10-Q

United States Securities and Exchange Commission Washington, D. C.  20549 ____________________________ FORM 10-Q ____________________________
(Mark One)
[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 0-17321 TOR MINERALS INTERNATIONAL, INC. (Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization)		74-2081929 (I.R.S. Employer Identification No.)
722 Burleson Street, Corpus Christi, Texas  78402 (Address of principal executive offices)
(361) 883-5591 (Issuer’s telephone number) ____________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [ X ]		No [__]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company.  See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [__]	Accelerated Filer [__]	Non-accelerated Filer [__]	Smaller Reporting Company [ X ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [__]		No [ X ]
Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date.
Class Common Stock, $0.25 par value		Shares Outstanding as of October 31, 2008 7,878,492

1

Table of Contents
Part I - Financial Information
			Page No.
Item 1.	Condensed Consolidated Financial Statements
		Condensed Consolidated Statements of Operations -- Three months and nine months ended September 30, 2008 and 2007	3
		Condensed Consolidated Statements of Comprehensive Income (Loss) -- Three months and nine months ended September 30, 2008 and 2007	4
		Condensed Consolidated Balance Sheets -- September 30, 2008 and December 31, 2007	5
		Condensed Consolidated Statements of Cash Flows -- Nine months ended September 30, 2008 and 2007	6
	Notes to the Condensed Consolidated Financial Statements		7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operation		21
Item 4.	Controls and Procedures		34
Part II - Other Information
Item 1.	Legal Proceedings		35
Item 1-A.	Risk Factors		35
Item 6.	Exhibits		36
Signatures			36

Forward Looking Information

Certain portions of this report contain forward-looking statements about the business, financial condition and prospects of the Company.  The actual results of the Company could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties including, without limitation, changes in demand for the Company’s products, changes in competition, economic conditions, fluctuations in market price for TiO₂ pigments, changes in foreign currency exchange rates, increases in the price of energy and raw materials, such as ilmenite, interest rate fluctuations, changes in the capital markets, changes in tax and other laws and governmental rules and regulations applicable to the Company’s business, and other risks indicated in the Company’s filings with the Securities and Exchange Commission.  These risks and uncertainties are beyond the ability of the Company to control, and, in many cases, the Company cannot predict all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements.  The Company assumes no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws.  When used in this report, the words “believes,” “estimates,” “plans,” “expects,” “anticipates” and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements.

2

TOR Minerals International, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) (In thousands, except per share amounts)
		Three Months Ended September 30,				Nine Months Ended September 30,
		2008		2007		2008		2007
NET SALES	$	7,503	$	7,558	$	21,165	$	21,992
Cost of sales		6,527		6,082		18,525		17,739
GROSS MARGIN		976		1,476		2,640		4,253
Technical services and research and development		62		65		189		183
Selling, general and administrative expenses		1,058		1,055		3,287		3,276
Gain on disposal of assets		-		-		(2)		-
OPERATING INCOME (LOSS)		(144)		356		(834)		794
OTHER INCOME (EXPENSE):
Interest income		-		8		1		11
Interest expense		(134)		(179)		(409)		(518)
Gain (loss) on foreign currency exchange rate		(4)		(35)		(5)		16
Other, net		1		-		11		-
INCOME (LOSS) BEFORE INCOME TAX		(281)		150		(1,236)		303
Income tax expense (benefit)		89		(15)		61		17
NET INCOME (LOSS)	$	(370)	$	165	$	(1,297)	$	286
Less:  Preferred Stock Dividends		15		15		45		45
Income (Loss) Available to Common Shareholders	$	(385)	$	150	$	(1,342)	$	241
Income (loss) per common share:
Basic	$	(0.05)	$	0.02	$	(0.17)	$	0.03
Diluted	$	(0.05)	$	0.02	$	(0.17)	$	0.03
Weighted average common shares outstanding:
Basic		7,878		7,844		7,876		7,844
Diluted		7,878		7,844		7,876		7,901
See accompanying notes.

3

TOR Minerals International, Inc. and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (In thousands)
		Three Months Ended September 30,				Nine Months Ended September 30,
		2008		2007		2008		2007
NET INCOME (LOSS)	$	(370)	$	165	$	(1,297)	$	286
OTHER COMPREHENSIVE INCOME (LOSS), net of tax
Net gain (loss) on derivative instruments designated and qualifying as cash flow hedges, net of tax:
Net gain arising during the period		-		3		-		1
Net (gain) loss reclassified to income		-		2		1		(79)
Currency translation adjustment, net of tax:
Net foreign currency translation adjustment gain (loss)		(1,509)		603		(704)		1,075
Other comprehensive income (loss), net of tax		(1,509)		608		(703)		997
COMPREHENSIVE INCOME (LOSS)	$	(1,879)	$	773	$	(2,000)	$	1,283
See accompanying notes.

4

TOR Minerals International, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In thousands, except per share amounts)
		September 30, 2008		December 31, 2007
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	443	$	376
Trade accounts receivable, net		4,912		3,791
Inventories, net		9,959		11,392
Other current assets		754		578
TOTAL CURRENT ASSETS		16,068		16,137
PROPERTY, PLANT AND EQUIPMENT, net		20,222		20,421
GOODWILL		2,056		2,131
OTHER ASSETS		40		47
TOTAL ASSETS	$	38,386	$	38,736
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	1,921	$	1,992
Accrued expenses		2,853		1,266
Accrued - private placement stock subscriptions		2,100		-
Notes payable under lines of credit		1,278		1,276
Export credit refinancing facility		759		-
Current deferred tax liability		20		16
Current maturities - Capital leases		86		80
Current maturities of long-term debt – Financial Institutions		2,023		4,207
TOTAL CURRENT LIABILITIES		11,040		8,837
LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES
Capital leases		164		213
Long-term debt – Financial Institutions		2,061		2,678
Deferred Tax Liability		630		603
TOTAL LIABILITIES		13,895		12,331
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Series A 6% convertible preferred stock $.01 par value: authorized, 5,000 shares; 200 shares issued and outstanding at 9/30/08 and 12/31/07		2		2
Common stock $.25 par value:  authorized, 20,000 shares; 7,878 and 7,869 shares issued and outstanding at 9/30/08 and at 12/31/07, respectively		1,969		1,967
Additional paid-in capital		23,003		22,874
Accumulated deficit		(3,931)		(2,589)
Accumulated other comprehensive income:
Unrealized gain on derivatives		-		(1)
Cumulative translation adjustment		3,448		4,152
Total shareholders' equity		24,491		26,405
	$	38,386	$	38,736
See accompanying notes.

5

TOR Minerals International, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)
		Nine Months Ended September 30,
		2008		2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(1,297)	$	286
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation		1,483		1,303
Stock-based compensation expense		119		150
Gain on sale/disposal of property, plant and equipment		(2)		-
Deferred income taxes		51		21
Provision for bad debt		51		-
Changes in working capital:
Receivables		(1,240)		(1,088)
Inventories		1,223		197
Other current assets		(189)		(425)
Accounts payable and accrued expenses		1,592		(523)
Accrued expense - Private Placement Stock Subscriptions		2,100		-
Net cash provided by (used in) operating activities		3,891		(79)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment		(1,740)		(622)
Proceeds from sales of property, plant and equipment		3		1
Net cash used in investing activities		(1,737)		(621)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds / (payments) from  lines of credit		(2,903)		875
Net proceeds from export credit refinancing facility		759		-
Net payments on capital leases		(34)		(52)
Proceeds from long-term bank debt		2,049		669
Payments on long-term bank debt		(1,809)		(487)
Payments on related party long-term debt		-		(400)
Proceeds from the issuance of common stock through exercise of common stock options		12		36
Preferred stock dividends paid		(45)		(45)
Net cash provided by (used in) financing activities		(1,971)		596
Effect of exchange rate fluctuations on cash and cash equivalents		(116)		(53)
Net decrease in cash and cash equivalents		67		(157)
Cash and cash equivalents at beginning of period		376		896
Cash and cash equivalents at end of period	$	443	$	739
Supplemental cash flow disclosures:
Interest paid	$	409	$	519
Taxes paid	$	7	$	10
See accompanying notes.

6

TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Note 1. Accounting Policies

Going Concern

The consolidated financial statements included in this report have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As discussed in Note 4 to our financial statements, we have significant borrowings which require, among other things, compliance with certain financial covenants, specifically a Consolidated Fixed Charge Ratio and a Consolidated Funded Debt to EBITDA Ratio, on a quarterly basis.  As a result of operating losses incurred during the quarters ended June 30 and September 30, 2008, we were not in compliance with these financial ratio covenants under our US credit facility (“Credit Facility”) with Bank of America (“BOA”); however, we have received a waiver from BOA for the quarters ended June 30 and September 30, 2008.

Under the terms of the waiver, we agreed to:

• Pay a waiver fee, in the amount of $10,000 and $5,000 for the quarters ended June 30 and September 30, 2008, respectively, to BOA;
• Accept an increase in interest rates applicable to all BOA borrowings from BOA’s prime rate to BOA’s prime rate plus two percent (2%);
• Obtain an injection of $1,000,000 in new capital;
• Reduce line of credit from $5,000,000 to $2,500,000;
• Modify the Current Ratio covenant set forth in the Credit Facility from greater than or equal to 1.10 to greater than or equal to 1.70 on a quarterly basis; and
• Execute a release of claims we may have against BOA regarding the Credit Facility.

During the quarter ended September 30, 2008, our Board of Directors authorized a Private Placement of our common stock to raise a minimum of $1,000,000 on terms more fully set forth in Note 3 to the consolidated financial statements included in this report as well as on the Form 8-K we filed with the Securities and Exchange Commission on October 14, 2008..  However, based on the Company’s current projections for the next twelve month period, an extension of the existing waiver, a new waiver covering certain terms and conditions of the Credit Facility, an amendment to the Credit Facility or some combination of the above may be required.

At June 30 and September 30, 2008, a total of $4,216,000 and $1,330,000, respectively, was outstanding under the Credit Facility.  A breach of any of the terms and conditions of the waiver, or subsequent breaches of the financial covenants under the Credit Facility could result in acceleration of our indebtedness, in which case the debt would become immediately due and payable.

In addition, the Company’s two subsidiaries, Tor Minerals Malaysia, Sdn. Bhd (“TMM”) and TOR Processing and Trade, BV (“TPT”) have short-term credit facilities and term loans at banks in Malaysia and the Netherlands, respectively.  At September 30, 2008, TMM’s utilization under the credit facilities and term loans with HSBC Bank Malaysia Berhad (“HSBC”) and RHB Bank Berhad (“RHB”) totaled $1,634,000, while TPT’s  utilization under the Credit Facility and term loans with Rabobank totaled $3,046,000.  The credit facilities with HSBC, RHB and Rabobank are subject to demand provisions and are subject to certain subjective acceleration covenants based on the judgment of the banks.  While the banks have made no indication that they will demand payment of the debt in Malaysia or the Netherlands, there can be no assurances that this debt will not be called for payment.

7

TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Over the last year, we have actively pursued new production methods and new product development.  As a result, we introduced new products to the market earlier this year and completed our new powder treatment facility in Malaysia in May 2008.  We believe the changes in our manufacturing process and the acceptance of our new products in the market will improve cash flows.  However, our ability to continue to operate as a going concern is dependent on our ability to improve our operating cash flows to a sufficient level, successfully negotiate with our US lending institution, and/or raise sufficient new capital.  There can be no assurance these changes in our operations or our financing initiatives will be successful.

Basis of Presentation and Use of Estimates

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”).  The interim condensed consolidated financial statements include the consolidated accounts of TOR Minerals International, Inc. and its wholly-owned subsidiaries with all significant intercompany transactions eliminated.  In our opinion, all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the consolidated financial position, results of operations and cash flows for the interim periods presented have been made.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules and regulations.  These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2007, in our Annual Report on Form 10-K filed with the SEC on March 18, 2008.  Operating results for the three month and nine month periods ended September 30, 2008, are not necessarily indicative of the results for the year ending December 31, 2008.

