**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





(MARK
      ONE)





x
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30,
                2006





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 1-8676


**FANSTEEL
      INC.**


(Exact
      Name of Registrant as Specified in Its Charter)





Delaware
            
            36-1058780(State
                or Other Jurisdiction of Incorporation or Organization)
            
            (I.R.S.
                Employer Identification No.)





570
      Lake
      Cook Road, Suite 200


Deerfield,
      Illinois 60015


(Address
      of principal executive offices and zip code)


(847)
      689-4900


(Registrant’s
      Telephone Number, Including Area Code)





Indicate
      by checkmark 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 such shorter period that registrant was required to
      file
      such reports), and (2) has been subject to such filing requirements for the
      past
      90 days. Yes x No o





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


Large
                accelerated filero
            Accelerated
                filero
            Non-accelerated
                filerx





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





APPLICABLE
      ONLY TO REGISTRANTS INVOLVED IN


BANKRUPTCY
      PROCEEDINGS DURING THE PRECEDING FIVE YEARS.





Indicate
      by checkmark whether the registrant has filed all documents and reports required
      to be filed by Section 12, 13 or 15 (d) of the Securities Exchange Act of 1934
      subsequent to the distribution of securities under a plan confirmed by a court.
      Yes x No o





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.





Class
            
            Outstanding
                at July 31, 2006Common
                Stock, $.01 par value
            
            3,420,000
                shares








1





FANSTEEL
      INC.


FORM
      10-Q
      - INDEX


June
      30,
      2006




**PART
                I.**
            **FINANCIAL
                INFORMATION**
            Page
                No.Item
                1
            Consolidated
                Financial StatementsConsolidated
                Statement of Operations (unaudited) - Three
                months ended June 30, 2006 and three months ended June 30, 2005;
                six
                months ended June 30, 2006 and six months ended June 30,
                2005
            3-4Consolidated
                Balance Sheet - June 30, 2006 (unaudited) and
                December 31, 2005
            5-6Consolidated
                Statement of Cash Flows (unaudited) - Six
                months ended June 30, 2006 and six months ended June 30,
                2005
            7Notes
                to Unaudited Consolidated Financial
                Statements
            8-14Item
                2
            Management's
                Discussion and Analysis of Financial Condition and
                Results of Operations
            15-22Item
                3
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            22Item
                4
            Controls
                and Procedures
            23**PART
                II**
            **OTHER
                INFORMATION**Item
                1
            Legal
                Proceedings
            24-26Item
                1A
            Risk
                Factors
            27-28Item
                2
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            29Item
                3
            Defaults
                Upon Senior Securities
            29Item
                4
            Submission
                of Matters to a Vote of Security
                Holders
            29Item
                5
            Other
                Information
            29Item
                6
            Exhibits
            29Signatures
            
            30Exhibit
                31.1
            Certifications-
                Gary L. TessitoreExhibit
                31.2
            Certifications-
                R. Michael McEnteeExhibit
                32.1
            Certification





2
 *Index*





**PART
      I. FINANCIAL INFORMATION**





**ITEM
      1 - FINANCIAL STATEMENTS**


Fansteel
        Inc.
 Consolidated
        Statement of Operations
 (Unaudited)


Three
                  Months
                Ended
                June
                  30, 2006
              
              Three
                  Months
                Ended
                June
                  30, 2005Net
                  Sales
              
              $
              17,310,193
              
              $
              14,643,772Cost
                  and ExpensesCost
                  of products sold
              
              
              14,419,478
              
              
              11,917,554Selling,
                  general and administrative
              
              
              1,703,204
              
              
              1,787,14516,122,682
              
              
              13,704,699Operating
                  Income
              
              
              1,187,511
              
              
              939,073Other
                  Income (Expense)Interest
                  expense
              
              
              (374,063
              )
              
              (252,449
              )Other
              
              
              11,382
              
              
              (11,850
              )(362,681
              )
              
              (264,299
              )Income
                  from Continuing Operations Before Reorganization Items and Income
                  Taxes
              
              
              824,830
              
              
              674,774Reorganization
                  ItemsUS
                  trustee fees
              
              
              -
              
              
              (18,000
              )-
              
              
              (18,000
              )Income
                  from Continuing Operations Before Income Taxes
              
              
              824,830
              
              
              656,774Income
                  Taxes
              
              
              -
              
              
              -Net
                  Income from Continuing Operations
              
              
              824,830
              
              
              656,774Income
                  (Loss) from Discontinued Operations
              
              
              (1,022,368
              )
              
              247,313Net
                  Income (Loss)
              
              $
              (197,538
              )
              $
              904,087Weighted
                  Average Number of Common Shares Outstandinga
              
              
              3,420,000
              
              
              3,420,000Basic
                  and Diluted Net Income (Loss) per ShareContinuing
                  operations
              
              $
              0.24
              
              $
              0.19Discontinued
                  operations
              
              
              (0.30
              )
              
              0.07Net
                  income (loss)
              
              $
              (0.06
              )
              $
              0.26






a
                  Basis
                      earnings per share and diluted earnings per share are the
                      same.
 See
          Notes
          to Consolidated Financial Statements


3
 *Index*


Fansteel
        Inc.
 Consolidated
        Statement of Operations
 (Unaudited)
 
 Six
                  Months
                Ended
                June
                  30, 2006
              
              Six
                  Months
                Ended
                June
                  30, 2005Net
                  Sales
              
              $
              33,881,833
              
              $
              27,874,693Cost
                  and ExpensesCost
                  of products sold
              
              
              28,987,381
              
              
              22,938,168Selling,
                  general and administrative
              
              
              3,275,944
              
              
              3,478,85632,263,325
              
              
              26,417,024Operating
                  Income
              
              
              1,618,508
              
              
              1,457,669Other
                  Income (Expense)Interest
                  expense
              
              
              (694,006
              )
              
              (459,710
              )Other
              
              
              6,054
              
              
              (12,269
              )(687,952
              )
              
              (471,979
              )Income
                  from Continuing Operations Before Reorganization Items and Income
                  Taxes
              
              
              930,556
              
              
              985,690Reorganization
                  ItemsUS
                  trustee fees
              
              
              -
              
              
              (36,000
              )-
              
              
              (36,000
              )Income
                  from Continuing Operations Before Income Taxes
              
              
              930,556
              
              
              949,690Income
                  Taxes
              
              
              -
              
              
              -Net
                  Income from Continuing Operations
              
              
              930,556
              
              
              949,690Loss
                  from Discontinued Operations
              
              
              (1,843,466
              )
              
              (784,292
              )Net
                  Income (Loss)
              
              $
              (912,910
              )
              $
              165,398Weighted
                  Average Number of Common Shares Outstanding
              
              
              3,420,000
              
              
              3,420,000Basic
                  and Diluted Net Income (Loss) per ShareaContinuing
                  operations
              
              $
              0.27
              
              $
              0.28Discontinued
                  operations
              
              
              (0.54
              )
              
              (0.23
              )Net
                  income (loss)
              
              $
              (0.27
              )
              $
              0.05






a
                Basis
                    earnings per share and diluted earnings per share are the
                    same.
  See
          Notes
          to Consolidated Financial Statements


4
 *Index*




Fansteel
      Inc.


Consolidated
      Balance Sheet




June
                30,
              2006
              (Unaudited)
            
            December
                31,
              2005ASSETSCurrent
                assetsCash
                and cash equivalents
            
            $
            595,589
            
            $
            791,453Accounts
                receivable, less allowance of $181,000 and $126,000 at June 30, 2006
                and
                December 31, 2005, respectively
            
            
            11,486,134
            
            
            9,720,207InventoriesRaw
                material and supplies
            
            
            1,389,855
            
            
            1,344,841Work-in
                process
            
            
            6,706,618
            
            
            4,712,644Finished
                goods
            
            
            596,574
            
            
            648,167Total
                inventories
            
            
            8,693,047
            
            
            6,705,652Other
                assets - current
            
            
            771,935
            
            
            1,227,153Total
                current assets
            
            
            21,546,705
            
            
            18,444,465Property,
                plant and equipmentLand
            
            
            1,084,419
            
            
            1,084,419Buildings
            
            
            5,108,331
            
            
            5,108,331Machinery
                and equipment
            
            
            6,052,296
            
            
            5,432,87112,245,046
            
            
            11,625,621Less
                accumulated depreciation
            
            
            2,692,845
            
            
            2,189,763Net
                property, plant and equipment
            
            
            9,552,201
            
            
            9,435,858Other
                assetsDeposits
            
            
            879,950
            
            
            879,950Reorganization
                value in excess of amounts allocable to identified assets
            
            
            12,893,734
            
            
            12,893,734Property
                held for sale
            
            
            1,327,500
            
            
            1,327,500Other
            
            
            250,858
            
            
            223,047Total
                other assets
            
            
            15,352,042
            
            
            15,324,231$
            46,450,948
            
            $
            43,204,554





See
      Notes
      to Consolidated Financial Statements





5
 *Index*





Fansteel
      Inc.


