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 MARCH 31, 2008

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, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨     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 April 30, 2008
Common Stock, $.01 par value	3,420,000 shares

1

FANSTEEL INC.

FORM 10-Q – INDEX

MARCH 31, 2008

PART I.	FINANCIAL INFORMATION	Page No.
Item 1	Consolidated Financial Statements
	Consolidated Statement of Operations (unaudited) – Three months ended March 31, 2008 and 2007	3
	Consolidated Balance Sheet – March 31, 2008 (unaudited) and December 31, 2007	4-5
	Consolidated Statement of Cash Flows (unaudited) – Three months ended March 31, 2008 and  2007	6
	Notes to Unaudited Consolidated Financial Statements	7-15
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	16-25
Item 3	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4T	Controls and Procedures	26-27
PART II	OTHER INFORMATION
Item 1	Legal Proceedings	28-30
Item 1A	Risk Factors	30-31
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3	Defaults Upon Senior Securities	32
Item 4	Submission of Matters to a Vote of Security Holders	32
Item 5	Other Information	32
Item 6	Exhibits	32
Signatures		33
Exhibit 31.1	Certifications- Gary L. Tessitore
Exhibit 31.2	Certifications- R. Michael McEntee
Exhibit 32.1	Certification

2

PART I.    FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

Fansteel Inc.

Consolidated Statement of Operations

(Unaudited)

	Three Months Ended March 31, 2008			Three Months Ended March 31, 2007
Net Sales	$	19,986,144		$	18,332,796
Cost and Expenses
Cost of products sold		16,877,098			15,581,411
Selling, general and administrative		1,780,423			1,557,117
		18,657,521			17,138,528
Operating Income		1,328,623			1,194,268
Other Expense
Interest expense		(390,948	)		(367,989	)
Other		(47,724	)		(41,661	)
		(438,672	)		(409,650	)
Income from Continuing Operations Before Income Taxes		889,951			784,618
Income Taxes		-			-
Net Income from Continuing Operations		889,951			784,618
Loss from Discontinued Operations		(791,479	)		(795,335	)
Net Income (Loss)	$	98,472		$	(10,717	)
Weighted Average Number of Common Shares Outstanding		3,420,000			3,420,000
Basic and Diluted Net Income (Loss) per Sharea
Continuing Operations	$	0.26		$	0.23
Discontinued Operations		(0.23	)		(0.23	)
Net Income (Loss)	$	0.03		$	0.00

See Notes to Consolidated Financial Statements

___________________________

a Basic earnings per share and diluted earnings per share are the same.

3

Fansteel Inc.

Consolidated Balance Sheet

	March 31, 2008 (Unaudited)		December 31, 2007
ASSETS
Current assets
Cash and cash equivalents	$	16,292	$	298,352
Accounts receivable, less allowance of $189,000 and $170,000 at March 31, 2008 and December 31, 2007, respectively		10,384,033		10,568,513
Inventories
Raw material and supplies		1,660,048		1,308,731
Work-in process		9,031,550		8,554,360
Finished goods		565,323		574,686
Total inventories		11,256,921		10,437,777
Prepaid expenses		1,512,037		1,830,489
Total current assets		23,169,283		23,135,131
Property, plant and equipment
Land		917,419		917,419
Buildings		4,125,459		4,122,886
Machinery and equipment		8,422,979		8,103,287
		13,465,857		13,143,592
Less accumulated depreciation		4,420,699		4,140,642
Net property, plant and equipment		9,045,158		9,002,950
Other assets
Deposits		660,799		660,799
Reorganization value in excess of amounts allocable to identified assets		12,893,734		12,893,734
Property held for sale		720,000		1,178,116
Other		351,674		337,652
Total other assets		14,626,207		15,070,301
	$	46,840,648	$	47,208,382

See Notes to Consolidated Financial Statements

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Fansteel Inc.