Income Taxes

We record income taxes under SFAS No. 109, “Accounting for Income Taxes”, using the liability method.  Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

In May 2006, the State of Texas enacted a new business tax that is imposed on gross revenues to replace the State’s current franchise tax regime. The new legislation’s effective date was January 1, 2007, which means that our first Texas margins tax (“TMT”) return did not become due until May 15, 2008 and was based on our 2007 operations. Although the TMT is imposed on an entity’s gross revenues rather than on its net income, certain aspects of the tax make it similar to an income tax.  In accordance with the guidance provided in SFAS No. 109, we have determined the impact of the newly-enacted legislation in the determination of our reported state current and deferred income tax liability.

In accordance with the requirements of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (“FIN 48”), we evaluate all tax years still subject to potential audit under the applicable state, federal and foreign income tax laws.  We are subject to taxation in the United States, Malaysia and the Netherlands.  Our federal income tax returns in the United States are subject to examination for the tax years ended December 31, 2005 through December 31, 2007.  Our state returns, which are filed in Texas and Michigan, are subject to examination for the tax years ended December 31, 2004 through December 31, 2007and our return filed in Ohio is subject to examination for the tax years ended December 31, 2006 through December 31, 2007.  Our tax returns in various non-US jurisdictions are subject to examination for various tax years ended December 31, 2003 through December 31, 2007.

As of January 1, 2008, we did not have any unrecognized tax benefits and there was no change during the nine-month period ended September 30, 2008.

8

TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Fair Value Option for Financial Assets and Financial Liabilities

On January 1, 2008, we adopted FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115. This standard permits an entity to choose to measure many financial instruments and certain other items at fair value.  The Company elected not to fair value any additional financial instruments and thus the adoption of SFAS 159 did not materially impact our consolidated financial position or results of operations.

Fair Value Measurements

On January 1, 2008, we adopted FASB Statement No. 157, Fair Value Measurement (“SFAS 157”), for our financial assets and financial liabilities.  As permitted by FASB Staff Position No. 157-2 (“FSP 157-2”), we will adopt SFAS 157 for our non-financial assets and non-financial liabilities on January 1, 2009.  SFAS 157 defines fair value, provides guidance for measuring fair value and requires certain disclosures.  FSP 157-2 amends SFAS 157 to delay the effective date of the application of SFAS 157 to fiscal years beginning after November 15, 2008 for all non-financial assets and non-financial liabilities.  Non-financial assets and non-financial liabilities for which we have not applied the provisions of SFAS 157 include those measured at fair value in goodwill impairment testing and those initially measured at fair value in business combinations.

SFAS 157 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost).  The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.  The following is a brief description of those three levels:

• Level 1 – Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.  These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
• Level 3 – Unobservable inputs that reflect the reporting entity’s own assumptions.

The following table presents the Company’s financial assets and financial liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of fair value hierarchy as of September 30, 2008:

	September 30, 2008
(In thousands)	Balance at September 30, 2008		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liability for foreign currency derivative financial instruments (including forward contracts)	$	68	$	-	$	68	$	-

Our foreign currency derivative financial instruments mitigate foreign exchange risks and include forward contracts.

9

TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Recent Accounting and Regulatory Pronouncements

In December 2007, the FASB issued SFAS No. 141 (Revised 2007) Business Combinations and SFAS No. 160 Noncontrolling Interests in Consolidated Financial Statements, which are effective for fiscal years beginning after December 15, 2008.  These new standards represent the completion of the FASB’s first major joint project with the International Accounting Standards Board (IASB) and are intended to improve, simplify and converge internationally the accounting for business combinations and the reporting of noncontrolling interests (formerly minority interests) in consolidated financial statements.  We will adopt these standards at the beginning of our 2009 fiscal year.  The effect of adoption will generally be prospectively applied to transactions completed after the end of our 2008 fiscal year, although the new presentation and disclosure requirements for pre-existing noncontrolling interests will be retrospectively applied to all prior-period financial information presented.  We are currently evaluating the impact of adopting SFAS No. 141(R) and SFAS 160 on our consolidated financial statements.

The FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”, an amendment of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”.  SFAS No. 161 requires entities to provide greater transparency in derivative disclosures by requiring qualitative disclosure about objectives and strategies for using derivatives and quantitative disclosures about fair value amounts of gains and losses on derivative instruments.  SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We will be required to comply with the disclosure requirements of SFAS No. 161 in our 2009 first quarter financial statements.

The FASB has issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles for nongovernmental entities.  SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.

Note 2. Series A Convertible Preferred Stock Dividend

On September 7, 2008, the Company declared a dividend, in the amount of $15,000, or $0.075 per share, for the quarterly period ended September 30, 2008, payable on October 1, 2008, to the holders of record of the Series A Convertible Preferred Stock as of the close of business on September 7, 2008.

10

TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Note 3. Private Placement Stock Offering

As discussed in Note 1 – Accounting Policies, Going Concern, the Company has significant borrowings which require, among other things, compliance with certain financial covenants on a quarterly basis.  As a result of operating losses incurred during the quarters ended June 30 and September 30, 2008, we were not in compliance with the financial covenants under our US credit facility (“Credit Facility”) with Bank of America (“BOA”).  The Company has received a waiver from BOA, however, pursuant to one of the provisions of the waiver, the Company agreed to raise cash equity contribution of at least $1 million.

On October 14, 2008, the Company disclosed on Form 8-K filed with the Securities and Exchange Commission the receipt of subscription agreements in connection with our private placement of seventy (70) investment units (each, a “Unit”) offered at a price of $30,000 per Unit.  We accepted subscriptions to purchase twenty-five (25) Units ($750,000) from accredited investors who are not officers, directors, employees or consultants of TOR (“Non-Insiders”).  Although we have received subscription agreements from accredited investors desiring to purchase the remaining forty-five (45) Units ($1,350,000), because these accredited investors are also certain of our directors, officers, employees and consultants (“Insiders”), we have not accepted these subscriptions and will not accept them unless and until we receive shareholder approval of these potential sales.  The Units to which Insiders have subscribed contain the same terms as those offered to Non-Insiders.  Each such Unit consists of 25,000 shares of Common Stock, and a Warrant to purchase an additional 25,000 shares of Common Stock at $2.00 per share for a period of three years.

To satisfy NASDAQ Marketplace Rules applicable to the participation of Insiders (“Insider Participation”) in the private placement offering, shareholder approval is being sought pursuant to a consent solicitation.  The Consents are being sought for the Insider Participation to ensure that (i) any sale of Units to the Insiders when combined with sales to Non-Insiders, do not result in the issuance of twenty percent or more of Common Stock outstanding before the issuance, at a price less than the greater of book or market value without approval by the Company’s stockholders as set forth in NASDAQ Rule 4350(i)(1)(D) and (ii) to the extent  the Insider Participation could be considered an equity compensation arrangement as set forth in NASDAQ Rule 4350(i)(1)(A), the Company’s stockholders approve of it.  We have initiated this consent solicitation process, and began the process of mailing our shareholders the Consent Statement on November 3, 2008.

For the quarter ended September 30, 2008, the Company has utilized the funds received in connection with the subscription agreements for the 70 units ($2,100,000) to reduce our Credit Facility with BOA.  As a result, the $2,100,000 is included on our Balance Sheet as a current liability as an accrued expense.  As stipulated in the amendment and debt waiver agreement, dated November 13, 2008, BOA has modified the deadline for raising the cash equity contribution of at least $1 million from September 16, 2008, to December 31, 2008.

11

TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Note 4. Long-Term Debt and Notes Payable

A summary of long-term debt and notes payable follows:

		(Unaudited)
(In thousands)		September 30,		December 31,
		2008		2007
Term note payable to a U.S. bank, with an interest rate of 7.0% at September 30, 2008, due November 30, 2010.	$	613	$	723
Term note payable to a U.S. bank, with an interest rate of 7.0% at September 30, 2008, due May 1, 2012.		367		441
Fixed rate term Euro note payable to a Netherlands bank, with an interest rate of 5.5% at September 30, 2008, due June 1, 2009. (101 Euro)		143		296
Fixed rate term Euro note payable to a Netherlands bank, with an interest rate of 7.8% at September 30, 2008, due July 1, 2029. (406 Euro)		571		614
Fixed rate term Euro note payable to a Netherlands bank, with an interest rate of 4.7% at September 30, 2008, due January 31, 2030. (403 Euro)		567		608
Fixed rate term Euro note payable to a Netherlands bank, with an interest rate of 6.1% at September 30, 2008, due July 31, 2015. (346 Euro)		487		560
U.S. Dollar term note payable to a Malaysian bank, with an interest rate of 3.94% at September 30, 2008, due September 30, 2010.		267		343
U.S. Dollar term note payable to a Malaysian bank, with an interest rate of 3.88% at September 30, 2008, due September 30, 2011.		608		-
Term note payable to a U.S. equipment financing company, with an interest rate of 5.24% at September 30, 2008, due April 13, 2013		111		-
Revolving line of credit, payable to a U.S. bank, with an interest rate of bank prime, 7.0% at September 30, 2008, due April 1, 2009.		350		3,300
Total		4,084		6,885
Less current maturities		2,023		4,207
Total long-term debt and notes payable	$	2,061	$	2,678

The majority of the Company's debt is either floating rate or has been recently negotiated and the carrying values approximate fair value.

12

TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

US Bank Credit Facility and Term Loans

Bank of America Credit Facility and Term Loans

We amended and restated our previous loan agreement with Bank of America, N.A. (the “Bank”) on March 19, 2008.  Under the amendment, the Bank extended the maturity date on our Line of Credit (the “Line”) from October 1, 2008 to April 1, 2009.  As a condition of the waiver granted by the Bank on November 13, 2008, the Line, which provides us with a revolving line of credit subject to a defined borrowing base, was reduced from $5,000,000 to $2,500,000.  The Bank has also agreed to issue standby letters of credit for our account up to the amount available under the Line.  At September 30, 2008, the outstanding balance on the Line was $350,000 and we had $2,150,000 available on that date based on eligible accounts receivable and inventory borrowing limitations.

On December 13, 2005, we entered into a real estate term loan (the “Loan”) with the Bank, in the amount of $1,029,000.  The Loan is secured by our US real estate and leasehold improvements.  Interest, which is due and payable monthly, is equal to the Bank’s Prime Rate plus two percent (currently 7.0%).  The monthly principal and interest payments commenced on December 30, 2005, and will continue through November 30, 2010 at which time the “final payment” of $294,000 is due.  The monthly principal payment is $12,250.  The Term Loan balance at September 30, 2008 was $613,000.

On May 7, 2007, we entered into a term loan (the “Term Loan”) with the bank in the amount of $500,000 which is secured by our US property, plant and equipment, as well as inventory and accounts receivable.  Interest, which is due and payable monthly, is equal to the Bank’s Prime Rate plus two percent (currently 7.0%).  The monthly principal and interest payments commenced on June 1, 2007, and will continue through May 1, 2012.  The monthly principal payment is $8,333.33.  The Term Loan balance at September 30, 2008, was $367,000.

The Agreement contains covenants that, among other things, require the maintenance of financial ratios based on our consolidated results of operations.  The Agreement also requires us to notify the Bank upon the occurrence of a “material adverse event”, which among other items, is considered to be an event that may adversely affect our consolidated financial condition, business, properties, operations, the Bank’s collateral or the Bank’s ability to enforce its rights under the Agreement.

