**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, 2007
 
 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
              
              36-1058780(State
                  or Other Jurisdiction of Incorporation or Organization)
              
              (I.R.S.
                  Employer Identification No.)
 
 570
        Lake
        Cook Road, Suite 200
 Deerfield,
        Illinois 60015
 (Address
        of principal executive offices and zip code)
 (847)
        689-4900
 (Registrant’s
        Telephone Number, Including Area Code)
 
 Indicate
        by checkmark whether the registrant:  (1) has filed all reports
        required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
        of
        1934 during the preceding 12 months (or such shorter period that registrant
        was
        required to file such reports), and (2) has been subject to such filing
        requirements for the past 90 days.  Yes x     No
 ̈
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of accelerated
        and
        large accelerated filer in Rule 12b-2 of the Exchange Act.
  Large
                  accelerated filer ̈
              Accelerated
                  filer ̈
              Non-accelerated
                  filerx
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 Yes
 ̈     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 October 31, 2007Common
                  Stock, $.01 par value
              
              3,420,000
                  shares
  
 1
  FANSTEEL
        INC.
 FORM
        10-Q
– INDEX
 September
        30, 2007
 
 **PART
                  I.**
              **FINANCIAL
                  INFORMATION**
              Page
                  No.Item
                  1
              Consolidated
                  Financial StatementsConsolidated
                  Statement of Operations (unaudited) – Three
                  months ended September 30, 2007 and 2006; nine months ended September
                  30,
                  2007 and 2006
              3-4Consolidated
                  Balance Sheet – September 30, 2007 (unaudited)
                  and December 31, 2006
              5-6Consolidated
                  Statement of Cash Flows (unaudited) – Nine
                  months ended September 30, 2007 and nine months ended September
                  30,
                  2006
              7Notes
                  to Unaudited Consolidated Financial
                  Statements
              8-15Item
                  2
              Management's
                  Discussion and Analysis of Financial Condition and
                  Results of Operations
              16-30Item
                  3
              Quantitative
                  and Qualitative Disclosures About Market
                  Risk
              31Item
                  4
              Controls
                  and Procedures
              31**PART
                  II**
              **OTHER
                  INFORMATION**Item
                  1
              Legal
                  Proceedings
              32-33Item
                  1A
              Risk
                  Factors
              34-35Item
                  2
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              36Item
                  3
              Defaults
                  Upon Senior Securities
              36Item
                  4
              Submission
                  of Matters to a Vote of Security
                  Holders
              36Item
                  5
              Other
                  Information
              36Item
                  6
              Exhibits
              36Signatures
              37Exhibit
                  31.1
              Certifications-
                  Gary L. TessitoreExhibit
                  31.2
              Certifications-
                  R. Michael McEnteeExhibit
                  32.1
              Certification
  2
 *Index*
  **PART
        I.    FINANCIAL INFORMATION**
 
 **ITEM
        1 - FINANCIAL STATEMENTS**
 Fansteel
        Inc.
 Consolidated
        Statement of Operations
 (Unaudited)
 
 Three
                  Months
                Ended
                September
                  30, 2007
              
              
              Three
                  Months
                Ended
                September
                  30, 2006Net
                  Sales
              
              $
              18,516,829
              
              
              $
              16,884,892Cost
                  and ExpensesCost
                  of products sold
              
              
              15,865,908
              
              
              
              15,738,633Selling,
                  general and administrative
              
              
              1,646,528
              
              
              
              1,691,92617,512,436
              
              
              
              17,430,559Operating
                  Income (Loss)
              
              
              1,004,393
              
              
              
              (545,667
              )Other
                  ExpenseInterest
                  expense
              
              
              (492,754
              )
              
              
              (414,091
              )Other
              
              
              (66,453
              )
              
              
              (8,524
              )(559,207
              )
              
              
              (422,615
              )Income
                  (Loss) from Continuing Operations Before Income Taxes
              
              
              445,186
              
              
              
              (968,282
              )Income
                  Taxes
              
              
              -
              
              
              
              -Net
                  Income (Loss) from Continuing Operations
              
              
              445,186
              
              
              
              (968,282
              )Loss
                  from Discontinued Operations
              
              
              (1,487,312
              )
              
              
              (1,078,850
              )Net
                  Loss
              
              $
              (1,042,126
              )
              
              $
              (2,047,132
              )Weighted
                  Average Number of Common Shares Outstanding
              
              
              3,420,000
              
              
              
              3,420,000Basic
                  and Diluted Net Income (Loss) per ShareaContinuing
                  operations
              
              $
              0.13
              
              
              $
              (0.28
              )Discontinued
                  operations
              
              
              (0.43
              )
              
              
              (0.32
              )Net
                  loss
              
              $
              (0.30
              )
              
              $
              (0.60
              )
 
 See
        Notes to Consolidated Financial
        Statements
  _________________________
 a
        Basic earnings per share and diluted
        earnings per share are the same.
  3
 *Index*
  Fansteel
        Inc.
 Consolidated
        Statement of Operations
 (Unaudited)
 
 Nine
                  Months
                Ended
                September
                  30, 2007
              
              
              Nine
                  Months
                Ended
                September
                  30, 2006Net
                  Sales
              
              $
              56,058,135
              
              
              $
              50,766,725Cost
                  and ExpensesCost
                  of products sold
              
              
              47,472,462
              
              
              
              44,726,014Selling,
                  general and administrative
              
              
              5,783,333
              
              
              
              4,967,87053,255,795
              
              
              
              49,693,884Operating
                  Income
              
              
              2,802,340
              
              
              
              1,072,841Other
                  ExpenseInterest
                  expense
              
              
              (1,253,368
              )
              
              
              (1,108,097
              )Other
              
              
              (120,520
              )
              
              
              (2,470
              )(1,373,888
              )
              
              
              (1,110,567
              )Income
                  (Loss) from Continuing Operations Before Income Taxes
              
              
              1,428,452
              
              
              
              (37,726
              )Income
                  Taxes
              
              
              -
              
              
              
              -Net
                  Income (Loss) from Continuing Operations
              
              
              1,428,452
              
              
              
              (37,726
              )Loss
                  from Discontinued Operations
              
              
              (3,365,555
              )
              
              
              (2,922,316
              )Net
                  Loss
              
              $
              (1,937,103
              )
              
              $
              (2,960,042
              )Weighted
                  Average Number of Common Shares Outstanding
              
              
              3,420,000
              
              
              
              3,420,000Basic
                  and Diluted Net Income (Loss) per ShareaContinuing
                  operations
              
              $
              0.42
              
              
              $
              (0.01
              )Discontinued
                  operations
              
              
              (0.98
              )
              
              
              (0.85
              )Net
                  loss
              
              $
              (0.56
              )
              
              $
              (0.86
              )
 
 See
        Notes
        to Consolidated Financial Statements
  ____________________
 a
        Basic earnings per share and diluted
        earnings per share are the same.
  4
 *Index*
  Fansteel
        Inc.
 Consolidated
        Balance Sheet
 
 September
                  30,
                2007
                (Unaudited)
              
              
              December
                  31,
                2006ASSETSCurrent
                  assetsCash
                  and cash equivalents
              
              $
              19,222
              
              
              $
              17,672Accounts
                  receivable, less allowance of $290,000 and $408,000 at September
                  30, 2007
                  and December 31, 2006, respectively
              
              
              10,873,467
              
              
              
              11,449,317InventoriesRaw
                  material and supplies
              
              
              1,751,091
              
              
              
              1,285,758Work-in
                  process
              
              
              9,155,830
              
              
              
              7,525,358Finished
                  goods
              
              
              545,004
              
              
              
              549,687Total
                  inventories
              
              
              11,451,925
              
              
              
              9,360,803Prepaid
                  expenses
              
              
              479,942
              
              
              
              1,466,475Total
                  current assets
              
              
              22,824,556
              
              
              
              22,294,267Property,
                  plant and equipmentLand
              
              
              917,419
              
              
              
              917,419Buildings
              
              
              4,027,296
              
              
              
              4,027,059Machinery
                  and equipment
              
              
              7,983,064
              
              
              
              7,092,49312,927,779
              
              
              
              12,036,971Less
                  accumulated depreciation
              
              
              3,921,045
              
              
              
              3,162,552Net
                  property, plant and equipment
              
              
              9,006,734
              
              
              
              8,874,419Other
                  assetsDeposits
              
              
              661,299
              
              
              
              880,450Reorganization
                  value in excess of amounts allocable to  identified
                  assets
              
              
              12,893,734
              
              
              
              12,893,734Property
                  held for sale
              
              
              1,195,000
              
              
              
              1,802,500Other
              
              
              327,201
              
              
              
              289,796Total
                  other assets
              
              
              15,077,234
              
              
              
              15,866,480$
              46,908,524
              
              
              $
              47,035,166
 
 See
        Notes to Consolidated Financial
        Statements
  5
 *Index*
  Fansteel
        Inc.
 Consolidated
        Balance Sheet
 
 September
                  30,
                2007
                (Unaudited)
              
              
              December
                  31,
                2006LIABILITIES
                  AND SHAREHOLDERS' DEFICITCurrent
                  liabilitiesAccounts
                  payable
              
              $
              9,363,048
              
              
              $
              8,459,078Accrued
                  liabilities
              
              
              6,739,044
              
              
              
              6,440,003Short-term
                  borrowings
              
              
              14,036,699
              
              
              
              13,357,786Current
                  maturities of long-term debt
              
              
              973,537
              
              
              
              1,062,750Total
                  current liabilities
              
              
              31,112,328
              
              
              
              29,319,617Long-term
                  debt, less current maturities
              
              
              5,960,643
              
              
              
              4,838,630Other
                  liabilitiesEnvironmental
                  remediation
              
              
              21,152,416
              
              
              
              22,428,823Non-current
                  pension liability
              
              
              917,872
              
              
              
              917,872Total
                  other liabilities
              
              
              22,070,288
              
              
              
              23,346,695Total
                  liabilities
              
              
              59,143,259
              
              
              
              57,504,942Minority
                  interest
              
              
              176,843
              
              
              
              -Shareholders'
                  equity (deficit)Common
                  stock, par value $0.01 Authorized 3,600,000 shares, issued and
                  outstanding
                  3,420,000
              
              
              34,200
              
              
              
              34,200Capital
                  in excess of par value
              
              
              296,314
              
              
              
              296,314Accumulated
                  deficit
              
              
              (12,387,262
              )
              
              
              (10,450,159
              )Other
                  comprehensive lossForeign
                  currency translation
              
              
              (11,666
              )
              
              
              (6,967
              )Accumulated
                  unfunded pension liability
              
              
              (343,164
              )
              
              
              (343,164
              )Total
                  other comprehensive loss
              
              
              (354,830
              )
              
              
              (350,131
              )Total
                  shareholders’ deficit
              
              
              (12,411,578
              )
              
              
              (10,469,776
              )Total
                  liabilities and shareholders' deficit
              
              $
              46,908,524
              
              
              $
              47,035,166
 
 See
        Notes
        to Consolidated Financial Statements
  6
 *Index*
  Fansteel
        Inc.
 Consolidated
        Statement of Cash Flows
 (Unaudited)
  Nine
                  Months
              
              
              Nine
                  MonthsEnded
              
              
              EndedSeptember
                  30, 2007
              
              
              September
                  30, 2006**Cash
                  Flows From Operating Activities:**Net
                  loss
              
              $
              (1,937,103
              )
              
              $
              (2,960,042
              )Adjustments
                  to reconcile net loss to net cash provided by (used in)operating
                  activities:Depreciation
                  and amortization
              
              
              759,015
              
              
              
              733,872Compensation
                  expense
              
              
              176,843
              
              
              
              -Accretion
                  on long-term debt and other liabilities
              
              
              168,481
              
              
              