Consolidated Balance Sheet

	March 31, 2008 (Unaudited)			December 31, 2007
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable	$	7,782,909		$	7,589,036
Accrued liabilities		7,896,087			8,040,875
Short-term borrowings		13,854,077			15,010,884
Current maturities of long-term debt		3,825,933			900,254
Total current liabilities		33,359,006			31,541,049
Long-term debt, less current maturities		3,861,646			6,491,265
Other liabilities
Environmental remediation		21,333,760			20,989,571
Non-current pension liability		716,992			716,992
Total other liabilities		22,050,752			21,706,563
Total liabilities		59,271,404			59,738,877
Minority interest		191,220			180,777
Shareholders' equity (deficit)
Common stock, par value $0.01 Authorized 3,600,000 shares, issued and outstanding 3,420,000		34,200			34,200
Capital in excess of par value		296,314			296,314
Accumulated deficit		(12,852,671	)		(12,951,143	)
Accumulated other comprehensive loss		(99,819	)		(90,643	)
Total shareholders’ deficit		(12,621,976	)		(12,711,272	)
Total liabilities and shareholders' deficit	$	46,840,648		$	47,208,382

See Notes to Consolidated Financial Statements

5

Fansteel Inc.

Consolidated Statement of Cash Flows

(Unaudited)

	Three Months			Three Months
	Ended			Ended
	March 31, 2008			March 31, 2007
Cash Flows From Operating Activities:
Net income (loss)	$	98,472		$	(10,717	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		280,057			231,077
Minority interest expense		10,443			-
Accretion on long-term debt and other liabilities		42,664			53,506
Loss from discontinued operations		791,479			795,335
Change in assets and liabilities:
Decrease in accounts receivable		134,735			265,599
(Increase) decrease in inventories		(819,144	)		496,938
Decrease in prepaid expenses		304,512			372,733
Increase (decrease) in accounts payable and accrued liabilities		328,074			(624,604	)
Increase (decrease) in income taxes payable		7,155			(1,188	)
Increase in other assets		(14,022	)		(11,885	)
Net cash provided by operating activities		1,164,425			1,566,794
Cash Flows From Investing Activities:
Capital expenditures		(322,265	)		(239,582	)
Net cash used in investing activities		(322,265	)		(239,582	)
Cash Flows From Financing Activities:
Proceeds from long-term borrowing		1,000,000			-
(Payments) proceeds on short-term borrowing		(1,157,089	)		332,109
Payments on long-term debt		(80,646	)		(76,578	)
Net cash (used in) provided by financing activities		(237,735	)		255,531
Net Increase in Cash and Cash Equivalents from Continuing Operations		604,425			1,582,743
Cash Flows of Discontinued Operations:
Operating cash flows		(1,344,601	)		(1,582,727	)
Investing cash flows		458,116			-
Total Cash Flows of Discontinued Operations		(886,485	)		(1,582,727	)
Net (Decrease) Increase in Cash and Cash Equivalents		(282,060	)		16
Cash and Cash Equivalents at Beginning of Period		298,352			17,672
Cash and Cash Equivalents at End of Period	$	16,292		$	17,688
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	311,351		$	293,447
Income taxes (refunds)		7,155			(1,188	)

See Notes to Consolidated Financial Statements

6

Notes to Unaudited Consolidated Financial Statements

Note 1 - Description of Business

The consolidated financial statements as of and for the periods ending March 31, 2008 and March 31, 2007 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 for the three months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. 

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, flow control valves and pumps, 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, and in conjunction with this grant, compensation expense of $164,000 was recorded. 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.

7

Note 2 – Earnings (Loss) per Share

SFAS No. 128, "Earnings per Share" requires a dual presentation of earnings per share, basic and diluted. Basic earnings per share are computed by dividing net income (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
Numerator:	March 31, 2008		March 31, 2007
Net income (loss)	$	98,472	$	(10,717	)
Denominator:
Denominator for basic earnings per share- weighted average shares		3,420,000		3,420,000
Effect of dilutive securities
Employee stock options		-		-
Employee restricted stock		-		-
Dilutive potential common shares		3,420,000		3,420,000
Basic earnings per share	$	0.03	$	0.00
Diluted earnings per share	$	0.03	$	0.00

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.

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.

8

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 and transfer 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, which was required to be applied upon reemergence from Chapter 11 bankruptcy, 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. Phase 1 is behind schedule, but continued into 2008.  The NRC has been kept informed on the status of the decommissioning activities and was notified that FMRI’s current plans are only to continue maintenance and safety controls on the site after 2008 until sufficient funds are in place to complete Phase 1 activities, anticipated to begin in late 2010. Completion of Phase 1 is scheduled for 2012. At March 31, 2008 and December 31, 2007, the gross estimated liability was $27,423,000 and $27,654,000, respectively, and the recorded discounted liability, using a discount rate of 11.3%, was $17,456,000 and $17,111,000, respectively.

