impairment reviews but cannot predict the occurrence of future events and circumstances that could result in impairment charges.

Environmental Costs. 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. 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. 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 recoveries of the amounts are probable.

Income Taxes. We account for income taxes using the asset and liability approach, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. This method also requires the recognition of future tax benefits such as net operating loss carryforwards and other tax credits. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. Valuation allowances are provided to reduce deferred tax assets to an amount that is more likely than not to be realized. We evaluate the likelihood of realizing our deferred tax assets by estimating sources of future taxable income and the impact of tax planning strategies. The effect of a change in the valuation allowance is reported in the current period tax provision. We adopted the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”) on October 1, 2007. Under the provisions of this standard, we provide accruals for

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uncertain tax positions based on our assessment of the expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes.

Actual income taxes paid may vary from estimates depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed.

Pension Benefits. We sponsor defined benefit pension plans in various forms for employees who meet eligibility requirements. Several assumptions and statistical variables are used in actuarial models to calculate the pension expense and liability related to the various plans. We determine the assumptions about the discount rate, the expected rate of return on plan assets and the future rate of compensation increases based on historical plan data. The actuarial models also use assumptions on demographic factors such as retirement, mortality and turnover. Depending on the assumptions selected, pension expense could vary significantly and could have a material effect on reported earnings. The assumptions used can also materially affect the measurement of benefit obligations.

Recently Issued or Adopted Accounting Standards. In July 2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes”. We adopted FIN 48 on October 1, 2007: see Note 9 to the condensed consolidated financial statements included in Item 1 of this report.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, (“SFAS No. 157”) which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles in the United States of America, and expands disclosures about fair value measurements. In February 2008, the FASB deferred the adoption of SFAS No. 157 for one year as it applies to certain items, including assets and liabilities initially measured at fair value in a business combination, reporting units and certain assets and liabilities measured at fair value in connection with goodwill impairment tests in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, and long-lived assets measured at fair value for impairment assessments under SFAS No. 144, “Accounting for the Impairment and Disposal of Long-Lived Assets”. SFAS No. 157 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 effective for us on October 1, 2008. We are currently evaluating the impact SFAS 157 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”). 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 must 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 what impact adoption would have on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R will significantly change the accounting for business combinations. Under SFAS No. 141R, an acquiring entity is required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions.   SFAS No. 141R also includes a substantial number of new disclosure requirements. SFAS No. 141R applies to us

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prospectively for business combinations with acquisition dates on or after October 1, 2009. We expect that SFAS No. 141R will have an impact on accounting for business combinations once adopted, but the effect is dependent upon acquisitions at that time.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS No. 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS No. 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest.  SFAS No. 160 is effective for us beginning on October 1, 2009. We currently have no entities or arrangements that will be affected by the adoption of SFAS No. 160. However, determination of the ultimate effect of this pronouncement will depend on our structure at the date of adoption.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Dollars in Thousands)

As of March 31, 2008, there were no material changes to our market risk disclosures set forth in Item 7A of our Annual Report on Form 10-K for the year ended September 30, 2007. We are exposed to interest rate risk primarily due to changes in market interest rates as compared to the fixed rate for our long-term debt. As of March 31, 2008, our outstanding debt is comprised primarily of $110,000 aggregate principal of the Senior Notes. At March 31, 2008, we had no amount outstanding under our Revolving Credit Facility. We estimate the fair value of the Senior Notes to be approximately $107,250 as of March 31, 2008, based on recent market trade data.

ITEM 4. CONTROLS AND PROCEDURES

Based on their evaluation as of March 31, 2008, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective as of such date to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Although we are not currently party to any material pending legal proceedings, we are from time to time subject to claims and lawsuits related to our business operations. Any such claims and lawsuits could be costly and time consuming and could divert our management and key personnel from our business operations. In connection with any such claims and lawsuits, we may be subject to significant damages or equitable remedies relating to the operation of our business. Any such claims and lawsuits may materially harm our business, results of operations and financial condition.

ITEM 1A. RISK FACTORS (Dollars in Thousands)

There have been no material changes in our assessment of risk factors affecting our business since those presented in Item 1A of our Annual Report on Form 10-K for the year ended September 30, 2007. Our updated risk factors are included below in this Item 1A.

Our business, financial condition and operating results can be affected by a number of factors, including those described below, any one of which could cause our actual results to vary materially from recent results or from our anticipated future results. Any of these risks could also materially and adversely affect our business, financial condition or the price of our common stock or other securities.

We depend on a limited number of customers for most of our sales in our Specialty Chemicals, Aerospace Equipment and Fine Chemicals segments and the loss of one or more of these customers could have a material adverse affect on our revenues.