As stated above in Note 1, for the quarters ended June 30 and September 30, 2008, the Company was not in compliance with the Consolidated Fixed Charge Ratio and the Consolidated Funded Debt to EBITDA Ratio covenants under our credit facility with Bank of America; however, we requested and received a waiver for the quarters ended June 30 and September 30, 2008.  Terms of the waiver and our action in response thereto are more fully set forth in Note 1 above.

Other Term Loans

On March 31, 2008, we entered into a term loan with Holt Financing in the amount of $120,000.  The proceeds of the loan were used to purchase a new Caterpillar front-end loader.  The loan will be repaid over five years with interest fixed at a rate of 5.24%.  Monthly principal and interest payments commenced on May 1, 2008, and will continue through April 1, 2013.  The monthly principal and interest payment is $2,275.  The loan balance at September 30, 2008 was $111,000.

13

TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Netherlands Bank Credit Facility, Mortgage and Term Loan

On March 20, 2007, our subsidiary, TPT, entered into a short-term credit facility (“Credit Facility”) with Rabobank which replaced the existing Euro 650,000 short-term credit facility (dated April 2, 2004).  Under the terms of the Credit Facility, TPT’s line of credit increased from Euro 650,000 to Euro 1,100,000.  The Credit Facility, which has a variable interest rate of Bank prime plus 2.8% (currently at 8.05%), will mature on December 31, 2009 and is secured by TPT’s accounts receivable and inventory.  At September 30, 2008 TPT had utilized Euro 907,000 ($1,278,000) of its short-term credit facility.

On April 2, 2004, TPT entered into a term loan with Rabobank in the amount of Euro 676,000.  The proceeds of the term loan were used to reduce TPT’s credit facility and reduce inter-company payables to the US Operation.  The term loan, which is secured by TPT’s assets, will be repaid over a period of five years with a fixed interest rate until maturity of 5.5%.  Monthly principal and interest payments commenced on July 1, 2004, and will continue through June 1, 2009.  The monthly principal payment is Euro 11,266 ($15,866).  The loan balance at September 30, 2008 was Euro 101,000 ($143,000).  Under the terms of the Loan Agreement, the Company has guaranteed the term loan.

On July 7, 2004, TPT entered into a mortgage loan (the “First Mortgage”) with Rabobank.  The First Mortgage, in the amount of Euro 485,000, will be repaid over 25 years with interest fixed at 5.2% per year for the first four years.  Under the terms of the agreement, the interest was adjusted to a fixed rate of 7.8%, effective August 1, 2008, for a period of five years.  Thereafter, the rate will change to Rabobank prime plus 1.75%.  TPT utilized Euro 325,000 of the loan to finance the July 14, 2004, purchase of land and an office building, as well as to remodel the office building.  The balance of the loan proceeds, Euro 160,000, was used for the expansion of TPT’s existing building.  Monthly principal and interest payments commenced on September 1, 2004, and will continue through July 1, 2029.  The monthly principal payment is Euro 1,616 ($2,276).  The loan balance at September 30, 2008 was Euro 406,000 ($571,000).  The mortgage loan is secured by the land and office building purchased on July 7, 2004.

On January 3, 2005, TPT entered into a second mortgage loan (the “Second Mortgage”) with Rabobank to fund the acquisition of a 10,000 square foot warehouse with a loading dock that is located adjacent to TPT’s existing production facility.  The Second Mortgage, in the amount of Euro 470,000, will be repaid over 25 years with interest fixed at 4.672% per year for the first five years.  Thereafter, the rate will change to Rabobank prime plus 1.75%.  Monthly principal and interest payments commenced on February 28, 2005 and will continue through January 31, 2030.  The monthly principal payment is Euro 1,566 ($2,205).  The mortgage is secured by the land and building purchased by TPT on January 3, 2005.  The loan balance at September 30, 2008 was Euro 403,000 ($567,000).

On July 19, 2005, TPT entered into a new term loan with Rabobank to fund the completion of its building expansion.  The loan, in the amount of Euro 500,000, will be repaid over 10 years with interest fixed at 6.1% per year for the first five years.  Thereafter, the rate will change to Rabobank prime plus 1.75%.  Monthly principal and interest payments commenced on August 31, 2005 and will continue through July 31, 2015.  The monthly principal payment is Euro 4,167 ($5,868).  The loan is secured by TPT’s assets.  The loan balance at September 30, 2008 was Euro 346,000 ($487,000).

TPT’s loan agreements covering both the credit facility and the term loans include subjective acceleration clauses that allow Rabobank to accelerate payment if, in the judgment of the bank, there are adverse changes in our business.  We believe that such subjective acceleration clauses are customary in the Netherlands for such borrowings.  However, if demand is made by Rabobank, we may require additional debt or equity financing to meet our working capital and operational requirements, or if required, to refinance the demanded indebtedness.

14

TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Malaysian Bank Credit Facility and Term Loan

On September 14, 2005, the Company’s subsidiary, TMM, amended its banking facility with HSBC Bank Malaysia Berhad (“HSBC”).  The amendment increased the Bankers Acceptance from Malaysian Ringgits (“RM”) 500,000 ($145,000) to RM 3,780,000 ($1,098,000) and added a US Dollar term loan (“HSBC Loan”) in the amount of $1,000,000.  Monthly interest payments began in December 2005.  Monthly principal payments began on August 26, 2007 and will continue through June 30, 2010.  The interest rate at September 30, 2008 was 3.88% and the loan balance was $608,000.

TMM renewed its banking facility with HSBC on October 30, 2007, for the purpose of extending the maturity date of the current facility from October 31, 2007, to October 31, 2008.  The HSBC facility provides for an overdraft line of credit up to RM 500,000 ($145,000), a bank guarantee of RM 300,000 ($87,000) and an ECR up to RM 8,000,000 ($2,323,000).  The ECR, a government supported financing arrangement specifically for exporters, is used by TMM for short-term financing of up to 120 to 180 days against customers’ and inter-company shipments.

On October 30, 2007, TMM renewed its banking facility with RHB Bank Berhad (“RHB”) for the purpose of extending the maturity date of the current facilities from October 31, 2007, to October 31, 2008.  The RHB facility, which TMM is currently renegotiating, provides for an overdraft line of credit up to RM 1,000,000 ($290,000) and an ECR up to RM 9,300,000 ($2,701,000).  The RHB facility was also amended to include the following:

• Incorporate a Revolving Credit facility as part of the existing Overdraft facility of RM 1,000,000 ($290,000) (i.e. an interchangeable Overdraft/Revolving Credit facility) with a combined limit of RM 1.0 million to be used for working capital purposes.
• Increase the Foreign Exchange Contract Line facility by an additional RM 10 million from RM 15 million to RM 25 million ($4,356,000 to $7,260,000) to be used for hedging purposes against TMM’s sales based in currencies other than the RM.
• Increase the maximum length of financing for the Multi-Trade Line facility (ECR), which is used by TMM for short-term financing against customers’ and inter-company shipments, from the existing 150 days up to 180 days.

On May 30, 2008, TMM entered into a US Dollar term loan with RHB to fund the completion of its new powder processing facility.  The loan, in the amount of $292,000, will be repaid over a period of 22 months with an interest rate of 0.75% above the RHB prime.  Monthly principal ($8,350 per month) and interest payments commenced on July 1, 2008, and will continue through April 1, 2009.  The interest rate at September 30, 2008 was 3.94% and the loan balance was $267,000.

The banking facilities with both HSBC and RHB bear an interest rate on the overdraft facilities at 1.25% over bank prime and the ECR facilities bear interest at 1.0% above the funding rate stipulated by the Export-Import Bank of Malaysia Berhad.  At September 30, 2008, the interest rate was 4.5% and the outstanding balance on their ECR facilities was RM 2,614,000 ($759,000).

The borrowings under both the HSBC and the RHB short term credit facilities are subject to certain subjective acceleration covenants based on the judgment of the banks and a demand provision that provide that the banks may demand repayment at any time.  We believe such a demand provision is customary in Malaysia for such facilities.  The loan agreements are secured by TMM’s property, plant and equipment.  The credit facilities prohibit TMM from paying dividends and the HSBC facility further prohibits loans to related parties without the prior consent of HSBC.

15

TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Liquidity

The terms of the Company’s borrowings contain restrictions and covenants, including financial covenants based on the performance of the Company, and the failure of the Company to comply with such restrictions and covenants could also adversely affect the Company’s consolidated financial position.  As noted above, the Company was not in compliance with certain financial covenant ratios under our credit facility with Bank of America for the quarters ended June 30 and September 30, 2008.

Based on the Company’s current projections for the next twelve month period, an extension of the existing waiver, a new waiver covering certain terms and conditions of the Credit Facility, an amendment to the Credit Facility or some combination of the above may be required.

Note 5. Capital Leases

On June 27, 2005, TPT entered into a financial lease agreement with De Lage Landen Financial Services, BV for equipment related to the production of ALUPREM.  The cost of the equipment under the capital lease is included in the balance sheets as property, plant and equipment and was $381,181.  Accumulated amortization of the leased equipment at September 30, 2008 was approximately Euro 96,000 ($135,000).  Amortization of assets under capital leases is included in depreciation expense.  The capital lease is in the amount of Euro 377,351 including interest of Euro 62,113 (implicit interest rate 6.3%) and Euro 238 in executory costs.  The lease term is 72 months with equal monthly installments of Euro 5,241 ($8,269).  The net present value of the lease at September 30, 2008 was Euro 167,000 ($217,000).

On October 30, 2007, the Company entered into a financial lease agreement with Dell Financial Services for two computer servers.  The cost of the equipment under the capital lease, in the amount of $12,420, is included in the balance sheets as property, plant and equipment.  Accumulated amortization of the leased equipment at September 30, 2008 was approximately $4,000.  The capital lease is in the amount of $13,217 including interest of $800 (implicit interest rate 4.1%).  The lease term is 36 months with equal monthly installments of $367.  The net present value of the lease at September 30, 2008 was $9,000.

On March 13, 2008, the Company entered into a financial lease agreement with Toyota Financial Services for a forklift.  The cost of the equipment under the capital lease, in the amount of $26,527, is included in the balance sheets as property, plant and equipment.  Accumulated amortization of the leased equipment at September 30, 2008 was approximately $2,000.  The capital lease is in the amount of $31,164 including interest of $4,637 (implicit interest rate 6.53%).  The lease term is 60 months with equal monthly installments of $519.  The net present value of the lease at September 30, 2008 was $24,000.

16

TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Note 6. Calculation of Basic and Diluted Earnings per Share

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

(in thousands, except per share amounts)		Three Months Ended September 30,				Nine Months Ended September 30,
		2008		2007		2008		2007
Numerator:
Net Income (Loss)	$	(370)	$	165	$	(1,297)	$	286
Preferred Stock Dividends		(15)		(15)		(45)		(45)
Numerator for diluted earnings per share - income (loss) available to common shareholders after assumed conversions	$	(385)	$	150	$	(1,342)	$	241
Denominator:
Denominator for basic earnings (loss) per share - weighted-average shares		7,878		7,844		7,876		7,844
Effect of dilutive securities:
Employee stock options		-		-		-		57
Dilutive potential common shares		-		-		-		57
Denominator for diluted earnings per share - weighted-average shares and assumed conversions		7,878		7,844		7,876		7,901
Basic earnings (loss) per common share	$	(0.05)	$	0.02	$	(0.17)	$	0.03
Diluted earnings (loss) per common share	$	(0.05)	$	0.02	$	(0.17)	$	0.03

Excluded from the computation of diluted earnings per share were a total of 168,000 common shares related to the 200,000 convertible preferred shares at September 30, 2008 and 2007.  The convertible preferred shares were not included in the computation of diluted earnings per share as the effect would be antidilutive.

For the three month and nine month periods ended September 30, 2008, all employee stock options (754,600) were excluded from the computation of diluted earnings per share because the effect would be antidilutive.