FMRI can draw up to $4.5 million from an existing decommissioning trust owned by Fansteel established in accordance with the Amended Decommissioning Trust Agreement with the NRC.  Draws against the decommissioning trust may be made on a revolving basis as long as the aggregate amounts outstanding under such draws shall not exceed $2 million and provided certain terms and conditions are satisfied.  On April 13, 2005, the decommissioning trust was amended, with the consent of the NRC, to allow additional draws of up to $2,500,000 to be drawn by FMRI to complete Phase 1 of the decommissioning plan.  The amounts of these additional draws are dependent upon, among other things, the weight of material disposed of offsite at the approved disposal site. Consistent with the NRC License, FMRI in April 2004 drew $525,000 from the Trust.  In the second quarter of 2005, FMRI drew an additional $500,000 from the Trust.  In the third quarter of 2005, FMRI drew an additional $1,160,000 from the Trust.  In 2005, Fansteel prepaid $768,000 to FMRI from net insurance proceeds, which FMRI used to reduce amounts owing to the Trust. In 2006, FMRI drew an additional $652,000 and Fansteel prepaid $70,000 to FMRI from insurance proceeds. In 2007, FMRIdrew an additional $776,000 from the Trust, bringing total draws from the Trust to $2.8 million at December 31, 2007. In the first three months of 2008, FMRIdrew an additional $629,000 from the Trust, bringing total draws from the Trust to $3.4 million at March 31, 2008.

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. During 2007, new estimates of costs to complete the remediation reduced the gross liability by $324,000. At March 31, 2008 and December 31, 2007, the gross estimated liability was $858,000 and $875,000, respectively, and the recorded discounted liability, using a discount rate of 11.3%, was $841,000 and $857,000, respectively.

9

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 at fair market value with this third party.  FLRI is in negotiations with the KNREPC and the Lessee to finalize the transfer of the property and obligation to remediate the site.

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 six months after issuance. In July 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 2007, and therefore, there is no further liability.

10

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” to Whitesell Corporation (“Whitesell”), a customer of Washington Manufacturing.

Whitesell had been leasing the buildings of Washington Manufacturing until it vacated in December 2006 at which time the Company began to actively try to sell the Washington Manufacturing property and classified it 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, less selling costs. On January 22, 2008, the Company entered into an agreement with a buyer for the purchase of the remaining assets at the Washington Manufacturing facility for $475,000, which is approximately equal to the book value. The Company closed on the sale of this property onMarch 13, 2008.

Results of Discontinued Operations

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

Discontinued operations reported losses of $791,000and $795,000 for the three months ended March 31, 2008 and March 31, 2007, respectively.  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 pension note for the terminated pension plan.

The components of net liabilities of discontinued operations, which are included on the Consolidated Balance Sheet, consist of the following at March 31, 2008 and December 31, 2007:

	March 31, 2008		December 31, 2007
Cash	$	449,511	$	855,712
Other notes and accounts receivable		-		49,745
Prepaid expenses		50,667		64,607
Property held for sale		720,000		1,178,116
Total assets	$	1,220,178	$	2,148,180
Current liabilities	$	491,841	$	812,742
Long-term debt (PBGC note)		4,588,351		5,213,971
Environmental remediation		18,297,217		17,967,503
Total liabilities	$	23,377,409	$	23,994,216
Net liabilities of discontinued operations	$	22,157,231	$	21,846,036

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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 $2,166,000 through 2009.  At March 31, 2008 and December 31, 2007 the gross estimated liability was $1,852,000 and $1,877,000, respectively, and the recorded discounted liability, using a discount rate of 11.3%, was $1,816,000 and $1,834,000, respectively.

Wellman is permitted to operate a sanitary landfill for the disposal of its foundry sand.  It is anticipated that, based upon current regulation and projections by third-party consultants, Wellman is likely to be required to close the landfill no earlier than 2018 at a future cost approximating $1,166,000. Changes in regulations for non-public landfills may result in closure at an earlier date, which cannot be determined from current information known. The recorded discounted liability, using a discount rate of 11.3%, at March 31, 2008 and December 31, 2007 was $631,000 and $613,000, 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 March 31, 2008 and December 31, 2007 was $590,000 and $575,000, 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.