Most of the perchlorate chemicals we produce, which accounted for 89% of our total revenues in the Specialty Chemicals segment for fiscal 2007 and approximately 28% of our total revenues for fiscal 2007, are purchased by a small number of customers. For example, Alliant Techsystems, Inc., one of our ammonium perchlorate, or AP, customers, accounted for 15% of our total revenues for fiscal 2007. In our Aerospace Equipment segment, 70% of our total revenues in this segment for fiscal 2007 was from two customers. Should our relationship with one or more of our major Specialty Chemicals or Aerospace Equipment customers change adversely, the resulting loss of business could have a material adverse effect on our financial position, results of operations or cash flows. In addition, if one or more of our major Specialty Chemicals or Aerospace Equipment customers substantially reduced their volume of purchases from us, it could have a material adverse effect on our financial position, results of operations or cash flows. Should one of our major Specialty Chemicals or Aerospace Equipment customers encounter financial difficulties, the exposure on uncollectible receivables and unusable inventory could have a material adverse effect on our financial position, results of operations or cash flows.

Furthermore, our Fine Chemicals segment’s success is largely dependent upon AFC’s manufacturing of a limited number of intermediates or APIs for a limited number of key customers. One customer of AFC accounted for 25% of our consolidated revenue and the top four customers of AFC accounted for approximately 95% of its revenues, and 54% of our consolidated revenues, in fiscal 2007. Negative development in these customer relationships or in the customer’s business, or failure to renew or extend certain contracts, may have a material adverse effect on the results of operations of AFC. In addition, if the pharmaceutical products that AFC’s customers produce using its compounds experience any problems, including problems related to their safety or efficacy, delays in filing with or approval by the U.S. Food and Drug Administration, or FDA, or failures in achieving success in the market, these customers may substantially reduce or cease to purchase AFC’s compounds, which could have a material adverse effect on the revenues and results of operations of AFC.

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The inherent limitations of our fixed-price or similar contracts may impact our profitability.

A substantial portion of our revenues are derived from our fixed-price or similar contracts. When we enter into fixed-price contracts, we agree to perform the scope of work specified in the contract for a predetermined price. Many of our fixed-price or similar contracts require us to provide a customized product over a long-period at a pre-established price or prices for such product. For example, when AFC is initially engaged to manufacture an intermediate, we often agree to set the price for such product, and any time-based increases to such price, at the beginning of the contracting period and prior to fully testing and beginning the customized manufacturing process. Depending on the fixed price negotiated, these contracts may provide us with an opportunity to achieve higher profits based on the relationship between our total estimated contract costs and the contract’s fixed price. However, we bear the risk that increased or unexpected costs may reduce our profit or cause us to incur a loss on the contract, which could reduce our net sales and net earnings. Ultimately, fixed-price contracts and similar types of contracts present the inherent risk of un-reimbursed cost overruns, which could have a material adverse effect on our operating results, financial condition, or cash flows. Moreover, to the extent that we do not anticipate the increase in cost over time to produce the products which are the subject of our fixed-price contracts, our profitability could be adversely affected.

The numerous and often complex laws and regulations and regulatory oversight to which our operations and properties are subject, the cost of compliance, and the effect of any failure to comply could reduce our profitability and liquidity.

The nature of our operations subject us to extensive and often complex and frequently changing federal, state, local and foreign laws and regulations and regulatory oversight, including with respect to emissions to air, discharges to water and waste management as well as with respect to the sale and, in certain cases, export of controlled products. For example, in our Fine Chemicals segment, modifications, enhancements or changes in manufacturing sites of approved products are subject to complex regulations of the FDA, and, in many circumstances, such actions may require the express approval of the FDA, which in turn may require a lengthy application process and, ultimately, may not be obtainable. The facilities of AFC are periodically subject to inspection by the FDA and other governmental agencies, and operations at these facilities could be interrupted or halted if such inspections are unsatisfactory. AFC’s customers face similarly high regulatory requirements. Before marketing most drug products, AFC’s customers generally are required to obtain approval from the FDA based upon pre-clinical testing, clinical trials showing safety and efficacy, chemistry and manufacturing control data, and other data and information. The generation of these required data is regulated by the FDA and can be time-consuming and expensive, and the results might not justify approval. Even if AFC customers are successful in obtaining all required pre-marketing approvals, post-marketing requirements and any failure on either party’s part to comply with other regulations could result in suspension or limitation of approvals or commercial activities pertaining to affected products. The FDA could also require reformulation of products during the post-marketing stage.

Because we operate in highly regulated industries, we may be affected significantly by legislative and other regulatory actions and developments concerning or impacting various aspects of our operations and products or our customers. To meet changing licensing and regulatory standards, we may be required to make additional significant site or operational modifications, potentially involving substantial expenditures or the reduction or suspension of certain operations. For example, in our Fine Chemicals segment, any regulatory changes could impose on AFC or its customers changes to manufacturing methods or facilities, pharmaceutical importation, expanded or different labeling, new approvals, the recall, replacement or discontinuance of certain products, additional record keeping, testing, price or purchase controls or limitations, and expanded documentation of the properties of certain products and scientific substantiation. AFC’s failure to comply with governmental regulations, in particular those of the FDA, can result in fines, unanticipated compliance expenditures, recall or seizure of products, total or partial suspension of production or distribution, suspension of the FDA’s review of relevant product applications, termination of ongoing research, disqualification of data for submission to regulatory authorities, enforcement actions, injunctions and criminal prosecution. Under certain circumstances, the FDA also

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has the authority to revoke previously granted drug approvals. Although we have instituted internal compliance programs, if regulations change and compliance is deficient in any significant way, it could have a material adverse effect on us. In our Specialty Chemical and Fine Chemical segments, changes in environmental regulations could result in requirements to add or modify emissions control, water treatment, or waste handling equipment, processes or arrangements, which could impose significant additional costs for equipment at and operation of our facilities.