Consolidated
      Balance Sheet




June
                30,
              2006
              (Unaudited)
            
            December
                31,
              2005LIABILITIES
                AND SHAREHOLDERS' (DEFICIT)Current
                liabilitiesAccounts
                payable
            
            $
            6,342,520
            
            $
            4,438,835Accrued
                liabilities
            
            
            6,800,700
            
            
            6,103,073Short-term
                borrowings
            
            
            11,943,709
            
            
            9,681,872Current
                maturities of long-term debt
            
            
            1,047,166
            
            
            1,039,290Total
                current liabilities
            
            
            26,134,095
            
            
            21,263,070Long-term
                debt
            
            
            4,669,724
            
            
            5,273,501Other
                liabilities - environmental remediation
            
            
            21,429,101
            
            
            21,533,459Total
                liabilities
            
            
            52,232,920
            
            
            48,070,030Shareholders'
                equity (deficit)Common
                stock, par value $0.01Authorized
                3,600,000 shares, issued and outstanding 3,420,000
            
            
            34,200
            
            
            34,200Capital
                in excess of par value
            
            
            296,314
            
            
            296,314Accumulated
                (deficit)
            
            
            (6,095,263
            )
            
            (5,182,353
            )Other
                comprehensive incomeForeign
                currency translation
            
            
            (17,223
            )
            
            (13,637
            )Total
                other comprehensive income
            
            
            (17,223
            )
            
            (13,637
            )Total
                shareholders’ (deficit)
            
            
            (5,781,972
            )
            
            (4,865,476
            )Total
                liabilities and shareholders' (deficit)
            
            $
            46,450,948
            
            $
            43,204,554





See
      Notes
      to Consolidated Financial Statements





6
 *Index*





Fansteel
      Inc.


Consolidated
      Statement of Cash Flows


(Unaudited)





Six
                Months
            
            Six
                MonthsEnded
            
            EndedJune
                30, 2006
            
            June
                30, 2005**Cash
                Flows From Operating Activities:**Net
                income (loss)
            
            $
            (912,910
            )
            $
            165,398Adjustments
                to reconcile net income (loss) to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            487,362
            
            
            514,492Accretion
                on long-term debt and other liabilities
            
            
            155,187
            
            
            183,192Loss
                from discontinued operations
            
            
            1,843,466
            
            
            784,292Change
                in assets and liabilities:(Increase)
                in accounts receivable
            
            
            (1,690,927
            )
            
            (1,193,977
            )(Increase)
                in inventories
            
            
            (1,987,395
            )
            
            (1,152,804
            )Decrease
                in other assets-current
            
            
            455,203
            
            
            419,330Increase
                in accounts payable and accrued liabilities
            
            
            2,454,913
            
            
            188,095Increase
                in income taxes payable
            
            
            692
            
            
            7,464(Increase)
                in other assets
            
            
            (27,811
            )
            
            (54,332
            )**Net
                cash provided by (used in) operating activities**
            
            
            777,780
            
            
            (138,850
            )**Cash
                Flows From Investing Activities:**Decrease
                in restricted cash
            
            
            -
            
            
            394,034Capital
                expenditures
            
            
            (619,425
            )
            
            (149,724
            )**Net
                cash (used in) provided by investing activities**
            
            
            (619,425
            )
            
            244,310**Cash
                Flows From Financing Activities:**Proceeds
                from short-term borrowing
            
            
            2,265,498
            
            
            988,590Payments
                on long-term debt
            
            
            (146,363
            )
            
            (135,250
            )**Net
                cash provided by financing activities**
            
            
            2,119,135
            
            
            853,340**Net
                Increase in Cash and Cash Equivalents from Continuing
                Operations**
            
            
            2,277,490
            
            
            958,800**Cash
                Flows of Discontinued Operations:**(Revised
                See Note 1)Operating
                cash flows
            
            
            (1,723,354
            )
            
            (1,704,019
            )Investing
                cash flow
            
            
            -
            
            
            1,400,000Financing
                cash flows
            
            
            (750,000
            )
            
            -**Total
                Cash Flows of Discontinued Operations**
            
            
            (2,473,354
            )
            
            (304,019
            )**Net
                Increase (Decrease) in Cash and Cash Equivalents**
            
            
            (195,864
            )
            
            654,781**Cash
                and Cash Equivalents at Beginning of Period**
            
            
            791,453
            
            
            7,597**Cash
                and Cash Equivalents at End of Period**
            
            $
            595,589
            
            $
            662,378





See
      Notes
      to Consolidated Financial Statements





7
 *Index*





**Notes
      to Unaudited Consolidated Financial
      Statements**





**Note
      1 - Description of Business**





The
      consolidated financial statements as of and for the periods ending June 30,
      2006
      and June 30, 2005 of Fansteel Inc. are unaudited but include all adjustments
      (consisting only of normal recurring adjustments) that management considers
      necessary for a fair presentation of such financial statements. These financial
      statements have been prepared in accordance with accounting principles generally
      accepted in the United States for interim financial information and with Article
      10 of SEC Regulation S-X. Accordingly, they do not include all of the
      information and footnotes required by accounting principles generally accepted
      in the United States for complete financial statements. Operating results during
      the six months ended June 30, 2006 are not necessarily indicative of the results
      that may be expected for the year ending December 31, 2006.





Fansteel
      Inc. and its subsidiaries ("Fansteel" or the "Company") are manufacturers of
      engineered metal components using the sand castings, investment casting and
      powdered metal processes. Products manufactured are used in a variety of markets
      including automotive, energy, military and commercial aerospace, agricultural
      and construction machinery, lawn and garden equipment, marine, plumbing and
      electrical hardware industries.





For
      financial reporting purposes, the Company classifies its products into the
      following two business segments: Advanced Structures, which produces aluminum
      and magnesium sand castings and Industrial Metal Components, which produces
      powdered metal components and investment castings. The Company's business
      segments have separate management teams and infrastructures that offer different
      products and services.





The
      consolidated financial statements include the accounts of Fansteel Inc. and
      its
      subsidiaries. Inter-company accounts and transactions have been eliminated
      in
      consolidation.





For
      the
      six months ended June 30, 2006, the Company has separately disclosed the
      operating, investing and financing portions of the cash flows attributable
      to
      its discontinued operations, which was reported on a combined basis as a single
      amount for the six months ended June 30, 2005.





The
      Company’s annual Form 10-K includes more detailed information than is required
      by the Form 10-Q and it should be read in conjunction with the Company’s Form
      10Q.





Certain
      reclassifications have been made to prior periods’ financial statements to
      conform to the 2006 presentation.





**Note
      2 - Stock-Based Compensation**





Effective
      January 1, 2006, the Company adopted Statement of Financial Accounting Standards
      (SFAS) No. 123(R), Share-Based Payment, which is a revision of SFAS No. 123,
      Accounting for Stock-Based Compensation. SFAS No. 123(R) supersedes Accounting
      Principles Board Opinion (“APB”) Opinion No. 25, Accounting for Stock Issued
      to Employees, and amends SFAS No. 95, Statement of Cash Flows. SFAS
      123(R) requires all share-based compensation to employees, including grants
      of
      employee stock options, to be recognized in the income statement based on
      their estimated fair values . There
      was
      no impact on earnings or earnings per share because the Company has no
      outstanding options. Prior to January 1, 2006, the Company used the
      intrinsic-value method for accounting for stock-based employee compensation
      as
      specified in APB No. 25 with the proforma impact shown below:





8
 *Index*




*(Dollars
                in millions, except for earnings per-share)*
            
            Six
                Months
              Ended
              June
                30, 2006
            
            Six
                Months
              Ended
              June
                30, 2005Net
                income (loss) as reported
            
            $
            (912,910
            )
            $
            165,398Deduct:
                Total stock based compensation expense determined under the fair
                value
                based method, net of related tax effect
            
            
            -
            
            
            -Pro
                forma - net income (loss)
            
            $
            (912,910
            )
            $
            165,398Basic/diluted
                income (loss) per share:As
                reported
            
            $
            (0.27
            )
            $
            0.05Pro
                forma
            
            $
            (0.27
            )
            $
            0.05




**Note
      3 - Reorganization and Emergence From Chapter 11**




On
      January 15, 2002 (the "Petition Date"), Fansteel Inc. and eight of its then
      subsidiaries (collectively, the "Debtors") filed voluntary petitions for
      reorganization relief under Chapter 11 of the U.S. Bankruptcy Code. After the
      Petition Date, the Predecessor Company (referring to the Company prior to the
      Effective Date) continued to operate its business and manage its affairs as
      debtor-in-possession ("DIP") with court approval for transactions outside the
      ordinary course of business. By order dated December 23, 2003, the U.S.
      Bankruptcy Court for the District of Delaware (the "Court") confirmed the Second
      Amended Joint Reorganization Plan (the "Reorganization Plan"). All the Debtors
      emerged from Chapter 11 of the U.S. Bankruptcy Code on January 23, 2004 (the
      "Effective Date").




**Note
      4 - Earnings per Share**




SFAS
      No.
      128, "Earnings per Share" requires a dual presentation of earnings per share,
      basic and diluted. Basic earnings per share are computed by dividing net income
      (loss) applicable to common shareholders by the weighted average number of
      common shares outstanding. Diluted earnings per share reflects the increase
      in
      average common shares outstanding that would result from the assumed exercise
      of
      outstanding stock options, calculated using the treasury stock method, if
      dilutive.