              234,762Loss
                  from discontinued operations
              
              
              3,365,555
              
              
              
              2,922,316Loss
                  from disposals of property, plant and equipment
              
              
              689
              
              
              
              -Change
                  in assets and liabilities:Decrease
                  (increase) in accounts receivable
              
              
              575,850
              
              
              
              (2,435,302
              )(Increase)
                  in inventories
              
              
              (2,091,122
              )
              
              
              (2,403,990
              )Decrease
                  in prepaid expenses
              
              
              987,393
              
              
              
              910,752Increase
                  in accounts payable and accrued liabilities
              
              
              726,814
              
              
              
              2,422,247(Decrease)
                  increase in income taxes payable
              
              
              (3,838
              )
              
              
              5,657Decrease
                  (increase) in other assets
              
              
              181,746
              
              
              
              (102,751
              )**Net
                  cash provided by (used in) operating activities**
              
              
              2,910,323
              
              
              
              (672,479
              )**Cash
                  Flows From Investing Activities:**Capital
                  expenditures
              
              
              (892,019
              )
              
              
              (1,054,604
              )**Net
                  cash used in investing activities**
              
              
              (892,019
              )
              
              
              (1,054,604
              )**Cash
                  Flows From Financing Activities:**Proceeds
                  from short-term borrowing
              
              
              679,032
              
              
              
              4,264,940Proceeds
                  from long-term borrowing
              
              
              1,600,000
              
              
              
              -Payments
                  on long-term debt
              
              
              (232,795
              )
              
              
              (219,523
              )**Net
                  cash provided by financing activities**
              
              
              2,046,237
              
              
              
              4,045,417**Net
                  Increase in Cash and Cash Equivalents from Continuing
                  Operations**
              
              
              4,064,541
              
              
              
              2,318,334**Cash
                  Flows of Discontinued Operations:**Operating
                  cash flows
              
              
              (4,062,991
              )
              
              
              (3,080,431
              )**Total
                  Cash Flows of Discontinued Operations**
              
              
              (4,062,991
              )
              
              
              (3,080,431
              )**Net
                  Increase (Decrease) in Cash and Cash Equivalents**
              
              
              1,550
              
              
              
              (762,097
              )**Cash
                  and Cash Equivalents at Beginning of Period**
              
              
              17,672
              
              
              
              791,453**Cash
                  and Cash Equivalents at End of Period**
              
              $
              19,222
              
              
              $
              29,356**Supplemental
                  disclosures of cash flow information:**Cash
                  paid during the year for:Interest
              
              $
              1,004,823
              
              
              $
              735,000Income
                  taxes (refunds)
              
              
              3,838
              
              
              
              (5,657
              )
 
 See
        Notes
        to Consolidated Financial Statements
  7
 *Index*
  **Notes
        to Unaudited Consolidated Financial
        Statements**
 
 **Note
        1 - Description of Business**
 
 The
        consolidated financial statements as of and for the periods ending September
        30,
        2007 and September 30, 2006 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 three and nine months ended September 30, 2007 are not necessarily
        indicative of the results that may be expected for the year ending December
        31,
        2007.
 
 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 military and commercial aerospace, automotive, energy, agricultural
        and construction machinery, lawn and garden equipment, marine, plumbing and
        electrical hardware and general industrial.
 
 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
        Company also has special purpose subsidiaries included as part of discontinued
        operations that were established solely for the obligation of remediation
        of
        environmental issues at former operations of the Company as part of the Second
        Amended Joint Reorganization Plan (the "Reorganization Plan") that was effective
        January 23, 2004 (the "Effective Date").
 
 The
        consolidated financial statements include the accounts of Fansteel Inc. and
        its
        subsidiaries.  Inter-company accounts and transactions have been
        eliminated in consolidation. Key managers of Wellman Dynamics Corporation
        (“Wellman”), a wholly owned subsidiary of Fansteel included in the Advanced
        Structures segment, were granted 12 shares of Wellman stock in the second
        quarter 2007. Compensation expense of $164,000 was recorded in the second
        quarter 2007. Fansteel’s ownership in Wellman was reduced to 98.8% after the
        grant.
 
 The
        Company’s annual Form 10-K includes more detailed information than is required
        by the Form 10-Q and it should be read in conjunction with the Company’s Form
        10-Q.
 
 In
        the
        2006 Annual Report on Form 10-K, the Company disclosed 2006 Comprehensive
        Loss
        of $5,604,300, which included the adoption of SFAS 158. Comprehensive Loss
        for
        2006 should not have included the impact of adopting SFAS 158. The effect
        of
        adopting SFAS 158 should have been only included in Accumulated Other
        Comprehensive Loss. The correct Comprehensive Loss for 2006 should have been
        $5,261,136. The Company will correct the 2006 Comprehensive Loss when it
        publishes its 2007 Annual Report on Form 10-K.
  8
 *Index*
  Certain
        reclassifications have been made to prior periods’ financial statements to
        conform to the 2007 presentation.
 
 **Note
        2 - Earnings per Share**
  SFAS
        No.
        128, "Earnings per Share" requires a dual presentation of earnings per share,
        basic and diluted. Basic earnings per share are computed by dividing net
        income
        (loss) applicable to common shareholders by the weighted average number of
        common shares outstanding. Diluted earnings per share reflects the increase
        in
        average common shares outstanding that would result from the assumed exercise
        of
        outstanding stock options, calculated using the treasury stock method, if
        dilutive.
 
 The
        following table sets forth the computation of basic and diluted earnings
        per
        share:
 
 Three
                  Months Ended
              
              
              Nine
                  Months EndedNumerator:
              
              September
                  30, 2007
              
              
              September
                  30, 2006
              
              
              September
                  30, 2007
              
              
              September
                  30, 2006Net
                  loss
              
              $
              (1,042,126
              )
              
              $
              (2,047,132
              )
              
              $
              (1,937,103
              )
              
              $
              (2,960,042
              )Denominator:Denominator
                  for basic earnings per share-weighted average shares
              
              
              3,420,000
              
              
              
              3,420,000
              
              
              
              3,420,000
              
              
              
              3,420,000Effect
                  of dilutive securities:Employee
                  stock options
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Employee
                  restricted stock
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Denominator:Denominator
                  for diluted earnings per share – weighted average shares
              
              
              3,420,000
              
              
              
              3,420,000
              
              
              
              3,420,000
              
              
              
              3,420,000Basic
                  earnings per share
              
              $
              (0.30
              )
              
              $
              (0.60
              )
              
              $
              (0.56
              )
              
              $
              (0.86
              )Diluted
                  earnings per share
              
              $
              (0.30
              )
              
              $
              (0.60
              )
              
              $
              (0.56
              )
              
              $
              (0.86
              )
 
  **Note
        3 - Discontinued Operations including Certain Environmental
        Remediation**
  *Muskogee
        Facility*
 
 The
        Company prior to the Effective Date (“Predecessor Company”) had been licensed by
        the Nuclear Regulatory Commission (the “NRC”) to possess and use source material
        at the Muskogee Facility since 1967.  Under the Predecessor Company's
        NRC permit, it was authorized to process ore concentrates and tin slags in
        the
        production of refined tantalum products.  Licensable quantities of
        natural uranium and thorium are present in the slags, ores, concentrates
        and
        process residues.
 
 The
        Predecessor Company discontinued its Metal Products business segment in
        1989.  In 1990, the NRC included the Muskogee Facility in the NRC's
        Site Decommissioning Management Plan.  The Predecessor Company
        completed a remedial assessment in 1993 to determine what areas of the Muskogee
        Facility were required to undergo decommissioning.
  9
 *Index*
  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.
 
 During
        2003, the Predecessor Company
        continued to maintain the safety and security of the Muskogee
        Facility.  Pursuant to the Reorganization Plan, the Company negotiated
        with the NRC to develop acceptable mechanisms for providing financial assurance
        for the decommissioning of the Muskogee Facility.  In December 2003,
        the NRC approved the issuance of an amended NRC License and related
        Decommissioning Plan to FMRI.  At January 23, 2004, the liability for
        the environmental remediation was $38.7 million, and the recorded discounted
        liability using a discount rate of 11.3% as part of fresh-start accounting,
        was
        $19.2 million.   In 2005, FMRI began removal of the residues
        under phase 1 of the decommissioning plan, which is expected to remove over
        80%
        of the radioactive contaminated residues. In 2005 and 2006, the Company received
        insurance recoveries from its insurers of which $768,000 and $70,000,
        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. Phase 1 is behind schedule, but
        continues in 2007.  At September 30, 2007 and December 31, 2006, the
        gross estimated liability was $28,043,000 and $30,971,000, respectively,
        and the
        recorded discounted liability, using a discount rate of 11.3%, was $16,915,000
        and $18,106,000, respectively.
 
 *Lexington
        Facility*
 
 The
        Lexington Facility was constructed in 1954 and ceased operations in 2003.
        Investigations performed in 1997 as part of a company-wide environmental
        audit
        revealed the presence of volatile organic compounds ("VOCs") and PCBs in
        soils
        and groundwater in excess of state cleanup levels. The contaminants are believed
        to have been discharged through a former drainage field. While VOCs were
        detected at the down gradient boundary of the facility, no VOCs were detected
        in
        an unnamed stream that is located down gradient of the facility.  To
        Fansteel's knowledge, the contamination at this site does not pose an imminent
        threat to health, safety or welfare.  In May 2003, the Kentucky
        Natural Resources and Environmental Protection Cabinet ("KNREPC") requested
        that
        the Predecessor Company submit a plan for further characterization of the
        facility.  The Predecessor Company submitted a letter to the KNREPC in
        September 2003 setting forth a conceptual characterization plan and advising
        the
        agency that a detailed Site Characterization Plan will be submitted by FLRI,
        a
        special purpose subsidiary, which pursuant to the Reorganization Plan now
        owns
        the Lexington facility.  On September 12, 2007, FLRI received notice
        that the Kentucky Department for Environmental Protection had accepted the
        site
        characterization report that had been submitted and that FLRI should prepare
        the
        Corrective Action Plan for the site. An estimated $1.78 million to perform
        the
        remedial activities was determined and a liability in that amount was recorded
        at January 23, 2004.  In September 2005, the Company received
        insurance recoveries from its insurers of which $111,000 of net insurance
        recoveries were allocated to FLRI as a prepayment of the inter-company FLRI
        $1.78 million note. At September 30, 2007 and December 31, 2006, the gross
        estimated liability was $1,204,000 and $1,233,000, respectively, and the
        recorded discounted liability, using a discount rate of 11.3%, was $1,165,000
        and $1,129,000, respectively.
  10
 *Index*
  The
        land
        and building of the Lexington facility are included on the balance sheet
        as
        property held for sale at $720,000, which includes a reduction of $608,000
        made
        in September 2007 based on the latest appraisal of its current market value.
        A
        number of third parties had expressed interest in purchasing this
        facility.  In the second quarter of 2007, FLRI entered into a right of
        first refusal agreement to purchase the property with a third party for their
        maintenance of the site. On November 1, 2007, FLRI executed a lease with
        an
        option to purchase with this third party.
 
 Actual
        costs to be incurred in future
        periods to decommission the Muskogee facility and the Lexington facility
        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.
        No
        anticipated insurance recoveries are included in the recorded environmental
        liabilities.
 