Moreover, in other areas of our business, we are, like other government and military contractors and subcontractors, subject directly or indirectly in many cases to government contracting regulations and the additional costs, burdens and risks associated with meeting these heightened contracting requirements. Failure to comply with government contracting regulations may result in contract termination, the potential for substantial civil and criminal penalties, and, under certain circumstances, our suspension and debarment from future U.S. government contracts for a period of time. For example, these consequences could be imposed for failing to follow procurement integrity and bidding rules, employing improper billing practices or otherwise failing to follow cost accounting standards, receiving or paying kickbacks or filing false claims. In addition, the U.S. government and its principal prime contractors periodically investigate its contractors and subcontractors, including with respect to financial viability, as part of its risk assessment process associated with the award of new contracts. Consequently, for example, if the U.S. government or one or more prime contractors were to determine that we were not financially viable, our ability to continue to act as a government contractor or subcontractor would be impaired. Further, a portion of our business involves the sale of controlled products overseas, such as supplying AP to various foreign defense programs and commercial space programs. Foreign sales subject us to numerous additional complex U.S. and foreign laws and regulations, including laws and regulations governing import-export controls applicable to the sale and export of munitions and other controlled products and commodities, repatriation of earnings, exchange controls, the Foreign Corrupt Practices Act, and the anti-boycott provisions of the U.S. Export Administration Act. The costs of complying with the various and often complex and frequently changing laws and regulations and regulatory oversight applicable to us and the businesses in which we engage, and the consequences should we fail to comply, even inadvertently, with such requirements, could be significant and could reduce our profitability and liquidity.

In addition, we are subject to numerous federal laws and regulations due to our status as a publicly traded company, as well as rules and regulations of The Nasdaq Stock Market LLC. Any changes in these legal and regulatory requirements could increase our compliance costs and negatively affect our results of operations.

A significant portion of our business depends on contracts with the government or its prime contractors and these contracts are impacted by governmental priorities and are subject to potential fluctuations in funding or early termination, including for convenience, any of which could material adversely effect our operating results, financial condition or cash flows.

Sales to the U.S. government and its prime contractors and subcontractors represent a significant portion of our business. In fiscal 2007, substantially all of our revenues generated from our perchlorate products, and in particular Grade I AP, and a significant component of our Aerospace Equipment segment revenues were generated from our U.S. government contracts and our customers’ U.S. government contracts. One significant use of Grade I AP historically has been in NASA’s Space Shuttle program. Consequently, the long-term demand for Grade I AP may be driven by the timing of the retirement of the Space Shuttle fleet as well as by the development of a new crew launch vehicle, the number of crew launch vehicle launches, the development and testing of a new heavy launch vehicle used to transport materials and supplies to the International Space Station and the Moon, and the number of heavy launch vehicle launches. If the use of AP as the oxidizing agent for solid propellant rockets or the use of solid propellant rockets in NASA’s space exploration programs are discontinued or significantly reduced, it could have a material adverse effect on our operating results, financial condition, or cash flows.

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The funding of U.S. governmental programs is generally subject to annual congressional appropriations, and congressional priorities are subject to change. In the case of major programs, U.S. government contracts are usually incrementally funded. In addition, U.S. government expenditures for defense and NASA programs may fluctuate from year to year and specific programs, in connection with which we may receive significant revenue, may be terminated. A decline in government expenditures or any failure by Congress to appropriate additional funds to any program in which we or our customers participate, or any contract modification as a result of funding changes, could materially delay or terminate the program for us or for our customers. Moreover, the U.S. government may terminate its contracts with its suppliers either for its convenience or in the event of a default by the supplier. Since a significant portion of our customer base is either the U.S. government or U.S. government contractors, we may have limited ability to collect fully on such contracts when the U.S. government terminates its contracts. Moreover, in such situations where we are a subcontractor, the U.S. government contractor may cease purchasing our products if its contracts are terminated. We may have resources applied to specific government-related contracts and, if any of those contracts were terminated, we may incur substantial costs redeploying these resources. Given the significance to our business of U.S. government contracts or contracts based on U.S. government contracts, fluctuations or reductions in governmental funding for particular governmental programs and/or termination of existing governmental programs and related contracts may have a material adverse effect on our operating results, financial condition or cash flow.

We may be subject to potentially material costs and liabilities in connection with environmental liabilities.

Some of our operations may create risks of adverse environmental and health effects, any of which might not be covered by insurance. In the past, we have been required to take remedial action to address particular environmental and health concerns identified by governmental agencies in connection with the production of perchlorate. In connection with other operations, we may become obligated in the future for environmental liabilities if we fail to abide by limitations placed on us by governmental agencies. There can be no assurance that material costs or liabilities or other restrictions will not be incurred to rectify any past or future occurrences related to environmental or health matters.

