`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 SEPTEMBER 30, 2005

OR

[_]  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                                              36-105870
-------------------------------                              -------------------
(State or Other Jurisdiction of                                (I.R.S. Employer
 Incorporation or Organization)                              Identification No.)

                            Number One Tantalum Place
                             North Chicago, Illinois
                                      60064
              (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 [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] 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 [ ]

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 November 1, 2005
----------------------------                     -------------------------------
Common Stock, $.01 par value                            3,420,000 shares



                                  FANSTEEL INC.

                                FORM 10-Q - INDEX
                               September 30, 2005

                                                                        Page No.
                                                                        --------

PART I.        FINANCIAL INFORMATION

Item 1         Financial Statements:

               Consolidated Statement of Operations (unaudited)-
               Three months ended September 30, 2005, three months
               ended September 30, 2004, nine months ended September
               30, 2005, eight months ended September 30, 2004
               (Successor Company), and one month ended January 23,
               2004 (Predecessor Company)                                  3-4

               Consolidated Balance Sheet - September 30, 2005
               (unaudited) and December 31, 2004                           5-6

               Consolidated Statement of Cash Flows (unaudited) -
               Nine months ended September 30, 2005, eight months
               ended September 30, 2004 (Successor Company), and one
               month ended January 23, 2004 (Predecessor Company)           7

               Notes to Unaudited Consolidated Financial Statements       8-23

Item 2         Management's Discussion and Analysis of Financial
               Condition and Results of Operations                        24-32

Item 3         Quantitative and Qualitative Disclosures About Market
               Risk                                                        32

Item 4         Controls and Procedures                                    32-33

PART II.       OTHER INFORMATION

Item 1         Legal Proceedings                                          33-34

Item 2         Unregistered Sales of Equity Securities and Use of
               Proceeds                                                    35

Item 3         Defaults Upon Senior Securities                             35

Item 4         Submission of Matters to a Vote of Security Holders         35

Item 5         Other Information                                           35

Item 6         Exhibits                                                    35

Signatures                                                                 36

Exhibit 31.1   Certifications- Gary L. Tessitore                           37
Exhibit 31.2   Certifications- R. Michael McEntee                          38
Exhibit 32.1   Certification                                               39


                                        2



PART I. FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

                                  Fansteel Inc.
                      Consolidated Statement of Operations
                                   (Unaudited)

                                                         Successor Company
                                                   -----------------------------
                                                       Three           Three
                                                       Months         Months
                                                       Ended           Ended
                                                   September 30,   September 30,
                                                        2005           2004
                                                   -------------   -------------

Net Sales                                           $13,205,621     $13,312,397

Cost and Expenses
   Cost of products sold                             11,563,269      10,880,619
   Selling, general and administrative                1,525,158       1,909,866
                                                    -----------     -----------
                                                     13,088,427      12,790,485
                                                    -----------     -----------

Operating Income                                        117,194         521,912

Other Expense
   Interest expense                                    (494,613)       (224,645)
   Other                                                (14,153)         (4,838)
                                                    -----------     -----------
                                                       (508,766)       (229,483)
                                                    -----------     -----------

 Income (Loss) from Continuing Operations Before
   Reorganization Items and Income Taxes               (391,572)        292,429

Reorganization items                                    (18,000)        (17,999)
                                                    -----------     -----------

Income (Loss) from Continuing Operations Before
   Income Taxes                                        (409,572)        274,430
Income Tax Provision (Benefit)                               --              --
                                                    -----------     -----------
Net Income (Loss) from Continuing Operations           (409,572)        274,430
Loss from Discontinued Operations                      (649,145)     (1,234,775)
                                                    -----------     -----------
Net Loss                                            $(1,058,717)    $  (960,345)
                                                    ===========     ===========

Weighted Average Number of Common Shares
    Outstanding                                       3,420,000       3,420,000
Basic and Diluted Net Income (Loss) per Share(a)
   Continuing operations                            $     (0.12)    $      0.08
   Discontinued operations                                (0.19)          (0.36)
                                                    -----------     -----------
   Net loss                                         $     (0.31)    $     (0.28)
                                                    ===========     ===========

----------
(a)  Basic earnings per share and diluted earnings per share are the same.

                 See Notes to Consolidated Financial Statements


                                        3



                                  Fansteel Inc.
                      Consolidated Statement of Operations
                                   (Unaudited)



                                                                                   Predecessor
                                                         Successor Company           Company
                                                   -----------------------------   -----------
                                                        Nine           Eight           One
                                                       Months         Months          Month
                                                       Ended           Ended          Ended
                                                   September 30,   September 30,   January 23,
                                                        2005           2004           2004
                                                   -------------   -------------   -----------

Net Sales                                           $41,080,314     $39,600,726    $ 2,695,857

Cost and Expenses
   Cost of products sold                             34,501,437      31,571,214      2,381,551
   Selling, general and administrative                5,004,014       5,047,892        492,141
                                                    -----------     -----------    -----------
                                                     39,505,451      36,619,106      2,873,692
                                                    -----------     -----------    -----------

Operating Income (Loss)                               1,574,863       2,981,620       (177,835)
Other Income (Expense)
   Interest expense                                    (954,323)       (524,628)       (43,977)
   Other                                                (26,422)         25,571         (7,198)
                                                    -----------     -----------    -----------
                                                       (980,745)       (499,057)       (51,175)
                                                    -----------     -----------    -----------

Income (Loss) from Continuing Operations Before
    Reorganization Items and Income Taxes               594,118       2,482,563       (229,010)
Reorganization items
   Professional fees                                         --        (347,746)      (333,289)
   US trustee fees                                      (54,000)        (88,250)            --
                                                    -----------     -----------    -----------
                                                        (54,000)       (435,996)      (333,289)
Fresh Start Adjustments                                      --              --     43,455,000
Gain on Debt Discharge                                       --              --     15,048,000
                                                    -----------     -----------    -----------
Income From Continuing Operations Before
   Income Tax                                           540,118       2,046,567     57,940,701
Income Tax Provision (Benefit)                               --              --             --
                                                    -----------     -----------    -----------
Net Income from Continuing Operations                   540,118       2,046,567     57,940,701
Loss from Discontinued Operations                    (1,433,437)     (2,357,142)      (108,758)
                                                    -----------     -----------    -----------
Net Income (Loss)                                   $  (893,319)    $  (310,575)   $57,831,943
                                                    ===========     ===========    ===========

Weighted Average Number of Common Shares
    Outstanding                                       3,420,000       3,420,000      8,698,858
Basic and Diluted Net Income (Loss) per Share(a)
   Continuing operations                            $      0.16     $      0.60    $      6.66
   Discontinued operations                                (0.42)          (0.69)         (0.01)
                                                    -----------     -----------    -----------
   Net income (loss)                                $     (0.26)    $     (0.09)   $      6.65
                                                    ===========     ===========    ===========


----------
(a)  Basic earnings per share and diluted earnings per share are the same.