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.

12

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 could be made until February 29, 2008, at which time the Company drew the maximum $3 million. 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 March 31, 2008 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 $1,906,000 at March 31, 2008.  Borrowing under the revolving line of credit is included as short-term borrowings. Borrowing from the term loan under the credit facility is included as current portion of long-term debt for $3,000,000 at March 31, 2008 and long-term debt of $2,000,000 at December 31, 2007.

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.

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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 March 31, 2008 and December 31, 2007, the Company had potential federal and state income tax benefits from net operating loss carry-forwards of $22.3 million, which expire in various years through 2023. Valuation allowances have been recorded for the full amount of all net operating loss carry-forwards and the other deferred tax assets as the net operating loss carry-forwards and other deferred tax assets are not anticipated to be realized before expiration.

The Company does not expect a significant increase or decrease in unrecognized tax benefits within the next twelve months. The Company and its subsidiaries file income tax returns in various tax jurisdictions, including the United States and several states. The Company has substantially concluded all U.S. Federal and State income tax matters for the period up to and including 2002.

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, energy, agricultural and construction machinery, lawn and garden equipment, marine, plumbing and electrical hardware, flow control, valve and pump 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
Net Sales:	March 31, 2008		March 31, 2007
Advanced Structures	$	11,591,814	$	10,941,717
Industrial Metal Components		8,394,330		7,391,079
Total Net Sales	$	19,986,144	$	18,332,796
Operating Income:
Advanced Structures	$	911,740	$	846,354
Industrial Metal Components		416,883		347,914
Total Operating Income	$	1,328,623	$	1,194,268

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

Identifiable assets:	March 31, 2008		December 31, 2007
Advanced Structures	$	19,033,133	$	19,520,969
Industrial Metal Components		11,169,930		10,139,992
Corporate		15,417,407		15,399,241
Discontinued		1,220,178		2,148,180
Total Assets	$	46,840,648	$	47,208,382

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

	Three Months Ended
Depreciation and amortization:	March 31, 2008		March 31, 2007
Advanced Structures	$	133,662	$	112,633
Industrial Metal Components		140,596		113,880
Corporate		5,799		4,564
Total depreciation and amortization	$	280,057	$	231,077
Capital expenditures:
Advanced Structures	$	203,131	$	130,031
Industrial Metal Components		98,265		109,551
Corporate		20,869		-
Total capital expenditures	$	322,265	$	239,582

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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 March 31, 2008 As Compared To Three Months Ended March 31, 2007

Net Sales

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

	Three Months Ended March 31, 2008		Three Months Ended March 31, 2007
Advanced Structures	$	11,591,814	$	10,941,717
Industrial Metal Components		8,394,330		7,391,079
	$	19,986,144	$	18,332,796

Consolidated Company net sales of $19,986,000 for the three months ended March 31, 2008 increased $1.7 million, or 9.0%, compared to net sales of $18,333,000 for the three months ended March 31, 2007. Both business segments showed improvement, with the investment casting operation in the Industrial Metal Components segment leading the sales growth.

For the three months ended March 31, 2008, Advanced Structure net sales increased by $650,000, or 5.9%, compared to the three months ended March 31, 2007.  Sand casting sales to the private jet, regional jet and commercial air markets provided most of the improvement, which was partially offset by a decrease in military flight sales. Tooling sales for the first three months of 2008 were also lower as the first three months of 2007 included tooling for a large program, while no significant programs have yet been completed in 2008.

Net sales for the Industrial Metal Components segment increased $1,003,000, or 13.6%, for the three months ended March 31, 2008 compared with the three months ended March 31, 2007.  Net sales of investment castings increased by $778,000, or 18.5%, with improvement in most product lines, led by the automotive line, which has benefited from engine programs for diesel engine components.Powdered metal components sales improved $225,000, or 7.1%, due to improvements in automotive and lawn and garden product lines.Included in this segment’s sales are surcharges for increased metal costs in the first quarter of 2008 of $1.0 million, which were $49,000 less than the first quarter of 2007. While material prices have continued to rise, some customers have requested new pricing rather than surcharges.