Employee stock options excluded from the computation of diluted earnings per share for the three month and nine month periods ended September 30, 2007, were 816,429 and 320,700, respectively.  These options were excluded from the computation of diluted earnings per share during these periods because the exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive.

17

TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Note 7. Segment Information

The Company and its subsidiaries operate in the business of pigment manufacturing and related products in three geographic segments.  All United States manufacturing is done at the facility located in Corpus Christi, Texas.  Foreign manufacturing is done by the Company’s wholly-owned subsidiaries, TMM, located in Malaysia and TPT, located in the Netherlands.  A summary of the Company’s manufacturing operations by geographic area is presented below:

(In thousands)		United States (Corpus Christi)		Europe (TP&T)		Asia (TMM)		Inter-Company Eliminations		Consolidated
As of and for the three months ended:
September 30, 2008
Net Sales:
Customer sales	$	4,567	$	1,714	$	1,222	$	-	$	7,503
Intercompany sales		-		431		2,403		(2,834)		-
Total Net Sales	$	4,567	$	2,145	$	3,625	$	(2,834)	$	7,503
Location profit (loss)	$	(395)	$	(112)	$	347	$	(210)	$	(370)
September 30, 2007
Net Sales:
Customer sales	$	4,989	$	1,620	$	949	$	-	$	7,558
Intercompany sales		-		506		470		(976)		-
Total Net Sales	$	4,989	$	2,126	$	1,419	$	(976)	$	7,558
Location profit (loss)	$	(21)	$	187	$	(90)	$	89	$	165
As of and for the nine months ended:
September 30, 2008
Net Sales:
Customer sales	$	12,565	$	5,783	$	2,817	$	-	$	21,165
Intercompany sales		69		785		4,386		(5,240)		-
Total Net Sales	$	12,634	$	6,568	$	7,203	$	(5,240)	$	21,165
Location profit (loss)	$	(1,230)	$	87	$	104	$	(258)	$	(1,297)
Location assets	$	12,750	$	10,977	$	14,659	$	-	$	38,386
September 30, 2007
Net Sales:
Customer sales	$	14,790	$	4,671	$	2,531	$	-	$	21,992
Intercompany sales		-		1,913		4,180		(6,093)		-
Total Net Sales	$	14,790	$	6,584	$	6,711	$	(6,093)	$	21,992
Location profit (loss)	$	(93)	$	393	$	(198)	$	184	$	286
Location assets	$	13,700	$	11,681	$	14,591	$	-	$	39,972

18

TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Product sales of inventory between Corpus Christi, TPT and TMM are based on inter-company pricing, which includes an inter-company profit margin.  In the geographic information, the location profit (loss) from all locations is reflective of these inter-company prices, as is inventory at the Corpus Christi location prior to elimination adjustments.  Such presentation is consistent with the internal reporting reviewed by the Company’s chief operating decision maker.  The elimination entries include an adjustment to the cost of sales resulting from the adjustment to ending inventory to eliminate inter-company profit, and the reversal of a similar adjustment from a prior period.  To the extent there are net increases/declines period over period in inventories that include an inter-company component, the net effect of these adjustments can decrease/increase location profit.

Sales from the subsidiary to the parent company are based upon profit margins which represent competitive pricing of similar products.  Intercompany sales consisted primarily of SR, HITOX and ALUPREM.

Note 8. Stock Options and Equity Compensation Plan

The following table provides information as of September 30, 2008, about the Company’s common stock that may be issued upon the exercise of options, warrants and rights under all of the Company’s existing equity compensation plans (including individual arrangements):

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	754,600	$2.557	374,311
Equity compensation plans not approved by security holders	--		--
Total	754,600	$2.557	374,311

The Company's 1990 Incentive Stock Option Plan (“ISO”) for TOR Minerals International, Inc. (the "1990 Plan") provided for the award of a variety of incentive compensation arrangements to such employees and directors as may be determined by a Committee of the Board.  The ability to issue new options under the 1990 Plan expired in February of 2000, with options to acquire 372,200 shares of common stock still outstanding.  At September 30, 2008, the 1990 Plan had 13,000 options outstanding.

On February 21, 2000, the Company's Board of Directors approved the adoption of the 2000 Incentive Stock Option Plan for TOR Minerals International, Inc. (the "Plan").  The Plan provides for the award of a variety of incentive compensation arrangements to such employees and directors as may be determined by a Committee of the Board.  At the Annual Shareholders’ meeting on May 23, 2008, the maximum number of shares of the Company’s common stock that may be sold or issued under the Plan was increased from 1,050,000 shares to 1,250,000 shares subject to certain adjustments upon recapitalization, stock splits and combinations, merger, stock dividend and similar events; in addition the plan was extended to May 23, 2018.  At September 30, 2008, the Plan had 741,600 options outstanding, 134,089 exercised and 374,311 available for future issuance.

19

TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Both the 1990 Plan and the 2000 Plan provide for the award of a variety of incentive compensation arrangements, including restricted stock awards, performance units or other non-option awards.

For the three month periods ended September 30, 2008 and 2007, the Company recorded an expense of $29,000 and $36,000, respectively, in stock-based employee compensation expense and for the nine month periods ended September 30, 2008 and 2007, $119,000 and $117,000, respectively.  This compensation expense is included in the general and administrative expenses in the accompanying consolidated income statements.

The Company granted 65,000 and 167,000 options during the nine month periods ended September 30, 2008 and 2007, respectively.  The weighted average fair value per option at the date of grant for options granted in the nine month periods ended September 30, 2008 and 2007 was $2.09 and $2.01, respectively, as valued using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Nine Months Ended September 30,
	2008	2007
Risk-free interest rate	3.52%	4.71%
Expected dividend yield	0.00%	0.00%
Expected volatility	0.70	0.74
Expected term (in years)	7.00	7.00

The risk free interest rate is based on the Treasury Constant Maturity Rate as quoted by the Federal Reserve at the time of the grant for a term equivalent to the expected term of the grant.  The estimated volatility is based on the historical volatility of our stock and other factors.  The expected term of options represents the period of time the options are expected to be outstanding from grant date.

The number of options exercisable at September 30, 2008 and 2007 was 585,500 and 590,409, respectively.  The weighted-average remaining contractual life of those options is 5.75 years.  Exercise prices on options outstanding at September 30, 2008 and 2007, ranged from $0.92 to $6.11 per share as noted in the following table.

Options Outstanding at September 30,
2008	2007	Range of Exercise Prices
64,900	84,100	$ 0.92 - $ 1.99
579,400	589,029	$ 2.00 - $ 2.99
600	600	$ 3.00 - $ 3.99
66,500	95,500	$ 4.00 - $ 4.99
16,200	20,200	$ 5.00 - $ 5.99
27,000	27,000	$ 6.00 - $ 6.11
754,600	816,429

As of September 30, 2008, there was $210,000 of option compensation expense related to non-vested awards which is expected to be recognized over a weighted average period of 2.3 years.

As all options issued under the Plan are Incentive Stock Options, the Company does not normally receive significant excess tax benefits relating to the compensation expense recognized on vested options.

20

TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Note 9. Inventories

To improve inventory turns and cash flows, the Company made operational changes during the first quarter of 2008 to reduce the stock requirements of Synthetic Rutile (“SR”) and related finished goods on a worldwide basis.  This reduction in inventory is reflected in the following schedule.

(In thousands)		September 30,		December 31,
		2008		2007
Raw materials	$	5,934	$	6,552
Work in progress		991		751
Finished goods		2,453		3,540
Supplies		622		573
Total Inventories		10,000		11,416
Inventory reserve		(41)		(24)
Net Inventories	$	9,959	$	11,392

10.

Derivatives and Hedging Activities

Foreign Currency Forward Contracts

The purpose of the Company’s foreign currency hedging activities is to protect the Company from the risk that the eventual cash flows resulting from transactions in foreign currencies, including sales and purchases transacted in a currency other than the functional currency, will be adversely affected by changes in exchange rates.  The Company has not entered into these contracts for trading or speculative purposes in the past, nor do we currently anticipate entering into such contracts for trading or speculative purposes in the future.  Derivatives used to hedge forecasted transactions and specific cash flows associated with foreign currency denominated financial assets and liabilities which meet the criteria for hedge accounting are designated as cash flow hedges.  Consequently, the effective portion of gains and losses is deferred as a component of accumulated other comprehensive income and is recognized in earnings at the time the hedged item affects earnings.  The Company measures hedge effectiveness by formally assessing, at least quarterly, the historical and probable future high correlation of changes in the fair value or expected future cash flows of the hedged item.  The ineffective portions, if any, are recorded in current earnings in the current period.  If the hedging relationship ceases to be highly effective or if it becomes probable that an expected transaction will no longer occur, gains or losses on the derivative are recorded in current earnings.  If no hedging relationship is designated, the derivative is marked to market through current earnings.

For the nine month period ended September 30, 2007, we marked the contracts to market, recording a net gain of approximately $3,000 as a component of "Other Comprehensive Income" and as a current asset on the balance sheet at September 30, 2007.  The recognition of this net gain had no effect on our cash flow.

In addition, we had foreign currency contracts not designated as cash flow hedges.  At September 30, 2008, we marked these contracts to market, recording expense of approximately $68,000 as a component of our year to date net loss and as a current liability on the balance sheet at September 30, 2008.

21

TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operation

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a global specialty chemical company engaged in the business of manufacturing and marketing mineral products for use as pigments, pigment extenders and flame retardants used in the manufacture of paints, industrial coatings, plastics, catalysts and solid surface applications.  We have operations in the US, Asia and Europe.

Our US Operation, located in Corpus Christi, Texas, manufactures HITOX, BARTEX, and HALTEX.  The facility is also the Global Headquarters for the Company.  The Asian Operation, operated through our wholly owned subsidiary TOR Minerals Malaysia, Sdn. Bhd. (“TMM”), is located in Ipoh, Malaysia and manufactures SR and HITOX, while our European Operation, operated through our wholly owned subsidiary TOR Processing and Trade, BV (“TPT”), is located in Hattem, Netherlands and manufactures Alumina based products.

Operating expenses in the foreign locations are primarily in local currencies.  Accordingly, we have exposure to fluctuation in foreign currency exchange rates.  These fluctuations impact the translation of sales, earnings, assets and liabilities from local currency to the US Dollar.

Our business is closely correlated with the construction industry and its demand for materials that use pigments, such as paints and plastics.  This has generally led to higher sales in our second and third quarters due to increases in construction and maintenance during warmer weather.  Also, pigment consumption is closely correlated with general economic conditions.  When the economy is in an expansionary state, there is typically an increase in pigment consumption while a slow down typically results in decreased pigment consumption.  When the construction industry or the economy is in a period of decline, TOR's sales and profit are likely to be adversely affected.

As noted below, the decline in the US economy has had an adverse impact on the sale of both our HITOX, which is a pigment used in paints and plastics, and our commodity grade ALUPREM, which is used in solid surface applications.  For the nine-month period ended September 30, 2008, our sales in North America of HITOX and ALUPREM have decreased by $1,120,000 and $406,000, respectively.

Following are our results for the three month and nine month periods ended September 30, 2008 and 2007.