Review of Perchlorate Toxicity by EPA. Perchlorate is not currently included in the list of hazardous substances compiled by the U.S. Environmental Protection Agency, or EPA, but it is on the EPA’s Contaminant Candidate List. The National Academy of Sciences, the EPA and certain states have set or discussed certain guidelines on the acceptable levels of perchlorate in water. 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, which could, in turn, cause us to incur material costs.

Perchlorate Remediation Project in Henderson, Nevada. We commercially manufactured perchlorate chemicals at a facility in Henderson, Nevada, or the “AMPAC Henderson Site”, until May 1988. In 1997, the Southern Nevada Water Authority, or 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. In response to this discovery by SNWA, and at the request of the Nevada Division of Environmental Protection, or NDEP, we engaged in an investigation of groundwater near the AMPAC Henderson Site and down gradient toward the Las Vegas Wash. 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. In fiscal 2005, we submitted a work plan to NDEP for the construction of a remediation facility near the AMPAC Henderson Site. The permanent plant began operation in December 2006.

Henderson Site Environmental Remediation Reserve. During fiscal 2005 and 2006, we recorded charges totaling $26,000 representing our estimate of the probable costs of our remediation efforts at the AMPAC 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

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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 phase 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. In fiscal 2007, we began the operating and maintenance phase and expect cash spending to decline to less than $1,000 per year annually for the next several years. 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.

Other Environmental Matters. As part of the acquisition of AFC by us, AFC leased approximately 240 acres of land on the Aerojet-General Corporation Superfund Site. The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, or CERCLA, has very strict joint and several liability provisions that make any “owner or operator” of a “Superfund Site” a “potentially responsible party” for remediation activities. AFC could be considered an “operator” for purposes of CERCLA and, in theory, could be a potentially responsible party for purposes of contribution to the site remediation, although we received a letter from the EPA in November 2005 indicating that the EPA does not intend to pursue any clean up or enforcement actions under CERCLA against future lessees of the Aerojet property for existing contamination, provided that the lessees do not contribute to or do not exacerbate existing contamination on or under the Superfund Site. Additionally, pursuant to the EPA consent order governing remediation for this site, AFC will have to abide by certain limitations regarding construction and development of the site which may restrict AFC’s operational flexibility and require additional substantial capital expenditures that could negatively affect the results of operations for AFC.

Although we have established an environmental reserve for our AMPAC Henderson Site, given the many uncertainties involved in assessing environmental liabilities, our environmental-related risks may from time to time exceed any related reserves.

As of March 31, 2008, we had established reserves in connection with the AMPAC Henderson Site of approximately $14,875, which we believe to be sufficient to cover our estimated environmental liabilities for that site at that time. However, as of such date, we had not established any other environmental-related reserves.  Given the many uncertainties involved in assessing environmental liabilities, our environmental-related risks may, from time to time, exceed any related reserves, as we may not have established reserves with respect to such environmental liabilities, or any reserves we have established may prove to be insufficient. We continually evaluate the adequacy of our reserves on a quarterly basis, and they could change. In addition, reserves with respect to environmental matters are based only on known sites and the known contamination at those sites. It is possible that additional remediation sites will be identified in the future or that unknown contamination at previously identified sites will be discovered. This could lead us to have additional expenditures for environmental remediation in the future and, given the many uncertainties involved in assessing environmental liabilities, we may not have adequately reserved for such liabilities or any reserves we have established may prove to be insufficient.

For each of our Specialty Chemicals, Fine Chemicals and Aerospace Equipment segments, most production is conducted in a single facility and any significant disruption or delay at a particular facility could have a material adverse effect on our business, financial position and results of operations.

Most of our Specialty Chemicals products are produced at our Iron County, Utah facility. Most of our Fine Chemicals products are produced at our Rancho Cordova, California facility and most of our Aerospace Equipment products are produced at our Niagara Falls, New York facility. A significant disruption at a particular facility, even on a short-term basis, could impair our ability to produce and ship the particular business segment’s products to market on a timely basis, which could have a material adverse effect on our business, financial position and results of operations.

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The release or explosion of dangerous materials used in our business could disrupt our operations and cause us to incur additional costs and liability.

Our operations involve the handling, production, storage, and disposal of potentially explosive or hazardous materials and other dangerous chemicals, including materials used in rocket propulsion. Despite our use of specialized facilities to handle dangerous materials and intensive employee training programs, the handling and production of hazardous materials could result in incidents that shut down (temporarily or for longer periods) or otherwise disrupt our manufacturing operations and could cause production delays. It is possible that a release of these chemicals or an explosion could result in death or significant injuries to employees and others. Material property damage to us and third parties could also occur. For example, on May 4, 1988, our former manufacturing and office facilities in Henderson, Nevada were destroyed by a series of massive explosions and associated fires. Extensive property damage occurred both at our facilities and in immediately adjacent areas, the principal damage occurring within a three-mile radius. Production of AP ceased for a 15-month period. Significant interruptions were also experienced in our other businesses, which occupied the same or adjacent sites. There can be no assurance that another incident would not interrupt some or all of the activities carried on at our current manufacturing site. The use of our products in applications by our customers could also result in liability if an explosion or fire were to occur. Any release or explosion could expose us to adverse publicity or liability for damages or cause production delays, any of which could have a material adverse effect on our reputation and profitability.