 *North
        Chicago Facility*
 
 In
        September 2000, the EPA issued a unilateral administrative order under Section
        106 of CERCLA requiring the Predecessor Company to investigate and abate
        releases of hazardous substances from the North Chicago Facility that were
        contributing to contamination at an adjacent vacant lot (the "Vacant Lot
        Site").  The Predecessor Company completed an engineering
        evaluation/cost analysis and submitted it to EPA for review in
        2003.  The proposed remedial actions at the North Chicago Facility
        were estimated to cost $2.17 million, for which a liability was recorded
        at
        January 23, 2004 as part of the bankruptcy reorganization for a newly formed
        special purpose subsidiary, North Chicago, Inc (“NCI”).  On March 7,
        2005, NCI sold the real property to the City of North Chicago (the “City”),
        transferred the proceeds of $1,400,000 received from the City to the EPA
        and the
        Company delivered to the EPA an unsecured, non-interest bearing promissory
        note
        in the principal amount of $677,232, payable in equal semi-annual payments
        to be
        made over a three-year period beginning nine months after issuance. In September
        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 Company has made all the payments due under
        the promissory note as of September 30, 2007, and therefore, there is no
        further
        liability.  At December 31, 2006, the gross estimated liability was
        $192,000 and the recorded discounted liability, using a discount rate of
        11.3%,
        was $147,000.
 
 *Washington
        Manufacturing*
 
 On
        December 31, 2004, the Company sold substantially all of the assets (including,
        but not limited to, machinery and equipment, raw material items, work-in-process
        items, finished goods items, receivables, machinery and equipment contracts,
        customer contracts and supplier contracts, but excluding real estate, fixtures
        and certain other assets) of the division of the Company known as "Washington
        Manufacturing" (the "Washington Division") to Whitesell Corporation
        (“Whitesell”), a customer of the Washington Division, for consideration
        consisting of a combination of (i) cash (in the initial amount of approximately
        $2.0 million, subject to post-closing adjustment) and (ii) the assumption
        by
        Whitesell of certain liabilities of the Washington Division (in the initial
        amount of approximately $1.0 million, determined in accordance with U.S.
        generally accepted accounting principles consistently applied, subject to
        post-closing adjustment) (collectively, the “Washington Sale”). Whitesell had
        been leasing the buildings until it vacated in December 2006. The Company
        is
        actively trying to sell the property and has classified the property as
“Property held for sale” in the accompanying balance sheet.  In
        December 2006 the value of the property was reduced by $738,000 to reflect
        current market value.
  11
 *Index*
  *Results
        of Discontinued Operations*
 
 The
        operations described above are classified as discontinued operations for
        all
        periods presented.
 
 Discontinued
        operations reported losses of $1,487,000 and $1,079,000 for the three months
        ended September 30, 2007 and September 30, 2006, respectively, and $3,366,000
        and $2,922,000 for the nine months ended September 30, 2007 and September
        30,
        2006, respectively.  In the third quarter 2007, the Company wrote-down
        the value of property held for sale at the FLRI facility by $608,000 based
        on an
        updated appraisal. The remaining losses for all time periods relate primarily
        to
        the accretion 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.
 
 **Note
        4 - Other Environmental Remediation**
  Wellman
        Dynamics Corporation ("Wellman"), a subsidiary of Fansteel Inc., entered
        into an
        Administrative Order on Consent with the EPA to perform a RCRA Facility
        Investigation ("RFI") for the purpose of determining the extent of releases
        of
        hazardous wastes and/or hazardous constituents, and, if appropriate, a
        Corrective Measures Study ("CMS") to evaluate possible corrective action
        measures that may be necessary at the Iowa Facility owned and operated by
        Wellman.  At January 23, 2004, Wellman had estimated that the cost for
        conducting the RFI/CMS would be $2,147,000 from 2005 to 2009.  At
        September 30, 2007 and December 31, 2006 the gross estimated liability was
        $1,935,000 and $2,057,000, respectively, and the recorded discounted liability,
        using a discount rate of 11.3%, was $1,872,000 and $1,934,000,
        respectively.
 
 Wellman
        is permitted to operate a sanitary landfill for the disposal of its foundry
        sand.  It is anticipated that, based upon recent projections by
        third-party consultants, Wellman is likely to be required to close the landfill
        in 2037 at a future cost approximating $1,166,000. The recorded discounted
        liability, using a discount rate of 11.3%, at September 30, 2007 and December
        31, 2006 was $598,000 and $551,000, respectively.
 
 In
        October 2000, Wellman provided the Iowa Department of Health (the "IDPH")
        with a
        "Historical Site Assessment" that identified uranium and thorium concentrations
        at the site.  The IDPH required Wellman to perform a Risk Assessment
        ("RA") to determine whether the thorium-containing materials are a threat
        to
        human health or the environment.  Wellman is awaiting the final
        report, but to its knowledge, the existing data forming the basis for the
        RA
        indicates that there is no imminent threat to health, safety or the
        environment.  Wellman anticipates that the IDPH will allow it to
        address the thorium issue when it closes the sanitary
        landfill.  However, there is a risk that the IDPH will require Wellman
        to remove or remediate the thorium prior to that time.  The current
        estimated cost to remediate the thorium is $1,075,000. The recorded discounted
        liability, using a discount rate of 11.3%, at September 30, 2007 and December
        31, 2006 was $560,000 and $518,000, respectively.
 
 The
        liabilities were recorded for
        estimated environmental investigatory and remediation costs based upon an
        evaluation of currently available facts, including the results of environmental
        studies and testing conducted for all Predecessor Company-owned sites in
        1997
        and since, and considering existing technology, presently enacted laws and
        regulations and prior experience in remediation of contaminated sites. Actual
        costs to be incurred in future periods at identified sites may vary from
        the
        estimates, given the inherent uncertainties in evaluating environmental
        exposures. Future information and developments will require the Company to
        continually reassess the expected impact of these environmental
        matters.  These liabilities could be reduced by potential net
        insurance recoveries that the Company is seeking from its insurers, but there
        is
        no assurance any additional net recoveries will be received. No anticipated
        insurance recoveries are included in the recorded environmental
        liabilities.
  12
 *Index*
  **Note
        5 - Debt**
 
 In
        order
        to increase the Company’s liquidity and ability to meet operational and
        strategic needs, Fansteel Inc. and its subsidiary, Wellman Dynamics Corporation,
        as borrowers, entered into a Loan and Security Agreement with Fifth Third
        Bank
        (Chicago), as lender, on July 15, 2005 with an original principal amount
        of
        $15,000,000. As the Company’s businesses have grown, so have the Company’s needs
        for funding working capital, capital expenditures and other requirements.
        With
        the corresponding increase in its borrowing base, consisting of accounts
        receivable, inventories and machinery and equipment, the Company sought to
        increase its revolving line of credit above the $15 million level. Accordingly,
        this loan agreement with Fifth Third Bank was amended on December 4,
        2006.
 
 Under
        the
        December 4, 2006 amended loan facility, subject to certain borrowing conditions,
        the Company could incur revolving loans, credit card charges and letter of
        credit issuances in an amount up to $21.5 million from a borrowing base
        comprised of a percentage of eligible accounts receivable and inventories
        and $2
        million for machinery and equipment.  Revolving loans included $1.5
        million for borrowing under credit cards issued by the Lender, not subject
        to
        the borrowing base. The term was extended with revolving loans due and payable
        in full on January 5, 2009. As borrowers under this Loan and Security Agreement,
        the Company is required to meet certain covenants, including those that require
        minimum EBITDA levels, limit leverage and establish debt service
        requirements.  The interest rate on the line is at prime and there is
        a .25% unused line fee.  Substantially all of the assets of the
        borrowers are pledged as security for this financing.
 
 On
        June
        5, 2007 the Company and Fifth Third Bank again amended the loan facility,
        increasing the maximum revolving loan amount to $22.5
        million.  Revolving loans were amended to include $1.5 million for
        borrowing that is not subject to the borrowing base limits.  Amounts
        borrowed as part of the $1.5 million were charged interest at prime rate
        plus
        one percentage point.  The $1.5 million borrowing revolving note was
        scheduled to terminate on September 30, 2007.
 
 On
        September 12, 2007, the Company amended its Loan and Security Agreement with
        Fifth Third Bank for the third time.  Under this amended loan
        facility, subject to certain borrowing conditions, the Company may incur
        revolving loans in an amount up to $21.5 million from a borrowing base comprised
        of a percentage of eligible accounts receivable and inventories and $2 million
        for machinery and equipment until March 2, 2009. Revolving loans were amended
        to
        eliminate $1.5 million for borrowing that is not subject to the borrowing
        base
        limits.  A term loan for a maximum of $3 million was added to the loan
        facility.  Draws on the term loan can be made until February 29,
        2008.  Interest on the term loan is at 13%.  The term loan
        includes a success fee of 3% to 7% of principal amount repaid before March
        2,
        2009 depending on when the repayment occurs. Fansteel Inc. pledged its 1,000
        shares of Wellman stock as security for the term loan.
 
 At
        September 30, 2007 the Company had letters of credit of $770,000 under its
        Loan
        and Security Agreement with Fifth Third Bank for casualty insurance collateral
        and environmental assurance with an interest rate of 1.5%. The Company’s credit
        availability was $2,834,000 at September 30, 2007.  Borrowing under
        the revolving line of credit is included as short-term borrowings, while
        the
        term loan under the credit facility is included in long-term
        debt.
  13
 *Index*
  **Note
        6 - 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, 2007 and December 31, 2006, the Company had potential federal
        and
        state income tax benefits from net operating loss carry-forwards of $22.1
        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
        7 - Business Segments**
 
 The
        Company is a manufacturer of engineered metal components used in a variety
        of
        markets including military and commercial aerospace, automotive, agricultural
        and construction machinery, lawn and garden equipment, marine, plumbing and
        electrical hardware, and general industrial. For financial reporting
        purposes, the Company classifies its products into the following two business
        segments; Advanced Structures, which produces aluminum and magnesium sand
        castings and Industrial Metal Components, which produces powdered metal
        components and investment castings. The Company's business segments offer
        different products and services and have separate management teams and
        infrastructures.
 
 Financial
        information concerning the Company's segments is as follows:
 
 Three
                  Months Ended
              
              
              Nine
                  Months EndedNet
                  Sales:
              
              September
                  30, 2007
              
              
              September
                  30, 2006
              
              
              September
                  30, 2007
              
              
              September
                  30, 2006Advanced
                  Structures
              
              $
              10,502,156
              
              
              $
              10,174,556
              
              
              $
              31,912,545
              
              
              $
              30,410,737Industrial
                  Metal Components
              
              
              8,014,673
              
              
              
              6,710,336
              
              
              
              24,145,590
              
              
              
              20,355,988Total
                  Net Sales
              
              $
              18,516,829
              
              
              $
              16,884,892
              
              
              $
              56,058,135
              
              
              $
              50,766,725Operating
                  Income (Loss):Advanced
                  Structures
              
              $
              887,732
              
              
              $
              165,729
              
              
              $
              2,286,579
              
              
              $
              2,823,595Industrial
                  Metal Components
              
              
              136,657
              
              
              
              (711,396
              )
              
              
              1,101,314
              
              
              
              (1,750,754
              )Corporate
              
              
              (19,996
              )
              
              
              -
              
              
              
              (585,553
              )
              
              
              -Total
                  Operating Income (Loss)
              
              $
              1,004,393
              
              
              $
              (545,667
              )
              
              $
              2,802,340
              
              
              $
              1,072,841
 
 Intersegment
        sales are accounted for at prices equivalent to the competitive market prices
        for similar products.
  14
 *Index*
  Corporate
        incurred $20,000 in the third quarter 2007 and $586,000 for the nine months
        ended September 30, 2007 for expenses related to unusual professional fees
        for
        an investigation by a special committee of the Board of Directors that are
        not
        allocable to the operating segments. Corporate did not have any of these
        expenses in 2006.
 