(In thousands, except per share amounts)		Three Months Ended September 30,				Nine Months Ended September 30,
		2008		2007		2008		2007
NET SALES	$	7,503	$	7,558	$	21,165	$	21,992
Cost of sales		6,527		6,082		18,525		17,739
GROSS MARGIN		976		1,476		2,640		4,253
Technical services and research and development		62		65		189		183
Selling, general and administrative expenses		1,058		1,055		3,287		3,276
Gain on disposal of assets		-		-		(2)		-
OPERATING INCOME (LOSS)		(144)		356		(834)		794
OTHER INCOME (EXPENSE):
Interest income		-		8		1		11
Interest expense		(134)		(179)		(409)		(518)
Gain (loss) on foreign currency exchange rate		(4)		(35)		(5)		16
Other, net		1		-		11		-
INCOME (LOSS) BEFORE INCOME TAX		(281)		150		(1,236)		303
Income tax expense (benefit)		89		(15)		61		17
NET INCOME (LOSS)	$	(370)	$	165	$	(1,297)	$	286
Income (loss) per diluted common share	$	(0.05)	$	0.02		(0.17)		0.03

22

TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operation

In 2008, we have focused on reducing our inventory levels of Synthetic Rutile (“SR”) and related finished goods inventory, primarily HITOX, on a worldwide basis.  To accomplish this, TMM manufactured approximately 32% less SR and our Corpus Christi operation reduced HITOX production approximately 60% during the nine month period ended September 30, 2008 as compared to the same period in 2007.  While improving our inventory turns and cash flow, the lower fixed cost absorption has had a negative impact on our financial results for 2008.  However, our inventory levels are now at the desired level and we anticipate our production levels to increase during the fourth quarter.

Looking to the future, our strategy focuses on pursuing niche markets for paints, plastics, papers and catalyst applications with high value-added products that produce good profit margins and have high barriers to entry.  These products have a solid value proposition with our customers and therefore sell at a higher average price and produce more attractive gross margins for TOR.  In addition, the high value-added nature of these products allows us to create close partnerships with our customers and develop long-term relationships with recurring and predictable revenue streams.

With the success of our alumina business, we are no longer dependent on one group of products for our success.  Our alumina business now accounts for approximately one-fourth of our overall revenue.  In 2009, we expect our alumina business to continue to increase in both the US and Europe.

As we look at our HITOX business going forward, we expect our traditional HITOX business to remain tied to the strength of the U.S. economy.  Our key growth strategy is to introduce newly developed, technically advanced colored pigments that will expand our target market and increase our sales potential.  We are applying technologies developed in our European Operation to create new high performance fillers and pigments.  Unlike our traditional HITOX products, our new products have high performance characteristics, much broader end market applications and provide for value-added premium pricing.

We expect to introduce by the end of 2008 four new colored pigments that are heat stable and are branding these new products under the names TIOPREM Gray, TIOPREM Orange, TIOPREM Beige and TIOPREM Brown.  In the future we expect to be able to sell our products for use in plastics, top coat paint and paper applications which were not previously available to us with our traditional HITOX.  We expect these products to greatly expand our target market.  We believe these products have great potential and will positively contribute to our results going forward.

However, actual results may differ materially from those indicated by these forward looking statements because of various risks and uncertainties.  For more information on these risks and uncertainties, please see the “Forward Looking Information” appearing below the Table of Contents of this report.

23

TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operation

Results of Operations

Consolidated Net Sales:  Following is a summary of our consolidated products sales for the three month and nine month periods ended September 30, 2008 and 2007 (in thousands), as well as a summary of the material changes.  All inter-company sales have been eliminated.

		Three Months Ended September 30,									Nine Months Ended September 30,
Product		2008			2007			Variance			2008			2007			Variance
HITOX	$	4,030	54%	$	3,962	53%	$	68	2%	$	11,336	54%	$	11,599	53%	$	(263)	-2%
ALUPREM		2,288	31%		2,301	30%		(13)	-1%		6,217	29%		6,825	31%		(608)	-9%
BARTEX		740	10%		839	11%		(99)	-12%		2,464	12%		2,447	11%		17	1%
HALTEX		328	4%		322	4%		6	2%		892	4%		719	3%		173	24%
TIOPREM		4			-			4			30			-			30
SR		-			-			-			-			12			(12)	-100%
OTHER		113	1%		134	2%		(21)	-16%		226	1%		390	2%		(164)	-42%
Total	$	7,503	100%	$	7,558	100%	$	(55)	-1%	$	21,165	100%	$	21,992	100%	$	(827)	-4%

For the quarter ended September 30, 2008, consolidated net sales decreased approximately $55,000 compared to the third quarter 2007 primarily due to decreases in both ALUPREM and BARTEX sales, offset by higher HITOX sales.

• HITOX sales increased 2% due to the continued growth of HITOX sales in Asia and South America which increased approximately $323,000 and $270,000, respectively, over the same period last year.  Offsetting this increase was a decline in North America and Europe of approximately $477,000 and $48,000, respectively.  The decline in sales in North America is primarily due to the decline in the US housing/construction market and the economy.
• ALUPREM sales were down 1% primarily due to a decrease in the sale of our commodity grade ALUPREM in the US Market.  Sales of this product line deceased approximately $150,000 compared to the third quarter 2007.  We expect to see our commodity grade ALUPREM sales to continue to decline in the US due to the economy.  Offsetting the decline in the US market was an increase in high grade ALUPREM sales in Europe which increased approximately $142,000 over the same period last year.
• BARTEX sales were down 12% primarily due to the decline in the US economy.

For the nine month period ended September 30, 2008, consolidated net sales decreased approximately $827,000 compared to the same period in 2007 primarily due to decreases in both HITOX and ALUPREM sales, offset by higher HALTEX sales.

• HITOX sales declined 2% primarily due to a weak North American market and the loss of a customer in Europe.  Sales in North America and Europe decreased approximately $1,120,000 and $182,000, respectively.  Offsetting this decline were higher sales in Asia and South America of $406,000 and $633,000, respectively.
• ALUPREM sales were down 9% primarily due to a change in the order pattern of a significant US customer which accounted for $1,450,000 of the overall decrease in ALUPREM sales.  Commodity grade ALUPREM sales in the US were down $426,000 primarily due to the US economy.  Partially offsetting the decline in US sales, the European ALUPREM sales increased $1,268,000.
• HALTEX sales increased 24% primarily due to an increase in customer demand and the introduction of a new grade of HALTEX.
• OTHER product sales decreased 42% primarily due to a decrease in the requirements of Zircon by a customer in Asia.

24

TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operation

Corpus Christi Operation

Our Corpus Christi operation manufactures and sells HITOX, BARTEX and HALTEX to third party customers.  In addition, we purchase ALUPREM and HITOX from our subsidiaries, TPT and TMM, for distribution in the Americas.  Following is a summary of net sales for our Corpus Christi operation for the three month and nine month periods ended September 30, 2008 and 2007 (in thousands), as well as a summary of the material changes.  All inter-company sales have been eliminated.

		Three Months Ended September 30,									Nine Months Ended September 30,
Product		2008			2007			Variance			2008			2007			Variance
HITOX	$	2,653	58%	$	2,860	57%	$	(207)	-7%	$	7,848	63%	$	8,335	56%	$	(487)	-6%
ALUPREM		751	17%		906	18%		(155)	-17%		1,165	9%		3,041	21%		(1,876)	-62%
BARTEX		739	16%		839	17%		(100)	-12%		2,463	20%		2,447	17%		16	1%
HALTEX		328	7%		322	7%		6	2%		892	7%		719	5%		173	24%
OTHER		96	2%		62	1%		34	55%		197	1%		248	1%		(51)	-21%
Total	$	4,567	100%	$	4,989	100%	$	(422)	-8%	$	12,565	100%	$	14,790	100%	$	(2,225)	-15%

Netherlands Operation

Our subsidiary in the Netherlands, TPT, manufactures and sells ALUPREM to third party customers, as well as to our Corpus Christi operation for distribution to our US customers.  In addition, TPT purchases HITOX from TMM for distribution in Europe.  Our increased sales efforts in Europe have resulted in an increase in our customer base, as well as our sales volume.  The following table represents TPT’s ALUPREM and HITOX sales (in thousands) for the three month and nine month periods ended September 30, 2008 and 2007 to third party customers.  All inter-company sales have been eliminated.

		Three Months Ended September 30,									Nine Months Ended September 30,
Product		2008			2007			Variance			2008			2007			Variance
ALUPREM	$	1,537	90%	$	1,395	86%	$	142	10%	$	5,052	87%	$	3,784	81%	$	1,268	34%
HITOX		177	10%		225	14%		(48)	-21%		705	12%		887	19%		(182)	-21%
TIOPREM		-			-			-			26	1%		-			26
Total	$	1,714	100%	$	1,620	100%	$	94	6%	$	5,783	100%	$	4,671	100%	$	1,112	24%

Malaysian Operation

Our subsidiary in Malaysia, TMM, manufactures and sells HITOX and SR to third party customers, as well as to our Corpus Christi operation and TPT.  The following table represents TMM’s sales (in thousands) for the three month and nine month periods ended September 30, 2008 and 2007 to third party customers.  All inter-company sales have been eliminated.

		Three Months Ended September 30,									Nine Months Ended September 30,
Product		2008			2007			Variance			2008			2007			Variance
HITOX	$	1,200	98%	$	877	92%	$	323	37%	$	2,783	99%	$	2,377	94%	$	406	17%
BARTEX		1			-			1			1			-			1
TIOPREM		4			-			4			4			-			4
SR		-			-			-			-			12			(12)	-100%
OTHER		17	2%		72	8%		(55)	-76%		29	1%		142	6%		(113)	-80%
Total	$	1,222	100%	$	949	100%	$	273	29%	$	2,817	100%	$	2,531	100%	$	286	11%

25

TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operation

Other Consolidated Results

Gross Margin:  For the three month period ended September 30, 2008, gross margin decreased approximately 6.5%, from 19.5% in 2007 to 13.0% in 2008 and for the nine month periods ended September 30, 2008 and 2007, gross margin decreased approximately 6.8%, from 19.3% to 12.5%, respectively.  The primary factors for the decline in gross margin are lower fixed cost absorption and increased energy, freight and raw material costs.  As discussed above, the lower fixed cost absorption is primarily related to reduced levels of SR production at TMM and HITOX production at the Corpus Christi operation of approximately 32% and 60%, respectively, as compared to the same nine month period during 2007.

Technical Services, Selling, General and Administrative Expenses (SG&A):  For the three and nine month periods ended September 30, 2008, SG&A expense was relatively flat despite a decrease in staff as this reduction was offset by higher expense relating to accounting, legal and bad debt expense.  As a result of the downturn in the US economy, our bad debt expense increased approximately $49,000 for the three and nine month periods ended September 30, 2008 as compared to the same period last year.

Interest Expense:  Net interest expense decreased 25% and 21% for the three month and nine month periods ended September 30, 2008 and 2007, respectively, primarily related to lower interest rates and a decrease in our average outstanding debt.

Income Taxes:  Income taxes consisted of state income tax expense of $3,000 and a foreign income tax expense of $86,000 for the three month period ended September 30, 2008, compared state income tax expense of $9,000 and foreign income tax benefit of $24,000 for the same three month period in 2007.  For the nine month periods ended September 30, 2008 and 2007, we recorded state income tax expense of $8,000 and foreign income tax expense of $53,000 and state income tax expense of $27,000 and foreign income tax benefit of $10,000, respectively.  Taxes are based on an estimated annualized consolidated effective rate of 5%.

Net Income / Loss:  For the three month and nine month periods ended September 30, 2008, we incurred a net loss of $370,000 and $1,297,000, respectively, on net sales of $7,503,000 and $21,165,000, respectively.  This compares with net income of $165,000 and $286,000, on net sales of $7,558,000 and $21,992,000 for the three month and nine month periods ended September 30, 2007, respectively.  Lower sales combined with higher cost of energy, freight and raw materials, as well as lower fixed cost absorption, contributed to the loss in 2008.

26

TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operation

Liquidity, Capital Resources and Other Financial Information

Cash and Cash Equivalents

As noted on the following table, cash and cash equivalents increased $67,000 from December 31, 2007 to September 30, 2008 as compared to a decrease of $157,000 from December 31, 2006 to September 30, 2007.