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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 March 31, 2008		% Of Net Sales		Three Months Ended March 31, 2007		% Of Net Sales
Advanced Structures	$	9,894,606		85.4%	$	9,346,865		85.4%
Industrial Metal Components		6,982,492		83.2%		6,234,546		84.4%
	$	16,877,098		84.4%	$	15,581,411		85.0%

Cost of products sold of $16.9 million for the three months ended March 31, 2008 increased by $1.3 million compared to $15.6 million for the three months ended March 31, 2007, due largely to the increase in sales volume. As a percent of sales, cost of products sold improved to 84.4% in 2008 compared to 85.0% in 2007.

In the Advanced Structures segment cost of products sold of $9.9 million for the three months ended March 31, 2008 increased $548,000 compared with cost of products sold of $9.3 million for the three months ended March 31, 2007. Cost of products sold increased due to the higher volume, increased material costs and more outside service costs, which were offset by reduced scrap and improved overhead costs.As a percent of net sales, cost of products remained flat at 85.4% in the first three months of 2008 compared with the first three months of 2007.

The Industrial Metal Components’ cost of products sold were $7.0 million for the three months ended March 31, 2008 compared to cost of products sold of $6.2 million for the three months ended March 31, 2007.  Higher volume and increased material costs accounted for the majority of the increase. As a percent of net sales, cost of products improved to 83.2% for the first three months of 2008 compared with 84.4% for the first three months of 2007 as a result of the higher volume and lower overhead costs.

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:

	Three Months Ended March 31, 2008		% Of Net Sales		Three Months Ended March 31, 2007		% Of Net Sales
Advanced Structures	$	785,468		6.8%	$	748,498		6.8%
Industrial Metal Components		994,955		11.9%		808,619		10.9%
	$	1,780,423		8.9%	$	1,557,117		8.5%

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Selling, general and administrative expenses for the first three months of 2008 were $1,780,000 compared with $1,557,000 in the first three months of 2007, due largely to higher commissions, payroll costs and professional fees. As a percent of sales, selling, general and administrative expenses increased to 8.9% in the first three months of 2008 compared with 8.5% for the first three months of 2007.

In the Advanced Structures segment, selling, general and administrative expenses for the three months ended March 31, 2008 increased by $37,000, or 4.9%, compared with the three months ended March 31, 2007 due to increased payroll and sales commissions. As a percent of sales, selling, general and administrative expenses remained flat at 6.8% for both time periods.

Selling, general and administrative expenses for Industrial Metal Components segment for the three months ended March 31, 2008 increased$186,000, or 23.0%, compared with the three months ended March 31, 2007 due to higher sales commissions, employment recruiting expenses, professional fees and payroll costs.  As a percent of sales, selling, general and administrative expenses increased to 11.9% compared with 10.9%, as the volume increase did not offset the cost increases.

Operating Income

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

	Three Months Ended March 31, 2008		% Of Net Sales		Three Months Ended March 31, 2007		% Of Net Sales
Advanced Structures	$	911,740		7.9%	$	846,354		7.7%
Industrial Metal Components		416,883		5.0%		347,914		4.7%
	$	1,328,623		6.6%	$	1,194,268		6.5%

Operating income for the three months ended March 31, 2008 increased $134,000 compared to the three months ended March 31, 2007, with both segments providing nearly equal improvements. Operating income as a percent of sales improved slightly to 6.6% for the three months ended March 31, 2008 compared with 6.5% for the three months ended March 31, 2007.

Advanced Structures operating income of $912,000for the three months ended March 31, 2008 increased $66,000 from operating income of $846,000 for the three months ended March 31, 2007. Operating income as a percent of sales improved to 7.9% for the three months ended March 31, 2008 compared with 7.7% for the three months ended March 31, 2007. Higher volume, reduced scrap and lower overhead costs provided the majority of the improvement.

Industrial Metal Components had operating income of $417,000 for the three months ended March 31, 2008 compared to operating income of $348,000 for the three months ended March 31, 2007, an increase of $69,000. Segment operating income as a percent of sales improved to 5.0% for the three months ended March 31, 2008 compared with 4.7% for the three months ended March 31, 2007. The higher volume and lower overhead costs were the key factors in this improvement.