Disruptions in the supply of key raw materials and difficulties in the supplier qualification process, as well as increases in prices of raw materials, could adversely impact our operations.

Key raw materials used in our operations include salt, sodium chlorate, graphite, ammonia and hydrochloric acid. We closely monitor sources of supply to assure that adequate raw materials and other supplies needed in our manufacturing processes are available. In addition, as a U.S. government contractor or subcontractor, we are frequently limited to procuring materials and components from sources of supply that can meet rigorous customer and/or government specifications. In addition, as business conditions, the U.S. defense budget, and congressional allocations change, suppliers of specialty chemicals and materials sometimes consider dropping low volume items from their product lines, which may require, as it has in the past, qualification of new suppliers for raw materials on key programs. The qualification process may impact our profitability or ability to meet contract deliveries. We are also impacted by the cost of these raw materials used in production on fixed-price contracts. The increased cost of natural gas and electricity also has an impact on the cost of operating our Specialty Chemicals facilities.

AFC uses substantial amounts of raw materials in its production processes, including petroleum-based solvents. Increases in the prices of raw materials which AFC purchases from third party suppliers could adversely impact revenue and operating results. In certain cases, the customer provides some of the raw materials which are used by AFC to produce or manufacture the customer’s products. Failure to receive raw materials in a timely manner, whether from a third party supplier or a customer, could cause AFC to fail to meet production schedules and adversely impact revenues. Certain key raw materials are obtained from sources from outside the U.S. Factors that can cause delays in the arrival of raw materials include weather, political unrest in countries from which raw materials are sourced or through which they are delivered, and work stoppages by suppliers or shippers. A delay in the arrival of the shipment of raw materials from a third party supplier could have a significant impact on AFC’s ability to meet its contractual commitments to customers.

Prolonged disruptions in the supply of any of our key raw materials, difficulty completing qualification of new sources of supply, implementing use of replacement materials or new sources of supply, or a continuing increase in the prices of raw materials and energy could have a material adverse effect on our operating results, financial condition or cash flows.

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Each of our Specialty Chemicals, Fine Chemicals and Aerospace Equipment segments may be unable to comply with customer specifications and manufacturing instructions or may experience delays or other problems with existing or new products, which could result in increased costs, losses of sales and potential breach of customer contracts.

Each of our Specialty Chemicals, Fine Chemicals and Aerospace Equipment segments produces products that are highly customized, require high levels of precision to manufacture and are subject to exacting customer and other requirements, including strict timing and delivery requirements.

For example, our Fine Chemicals segment produces chemical compounds that are difficult to manufacture, including highly energetic and highly toxic materials. These chemical compounds are manufactured to exacting specifications of our customers’ filings with the FDA and other regulatory authorities worldwide. The production of these chemicals requires a high degree of precision and strict adherence to safety and quality standards. Regulatory agencies, such as the FDA and the European Agency for the Evaluation of Medical Products, or EMEA, have regulatory oversight over the production process for many of the products that AFC manufactures for its customers. AFC employs sophisticated and rigorous manufacturing and testing practices to ensure compliance with the FDA’s current good manufacturing practices or “cGMP” guidelines and the International Conference on Harmonization Q7A. Because the chemical compounds produced by AFC are so highly customized, they are also subject to customer acceptance requirements, including strict timing and delivery requirements. If AFC is unable to adhere to the standards required or fails to meet the customer’s timing and delivery requirements, the customer may reject the chemical compounds. In such instances, AFC may also be in breach of its customer’s contract.

Like our Fine Chemicals segment, our Specialty Chemicals and Aerospace Equipment segments face similar production demands and requirements. In each case, a significant failure or inability to comply with customer specifications and manufacturing requirements or delays or other problems with existing or new products could result in increased costs, losses of sales and potential breaches of customer contracts, which could affect our operating results and revenues.

Successful commercialization of pharmaceutical products and product line extensions is very difficult and subject to many uncertainties. If a customer is not able to successfully commercialize its products for which AFC produces compounds or if a product is subsequently recalled, then the operating results of AFC may be negatively impacted.

Successful commercialization of pharmaceutical products and product line extensions requires accurate anticipation of market and customer acceptance of particular products, customers’ needs, the sale of competitive products, and emerging technological trends, among other things. Additionally, for successful product development, the customers must complete many complex formulation and analytical testing requirements and timely obtain regulatory approvals from the FDA and other regulatory agencies. When developed, new or reformulated drugs may not exhibit desired characteristics or may not be accepted by the marketplace. Complications can also arise during production scale-up. In addition, a customer product that includes ingredients that are manufactured by AFC may be subsequently recalled or withdrawn from the market by the customer. The recall or withdrawal may be for reasons beyond the control of AFC. Moreover, products may encounter unexpected, irresolvable patent conflicts or may not have enforceable intellectual property rights. If the customer is not able to successfully commercialize a product for which AFC produces compounds, or if there is a subsequent recall or withdrawal of a product manufactured by AFC or that includes ingredients manufactured by AFC for its customers, it could have an adverse impact on AFC’s operating results, including its forecasted or actual revenues.

