UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(MARK ONE)

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

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 T     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 July 31, 2008
Common Stock, $.01 par value	3,420,000 shares

1

FANSTEEL INC.

FORM 10-Q – INDEX

JUNE 30, 2008

PART I.	FINANCIAL INFORMATION	Page No.
Item 1	Consolidated Financial Statements
	Consolidated Statement of Operations (unaudited) – Three months ended June 30, 2008 and 2007; Six months ended June 30, 2008 and 2007	3-4
	Consolidated Balance Sheet – June 30, 2008 (unaudited) and December 31, 2007	5-6
	Consolidated Statement of Cash Flows (unaudited) – Six months ended June 30, 2008 and 2007	7
	Notes to Unaudited Consolidated Financial Statements	8-15
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	16-29
Item 3	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4T	Controls and Procedures	30
PART II	OTHER INFORMATION
Item 1	Legal Proceedings	31-32
Item 1A	Risk Factors	32-34
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3	Defaults Upon Senior Securities	34
Item 4	Submission of Matters to a Vote of Security Holders	34
Item 5	Other Information	34
Item 6	Exhibits	34
Signatures		35
Exhibit 10.1	Letter to President and Chief Executive Officer regarding non-renewal of Employment Contract
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 June 30, 2008			Three Months Ended June 30, 2007
Net Sales	$	20,540,984		$	19,208,510
Cost and Expenses
Cost of products sold		17,008,804			16,025,143
Selling, general and administrative		1,666,129			2,579,688
		18,674,933			18,604,831
Operating Income		1,866,051			603,679
Other Income (Expense)
Interest expense		(409,858	)		(392,625	)
Other		66,618			(12,406	)
		(343,240	)		(405,031	)
Income from Continuing Operations Before Income Taxes		1,522,811			198,648
Income Taxes		35,098			-
Net Income from Continuing Operations		1,487,713			198,648
Loss from Discontinued Operations		(766,958	)		(1,082,908	)
Net Income (Loss)	$	720,755		$	(884,260	)
Weighted Average Number of Common Shares Outstanding		3,420,000			3,420,000
Basic and Diluted Net Income (Loss) per Sharea
Continuing Operations	$	0.43		$	0.06
Discontinued Operations		(0.22	)		(0.32	)
Net Income (Loss)	$	0.21		$	(0.26	)

See Notes to Consolidated Financial Statements

______________________________

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

3

Fansteel Inc.

Consolidated Statement of Operations

(Unaudited)

	Six Months Ended June 30, 2008			Six Months Ended June 30, 2007
Net Sales	$	40,527,128		$	37,541,306
Cost and Expenses
Cost of products sold		33,885,902			31,606,554
Selling, general and administrative		3,446,552			4,136,805
		37,332,454			35,743,359
Operating Income		3,194,674			1,797,947
Other Income (Expense)
Interest expense		(800,806	)		(760,614	)
Other		18,894			(54,067	)
		(781,912	)		(814,681	)
Income from Continuing Operations Before Income Taxes		2,412,762			983,266
Income Taxes		35,098			-
Net Income from Continuing Operations		2,377,664			983,266
Loss from Discontinued Operations		(1,558,437	)		(1,878,243	)
Net Income (Loss)	$	819,227		$	(894,977	)
Weighted Average Number of Common Shares Outstanding		3,420,000			3,420,000
Basic and Diluted Net Income (Loss) per Sharea
Continuing Operations	$	0.70		$	0.29
Discontinued Operations		(0.46	)		(0.55	)
Net Income (Loss)	$	0.24		$	(0.26	)

See Notes to Consolidated Financial Statements

______________________________

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

4

Fansteel Inc.

Consolidated Balance Sheet

	June 30, 2008 (Unaudited)		December 31, 2007
ASSETS
Current assets
Cash and cash equivalents	$	802,879	$	298,352
Accounts receivable, less allowance of $197,000 and $170,000 at June 30, 2008 and December 31, 2007, respectively		10,251,849		10,568,513
Inventories
Raw material and supplies		1,826,451		1,308,731
Work-in process		9,372,124		8,554,360
Finished goods		739,288		574,686
Total inventories		11,937,863		10,437,777
Prepaid expenses		723,745		1,830,489
Total current assets		23,716,336		23,135,131
Property, plant and equipment
Land		917,419		917,419
Buildings		4,134,562		4,122,886
Machinery and equipment		9,290,543		8,103,287
		14,342,524		13,143,592
Less accumulated depreciation		4,716,903		4,140,642
Net property, plant and equipment		9,625,621		9,002,950
Other assets
Deposits		227,593		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		337,657		337,652
Total other assets		14,178,984		15,070,301
	$	47,520,941	$	47,208,382

See Notes to Consolidated Financial Statements

5

Fansteel Inc.