The
      following table sets forth the computation of basic and diluted earnings per
      share:





Numerator:
            
            Six
                Months
              Ended
              June
                30, 2006
            
            Six
                Months
              Ended
              June
                30, 2005Net
                income (loss)
            
            $
            (912,910
            )
            $
            165,398Denominator:Denominator
                for basic earnings per share- weighted average shares
            
            
            3,420,000
            
            
            3,420,000Effect
                of dilutive securities:Employee
                stock options
            
            
            -
            
            
            -Employee
                restricted stock
            
            
            -
            
            
            -Denominator:Denominator
                for diluted earnings per share - weighted average shares
            
            
            3,420,000
            
            
            3,420,000Basic
                earnings per share
            
            $
            (0.27
            )
            $
            0.05Diluted
                earnings per share
            
            $
            (0.27
            )
            $
            0.05




9
 *Index*





As
      discussed in Note 3, the Company emerged from Chapter 11 protection on January
      23, 2004 and has a reorganized equity structure. In particular, implementation
      of the Reorganization Plan resulted in the cancellation of all of the shares
      of
      the Predecessor Company's common stock and options that were outstanding prior
      to the Effective Date and the issuance of New Common Stock as of the Effective
      Date.





**Note
      5 - Discontinued Operations including Certain Environmental
      Remediation**




The
      Predecessor Company had been licensed by the Nuclear Regulatory Commission
      (the
“NRC”) to possess and use source material at the Muskogee Facility since 1967.
      Under the Predecessor Company's NRC permit, it was authorized to process ore
      concentrates and tin slags in the production of refined tantalum products.
      Licensable quantities of natural uranium and thorium are present in the slags,
      ores, concentrates and process residues.





The
      Predecessor Company discontinued its Metal Products business segment in 1989.
      In
      1990, the NRC included the Muskogee Facility in the NRC's Site Decommissioning
      Management Plan. The Predecessor Company completed a remedial assessment in
      1993
      to determine what areas of the Muskogee Facility were required to undergo
      decommissioning.





During
      2002, the Predecessor Company, with the assistance of its third party
      environmental consultants, prepared a revised Decommissioning Plan, which was
      submitted to the NRC on January 15, 2003. The revised Decommissioning Plan
      assumed offsite disposal of all contaminated residues and soils as well as
      groundwater treatment and monitoring using current criteria for acceptable
      decommissioning under NRC regulations. Based on then available information,
      with
      assistance from third-party environmental consultants, the Predecessor Company
      estimated the total future costs of the revised Decommissioning Plan based
      upon
      current costs of decommissioning activities to be $41.6 million. The estimated
      decommissioning costs consisted of $20.4 million for excavating, hauling, and
      offsite disposal of residues and soils, $15.6 million for site plans,
      maintenance, safety, security and consulting costs, and $5.6 million for
      groundwater treatment and monitoring. As a result of the revised decommissioning
      cost estimate, the Predecessor Company reduced the long-term liability for
      discontinued operations and environmental remediation for the Muskogee site
      from
      $52.6 million to $41.6 million in December 2002.





During
      2003, the Predecessor Company continued to maintain the safety and security
      of
      the Muskogee Facility. Pursuant to the Reorganization Plan, the Company
      negotiated with the NRC to develop acceptable mechanisms for providing financial
      assurance for the decommissioning of the Muskogee Facility. In December 2003,
      the NRC approved the issuance of an amended NRC License and related
      Decommissioning Plan to FMRI. At January 23, 2004 **,** the
      liability for the environmental remediation was $38.7 million, and the recorded
      discounted liability using a discount rate of 11.3%, was $ 19.2  million.
      In June 2005 and August 2005, the Company received insurance recoveries from
      its
      insurers of which $764,000 and $4,000, respectively, of net insurance recoveries
      were allocated for a prepayment of the inter-company FMRI $30.6 million note,
      which in turn was used to reduce its borrowing from the Decommissioning Trust.
      At June 30, 2006 and December 31, 2005, the gross estimated liability was $31.2
      million and $32.5 million, respectively, and the recorded discounted liability,
      using a discount rate of 11.3%, was $17.2 million and $17.3 million,
      respectively.





10
 *Index*





In
      September 2000, the EPA issued a unilateral administrative order under Section
      106 of CERCLA requiring the Predecessor Company to investigate and abate
      releases of hazardous substances from the North Chicago Facility that were
      contributing to contamination at an adjacent vacant lot (the "Vacant Lot Site").
      The Predecessor Company completed an engineering evaluation/cost analysis and
      submitted it to EPA for review in 2003. The proposed remedial actions at the
      North Chicago Facility were estimated to cost $2.17 million, for which a
      liability was recorded at January 23, 2004 as part of the bankruptcy
      reorganization for a newly formed special purpose subsidiary, North Chicago,
      Inc
      (“NCI”). On March 7, 2005, NCI sold the real property to the City of North
      Chicago (the “City”), transferred the proceeds of $1,400,000 received from the
      City to the EPA and the Company delivered to the EPA an unsecured, non-interest
      bearing promissory note in the principal amount of $677,232, payable in equal
      semi-annual payments to be made over a three-year period beginning six months
      after issuance. In June 2005, the Company received insurance recoveries from
      its
      insurers of which $147,000 of net insurance recoveries were remitted as a
      prepayment of the note delivered to the EPA.  At
      June
      30, 2006 and December 31, 2005, the gross estimated liability was $0.3 million
      and $0.4 million, respectively, and the recorded discounted liability, using
      a
      discount rate of 11.3%, was $0.3 million and $0.3 million, respectively.





The
      Lexington Facility was constructed in 1954 and ceased operations in 2003.
      Investigations performed in 1997 as part of a company-wide environmental audit
      revealed the presence of volatile organic compounds ("VOCs") and PCBs in soils
      and groundwater in excess of state cleanup levels. The contaminants are believed
      to have been discharged through a former drainage field. While VOCs were
      detected at the down gradient boundary of the facility, no VOCs were detected
      in
      an unnamed stream that is located down gradient of the facility. To Fansteel's
      knowledge, the contamination at this site does not pose an imminent threat
      to
      health, safety or welfare. In May 2003, the Kentucky Natural Resources and
      Environmental Protection Cabinet ("KNREPC") requested that the Predecessor
      Company submit a plan for further characterization of the facility. The
      Predecessor Company submitted a letter to the KNREPC in June 2003 setting forth
      a conceptual characterization plan and advising the agency that a detailed
      Site
      Characterization Plan will be submitted by FLRI, a special purpose subsidiary,
      which pursuant to the Reorganization Plan now owns the Lexington facility.
      FLRI
      anticipates implementing the Site Characterization Plan in 2007 with an
      estimated $1.78 million to perform the remedial activities and a liability
      in
      that amount was recorded at January 23, 2004. In June 2005, the Company received
      insurance recoveries from its insurers of which $111,000 of net insurance
      recoveries were allocated to FLRI as a prepayment of the inter-company FLRI
      $1.78 million note. At June 30, 2006 and December 31, 2005, the gross estimated
      liability was $1.3 millions and $1.3 million, respectively, and the recorded
      discounted liability, using a discount rate of 11.3%, was $1.1 million and
      $1.1
      million, respectively.





Actual
      costs to be incurred in future periods to decommission the above sites may
      vary,
      which could result in adjustment to future accruals, from the estimates, due
      to,
      among other things, assumptions related to the quantities of soils to be
      remediated and inherent uncertainties in costs over time of actual disposal.





On
      December 31, 2004, the Company sold substantially all of the assets (including,
      but not limited to, machinery and equipment, raw material items, work-in-process
      items, finished goods items, receivables, machinery and equipment contracts,
      customer contracts and supplier contracts, but excluding real estate, fixtures
      and certain other assets) of the division of the Company known as "Washington
      Manufacturing" (the "Washington Division") to Whitesell Corporation
      (“Whitesell”), a customer of the Washington Division, for consideration
      consisting of a combination of (i) cash (in the initial amount of approximately
      $2.0 million, subject to post-closing adjustment) and (ii) the assumption by
      Whitesell of certain liabilities of the Washington Division (in the initial
      amount of approximately $1.0 million, determined in accordance with U.S.
      generally accepted accounting principles consistently applied, subject to
      post-closing adjustment) (collectively, the “Washington Sale”). A loss of $1.6
      million was recognized in the fourth quarter 2004 from this sale.





11
 *Index*





The
      operations described above are classified as discontinued operations for all
      periods presented.





Discontinued
      operations reported losses of $1,843,000 and $784,000 for the six months ended
      June 30, 2006 and June 30, 2005, respectively. The losses for both time periods
      relate primarily to the amortization of discounted environmental liabilities
      arising from the Company's unsecured note obligations to its special purpose
      subsidiaries and the pension note for the terminated pension plan. Results
      for
      the six months ended June 30, 2005 also included gains from net recoveries
      of
      $1.2 million from its insurers.





**Note
      6 - Other Environmental Remediation**




Wellman
      Dynamics Corporation ("Wellman"), a subsidiary of Fansteel Inc., entered into
      an
      Administrative Order on Consent with the EPA to perform a RCRA Facility
      Investigation ("RFI") for the purpose of determining the extent of releases
      of
      hazardous wastes and/or hazardous constituents, and, if appropriate, a
      Corrective Measures Study ("CMS") to evaluate possible corrective action
      measures that may be necessary at the Iowa Facility owned and operated by
      Wellman. At January 23, 2004, Wellman had estimated that the cost for conducting
      the RFI/CMS would be $2,147,000 from 2005 to 2009. At June 30, 2006 and December
      31, 2005 the gross estimated liability was $2.1 million and $2.1 million,
      respectively, and the recorded discounted liability, using a discount rate
      of
      11.3%, was $1.9 **** million
      and $1.8 million, respectively.