                 See Notes to Consolidated Financial Statements


                                        4



                                  Fansteel Inc.
                           Consolidated Balance Sheet



                                                            September 30,   December 31,
                                                                 2005           2004
                                                            -------------   ------------
                                                             (Unaudited)

ASSETS
Current assets
   Cash and cash equivalents                                 $ 1,185,051     $     7,597
   Restricted cash                                                    --         394,034
   Accounts receivable, less allowance of $434,000 at
   September 30, 2005 and $541,000 at December 31, 2004        9,043,358       7,668,678
   Inventories
      Raw material and supplies                                1,079,511       1,134,049
      Work-in process                                          4,519,558       3,212,009
      Finished goods                                             558,100         452,420
                                                             -----------     -----------
         Total inventories                                     6,157,169       4,798,478
                                                             -----------     -----------
   Other assets - current                                        820,009       1,509,106
                                                             -----------     -----------
Total current assets                                          17,205,587      14,377,893
                                                             -----------     -----------

Property, plant and equipment
   Land                                                        1,084,419       1,084,419
   Buildings                                                   4,784,363       4,784,363
   Machinery and equipment                                     4,894,555       4,581,726
                                                             -----------     -----------
                                                              10,763,337      10,450,508
   Less accumulated depreciation                               1,840,984       1,037,215
                                                             -----------     -----------
      Net property, plant and equipment                        8,922,353       9,413,293
                                                             -----------     -----------

Other assets
   Deposits                                                    5,769,837       5,753,141
   Reorganization value in excess of amounts allocable to
      identified assets                                       12,893,734      12,893,734
   Property held for sale                                      1,327,500       2,447,500
   Other                                                         193,597         121,649
                                                             -----------     -----------
      Total other assets                                      20,184,668      21,216,024
                                                             -----------     -----------
                                                             $46,312,608     $45,007,210
                                                             ===========     ===========


                 See Notes to Consolidated Financial Statements


                                        5



                                  Fansteel Inc.
                           Consolidated Balance Sheet



                                                         September 30,   December 31,
                                                             2005            2004
                                                         -------------   ------------
                                                          (Unaudited)

LIABILITIES AND SHAREHOLDERS' DEFICIT
Liabilities
   Current liabilities
      Accounts payable                                    $ 3,932,456     $ 6,025,129
      Accrued liabilities                                   5,370,827       6,554,494
      Short-term borrowings                                 9,170,756       4,108,457
      Current maturities of long-term debt                  2,452,604       1,549,175
                                                          -----------     -----------
         Total current liabilities                         20,926,643      18,237,255
                                                          -----------     -----------
   Long-term debt                                           5,190,049       4,933,038
                                                          -----------     -----------
   Other liabilities - environmental remediation           24,533,323      25,276,826
                                                          -----------     -----------
Total liabilities                                          50,650,015      48,447,119
                                                          -----------     -----------

Shareholders' deficit
   Common stock, par value $0.01; Authorized 3,600,000
      shares, issued and outstanding 3,420,000 shares          34,200          34,200
   Capital in excess of par value                             296,314         296,314
   Accumulated deficit                                     (4,654,284)     (3,760,965)
   Other comprehensive income
      Foreign currency translation                            (13,637)         (9,458)
                                                          -----------     -----------
         Total other comprehensive income                     (13,637)         (9,458)
                                                          -----------     -----------
   Total shareholders' deficit                             (4,337,407)     (3,439,909)
                                                          -----------     -----------
Total liabilities and shareholders' deficit               $46,312,608     $45,007,210
                                                          ===========     ===========


                 See Notes to Consolidated Financial Statements


                                        6



                                  Fansteel Inc.
                      Consolidated Statement of Cash Flows
                                   (Unaudited)



                                                                                                      Predecessor
                                                                           Successor Company            Company
                                                                     -----------------------------   ------------
                                                                      Nine Months        Eight         One Month
                                                                         Ended        Months Ended       Ended
                                                                     September 30,   September 30,    January 23,
                                                                          2005            2004           2004
                                                                     -------------   -------------   ------------

Cash Flows From Operating Activities:
   Net income (loss)                                                  $  (893,319)    $  (310,574)   $ 57,831,943
   Adjustments to reconcile net income (loss) to net
      cash used in operating activities:
         Depreciation and amortization                                    780,198         747,435          72,994
         Fresh start adjustments                                               --              --     (43,455,000)
         Gain on discharge of debt                                             --              --     (15,048,000)
         Loss from discontinued operations                              1,433,437       2,357,142         108,758
         Gain from disposals of property, plant and equipment                  --         (32,917)             --
         Change in assets and liabilities:
            Increase in accounts receivable                            (1,035,028)     (1,840,528)       (321,198)
            Decrease in income tax refunds receivable                          --          61,700              --
            Increase in inventories                                    (1,358,691)       (258,113)       (280,153)
            Decrease (increase) in other assets - current                 682,495        (859,569)         79,568
            Decrease in accounts payable and
               accrued liabilities                                     (2,607,598)     (2,310,930)       (104,217)
            Increase in liabilities subject to compromise                      --              --         300,000
            Increase (decrease) in income taxes payable                     5,595         (17,650)             --
            (Increase) decrease in other assets                           (82,952)        297,104             765
                                                                      -----------     -----------    ------------
               Net cash used in operating activities                   (3,075,863)     (2,166,900)       (814,540)
                                                                      -----------     -----------    ------------
Cash Flows From Investing Activities:
   Decrease (increase) in restricted cash                                 394,034        (318,426)        379,457
   Proceeds from sale of property, plant and equipment                         --          34,000
   Capital expenditures                                                  (312,829)        (22,620)         (3,155)
                                                                      -----------     -----------    ------------
               Net cash provided by (used in) investing activities         81,205        (307,046)        376,302
                                                                      -----------     -----------    ------------
Cash Flows From Financing Activities:
   Proceeds from short-term borrowing                                   5,534,815       4,451,287              --
   Payments on long-term debt                                            (204,247)       (229,358)             --
                                                                      -----------     -----------    ------------
               Net cash provided by financing activities                5,330,568       4,221,929              --
                                                                      -----------     -----------    ------------
Net Increase (Decrease) in Cash and Cash Equivalents
   From Continuing Operations                                           2,335,910       1,747,983        (438,238)
Cash Flows From Discontinued Operations                                (1,158,456)     (2,310,933)        147,819
                                                                      -----------     -----------    ------------
Net Increase (Decrease) in Cash and Cash Equivalents                    1,177,454        (562,950)       (290,419)
Cash and Cash Equivalents at Beginning of Period                            7,597         999,787       1,290,206
                                                                      -----------     -----------    ------------

Cash and Cash Equivalents at End of Period                            $ 1,185,051     $   436,837    $    999,787
                                                                      ===========     ===========    ============


                 See Notes to Consolidated Financial Statements


                                        7



              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF BUSINESS

     The consolidated financial statements as of and for the periods ending
September 30, 2005, September 30, 2004, and January 23, 2004 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 period ended September 30,
2005 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2005.

     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.

     Certain reclassifications have been made to prior periods' financial
statements to conform with the 2005 presentation.

     The accompanying consolidated financial statements do not include all
disclosures normally provided in annual financial statements, and therefore,
should be read in conjunction with the Company's annual report on 10-K.

NOTE 2 - STOCK-BASED COMPENSATION

     In accounting for stock-based employee compensation, the Company uses the
intrinsic-value method specified in Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees." Shown below are net income
(loss) and basic and diluted earnings (loss) per share as reported and adjusted
to reflect the use of the fair-value method in determining stock-based
compensation costs, as prescribed in SFAS No. 123, "Accounting for Stock-Based
Compensation."


                                        8



                                                                                     Predecessor
                                                    Successor Company                  Company
                                         ---------------------------------------   ---------------
                                             Nine Months         Eight Months      One Month Ended
                                                Ended                Ended           January 23,
                                         September 30, 2005   September 30, 2004         2004
                                         ------------------   ------------------   ---------------

(Dollars in millions, except for
earnings per-share)

Net income (loss) as reported                $(893,319)           $(310,575)         $57,831,943

Deduct: Total stock based compensation
   expense determined under the fair
   value based method, net of related
   tax effect                                       --                   --                   --
                                             ---------            ---------          -----------
Pro forma - net income (loss)                $(893,319)           $(310,575)         $57,831,943
                                             =========            =========          ===========

Basic/diluted income (loss) per share
   As reported                               $   (0.26)           $   (0.09)         $      6.65
                                             =========            =========          ===========
   Pro forma                                 $   (0.26)           $   (0.09)         $      6.65
                                             =========            =========          ===========


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 "Filing 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. The Chapter 11 case with respect to a former
subsidiary, Fansteel Schulz Products, Inc. ("Schulz"), was dismissed on November
27, 2002 pursuant to a bankruptcy court-approved sale by Fansteel Inc. of all of
the stock of Schulz. 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 "Plan"). All the Filing Debtors other than Schulz
(collectively, the "Debtors") emerged from Chapter 11 of the U.S. Bankruptcy
Code on January 23, 2004 (the "Effective Date").