Consolidated Balance Sheet

	June 30,2008 (Unaudited)			December 31, 2007
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable	$	7,170,436		$	7,589,036
Accrued liabilities		7,091,396			8,040,875
Short-term borrowings		14,619,088			15,010,884
Current maturities of long-term debt		3,789,676			900,254
Total current liabilities		32,670,596			31,541,049
Long-term debt, less current maturities		4,045,115			6,491,265
Other liabilities
Environmental remediation		21,803,527			20,989,571
Non-current pension liability		716,992			716,992
Total other liabilities		22,520,519			21,706,563
Total liabilities		59,236,230			59,738,877
Minority interest		197,230			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		(12,131,916	)		(12,951,143	)
Accumulated other comprehensive loss		(111,117	)		(90,643	)
Total shareholders’ deficit		(11,912,519	)		(12,711,272	)
Total liabilities and shareholders' deficit	$	47,520,941		$	47,208,382

See Notes to Consolidated Financial Statements

6

Fansteel Inc.

Consolidated Statement of Cash Flows

(Unaudited)

	Six Months			Six Months
	Ended			Ended
	June 30, 2008			June 30, 2007
Cash Flows From Operating Activities:
Net income (loss)	$	819,227		$	(894,977	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		576,261			482,086
Minority interest expense		16,453			166,804
Accretion on long-term debt and other liabilities		91,173			113,560
Gain from disposal of property, plant and equipment		(400	)		-
Loss from discontinued operations		1,558,437			1,878,243
Change in assets and liabilities:
Decrease in accounts receivable		266,919			174,655
Increase in inventories		(1,500,086	)		(379,514	)
Decrease in prepaid expenses		1,078,865			666,108
(Decrease) increase in accounts payable and accrued liabilities		(919,050	)		605,725
Increase (decrease) in income taxes payable		19,774			(3,468	)
Decrease in other assets		433,201			142,643
Net cash provided by operating activities		2,440,774			2,951,865
Cash Flows From Investing Activities:
Capital expenditures		(1,208,532	)		(565,765	)
Proceeds from property, plant and equipment		10,000			-
Net cash used in investing activities		(1,198,532	)		(565,765	)
Cash Flows From Financing Activities:
Proceeds from long-term borrowing		1,000,000			667,240
Payments on short-term borrowing		(393,112	)		-
Payments on long-term debt		(66,614	)		(154,075	)
Net cash provided by financing activities		540,274			513,165
Net Increase in Cash and Cash Equivalents from Continuing Operations		1,782,516			2,899,265
Cash Flows of Discontinued Operations:
Operating cash flows		(1,277,989	)		(2,899,282	)
Total Cash Flows of Discontinued Operations		(1,277,989	)		(2,899,282	)
Net Increase (Decrease) in Cash and Cash Equivalents		504,527			(17	)
Cash and Cash Equivalents at Beginning of Period		298,352			17,672
Cash and Cash Equivalents at End of Period	$	802,879		$	17,655
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	748,306		$	609,614
Income taxes (refunds)		15,324			(3,468	)

See Notes to Consolidated Financial Statements

7

Notes to Unaudited Consolidated Financial Statements

Note 1 - Description of Business

The consolidated financial statements as of and for the periods ending June 30, 2008 and June 30, 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 and six months ended June 30, 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 casting, 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.

8

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 Company has no outstanding stock options or common stock equivalents outstanding for the three and six months presented, and therefore, basic and diluted earnings per share are the same.

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

	Three Months Ended					Six Months Ended
Numerator:	June 30, 2008		June 30, 2007			June 30, 2008		June 30, 2007
Net income (loss)	$	720,755	$	(884,260	)	$	819,227	$	(894,977	)
Denominator:
Denominator for basic earnings per share- weighted average shares		3,420,000		3,420,000			3,420,000		3,420,000
Effect 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		3,420,000
Basic earnings per share	$	0.21	$	(0.26	)	$	0.24	$	(0.26	)
Diluted earnings per share	$	0.21	$	(0.26	)	$	0.24	$	(0.26	)

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.

9

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. FMRI is currently discussing this approach with the NRC. At June 30, 2008 and December 31, 2007, the gross estimated liability was $27,183,000 and $27,654,000, respectively, and the recorded discounted liability, using a discount rate of 11.3%, was $17,800,000 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. As of June 30, 2008 FMRI has drawn $4.1 million from the Trust.