Wellman
      is permitted to operate a sanitary landfill for the disposal of its foundry
      sand. It is anticipated that, based upon recent projections by third-party
      consultants, Wellman is likely to be required to close the landfill in 2037
      at a
      future cost approximating $1,166,000. The recorded discounted liability, using
      a
      discount rate of 11.3%, at June 30, 2006 and December 31, 2005 was $523,000
      and
      $495,000, respectively.





In
      October 2000, Wellman provided the Iowa Department of Health (the "IDPH") with
      a
      "Historical Site Assessment" that identified uranium and thorium concentrations
      at the site. The IDPH required Wellman to perform a Risk Assessment ("RA")
      to
      determine whether the thorium-containing materials are a threat to human health
      or the environment. Wellman is awaiting the final report, but to its knowledge,
      the existing data forming the basis for the RA indicates that there is no
      imminent threat to health, safety or the environment. Wellman anticipates that
      the IDPH will allow it to address the thorium issue when it closes the sanitary
      landfill. However, there is a risk that the IDPH will require Wellman to remove
      or remediate the thorium prior to that time. The current estimated cost to
      remediate the thorium is $1,075,000. The recorded discounted liability, using
      a
      discount rate of 11.3%, at June 30, 2006 and December 31, 2005 was $493,000
      and
      $467,000, respectively.





The
      liabilities were recorded for estimated environmental investigatory and
      remediation costs based upon an evaluation of currently available facts,
      including the results of environmental studies and testing conducted for all
      Predecessor Company-owned sites in 1997 and since, and considering existing
      technology, presently enacted laws and regulations and prior experience in
      remediation of contaminated sites. Actual costs to be incurred in future periods
      at identified sites may vary from the estimates, given the inherent
      uncertainties in evaluating environmental exposures. Future information and
      developments will require the Company to continually reassess the expected
      impact of these environmental matters. These liabilities could be reduced by
      potential net insurance recoveries that the Company is seeking from its
      insurers, but there is no assurance any additional net recoveries will be
      received.





12
 *Index*




**Note
      7 - Debt**





In
      order
      to increase the Company’s liquidity and ability to meet operational and
      strategic needs, Fansteel Inc. and its wholly-owned subsidiary, Wellman Dynamics
      Corporation, as borrowers, entered into a Loan and Security Agreement with
      Fifth
      Third Bank (Chicago), as lender, on July 15, 2005. Borrowing under the revolving
      line of credit is included as short-term borrowings.





Under
      the
      credit facility, subject to certain borrowing conditions, the Company may incur
      revolving loans and letter of credit issuances in an amount up to $15 million
      from a borrowing base comprised of a percentage of eligible accounts receivable
      and inventories and $2 million for machinery and equipment. Revolving loans
      are
      due and payable in full on January 15, 2007. As borrowers, the Company is
      required to meet certain covenants, including those that require minimum EBITDA
      levels, limit leverage and establish debt service requirements. The interest
      rate on the line is at prime and there is a .25% unused line fee. Substantially
      all of the assets of the borrowers are pledged as security for this financing.
      At June 30, 2006, the Company was in compliance with all covenants of the Loan
      and Security Agreement with Fifth Third Bank. At June 30, 2006 the Company
      had
      letters of credit of $770,000 for casualty insurance collateral and
      environmental assurance with an interest rate of 1.5%. The Company’s credit
      availability was $2,141,000 at June 30, 2006.




**Note
      8 - Income Taxes**





Deferred
      income taxes reflect the tax effect of temporary differences between carrying
      amounts of assets and liabilities for financial reporting purposes and the
      amounts for income tax purposes.





Valuation
      allowances are established in accordance with provisions of FASB Statement
      No.
      109 “Accounting for Income Taxes”. The valuation allowances are attributable to
      federal and state deferred tax assets.





At
      June
      30, 2006 and December 31, 2005, the Company had potential federal and state
      income tax benefits from net operating loss carry-forwards of $18.8 million
      that
      expire in various years through 2023. Valuation allowances have been recorded
      for the full amount of all net operating loss carry-forwards as the net
      operating loss carry-forwards are not anticipated to be realized before
      expiration.





**Note
      9 - Business Segments**





The
      Company is a manufacturer of engineered metal components used in a variety
      of
      markets including automotive, energy, military and commercial aerospace,
      agricultural and construction machinery, lawn and garden equipment, marine,
      and
      plumbing and electrical hardware industries.  For
      financial reporting purposes, the Company classifies its products into the
      following two business segments; Advanced Structures, which produces aluminum
      and magnesium sand castings and Industrial Metal Components, which produces
      powdered metal components and investment castings. The Company's business
      segments offer different products and services and have separate management
      teams and infrastructures.





13
 *Index*





Financial
      information concerning the Company's segments is as follows:





Six
                Months
              Ended
              June
                30, 2006
            
            Six
                Months
              Ended
              June
                30, 2005Net
                Sales:Advanced
                Structures
            
            $
            20,236,181
            
            $
            14,998,493Industrial
                Metal Components
            
            
            13,645,652
            
            
            12,876,200Total
                Net Sales
            
            $
            33,881,833
            
            $
            27,874,693Operating
                Income (Loss):Advanced
                Structures
            
            $
            2,697,867
            
            $
            1,246,201Industrial
                Metal Components
            
            
            (1,079,359
            )
            
            211,468Total
                Operating Income
            
            $
            1,618,508
            
            $
            1,457,669





Intersegment
      sales are accounted for at prices equivalent to the competitive market prices
      for similar products.





The
      identifiable assets by business segment, for the periods indicated, are set
      forth below:





June
                30,
              2006
            
            December
                31,
              2005Identifiable
                assets:Advanced
                Structures
            
            $
            17,761,103
            
            $
            14,541,132Industrial
                Metal Components
            
            
            9,943,040
            
            
            9,208,344Corporate
            
            
            13,953,991
            
            
            14,315,495Discontinued
            
            
            4,792,814
            
            
            5,139,583Total
                Assets
            
            $
            46,450,948
            
            $
            43,204,554





Depreciation
      and capital expenditures by business segment, for the periods indicated, are
      set
      forth below:





Six
                Months
              Ended
              June
                30, 2006
            
            Six
                Months
              Ended
              June
                30, 2005Depreciation
                and amortization:Advanced
                Structures
            
            $
            197,360
            
            $
            148,705Industrial
                Metal Components
            
            
            283,808
            
            
            365,787Corporate
            
            
            6,194
            
            
            -Discontinued
            
            
            15,720
            
            
            15,714Total
                depreciation and amortization
            
            $
            503,082
            
            $
            530,206Capital
                expenditures:Advanced
                Structures
            
            $
            543,433
            
            $
            132,296Industrial
                Metal Components
            
            
            69,401
            
            
            17,428Corporate
            
            
            6,591
            
            
            -Total
                capital expenditures
            
            $
            619,425
            
            $
            149,724




14
 *Index*





**ITEM
      2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS**





The
      following discussion should be read in conjunction with the Consolidated
      Financial Statements and related notes thereto that are included in this Form
      10-Q. Certain statements made in this section or elsewhere in this report
      contain "forward-looking statements" within the meaning of the Private
      Securities Litigation Reform Act of 1995. Forward-looking statements are subject
      to certain risks, uncertainties and assumptions, which could cause actual
      results to differ materially from those projected. From time to time,
      information provided by the Company or statements made by its employees may
      contain other forward-looking statements. Factors that could cause actual
      results to differ materially from the forward-looking statements include, but
      are not limited to: general economic conditions, including inflation, interest
      rate fluctuations, trade restrictions and general debt levels; competitive
      factors, including price pressures, technological development and products
      offered by competitors; inventory risks due to changes in market demand or
      business strategies; and changes in effective tax rates. Readers are cautioned
      not to place undue reliance on these forward-looking statements, which speak
      only as of the date made. The Company undertakes no obligation to publicly
      update or revise any forward-looking statements, whether as a result of new
      information, future events or otherwise.








**Results
      of Operations**





***Three
      Months Ended June 30, 2006 (Second Quarter 2006) As Compared To Three Months
      Ended June 30, 2005 ( Second Quarter 2005)***




*Net
      Sales*





The
      following table sets forth the combined net sales of the Company included in
      the
      consolidated statement of operations:


Second
                  Quarter
                Ended
                June
                  30, 2006
              
              Second
                  Quarter
                Ended
                June
                  30, 2005Advanced
                  Structures
              
              $
              10,240,143
              
              $
              8,043,710Industrial
                  Metal Components
              
              
              7,070,050
              
              
              6,600,062$
              17,310,193
              
              $
              14,643,772





The
      Company’s consolidated net sales for the quarter ended June 30, 2006 increased
      $2.7 million, or 18.2%, compared to the quarter ended June 30, 2005.





Advanced
      Structures’ net sales for the quarter ended June 30, 2006 increased by $2.2
      million, or 27.3%, compared to the quarter ended June 30, 2005. This improvement
      is due to increased casting sales of helicopter components and private jet
      aircraft parts, as well as price increases implemented in 2005.