 The
        identifiable assets by business segment, for the periods indicated, are set
        forth below:
 
 Identifiable
                  assets:
              
              September
                  30,
                2007
              
              
              December
                  31,
                2006Advanced
                  Structures
              
              $
              19,069,791
              
              
              $
              18,581,014Industrial
                  Metal Components
              
              
              11,324,618
              
              
              
              10,562,719Corporate
              
              
              14,774,413
              
              
              
              14,853,488Discontinued
              
              
              1,739,702
              
              
              
              3,037,945Total
                  Assets
              
              $
              46,908,524
              
              
              $
              47,035,166
 
 Depreciation
        and capital expenditures by business segment, for the periods indicated,
        are set
        forth below:
  Three
                  Months Ended
              
              
              Nine
                  Months EndedDepreciation
                  and amortization:
              
              September
                  30,
                2007
              
              
              September
                  30,
                2006
              
              
              September
                  30,
                2007
              
              
              September
                  30, 2006Advanced
                  Structures
              
              $
              139,554
              
              
              $
              98,680
              
              
              $
              378,135
              
              
              $
              296,040Industrial
                  Metal Components
              
              
              132,767
              
              
              
              144,628
              
              
              
              367,112
              
              
              
              428,436Corporate
              
              
              4,608
              
              
              
              3,202
              
              
              
              13,768
              
              
              
              9,396Discontinued
              
              
              -
              
              
              
              7,860
              
              
              
              -
              
              
              
              23,580Total
                  depreciation and amortization
              
              $
              276,929
              
              
              $
              254,370
              
              
              $
              759,015
              
              
              $
              757,452Capital
                  expenditures:Advanced
                  Structures
              
              $
              159,732
              
              
              $
              314,198
              
              
              $
              496,255
              
              
              $
              857,631Industrial
                  Metal Components
              
              
              166,522
              
              
              
              118,319
              
              
              
              394,646
              
              
              
              187,720Corporate
              
              
              -
              
              
              
              2,662
              
              
              
              1,118
              
              
              
              9,253Total
                  capital expenditures
              
              $
              326,254
              
              
              $
              435,179
              
              
              $
              892,019
              
              
              $
              1,054,604
  15
 *Index*
  **ITEM
        2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS**
 
 The
        following discussion should be read in conjunction with the Consolidated
        Financial Statements and related notes thereto that are included in this
        Form
        10-Q.  Certain statements made in this section or elsewhere in this
        report contain "forward-looking statements" within the meaning of the Private
        Securities Litigation Reform Act of 1995.  Forward-looking statements
        are subject to certain risks, uncertainties and assumptions, which could
        cause
        actual results to differ materially from those projected.  From time
        to time, information provided by the Company or statements made by its employees
        may contain other forward-looking statements.  Factors that could
        cause actual results to differ materially from the forward-looking statements
        include, but are not limited to: general economic conditions, including
        inflation, interest rate fluctuations, trade restrictions and general debt
        levels; competitive factors, including price pressures, technological
        development and products offered by competitors; inventory risks due to changes
        in market demand or business strategies; and changes in effective tax
        rates.  Readers are cautioned not to place undue reliance on these
        forward-looking statements, which speak only as of the date made.  The
        Company undertakes no obligation to publicly update or revise any
        forward-looking statements, whether as a result of new information, future
        events or otherwise.
 
 **Results
        of Operations**
 
 ***Three
        Months Ended September 30, 2007 As Compared To Three Months Ended September
        30,
        2006***
  *Net
        Sales*
 
 The
        following table sets forth the
        combined net sales of the Company included in the consolidated statement
        of
        operations:
 
 Three
                  Months
                Ended
                September
                  30, 2007
              
              
              Three
                  Months
                Ended
                September
                  30, 2006Advanced
                  Structures
              
              $
              10,502,156
              
              
              $
              10,174,556Industrial
                  Metal Components
              
              
              8,014,673
              
              
              
              6,710,336$
              18,516,829
              
              
              $
              16,884,892
 
 The
        Company’s consolidated net sales for the three months ended September 30, 2007
        increased $1.6 million, or 9.7%, compared to the three months ended September
        30, 2006. Most of the improvement came from the Industrial Metal Components
        segment for sales of investment castings. Included in this improvement were
        higher material surcharges, which accounted for 20.5% of the overall increase
        in
        sales.
 
 Advanced
        Structures’ net sales for the three months ended September 30, 2007 increased by
        $328,000, or 3.2%, compared to the three months ended September 30,
        2006.  Strong demand for helicopter, private jet and NASCAR parts
        increased casting sales by $1.2 million or 14.8%, which were partially offset
        by
        reduced tooling sales for new programs.
 
 Industrial
        Metal Components' net sales for the three months ended September 30, 2007
        increased $1.3 million, or 19.4%, compared with the three months ended September
        30, 2006.  The increase was mainly attributable to investment casting
        sales, which increased by 28.9%, primarily for new diesel engine programs
        for
        trucks and buses and for flow control components used in oil and chemical
        industries.****Powdered metal component sales improved by
        3.6% due to increased sales to the lawn and garden market. Included in segment
        sales are surcharges for increased metal costs in the quarter ended September
        30, 2007 of $1.2 million, which were $334,000 higher than the quarter ended
        September 30, 2006 due to significant increases in brass, bronze and stainless
        steel prices**.**
  16
 *Index*
  *Cost
        of Products Sold*
 
 The
        following table sets forth the combined cost of products sold of the Company
        included in the consolidated statement of operations:
  Three
                  Months Ended
                September
                  30, 2007
              
              
              %Of
                Net
                Sales
              
              Three
                  Months Ended
                September
                  30, 2006
              
              
              %
                  Of
                Net
                SalesAdvanced
                  Structures
              
              $
              8,938,524
              
              
              85.1%
              
              $
              9,121,887
              
              
              89.7%Industrial
                  Metal Components
              
              
              6,927,384
              
              
              86.4%
              
              
              6,616,746
              
              
              98.6%$
              15,865,908
              
              
              85.7%
              
              $
              15,738,633
              
              
              93.2%
 
 Cost
        of
        products sold of $15.9 million for the three months ended September 30, 2007
        increased by $127,000 compared to $15.7 million for the three months ended
        September 30, 2006. As a percent of sales, cost of products sold at 85.7%
        for
        the three months ended September 30, 2007 improved from 93.2% for the three
        months ended September 30, 2006. For the three months ended September 30,
        2006,
        cost of products sold at both the sand casting and investment casting operations
        were unusually high due to production issues that were addressed prior to
        the
        2006 year-end and have not had a significant impact on 2007
        results.
 
 In
        the
        Advanced Structures segment, cost of products sold of $8.9 million for the
        three
        months ended September 30, 2007 decreased $183,000 compared with cost of
        products sold of $9.1 million for the three months ended September 30, 2006.
        As
        a percent of net sales, cost of products decreased by 4.6 points for the
        three
        months ended September 30, 2007 compared with the three months ended September
        30, 2006. Cost of products sold in the three months ended September 30, 2007
        benefitted from lower scrap and rework costs as these costs were unusually
        high
        in the three months ended September 30, 2006 due to significant problems
        with
        throughput resulting from hot and humid weather. Results in 2006 included
        the
        benefits of $100,000 in training grant money, which reduced cost of products
        sold by 1.0 percentage point for the three months ended September 30,
        2006.
 
 The
        Industrial Metal Components’ cost of products sold increased to $6.9 million for
        the three months ended September 30, 2007 compared to cost of products sold
        of
        $6.6 million for the three months ended September 30, 2006.  As a
        percent of net sales, cost of products were 86.4% for the three months ended
        September 30, 2007 compared with 98.6% for the three months ended September
        30,
        2006. The third quarter of 2006 included unusual charges of $258,000 for
        expedited freight, inspection costs and scrap related to production issues
        with
        a major customer at the investment casting operation that increased cost
        of
        products sold for the segment by 3.8 percentage
        points.****Tighter control of costs in the three months ended
        September 30, 2007 provided additional benefit to this segment.
 
 *Selling,
        General and Administrative Expense*
 
 The
        following table sets forth the combined selling, general and administrative
        expenses of the Company included in the consolidated statement of
        operations:
  17
 *Index*
 
 Three
                  Months Ended
                September
                  30, 2007
              
              
              %
                  Of
                Net
                Sales
              
              Three
                  Months Ended
                September
                  30, 2006
              
              
              %
                  Of
                Net
                SalesAdvanced
                  Structures
              
              $
              675,900
              
              
              6.4%
              
              $
              886,940
              
              
              8.7%Industrial
                  Metal Components
              
              
              950,632
              
              
              11.9%
              
              
              804,986
              
              
              12.0%Corporate
              
              
              19,996
              
              
              -
              
              
              -
              
              
              -$
              1,646,528
              
              
              8.9%
              
              $
              1,691,926
              
              
              10.0%
 
 Selling,
        general and administrative expenses for the three months ended September
        30,
        2007 were $1,647,000, a decrease of $45,000 over the three months ended
        September 30, 2006 expenses of $1,692,000. As a percent of sales, selling,
        general and administrative expenses decreased to 8.9% in the three months
        ended
        September 30, 2007 compared with 10.0% for the three months ended September
        30,
        2006.
 
 In
        the
        Advanced Structures segment, selling, general and administrative expenses
        for
        the three months ended September 30, 2007 decreased by $211,000 compared
        with
        the three months ended September 30, 2006. As a percent of sales, selling,
        general and administrative expenses decreased to 6.4% in the three months
        ended
        September 30, 2007 compared to 8.7% in the three months ended September 30,
        2006. Selling expenses benefited from an $88,000 recovery of bad debts in
        the
        three months ended September 30, 2007, while expenses for the three months
        ended
        September 30, 2006 included a charge of $141,000 to reserve for a disputed
        customer accounts receivable.
 
 Selling,
        general and administrative expenses for Industrial Metal Components segment
        for
        the three months ended September 30, 2007 increased $146,000 compared with
        the
        three months ended September 30, 2006. The increase is primarily related
        to
        higher costs related to commissions, health insurance, incentive compensation
        and professional fees related to employee recruitment and management training.
        Selling, general and administrative expenses as a percent of sales remained
        level at 11.9% for the three months ended September 30, 2007 compared with
        12.0%
        for the three months ended September 30, 2006.
 
 Corporate
        selling, general and administrative expenses (not allocated to operations)
        were
        $20,000 for the three months ended September 30, 2007 compared with $0 for
        the
        three months ended September 30, 2006. Expenses in 2007 were for unusual
        professional fees for an investigation by a special committee of the Board
        of
        Directors.
 
 *Operating
        Income (Loss)*
 
 The
        following table sets forth the
        combined operating income (loss) of the Company included in the consolidated
        statement of operations:
  Three
                  months
                Ended
                September
                  30, 2007
              
              
              Three
                  months
                Ended
                September
                  30, 2006Advanced
                  Structures
              
              $
              887,732
              
              
              $
              165,729Industrial
                  Metal Components
              
              
              136,657
              
              
              
              (711,396
              )Corporate
              
              
              (19,996
              )
              
              
              -$
              1,004,393
              
              
              $
              (545,667
              )
  18
 *Index*
  Operating
        income for the three months ended September 30, 2007 increased by $1.5 million
        compared to the three months ended September 30, 2006. Results for the three
        months ended September 30, 2007 improved over the three months ended September
        30, 2006, which was negatively impacted by poor operating performances at
        both
        segments, along with charges of $400,000 related to bad debts and customer
        startup costs.
 
 Advanced
        Structures operating income of $888,000 for the three months ended September
        30,
        2007 increased from operating income of $166,000 for the three months ended
        September 30, 2006. Higher sales volume, lower operating costs and a bad
        debt
        recovery for the three months ended September 30, 2007 provided most of the
        improvement. Operating income in the third quarter of 2006 included $100,000
        of
        training grants from the state of Iowa.
 
 Industrial
        Metal Components had operating income of $137,000 for the three months ended
        September 30, 2007 compared to an operating loss of $711,000 for the three
        months ended September 30, 2006.  Higher investment casting sales and
        lower operating costs provided much of the improvement for the three months
        ended September 30, 2007 compared with September 30, 2006. Results for the
        three
        months ended September 30, 2006 were also negatively impacted by customer
        startup costs of $258,000. Material surcharges had a 2.4 percentage point
        negative impact on margins in this segment.
 