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 advising the agency that a detailed Site Characterization Plan would be submitted by FLRI, a special purpose subsidiary, which pursuant to the Reorganization Plan now owns the Lexington facility.  Cost of remedial activities was estimated at $1.78 million 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. 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.  During 2007, new estimates of costs to complete the remediation reduced the gross liability by $324,000. At June 30, 2008 and December 31, 2007, the gross estimated liability was $856,000 and $875,000, respectively, and the recorded discounted liability, using a discount rate of 11.3%, was $840,000 and $857,000, respectively.

10

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 with anticipation that a transaction will be completed in the third quarter 2008.

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.

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 was approximately equal to the book value. The Company closed on the sale of this property onMarch 13, 2008.

11

Results of Discontinued Operations

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

Discontinued operations reported losses of $767,000 and $1,083,000 for the three months ended June 30, 2008 and June 30, 2007, respectively, and $1,558,000and $1,878,000 for the six months ended June 3, 2008 and June 30, 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 June 30, 2008 and December 31, 2007:

	June 30, 2008		December 31, 2007
Cash	$	765,266	$	855,712
Other notes and accounts receivable		-		49,745
Prepaid expenses		36,728		64,607
Property held for sale		720,000		1,178,116
Total assets	$	1,521,994	$	2,148,180
Current liabilities	$	385,016	$	812,742
Long-term debt (PBGC note)		4,714,113		5,213,971
Environmental remediation		18,639,795		17,967,503
Total liabilities	$	23,738,924	$	23,994,216
Net liabilities of discontinued operations	$	22,216,930	$	21,846,036

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 June 30, 2008 and December 31, 2007 the gross estimated liability was $1,808,000 and $1,877,000, respectively, and the recorded discounted liability, using a discount rate of 11.3%, was $1,779,000 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, the estimated cost to close the landfill will be $1,297,000 after an updated 2008 cost study of the landfill closure costs increased the gross liability by $131,000.  This charge was taken in the second quarter 2008. Changes in regulations for non-public landfills may result in closure at an earlier date than originally anticipated.  The Iowa Department of Natural Resources notified Wellman in the July 2008 landfill permit renewal that disposal should cease by July 2011 unless synthetic liners are installed. Wellman has appealed this permit limitation since the landfill should be excluded from liner requirements under a grandfather exclusion provided in the current regulations.  The recorded discounted liability, using a discount rate of 11.3%, at June 30, 2008 and December 31, 2007 was $779,000 and $613,000, respectively.

12

In October 2000, Wellman provided the Iowa Department of Health (the "IDPH") with a "Historical Site Assessment" that identified uranium and thorium concentrations at the site.  The IDPH required Wellman to perform a Risk Assessment ("RA") to determine whether the thorium-containing materials are a threat to human health or the environment.  Wellman is awaiting the final report, but to its knowledge, the existing data forming the basis for the RA indicates that there is no imminent threat to health, safety or the environment.  Wellman anticipates that the IDPH will allow it to address the thorium issue when it closes the sanitary landfill.  However, there is a risk that the IDPH will require Wellman to remove or remediate the thorium prior to that time.  The current estimated cost to remediate the thorium is $1,075,000. The recorded discounted liability, using a discount rate of 11.3%, at June 30, 2008 and December 31, 2007 was $606,000 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. This loan agreement with Fifth Third Bank was amended on December 4, 2006 increasing the borrowing base to $21.5 million.

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 0.25% 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.

13

At June 30, 2008 the Company had letters of credit of $771,000 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 $1,002,000 at June 30, 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 June 30, 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.

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

At June 30, 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. Due to the recent ownership change, the tax loss carry-forwards of the Company will be subject to limitation by Section 382 of the Internal Revenue Code with respect to the amount utilizable each year. The amount of the limitation has not been quantified by the Company. 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.

14

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

	Three Months Ended					Six Months Ended
Net Sales:	June 30, 2008		June 30, 2007			June 30, 2008		June 30, 2007
Advanced Structures	$	12,141,342	$	10,468,672		$	23,733,156	$	21,410,389
Industrial Metal Components		8,399,642		8,739,838			16,793,972		16,130,917
Total Net Sales	$	20,540,984	$	19,208,510		$	40,527,128	$	37,541,306
Operating Income (Loss):
Advanced Structures	$	1,659,658	$	552,493		$	2,571,398	$	1,398,847
Industrial Metal Components		206,393		616,743			623,276		964,657
Corporate		-		(565,557	)		-		(565,557	)
Total Operating Income	$	1,866,051	$	603,679		$	3,194,674	$	1,797,947

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

Identifiable assets:	June 30, 2008		December 31, 2007
Advanced Structures	$	19,631,658	$	19,520,969
Industrial Metal Components		11,064,349		10,139,992
Corporate		15,302,940		15,399,241
Discontinued		1,521,994		2,148,180
Total Assets	$	47,520,941	$	47,208,382