Industrial
      Metal Components' net sales for the quarter ended June 30, 2006 increased
      $470,000, or 7.1%, compared with the quarter ended June 30, 2005. Net sales
      of
      investment castings increased by $766,000, or 23.3%, due primarily to an
      increase in truck diesel engine components, offset by declines in industrial
      products and power tools. Net sales of powdered metal components decreased
      by
      $296,000, or 8.9%, compared to the second quarter of 2005, with decreases in
      automotive, lawn and garden and recreational vehicle product lines related
      to
      market conditions.





15
 *Index*




*Operating
      Income (Loss)*





The
      following table sets forth the combined operating income (loss) of the Company
      included in the consolidated statement of operations:





Second
                Quarter
              Ended
              June
                30, 2006
            
            Second
                Quarter
              Ended
              June
                30, 2005Advanced
                Structures
            
            $
            1,419,703
            
            $
            880,256Industrial
                Metal Components
            
            
            (232,192
            )
            
            58,817$
            1,187,511
            
            $
            939,073





Operating
      income for the quarter ended June 30, 2006 increased $248,000, or 26.5%,
      compared to the quarter ended June 30, 2005.





Advanced
      Structures operating income of $1,420,000 for the quarter ended June 30, 2006
      improved from operating income of $880,000 for the quarter ended June 30, 2005.
      This improvement is due to higher sales volume, notably in helicopter and
      private jet aircraft parts, and price increases on several parts. Income in
      the
      second quarter of 2006 also included $617,000 of training grants from the state
      of Iowa.





Industrial
      Metal Components had an operating loss of $232,000 for the quarter ended June
      30, 2006 compared to operating income of $59,000 for the quarter ended June
      30,
      2005. Higher material costs and manufacturing expenses have had a negative
      impact on the second quarter 2006 operating results.





*Other
      Expenses*





The
      following table sets forth the combined other income (expenses) of the Company
      included in the consolidated statement of operations:





Second
                Quarter
              Ended
              June
                30, 2006
            
            Second
                Quarter
              Ended
              June
                30, 2005Interest
                expenses
            
            $
            (374,063
            )
            $
            (252,449
            )Other
            
            
            11,382
            
            
            (11,850
            )$
            (362,681
            )
            $
            (264,299
            )





Other
      expense increased $98,000 in the quarter ended June 30, 2006 compared to the
      quarter ended June 30, 2005, as interest expense was higher due to the increased
      level of borrowing.





*Reorganization
      Items*





Reorganization
      expenses related to bankruptcy were $0 and $18,000 for the quarters ended June
      30, 2006 and June 30, 2005, respectively. The Company emerged from Chapter
      11
      bankruptcy on January 23, 2004.





16
 *Index*




*Discontinued
      Operations*





Discontinued
      operations reported a loss of $1,022,000 in the quarter ended June 30, 2006
      and
      income of $247,000 in the quarter ended June 30, 2005. The 2006 losses related
      primarily to the accretion of discounted environmental liabilities from the
      Company’s special purpose subsidiaries and the note payable to the Pension
      Benefit Guarantee Corporation. Second quarter 2005 results included net
      insurance recoveries of $1.2 million, reduced by the accretion of discounted
      environmental liabilities from the Company’s special purpose subsidiaries and
      the note payable to the Pension Benefit Guarantee Corporation.





*Income
      taxes*





No
      income
      tax provision or benefit has been recognized for any periods presented as
      valuation allowances have been recorded for all net operating loss benefits
      and
      net deferred tax assets, except for the gain in discontinued operations from
      the
      carry-back refund from the net operating loss related to environmental
      liabilities.





*Net
      Income (Loss)*





The
      Company had a net loss of $198,000 for the quarter ended June 30, 2006 and
      net
      income of $904,000 for the quarter June 30, 2005.





***2006
      Six Months As Compared To 2005 Six Months***




*Net
      Sales*





The
      following table sets forth the combined net sales of the Company included in
      the
      consolidated statement of operations:





Six
                Months
              Ended
              June
                30, 2006
            
            Six
                Months
              Ended
              June
                30, 2005Advanced
                Structures
            
            $
            20,236,181
            
            $
            14,998,493Industrial
                Metal Components
            
            
            13,645,652
            
            
            12,876,200$
            33,881,833
            
            $
            27,874,693





Consolidated
      net sales for the six months ended June 30, 2006 increased $6.0 million, or
      21.6%, from the first six months of 2005.





Net
      sales
      for Advanced Structures for the six months ended June 30, 2006 were $5.2
      million, or 34.9% higher, compared to the six months ended June 30, 2005. This
      improvement is attributed to increased sales of missile and helicopter
      components and private jet parts, as well as price increases implemented in
      2005.





The
      Industrial Metal Components' net sales for the six months ended June 30, 2006
      increased $769,000, or 6.0%, compared with the six months ended June 30, 2005.
      Net sales of investment castings increased by $1.2 million, or 20.1%, as higher
      sales to automotive and flow control customers offset shortfalls in other
      product lines. Net sales of powdered metal components decreased 7.1% primarily
      due to lower sales to the lawn and garden market.





17
 *Index*




*Operating
      Income (Loss)*





The
      following table sets forth the combined operating income (loss) of the Company
      included in the consolidated statement of operations:





Six
                Months
              Ended
              June
                30, 2006
            
            Six
                Months
              Ended
              June
                30, 2005Advanced
                Structures
            
            $
            2,697,867
            
            $
            1,246,201Industrial
                Metal Components
            
            
            (1,079,359
            )
            
            211,468$
            1,618,508
            
            $
            1,457,669





Operating
      income of $1.6 million for the six months ended June 30, 2006 increased by
      $161,000 compared to $1.5 million for the six months ended June 30, 2005, due
      primarily to the higher sales volume, offset by higher material costs and
      unusual charges in the first quarter of 2006 at the investment casting operation
      for expedited freight, inspection costs and scrap related to the start-up of
      new
      customer parts.





Operating
      income of $2,698,000 in the Advanced Structures segment for the six months
      ended
      June 30, 2006 improved from operating income of $1,246,000 in the six months
      ended June 30, 2005, due to the higher volume, primarily from helicopter and
      missile components, as well as price increases.





The
      Industrial Metal Components segment had an operating loss of $1,079,000 for
      the
      six months ended June 30, 2006 compared to operating income of $211,000 for
      the
      six months ended June 30, 2005. The primary reason for the decline in income
      was
      due to unusual charges in the first four months that totaled $726,000 at the
      investment casting operation related to the start-up of new customer parts.
      The
      powdered metal operation experienced a loss in the first six months of 2006
      due
      to lower sales volume and higher material costs.





*Other
      Income (Expenses)*





The
      following table sets forth the combined other income (expense) of the Company
      included in the consolidated statement of operations:





Six
                Months
              Ended
              June
                30, 2006
            
            Six
                Months
              Ended
              June
                30, 2005Interest
                expenses
            
            $
            (694,006
            )
            $
            (459,710
            )Other
            
            
            6,054
            
            
            (12,269
            )$
            (687,952
            )
            $
            (471,979
            )





Other
      expense increased $216,000 in the six months ended June 30, 2006 compared to
      the
      six months ended June 30, 2005, as interest expense was higher due to increased
      borrowing.





*Reorganization
      Items*





Reorganization
      expenses related to bankruptcy were $0 for the six months ended June 30, 2006
      as
      compared to $36,000 for the six months ended June 30, 2005. The Company emerged
      from Chapter 11 on January 23, 2004.





18
 *Index*




*Discontinued
      Operations*





Discontinued
      operations reported losses of $1,843,000 and $784,000 in the six months ended
      June 30, 2006 and June 30, 2005, respectively. Results in 2005 included net
      insurance recoveries of $1.2 million.





*Income
      taxes*





No
      income
      tax provision or benefit has been recognized for any periods presented as
      valuation allowances have been recorded for all net operating loss benefits
      and
      net deferred tax assets.





*Net
      Income (Loss)*





The
      Company had a net loss of $913,000 for the six months ended June 30, 2006.
      Net
      income for the six months ended June 30, 2005 was $165,000.





**Liquidity
      and Capital Resources**




On
      June
      30, 2006, the Company had cash of $596,000 compared to $791,000 of cash on
      December 31, 2005. Cash increased $2,277,000 from continuing operations and
      decreased $2,473,000 from discontinued operations for the six months ended
      June
      30, 2006.





*Operating
      Activities*





For
      the
      six months ended June 30, 2006, operating activities provided $778,000 in cash
      due primarily to increases in accounts payable and accrued liabilities and
      decreases in other current assets, offset by increases in accounts receivable
      and inventories. During the six months ended June 30, 2005, operating activities
      consumed $139,000 of cash with increases in accounts receivable and inventory,
      partially offset by increases in accounts payable, accrued liabilities and
      other
      current assets.





*Investing
      Activities*





For
      the
      six months ended June 30, 2006, investing activities consumed $619,000 for
      capital expenditures, primarily in the Advanced Structures business segment.
      For
      the six months ended June 30, 2005, investing activities provided $244,000
      due
      to a decrease in restricted cash of $394,000 offset by $150,000 in capital
      expenditures.





*Financing
      Activities*





Financing
      activities provided $2,119,000 for the six months ended June 30, 2006, as
      compared to $853,000 for the six months ended June 30, 2005. Net borrowings
      in
      the second quarter of 2006 from the revolving line of credit were $2.3 million,
      with payments of long-term debt of $146,000. In the first six months of 2005,
      net borrowing from the revolving line of credit was $989,000 and long-term
      debt
      payments were $135,000.