A strike or other work stoppage, or the inability to renew collective bargaining agreements on favorable terms, could have a material adverse effect on the cost structure and operational capabilities of AFC.

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As of September 30, 2007, AFC had approximately 144 employees that were covered by collective bargaining or similar agreements. In June 2007, the collective bargaining and similar agreements were renegotiated and extended to June 2010. If we are unable to negotiate acceptable new agreements with the unions representing these employees upon expiration of the existing contracts, we could experience strikes or work stoppages. Even if AFC is successful in negotiating new agreements, the new agreements could call for higher wages or benefits paid to union members, which would increase AFC’s operating costs and could adversely affect its profitability. If the unionized workers were to engage in a strike or other work stoppage, or other non-unionized operations were to become unionized, AFC could experience a significant disruption of operations at its facilities or higher ongoing labor costs. A strike or other work stoppage in the facilities of any of its major customers or suppliers could also have similar effects on AFC.

The pharmaceutical fine chemicals industry is a capital-intensive industry and if AFC does not have sufficient financial resources to finance the necessary capital expenditures, its business and results of operations may be harmed.

The pharmaceutical fine chemicals industry is a capital-intensive industry that consumes cash from our Fine Chemicals segment and our other operations and from borrowings. Upon further expansion of the operations of AFC, capital expenditures for AFC are expected to increase. Increases in expenditures may result in low levels of working capital or require us to finance working capital deficits. These factors could substantially increase AFC’s operating costs and negatively impact its operating results.

We may be subject to potential product liability claims that could affect our earnings and financial condition and harm our reputation.

We may face potential liability claims based on our products and/or services  in our several lines of business under certain circumstances. For example, a customer’s product may include ingredients that are manufactured by AFC.  Although such ingredients are generally made pursuant to specific instructions from our customer and tested using techniques provided by our customer, the customer’s product may, nevertheless, be subsequently recalled or withdrawn from the market by the customer, and the recall or withdrawal may be due in part or wholly to product failures or inadequacies that may or may not be related to the ingredients we manufactured for the customer.  In such a case, the recall or withdrawal may result in claims being made against us.  Although we seek to reduce our potential liability through measures such as contractual indemnification provisions with customers, we cannot assure you that such measures will be enforced or effective. We could be materially and adversely affected if we were required to pay damages or incur defense costs in connection with a claim that is outside the scope of the indemnification agreements, if the indemnity, although legally enforceable, is not applicable in accordance with its terms or if our liability exceeds the amount of the applicable indemnification, or if the amount of the indemnification exceeds the financial capacity of our customer. In certain instances, we may have in place product liability insurance coverage, which is generally available in the market, but which may be limited in scope and amount. In other instances, we may have self-insured the risk for any such potential claim. There can be no assurance that our insurance coverage, if available, will be adequate or that insurance coverage will continue to be available on terms acceptable to us. Unexpected results could cause us to have financial exposure in these matters in excess of insurance coverage and recorded reserves, requiring us to provide additional reserves to address these liabilities, impacting profits.

Technology innovations in the markets that we serve may create alternatives to our products and result in reduced sales.

Technology innovations to which our current and potential customers might have access could reduce or eliminate their need for our products. A new, competing or other disruptive technology that reduces or eliminates the use of one or more of our products could negatively impact the sale of those products. Our customers also constantly attempt to reduce their manufacturing costs and improve product quality. We

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may be unable to respond on a timely basis to any or all of the changing needs of our customer base. Our failure to develop, introduce or enhance products able to compete with new technologies in a timely manner could have an adverse effect on our business, results of operations and financial condition.

We are subject to competition in certain industries where we participate and therefore may not be able to compete successfully.

Other than the sale of Grade I AP, for which we are the exclusive North American provider, we face competition in all of the other industries that we participate in, including from competitors with greater resources than ours. Many of our competitors have financial, technical, production and other resources substantially greater than ours. Moreover, barriers to entry, other than capital availability, are low in some of the product segments of our business. Capacity additions or technological advances by existing or future competitors may also create greater competition, particularly in pricing. Further, the pharmaceutical fine chemicals market is fragmented and competitive. Competition in the pharmaceutical fine chemicals market is based upon reputation, service, manufacturing capability and expertise, price and reliability of supply. AFC faces increasing competition against pharmaceutical contract manufacturers located in the People’s Republic of China and India, where production costs are significantly less. If AFC is unable to compete successfully, its results of operations may be materially adversely impacted. Furthermore, there is a worldwide over-supply of sodium azide, which creates significant price competition for that product. We may be unable to compete successfully with our competitors and our inability to do so could result in a decrease in revenues that we historically have generated from the sale of our products.

Due to the nature of our business, our sales levels may fluctuate causing our quarterly operating results to fluctuate.