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

	Three Months Ended				Six Months Ended
Depreciation and amortization:	June 30, 2008		June 30, 2007		June 30, 2008		June 30, 2007
Advanced Structures	$	147,288	$	125,948	$	280,950	$	238,581
Industrial Metal Components		142,536		120,465		283,132		234,345
Corporate		6,380		4,596		12,179		9,160
Total depreciation and amortization	$	296,204	$	251,009	$	576,261	$	482,086
Capital expenditures:
Advanced Structures	$	523,020	$	206,492	$	726,151	$	336,523
Industrial Metal Components		363,247		118,573		461,512		228,124
Corporate		-		1,118		20,869		1,118
Total capital expenditures	$	886,267	$	326,183	$	1,208,532	$	565,765

15

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

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

Results of Operations

Three Months Ended June 30, 2008 As Compared To Three Months Ended June 30, 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 June 30, 2008		Three Months Ended June 30, 2007
Advanced Structures	$	12,141,342	$	10,468,672
Industrial Metal Components		8,399,642		8,739,838
	$	20,540,984	$	19,208,510

The Company’s consolidated net sales for the three months ended June 30, 2008 increased $1.3 million, or 6.9%, compared to the three months ended June 30, 2007. The increase was due to higher sales of sand castings in the Advanced Structures segment.

Advanced Structures’ net sales for the three months ended June 30, 2008 increased by $1,673,000, or 16.0%, compared to the three months ended June 30, 2007. Strong demand for engine components used in the private jet and regional jet markets provided the majority of the increase, but were partially offset by lower tooling sales.

Industrial Metal Components' net sales for the three months ended June 30, 2008 decreased $340,000, or 3.9%, compared with the three months ended June 30, 2007.  Included in segment sales are surcharges for increased metal costs in the quarter ended June 30, 2008 of $1.4 million, which were $188,000 higher than the quarter ended June 30, 2007 due to increases in metal prices, primarily stainless steel. Investment casting sales were lower by $141,000, or 2.4%, primarily related to diesel engine programs for trucks and buses. Sales of powdered metal components decreased by $199,000, or 6.8%, due to the soft automotive market.

16

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 June 30, 2008		% Of Net Sales	Three Months Ended June 30, 2007		% Of Net Sales
Advanced Structures	$	9,723,387	80.1%	$	8,963,281		85.6%
Industrial Metal Components		7,285,417	86.7%		7,061,862		80.8%
	$	17,008,804	82.8%	$	16,025,143		83.4%

Cost of products sold of $17.0 million for the three months ended June 30, 2008 increased by $984,000 compared to $16.0 million for the three months ended June 30, 2007, due largely to the increase in sales volume for magnesium and aluminum sand castings. As a percent of sales, cost of products sold were 82.8% and 83.4% for the three month periods ended June 30, 2008 and June 30, 2007, respectively.

In the Advanced Structures segment, cost of products sold of $9.7 million for the three months ended June 30, 2008 increased $760,000 compared with cost of products sold of $9.0 million for the three months ended June 30, 2007. As a percent of net sales, cost of products decreased by 5.5 points for the three months ended June 30, 2008 compared with the three months ended June 30, 2007. For the three months ended June 30, 2008, training grant money of $1,050,000 was received from the state of Iowa, which improved cost of products sold by 8.6 percentage points, while in the same period of 2007 no training grant money was received.  Partially offsetting the improvement from the training grants and the higher volume were increased scrap, outside processing, material and environmental costs for the three months ended June 30, 2008.

The Industrial Metal Components’ cost of products sold increased to $7.3 million for the three months ended June 30, 2008 compared to cost of products sold of $7.1 million for the three months ended June 30, 2007.  As a percent of net sales, cost of products were 86.7% for the three months ended June 30, 2008 compared with 80.8% for the three months ended June 30, 2007. Lower volume and higher material costs for the three months ended June 30, 2008 had a negative impact on results.

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 June 30, 2008		% Of Net Sales	Three Months Ended June 30, 2007		% Of Net Sales
Advanced Structures	$	758,297	6.2%	$	952,898	9.1%
Industrial Metal Components		907,832	10.8%		1,061,233	12.1%
Corporate		-	NA		565,557	NA
	$	1,666,129	8.1%	$	2,579,688	13.4%

Selling, general and administrative expenses for the three months ended June 30, 2008 were $1,666,000, a decrease of $914,000 over expenses of $2,580,000 for the three months ended June 30, 2007. As a percent of sales, selling, general and administrative expenses decreased to 8.1% in the second three months of 2008 compared with 13.4% for the second three months of 2007. Expenses in 2007 included $566,000 for unusual professional fees for strategic initiatives and an investigation by a special committee of the Board of Directors. Without these unusual professional fees in the three months ended June 30, 2007, selling, general and administrative expense would have been 10.5% of net sales, which is an improvement of 2.4 percentage points for the three months ended June 30, 2008.