 Corporate’s
        operating loss of $20,000 for the three months ended September 30, 2007 related
        to unusual professional fees for an investigation by a special committee
        of the
        Board of Directors that are not allocable to the operating segments. Unallocated
        operating expenses for Corporate for the three months ended September 30,
        2006
        were $0.
 
 *Other
        Expenses*
 
 The
        following table sets forth the
        combined other income (expenses) of the Company included in the consolidated
        statement of operations:
  Three
                  months
                Ended
                September
                  30,
                2007
              
              
              Three
                  months
                Ended
                September
                  30,
                2006Interest
                  expenses
              
              $
              (492,754
              )
              
              $
              (414,091
              )Other
              
              
              (66,453
              )
              
              
              (8,524
              )$
              (559,207
              )
              
              $
              (422,615
              )
 
 Other
        expense increased $137,000 in the three months ended September 30, 2007 compared
        to the three months ended September 30, 2006, as interest expense was higher
        by
        $79,000 due to the increased level of borrowing. Other expenses also increased
        by $58,000 at the investment casting operation due to losses on foreign currency
        translation.
 
 *Discontinued
        Operations*
 
 Discontinued
        operations reported a loss of $1,487,000 in the three months ended September
        30,
        2007 and a loss of $1,079,000 in the three months ended September 30, 2006.
        Third quarter 2007 losses included $608,000 to write-down the value of property
        held for sale at the FLRI facility based on an updated appraisal. The remainder
        of the losses for both time periods relate primarily to the accretion of
        discounted environmental liabilities arising from the Company’s unsecured note
        obligations to its special purpose subsidiaries and the note payable to the
        Pension Benefit Guarantee Corporation for the terminated pension
        plan
  19
 *Index*
  *Income
        taxes*
 
 No
        income tax provision or benefit has
        been recognized for any periods presented as valuation allowances have been
        recorded for all net operating loss benefits and net deferred tax assets,
        except
        for the gain in discontinued operations from the carry-back refund from the
        net
        operating loss related to environmental liabilities.
 
 *Net
        Income (Loss)*
 
 The
        Company had a net loss of $1.0 million for the three months ended September
        30,
        2007 and a net loss of $2.0 million for the three months ended September
        30,
        2006.
 
 
 ***2007
        Nine Months As Compared To 2006 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 Ended
                September
                  30, 2007
              
              
              Nine
                  Months Ended
                September
                  30, 2006Advanced
                  Structures
              
              $
              31,912,545
              
              
              $
              30,410,737Industrial
                  Metal Components
              
              
              24,145,590
              
              
              
              20,355,988$
              56,058,135
              
              
              $
              50,766,725
 
 Consolidated
        net sales for the nine months ended September 30, 2007 increased $5.3 million,
        or 10.4%, from the first nine months of 2006.  Included in net sales
        for the nine months ended September 30, 2007 are surcharges of $3.5 million
        compared with $2.1 million for the nine months ended September 30,
        2006.   The remainder of the improvement came from investment
        castings sales in the Industrial Metal Components segment along with strong
        sand
        casting sales in the Advanced Structures segment.
 
 In
        the
        Advanced Structures segment, net sales for the nine months ended September
        30,
        2007 increased by $1.5 million, or 4.9%, compared to the nine months ended
        September 30, 2006.   Helicopter, NASCAR and commercial air
        product sales provided the majority of the increase, partially offset by
        decreases in sales to the regional and private jet
        markets.  Improvements in these product lines were more than enough to
        offset the May 2006 loss of a key contract for missile components that accounted
        for $2.0 million in sales for the nine months ended September 30,
        2006.
 
 Compared
        with $20,356,000 in sales for the nine months ended September 30, 2006,
        Industrial Metal Components' net sales of $24,146,000 for the nine months
        ended
        September 30, 2007 increased $3.8 million, or 18.6%. Included in segment
        sales
        for the nine months ended September 30, 2007 are surcharges for increased
        metal
        costs for brass, bronze and stainless steel of $3.5 million, which were $1.4
        million higher than the nine months ended September 30,
        2006.****The remainder of the increase was due to strong
        investment casting sales, with diesel engine product sales providing the
        majority of the increase along with improvement in most other product
        lines.  Net sales of powdered metal components were flat with
        increased sales to hardware customers and lawn and garden customers being
        offset
        by decreased sales to heavy duty truck and recreational vehicle
        customers.
  20
 *Index*
  *Cost
        of Products Sold*
 
 The
        following table sets forth the combined cost of products sold of the Company
        included in the consolidated statement of operations:
 
 Nine
                  Months Ended
                September
                  30, 2007
              
              
              %
                  Of
                Net
                Sales
              
              
              Nine
                  Months Ended
                September
                  30, 2006
              
              
              %
                  Of
                Net
                SalesAdvanced
                  Structures
              
              $
              27,248,670
              
              
              85.4%
              
              
              $
              25,097,640
              
              
              82.5%Industrial
                  Metal Components
              
              
              20,223,792
              
              
              83.8%
              
              
              
              19,628,374
              
              
              96.4%$
              47,472,462
              
              
              84.7%
              
              
              $
              44,726,014
              
              
              88.1%
 
 Cost
        of
        products sold of $47.5 million for the nine months ended September 30, 2007
        increased by $2.7 million, or 6.1%, compared to $44.7 million for the nine
        months ended September 30, 2006, largely due to the increase in sales volume.
        As
        a percent of net sales, cost of products sold improved to 84.7% for the nine
        months ended September 30, 2007 compared with 88.1% for the nine months ended
        September 30, 2006, with improvement coming from reduced manufacturing
        costs.
 
 In
        the
        Advanced Structures segment cost of products sold were $27.2 million for
        the
        nine months ended September 30, 2007 compared with cost of products sold
        of
        $25.1 million for the nine months ended September 30, 2006, an increase of
        $2.1
        million. Cost of products sold increased due to higher volume and technically
        more demanding product mix which resulted in higher scrap and rework in 2007,
        along with no training grant monies received in the first nine months of
        2007
        compared with $717,000 received in the first nine months of 2006. As a percent
        of net sales, cost of products increased by 2.9 points in the first nine
        months
        of 2007 compared with the first nine months of 2006, with training monies
        reducing 2006 costs by 2.4 percentage points.
 
 The
        Industrial Metal Components’ cost of products sold were $20.2 million for the
        nine months ended September 30, 2007 compared to cost of products sold of
        $19.6
        million for the nine months ended September 30, 2006.  As a percent of
        net sales, cost of products improved to 83.8% for the first nine months of
        2007
        compared with 96.4% for the first nine months of 2006. Results in 2006 included
        unusual charges of $1,054,000 at the investment casting operation for expedited
        freight, inspection costs and scrap related to the start-up of new customer
        parts.  The balance of the improvement was due primarily to the higher
        volume at the investment casting operation along with cost reductions at
        both
        the investment casting and powder metal plants.
 
 *Selling,
        General and Administrative Expense*
 
 The
        following table sets forth the combined selling, general and administrative
        expenses of the Company included in the consolidated statement of
        operations:
  21
 *Index*
 
 Nine
                  Months Ended
                September
                  30, 2007
              
              
              %
                  Of
                Net
                Sales
              
              
              Nine
                  Months Ended
                September
                  30, 2006
              
              
              %
                  Of
                Net
                SalesAdvanced
                  Structures
              
              $
              2,377,296
              
              
              7.4%
              
              
              $
              2,489,502
              
              
              8.2%Industrial
                  Metal Components
              
              
              2,820,484
              
              
              11.7%
              
              
              
              2,478,368
              
              
              12.2%Corporate
              
              
              585,553
              
              
              NA
              
              
              
              -
              
              
              NA$
              5,783,333
              
              
              10.3%
              
              
              $
              4,967,870
              
              
              9.8%
 
 Selling,
        general and administrative expenses for the first nine months of 2007 were
        $5,783,000, an increase of $815,000 over the first nine months of 2006 expenses
        of $4,968,000. Despite the increase in sales volume, selling, general and
        administrative expenses increased to 10.3% of net sales in the first nine
        months
        of 2007 compared with 9.8% as a percent of sales for the first nine months
        of
        2006 due largely to $586,000 in unusual professional fees incurred in the
        second
        and third quarters of 2007.
 
 In
        the
        Advanced Structures segment, selling, general and administrative expenses
        for
        the nine months ended September 30, 2007 were $2,377,000 compared with
        $2,490,000 for the nine months ended September 30, 2006. As a percent of
        sales,
        selling, general and administrative expenses improved to 7.4% in the first
        nine
        months of 2007 from 8.2% in the first nine months of 2006.  Selling
        expenses decreased as the nine months ended September 30, 2007 included $88,000
        for bad debt recoveries while the nine months ended September 30, 2006 included
        $181,000 of bad debt expense. Partially offsetting this improvement was
        compensation expense of $164,000 for the second quarter 2007 grant of 12
        shares
        of stock to key managers of Wellman Dynamics Corporation, a 98.8% owned
        subsidiary (after the grant) of Fansteel Inc., which is included in this
        segment.
 
 Selling,
        general and administrative expenses for the Industrial Metal Components segment
        for the nine months ended September 30, 2007 increased $342,000 compared
        with
        the nine months ended September 30, 2006 as a result of higher payroll,
        incentive compensation, employee activities and professional fees.  As
        a percent of sales, selling, general and administrative expenses improved
        to
        11.7% for the nine months ended September 30, 2007 compared with 12.2% for
        the
        nine months ended September 30, 2006 due to the volume increase.
 
 Unallocated
        selling, general and administrative expenses for unusual professional fees
        related to strategic initiatives and an investigation by a special committee
        of
        the Board of Directors were $586,000 at Corporate for the nine months ended
        September 30, 2007 compared with $0 at September 30, 2006.
 
 *Operating
        Income (Loss)*
 
 The
        following table sets forth the
        combined operating income (loss) of the Company included in the consolidated
        statement of operations:
  Nine
                  Months Ended
                September
                  30, 2007
              
              
              Nine
                  Months Ended
                September
                  30, 2006Advanced
                  Structures
              
              $
              2,286,579
              
              
              $
              2,823,595Industrial
                  Metal Components
              
              
              1,101,314
              
              
              
              (1,750,754
              )Corporate
              
              
              (585,553
              )
              
              
              -$
              2,802,340
              
              
              $
              1,072,841
  22
 *Index*
  Operating
        income for the nine months ended September 30, 2007 of $2.8 million, or 5.0%
        of
        sales, improved by $1.7 million, or 2.9 percentage points compared to operating
        income for the nine months ended September 30, 2006 of $1.1 million, or 2.1%
        of
        sales.  Excluding unusual items (in 2007, corporate professional fees
        of $586,000 and Advanced Structures segment compensation expense of $164,000
        and
        in 2006 Industrial Metal Components segment customer start-up costs of
        $1,054,000 less Advanced Structures segment training grant monies of $717,000),
        operating income would have been $3,552,000, or 6.3% of sales, and $1,410,000,
        or 2.8% of sales, for the nine months ended September 30, 2007 and September
        30,
        2006, respectively, an improvement of $2.1 million or 3.5 percentage
        points.
 
 Operating
        income of $2,287,000 in the Advanced Structures segment for the nine months
        ended September 30, 2007 decreased by $537,000 from operating income of
        $2,824,000 in the nine months ended September 30, 2006.   Despite
        the increase in volume for this segment, higher manufacturing costs,
        particularly scrap, had a negative impact along with compensation expense
        related to the granting of shares of stock to key management in this segment.
        Additionally, results for the first nine months of 2006 included $717,000
        of
        training grants from the state of Iowa.
 