		(Unaudited)
		Nine Months Ended September 30,
(In thousands)		2008		2007
Net cash provided by (used in)
Operating activities	$	3,891	$	(79)
Investing activities		(1,737)		(621)
Financing activities		(1,971)		596
Effect of exchange rate fluctuations		(116)		(53)
Net change in cash and cash equivalents	$	67	$	(157)

Operating Activities

Operating activities provided $3,891,000 during the first nine months of 2008.  Following are the major changes in working capital affecting cash provided by operating activities for the nine month period ended September 30, 2008:

• Accounts Receivable:  Accounts receivable increased $1,240,000 as compared to an increase of $1,088,000 for the same period 2007.  Accounts receivable increased primarily due to stronger sales in the third quarter 2008 as compared to the fourth quarter 2007.  At the Corpus Christi operation, accounts receivable increased $805,000, at TPT $78,000 and at TMM $357,000.
• Inventories: Inventories decreased $1,223,000 as compared to a decrease of $197,000 for the same period 2007 primarily due to our overall strategy to reduce our stock of SR worldwide and improve inventory turns and cash flows.  Inventories at the Corpus Christi operation decreased $363,000 primarily due to a decrease in finished goods of approximately $1,010,000, offset by an increase in raw materials of approximately $647,000.  Inventories at TMM decreased $786,000 primarily related to SR and TPT’s inventory decreased approximately $74,000 primarily related to ALUPREM finished goods.
• Other Current Assets:  Other current assets increased $189,000 as compared to an increase of $425,000 for the same period 2007.  At the Corpus Christi operation, prepaid expenses increased $206,000 primarily due to prepaid deposits and insurance; at TPT $41,000 related to prepaid insurance and pension expense; offset by a decrease TMM of $58,000.
• Accounts Payable and Accrued Expenses:  Trade accounts payable and accrued expenses increased $1,592,000 as compared to a decrease of $523,000 for the same period 2007.  Accounts payable and accrued expenses increased at TMM $1,163,000 primarily due to the production of SR during the month of September, 2008, while at the Corpus Christi operation accounts payable and accrued expenses increased $534,000 primarily related to the timing of our purchase of Barite inventory.  TPT’s accounts payable and accrued expenses decreased $105,000.
• Accrued Expenses – Private Placement Stock Offering:  Accrued expenses increased $2,100,000 related to the subscription agreements received in our private placement stock offering.  As noted below, the funds were utilized to decrease our outstanding balance on the US line of credit.  As of September 30, 2008, the stock offering had not been finalized.

27

TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operation

Investing Activities

We used cash of $1,737,000 in investing activities during the first nine months of 2008 primarily for the purchase of fixed assets.  Net investments for each of our three locations are as follows:

• Corpus Christi Operation:  We invested approximately $376,000 for new equipment, as compared to $303,000 for the same period 2007.
• Netherlands Operation:  We invested approximately $37,000 at TPT for new equipment, as compared to $278,000 for the same period 2007.
• Malaysian Operation:  We invested approximately $1,324,000 at TMM for new equipment related to the new powder treatment facility, as compared to $40,000 for the same period 2007.

Financing Activities

We used cash of $1,971,000 in financing activities during the nine month period ended September 30, 2008.  Significant factors relating to financing activities include the following:

• Lines of Credit:  Our borrowings on the domestic line of credit decreased $2,950,000 primarily as a result of the funds received as a result of subscription agreements ($2,100,000) related to our Private Placement stock offering, as compared to an increase of $350,000 for the same period 2007.  Borrowings on our foreign line of credit, affected via TPT, increased approximately $47,000 primarily for the purpose of financing working capital as compared to an increase of $525,000 for the same period 2007.
• Export Credit Refinancing Facility (ECR):  TMM’s borrowings on the ECR increased $759,000 primarily for working capital.  TMM did not have any borrowings on the ECR for the same period 2007.
• Capital Leases:  Capital leases decreased approximately $34,000 as compared to a reduction of $52,000 for the same period 2007.  We received $26,000 in proceeds under a new capital lease relating to the acquisition of a new forklift at the Corpus Christi operation offset by a reduction in capital leases of $60,000, primarily at TPT.
• Long-term Debt – Financial Institutions:  Long-term debt increased approximately $240,000 as compared to decrease of $182,000 for the same period 2007 which was primarily related to paying off the related party debt to Paulson Ranch.  TMM’s net long-term debt increased $543,000 primarily related to new powder treatment facility.  Net long-term debt at the Corpus Christi operation decreased approximately $67,000 and TPT’s decreased approximately $236,000.
• Proceeds from Issuance of Common Stock:  We received $12,000 from the exercise of employee stock options.
• Preferred Stock Dividends:  We paid dividends of $45,000 on our Series A convertible preferred stock.

28

TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operation

Going Concern

The consolidated financial statements included in this report have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As discussed in Note 4 to our financial statements, we have significant borrowings which require, among other things, compliance with certain financial covenants, specifically a Consolidated Fixed Charge Ratio and a Consolidated Funded Debt to EBITDA Ratio, on a quarterly basis.  As a result of operating losses incurred during the quarters ended June 30 and September 30, 2008, we were not in compliance with these financial ratio covenants under our US credit facility (“Credit Facility”) with Bank of America (“BOA”); however, we have received a waiver from BOA for the quarters ended June 30 and September 30, 2008.

Under the terms of the waiver, we agreed to:

• Pay a waiver fee, in the amount of $10,000 and $5,000 for the quarters ended June 30 and September 30, 2008, respectively, to BOA;
• Accept an increase in interest rates applicable to all BOA borrowings from BOA’s prime rate to BOA’s prime rate plus two percent (2%);
• Obtain an injection of $1,000,000 in new capital;
• Reduce line of credit from $5,000,000 to $2,500,000;
• Modify the Current Ratio covenant set forth in the Credit Facility from greater than or equal to 1.10 to greater than or equal to 1.70 on a quarterly basis; and
• Execute a release of claims we may have against BOA regarding the Credit Facility.

During the quarter ended September 30, 2008, our Board of Directors authorized a Private Placement of our common stock to raise a minimum of $1,000,000 on terms more fully set forth in Note 3 to the consolidated financial statements included in this report as well as on the Form 8-K we filed with the Securities and Exchange Commission on October 14, 2008..  However, based on the Company’s current projections for the next twelve month period, an extension of the existing waiver, a new waiver covering certain terms and conditions of the Credit Facility, an amendment to the Credit Facility or some combination of the above may be required.

At June 30 and September 30, 2008, a total of $4,216,000 and $1,330,000, respectively, was outstanding under the Credit Facility.  A breach of any of the terms and conditions of the waiver, or subsequent breaches of the financial covenants under the Credit Facility could result in acceleration of our indebtedness, in which case the debt would become immediately due and payable.

In addition, the Company’s two subsidiaries, Tor Minerals Malaysia, Sdn. Bhd (“TMM”) and TOR Processing and Trade, BV (“TPT”) have short-term credit facilities and term loans at banks in Malaysia and the Netherlands, respectively.  At September 30, 2008, TMM’s utilization under the credit facilities and term loans with HSBC Bank Malaysia Berhad (“HSBC”) and RHB Bank Berhad (“RHB”) totaled $1,634,000, while TPT’s  utilization under the Credit Facility and term loans with Rabobank totaled $3,046,000.  The credit facilities with HSBC, RHB and Rabobank are subject to demand provisions and are subject to certain subjective acceleration covenants based on the judgment of the banks.  While the banks have made no indication that they will demand payment of the debt in Malaysia or the Netherlands, there can be no assurances that this debt will not be called for payment.

Over the last year, we have actively pursued new production methods and new product development.  As a result, we introduced new products to the market earlier this year and completed our new powder treatment facility in Malaysia in May 2008.  We believe the changes in our manufacturing process and the acceptance of our new products in the market will improve cash flows.  However, our ability to continue to operate as a going concern is dependent on our ability to improve our operating cash flows to a sufficient level, successfully negotiate with our US lending institution, and/or raise sufficient new capital.  There can be no assurance these changes in our operations or our financing initiatives will be successful.

29

TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operation

Liquidity

The terms of the Company’s borrowings contain restrictions and covenants, including financial covenants based on the performance of the Company, and the failure of the Company to comply with such restrictions and covenants could also adversely affect the Company’s consolidated financial position.  As noted above, the Company was not in compliance with certain financial covenant ratios under our credit facility with Bank of America for the quarter ended September 30, 2008.

Based on the Company’s current projections for the next twelve month period, an extension of the existing waiver, a new waiver covering certain terms and conditions of the Credit Facility, an amendment to the Credit Facility or some combination of the above may be required.

Following is a summary of our long-term debt and notes payable:

		(Unaudited)
(In thousands)		September 30,		December 31,
		2008		2007
Term note payable to a U.S. bank, with an interest rate of 7.0% at September 30, 2008, due November 30, 2010.	$	613	$	723
Term note payable to a U.S. bank, with an interest rate of 7.0% at September 30, 2008, due May 1, 2012.		367		441
Fixed rate term Euro note payable to a Netherlands bank, with an interest rate of 5.5% at September 30, 2008, due June 1, 2009. (101 Euro)		143		296
Fixed rate term Euro note payable to a Netherlands bank, with an interest rate of 7.8% at September 30, 2008, due July 1, 2029. (406 Euro)		571		614
Fixed rate term Euro note payable to a Netherlands bank, with an interest rate of 4.7% at September 30, 2008, due January 31, 2030. (403 Euro)		567		608
Fixed rate term Euro note payable to a Netherlands bank, with an interest rate of 6.1% at September 30, 2008, due July 31, 2015. (346 Euro)		487		560
U.S. Dollar term note payable to a Malaysian bank, with an interest rate of 3.94% at September 30, 2008, due September 30, 2010.		267		343
U.S. Dollar term note payable to a Malaysian bank, with an interest rate of 3.88% at September 30, 2008, due September 30, 2011.		608		-
Term note payable to a U.S. equipment financing company, with an interest rate of 5.24% at September 30, 2008, due April 13, 2013		111		-
Revolving line of credit, payable to a U.S. bank, with an interest rate of bank prime, 7.0% at September 30, 2008, due April 1, 2009.		350		3,300
Total		4,084		6,885
Less current maturities		2,023		4,207
Total long-term debt and notes payable	$	2,061	$	2,678

30

TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operation

US Operations

Bank of America Credit Facility and Term Loans

We amended and restated our previous loan agreement with Bank of America, N.A. (the “Bank”) on March 19, 2008.  Under the amendment, the Bank extended the maturity date on our Line of Credit (the “Line”) from October 1, 2008 to April 1, 2009.  As a condition of the waiver granted by the Bank on November 13, 2008, the Line, which provides us with a revolving line of credit subject to a defined borrowing base, was reduced from $5,000,000 to $2,500,000.  The Bank has also agreed to issue standby letters of credit for our account up to the amount available under the Line.  At September 30, 2008, the outstanding balance on the Line was $350,000 and we had $2,150,000 available on that date based on eligible accounts receivable and inventory borrowing limitations.

On December 13, 2005, we entered into a real estate term loan (the “Loan”) with the Bank, in the amount of $1,029,000.  The Loan is secured by our US real estate and leasehold improvements.  Interest, which is due and payable monthly, is equal to the Bank’s Prime Rate plus two percent (currently 7.0%).  The monthly principal and interest payments commenced on December 30, 2005, and will continue through November 30, 2010 at which time the “final payment” of $294,000 is due.  The monthly principal payment is $12,250.  The Term Loan balance at September 30, 2008 was $613,000.

On May 7, 2007, we entered into a term loan (the “Term Loan”) with the bank in the amount of $500,000 which is secured by our US property, plant and equipment, as well as inventory and accounts receivable.  Interest, which is due and payable monthly, is equal to the Bank’s Prime Rate plus two percent (currently 7.0%).  The monthly principal and interest payments commenced on June 1, 2007, and will continue through May 1, 2012.  The monthly principal payment is $8,333.33.  The Term Loan balance at September 30, 2008, was $367,000.