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Other Expenses

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

	Three Months Ended March 31, 2008			Three Months Ended March 31, 2007
Interest expense	$	(390,948	)	$	(367,989	)
Other		(47,724	)		(41,661	)
	$	(438,672	)	$	(409,650	)

Other expenses increased $29,000 for the three months ended March 31, 2008 compared to the three months ended March 31, 2007 due to largely to increased borrowings from the revolving line of credit, including the term loan.

Discontinued Operations

Discontinued operations reported a loss of $791,000 for the three months ended March 31, 2008 and a loss of $795,000 for the three months ended March 31, 2007. The losses for both periods relate primarily to the accretion of discounted environmental liabilities from the Company’s special purpose subsidiaries and the note payable to the Pension Benefit Guarantee Corporation.

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 net income of $98,000 for the three months ended March 31, 2008 and a net loss of $11,000 for the three months ended March 31, 2007.

Liquidity and Capital Resources

On March 31, 2008 and December 31, 2007, the Company had cash of $16,000 and $298,000 respectively.

Continuing operations provided cash of $604,000for the three months ended March 31, 2008, due mostly to operating activities of $1,164,000. Excluding net debt payments of $238,000, continuing operations provided $842,000 for the three months ended March 31, 2008. Discontinued operations used $886,000 for the three months ended March 31, 2008, primarily for funding the on-going environmental remediation at the Muskogee, Oklahoma property, but were partially offset by the March 2008 sale of the Washington Manufacturing property that provided $458,000.

For the three months ended March 31, 2007, cash from continuing operations increased $1,583,000, due largely to improvements in working capital.Excluding borrowings, continuing operations have provided $1,327,000 in the first three months of 2007. Cash flows from discontinued operations used $1,583,000 for the three months ended March 31, 2007, primarily for funding the on-going environmental remediation at the Muskogee, Oklahoma property.

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Operating Activities

For the three months ended March 31, 2008, operating activities provided $1,164,000 in cash with improvements in working capital coming from decreases in receivables and prepaids, increases in accounts payable and accrued liabilities partially offset by increases in inventories.  Accounts receivable decreased by $135,000 due to strong collections and a 1-day decrease in days outstanding. Inventories increased by $819,000 due to the higher sales demand.

For the three months ended March 31, 2007, operating activities provided $1,567,000 in cash. Accounts receivable decreased by $266,000,despite higher sales, due to strong collections. Days outstanding were 56 days, a decrease of 8 days in the quarter. Inventories decreased by $497,000as customers took releases in January that had been held at year-end 2006.Accounts payable and accrued liabilities decreased by $625,000 due to the timing of payments to trade vendors.

Investing Activities

For the three months ended March 31, 2008, investing activities used $322,000for capital expenditures, primarily for replacement equipment and upgrades for both business segments.

For the three months ended March 31, 2007, investing activities consumed $240,000 for capital expenditures for capacity expansion and replacement equipment for both business segments.

Financing Activities

Financing activities used $238,000 for the three months ended March 31, 2008. Borrowings for 2008 from the term loan within the revolving line of credit with Fifth Third were $1,000,000 for funding operations, capital expenditures and environmental remediation of discontinued operations. Payments of $1,157,000 were made in 2008 for short-term borrowings from the revolving line of credit. Payments of $81,000 in 2008 of long-term debt were for loans from various economic agencies in Pennsylvania.

Financing activities provided $256,000 for the three months ended March 31, 2007. For the first three months of 2007, short-term borrowings from the revolving line of credit with Fifth Third Bank were $332,000. Payments of long-term debt in the first three months of 2007 were $77,000 for loans from various economic agencies in Pennsylvania.

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.

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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 could be made until February 29, 2008, at which time the Company had drawn the maximum $3 million.  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.

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;

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- 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.

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.

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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 documented completion of all requirements under the specific purchase agreement, which is considered 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 March 2008, the Financial Accounting Standards Board (“FASB”)  issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133” (SFAS No. 161).  SFAS No. 161 amends and expands the disclosure requirements of Statement 133 to provide a better understanding of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for, and their effect on an entity’s financial position, financial performance, and cash flows.  SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. The Company is currently evaluating the impact that the adoption of SFAS No. 161 will have on the consolidated financial statements.