 The
        Industrial Metal Components segment had operating income of $1,101,000 for
        the
        nine months ended September 30, 2007 compared to an operating loss of $1,751,000
        for the nine months ended September 30, 2006.  The investment casting
        operation was the main reason for the income improvement to this segment
        based
        on the higher 2007 sales volume and the decrease in unusual charges for the
        start-up of new customer parts, which totaled $1,054,000 for the first nine
        months of 2006.  Despite flat sales, operating income for the powdered
        metal operation improved due to tighter expense control.
 
 An
        operating loss of $586,000 for the nine months ended September 30, 2007 at
        Corporate resulted from unusual professional fees related to strategic
        initiatives and an investigation by a special committee of the Board of
        Directors that were not allocable back to the business segments. Corporate’s
        operating income was $0 for the nine months ended September 30,
        2006.
 
 *Other
        Income (Expenses)*
 
 The
        following table sets forth the
        combined other income (expense) of the Company included in the consolidated
        statement of operations:
  Nine
                  Months Ended
                September
                  30, 2007
              
              
              Nine
                  Months Ended
                September
                  30, 2006Interest
                  expenses
              
              $
              (1,253,368
              )
              
              $
              (1,108,097
              )Other
              
              
              (120,520
              )
              
              
              (2,470
              )$
              (1,373,888
              )
              
              $
              (1,110,567
              )
 
 Other
        expenses increased $263,000 in the nine months ended September 30, 2007 compared
        to the nine months ended September 30, 2006, with increased borrowing in
        2007
        resulting in $145,000 of higher interest expense. Other expenses also increased
        $105,000 due to foreign currency translation at the investment casting
        operations and $13,000 due to minority interest related to Wellman
        Dynamics.
  23
 *Index*
  *Discontinued
        Operations*
 
 Discontinued
        operations reported losses of $3,366,000****and $2,922,000 in
        the nine months ended September 30, 2007 and September 30, 2006, respectively.
        The losses for both periods relate primarily to the accretion of discounted
        environmental liabilities arising from the Company’s unsecured note obligations
        to its special purpose subsidiaries and the note payable to the Pension Benefit
        Guarantee Corporation for the terminated pension plan. The 2007 loss also
        includes a write-down of $608,000 related to a reduction in value of property
        held for sale at the special purpose subsidiary, FLRI, Inc.
 
 *Income
        taxes*
 
 No
        income tax provision or benefit has
        been recognized for any periods presented as valuation allowances have been
        recorded for all net operating loss benefits and net deferred tax
        assets.
 
 *Net
        Income (Loss)*
 
 The
        Company had a net loss of $1,937,000 for the nine months ended September
        30,
        2007 and a net loss of $2,960,000 for the nine months ended September 30,
        2006.
 
 
 ***Liquidity
        and Capital Resources***
  On
        September 30, 2007 and September 30, 2006, the Company had cash of $19,000
        and
        $29,000 respectively.
 
 Continuing
        operations provided cash of $4,065,000 for the first nine months of 2007,
        due
        mostly to improvements in working capital of $2,910,000 and borrowings from
        the
        Fifth Third revolving line of credit of $2,279,000. Excluding net borrowings,
        continuing operations provided $2,018,000 for the nine months ended September
        30, 2007. Discontinued operations used $4,063,000 for the nine months ended
        September 30, 2007 primarily for funding the on-going environmental remediation
        at the Muskogee, Oklahoma property.
 
 For
        the
        first nine months of 2006, continuing operations provided cash of $2,318,000,
        due largely to $4,265,000 in borrowings from the revolving line of credit
        with
        Fifth Third.  Excluding net borrowings, continuing operations used
        $1,727,000 for the nine months ended September 30, 2006. Discontinued operations
        used $3,080,000 for the nine months ended September 30, 2006 primarily for
        funding the on-going environmental remediation at the Muskogee, Oklahoma
        property.
 
 *Operating
        Activities*
 
 For
        the
        nine months ended September 30, 2007, operating activities provided $2,910,000
        in cash with improvements in working capital coming from income from continuing
        operations, decreases in receivables, current assets and other assets along
        with
        increases in accounts payable and accrued liabilities.  During the
        nine months ended September 30, 2006 operating activities used $672,000,
        with
        increases in accounts receivable and inventories, partially offset by increases
        in accounts payable and accrued liabilities and decreases in prepaid
        expenses.
  24
 *Index*
  *Investing
        Activities*
 
 For
        the
        nine months ended September 30, 2007, investing activities used $892,000
        for
        capital expenditures for both business segments. For the nine months ended
        September 30, 2006, investing activities used $1,055,000 for capital
        expenditures primarily in the Advanced Structures business segment.
 
 *Financing
        Activities*
 
 Financing
        activities provided $2,046,000 for the nine months ended September 30, 2007,
        compared to $4,045,000 for the nine months ended September 30, 2006. Net
        borrowings for the first nine months of 2007 from the revolving line of credit
        were $2,279,000, with payments of long-term debt of $233,000.  In the
        first nine months of 2006, net borrowing from the revolving line of credit
        was
        $4,265,000 and long-term debt payments were $220,000.
 
 In
        order
        to increase the Company’s liquidity and ability to meet operational and
        strategic needs, Fansteel Inc. and its wholly-owned subsidiary, Wellman Dynamics
        Corporation, as borrowers, entered into a Loan and Security Agreement with
        Fifth
        Third Bank (Chicago), as lender, on July 15, 2005 with an original principal
        amount of $15,000,000. As the Company’s businesses have grown, so have the
        Company’s needs for funding working capital, capital expenditures and other
        requirements. With the corresponding increase in its borrowing base, consisting
        of accounts receivable, inventories and machinery and equipment, the Company
        sought to increase its revolving line of credit above the $15 million level.
        Accordingly, this loan agreement with Fifth Third Bank was amended on December
        4, 2006.
 
 Under
        the
        December 4, 2006 amended loan facility, subject to certain borrowing conditions,
        the Company could incur revolving loans, credit card charges and letter of
        credit issuances in an amount up to $21.5 million from a borrowing base
        comprised of a percentage of eligible accounts receivable and inventories
        and $2
        million for machinery and equipment.  Revolving loans included $1.5
        million for borrowing under credit cards issued by the Lender, not subject
        to
        the borrowing base. The term was extended with revolving loans due and payable
        in full on January 5, 2009. As borrowers under this Loan and Security Agreement,
        the Company is required to meet certain covenants, including those that require
        minimum EBITDA levels, limit leverage and establish debt service
        requirements.  The interest rate on the line is at prime and there is
        a .25% unused line fee.  Substantially all of the assets of the
        borrowers are pledged as security for this financing.
 
 On
        June
        5, 2007 the Company and Fifth Third Bank again amended the loan facility,
        increasing the maximum revolving loan amount to $22.5
        million.  Revolving loans were amended to include $1.5 million for
        borrowing that is not subject to the borrowing base limits.  Amounts
        borrowed as part of the $1.5 million were charged interest at prime rate
        plus
        one percentage point.  The $1.5 million borrowing revolving note was
        scheduled to terminate on September 30, 2007.
 
 On
        September 12, 2007, the Company
        amended its Loan and Security Agreement with Fifth Third Bank for the third
        time.  Under this amended loan facility, subject to certain borrowing
        conditions, the Company may incur revolving loans in an amount up to $21.5
        million from a borrowing base comprised of a percentage of eligible accounts
        receivable and inventories and $2 million for machinery and equipment until
        March 2, 2009. Revolving loans were amended to eliminate $1.5 million for
        borrowing that is not subject to the borrowing base limits.  A term
        loan for a maximum of $3 million was added to the loan
        facility.  Draws on the term loan can be made until February 29,
        2008.  Interest on the term loan is at 13%.  The term loan
        includes a success fee of 3% to 7% of principal amount repaid before March
        2,
        2009 depending on when the repayment occurs. Fansteel Inc. pledged its 1,000
        shares of Wellman stock as security for the term loan.
  25
 *Index*
  The
        Company's high level of debt could have important consequences, including,
        among
        others, the following:
 
 -
        the
        inability of the Company's current cash generation level to support future
        interest and principal payments on the Company's existing
        indebtedness;
 
 -
        inadequate cash for other purposes, such as capital expenditures and the
        Company's other business activities, since the Company may need to use all
        or
        most of the operating cash flow to pay principal and interest on its outstanding
        debt;
 
 -
        making
        it more difficult for the Company to satisfy its contractual
        obligations;
 
 -
        increasing the Company's vulnerability to general adverse economic and industry
        conditions;
 
 -
        limiting the Company's ability to fund future working capital, capital
        expenditures or other general corporate requirements;
 
 -
        placing
        the Company at a competitive disadvantage compared to the Company's competitors
        that have less debt relative to their operating scale;
 
 -
        limiting the Company's flexibility in planning for, or reacting to, changes
        in
        the Company's business and its industry; and
 
 -
        limiting, along with the financial and other restrictive covenants in the
        Company's indebtedness, among other things, the Company's ability to borrow
        additional funds, make acquisitions, dispose of assets or pay cash
        dividends.
 
 In
        the
        longer term, the Company's ability to pay debt service and other contractual
        obligations will depend on improving the Company's future performance and
        cash
        flow generation, which in turn will be affected by prevailing economic and
        industry conditions and financial, business and other factors, many of which
        are
        beyond the Company's control.  If the Company has difficulty providing
        for debt service or other contractual obligations in the future, the Company
        may
        be forced to take actions such as reducing or delaying capital expenditures,
        reducing costs, selling assets, refinancing or reorganizing its debt or other
        obligations and seeking additional equity capital, or any combination of
        the
        above.  The Company may not be able to take any of these actions on
        satisfactory terms, or at all.
 
 **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.
  26
 *Index*
  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.
 
 In
        accordance with Statement of Position No. 96-1, there are no future recoveries
        included as net amounts in the environmental liabilities or any insurance
        receivables included on the balance sheet. Insurance recoveries are not recorded
        until a settlement is received.
 
 Excess
        reorganization value, initially determined as of the Effective Date, represents
        the excess of the Company's enterprise value over the aggregate fair value
        of
        the Company's tangible and identifiable intangible assets and liabilities
        at the
        balance sheet date.  Excess reorganization value is not amortized,
        however, it is evaluated at a minimum annually or when events or changes
        occur
        that suggest impairment in carrying value.
 
 The
        Company periodically re-evaluates carrying values and estimated useful lives
        of
        long-lived assets to determine if adjustments are warranted.  The
        Company uses estimates of undiscounted cash flows from long-lived assets
        to
        determine whether the book value of such assets is recoverable over the assets'
        remaining useful lives.
 
 The
        Company recognizes sales when the risks and rewards of ownership have
        transferred to the customer, which is generally considered to have occurred
        as
        products are shipped.  Revenue is recognized from sales of tooling,
        patterns and dies upon customer acceptance.
 
 Statement
        of Position No. 96-1,
        Environmental Remediation Liabilities, provides authoritative guidance on
        the
        recognition, measurement, display and disclosure of environmental remediation
        liabilities. The Company is involved in numerous remediation actions to clean
        up
        hazardous wastes as required by federal and state laws. 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. Environmental remediation
        is
        recorded as a discounted liability in accordance with the principles of fresh
        start accounting, which was adopted with the confirmation of the Plan of
        Reorganization as of January 23, 2004 when the Company emerged from bankruptcy.
        The expected timing of estimated cash payments at that time were used to
        determine the discounted value of those payments. Accretion of the discount
        is
        recorded each period.
 