The Agreement contains covenants that, among other things, require the maintenance of financial ratios based on our consolidated results of operations.  The Agreement also requires us to notify the Bank upon the occurrence of a “material adverse event”, which among other items, is considered to be an event that may adversely affect our consolidated financial condition, business, properties, operations, the Bank’s collateral or the Bank’s ability to enforce its rights under the Agreement.

As stated above in this Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Going Concern, for the quarters ended June 30 and September 30, 2008, the Company was not in compliance with the Consolidated Fixed Charge Ratio and the Consolidated Funded Debt to EBITDA Ratio covenants under our credit facility with the Bank; however, we requested and received a waiver for the quarters ended June 30 and September 30, 2008.  Terms of the waiver and our action in response thereto are more fully set forth above.

Other US Long-term Debt:

On March 31, 2008, we entered into a term loan with Holt Financing in the amount of $120,000.  The proceeds of the loan were used to purchase a new Caterpillar front-end loader.  The loan will be repaid over five years with interest fixed at a rate of 5.24%.  Monthly principal and interest payments commenced on May 1, 2008, and will continue through April 1, 2013.  The monthly principal and interest payment is $2,275.  The loan balance at September 30, 2008 was $111,000.

31

TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operation

Netherlands Operations

On March 20, 2007, our subsidiary, TPT, entered into a short-term credit facility (“Credit Facility”) with Rabobank which replaced the existing Euro 650,000 short-term credit facility (dated April 2, 2004).  Under the terms of the Credit Facility, TPT’s line of credit increased from Euro 650,000 to Euro 1,100,000.  The Credit Facility, which has a variable interest rate of Bank prime plus 2.8% (currently at 8.05%), will mature on December 31, 2009 and is secured by TPT’s accounts receivable and inventory.  At September 30, 2008 TPT had utilized Euro 907,000 ($1,278,000) of its short-term credit facility.

On April 2, 2004, TPT entered into a term loan with Rabobank in the amount of Euro 676,000.  The proceeds of the term loan were used to reduce TPT’s credit facility and reduce inter-company payables to the US Operation.  The term loan, which is secured by TPT’s assets, will be repaid over a period of five years with a fixed interest rate until maturity of 5.5%.  Monthly principal and interest payments commenced on July 1, 2004, and will continue through June 1, 2009.  The monthly principal payment is Euro 11,266 ($15,866).  The loan balance at September 30, 2008 was Euro 101,000 ($143,000).  Under the terms of the Loan Agreement, the Company has guaranteed the term loan.

On July 7, 2004, TPT entered into a mortgage loan (the “First Mortgage”) with Rabobank.  The First Mortgage, in the amount of Euro 485,000, will be repaid over 25 years with interest fixed at 5.2% per year for the first four years.  Under the terms of the agreement, the interest was adjusted to a fixed rate of 7.8%, effective August 1, 2008, for a period of five years.  Thereafter, the rate will change to Rabobank prime plus 1.75%.  TPT utilized Euro 325,000 of the loan to finance the July 14, 2004, purchase of land and an office building, as well as to remodel the office building.  The balance of the loan proceeds, Euro 160,000, was used for the expansion of TPT’s existing building.  Monthly principal and interest payments commenced on September 1, 2004, and will continue through July 1, 2029.  The monthly principal payment is Euro 1,616 ($2,276).  The loan balance at September 30, 2008 was Euro 406,000 ($571,000).  The mortgage loan is secured by the land and office building purchased on July 7, 2004.

On January 3, 2005, TPT entered into a second mortgage loan (the “Second Mortgage”) with Rabobank to fund the acquisition of a 10,000 square foot warehouse with a loading dock that is located adjacent to TPT’s existing production facility.  The Second Mortgage, in the amount of Euro 470,000, will be repaid over 25 years with interest fixed at 4.672% per year for the first five years.  Thereafter, the rate will change to Rabobank prime plus 1.75%.  Monthly principal and interest payments commenced on February 28, 2005 and will continue through January 31, 2030.  The monthly principal payment is Euro 1,566 ($2,205).  The mortgage is secured by the land and building purchased by TPT on January 3, 2005.  The loan balance at September 30, 2008 was Euro 403,000 ($567,000).

On July 19, 2005, TPT entered into a new term loan with Rabobank to fund the completion of its building expansion.  The loan, in the amount of Euro 500,000, will be repaid over 10 years with interest fixed at 6.1% per year for the first five years.  Thereafter, the rate will change to Rabobank prime plus 1.75%.  Monthly principal and interest payments commenced on August 31, 2005 and will continue through July 31, 2015.  The monthly principal payment is Euro 4,167 ($5,868).  The loan is secured by TPT’s assets.  The loan balance at September 30, 2008 was Euro 346,000 ($487,000).

TPT’s loan agreements covering both the credit facility and the term loans include subjective acceleration clauses that allow Rabobank to accelerate payment if, in the judgment of the bank, there are adverse changes in our business.  We believe that such subjective acceleration clauses are customary in the Netherlands for such borrowings.  However, if demand is made by Rabobank, we may require additional debt or equity financing to meet our working capital and operational requirements, or if required, to refinance the demanded indebtedness.

32

TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operation

Malaysian Operations

On September 14, 2005, the Company’s subsidiary, TMM, amended its banking facility with HSBC Bank Malaysia Berhad (“HSBC”).  The amendment increased the Bankers Acceptance from Malaysian Ringgits (“RM”) 500,000 ($145,000) to RM 3,780,000 ($1,098,000) and added a US Dollar term loan (“HSBC Loan”) in the amount of $1,000,000.  Monthly interest payments began in December 2005.  Monthly principal payments began on August 26, 2007 and will continue through June 30, 2010.  The interest rate at September 30, 2008 was 3.88% and the loan balance was $608,000.

TMM renewed its banking facility with HSBC on October 30, 2007, for the purpose of extending the maturity date of the current facility from October 31, 2007, to October 31, 2008.  The HSBC facility provides for an overdraft line of credit up to RM 500,000 ($145,000), a bank guarantee of RM 300,000 ($87,000) and an ECR up to RM 8,000,000 ($2,323,000).  The ECR, a government supported financing arrangement specifically for exporters, is used by TMM for short-term financing of up to 120 to 180 days against customers’ and inter-company shipments.

On October 30, 2007, TMM renewed its banking facility with RHB Bank Berhad (“RHB”) for the purpose of extending the maturity date of the current facilities from October 31, 2007, to October 31, 2008.  The RHB facility, which TMM is currently renegotiating, provides for an overdraft line of credit up to RM 1,000,000 ($290,000) and an ECR up to RM 9,300,000 ($2,701,000).  The RHB facility was also amended to include the following:

• Incorporate a Revolving Credit facility as part of the existing Overdraft facility of RM 1,000,000 ($290,000) (i.e. an interchangeable Overdraft/Revolving Credit facility) with a combined limit of RM 1.0 million to be used for working capital purposes.
• Increase the Foreign Exchange Contract Line facility by an additional RM 10 million from RM 15 million to RM 25 million ($4,356,000 to $7,260,000) to be used for hedging purposes against TMM’s sales based in currencies other than the RM.
• Increase the maximum length of financing for the Multi-Trade Line facility (ECR), which is used by TMM for short-term financing against customers’ and inter-company shipments, from the existing 150 days up to 180 days.

On May 30, 2008, TMM entered into a US Dollar term loan with RHB to fund the completion of its new powder processing facility.  The loan, in the amount of $292,000, will be repaid over a period of 22 months with an interest rate of 0.75% above the RHB prime.  Monthly principal ($8,350 per month) and interest payments commenced on July 1, 2008, and will continue through April 1, 2009.  The interest rate at September 30, 2008 was 3.94% and the loan balance was $267,000.

The banking facilities with both HSBC and RHB bear an interest rate on the overdraft facilities at 1.25% over bank prime and the ECR facilities bear interest at 1.0% above the funding rate stipulated by the Export-Import Bank of Malaysia Berhad.  At September 30, 2008, the interest rate was 4.5% and the outstanding balance on their ECR facilities was RM 2,614,000 ($759,000).

The borrowings under both the HSBC and the RHB short term credit facilities are subject to certain subjective acceleration covenants based on the judgment of the banks and a demand provision that provide that the banks may demand repayment at any time.  We believe such a demand provision is customary in Malaysia for such facilities.  The loan agreements are secured by TMM’s property, plant and equipment.  The credit facilities prohibit TMM from paying dividends and the HSBC facility further prohibits loans to related parties without the prior consent of HSBC.

33

TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operation

Off-Balance Sheet Arrangements and Contractual Obligations

No material changes have been made to the “Off-Balance Sheet Arrangements and Contractual Obligations” noted in the Company’s 2007 Annual Report on Form 10-K except as noted above.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company's Chief Executive Officer and Acting Chief Financial Officer, management of the Company has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report.  Based on that evaluation, the Chief Executive Officer and Acting Chief Financial Officer concluded that, as of the date of the evaluation, the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

During the period covered by this report, the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) experienced a change due to the termination of the Company’s Chief Financial Officer on May 23, 2008; and the temporary appointment of the Company’s Controller as Acting Chief Financial Officer.  The Company is utilizing the services of temporary individuals to perform certain internal control functions previously performed by employees of the Company.

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Part II  -  Other Information

Item 1. Legal Proceedings

In late July 2008, we learned that our former chief financial officer, Steven H. Parker, filed a complaint with the Occupational Safety and Health Administration, U.S. Department of Labor.  Parker’s complaint was filed on or about July 21, 2008, and alleges that TOR Minerals International, Inc. violated the whistleblower provisions of the Sarbanes-Oxley Act of 2002 by terminating Parker’s employment in response to Parker’s reporting to our CEO and a board member of the negative accounting treatment of a potential transaction.  We believe our actions were appropriate and intend to vigorously defend this complaint.  We have responded to Parker’s complaint.  Relief sought by Parker includes back pay, reinstatement or front pay in lieu of reinstatement and reasonable attorney’s fees and costs.

Item 1A. Risk Factors

Except for the risk factors set forth below, there have been no material changes in our assessment of the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, in response to Item 1A of Part 1 of Form 10-K.  Please refer to the additional risk factors set forth in such Annual Report.

Risks Relating to Our Business

General business and economic conditions could reduce our sales and profitability.

If global economic and market conditions, or economic conditions in the United States or other key markets, remain uncertain or persist, spread, or deteriorate further, we may experience material impacts on our business, operating results, and financial condition.  Economic conditions worldwide have from time to time contributed to slowdowns in the construction industry and its demand for materials that use pigments, such as paints and plastics.  Uncertainty about future economic conditions makes it difficult to forecast operating results and to make decisions about future investments.  Future economic weakness, customer financial difficulties, increases in the costs of production, and reductions in spending on construction could have a material adverse effect on demand for our products and consequently on our results of operations and stock price.  Our ability to generate revenue is dependant upon the budgets of our core customers.  If these economic conditions persist, these budgets and, consequently, our revenues could be adversely affected.  In addition, if the general business and economic conditions were to further decline, we could experience additional increases in our provisions for doubtful accounts.

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Part II  -  Other Information

Item 6.	Exhibits
(a)	Exhibits
	Exhibit 10.1	Waiver and Seventh Amendment to Loan Agreement with Bank of America, Executed November13, 2008
	Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	Exhibit 31.2	Certification of Acting Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	Exhibit 32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	Exhibit 32.2	Certification of Acting Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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.
	TOR Minerals International, Inc. _______________ (Registrant)
Date:	November 13, 2008		OLAF KARASCH Olaf Karasch President and CEO
Date:	November 13, 2008		BARBARA RUSSELL Barbara Russell Acting Chief Financial Officer

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EX-10

EXHIBIT 10.1

WAIVER AND SEVENTH AMENDMENT
TO
SECOND AMENDED AND RESTATED LOAN AGREEMENT

THIS WAIVER AND SEVENTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT (this "Amendment") is entered into as of November 13, 2008 between TOR Minerals International, Inc., a Delaware corporation ("Borrower"), and BANK OF AMERICA, N.A., a national banking association ("Lender").  Capitalized terms used but not defined in this Amendment have the meaning given them in the Loan Agreement (defined below).