In December 2007 the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB No. 51’s consolidation procedures for consistency with the requirements of SFAS 141 (revised 2007), “Business Combinations”. SFAS 160 is effective for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. SFAS 160 shall be applied prospectively as of the beginning of the fiscal year in which the Statement is adopted, except for the presentation and disclosure requirements. The presentation and disclosure requirements shall be applied retrospectively for all periods presented. The effect of adopting SFAS 160 is not expected to be material.

In December 2007 the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R retains the fundamental requirements of the original pronouncement requiring that the purchase method be used for all business combinations. SFAS 141R defines the acquirer as the entity that obtains control of one or more businesses in the business combination, establishes the acquisition date as the date that the acquirer achieves control and requires the acquirer to recognize the assets and liabilities assumed and any non-controlling interest at their fair values as of the acquisition date. SFAS 141R requires, among other things, that the acquisition related costs be recognized separately from the acquisition. SFAS 141R is applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009. The effect of adopting SFAS 141R will be dependent on the nature and the size of the acquisition completed after the adoption of SFAS 141R.

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In February 2007 the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits an entity to elect to measure eligible items at fair value (“fair value option”) including many financial instruments. The provisions of SFAS 159 are effective for the Company as of January 1, 2008. If the fair value option is elected, the Company will report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Upfront costs and fees related to an item for which the fair value option is elected shall be recognized in earnings as incurred and not deferred. The fair value option may be applied for a single eligible item without electing it for other identical items, with certain exceptions, and must be applied to the entire eligible item and not to a portion of the eligible item. The adoption of SFAS 159 in 2008 did not have an impact on our results of operations or financial position.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is partially effective for the Company beginning on January 1, 2008. The requirements of SFAS 157 will be applied prospectively except for certain derivative instruments that would be adjusted through the opening balance of retained earnings in the period of adoption. In February 2008, FASB issued Staff Position No. FAS 157-2which provides for a one-year deferral of the effective date of SFAS 157 for non-financial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis. The adoption of SFAS 157 in 2008 did not have an impact on our results of operations or financial position.

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.  In 2004, price increases were experienced and these price increases have continued into 2008.  To offset these price increases, the Company began adding material surcharges in March 2004 and in 2008 the Company continues to add material surcharges.  Material surcharges accounted for 5.2% of net sales for the three months ended March 31, 2008 and 6.0% of net sales for the three months ended March 31, 2007.Surcharges were 4.5% lower in the first quarter of 2008 compared to the first quarter of 2007 as customers have begun to request price increases instead of surcharges.

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.

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Contractual Obligations

The following table summarizes payments due by year for the contractual obligations at March 31, 2008:

(In thousands)	Total		2008		2009		2010		2011		2012		After 2012
PBGC Note	$	6,500	$	-	$	750	$	1,150	$	1,150	$	1,150	$	2,300
PA economic agencies notes		79		65		14		-		-		-		-
Operating and capital leases		587		175		117		79		64		152		-
Fifth Third revolving line		14,521		546		13,975		-		-		-		-
Fifth Third term loan		3,568		293		3,275		-		-		-		-
Letters of credit		770		-		770		-		-		-		-
Environmental liabilities		32,373		1,516		3,129		2,596		1,838		1,838		21,456
Total	$	58,398	$	2,595	$	22,030	$	3,825	$	3,052	$	3,140	$	23,756

The above table excludes discounts of the long-term debt and environmental liabilities, but does include any related interest.  The Fifth Third revolving line is at prime and the rate used for this table is 5.25%.

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 March 31, 2008 was $1,906,000, compared with $1,963,000 at December 31, 2007.

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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 increases have continued into 2008.  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 2008, but some customers have begun to request price increases rather than surcharges

ITEM 4T - CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company has carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) or 15d-15(e)) as of the end of the period covered by this quarterly report on Form 10-Q. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer were required to conclude that the Company‘s disclosure controls and procedures were not effective due to the one material weakness identified as part of their evaluation of internal control over financial reporting discussed below.