     As of the Effective Date, all common stock and options to purchase common
stock of the Predecessor Company were canceled.

     Pursuant to the Plan, on the Effective Date, the Company filed an amended
and restated certificate of incorporation authorizing new shares of common
stock, par value $.01 per share of the Company ("New Common Stock"). The Plan
authorized the issuance of 3,600,000 shares of New Common Stock. Holders of
allowed general unsecured claims against the Debtors were entitled by the Plan
to receive approximately 50% stock ownership of the reorganized Company. The
Pension Benefit Guarantee Corporation (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 Predecessor Company's
now-terminated Consolidated Employees' Pension Plan (the "Pension Plan"), a
defined benefit pension plan covered under Title IV of the Employee Retirement
Income Security Act ("ERISA"). The stockholders of the Predecessor


                                        9



Company are entitled by the Plan to receive approximately 24% of the New Common
Stock. All of the foregoing percentages are pursuant to the Plan, subjected to
dilution by the 5% of New Common Stock reserved for an employee stock plan.

     In accordance with the Plan, the Predecessor Company terminated the Pension
Plan as of December 15, 2003. Fansteel and the PBGC entered into a settlement
agreement pursuant to the Plan pursuant to which the PBGC received, in full
satisfaction of the claims resulting from the Pension Plan's termination: (i) a
$9.5 million, non-interest bearing, ten-year, note, dated January 23, 2004, from
Fansteel Inc., secured by land, buildings, and equipment owned by or used in
connection with operations of Fansteel de Mexico, together with (ii)
distributions of cash and stock on account of a $1.5 million allowed general
unsecured claim and (iii) an additional 20% of the New Common Stock (subject to
dilution for issuances pursuant to an employee stock plan).

     The Plan also provided for settlement of various existing and potential
environmental claims and obligations of the Debtors. In particular, the Plan
provided for the following treatment of environmental claims and obligations
with respect to the various properties as set forth below in full satisfaction
and release of all such environmental claims against and obligations of any
Debtor or its successors:

          (a) Holders of environmental claims and/or obligations arising from or
with respect to the property at Number Ten Tantalum Place, Muskogee, Oklahoma
(the "Muskogee Facility") shall receive and/or be the beneficiaries of the
remediation of the Muskogee Facility to be undertaken by FMRI, Inc. ("FMRI"),
one of the special purpose subsidiaries of the Company formed pursuant to the
Plan. FMRI (and not Fansteel Inc.), pursuant to an Amended Decommissioning Plan
and an Amended License (collectively, the "NRC License") issued by the Nuclear
Regulatory Commission (the "NRC"), is solely and directly responsible for the
monitoring and performance of remedial actions to be undertaken with respect to
the Muskogee Facility. Pursuant to the Plan, the operations of FMRI are to be
funded primarily by the proceeds of certain non-interest bearing notes issued
and/or to be issued to FMRI by Fansteel Inc. as follows:

               (i) A $30.6 million unsecured note maturing December 31, 2013
payable with mandatory minimum semi-annual payments of $700,000, an additional
mandatory annual payment, based on excess available cash flow, if any, with the
maximum additional mandatory annual payment capped at $4 million, and the net
proceeds of recoveries by Fansteel, if any, on certain insurance claims; and

               (ii) A $4.2 million unsecured note to cover estimated costs of
groundwater treatment and monitoring to be completed to a standard to be agreed
upon between FMRI and the NRC, maturing December 31, 2023 with annual payments
of approximately $282,000 commencing on or about January 1, 2009 until maturity;
and

               (iii) An unsecured contingent note in an amount, to the extent
necessary and as to be determined following further site characterization,
reflecting additional costs to remediate soils in excess of costs estimated in
the Amended Decommissioning Plan and the NRC License and treat/monitor
groundwater. If an FMRI contingent note is required, it is anticipated that it
would be issued in 2012.

     Pursuant to the Plan, FMRI could draw up to $2 million from an existing
decommissioning trust established in accordance with the Amended Decommissioning
Trust Agreement with the


                                       10



NRC. The draws against the decommissioning trust may be made on a revolving
basis as long as the aggregate amounts outstanding under such draws shall not
exceed $2 million and provided certain terms and conditions are satisfied.
Consistent with the NRC License, FMRI in April 2004 drew $525,000 from the
Trust. On April 13, 2005, the decommissioning trust was amended, with the
consent of the NRC, to allow additional draws of up to $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, among other things, the weight of material
disposed of offsite at the approved disposal site. In the second quarter of
2005, FMRI drew an additional $500,000 from the Trust. In the third quarter of
2005, FMRI drew an additional $1,160,000 from the Trust. In the third quarter
2005, Fansteel prepaid $768,000 to FMRI from net insurance proceeds, which FMRI
used to reduce amounts owing to the Trust.

     The NRC was also granted a pledge on the proceeds from any of the FMRI
notes and benefits from an indemnity in its favor from FMRI Inc. with respect to
Fansteel Inc.'s obligations under the notes.

          (b) Holders of environmental claims and/or obligations arising from or
with respect to the property at Number One Tantalum Place, North Chicago,
Illinois (the "North Chicago Facility") shall receive and/or be the
beneficiaries of the remediation of the North Chicago Facility to be undertaken
by North Chicago, Inc. ("NCI"), one of the special purpose subsidiaries formed
pursuant to the Plan, in accordance with the North Chicago Consent Decree.
Pursuant to the Plan, the North Chicago Facility, consisting of Fansteel's real
property and other assets associated with its operation, was transferred to NCI
on the Effective Date. NCI (and not Fansteel Inc.) is solely and directly
responsible for the monitoring and performance of remedial actions to be
undertaken with respect to the North Chicago Facility. The operations of NCI
were to be funded primarily from proceeds of certain non-interest bearing notes
issued and/or to be issued to NCI by Fansteel Inc. as follows:

               (i) A $2.17 million unsecured note maturing December 31, 2013
with payments matched to correspond to NCI's anticipated expenditures for
remediation costs of the North Chicago Facility; and

               (ii) An unsecured contingent note of up to $500,000, to be issued
in the future, if the costs of performing the response actions at the North
Chicago Facility will exceed $2,025,000.

     On November 13, 2003 the City of North Chicago (the "City") and Fansteel
executed an option agreement (the "Option") allowing the City to acquire the
North Chicago Facility for $1.4 million. The City had until August 31, 2004 to
exercise the Option. Upon exercise of the Option, NCI was obligated under the
Plan to transfer any funds received from the City to the United States
Environmental Protection Agency (the "EPA") and was released from any and all of
its obligations to implement the North Chicago response action under the North
Chicago Consent Decree, subject to completing the environmental engineering/cost
analysis report, and any outstanding notes issued and the obligation to issue
the above-described contingent note by the Company to NCI was to be cancelled.
In addition, the Company was obligated to issue and deliver to the EPA an
unsecured, non-interest bearing promissory note in the principal amount of
$700,000, less any amounts previously paid to NCI under the original notes,
payable in equal semi-annual payments to be made over a three-year period
beginning six months after issuance. On December 31, 2004, the City did notify
NCI that it was exercising its option. On March 7, 2005, NCI sold the real
property


                                       11



to 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. The NCI Notes (including the obligation to issue a contingent
note) were canceled, and the City entered into a six-month lease with monthly
renewals at the same terms with Fansteel Inc. with respect to portions of the
North Chicago Facility. In July, 2005 Fansteel prepaid $147,000 to the
outstanding note issued to the EPA from net insurance proceeds received.