17

In the Advanced Structures segment, selling, general and administrative expenses for the three months ended June 30, 2008 decreased by $195,000 compared with the three months ended June 30, 2007. Results in the second quarter of 2007 included $164,000 of compensation expense for 12 shares of stock that were granted to key managers of Wellman Dynamics Corporation, a 98.8% owned subsidiary (after the grant) of Fansteel Inc. included in this segment. As a percent of sales, selling, general and administrative expenses decreased to 6.2% in the second three months of 2008 as a result of the higher volume compared to 9.1% in the second three months of 2007.

Selling, general and administrative expenses for Industrial Metal Components segment for the three months ended June 30, 2008 decreased $153,000 compared with the three months ended June 30, 2007 due to lower commissions and reduced health care costs. Selling, general and administrative expenses as a percent of sales decreased to 10.8% for the three months ended June 30, 2008 compared with 12.1% for the three months ended June 30, 2007.

Corporate selling, general and administrative expenses (not allocated to operations) were $0 for the three months ended June 30, 2008 compared with $566,000 for the three months ended June 30, 2007. Expenses for the three months ended June 30, 2007 were for unusual professional fees for strategic initiatives and 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 June 30, 2008		Three months Ended June 30, 2007
Advanced Structures	$	1,659,658	$	552,493
Industrial Metal Components		206,393		616,743
Corporate		-		(565,557	)
	$	1,866,051	$	603,679

Operating income for the three months ended June 30, 2008 increased $1,262,000, or 209.1%, compared to the three months ended June 30, 2007. The higher sales volume and training monies of $1,050,000 in the Advanced Structures segment provided most of the improvement for the three months ended June 30, 2008. Results in the second quarter of 2007 included unusual professional fees of $566,000 at Corporate and $164,000 of compensation expense in the Advanced Structures segment.

Advanced Structures operating income of $1,660,000 for the three months ended June 30, 2008 increased by $1,108,000 from operating income of $552,000 for the three months ended June 30, 2007. The higher sales volume and training grant money of $1,050,000 were the key factors in the operating income improvement for the three months ended June 30, 2008. Results in the second quarter 2007 included $164,000 of compensation expense for 12 shares of stock that were granted to key managers of Wellman Dynamics Corporation, a 98.8% owned subsidiary (after the grant) of Fansteel Inc. included in this segment.

18

Industrial Metal Components had operating income of $206,000 for the three months ended June 30, 2008 compared to operating income of $617,000 for the three months ended June 30, 2007. The decrease in volume had a negative impact on this segment’s operating income for the three months ended June 30, 2008.

Corporate’s operating loss was $0 for the three months ended June 30, 2008 compared with an operating loss of $566,000 for the three months ended June 30, 2007. The loss in 2007 related to unusual professional fees for strategic initiatives and an investigation by a special committee of the Board of Directors that are not allocable to the operating segments.

Other Income (Expenses)

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

	Three months Ended June 30, 2008			Three months Ended June 30, 2007
Interest income (expenses)	$	(409,858	)	$	(392,625	)
Other income (expenses)		66,618			(12,406	)
	$	(343,240	)	$	(405,031	)

Other expense decreased $62,000 in the three months ended June 30, 2008 compared to the three months ended June 30, 2007. Interest expense in the three months ended June 30, 2008 was higher by $17,000 compared with the three months ended June 30, 2007 due to the increased level of borrowings from the revolving line of credit, including the term loan. Other income of $67,000 for the three months ended June 30, 2008 included $126,000 in income for equipment purchased by a customer for use by the sand casting operation in producing their products. This was partially offset by foreign currency translation at the investment casting operation and minority interest related to the Wellman Dynamics subsidiary.

Discontinued Operations

Discontinued operations reported a loss of $767,000 in the three months ended June 30, 2008 and a loss of $1,083,000 in the three months ended June 30, 2007. 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.

Income taxes

A tax provision of $35,000 was recorded for the three months ended June 30, 2008 compared with a tax provision of $0 for the three months ended June 30, 2007. The tax provision in 2008 relates to foreign taxes in Mexico that are not likely to be recovered. In 2007, no income tax provision or benefit was recognized as valuation allowances had been recorded for all net operating loss benefits and net deferred tax assets.

Net Income (Loss)

The Company had net income of $721,000 for the three months ended June 30, 2008 and a net loss of $884,000 for the three months ended June 30, 2007, an improvement of $1,605,000.