Changes in our operating results from quarter to quarter could result in volatility in our common stock price. Our quarterly and annual sales are affected by a variety of factors that could lead to significant variability in our operating results. In our Specialty Chemicals segment, the need for our products are generally based on contractually defined milestones that our customers are bound by and these milestones may fluctuate from quarter to quarter. In our Fine Chemicals segment, some of our products require multiple steps of chemistries, the production of which can span multiple quarterly periods. Revenue is typically recognized after the final step and when the product has been shipped and accepted by the customer. As a result of this multi-quarter process, revenues and related profits can vary from quarter to quarter.

The volatility of the chemical industry affects our capacity utilization and causes fluctuations in our results of operations.

Our Specialty Chemicals and Fine Chemicals segments are subject to volatility that characterizes the chemical industry generally. Thus, the operating rates at our facilities will impact the comparison of period-to-period results. Different facilities may have differing operating rates from period to period depending on many factors, such as transportation costs and supply and demand for the product produced at the facility during that period. As a result, individual facilities may be operated below or above rated capacities in any period. We may idle a facility for an extended period of time because an oversupply of a certain product or a lack of demand for that product makes production uneconomical. The expenses of the shutdown and restart of facilities may adversely affect quarterly results when these events occur. In addition, a temporary shutdown may become permanent, resulting in a write-down or write-off of the related assets.

A loss of key personnel or highly skilled employees could disrupt our operations.

Our executive officers are critical to the management and direction of our businesses. Our future success depends, in large part, on our ability to retain these officers and other capable management personnel. From time to time we have entered into employment agreements with some of our executive officers and

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we may do so in the future, as competitive needs require. An employment agreement typically allows the officer to terminate employment with certain levels of severance under particular circumstances, such as a change of control affecting our company. Although we believe that we will be able to attract and retain talented personnel and replace key personnel should the need arise, our inability to do so could disrupt the operations of the segment affected or our overall operations. Furthermore, our business is very technical and the technological and creative skills of our personnel are essential to establishing and maintaining our competitive advantage. For example, customers often turn to AFC because very few companies have the specialized experience and capabilities required for energetic and high containment chemistry. Our operations could be disrupted by a shortage of available skilled employees or if we are unable to retain these highly skilled and experienced employees.

We may continue to expand our operations through acquisitions, which could divert management’s attention and expose us to unanticipated liabilities and costs. We may experience difficulties integrating the acquired operations, and we may incur costs relating to acquisitions that are never consummated.

Our business strategy includes growth through future possible acquisitions. However, our ability to consummate and integrate effectively any future acquisitions on terms that are favorable to us may be limited by the number of attractive acquisition targets, internal demands on our resources and our ability to obtain financing. Our success in integrating newly acquired businesses will depend upon our ability to retain key personnel, avoid diversion of management’s attention from operational matters, integrate general and administrative services and key information processing systems and, where necessary, requalify our customer programs. In addition, future acquisitions could result in the incurrence of additional debt, costs and contingent liabilities. We may also incur costs and divert management attention to acquisitions that are never consummated. Integration of acquired operations may take longer, or be more costly or disruptive to our business, than originally anticipated. It is also possible that expected synergies from past or future acquisitions may not materialize.

Although we undertake a diligence investigation of each business that we acquire, there may be liabilities of the acquired companies that we fail to or are unable to discover during the diligence investigation and for which we, as a successor owner, may be responsible. In connection with acquisitions, we generally seek to minimize the impact of these types of potential liabilities through indemnities and warranties from the seller, which may in some instances be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained, may not fully cover the ultimate actual liabilities due to limitations in scope, amount or duration, financial limitations of the indemnitor or warrantor or other reasons.

We have a substantial amount of debt, and the cost of servicing that debt could adversely affect our ability to take actions, our liquidity or our financial condition.

As of March 31, 2008, we had outstanding debt totaling $110,481, for which we are required to make interest payments. Subject to the limits contained in some of the agreements governing our outstanding debt, we may incur additional debt in the future or we may refinance some or all of this debt.

Our level of debt places significant demands on our cash resources, which could:

• make it more difficult for us to satisfy our outstanding debt obligations;

• require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, reducing the amount of our cash flow available for working capital, capital expenditures, acquisitions, developing our real estate assets and other general corporate purposes;

• limit our flexibility in planning for, or reacting to, changes in the industries in which we compete;

• place us at a competitive disadvantage compared to our competitors, some of which have lower debt service obligations and greater financial resources than we do;

• limit our ability to borrow additional funds; or

• increase our vulnerability to general adverse economic and industry conditions.

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If we are unable to generate sufficient cash flow to service our debt and fund our operating costs, our liquidity may be adversely affected.

We are obligated to comply with financial and other covenants in our debt that could restrict our operating activities, and the failure to comply could result in defaults that accelerate the payment under our debt.
Our outstanding debt generally contains various restrictive covenants. These covenants include provisions restricting our ability to, among other things:

• 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.

Any of the covenants described above may restrict our operations and our ability to pursue potentially advantageous business opportunities. Our failure to comply with these covenants could also result in an event of default that, if not cured or waived, could result in the acceleration of all or a substantial portion of our debt.

Our shareholder rights plan, Restated Certificate of Incorporation, as amended, and Amended and Restated By-laws discourage unsolicited takeover proposals and could prevent stockholders from realizing a premium on their common stock.