          (c) Holders of environmental claims and/or obligations arising from or
with respect to the property at 203 Lisle Industrial Road, Lexington, Kentucky
(the "Lexington Facility"), shall receive and/or be the beneficiaries of the
remediation of the Lexington Facility to be undertaken by FLRI, Inc. ("FLRI"), a
special purpose subsidiary formed pursuant to the Plan. Pursuant to the Plan,
the Lexington Facility, consisting of Fansteel's real property and other assets
associated with the operation, was transferred to FLRI on the Effective Date.
FLRI (and not Fansteel Inc.) is solely and directly responsible for the
monitoring and remedial actions to be undertaken with respect to the Lexington
Facility and the operations of FLRI are to be funded primarily by:

               (i) A $1.78 million unsecured, non-interest bearing note maturing
December 31, 2013 issued by Fansteel Inc. to FLRI with payments matched to
correspond to FLRI's anticipated expenditures for remediation costs; and

               (ii) A contingent note, to be issued in the future, in an amount
to be determined by FLRI following completion of the site characterization
(expected to be completed by March 31, 2006) and sufficient to fund any
remaining costs of remediation that may exist.

          (d) Holders of environmental claims and/or obligations arising from or
with respect to the property at 801 Market Street, Waukegan, Illinois (the
"Waukegan Facility"), shall receive and/or be the beneficiaries of the
remediation of the Waukegan Facility to be undertaken by Waukegan, Inc. ("WI"),
one of the special purpose subsidiaries formed pursuant to the Plan. Pursuant to
the Plan, the Waukegan Facility, consisting of Fansteel's real property and
other assets associated with the operations was transferred to WI. WI (and not
Fansteel Inc.) is solely and directly responsible for the monitoring and
remedial actions to be undertaken with respect to the Waukegan Facility and the
operations of WI were to be funded by the proceeds of a $1.25 million unsecured,
non-interest bearing note maturing December 31, 2013 issued by the Company to WI
with payments matched to correspond to WI's anticipated expenditures for
remediation costs. During June 2004, WI sold the Waukegan Facility to Ampsky &
Associates, LLC ("Ampsky") for approximately $100,000 in cash and the
assumption/indemnification by Ampsky of all environment claims and obligations.
As a result, the Company's $1.25 million note has been extinguished.

          (e) The remaining environmental claims and obligations arising from or
related to Fansteel's (i) Li Tungsten site Superfund Site in Glen Cove, New
York, (ii) Old Southington Landfill Site in Southington, Connecticut and (iii)
Operating Industries, Inc. Superfund Site in Monterrey Park, California are each
subject to an EPA Federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") Potentially Responsible Parties ("CERCLA PRP")
Settlement Agreement approved by order of the Court entered on November 17,
2003. In full satisfaction of such claims and obligations under the Plan, the
holders of such claims received a pro rata share of the cash distribution to
holders of general unsecured claims as if


                                       12



such parties held allowed general unsecured claims of: $132,000 (Polychlorinated
Biphenyls or "PCB" Treatment), $460,898 (Operating Industries), $25,000 (Li
Tungsten), and $100,000 (Old Southington), and certain proceeds, if any, net of
insurance recoveries.

          (f) Substantially all of the environmental claims and obligations
associated with the facility owned and operated by Wellman located at 1746
Commerce Road, Creston, Union County, Iowa (the "Iowa Facility") have been
resolved in accordance with the Administrative Order on Consent by and between
Wellman Dynamics Corp., a subsidiary of the Company ("Wellman") and the EPA,
approved by order of the Court on November 4, 2003. The Administrative Order on
Consent provides for EPA approval of a work plan for Wellman to characterize the
extent of any contamination associated with certain Solid Waste Management Units
("SWMUs") and to evaluate alternatives to remediate any residual contamination
associated with SWMUs in accordance with Wellman's on-going obligations under
the Resource Conservation and Recovery Act of 1976 and the Waste Disposal
Amendments of 1984 (collectively, "RCRA") at the Iowa Facility. Wellman
estimates the costs associated with the closure activities for the SWMUs will
aggregate approximately $2,166,000 through 2009. Environmental liabilities are
estimated to be funded from the cash flow generated by operations of Wellman.

NOTE 4 - BASIS OF PRESENTATION AND FRESH START ACCOUNTING

     The Company accounted for the consummation of the Plan as of January 23,
2004, coinciding with the end of its January reporting period for financial
reporting convenience purposes.

     The Company adopted fresh start accounting pursuant to the guidance
provided by the American Institute of Certified Public Accountant's Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code". In accordance with the principles of fresh start accounting,
the Company has adjusted the value of its assets and liabilities to their fair
values as of the Effective Date with the excess of the Company's value over the
fair value of its tangible and identifiable intangible assets and liabilities
reported as excess reorganization value in the consolidated balance sheet.

     Fresh-Start accounting requires that the reorganization value be allocated
to the entity's net assets in conformity with procedures specified by APB No.
16, "Business Combinations," as superseded by Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations" ("SFAS No. 141"). The
Company engaged independent appraisers to assist in the allocation of the
reorganization value to the reorganized Company's assets and liabilities by
determining the fair market value of its property, equipment, and intangibles.

     The enterprise value of the Company as of the Effective Date of the Plan
(January 23, 2004) was established at $35.1 million, based on a calculation
using a weighted average of the following valuations approaches: comparable
company, comparable precedent transaction and discounted cash flow. The net
equity value of $324,000 represents an enterprise value of $35.1 million less
long-term debt (including current maturities) and less revolving loan facilities
of $2,650,000. The revolving loan facilities are not working capital loans and
are due January 23, 2007; therefore, they are considered in calculating the net
equity value.

     The reorganization value of $35.1 million was determined by the Company
with the assistance of its financial advisors and was approved by the Court. The
financial advisors: (i)


                                       13



reviewed certain historical financial information of the Company; (ii) reviewed
certain internal operating reports, including management-prepared financial
projections and analyses; (iii) discussed historical and projected financial
performance with senior management and industry experts; (iv) reviewed industry
trends and operating statistics as well as analyzed the effects of certain
economic factors on the industry; (v) analyzed the capital structures, financial
performance, and market valuations of the Company's competitors; and (vi)
prepared such other analyses as they deemed necessary to their valuation
determination. Based upon the foregoing, the financial advisors developed a
range of values for the Company as of the Effective Date. In developing this
valuation estimate, the financial advisors, using rates ranging from 14% to 20%,
discounted the Company's five-year forecasted free cash flows and an estimate of
sales proceeds assuming the Company would be sold at the end of the five-year
period within a range of comparable company multiples. Certain of the projected
results used in the valuation were materially better than those achieved
historically by the Company.

     The calculated reorganization value was based on a variety of estimates and
assumptions about circumstances and events not all of which have taken place to
date. These estimates and assumptions are inherently subject to significant
economic and competitive uncertainties beyond the Company's control. In addition
to relying on management's projections, the valuation analysis made a number of
assumptions including, but not limited to, a successful and timely
reorganization of the Company's capital structure and the continuation of
current market conditions through the forecast period.