19

2008 Six Months As Compared To 2007 Six Months

Net Sales

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

	Six Months Ended June 30, 2008		Six Months Ended June 30, 2007
Advanced Structures	$	23,733,156	$	21,410,389
Industrial Metal Components		16,793,972		16,130,917
	$	40,527,128	$	37,541,306

Consolidated Company net sales of $40,527,000 for the six months ended June 30, 2008 increased $3.0 million, or 8.0%, compared to net sales of $37,541,000 for the six months ended June 30, 2007. Sales for both business segments increased, with the sand casting operation in the Advanced Structures segment providing the majority of the improvement.

For the six months ended June 30, 2008, Advanced Structure net sales increased by $2,323,000, or 10.8%, compared to the six months ended June 30, 2007.  Sand casting sales for private jet and regional jet engine components provided most of the sales growth. Demand for most aerospace programs remains very strong, while industry capacity in magnesium and aluminum sand casting is limited. Tooling sales for the first six months of 2008 were lower as the first six months of 2007 included tooling for a large program.

Net sales for the Industrial Metal Components segment increased $663,000, or 4.1%, for the six months ended June 30, 2008 compared with the six months ended June 30, 2007.  Net sales of investment castings increased by $637,000, or 6.4%. The improvement was led by sales to flow control customers. Sales were lower in the major market served, automotive, primarily for diesel engine components. Powdered metal components sales improved $26,000, or 0.4%, as the soft automotive market has been offset by improvement in hardware and lawn and garden customers. Included in this segment’s sales are surcharges for increased metal costs in the first six months of 2008 of $2,422,000, which were $139,000 more than the first six months of 2007.

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:

	Six Months Ended June 30, 2008		% Of Net Sales	Six Months Ended June 30, 2007		% Of Net Sales
Advanced Structures	$	19,617,993	82.7%	$	18,310,146	85.5%
Industrial Metal Components		14,267,909	85.0%		13,296,408	82.4%
	$	33,885,902	83.6%	$	31,606,554	84.2%

Cost of products sold of $33.9 million for the six months ended June 30, 2008 increased by $2.3 million compared to $31.6 million for the six months ended June 30, 2007, due largely to the increase in sales volume. As a percent of sales, cost of products sold improved to 83.6% in 2008 compared to 84.2% in 2007.

20

In the Advanced Structures segment cost of products sold of $19.6 million for the six months ended June 30, 2008 increased $1.3 million compared with cost of products sold of $18.3 million for the six months ended June 30, 2007. Cost of products sold increased due to the higher volume, increased material costs and higher scrap, which were partially offset by improved overhead costs and training grant reimbursement.As a percent of net sales, cost of products improved to 82.7% in the first six months of 2008 compared with 85.5% in the first six months of 2007.

The Industrial Metal Components’ cost of products sold were $14.3 million for the six months ended June 30, 2008 compared to cost of products sold of $13.3 million for the six months ended June 30, 2007.  Higher volume, increased material costs and high utility costs accounted for the majority of the increase. As a percent of net sales, cost of products increased to 85.0% for the first six months of 2008 compared with 82.4% for the first six months of 2007 despite the higher volume as result of the higher material and utility 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:

	Six Months Ended June 30, 2008		% Of Net Sales	Six Months Ended June 30, 2007		% Of Net Sales
Advanced Structures	$	1,543,765	6.5%	$	1,701,396	7.9%
Industrial Metal Components		1,902,787	11.3%		1,869,852	11.6%
Corporate		-	NA		565,557	NA
	$	3,446,552	8.5%	$	4,136,805	11.0%

Selling, general and administrative expenses for the first six months of 2008 were $3,447,000 compared with $4,137,000 in the first six months of 2007. As a percent of sales, selling, general and administrative expenses decreased to 8.5% in the first six months of 2008 compared with 11.0% for the first six months of 2007. Results in the first six months of 2007 included $565,000 for unusual professional fees related to strategic initiatives and an investigation by a special committee of the Board of Directors that were not incurred in the first six months of 2008.

In the Advanced Structures segment, selling, general and administrative expenses for the six months ended June 30, 2008 decreased by $158,000, or 9.3%, compared with the six months ended June 30, 2007. As a percent of sales, selling, general and administrative expenses improved to 6.5% for the six months ended June 30, 2008 compared with 7.9% for the six months ended June 30, 2007. Results for the six months ended June 30, 2007 included compensation expense of $164,000 for the 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 Industrial Metal Components segment for the six months ended June 30, 2008 increased$33,000, or 1.8%, compared with the six months ended June 30, 2007 due to mainly to higher bad debt expenses. As a percent of sales, selling, general and administrative expenses decreased to 11.3% compared with 11.6% due to the sales volume increase.