 **Recent
        Accounting Pronouncements**
 
 In
        February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid
        Financial Instruments – An Amendment of FASB Statements No. 133 and 140 and is
        effective for all financial instruments acquired or issued after the beginning
        of an entity’s first fiscal year that begins after September 15,
        2006.  SFAS No. 155 permits fair value remeasurement for any hybrid
        financial instrument that contains an embedded derivative that otherwise
        would
        require bifurcation, clarifies which interest-only strips and principal-only
        strips are not subject to the requirements of SFAS No. 133, establishes a
        requirement to evaluate interest in securitized financial assets to identify
        interest that are freestanding derivatives or that are hybrid financial
        instruments that contain an embedded derivative requiring bifurcation, clarifies
        that concentrations of credit risk in the form of subordination are not embedded
        derivatives and amends SFAS No. 140 to eliminate the prohibition on a qualifying
        special-purpose entity from holding a derivative financial instrument that
        pertains to a beneficial interest other than another derivative financial
        instrument.  The Company was required to adopt SFAS No. 155 beginning
        January 1, 2007, and such adoption did not have a material impact on its
        consolidated results of operations and financial condition.
  27
 *Index*
  In
        March
        2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial
        Assets
– An Amendment of FASB Statement No. 140 and is effective for fiscal years
        beginning after September 15, 2006. SFAS No. 156 requires recognition of
        a
        servicing asset or servicing liability each time an obligation to service
        a
        measurement at fair value of all separately recognized servicing assets and
        servicing liabilities, permits the use of either the amortization method
        or the
        fair value measurement method for each class of separately recognized servicing
        assets and servicing liabilities, permits a one-time reclassification of
        available-for-sale securities to trading securities at initial adoption,
        and
        requires separate presentation of servicing assets and servicing liabilities
        subsequently measured at fair value in the statement of financial position
        and
        additional disclosures for all separately recognized servicing assets and
        servicing liabilities. The Company was required to adopt SFAS No. 156 effective
        January 1, 2007, and such adoption did not have a material impact on its
        consolidated results of operations and financial condition.
 
 In
        June
        2006, the FASB issued Financial Interpretation (FIN) No. 48, Accounting for
        Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 and is
        effective for fiscal years beginning after December 15, 2006. FIN No. 48
        clarifies the accounting for uncertainty in income taxes recognized in an
        enterprise’s financial statements in accordance with SFAS No. 109, Accounting
        for Income Taxes. FIN No. 48 outlines a recognition threshold and measurement
        attribute for the financial statement recognition and measurement of a tax
        position taken or expected to be taken in a tax return. FIN No. 48 also provides
        guidance on recognition, classification, interest and penalties, accounting
        in
        interim periods, disclosure, and transition. The Company was required to
        adopt
        FIN No. 48 effective January 1, 2007, and such adoption did not have a material
        impact on its consolidated results of operations and financial
        condition.
 
 In
        September 2006, the FASB issued SFAS No. 157, Fair Value Measurements and
        is
        effective for fiscal years beginning after November 15, 2007. SFAS No. 157
        defines fair value, establishes a framework for measuring fair value in
        generally accepted accounting principles, and expands disclosures about fair
        value measurements. SFAS No. 157 applies under other accounting pronouncements
        that require or permit fair value measurements, the FASB having previously
        concluded in those accounting pronouncements that fair value is the relevant
        measurement attributed. Accordingly, SFAS No. 157 does not require any new
        fair
        value measurements.  The Company is required to adopt SFAS No. 157
        effective January 1, 2008, but does not expect it to have a material impact
        on
        its consolidated results of operations and financial condition.
 
 In
        September 2006, the FASB also issued SFAS No. 158, Employers’ Accounting for
        Defined Benefit Pension and Other Postretirement Plans – an Amendment of FASB
        Statements No. 87, 88, 106, and 132(R) and is effective for employers with
        publicly traded equity securities as of the end of the fiscal year ending
        after
        December 15, 2006, and for employers without publicly traded equity securities
        as of the end of the fiscal year ending after June 15, 2007. SFAS No. 158
        requires an employer to recognize the over funded or under funded status
        of a
        defined benefit postretirement plan (other than a multiemployer plan) as
        an
        asset or liability in its statement of financial position and to recognize
        changes in that funded status in the year in which the changes occur through
        comprehensive income of a business entity or changes in which the changes
        occur
        through comprehensive income of a business entity or changes in unrestricted
        net
        assets of a not-for-profit organization. SFAS No. 158 also requires an employer
        to measure the funded status of a plan as of the date of its year-end statement
        of financial position, with limited exceptions. The Company adopted SFAS
        No. 158
        effective December 31, 2006. The non-cash effect of the adoption resulted
        in an
        increase in total liabilities of $343,000 and a reduction in total shareholders’
equity of $343,000, net of tax.  The adoption of SFAS No. 158 did not
        affect the Company’s results of operations. In the 2006 Annual Report on Form
        10-K, the Company disclosed 2006 Comprehensive Loss of $5,604,300, which
        included the adoption of SFAS No. 158. Comprehensive Loss for 2006 should
        not
        have included the impact of adopting SFAS No. 158. The effect of adopting
        SFAS
        No. 158 should have been only included in Accumulated Other Comprehensive
        Loss.
        The correct Comprehensive Loss for 2006 should have been $5,261,136. The
        Company
        will correct the 2006 Comprehensive Loss when it publishes its 2007 Annual
        Report on Form 10-K.
  28
 *Index*
  In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities.”  This standard permits
        companies to make a one-time election to carry eligible types of financial
        assets and liabilities at fair value (“FV”), even if FV measurement is not
        required under generally accepted accounting principles. SFAS No. 159 is
        effective for fiscal years beginning after November 15, 2007, and early adoption
        is permitted.  The Company does not plan on early adoption of SFAS No. 159
        and is in the process of determining its impact on the Company’s financial
        position and results of operations.
 
 **Inflation**
  Inflationary
        factors such as increases in the costs of raw materials, labor, and overhead
        affect the Company's operating profits.  Significant portions of raw
        materials consumed by the Company are various steel alloys.  Price
        increases were experienced beginning in 2004 and these price increases have
        continued into 2007.  To offset these price increases, the Company
        began adding material surcharges in March 2004 and in 2007 the Company continues
        to add material surcharges. Material surcharges are a pass through of costs
        and
        do not include normal mark-up.  Material surcharges accounted for 6.2%
        of net sales for the nine months ended September 30, 2007 and 4.1% of net
        sales
        for the nine months ended September 30, 2006.****Surcharges
        were 66% higher in the first nine months of 2007 compared to the first nine
        months of 2006.
 
 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.
  29
 *Index*
  **Contractual
        Obligations**
 
 The
        following table summarizes payments
        due by year for the contractual obligations at September 30, 2007:
 
 *(In
                  thousands)*
              
              Total
              
              
              2007
              
              
              2008
              
              
              2009
              
              
              2010
              
              
              2011
              
              
              After
                2011PBGC
                  Note
              
              $
              7,250
              
              
              $
              -
              
              
              $
              750
              
              
              $
              750
              
              
              $
              1,150
              
              
              $
              1,150
              
              
              $
              3,450PA
                  economic agencies notes
              
              
              234
              
              
              
              77
              
              
              
              143
              
              
              
              14
              
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **-**Operating
                  leases
              
              
              600
              
              
              
              61
              
              
              
              170
              
              
              
              101
              
              
              
              71
              
              
              
              197
              
              
              ****
              **-**Fifth
                  Third Credit Facility
              
              
              15,637
              
              
              
              -
              
              
              
              -
              
              
              
              15,637
              
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **-**Letters
                  of credit
              
              
              770
              
              
              
              -
              
              
              
              -
              
              
              
              770
              
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **-**Environmental
                  liabilities
              
              
              33,466
              
              
              
              775
              
              
              
              2,620
              
              
              
              2,290
              
              
              
              2,586
              
              
              
              1,836
              
              
              
              23,359Total
              
              $
              57,957
              
              
              $
              913
              
              
              $
              3,683
              
              
              $
              19,562
              
              
              $
              3,807
              
              
              $
              3,183
              
              
              $
              26,809
  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 through 2008 with
        an
        increase to $1,682,000 in 2009.
 
 The
        Fifth
        Third Credit facility has a renewal date of March 2, 2009.  The
        revolving line of credit requires immediate repayment from cash
        receipts.  Borrowings can be made as needed, based on
        availability.  Any outstanding term loan is repayable in full on the
        renewal date. The availability at September 30, 2007 was $2,834,000, compared
        with $1,360,000 at December 31, 2006.
  30
 *Index*
 
 **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.  The Company began to experience price increases on raw
        materials in 2004 and raw material price increase have continued into
        2007.  To offset these price increases in raw materials, the Company
        began adding material surcharges in March 2004 and has continued to add material
        surcharges into 2007.
 
 
 **ITEM
        4 - CONTROLS AND PROCEDURES**
 
 The
        Company’s Chief Executive Officer
        and its Chief Financial Officer, after evaluating the effectiveness of the
        Company’s  “disclosure controls and procedures” (as defined in Rules
        13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of
        1934,
        as amended (the "Exchange Act")) as of the end of the period covered by this
        Report on Form 10-Q, have concluded that the Company's “disclosure controls and
        procedures” were effective as of the end of the period covered by this
        Report.
 
 There
        were no changes during the most recent quarter in the Company’s internal
        controls or in other factors that could significantly affect the Company’s
        internal controls during the period covered by this Report.
  Disclosure
        controls and procedures are the Company’s controls and other procedures that are
        designed to ensure that information required to be disclosed by the Company
        in
        the reports that we file or submit under the Exchange Act is recorded,
        processed, summarized and reported, within the time periods specified in
        the
        Securities and Exchange Commission’s rules and forms. Disclosure controls and
        procedures include, without limitation, controls and procedures designed
        to
        ensure that information required to be disclosed by us in the reports that
        we
        file under the Exchange Act is accumulated and communicated to our management,
        including our principal executive officer and principal financial officer,
        as
        appropriate to allow timely decisions regarding required
        disclosure.
  31
 *Index*
  **PART
        II.   OTHER INFORMATION**
 
 **ITEM
        1 - LEGAL PROCEEDINGS**
 
 **FMRI**
 
 On
        September 29, 2006 A&M Engineering and Environmental Services Inc.
        (“A&M”) filed suit in the District Court for Tulsa County, State of Oklahoma
        against FMRI, a special purpose subsidiary of Fansteel, and Penn Environmental
        & Remediation Inc (“Penn”).  On April 27, 2005, A&M and FMRI
        entered into a contract to excavate, dry, bag, stage and transport residue
        material to an acceptable offsite depository.  Penn was designated as
        the engineer for purposes of the contract.  In May 2006, FMRI was
        notified by A&M that they were canceling the transportation portion of the
        contract, but continued to perform under the balance of the
        contract.  A&M submitted change orders totaling $1.2 million under
        the contract that required approval by the engineer.  The changes
        orders were not approved.  A&M subsequently filed
        suit.  The contract provisions require the use of mediation for
        resolution before filing suit.  In November 2006, FMRI participated in
        failed meetings with A&M to stay their suit and enter into
        mediation.  On December 1, 2006, FMRI notified A&M that the
        contract was being terminated for cause.  Since A&M took no
        actions to commence cure efforts, the contract was terminated effective December
        20, 2006 with FMRI expressly reserving its rights under the contract. On
        December 7, 2006, FMRI filed with the District Court for Tulsa County in
        response to the A&M complaint.  In these pleadings, FMRI objected
        to venue and requested transfer to Muskogee County and cited A&M for breach
        of contract, breach of change order, fraud, breach of implied duty of good
        faith
        and fair dealing, and sought damages including liquidation damages, project
        completion costs, and faulty work.  FMRI believes it has counter
        claims against A&M for amounts well in excess of the $1.2 million claimed by
        A&M.   Both sides have filed interrogatories and document
        requests for the suit.  A Scheduling Order was filed with the District
        Court of Tulsa County after a February 26, 2007 scheduling conference with
        the
        presiding judge.  The order includes a schedule for an evidentiary
        hearing with the judge from September 17 – 21, 2007 regarding A&M’s
        intentions to enjoin FMRI’s access to a portion of the Decommissioning Trust
        Fund (i.e., at least equal to A&M’s monetary claims against
        FMRI).  The briefs and responses for this hearing are to occur between
        June and August 2007.  Per this order, the actual jury trial for this
        suit is to be scheduled sometime after June 2008. On May 29, 2007, A&M filed
        another Notice to the Court stating that it will be unable to file its Motion
        on
        June 1, 2007 for Injunctive Relief in accordance with the Scheduling Order.
        A&M cited more time was needed to review documents. This notice also stated
        that A&M did not know what the delayed dates for these activities might be
        and therefore they are not rescheduling dates at this time. The first of
        the
        A&M depositions of FMRI personnel were scheduled to begin May 23 and 24,
        2007. A&M also postponed these depositions and have not rescheduled them to
        date.In
        October 2007, A&M requested an120-day extension to the Scheduling Order. If
        granted (which is expected), this 120-day extension will move the start of
        expert briefs and reviews from January to late April 2008 and the date for
        the
        actual Jury Trial would be no earlier than November 1, 2008.FMRI
        cannot
        provide any assurance to a successful outcome and an unsuccessful outcome
        could
        hinder FMRI in its obligation to remediate the Muskogee Facility.  Any
        exposure is limited to FMRI and not Fansteel.
  **Environmental
        Claims and Insurance Recoveries**
 