In
      order
      to increase the Company’s liquidity and ability to meet operational and
      strategic needs, Fansteel Inc. and its wholly-owned subsidiary, Wellman Dynamics
      Corporation, as borrowers, entered into a Loan and Security Agreement with
      Fifth
      Third Bank (Chicago), as lender, on July 15, 2005. Borrowing under the revolving
      line of credit is included as short-term borrowings.





19
 *Index*





Under
      the
      credit facility, subject to certain borrowing conditions, the Company may incur
      revolving loans and letter of credit issuances in an amount up to $15 million
      from a borrowing base comprised of a percentage of eligible accounts receivable
      and inventories and $2 million for machinery and equipment. Revolving loans
      are
      due and payable in full on January 15, 2007. As borrowers, the Company is
      required to meet certain covenants, including those that require minimum EBITDA
      levels, limit leverage and establish debt service requirements. The interest
      rate on the line is at prime and there is a .25% unused line fee. Substantially
      all of the assets of the borrowers are pledged as security for this financing.
      At June 30, 2006, the Company had letters of credit for $770,000 outstanding,
      primarily for casualty insurance collateral, under the new credit facility
      with
      an interest rate of 1.5%. At June 30, 2006 the credit availability was
      $2,141,000. The Company was in compliance with all covenants of the Loan and
      Security Agreement with Fifth Third Bank at June 30, 2006.





The
      Company's high level of debt could have important consequences, including,
      among
      others, the following:





-     the
      inability of the Company's current cash generation level to support future
      interest and principal payments on the Company's existing
      indebtedness;




-     inadequate
      cash for other purposes, such as capital expenditures and the Company's other
      business activities, since the Company may need to use all or most of the
      operating cash flow to pay principal and interest on its outstanding
      debt;





-     making
      it more difficult for the Company to satisfy its contractual
      obligations;




-     increasing
      the Company's vulnerability to general adverse economic and industry
      conditions;




-     limiting
      the Company's ability to fund future working capital, capital expenditures
      or
      other general corporate requirements;




-     placing
      the Company at a competitive disadvantage compared to the Company's competitors
      that have less debt relative to their operating scale;





-     imiting
      the Company's flexibility in planning for, or reacting to, changes in the
      Company's business and its industry; and




-     limiting,
      along with the financial and other restrictive covenants in the Company's
      indebtedness, among other things, the Company's ability to borrow additional
      funds, make acquisitions, dispose of assets or pay cash dividends.





In
      the
      longer term, the Company's ability to pay debt service and other contractual
      obligations will depend on improving the Company's future performance and cash
      flow generation, which in turn will be affected by prevailing economic and
      industry conditions and financial, business and other factors, many of which
      are
      beyond the Company's control. If the Company has difficulty providing for debt
      service or other contractual obligations in the future, the Company may be
      forced to take actions such as reducing or delaying capital expenditures,
      reducing costs, selling assets, refinancing or reorganizing its debt or other
      obligations and seeking additional equity capital, or any combination of the
      above. The Company may not be able to take any of these actions on satisfactory
      terms, or at all.





20
 *Index*




**Critical
      Accounting Policies**




The
      Company's discussion and analysis of financial conditions and results of
      operations is based upon its consolidated financial statements, which have
      been
      prepared in accordance with generally accepted accounting principles in the
      United States. The preparation of the financial statements in conformity with
      generally accepted accounting principles requires management to make estimates
      and assumptions that affect the amounts reported in the financial statements
      and
      accompanying notes. The Company bases its estimates on historical experience
      and
      assumptions that it believes to be reasonable under the circumstances. Actual
      results could differ from those estimates. The Company believes the accounting
      policies described below are the policies that most frequently require estimates
      and judgments and are therefore critical to the understanding of its results
      of
      operations.





Trade
      accounts receivable are classified as current assets and are reported net of
      allowances for doubtful accounts. The Company records such allowances based
      on a
      number of factors, including historical trends and specific customer
      liquidity.





Excess
      reorganization value represents the excess of the Successor Company's enterprise
      value over the aggregate fair value of the Company's tangible and identifiable
      intangible assets and liabilities at the balance sheet date. Excess
      reorganization value is not amortized, however, it is evaluated at a minimum
      annually or when events or changes occur that suggest impairment in carrying
      value.





The
      Company periodically re-evaluates carrying values and estimated useful lives
      of
      long-lived assets to determine if adjustments are warranted. The Company uses
      estimates of undiscounted cash flows from long-lived assets to determine whether
      the book value of such assets is recoverable over the assets' remaining useful
      lives.





The
      Company recognizes sales when the risks and rewards of ownership have
      transferred to the customer, which is generally considered to have occurred
      as
      products are shipped. Revenue is recognized from sales of tooling, patterns
      and
      dies upon customer acceptance.





Environmental
      liabilities are estimated with the assistance of third-party environmental
      advisors and governmental agencies based upon an evaluation of currently
      available facts, including the results of environmental studies and testing,
      and
      considering existing technology, presently enacted laws and regulations, and
      prior experience in remediation of contaminated sites. Future information and
      developments require the Company to continually reassess the expected impact
      of
      these environmental matters.





**Inflation**




Inflationary
      factors such as increases in the costs of raw materials, labor, and overhead
      affect the Company's operating profits. Significant portions of raw materials
      consumed by the Company are various steel alloys. Price increases were
      experienced beginning in 2004 and these price increases have continued into
      2006. To offset these price increases, the Company began adding material
      surcharges in March 2004 and in 2006 the Company continues to add material
      surcharges.





21
 *Index*




Although
      the Company's recent results have not been significantly affected by inflation,
      there can be no assurance that a high rate of inflation in the future would
      not
      have an adverse effect on its operating results.





**Off-Balance
      Sheet Arrangements**





The
      Company is not party to off-balance sheet arrangements other than normal
      operating leases for any period presented.





**Contractual
      Obligations**





The
      following table summarizes payments due by year for the contractual obligations
      at June 30, 2006:





*(In
                thousands)*
            
            Total
            
            2006
            
            2007
            
            2008
            
            2009
            
            2010
            
            After
              2010PBGC
                Note
            
            $
            8,000
            
            $
            -
            
            $
            750
            
            $
            750
            
            $
            750
            
            $
            1,150
            
            $
            4,600PA
                economic agencies notes
            
            
            608
            
            
            146
            
            
            305
            
            
            143
            
            
            14
            
            
            **-**
            
            
            **-**Operating
                leases
            
            
            221
            
            
            89
            
            
            98
            
            
            16
            
            
            12
            
            
            6
            
            
            **-**Revolving
                line
            
            
            11,944
            
            
            -
            
            
            11,944
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**Letters
                of credit
            
            
            770
            
            
            -
            
            
            770
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**Environmental
                liabilities
            
            
            37,128
            
            
            984
            
            
            2,898
            
            
            1,844
            
            
            2,866
            
            
            1,836
            
            
            26,700Total
            
            $
            58,671
            
            $
            1,219
            
            $
            16,765
            
            $
            2,753
            
            $
            3,642
            
            $
            2,992
            
            $
            31,300





The
      above
      table excludes discounts of the long-term debt and environmental liabilities
      as
      well as any related interest.





The
      payments for environmental liabilities are based on estimated timing of
      remediation activities and not mandatory payment schedules. A minimum annual
      funding of $1.4 million is required for environmental liabilities related to
      FMRI.





The
      revolving line of credit has a renewal date of January 15, 2007. The revolving
      line of credit requires immediate repayment from cash receipts. Borrowings
      can
      be made as needed, based on availability. The availability at June 30, 2006
      was
      $2,141,000, compared with $1,876,000 at December 31, 2005.








**ITEM
      3 - QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**




The
      Company's operations are not currently subject to market risks of a material
      nature for interest risks, foreign currency rates or other market price risks.
      The only debt subject to interest fluctuations is the short-term borrowing
      under
      the revolving line of credit. A significant portion of raw materials consumed
      by
      the Company is various steel alloys. The Company began to experience price
      increases on raw materials in 2004 and raw material price increase have
      continued into 2006. To offset these price increases in raw materials, the
      Company began adding material surcharges in March 2004 and has continued to
      add
      material surcharges into 2006.





22
 *Index*




**ITEM
      4 -CONTROLSAND PROCEDURES**





The
      Company’s Chief Executive Officer and its Chief Financial Officer, after
      evaluating the effectiveness of the Company’s “disclosure controls and
      procedures” (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the
      Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the
      end
      of the period covered by this Report on Form 10-Q, have concluded that the
      Company's “disclosure controls and procedures” were effective as of the end of
      the period covered by this Report.





There
      were no significant changes in the Company’s internal controls or in other
      factors that could significantly affect the Company’s internal controls during
      the period covered by this Report.





Disclosure
      controls and procedures are the Company’s controls and other procedures that are
      designed to ensure that information required to be disclosed by the Company
      in
      the reports that we file or submit under the Exchange Act is recorded,
      processed, summarized and reported, within the time periods specified in the
      Securities and Exchange Commission’s rules and forms. Disclosure controls and
      procedures include, without limitation, controls and procedures designed to
      ensure that information required to be disclosed by us in the reports that
      we
      file under the Exchange Act is accumulated and communicated to our management,
      including our principal executive officer and principal financial officer,
      as
      appropriate to allow timely decisions regarding required
      disclosure.