Corporate unallocated selling, general and administrative expenses were $0 for the six months ended June 30, 2008 compared with $566,000 for the six months ended June 30, 2007. These charges in 2007 were for unusual professional fees related to strategic initiatives and an investigation by a special committee of the Board of Directors.

21

Operating Income

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

	Six Months Ended June 30, 2008		% Of Net Sales	Six Months Ended June 30, 2007			% Of Net Sales
Advanced Structures	$	2,571,398	10.8%	$	1,398,847		6.5%
Industrial Metal Components		623,276	3.7%		964,657		6.0%
Corporate		-	NA		(565,557	)	NA
	$	3,194,674	7.9%	$	1,797,947		4.8%

Operating income for the six months ended June 30, 2008 increased $1,397,000 compared to the six months ended June 30, 2007, with the Advanced Structures segment providing most of the improvement, along with reduced Corporate costs. Operating income as a percent of sales improved to 7.9% for the six months ended June 30, 2008 compared with 4.8% for the six months ended June 30, 2007.

Advanced Structures operating income of $2,571,000for the six months ended June 30, 2008 increased $1,172,000 from operating income of $1,399,000 for the six months ended June 30, 2007. Operating income as a percent of sales improved to 10.8% for the six months ended June 30, 2008 compared with 6.5% for the six months ended June 30, 2007. Higher volume, improved overhead costs, reimbursements for a training grant, and reduced compensation expense provided the majority of the improvement.

Industrial Metal Components had operating income of $623,000 for the six months ended June 30, 2008 compared to operating income of $965,000 for the six months ended June 30, 2007, a decrease of $342,000. Segment operating income as a percent of sales decreased to 3.7% for the six months ended June 30, 2008 compared with 6.0% for the six months ended June 30, 2007. Higher volume, increased material costs and high utility costs accounted for the majority of the decrease in operating income.

Corporate had $0 operating income for the six months ended June 30, 2008 compared with an operating loss of $566,000 for the six months ended June 30, 2007. The 2007 loss 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.

Other Income (Expenses)

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

	Six Months Ended June 30, 2008			Six Months Ended June 30, 2007
Interest expense	$	(800,806	)	$	(760,614	)
Other income (expenses)		18,894			(54,067	)
	$	(781,912	)	$	(814,681	)

22

Other expenses decreased $33,000 for the six months ended June 30, 2008 compared to the six months ended June 30, 2007. Interest expense increased by $40,000 due to higher borrowings from the revolving line of credit, including the term loan, in the six months ended June 30, 2008. Other expenses decreased $73,000 as other income of $126,000 was recorded for equipment purchased by a customer and given to the sand casting operation to be used exclusively for producing this customer’s products.

Discontinued Operations

Discontinued operations reported a loss of $1,558,000 for the six months ended June 30, 2008 and a loss of $1,878,000 for the six months ended June 30, 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

A tax provision of $35,000 was recorded for the six months ended June 30, 2008 compared with a tax provision of $0 for the six months ended June 30, 2007. The tax provision in 2008 is related to foreign taxes in Mexico that are not likely to be recovered. In 2007, no income tax provision or benefit was recognized as valuation allowances had been recorded for all net operating loss benefits and net deferred tax assets.

Net Income (Loss)

The Company had net income of $819,000 for the six months ended June 30, 2008 and a net loss of $895,000 for the six months ended June 30, 2007.

Liquidity and Capital Resources

On June 30, 2008 and December 31, 2007, the Company had cash of $803,000 and $298,000 respectively.

Continuing operations provided cash of $1,783,000 for the six months ended June 30, 2008, due mostly to operating activities of $2,441,000. Excluding net debt borrowings of $540,000, continuing operations provided $1,243,000 for the six months ended June 30, 2008. Discontinued operations used $1,278,000 for the six months ended June 30, 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.

Continuing operations provided cash of $2,899,000 for the first six months of 2007, due mostly to improvements in working capital. Excluding borrowings, continuing operations provided $2,386,000 for the six months ended June 30, 2007. Discontinued operations used $2,899,000 for the six months ended June 30, 2007 primarily for funding the on-going environmental remediation at the Muskogee, Oklahoma property.

Operating Activities

For the six months ended June 30, 2008, operating activities provided $2,441,000 in cash with improvements in working capital coming from decreases in receivables, prepaids and other assets, partially offset by decreases in accounts payable and accrued liabilities and increases in inventories.  Accounts receivable decreased by $267,000 due to strong collections and a 5-day decrease in days outstanding. Inventories increased by $1,500,000 due to the higher sales demand.

23

For the six months ended June 30, 2007, operating activities provided $2,952,000 in cash with improvements in working capital coming from decreases in receivables, prepaids and other assets along with increases in accounts payable and accrued liabilities.