     The effects of the Plan and the application of fresh start accounting on
the Company's pre-confirmation consolidated balance sheet are as follows (in
thousands):



                                    Predecessor                                     Successor
                                      Company                                        Company
                                    January 23,   Reorganization    Fresh Start    January 23,
                                        2004        Adjustments     Adjustments       2004
                                    -----------   --------------   -------------   -----------

Current assets:
   Cash                               $   702     $    298(a)(b)    $    --          $ 1,000
   Restricted cash                     12,998      (12,998)(a)           --               --
   Accounts receivable                  8,352         (341)(b)           --            8,011
   Inventories                          5,652           --              751(c)         6,403
   Other assets - current                 921         (166)(d)           --              755
                                      -------     --------          -------          -------
Total current assets                   28,625      (13,207)             751           16,169
                                      -------     --------          -------          -------
Net property, plant & equipment        10,133           --            2,888(e)        13,021
Reorganization value in excess of
   amounts allocable to
   identifiable assets                     --           --           12,894(f)        12,894
Other assets - long term                9,275           --             (664)(g)        8,611
                                      -------     --------          -------          -------
Total assets                          $48,033     $(13,207)         $15,869          $50,695
                                      =======     ========          =======          =======

Current liabilities
   Accounts payable                   $ 6,111     $    317(h)       $    --          $ 6,428
   Accrued liabilities                  8,412          892(h)            --            9,304
   Accrued income taxes                     9          328(h)            --              337
   Short-term borrowings                   --        2,650(a)            --            2,650



                                       14



   Current maturities of
      Long-term debt                                 24       1,055(h)             --           1,079
                                               --------    --------         ---------         -------
   Total current liabilities                     14,556       5,242                --          19,798
                                               --------    --------         ---------         -------
   Long-term debt                                    42       9,775(h)         (4,474)(i)       5,343
   Environmental remediation                      1,174      47,168(j)        (23,112)(j)      25,230
   Liabilities subject to
      compromise                                 90,440     (90,440)(k)            --              --
   Shareholders' equity  (deficit)              (58,179)     15,048            43,455             324
                                               --------    --------         ---------         -------
   Total liabilities and equity                $ 48,033    $(13,207)        $  15,869         $50,695
                                               ========    ========         =========         =======


     Adjustments reflected in the consolidated balance sheet are as follows (in
dollars):

(a)  In accordance with the Plan, the Company made a cash settlement with the
     general unsecured creditors that included payout from the restricted cash
     of $12,300,000 to the benefit of general unsecured creditors and $698,000
     to the Company. The Company also distributed $3,100,000 for the benefit of
     the general unsecured creditors with $450,000 from cash and short-term
     borrowing of $2,650,000.

(b)  Accounts receivables were reduced to reflect the $300,000 note receivable
     payment related to the sale of certain operations, of which $250,000 was
     distributed for the benefit of general unsecured creditors and $50,000 to
     the Company. The income tax refund receivable was reduced by $41,000 to net
     realizable value.

(c)  Inventories have been valued at fair market value. All "last-in, first-out"
     (LIFO) reserves have been eliminated.

(d)  Loan issuance costs related to the DIP line of credit were eliminated.

(e)  Property, plant and equipment have been adjusted to reflect the fair value
     of the assets based on independent appraisals.

(f)  The Successor Company has recorded reorganization value in excess of
     amounts allocable to identifiable assets in accordance with SFAS No. 141.

(g)  The unamortized balance of goodwill of $2,207,000 for the Predecessor
     Company and the unamortized balance for landfill closure at its Wellman
     Dynamics subsidiary for $989,000 have been eliminated. The Company recorded
     $2,532,000 for property held for sale related to discontinued operations
     based on current purchase offers or independent appraisals.

(h)  Certain liabilities that were subject to compromise have been recorded as
     assumed.

(i)  Long-term debt has been discounted to its present value of the $9.5
     million, non-interest bearing 10-year note due to the PBGC.

(j)  Environmental remediation was adjusted to include the assumption of $47.2
     million of liabilities subject to compromise and fresh start adjustment in
     reorganization to discount the liability to its present value based on the
     estimated timing of the future cash expenditures.


                                       15



(k)  Liabilities subject to compromise have been eliminated to reflect
     settlement of the claims for cash and the issuance of common stock in the
     reorganized company as well as the assumptions by the Successor Company.

     As part of fresh start accounting, liabilities subject to compromise in the
amount of $31 million were written off as part of the discharge of debt in the
bankruptcy. These liabilities consisted of the following:

                                                     January 23, 2004
                                                     ----------------
Accounts payable                                        $ 9,646,000
Long-term debt                                            6,632,000
Environmental                                               523,000
Pension                                                  14,104,000
                                                        -----------
Total liabilities subject to compromise discharged      $30,905,000
                                                        ===========

NOTE 5 - EARNINGS (LOSS) 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 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:



                                                                        Predecessor
                                              Successor Company           Company
                                        -----------------------------   -----------
                                         Nine Months    Eight Months     One Month
                                            Ended           Ended          Ended
                                        September 30,   September 30,   January 23,
                                             2005           2004           2004
                                        -------------   -------------   -----------

Numerator:
Net income (loss)                        $ (893,319)     $ (310,575)    $57,831,943
Denominator:
   Denominator for basic earnings
   per share- weighted average shares     3,420,000       3,420,000       8,698,858
Effect of dilutive securities
   Employee stock options                        --              --              --
   Employee restricted stock                     --              --              --
                                         ----------      ----------     -----------
Dilutive potential common shares          3,420,000       3,420,000       8,698,858
                                         ==========      ==========     ===========
Basic earnings per share                 $    (0.26)     $    (0.09)    $      6.65
                                         ==========      ==========     ===========
Diluted earnings per share               $    (0.26)     $    (0.09)    $      6.65
                                         ==========      ==========     ===========


     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 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.


                                       16



NOTE 6 - DISCONTINUED OPERATIONS INCLUDING CERTAIN ENVIRONMENTAL REMEDIATION

     The Predecessor Company had been licensed by 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 Plan, the Company negotiated
with the NRC to develop acceptable mechanisms for providing financial assurance
for the decommissioning of the Muskogee Facility (see Note 3). In December 2003,
the NRC approved the issuance of an amended NRC License and related
decommissioning plan to FMRI. At December 31, 2004, the liability for the
environmental remediation decreased from $41.6 million to $37.2 million due to
planned spending for remediation, safety and security and the recorded
discounted liability, using a discount rate of 11.3%, was $19.8 million. At
September 30, 2005, the gross estimated liability was $36.0 million and the
recorded discounted liability, using a discount rate of 11.3%, was $20.3
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.

     In September 2000, the EPA issued a unilateral administrative order under
Section 106 of CERCLA requiring the 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 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. At December 31, 2004, the gross estimated liability was $2.0 million
and the recorded


                                       17



discounted liability, using a discount rate of 11.3%, was $1.7 million. On March
7, 2005, NCI sold the real property to 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. At September 30, 2005, the gross
estimated liability was $0.5 million and the recorded discounted liability,
using a discount rate of 11.3%, was $0.4 million. 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.

     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 Fansteel submit a
plan for further characterization of the facility. Fansteel 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 Plan now owns the
Lexington facility. FLRI anticipates implementing the Site Characterization Plan
in 2006 and has estimated $1.78 million to perform the remedial activities and a
liability in that amount was recorded at January 23, 2004. At December 31, 2004
the gross estimated liability was $1.6 million and the recorded discounted
liability, using a discount rate of 11.3%, was $1.2 million. At September 30,
2005, the gross estimated liability was $1.4 million and the recorded discounted
liability, using a discount rate of 11.3%, was $1.1 million. 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.