RECITALS

A.        Borrower and Lender entered into that certain Second Amended and Restated Loan Agreement dated as of December 21, 2004 (as amended by First Amendment to Second Amended and Restated Loan Agreement dated December 13, 2005, Second Amendment to Second Amended and Restated Loan Agreement dated November 29, 2006, Third Amendment to Second Amended and Restated Loan Agreement dated February 15, 2007, Fourth Amendment to Second Amended and Restated Loan Agreement dated May 7, 2007, Fifth Amendment to Second Amended and Restated Loan Agreement dated March 19, 2008, Waiver and Sixth Amendment to Second Amended and Restated Loan Agreement dated August 14, 2008, and as further amended, restated or supplemented the "Loan Agreement").

B.         Borrower is in default under the Loan Agreement as a result of Borrower's failure to comply with (i) the covenant contained in Section 4(B)(ii) of the Loan Agreement for the quarter ending September 30, 2008, (ii) the covenant contained in Section 4(B)(iii) of the Loan Agreement for the quarter ending September 30, 2008, and (iii) the covenant contained in Section 4(B)(v) of the Loan Agreement for the quarter ending September 30, 2008 (collectively, the "Existing Defaults").

C.         Borrower and Lender have agreed to amend the Loan Agreement and waive the Existing Defaults, subject to the terms and conditions of this Amendment.

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are acknowledged, the undersigned hereby agree as follows:

1.                   Amendments to Loan Agreement.

(a)          Section 1.S of the Loan Agreement is amended to delete the definition of Revolving Committed Amount in its entirety and to replace it with the following:

"Revolving Committed Amount means $2,500,000."

(b)                The Loan Agreement is amended to delete the third sentence of Section 2A and replace it with the following:

"Borrowing Base" means the sum of (a) 80% of Borrower's Eligible Accounts Receivable plus (b) the lesser of (x) 50% of Borrower's Eligible Inventory and (y) 70% of the amount determined under preceding clause (a)."

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2.                   Waiver.  Subject to the conditions set out in this Amendment, Lender (a) waives the Existing Defaults, and (b) agrees not to exercise any of the rights or remedies available to it under the Loan Documents solely as a result of the violation or noncompliance described in clause (a) above.  Except as set out in the preceding sentence, Borrower hereby agrees that such waiver does not constitute a waiver of any present or future violation of or noncompliance with any provision of any Loan Document or a waiver of Lender's right to insist upon strict compliance with each term, covenant, condition, and provision of the Loan Documents.

3.                   Waiver and Sixth Amendment.  In connection with the Waiver and Sixth Amendment to Second Amended and Restated Loan Agreement dated August 14, 2008, between Borrower and Lender (the "Sixth Amendment"), Borrower was required to receive at least $1,000,000 in cash equity contributions on or before September 15, 2008.  For the avoidance of doubt, Lender confirms that Borrower has satisfied its obligations as specified in Section 3 of the Sixth Amendment, notwithstanding the subsequent shareholder approval being obtained by Borrower with respect to such cash equity contributions.

4.                   Conditions.  This Amendment shall be effective as of the date first set forth above once each of the following have been delivered to Lender:

(i)                           this Amendment executed by Borrower and Lender;

(ii)                         payment by Borrower to Lender of a $5,000 amendment/waiver fee, which fee shall be full-earned and non-refundable when paid;

(iii)                        payment by Borrower to Porter & Hedges, L.L.P., counsel to Lender, of outstanding legal fees of $6,532.50 (invoice no. 342586); and

(iv)                       such other documents as Lender may reasonably request.

5.                   Representations and Warranties.  Borrower represents and warrants to Lender that (a) it possesses all requisite power and authority to execute, deliver and comply with the terms of this Amendment, (b) this Amendment has been duly authorized and approved by all requisite corporate action on the part of Borrower, (c) no other consent of any person, governmental authority, or entity (other than Lender) is required for this Amendment to be effective, (d) the execution and delivery of this Amendment does not violate its organizational documents, (e) the representations and warranties in each Loan Document to which it is a party are true and correct in all material respects on and as of the date of this Amendment as though made on the date of this Amendment (except to the extent that such representations and warranties speak to a specific date or as modified by this Amendment), (f) except for the Existing Defaults, it is in full compliance with all covenants and agreements contained in each Loan Document to which it is a party, and (g) no Event of Default has occurred and is continuing other than the Existing Defaults.  The representations and warranties made in this Amendment shall survive the execution and delivery of this Amendment.  No investigation by Lender is required for Lender to rely on the representations and warranties in this Amendment.

2

6.                   Scope of Amendment; Reaffirmation; Release.  All references to the Loan Agreement shall refer to the Loan Agreement as amended by this Amendment.  Except as affected by this Amendment, the Loan Documents are unchanged and continue in full force and effect.  However, in the event of any inconsistency between the terms of the Loan Agreement (as amended by this Amendment) and any other Loan Document, the terms of the Loan Agreement shall control and such other document shall be deemed to be amended to conform to the terms of the Loan Agreement.  Borrower hereby reaffirms its obligations under the Loan Documents to which it is a party and agrees that all Loan Documents to which they are a party remain in full force and effect and continue to be legal, valid, and binding obligations enforceable in accordance with their terms (as the same are affected by this Amendment).  BORROWER HEREBY RELEASES LENDER FROM ANY LIABILITY FOR ACTIONS OR OMISSIONS IN CONNECTION WITH THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS PRIOR TO THE DATE OF THIS AMENDMENT AND BORROWER WAIVES AND RELEASES ANY AND ALL OF ITS RIGHTS, REMEDIES, CLAIMS, DEMANDS AND CAUSES OF ACTION BASED UPON OR RELATED TO, IN WHOLE OR IN PART, FROM THE NEGLIGENCE, BREACH OF CONTRACT OR OTHER FAULT, OR STRICT LIABILITY WITHOUT REGARD TO FAULT, TO THE MAXIMUM EXTENT THAT SUCH RIGHTS, REMEDIES, CLAIMS, DEMANDS AND CAUSES OF ACTION MAY LAWFULLY BE RELEASED AND WAIVED AND TO THE EXTENT ARISING PRIOR TO THE DATE OF THIS AMENDMENT.  BORROWER ACKNOWLEDGES THAT LENDER HAS FULFILLED ALL OF ITS CONTRACTUAL OBLIGATIONS UNDER THE LOAN DOCUMENTS ARISING PRIOR TO THE DATE HEREOF.  IN FURTHERANCE THEREOF, BORROWER REPRESENTS THAT BORROWER HAS HAD THE OPPORTUNITY TO ENGAGE LEGAL COUNSEL IN CONNECTION WITH THE NEGOTIATION, EXECUTION AND DELIVERY OF THIS AMENDMENT AND BORROWER DOES NOT CONSIDER ITSELF TO BE IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION WITH RESPECT TO THE LOAN DOCUMENTS AND BORROWER VOLUNTARILY CONSENTS TO THIS WAIVER.

7.                   Miscellaneous.

(a)                No Waiver of Defaults.  This Amendment does not constitute (i) a waiver of, or a consent to, (A) any provision of the Loan Agreement or any other Loan Document not expressly referred to in this Amendment, or (B) any present or future violation of, or default under, any provision of the Loan Documents, or (ii) a waiver of Lender's right to insist upon future compliance with each term, covenant, condition and provision of the Loan Documents.

(b)                Form.  Each agreement, document, instrument or other writing to be furnished to Lender under any provision of this Amendment must be in form and substance satisfactory to Lender and its counsel.

(c)                Headings.  The headings and captions used in this Amendment are for convenience only and will not be deemed to limit, amplify or modify the terms of this Amendment, the Loan Agreement or the other Loan Documents.

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(d)                Costs, Expenses and Attorneys' Fees.  Borrower agrees to pay or reimburse Lender on demand for all its reasonable out-of-pocket costs and expenses incurred in connection with the preparation, negotiation and execution of this Amendment, including, without limitation, the reasonable fees and disbursements of Lender's counsel.

(e)                Successors and Assigns.  This Amendment shall be binding upon and inure to the benefit of each of the undersigned and their respective successors and permitted assigns.

(f)                 Multiple Counterparts.  This Amendment may be executed in any number of counterparts with the same effect as if all signatories had signed the same document.  All counterparts must be construed together to constitute one and the same instrument.  This Amendment may be transmitted and signed by facsimile or by portable document format (PDF).  The effectiveness of any such documents and signatures shall, subject to applicable law, have the same force and effect as manually-signed originals and shall be binding on Borrower and Lender.  Lender may also require that any such documents and signatures be confirmed by a manually-signed original; provided that the failure to request or deliver the same shall not limit the effectiveness of any facsimile or PDF document or signature.

(g)                Governing Law.  This Amendment and the other Loan Documents must be construed, and their performance enforced, under Texas law.

(h)                Arbitration.  Upon the demand of any party to this Amendment, any dispute shall be resolved by binding arbitration as provided for in Section 11 of the Loan Agreement.

(i)                 Entirety.  The Loan Documents (as amended hereby) Represent the Final Agreement Between Borrower and Lender and May Not Be Contradicted by Evidence of Prior, Contemporaneous, or Subsequent Oral Agreements by the Parties.  There Are No Unwritten Oral Agreements among the Parties.

[Signatures are on the following page.]

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The Amendment is executed as of the date set out in the preamble to this Amendment.

BORROWER: TOR MINERALS INTERNATIONAL, INC., a Delaware corporation		LENDER: BANK OF AMERICA, N.A., a national banking association
By:		By:
	Barbara Russell Acting Chief Financial Officer		Peter Vitale, Senior Vice President

Signature Page to Waiver and Seventh Amendment to Second Amended and Restated Loan Agreement

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EX-31

Exhibit 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION

I, Olaf Karasch, President and Chief Executive Officer of TOR Minerals International, Inc. (the "Registrant"), certify that:

1. I have reviewed this report on Form 10-Q of TOR Minerals International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:
1. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
2. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
3. evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
4. disclosed in this quarterly report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and
5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):
1. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and
2. any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

/s/ Olaf Karasch
Olaf Karasch
President and Chief Executive Officer
(Principal Executive Officer)
November 13, 2008

EX-31

Exhibit 31.2

PRINCIPAL FINANCIAL OFFICER CERTIFICATION

I, Barbara Russell, Acting Chief Financial Officer of TOR Minerals International, Inc. (the "Registrant"), certify that:

1. I have reviewed this report on Form 10-Q of TOR Minerals International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:
   1. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
   2. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
   3. evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
   4. disclosed in this quarterly report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and
5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):
   1. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and
   2. any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

/s/ BARBARA RUSSELL
Barbara Russell
Acting Chief Financial Officer
(Principal Financial Officer)
November 13, 2008

EX-32

Exhibit 32.1

Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of TOR Minerals, Inc. ("Registrant") for the quarter ended September 30, 2008 (the "Report") as filed with the Securities and Exchange Commission, the undersigned Chief Executive Officer of the Registrant hereby certifies, pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

/s/ OLAF KARASCH
Olaf Karasch
President and Chief Executive Officer
(Principal Executive Officer)
November 13, 2008

EX-32

Exhibit 32.2

Certification of Acting Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of TOR Minerals, Inc. ("Registrant") for the quarter ended September 30, 2008 (the "Report") as filed with the Securities and Exchange Commission, the undersigned Acting Chief Financial Officer of the Registrant hereby certifies, pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant

/s/ BARBARA RUSSELL
Barbara Russell
Acting Chief Financial Officer
(Principal Financial Officer)
November 13, 2008