23
 *Index*




**PART
      II. OTHER INFORMATION**








**ITEM
      1 - LEGAL PROCEEDINGS**





On
      the
      Petition Date, the Debtors filed voluntary petitions in the Court for protection
      under Chapter 11 of the U.S. Bankruptcy Code. The Company emerged from Chapter
      11 protection on January 23, 2004, the Effective Date.




On
      November 3, 2003, an administrative law judge of the NRC granted a request
      of
      the State of Oklahoma for a hearing to challenge certain aspects of FMRI’s NRC
      License. The State of Oklahoma challenged a number of aspects of the NRC
      License, including the adequacy of site characterization, the appropriate
      modeling of the site of remediation levels, cost estimates, and sufficiency
      of
      the NRC Staff's environmental review. On May 26, 2004, the administrative law
      judge overseeing the proceeding issued his decision, finding in favor of FMRI
      and against the State of Oklahoma on all matters under consideration. The State
      of Oklahoma's ability to appeal the ruling of the administrative law judge
      expired on June 15, 2004 such that the ruling of the administrative law judge
      became final and non-appealable. Notwithstanding the victory by FMRI, the
      challenges by the State of Oklahoma, both to the NRC License and to confirmation
      of the Reorganization Plan, resulted in considerable additional expense and
      significant delays with respect to the implementation of the Decommissioning
      Plan, effectively precluding FMRI from undertaking to commence certain actions
      required by its NRC License. Among other things, the NRC License sets forth
      the
      benchmarks and timeline for the decommissioning of the Muskogee Facility.
      Specifically, the NRC License required FMRI (i) by September 1, 2004, to
      commence Phase 1 work of removing certain residue materials ("WIP") from the
      site and (ii) by March 31, 2006 to complete the removal of the WIP materials,
      taking into account preparation, scheduling, cost and weather. Realizing its
      inability to satisfy certain of its NRC License conditions, FMRI timely notified
      the NRC and commenced discussions with the NRC and third parties with a view
      to,
      as soon as possible and subject to available funding, commence and complete
      Phase 1 remediation. Such negotiations and discussions resulted in an April
      13,
      2005 amendment to the decommissioning trust that now permits an additional
      $2,500,000 to be drawn by FMRI to complete Phase 1 of the Decommissioning Plan.
      The amounts of these additional draws are dependent upon the weight of material
      disposed of offsite at the approved disposal site. Notwithstanding FMRI access
      to additional funding, FMRI has been unable, to date, to reach consensus with
      the NRC on modifications necessary to eliminate the violation of not starting
      on
      time the Phase 1 of the Decommissioning Plan, in part because certain conditions
      to the commencement of Phase 1 decommissioning still remains. As a result,
      FMRI
      remains in technical violation of its NRC License but did commence Phase 1
      decommissioning activities in June 2005. Fansteel can provide no assurance
      that
      FMRI will be able to reach consensus with the NRC and eliminate the existing
      violations. Notwithstanding FMRI’s violations, the obligations of Fansteel with
      respect to the Muskogee Facility are unchanged and remain limited to Fansteel’s
      obligations to FMRI under the FMRI Notes, as described in the Reorganization
      Plan.





On
      December 31, 2004, the Company sold its special wire forms operation to
      Whitesell Corporation (“Whitesell” or “the buyer”). Pursuant to the asset
      purchase agreement (“APA”), the buyer had until March 1, 2005 to provide a
      closing statement of the final purchase price. On February 28, 2005, the buyer
      submitted a closing statement alleging that the Company owed $480,922 to the
      buyer. Per the APA, the Company had 30 days from receipt of the closing
      statement to object, then 20 days thereafter to negotiate a settlement and
      then
      submit any unresolved issues to an independent accounting firm for resolution.
      By agreement with the buyer, the 30-day objection period was extended for an
      additional 15 days to April 14, 2005. The Company reviewed the closing statement
      and on April 14, 2005 issued a Notice of Objection to buyer asserting that
      buyer
      owes Fansteel $441,266. The Buyer continued to dispute the Company’s purchase
      price calculation. Since a consensual resolution could not be achieved on all
      disputed items within the timeframe prescribed in the APA **,** disputed
      items of $203,000 were submitted to an independent accounting firm. In June
      2005, the Company also filed a demand for arbitration to the American
      Arbitration Association (AAA), in accordance with the APA, relating to three
      items that buyer included as a reduction of $554,000 in their closing price
      that
      the Company contends are not appropriate closing price adjustments. The
      determination by the independent accounting firm was received on August 26,
      2005, awarding $155,000 of the disputed items in the Company’s favor. The
      Company demanded payment of $339,000 owed by the buyer but received no response
      within the time period allowed in the purchase agreement.





24
 *Index*




In
      September 2005, the Company filed two (2) suits in the United States District
      Court for the Northern District of Illinois, Eastern Division, to recover monies
      owed and damages from Whitesell as a result of the Asset Purchase Agreement.
      Whitesell filed motions to dismiss both suits in November 2005. The Court held
      a
      second status hearing on January 31, 2006, at which time the Court consolidated
      both of Fansteel’s suits into one action. A third status hearing, on March 21,
      2006, was postponed until April 18, 2006 to allow the Court time to rule on
      Whitesell’s motions. On April 10, 2006, Judge St. Eve of the Northern District
      of Illinois ruled, denying all of Whitesell’s motions, in their entirety, and
      including strong language as to the merit of Fansteel’s claims. At the next
      status hearing, on April 18, 2006, the Judge recommended mediation for
      settlement purposes, with a response required by April 26, 2006. Both parties
      responded that they would be willing to enter settlement discussions, and a
      settlement conference before a United States District Court Magistrate was
      scheduled for July 13, 2006. Fansteel and Whitesell moved forward with the
      litigation, participating in written discovery and document production pursuant
      to the scheduling order entered by the Court. On May 17, 2006, Whitesell filed
      a
      Motion to Change Venue, seeking that the case be transferred to the United
      States District Court for the Southern District of Iowa due to the presence
      of
      the majority of evidence, witnesses, and party contacts in the State of Iowa.
      The parties fully briefed Whitesell’s motion, which was strongly opposed by
      Fansteel. On July 11, 2006, Judge St. Eve granted Whitesell’s motion,
      transferring the case to the United States District Court for the Southern
      District of Iowa. Although the cases are now been pending before the United
      States District Court for the Northern District of Iowa, the Court has not
      yet
      set any formal litigation or trial schedules, and has not ruled on any
      substantive motions.





In
      December 2005, Whitesell sent a letter of renewal for the lease at Washington,
      IA. Fansteel responded that renewal was not accepted as Whitesell is in default
      of the lease for withholding rent payments since October 2005. A real estate
      firm was engaged to market the property and a sales campaign began in March
      2006. On April 17, 2006 Fansteel received notice of a suit filed in Iowa State
      Court by Whitesell requesting a temporary stay of Fansteel’s renting or selling
      the facility and determining that Whitesell is not in default under the Lease
      Agreement. The stay motion was scheduled to be heard on April 28, 2006 in Iowa
      State Court. However, Fansteel successfully removed Whitesell’s Iowa lawsuit to
      the United States District Court for the Southern District of Iowa and then
      filed a Motion to Dismiss, Transfer or Stay the Whitesell motions based upon
      the
      fact that, at the time, both of Fansteel’s Illinois lawsuits were pending before
      Judge St. Eve in the Northern District of Illinois. At a hearing on May 23,
      2006
      in the United States District Court for the Southern District of Iowa, Judge
      Charles Wolle denied Whitesell’s motion to return the case to state court and
      stayed all litigation in the Iowa court until the other Illinois litigation
      was
      resolved. On May 12, 2006, Whitesell filed the aforementioned Motion to Change
      Venue with the Northern District of Illinois, seeking to transfer the Illinois
      litigation to the Southern District of Iowa. Whitesell’s motion was granted on
      July 11, 2006 resulting in cancellation of the settlement conference scheduled
      for July 13, 2006. Both Fansteel and Whitesell have agreed to attempt to
      schedule a settlement conference before the Iowa court.





25
 *Index*





The
      final
      arbitrator was selected for the AAA arbitration in Detroit in April 2006 with
      the second teleconference call for the lawyers held on April 24, 2006. The
      arbitration panel will determine if they have jurisdiction in the disputed
      items
      and whether Whitesell’s deductions from the purchase price were or were not
      proper. After receiving and considering extensive briefs, the Arbitration Panel
      heard oral arguments from counsel in a conference call on August 2, 2006. On
      August 9, 2006, the Arbitration Panel issued a favorable ruling for Fansteel
      by
      denying Whitesell’s motion to dismiss.





The
      Company can provide no assurance as to the outcome of these various actions
      and
      a negative outcome of such dispute could have an adverse effect on the Company.