 Certain
        environmental claims have been
        made against the Company by the EPA and various other regulatory agencies,
        entities and persons in connection with the investigation and cleanup of
        certain
        sites. Pursuant to the Reorganization Plan, all such claims were treated
        and
        resolved and as part of such treatment, the Company has sought recovery from
        certain of its insurers in respect of certain defense and cleanup costs relating
        to the claims.  The Department of Justice notified the Company on
        April 29, 2005 that the NRC and other interested federal agencies did consent
        to
        the following settlements: On May 26, 2005, the Company reached agreement
        with
        Zurich American Insurance Company and Zurich International (Bermuda) Ltd.
        (collectively, "Zurich") and on April 18, 2005 with KWELM Management Services
        Limited on behalf of the Scheme Administrator for KWELM in an insolvency
        proceeding under the laws of Great Britain and the Joint Liquidators for
        The
        Bermuda Fire & Marine Insurance Company (collectively, "KWELM"). Zurich
        agreed to a settlement providing for a cash settlement payment to the Company
        of
        $1.4 million, which was received on June 9, 2005.  KWELM agreed
        to a Notified Scheme Claim totaling $400,000. Cash distributions in respect
        of
        the claims would be paid out to the Company in accordance with KWELM's approved
        Scheme of Arrangement.  The Scheme administrator has represented that
        Fansteel can anticipate total cash payments equal to approximately 50% to
        57% of
        its Notified Scheme Claim (approximately $200,000 -
        $228,000).  Payments from KWELM during 2005 were $330,304 and during
        2006 were $5,349 for a total of $335,653, or 84% of the total
        claim.  The proceeds of the settlements were used in accordance with
        the Reorganization Plan to pay certain professional fees and expenses related
        to
        such settlements.  The net proceeds from the settlements were
        allocated in accordance with the Reorganization Plan and, among other things,
        resulting in prepayments under the FMRI Notes of $831,000, the FLRI Primary
        Note
        of $111,000 and the ED Note of $147,000 and payments aggregating $66,000
        on
        account of EPA CERCLA claims.
  32
 *Index*
  **Other
        Legal Actions**
 
 During
        the third quarter 2006, Fansteel
        filed to close its bankruptcy case, as it believed all bankruptcy issues
        had
        been substantially resolved.  On September 23, 2006, the Company
        received notice that the Department of Justice ("DOJ") objected to the case
        closure, stating that the Company had not responded to a letter requesting
        information regarding the status of various environmental remediation
        sites.  The Company did not receive the DOJ letter until 2 days after
        the DOJ notice of objection was filed.  The Company through legal
        counsel has had discussions with the DOJ to resolve their
        objection.
 
 In
        October 2006 the Company filed a
        suit in the United States District Court for the Northern District of Illinois,
        Eastern Division, to recover monies owed from a customer for non-payment
        of
        $594,000 on a trade accounts receivable.  The customer claims $212,000
        of the amount owed is not due, but has refused to pay any of the $594,000
        accounts receivable owed.  Both parties agreed to
        mediation/arbitration, which began on July 11, 2007. On September 23, 2007,
        a
        settlement agreement was reached whereby the Company received a payment of
        $175,000 and then will receive $25,000 per month for twelve months until
        an
        additional $300,000 is received.  The settlement agreement does
        provide for the ability to receive security in property held by the owner
        of the
        customer if the monthly payments are defaulted.
 
 In
        August 2007, the Company received
        notice that a former business of the Company was being added as party to
        a
        lawsuit involving a product liability issue with hard metal lung
        disease.  The Company’s insurance carriers have been notified and it
        is anticipated they will defend the Company.
 
 From
        time
        to time, the Company is involved in routine litigation incidental to its
        business.  The Company is not a party to or aware of any pending or
        threatened legal proceeding that it believes would have a material adverse
        effect on its results of operations or financial condition.
  33
 *Index*
  **ITEM
        1A – RISK FACTORS**
 
 Investment
        in the Company’s securities
        involves a number of risks and uncertainties. Careful consideration should
        be
        given to the following risks, along with the cautionary statement regarding
        “forward-looking statements” in Part 1, Item 2 of this report and other
        information included in this report, before purchasing the Company’s securities.
        Besides the risks listed below, the Company faces risks that are currently
        unknown or that are currently consider to be immaterial, but may also impact
        business or adversely affect the Company’s financial condition or results of
        operations.
 
 **Emergence
        From Bankruptcy**
 
 On
        January 15, 2002 (the "Petition Date"), Fansteel Inc. and eight of its then
        subsidiaries (collectively, the "Debtors") filed voluntary petitions for
        reorganization relief under Chapter 11 of the U.S. Bankruptcy Code. After
        the
        Petition Date, the Predecessor Company (referring to the Company prior to
        the
        Effective Date) continued to operate its business and manage its affairs
        as
        debtor-in-possession ("DIP") with court approval for transactions outside
        the
        ordinary course of business. By order dated December 23, 2003, the U.S.
        Bankruptcy Court for the District of Delaware (the "Court") confirmed the
        Second
        Amended Joint Reorganization Plan (the "Reorganization Plan").  All
        the Debtors emerged from Chapter 11 of the U.S. Bankruptcy Code on January
        23,
        2004 (the "Effective Date").
 
 The
        Reorganization Plan left the Company with significant environmental liabilities
        going forward that must be funded from continuing operations.
 
 **Environmental
        Issues**
 
 The
        Company has significant
        environmental issues primarily related to special purpose entities included
        in
        discontinued operations, particularly in Muskogee, OK, that could have a
        material impact on the Company’s results. The ability of the Company to fund the
        clean up of this site could have a material adverse impact on the Company.
        For
        further details, see Note 3 Discontinued Operations including Certain
        Environmental Remediation.
 
 **High
        Level Of Debt**
 
 The
        Company's high level of debt could have important consequences.  The
        Company's ability to pay debt service and other contractual obligations will
        depend on the Company's future performance and cash flow generation, which
        in
        turn will be affected by prevailing economic and industry conditions and
        financial, business and other factors, many of which are beyond the Company's
        control.  If the Company has difficulty providing for debt service or
        other contractual obligations in the future, the Company may be forced to
        take
        actions such as reducing or delaying capital expenditures, reducing costs,
        selling assets, refinancing or reorganizing its debt or other obligations
        and
        seeking additional equity capital, or any combination of the
        above.  The Company may not be able to take any of these actions on
        satisfactory terms, or at all.
 
 **The
        Company Has A Few Large Customers**
 
 The
        companies controlled by United Technologies Corporation (“UTC”) and
        International Truck and Engine Corporation (“International Engine”) are
        significant customers of the Company.
  34
 *Index*
  In
        addition to UTC and International Engine, the Company sells to several other
        customers that make up a significant portion of the Company’s total sales. While
        none of these other customers individually represent more than 10% of the
        Company’s net sales, as a group they make up a considerable portion of the
        Company’s total sales. Although it is not anticipated, the loss of UTC,
        International Engine or one or more of these other significant customers
        would
        have a substantial impact on the Company’s operations and profitability. While
        the Company has long-term relationships with these companies, there is no
        guarantee that these relationships will continue.  In addition, these
        customers are in the aerospace and automotive industries, which tend to be
        volatile. In particular, the United States automotive industry has been unstable
        in recent years, with several large automotive companies struggling financially
        and some filing Chapter 11 bankruptcy.
 
 **Competition**
 
 Each
        of
        the Company’s businesses participates in markets that are highly competitive.
        Many of these competitors are much larger than the Company’s businesses, have
        greater name recognition, have more financial resources and can sell their
        products at prices lower than ours, giving them a greater competitive edge.
        The
        Company competes primarily on the basis of product quality, product performance,
        value, and long-term customer relationships. The competition that the Company
        faces in these markets may prevent the Company from achieving sales and profit
        goals, which could affect the Company’s financial condition and results of
        operations.
 
 In
        addition the Company faces increased
        competition, primarily in the Industrial Metal Components business segment,
        from
        offshore sources, such as China, that offer lower production costs.
 
 **Material
        Prices**
 
 The
        Company started to experience raw material price increases beginning in 2004
        and
        these material price increases have continued into 2007.  The
        Industrial Metal Components segment has been impacted particularly hard with
        some material prices nearly doubling from 2005 levels.  To offset
        these price increases, the Company began adding material surcharges in March
        2004 and in 2007 the Company continues to add material surcharges. There
        is no
        guarantee that the Company will be able to continue to pass on these material
        surcharges to its customers, and in fact, some customers have refused to
        accept
        these surcharges. In light of these customers refusal to accept surcharges,
        analysis on these customers’ margins is underway to determine if this business
        is profitable enough to retain.
 
 **Manufacturing
        in Foreign Countries**
 
 The
        Company has a manufacturing
        facility in Mexico that is subject to currency exchange rate fluctuations.
        While
        foreign currency exchange rates have not had a significant impact on the
        Company’s financial condition in the past, there can be no certainty that
        exchange rates will not have a financial impact in the future.
 
 **Liquidity
        of the Company Stock**
 
 The
        Company has a limited number of
        shareholders and the stock is thinly traded.
  35
 *Index*
  **ITEM
        2 – UNREGISTERED SALES OF SECURITIES AND USE OF
        PROCEEDS**
  None.
 
 **ITEM
        3 – DEFAULTS UPON SENIOR SECURITIES**
  None.
 
 **ITEM
        4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
        HOLDERS**
  None.
  **ITEM
        5 – OTHER INFORMATION**
  None.
 
 **ITEM
        6 – EXHIBITS**
  Exhibit
                  #
              
              Description
                  of Exhibit31.1
              
              Certification
                  by Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a)
                  under
                  the Securities Exchange Act of 1934, as adopted pursuant to Section
                  203 of
                  the Sarbanes-Oxley Act of 200231.2
              
              Certification
                  by Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a)
                  under
                  the Securities Exchange Act of 1934, as adopted pursuant to Section
                  203 of
                  the Sarbanes-Oxley Act of 200232.1
              
              Certifications
                  by Chief Executive Officer and Chief Financial Officer pursuant
                  to 18
                  U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002
  36
 *Index*
  **SIGNATURES**
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
 
 FANSTEEL
                  INC.(Registrant)/s/
                  Gary L. TessitoreGary
                  L. TessitoreNovember
                  12, 2007
              President
                  and Chief Executive Officer/s/
                  R. Michael McEnteeR.
                  Michael McEnteeVice
                  President andNovember
                  12, 2007
              Chief
                  Financial Officer






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