     The buildings at the former Waukegan Facility have been demolished and only
foundations remain. As part of the Predecessor Company's environmental audit,
soil and groundwater samples were collected in 1998, which revealed the presence
of petroleum and PCBs in the soils and groundwater. While the contamination does
not pose an imminent threat to health, safety or welfare, remediation will be
required to satisfy the Illinois Environmental Protection Agency Tiered Approach
to Corrective Action Objectives, ("TACO") cleanup standards. The Company
estimated that the cost to remediate the site to achieve TACO standards will be
$1.25 million, for which a liability was recorded at January 23, 2004. On June
29, 2004, WI sold its only asset consisting of land in Waukegan, IL, for
$100,000 in cash and the assumption by the buyer of all environmental
remediation of the site. The estimated cost of remediation was $1,250,000 to be
expended within 9 years. Fansteel Inc. was to fund the cleanup through an
unsecured note payable to WI maturing on December 31, 2012. WI was a 100% owned
special purpose subsidiary organized as part of the plan of reorganization that
was effective January 23, 2004 for the purpose of environmental remediation of
the property owned in Waukegan, Illinois. In connection with the sale of this
property, the buyer provided a standby letter of credit for $1,250,000 as
financial assurance to the City of Waukegan for remediation. As part of the
sale, the Department of Justice on behalf of the U.S. Government, pursuant to a
settlement agreement, agreed to the buyer's assumption of all of the
environmental obligations of WI and the cancellation of the note payable


                                       18



from Fansteel Inc. to WI. In the second quarter 2004, a gain of $773,000 was
recognized due to the elimination of the environmental liabilities on the site
as part of the sale.

     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, Fansteel Inc. 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.

     On December 30, 2004, Wachovia Capital Finance consented to the Company's
entry into its agreement with Whitesell and agreed to release its security
interest in the assets specified in such agreements to be sold by the Company to
Whitesell, subject to the satisfaction of certain conditions precedent,
including, without limitation, that all of the cash proceeds to the Company of
the Washington Sale (net of certain transaction expenses and payments to secured
claim holders) be applied to the payment of outstanding indebtedness under the
revolving loan facility. On December 31, 2004, as contemplated by Wachovia
Capital Finance's consent, approximately $1.75 million of the cash proceeds to
the Company of the Washington sale were applied by the Company to the repayment
of outstanding indebtedness under the revolving loan facility.

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

     Discontinued operations reported losses of $1,433,000 for the nine months
ended September 30, 2005, $2,357,000 for the eight months ended September 30,
2004, and $109,000 for the one month ended January 23, 2004. Income from net
insurance recoveries received in June 2005 and August 2005 of $1.2 million was
included in discontinued results. The losses for the nine months ended September
30, 2005 and eight months ended September 30, 2004 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. The losses for the nine months ended
September 30, 2005 also included losses from the sale of the North Chicago Inc.
property and charges from the Washington IA facility. Results for the eight
months ended September 30, 2004 included losses from operations of $599,000 from
the Washington Manufacturing facility, which was sold on December 31, 2004. For
the one month ended January 23, 2004, the $109,000 loss was from Washington
Manufacturing operations, which was discontinued at December 31, 2004.


                                       19



NOTE 7 - 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. Wellman has estimated that the cost for conducting the RFI/CMS will be
$2,147,000 from 2004 to 2009. At December 31, 2004 the gross estimated liability
was $2.1 million and the recorded discounted liability, using a discount rate of
11.3%, was $1.6 million. At September 30, 2005 the gross estimated liability was
$2.1 million and the recorded discounted liability, using a discount rate of
11.3%, was $1.7 million.

     Wellman is permitted to operate a sanitary landfill for the disposal of its
foundry sand. It is anticipated, based upon recent projections by third party
consultants, that 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 December 31, 2004 and September 30, 2005 was
$445,000 and $482,000, respectively.

     In October 2000, Fansteel 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 December 31, 2004 and
September 30, 2005 was $422,000 and $457,000, 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 net recoveries will be received.

NOTE 8 - DEBT

     On January 23, 2004, the Company entered into a secured credit facility
with Wachovia Capital Finance (formerly known as Congress Financial
Corporation), which provided a credit facility of up to $10 million in credit,
comprised of a revolving loan facility and letter of credit issuances. Under the
revolving loan facility, subject to certain borrowing conditions, the Company
could incur revolving loans in an amount up to a borrowing base comprised of a
percentage of


                                       20



eligible accounts receivable and inventories and up to $2 million for machinery
and equipment. Revolving loans were due and payable in full on January 23, 2007.
The Company was required to meet certain financial covenants that required it to
achieve certain EBITDA and that limited future capital expenditures, which it
was in compliance. The interest rate on the line was prime plus 1% and there was
a .5% unused line fee. Substantially all of the assets of the Company were
pledged as security for this financing.

          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. In
conjunction with this new loan facility, the Loan and Security Agreement and
certain ancillary documents with Wachovia Capital Finance, dated January 23,
2004, was terminated. Borrowing under the revolving line of credit is included
as short-term borrowings.

          Under the new 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 6, 2007. The
borrowers are required to meet certain covenants, including those which 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 September 30, 2005 the Company has letters of credit of
$846,000 for casualty insurance collateral and environmental assurance with an
interest rate of 1.5%.

NOTE 9 - 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 September 30, 2005 the Company had potential federal and state income
tax benefits from net operating loss carry-forwards of $21.0 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 10 - 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


                                       21



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. Financial information concerning the Company's segments for the
periods ended September 30, 2005, September 30, 2004 and January 23, 2004 is as
follows:

                                                                 Predecessor
                                       Successor Company           Company
                                 -----------------------------   -----------
                                  Nine Months     Eight Months    One Month
                                     Ended           Ended          Ended
                                 September 30,   September 30,   January 23,
                                      2005            2004          2004
                                 -------------   -------------   -----------
NET SALES
   Advanced Structures            $22,827,323     $16,730,414    $  926,011
   Industrial Metal Components     18,252,991      22,870,312     1,769,846
                                  -----------     -----------    ----------
Total Net Sales                   $41,080,314     $39,600,726    $2,695,857
                                  ===========     ===========    ==========

OPERATING INCOME (LOSS):
   Advanced Structures            $ 1,688,060     $    19,148    $ (329,169)
   Industrial Metal Components       (113,197)      2,962,472       151,334
                                  -----------     -----------    ----------
Total Operating Income (Loss)     $ 1,574,863     $ 2,981,620    $ (177,835)
                                  ===========     ===========    ==========

     The identifiable assets at September 30, 2005 and December 31, 2004 are as
follows:

                                  NINE MONTHS    TWELVE MONTHS
                                     ENDED           ENDED
                                 SEPTEMBER 30,    DECEMBER 31,
                                      2005            2005
                                 -------------   -------------
IDENTIFIABLE ASSETS
   Advanced Structures            $13,335,641     $11,695,093
   Industrial Metal Components      9,247,405       9,450,631
   Corporate / Discontinued        23,729,562      23,861,486
                                  -----------     -----------
Total Assets                      $46,312,608     $45,007,210
                                  ===========     ===========


                                       22



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

                                                                     Predecessor
                                           Successor Company           Company
                                     -----------------------------   -----------
                                      Nine Months     Eight Months    One Month
                                         Ended           Ended          Ended
                                     September 30,   September 30,   January 23,
                                          2005            2004           2004
                                     -------------   -------------   -----------
DEPRECIATION AND AMORTIZATION:
   Advanced Structures                  $231,001       $  226,619      $17,780
   Industrial Metal Components           548,733          520,816       55,214
   Corporate/Discontinued                 24,035          260,358       14,972
                                        --------       ----------      -------
Total depreciation and amortization     $803,769       $1,007,793      $87,966
                                        ========       ==========      =======

CAPITAL EXPENDITURES:
   Advanced Structures                  $159,687       $       --      $    --
   Industrial Metal Components           135,796           22,620        3,155
   Corporate/Discontinued                 17,346           47,389           --
                                        --------       ----------      -------
Total capital expenditures              $312,829       $   70,009      $ 3,155
                                        ========       ==========      =======


                                       23



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.

     The Company emerged from Chapter 11 protection during its first quarter
financial reporting period of 2004. For financial statement purposes, the
Company's results of operations and cash flows have been separated before and
after the Effective Date due to the change in basis of accounting in the
underlying assets and liabilities resulting from application of fresh start
accounting. To facilitate a meaningful comparison of the Company's performance,
the following discussion of results of operations is presented on a traditional
comparative basis for both periods. Accordingly, the results of operations for
the nine months ended September 30, 2004 represent the mathematical addition of
the historical amounts for the Predecessor Company for the one-month ended
January 23, 2004 and the Successor Company for the eight months ended September
30, 2004. Management believes that a combined discussion of Predecessor Company
and Successor Company periods is reasonable and appropriate because there were
no material adjustments to the presented items other than depreciation,
amortization and interest expense resulting from adoption of fresh start
reporting.

