10-Q

United States Securities and Exchange Commission Washington, D. C.  20549 ____________________________ FORM 10-Q____________________________
(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012 OR
o	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 ý				No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ý				No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o		Accelerated filer o	Non-accelerated filer o			Smaller reporting company ý
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o				No ý
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, $1.25 par value				Shares Outstanding as of October 31, 2012 2,967,977

1

Table of Contents
Part I - Financial Information
			Page No.
Item 1.	Condensed Consolidated Financial Statements
		Condensed Consolidated Statements of Income  -- Three and Nine months ended September 30, 2012 and 2011	3
		Condensed Consolidated Statements of Comprehensive Income -- Three and Nine months ended September 30, 2012 and 2011	4
		Condensed Consolidated Balance Sheets -- September 30, 2012 and December 31, 2011	5
		Condensed Consolidated Statements of Cash Flows -- Nine months ended September 30, 2012 and 2011	6
	Notes to the Condensed Consolidated Financial Statements		7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		17
Item 4.	Controls and Procedures		26
Part II - Other Information
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		28
Item 6.	Exhibits		29
Signatures			29

Forward Looking Information

Certain portions of this report contain forward-looking statements about the business, financial condition and prospects of TOR Minerals International, Inc. (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 Titanium dioxide 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 Income
(Unaudited)
(In thousands, except per share amounts)
		Three Months Ended September 30,				Nine Months Ended September 30,
		2012		2011		2012		2011
NET SALES	$	19,914	$	11,401	$	46,830	$	31,475
Cost of sales		16,068		9,026		36,127		24,703
GROSS MARGIN		3,846		2,375		10,703		6,772
Technical services and research and development		90		74		273		206
Selling, general and administrative expenses		1,242		1,098		3,825		3,322
Gain on disposal of assets		(6)		-		(6)		-
OPERATING INCOME		2,520		1,203		6,611		3,244
OTHER EXPENSE:
Interest expense		(143)		(139)		(397)		(336)
Gain (loss) on foreign currency exchange rate		(24)		63		(21)		6
Other, net		-		-		1		7
INCOME BEFORE INCOME TAX		2,353		1,127		6,194		2,921
Income tax expense		516		60		1,402		198
NET INCOME	$	1,837	$	1,067	$	4,792	$	2,723
Less:  Preferred Stock Dividends		-		-		-		15
Basic Income Available to Common Shareholders	$	1,837	$	1,067	$	4,792	$	2,708
Plus:  6% Convertible Debenture Interest Expense		-		22		36		66
Plus:  Preferred Stock Dividends		-		-		-		15
Diluted Income Available to Common Shareholders	$	1,837	$	1,089	$	4,828	$	2,789
Income per common share:
Basic	$	0.62	$	0.50	$	1.77	$	1.32
Diluted	$	0.53	$	0.33	$	1.43	$	0.86
Weighted average common shares outstanding:
Basic		2,968		2,122		2,714		2,052
Diluted		3,441		3,264		3,383		3,234
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,
		2012		2011		2012		2011
NET INCOME	$	1,837	$	1,067	$	4,792	$	2,723
OTHER COMPREHENSIVE INCOME (LOSS), net of tax
Currency translation adjustment, net of tax:
Net foreign currency translation adjustment gain (loss)		758		(1,305)		540		(546)
Other comprehensive income (loss), net of tax		758		(1,305)		540		(546)
COMPREHENSIVE INCOME (LOSS)	$	2,595	$	(238)	$	5,332	$	2,177

See accompanying notes.

4

TOR Minerals International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
		September 30, 2012		December 31, 2011
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,558	$	3,381
Trade accounts receivable, net		14,374		4,921
Inventories		20,705		18,673
Other current assets		1,629		832
Total current assets		38,266		27,807
PROPERTY, PLANT AND EQUIPMENT, net		21,554		20,138
OTHER ASSETS		24		22
Total Assets	$	59,844	$	47,967
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	4,647	$	3,222
Accrued expenses		3,076		1,754
Notes payable under lines of credit		4,616		2,886
Export credit refinancing facility		2,332		1,254
Current deferred tax liability		55		46
Current maturities - capital leases		51		28
Current maturities of long-term debt – financial institutions		818		813
Current maturities of long-term debt – convertible debentures		-		91
Total current liabilities		15,595		10,094
LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES
Capital leases		16		34
Long-term debt – financial institutions		2,816		2,668
Long-term debt – convertible debentures, net		-		1,127
DEFERRED TAX LIABILITY		1,201		619
Total liabilities		19,628		14,542
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock $1.25 par value:  authorized, 6,000 shares; 2,968 and 2,400 shares issued and outstanding at 9/30/2012 and 12/31/2011, respectively		3,709		2,999
Additional paid-in capital		28,971		28,222
Retained earnings (Accumulated deficit)		3,033		(1,759)
Accumulated other comprehensive income:
Cumulative foreign currency translation adjustment		4,503		3,963
Total shareholders' equity		40,216		33,425
Total Liabilities and Shareholders' Equity	$	59,844	$	47,967
See accompanying notes.