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

Management’s Report on Internal Control over Financial Reporting

The Company is responsible for establishing and maintaining adequate internal control over financial reporting in accordance with Exchange Act Rule 12a-15. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of the Company’s financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect the Company’s transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of the Company’s financial statements; providing reasonable assurance that receipts and expenditures are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition use or disposition of Company assets that could have a material effect on the Company’s financial statements would be prevented or detected on a timely basis. Because of the limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of the Company’s financial statements would be prevented or detected.

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Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework and criteria established in Internal Control- Integrated Framework; issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion of this evaluation. Based on this evaluation, management was required to conclude that the Company’s internal control over financial reporting was not effective as of December 31, 2007.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

As of December 31, 2007, management identified a material weakness in the Company’s revenue recognition process for non-standard billing of tooling at one of its subsidiaries. The subsidiary properly recognized the revenue but did not adequately document the processes it went through to determine that the revenue should be recognized based on the verbal authorization from their customer. This material weakness could have resulted in an overstatement of revenue that could have resulted in a material misstatement to the annual and interim financial statements if not detected and prevented.

This quarterly report does not include an attestation of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this quarterly report.

Remedial Actions and Changes in Internal Control over Financial Reporting

Management has developed and implemented remediation plans to address the material weakness and otherwise enhance the Company’s internal control over financial reporting.

In the first quarter of 2008, the Company implemented a plan to further enhance its revenue recognition process, which specifically improved the design and operating effectiveness of certain revenue recognition controls over non-standard billing of tooling.

There were no changes in the Company’s internal controls over financial reporting that occurred during the first quarter 2008 that materially affected, or are reasonably likely to material affect, the Company’s internal control over financial reporting.

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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 included 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 occurred between June and August 2007.  Per this order, the actual jury trial for this suit was to be scheduled sometime after June 2008.

On May 29, 2007, A&M filed another Notice to the Court stating that it would 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 would not reschedule dates at that 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 has not rescheduled them to date. In October 2007, A&M requested a 120-day extension to the Scheduling Order, which was subsequently granted and moved the start of expert briefs and reviews from January 2008 to late April 2008. The date for the actual Jury Trial would be no earlier than November 1, 2008.In March of 2008, A&M agreed in principal to non-binding mediation.  A date of June 24, 2008 has been set to begin mediation.

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.

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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, which the Scheme administrator had represented that Fansteel could 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, resulted in prepayments under the FMRI Notes of $831,000, the FLRI Primary Note of $111,000 and the ED Note of $147,000 and payments aggregating $66,000 on account of EPA CERCLA claims.  In December 2007, the Company received a settlement payment from Hartford Insurance. The net proceeds from the settlements were allocated in accordance with the Reorganization Plan and, among other things, resulted in prepayments under the FMRI Notes of $50,000, and payments aggregating $17,000 on account of EPA CERCLA claims.

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, but with no satisfactory resolution as yet.

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 claimed $212,000 of the amount owed was not due and 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. As of the end of the first quarter in 2008, the customer was in full compliance with the payment schedule pursuant to the terms of the settlement agreement.

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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.  One of the Company’s insurance carriers is committed to defending the Company in this lawsuit.

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.

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 I, 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 considered to be immaterial, but may also impact business or adversely affect the Company’s financial condition or results of operations.

Environmental Issues

The Company has significant environmental issues ongoing from the emergence of bankruptcy on January 23, 2004, primarily related to special purpose entities included in discontinued operations, particularly in Muskogee, OK, that must be funded from continuing operations and could have a material impact on the Company’s results.

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 and each represents 10% or more of Company net sales.  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.

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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 2008.  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 2008 the Company continues to add material surcharges. There is no guarantee that the Company will be able to continue to pass these material surcharges on to its customers, and in fact, some customers have refused to accept these surcharges. These customers’ margins are being analyzed to determine if their business is profitable enough to retain. In 2008 some customers have begun to request new pricing rather than surcharges.  In the Advanced Structures segment, primarily serving the aerospace industry, customers have accepted price increases related to higher material prices, generally on an annual basis.  Raw material prices have been relatively stable, although prices have increased for 2008.

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.

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

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SIGNATURES

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

	FANSTEEL INC.
	(Registrant)
	/s/ Gary L. Tessitore
	Gary L. Tessitore
May 8, 2008	President and Chief Executive Officer
	/s/ R. Michael McEntee
	R. Michael McEntee
	Vice President and
May 8, 2008	Chief Financial Officer

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