Investing Activities

For the six months ended June 30, 2008, investing activities used $1,199,000, which included $1,209,000for capital expenditures, primarily for replacement equipment and upgrades for both business segments, partially offset by $10,000 in proceeds for the sale of equipment. One customer provided $126,000 to the Company to purchase one piece of equipment for use in producing the customer’s parts.  Two other customers committed to provide nearly $4 million of capital for equipment, which will remain their property, and a building addition. The first phase of the equipment is scheduled to be fully operational in the second half of 2008 while the second phase of the equipment and building installation is scheduled to be in operation in the first half of 2009.

For the six months ended June 30, 2007, investing activities consumed $566,000 for capital expenditures for both business segments.

Financing Activities

Financing activities provided $540,000 for the six months ended June 30, 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 $393,000 were made in 2008 for short-term borrowings from the revolving line of credit. Payments of $67,000 in 2008 of long-term debt were for loans from various economic agencies in Pennsylvania.

Financing activities provided $513,000 for the six months ended June 30, 2007. Net borrowings for the first six months of 2007 from the revolving line of credit were $667,000, with payments of long-term debt of $154,000.

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;

24

- 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.

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.

25

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 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 June 2008, the FASB issued FASB Staff Position (FSP) EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities.” This FSP provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The Company does not currently have any share-based awards. Therefore, application of this FSP is not expected to have an effect on the Company’s financial reporting.

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles”(“FAS 162”). This Standard identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. FAS 162 directs the hierarchy to the entity, rather than the independent auditors, as the entity is responsible for selecting accounting principles for financial statements that are presented in conformity with generally accepted accounting principles. The Standard is effective 60 days following SEC approval of the Public Company Accounting Oversight Board amendments to remove the hierarchy of generally accepted accounting principles from the auditing standards. FAS 162 is not expected to have an impact on the Company’s financial condition, results of operations or cash flows.

In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, “Determination of the Useful Life of Intangible Assets” which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. This Staff Position is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. Application of this FSP is not expected to have a significant impact on the Company’s financial statements.

26

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, “Non-controlling 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 non-controlling 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.

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 the Company’s results of operations or financial position.

27

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 6.0% of net sales for the six months ended June 30, 2008 and 6.1% of net sales for the six months ended June 30, 2007, a decrease of 0.1% 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.

Contractual Obligations

The following table summarizes payments due by year for the contractual obligations at June 30, 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		23		9		14		-		-		-		-
Operating and capital leases		536		118		123		79		64		152		-
Fifth Third revolving line		15,106		365		14,741		-		-		-		-
Fifth Third term loan		3,470		195		3,275		-		-		-		-
Letters of credit		771		-		771		-		-		-		-
Environmental liabilities		32,219		2,308		2,432		2,736		1,978		1,978		20,787
Total	$	58,625	$	2,995	$	22,106	$	3,965	$	3,192	$	3,280	$	23,087

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 5.00%.

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.

28

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 June 30, 2008 was $1,002,000, compared with $1,963,000 at December 31, 2007.

29

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 concluded that the Company‘s disclosure controls and procedures were effective in all material respects as of June 30, 2008.

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.

Remedial Actions and Changes in Internal Control over Financial Reporting

Management has developed and implemented remediation plans to address the material weakness noted at prior year 10-K 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.

Effective June 13, 2008, the Board of Directors did not replace the Audit Committee members that resigned as Directors. The current structure of the Board of Directors would meet the financial expert conditions, but not the independence criteria. Therefore, no Audit Committee is being formed, but the full Board will act as an Audit Committee, understanding that independence is an exception.

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

30

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.   As a result of repeated delays by A&M, 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.   FMRI participated in a non-binding mediation on June 24, 2008.  The mediation was not successful and no settlements were reached. Therefore the lawsuits are continuing, although the mediator will continue efforts to craft a settlement.

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. These actions have resulted in insurance recoveries of $1,730,000 in 2005, $5,000 in 2006 and $400,000 in 2007.  No recoveries have been received in 2008.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, FLRI Note, ED Note and on account of EPA CERCLA claims.

31

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 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.

32

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.

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 for the Advance Structures segment 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.

33

Liquidity of the Company Stock

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

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

The Board of Directors has determined that the contract of President and Chief Executive Officer, Gary L. Tessitore, which expires on January 23, 2009, will not be renewed.

ITEM 6 – EXHIBITS

Exhibit # Description of Exhibit

10.1 Letter to President and Chief Executive Officer regarding non-renewal of Employment Contract

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

34

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
August 14. 2008	President and Chief Executive Officer
	/s/ R. Michael McEntee
	R. Michael McEntee
	Vice President and
August 14, 2008	Chief Financial Officer

35