We have a shareholder rights plan that may have the effect of discouraging unsolicited takeover proposals. The rights issued under the shareholder rights plan would cause substantial dilution to a person or group which attempts to acquire us on terms not approved in advance by our board of directors. In addition, our Restated Certificate of Incorporation, as amended, and Amended and Restated By-laws contain provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. These provisions include:

• a classified board of directors;

• the ability of our board of directors to designate the terms of and issue new series of preferred stock;

• advance notice requirements for nominations for election to our board of directors; and

• special voting requirements for the amendment, in certain cases, of our Restated Certificate of Incorporation, as amended, and our Amended and Restated By-laws.

We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together, our charter provisions, Delaware law and the shareholder rights plan may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our common stock.

Our proprietary rights may be violated or compromised, which could damage our operations.

We own numerous patents, patent applications and unpatented trade secret technologies in the U.S. and certain foreign countries. There can be no assurance that the steps taken by us to protect our proprietary rights will be adequate to deter misappropriation of these rights. In addition, independent third parties may develop competitive or superior technologies. If we are unable to adequately protect and utilize our intellectual property or proprietary rights, our results of operations may be adversely affected.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS – None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES – None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

American Pacific Corporation (the “Company”) held its annual meeting of stockholders on March 11, 2008. The matters voted upon at the meeting and the results of the vote for each matter were as follows:

Item No. 1. To elect three Class B directors to the board of directors of the Company to serve three-year terms until the annual meeting of stockholders in 2011 or until their respective successors have been duly elected and qualified.

Each of the Class B director nominees received the affirmative vote of the holders of more than 80% of the shares present and entitled to vote and was elected in accordance with the voting set forth below:

Name	Votes For		Votes Withheld
Norval F. Pohl		5,882,382		832,670
C. Keith Rooker		6,573,654		141,398
Jane L. Williams		5,882,382		832,670

Item No. 2. To ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2008.

The ratification of the appointment of Deloitte & Touche LLP was approved in accordance with the voting set forth below:

Votes For	Against	Abstained	Broker Non-Votes
6,651,889	27,016	36,147	Not Applicable

Item No. 3. To approve the American Pacific Corporation 2008 Stock Incentive Plan.

The approval of the American Pacific Corporation 2008 Stock Incentive Plan was approved in accordance with the voting set forth below:

Votes For	Against	Abstained	Broker Non-Votes
4,644,573	919,604	14,723	1,136,152

ITEM 5. OTHER INFORMATION – None.

ITEM 6. EXHIBITS – See attached exhibit index.

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SIGNATURES

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

	AMERICAN PACIFIC CORPORATION
Date: May 9, 2008	/s/ JOHN R. GIBSON
	John R. Gibson
	Chairman of the Board and Chief Executive Officer (Principal Executive Officer)
	/s/ DANA M. KELLEY
	Dana M. Kelley
	Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

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EXHIBIT INDEX

EXHIBIT NO.	DOCUMENT DESCRIPTION
3.1	Registrant’s Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 4.(a) to the Registrant’s Registration Statement on Form S-3 (File No. 33-15674))
3.2	Articles of Amendment to Registrant’s Restated Certificate of Incorporation, as filed with the Secretary of State, State of Delaware, on October 7, 1991 (incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-3 (File No. 33-52196))
3.3	Articles of Amendment to Registrant’s Restated Certificate of Incorporation, as filed with the Secretary of State, State of Delaware, on April 21, 1992 (incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-3 (File No. 33-52196))
3.4	Amended and Restated By-Laws of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-08137) filed by the Registrant with the Securities and Exchange Commission on November 15, 2007)
3.5	Form of Rights Agreement, dated as of August 3, 1999, between American Pacific Corporation and American Stock Transfer & Trust Company (incorporated by reference to Exhibit 1 to the Registrant’s Registration Statement on Form 8-A (File No. 001-08137) filed by the Registrant with the Securities and Exchange Commission on August 6, 1999)
3.6	Form of Letter to Stockholders with copies of Summary of Rights to Purchase Preference Shares (incorporated by reference to Exhibit 2 to the Registrant’s Registration Statement on Form 8-A (File No. 001-08137) filed by the Registrant with the Securities and Exchange Commission on August 6, 1999)
10.1	American Pacific Corporation 2008 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-08137) filed by the Registrant with the Securities and Exchange Commission on March 17, 2008)
10.2	Form of Notice of Stock Option Award and Stock Option Award Agreement under the American Pacific Corporation 2008 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-08137) filed by the Registrant with the Securities and Exchange Commission on March 17, 2008)
10.3	Form of Notice of Restricted Stock Bonus Award and Restricted Stock Bonus Award Agreement under the American Pacific Corporation 2008 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No. 001-08137) filed by the Registrant with the Securities and Exchange Commission on March 17, 2008)
10.4	American Pacific Corporation Incentive Compensation Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K (File No. 001-08137) filed by the Registrant with the Securities and Exchange Commission on March 17, 2008)
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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* Exhibits 32.1 and 32.2 are furnished to accompany this Quarterly Report on Form 10-Q but shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

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