RESULTS OF OPERATIONS

     The following discussion should be read in conjunction with our
consolidated financial statements and the related notes thereto.

2005 THIRD QUARTER AS COMPARED TO 2004 THIRD QUARTER

Net Sales

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

                                 Third Quarter   Third Quarter
                                      2005            2004
                                 -------------   -------------
Net Sales
   Advanced Structures            $ 7,828,830     $ 5,324,706
   Industrial Metal Components      5,376,791       7,987,691
                                  -----------     -----------
                                  $13,205,621     $13,312,397
                                  ===========     ===========


                                       24



     Consolidated net sales for the third quarter 2005 decreased by $107,000, or
0.8%, compared to the third quarter 2004.

     The Advanced Structures' net sales for the third quarter 2005 increased by
$2.5 million, or 47%, over the third quarter 2004. This increase resulted from
higher sales of missile and helicopter components, as well as increased sales of
private jet aircraft parts.

     The Industrial Metal Components' net sales for the third quarter 2005
decreased $2.6 million, or 33%, due primarily to the loss, in the fourth quarter
of 2004, of a portion of this segment's largest customer's casting business
related to truck engine components. This business was converted to a different
manufacturing process not within the Company's capabilities. Net sales of
powdered metal components decreased 7%, as the automotive market slowed.

Operating Income

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

                                 Third Quarter   Third Quarter
                                      2005            2004
                                 -------------   -------------
Operating Income
   Advanced Structures             $ 448,816       $(335,316)
   Industrial Metal Components      (331,622)        857,228
                                   ---------       ---------
                                   $ 117,194       $ 521,912
                                   =========       =========

     Operating income of $117,000 for the third quarter 2005 decreased $405,000
from operating income of $522,000 in the third quarter 2004. Income decreased
due to product mix, and the lower volume of high margin investment casting
business. This decrease was partially offset by significant increased volume of
lower margin sand casting sales.

     Operating income of $449,000 in the Advanced Structures segment for the
third quarter 2005 improved from the operating loss of $335,000 in the third
quarter 2004. This improvement was due primarily to higher volume as well as
price increases on some lower margin products.

     Operating loss of $332,000 in the Industrial Metal Components segment for
the third quarter 2005 decreased by $1,189,000, as compared with operating
income of $857,000 in the third quarter 2004. The decreased shipments to its
largest customer had a negative impact on operating income in this business
segment, as well as for the Company overall.

Other Expenses

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

                       Third Quarter   Third Quarter
                            2005            2004
                       -------------   -------------
Other expenses
   Interest expenses     $(494,613)      $(224,645)
   Other                   (14,153)         (4,838)
                         ---------       ---------
                         $(508,766)      $(229,483)
                         =========       =========


                                       25



     Interest expense increased $270,000 in the third quarter 2005 compared to
the third quarter 2004 due primarily to the termination fee of $200,000 paid to
Wachovia Credit as part of the refinancing with Fifth Third Bank, as well as
increased borrowing outstanding.

Reorganization Items

     The third quarter 2005 and 2004 reorganization expenses were $18,000,
related to US Trustee Fees.

Discontinued Operations

     Discontinued operations reported a loss of $649,000 in the third quarter
2005 compared to a loss of $1,235,000 in the third quarter 2004. The major cost
items were the accretion of discounted environmental liabilities from the
Company's special purpose subsidiaries and the note payable to the Pension
Benefit Guarantee Corporation. This was partially offset by the favorable
arbitration ruling regarding the valuation of the sale of Washington
Manufacturing. The loss in the third quarter 2004 related to the accretion of
discounted environmental liabilities from the Company's special purpose
subsidiaries and the pension note for the Pension Plan, as well as operating
losses of $272,000 related to the special wire forms operation that was sold in
December 2004.

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 deferred tax assets.

Net Income (Loss)

     A net loss of $1,059,000 was reported in the third quarter 2005 compared
with a net loss of $960,000 for the third quarter of 2004.

2005 NINE MONTHS AS COMPARED TO 2004 NINE MONTHS

Net Sales

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

                                  Nine months     Nine months
                                     ended           ended
                                 September 30,   September 30,
                                      2005            2004
                                 -------------   -------------
Net Sales
   Advanced Structures            $22,827,323     $17,656,425
   Industrial Metal Components     18,252,991      24,640,158
                                  -----------     -----------
                                  $41,080,314     $42,296,583
                                  ===========     ===========

     Consolidated net sales for the nine months ended September 30, 2005 were 3%
lower than the same period in 2004.


                                       26



     Net sales for Advanced Structures for the nine months ended September 30,
2005 were $5.2 million, or 29% higher, compared to the nine months ended
September 30, 2004. This improvement is attributed to increased sales of missile
and helicopter components, private jet aircraft parts, and price increases
implemented in 2005.

     The Industrial Metal Components' net sales for the nine months ended
September 30, 2005 decreased $6.4 million, or 26%, compared with the nine months
ended September 30, 2004. Net sales of investment castings decreased by $6.7
million, or 42%, due primarily to the loss of a major portion of the investment
casting business for truck engine components in the fourth quarter of 2004. This
business was converted to a different manufacturing process not within the
Company's capabilities. Net sales of powdered metal components improved 4% due
to an increase in the hardware and the lawn and garden product lines. These
gains were partially offset by declines in sales of automotive and truck parts.

Operating Income (Loss)

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

                                  Nine months     Nine months
                                     ended           ended
                                 September 30,   September 30,
                                      2005            2004
                                 -------------   -------------
Operating Income (Loss)
   Advanced Structures            $1,688,060      $ (310,021)
   Industrial Metal Components      (113,197)      3,113,806
                                  ----------      ----------
                                  $1,574,863      $2,803,785
                                  ==========      ==========

     Operating income of $1.6 million for the nine months ended September 30,
2005 decreased by $1.2 million compared to the nine months ended September 30,
2004, due primarily to the lower sales volume, higher material costs, and
product mix.

     Operating income of $1,688,000 in the Advanced Structures segment for the
nine months ended September 30, 2005 improved from an operating loss of $310,000
for the nine months ended September 30, 2004. This improvement is due to higher
sales volume, notably in helicopter and missile components, and price increases
on several parts.

     An operating loss of $113,000 in the Industrial Metal Components segment
for the nine months ended September 30, 2005 decreased $3.2 million compared to
operating income of $3,114,000 for the nine months ended September 30, 2004. The
majority of this decline is attributable to the decrease in investment casting
sales and higher material costs. The powdered metal operation operating income
declined in the nine months ended September 30, 2005 compared to the nine months
ended September 30, 2004, due to product mix 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:


                                       27



                          Nine months     Nine months
                             ended           ended
                         September 30,   September 30,
                              2005            2004
                         -------------   -------------
Other income (expense)
   Interest expenses       $(954,323)      $(568,605)
   Other                     (26,422)         18,373
                           ---------       ---------
                           $(980,745)      $(550,232)
                           =========       =========

     Other expense increased $431,000 in the nine months ended September 30,
2005 compared to the nine months ended September 30, 2004, as interest expense
was higher due to termination fees of $200,000 related to the refinancing to
Fifth Third Bank from Wachovia Credit, as well as increased borrowing.

Reorganization Items

     For the nine months ended September 30, 2005 reorganization expenses
related to bankruptcy were $54,000, as compared to $769,000 for the nine months
ended September 30, 2004. The Company emerged from Chapter 11 on January 23,
2004. The higher reorganization costs in 2004 were the result of professional
fees related to the bankruptcy.