Certain
      environmental claims have been made against the Company by the EPA and various
      other regulatory agencies, entities and persons in connection with the
      investigation and cleanup of certain sites. Pursuant to the Reorganization
      Plan,
      all such claims were treated and resolved and as part of such treatment, the
      Company has sought recovery from certain of its insurers in respect of certain
      defense and cleanup costs relating to the claims. The Department of Justice
      notified the Company on April 29, 2005 that the NRC and other interested federal
      agencies did consent to the following settlements: On May 26, 2005, the Company
      reached agreement with Zurich American Insurance Company and Zurich
      International (Bermuda) Ltd. (collectively, "Zurich") and on April 18, 2005
      with
      KWELM Management Services Limited on behalf of the Scheme Administrator for
      KWELM in an insolvency proceeding under the laws of Great Britain and the Joint
      Liquidators for The Bermuda Fire & Marine Insurance Company (collectively,
      "KWELM"). Zurich agreed to a settlement providing for a cash settlement payment
      to the Company of $1.4 million, which was received on June 9, 2005. KWELM
      agreed to a Notified Scheme Claim totaling $400,000. Cash distributions in
      respect of the claims would be paid out to the Company in accordance with
      KWELM's approved Scheme of Arrangement. The Scheme administrator has represented
      that Fansteel can anticipate total cash payments equal to approximately 50%
      to
      57% of its Notified Scheme Claim (approximately $200,000 - $228,000). The
      initial cash distribution from KWELM of $205,874 was received on June 4, 2005
      with a second distribution of $36,167 received on August 11, 2005 and a third
      distribution of $88,263 received on December 27, 2005, for a total of $330,304,
      or 83% of the total claim. The proceeds of the settlements were used in
      accordance with the Reorganization Plan to pay certain professional fees and
      expenses related to such settlements. The net proceeds from the settlements
      were
      allocated in accordance with the Reorganization Plan and, among other things,
      resulting in prepayments under the FMRI Notes of $831,000, the FLRI Primary
      Note
      of $111,000 and the ED Note of $147,000 and payments aggregating $66,000 on
      account of EPA CERCLA claims.





In
      May
      2005, a complaint for toxic injuries was filed by Garfield and Susan Perry
      against numerous defendants, including Wellman Dynamics, a wholly owned
      subsidiary of Fansteel Inc., claiming injuries related to exposure to products
      containing beryllium. The Company’s insurance carriers have been notified and
      are defending the Company.





From
      time
      to time, the Company is involved in routine litigation incidental to its
      business. The Company is not a party to any pending or threatened legal
      proceeding that it believes would have a material adverse effect on its results
      of operations or financial condition.





26
 *Index*




**ITEM
      1A- RISK FACTORS**





Investment
      in the Company’s securities involves a number of risk and uncertainties. Careful
      consideration should be given to the following risks, along with the cautionary
      statement regarding “forward-looking statements” in Part 1, Item 2 of this
      report and other information included in this report, before purchasing the
      Company’s securities. Besides the risks listed below, the Company faces risks
      that are currently unknown or that are currently consider to be immaterial,
      but
      may also impact business or adversely affect the Company’s financial condition
      or results of operations.





**Emergence
      From Bankruptcy**





On
      January 15, 2002 (the "Petition Date"), Fansteel Inc. and eight of its then
      subsidiaries (collectively, the "Debtors") filed voluntary petitions for
      reorganization relief under Chapter 11 of the U.S. Bankruptcy Code. After the
      Petition Date, the Predecessor Company (referring to the Company prior to the
      Effective Date) continued to operate its business and manage its affairs as
      debtor-in-possession ("DIP") with court approval for transactions outside the
      ordinary course of business. By order dated December 23, 2003, the U.S.
      Bankruptcy Court for the District of Delaware (the "Court") confirmed the Second
      Amended Joint Reorganization Plan (the "Reorganization Plan"). All the Debtors
      emerged from Chapter 11 of the U.S. Bankruptcy Code on January 23, 2004 (the
      "Effective Date").





The
      Reorganization Plan left the Company with significant environmental liabilities
      going forward that must be funded from continuing operations.





**Environmental
      Issues**





The
      Company has significant environmental issues, particularly in Muskogee, OK,
      that
      could have a material impact on the Company’s results. The ability of the
      Company to fund the clean up of this site could have a material adverse impact
      on the Company. For further details, see Note 5 Discontinued Operations
      including Certain Environmental Remediation.





**High
      Level Of Debt**





The
      Company's high level of debt could have important consequences. The Company's
      ability to pay debt service and other contractual obligations will depend on
      the
      Company's future performance and cash flow generation, which in turn will be
      affected by prevailing economic and industry conditions and financial, business
      and other factors, many of which are beyond the Company's control. If the
      Company has difficulty providing for debt service or other contractual
      obligations in the future, the Company may be forced to take actions such as
      reducing or delaying capital expenditures, reducing costs, selling assets,
      refinancing or reorganizing its debt or other obligations and seeking additional
      equity capital, or any combination of the above. The Company may not be able
      to
      take any of these actions on satisfactory terms, or at all.





**The
      Company Has A Few Large Customers**




The
      Company sells parts to various companies whose end user, International Engine,
      accounts for a significant portion of the Company’s overall business.  In
      the
      fourth quarter of 2004, the Company lost $8 million in annual sales for one
      part
      sold to International Engine, which was approximately 70% of the Company’s total
      sales to this customer. The loss of business resulted when International Engine
      converted the manufacturing of this part from an investment casting to a fine
      blanking. Fansteel does not produce fine blankings. While it is not anticipated,
      the Company cannot provide any assurance that it will have the ability to
      replace all loss of revenue or profit resulting from the loss of such business
      and could suffer a material adverse impact on its operations and financial
      condition as a consequence.





27
 *Index*





In
      addition to International Engine, the Company sells to several other customers
      that make up a significant portion of the Company’s total sales. While none of
      these customers individually represent more than 10% of sales, as a group they
      make up a considerable portion of the Company’s total sales. Although it is not
      anticipated, the loss of one or more of these customers would have a substantial
      impact on the Company’s operations and profitability.





A
      large
      portion of the Company’s sales is to a limited number of customers in the
      aerospace and automotive industries. While the Company has long-term
      relationships with these companies, there is no guarantee that these
      relationships will continue. In addition, these industries tend to be volatile.
      The United States automotive industry in particular has been unstable in recent
      years, with several large automotive companies struggling financially and some
      filing Chapter 11 bankruptcy.





**Competition**





Each
      of
      the Company’s businesses participates in markets that are highly competitive.
      Many of these competitors are much larger than the Company’s businesses, have
      greater name recognition, have more financial resources and can sell their
      products at prices lower than ours, giving them a greater competitive edge.
      The
      Company competes primarily on the basis of product quality, product performance,
      value, and long-term customer relationships. The competition that the Company
      faces in these markets may prevent the Company from achieving sales and profit
      goals, which could affect the Company’s financial condition and results of
      operations.





In
      addition the Company faces increased competition, primarily in the Industrial
      Metal Components business segment, from offshore sources, such as China, that
      offer lower production costs.





**Material
      Prices**





The
      Company started to experience raw material price increases beginning in 2004
      and
      these material price increases have continued into 2006. To offset these price
      increases, the Company began adding material surcharges in March 2004 and in
      2006 the Company continues to add material surcharges. There is no guarantee
      that the Company will be able to continue to pass on these material surcharges
      to its customers.





**Manufacturing
      in Foreign Countries**





The
      Company has a manufacturing facility in Mexico that is subject to currency
      exchange rate fluctuations. While foreign currency exchange rates have not
      had a
      significant impact on the Company’s financial condition in the past, there can
      be no certainty that exchange rates will not have a financial impact in the
      future.





**Liquidity
      of the Company Stock**





The
      Company has a limited number of shareholders and the stock is thinly
      traded.





28
 *Index*





**ITEM
      2 - UNREGISTEREDSALES OF SECURITIES AND USE OF
      PROCEEDS**




Pursuant
      to the Reorganization Plan, on the Effective Date, all outstanding shares of
      the
      Predecessor Company’s common stock, $2.50 par value, were cancelled.





The
      Reorganization Plan authorized the issuance of 3,600,000 shares of common stock,
      $.01 par value, of the Successor Company. The general unsecured creditors
      received approximately 50% stock ownership. The PBGC received approximately
      21%
      of the common stock being issued in the reorganization as part of the settlement
      of its claims related to the under-funding of the Company’s now-terminated
      Pension Plan. The common stockholders of the Predecessor Company received
      approximately 24% of the newly issued stock. Finally, 5% of the Successor
      Company’s common stock has been set-aside in an employees’ stock options plan,
      also approved as part of the confirmation.





**ITEM
      3 - DEFAULTSUPON SENIOR SECURITIES**




None.





**ITEM
      4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS**




No
      matters were submitted to a vote of security holders during the second quarter
      of 2006.





**ITEM
      5 - OTHER INFORMATION**




None.





**ITEM
      6 - EXHIBITS**




Exhibit
                #
            
            Description
                of Exhibit31.1
            
            Certification
                by Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a)
                under
                the Securities Exchange Act of 1934, as adopted pursuant to Section
                203 of
                the Sarbanes-Oxley Act of 200231.2
            
            Certification
                by Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a)
                under
                the Securities Exchange Act of 1934, as adopted pursuant to Section
                203 of
                the Sarbanes-Oxley Act of 200232.1
            
            Certifications
                by Chief Executive Officer and Chief Financial Officer pursuant to
                18
                U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002




29
 *Index*




**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.




FANSTEEL
                  INC.(Registrant)/s/
                  Gary L. TessitoreGary
                  L. TessitoreAugust
                  10, 2006
              
              Chairman
                  of the Board, President and Chief Executive Officer/s/
                  R. Michael McEnteeR.
                  Michael McEnteeAugust
                  10, 2006
              
              Vice
                  President and Chief Financial Officer






30