Discontinued Operations

     Discontinued operations reported a loss of $1,433,000 in the nine months
ended September 30, 2005 and a loss of $2,466,000 in the nine months ended
September 30, 2004. The loss in 2005 was lower than the prior year due to
insurance settlements offset by additional costs for closing the North Chicago
sale. The loss in 2004 relates to the accretion of discounted environmental
liabilities from the Company's special purpose subsidiaries and operating losses
from Washington Mfg of $707,000. These were reduced by a gain of $773,000 from
the sale of the land owned by special purpose subsidiary Waukegan Inc. and
assumption by the buyer of the related environmental liabilities at the site.

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 net loss for the nine months ended September 30, 2005 was $893,000. Net
income of $57,521,000 for the nine months ended September 30, 2004 included a
$15,048,000 gain from the discharge of debt under the Plan and a $43,455,000
gain from the adoption of fresh start accounting.

LIQUIDITY AND CAPITAL RESOURCES

     On September 30, 2005, the Company had cash of $1,185,000 compared to
$8,000 of cash on December 31, 2004. Cash increased $2,336,000 from continuing
operations and decreased $1,159,000 from discontinued operations.


                                       28



Operating Activities

     During the first nine months of 2005, operating activities consumed
$3,076,000 of cash, as compared to $2,981,000 for the first nine months of 2004.
The significant use of cash relates to a reduction in accounts payable for
payments made for professional fees.

Investing Activities

     Investing activities provided $81,000 for the nine months ended September
30, 2005, as compared to $69,000 for the nine months ended September 30, 2004,
due primarily to the receipt of restricted cash from preference actions as part
of the Plan of Reorganization. Reducing this receipt of cash in the first nine
months of 2005 was an increase in capital expenditures of $287,000 compared to
the nine months ended September 30, 2004.

Financing Activities

     Financing activities provided $5,331,000 for the first nine months ended
September 30, 2005, as compared to $4,222,000 for the nine months ended
September 30, 2004, with an increase in borrowing from the revolving line of
credit to fund operations.

     On January 23, 2004, the Company entered into a secured credit facility
with Wachovia Capital Finance (formerly known as Congress Financial
Corporation), which provided a credit facility of up to $10 million in credit,
comprised of a revolving loan facility and letter of credit issuances. Under the
revolving loan facility, subject to certain borrowing conditions, the Company
could incur revolving loans in an amount up to a borrowing base comprised of a
percentage of eligible accounts receivable and inventories and up to $2 million
for machinery and equipment. Revolving loans were due and payable in full on
January 23, 2007. The Company was required to meet certain financial covenants
that required it to achieve certain EBITDA and that limited future capital
expenditures. The interest rate on the line was prime plus 1% and there was a
..5% unused line fee. Substantially all of the assets of the Company were pledged
as security for this financing.

     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. The Loan
and Security Agreement with Fifth Third Bank (Chicago) was filed as Exhibit 10.1
to the Company's 8-K filing on July 19, 2005. In conjunction with this new loan
facility, the Loan and Security Agreement and certain ancillary documents with
Wachovia Capital Finance, dated January 23, 2004, were terminated.

     Under the new 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 6, 2007. The borrowers
are required to meet certain covenants, including those which 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 September 30, 2005, the Company had letters of credit for
$846,000 outstanding for casualty insurance collateral and environmental


                                       29



assurance under the credit facility with an interest rate of 1.5%. Borrowing
under the revolving line of credit is included as short-term borrowings.

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

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

o 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;

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

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

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

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

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

o 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.

     The Company's liquidity, including its ability to meet its ongoing
operational obligations, is dependent upon, among other things, the Company's
ability to (i) maintain adequate cash on hand, (ii) generate positive cash flow
from operations, (iii) comply with the revolving loan facility, and (iv) achieve
profitability. The Company is working to design and implement strategies in
efforts to ensure that the Company maintains adequate liquidity.

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.


                                       30



     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 anticipates completing the evaluation in the fourth
quarter 2005.

     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 in the nine months ended
September 30, 2005, following stable prices over the past few years. To offset
these price increases, the Company began adding material surcharges in March
2004.

     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.


                                       31



CONTRACTUAL OBLIGATIONS

     The following table summarizes payments due by year for the contractual
obligations at September 30, 2005:



                                                                                      After
(In thousands)                Total     2005     2006      2007     2008     2009      2009
                             -------   ------   ------   -------   ------   ------   -------

PBGC Note                    $ 8,750   $   --   $  750   $   750   $  750   $  750   $ 5,750
PA economic agencies notes       821       70      289       305      143       14        --
Operating leases                 314       30      125       148       11       --        --
Revolving line                 9,171       --       --     9,171       --       --        --
Letters of credit                846       --       --       846       --       --        --
Environmental liabilities     37,130    1,178    2,796     2,912    2,022    1,879    26,343
                             -------   ------   ------   -------   ------   ------   -------
Total                        $57,032   $1,278   $3,960   $14,132   $2,926   $2,643   $32,093
                             =======   ======   ======   =======   ======   ======   =======


     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 requires immediate repayment from cash
receipts. Borrowings can be made as needed, based on availability. The
availability at September 30, 2005 was $1,820,000.

ITEM 3 - QUANTITATIVE AND 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. Price increases have
been experienced in 2004, following stable prices for the past few years. To
offset these price increases, the Company began adding material surcharges in
March 2004.

ITEM 4 - CONTROLS AND PROCEDURES

     Based on their evaluation of our 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, the Company's President and Chief
Executive Officer and its Vice President and Chief Financial Officer have
concluded that the Company's disclosure controls and procedures are designed to
ensure that information required to be disclosed by the Company in the reports
that it files or submits 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 and are operating in an effective manner.


                                       32



     During the most recent fiscal quarter, there has not occurred any change in
our internal control over financial reporting (as such term is defined in Rules
13a-15(f) and 15(d)-15(f) under the Exchange Act) that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.

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 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 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 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 Plan.

     On December 31, 2004, the Company sold its special wire forms operation.
Pursuant to the asset purchase agreement ("APA"), the buyer had until March 1,
2005 to provide a closing


                                       33



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 within the
timeframe prescribed in the APA, disputed items of $203,000 were submitted to an
independent accounting firm. 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. In September 2005, the Company filed suits in the Federal Court,
Northern District of Illinois, Eastern Division, to recover monies owed and
damages. The Company can provide no assurance as to the outcome of these suits.
In June 2005, the Company also filed a demand for arbitration to the American
Arbitration Association, 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 Company can
provide no assurance as to the outcome of these arbitration actions and a
negative outcome of such dispute could have an adverse effect on the Company.
The arbitration should begin shortly, but a timetable has not been established.

     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. 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. The Department of Justice
notified the Company on April 29, 2005 that the NRC and other interested federal
agencies did consent to both settlements. The proceeds of the settlements were
first used in accordance with the Plan to pay certain professional fees and
expenses related to such settlements. The net proceeds from the settlements were
allocated in accordance with the Plan and, among other things, resulted in
prepayments under the FMRI Notes of $768,000, 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.,


                                       34



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.

ITEM 2 - UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS

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

     The 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 - DEFAULTS UPON 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 first
nine months of 2005.

ITEM 5 - OTHER INFORMATION

     None.

ITEM 6 - EXHIBITS

Exhibit #   Description of Exhibit

31.1        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 2002

31.2        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 2002

32.1        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


                                       35



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. Tessitore
                                        ----------------------------------------
                                        Gary L. Tessitore
                                        Chairman of the Board, President
November 11, 2005                       and Chief Executive Officer


                                        /s/ R. Michael McEntee
                                        ----------------------------------------
                                        R. Michael McEntee
                                        Vice President and
November 11, 2005                       Chief Financial Officer


                                       36`