5

TOR Minerals International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
		Nine Months Ended September 30,
		2012		2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	4,792	$	2,723
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,842		1,544
Gain on disposal of assets		(6)		-
Share-based compensation		71		53
Convertible debenture interest expense		22		50
Deferred income taxes		572		158
Provision for bad debts		69		-
Changes in working capital:
Trade accounts receivables		(9,499)		(1,880)
Inventories		(1,601)		(4,142)
Other current assets		(788)		(478)
Accounts payable and accrued expenses		2,684		643
Net cash used in operating activities		(1,842)		(1,329)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment		(3,068)		(2,733)
Proceeds from sales of property, plant and equipment		8		-
Net cash used in investing activities		(3,060)		(2,733)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from lines of credit		1,656		339
Net proceeds from export credit refinancing facility		1,032		2,428
Net proceeds from (payments on) capital leases		5		(44)
Proceeds from long-term bank debt		774		877
Payments on long-term bank debt		(605)		(368)
Proceeds from the issuance of common stock,      and exercise of common stock options		148		606
Preferred stock dividends paid		-		(30)
Net cash provided by financing activities		3,010		3,808
Effect of foreign currency exchange rate fluctuations on cash and cash equivalents		69		(198)
Net decrease in cash and cash equivalents		(1,823)		(452)
Cash and cash equivalents at beginning of year		3,381		2,559
Cash and cash equivalents at end of period	$	1,558	$	2,107
Supplemental cash flow disclosures:
Interest paid	$	397	$	139
Non-cash financing activities:
Conversion of debentures	$	1,240	$	25
See accompanying notes.

6

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

Note 1. Accounting Policies

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. (“TOR”, “we”, “us”, “our” or the “Company”) and its wholly-owned subsidiaries, TOR Processing and Trade, B.V. (“TPT”) and TOR Minerals Malaysia, Sdn. Bhd. (“TMM”),  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 our annual consolidated 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, 2011, in our Annual Report on Form 10-K filed with the SEC on March 12, 2012.  Operating results for the three and nine month periods ended September 30, 2012, are not necessarily indicative of the results for the year ending December 31, 2012.

Income Taxes:  The Company records 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.

For the three and nine month periods ended September 30, 2012, income tax expense consisted of federal income tax expense of approximately $105,000 and $688,000, respectively; state income tax expense of approximately $3,000 and $8,000, respectively; and foreign deferred tax expense of approximately $408,000 and $706,000, respectively.  For the three and nine month periods ended September 30, 2011, income tax expense consisted of federal income tax expense of $6,000 and $18,000, respectively; state income tax expense of $2,000 and $4,000, respectively; and foreign deferred tax expense of $52,000 and $176,000, respectively.  For the year ended December 31, 2012, taxes are based on an estimated annualized consolidated effective tax rate of 22.7%.

When accounting for uncertainties in income taxes, 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, 2009 through December 31, 2011.  Our state return, which are filed in Texas, is` subject to examination for the tax years ended December 31, 2008 through December 31, 2011.  Our tax returns in various non-U.S. jurisdictions are subject to examination for various tax years ended December 31, 2006 through December 31, 2011.

As of January 1, 2012, we did not have any unrecognized tax benefits and there was no change during the nine month period ended September 30, 2012.  In addition, we did not recognize any interest and penalties in our consolidated financial statements during the nine month period ended September 30, 2012.  If any interest or penalties related to any income tax liabilities are imposed in future reporting periods, we expect to record both of these items as components of income tax expense.

Recently Adopted and Recently Issued Accounting Standards

The Company reviewed significant newly issued accounting pronouncements and concluded that they are either not applicable to the Company’s business or that no material effect is expected on the consolidated financial statements as a result of future adoption.

7

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

Note 2. Debt

Long-term Debt – Financial Institutions

Following is a summary of our long-term debt to financial institutions:

		(Unaudited)
(In thousands)		September 30,		December 31,
		2012		2011
Fixed Rate term note payable to a U.S. bank, with an interest rate of 6.65% at September 30, 2012, due January 1, 2016, secured by real estate, leasehold improvements, property, plant and equipment, inventory and accounts receivable of our U.S. operation.	$	1,404	$	1,680
Term note payable to a U.S. equipment financing company, with an interest rate of 5.24% at September 30, 2012, due April 1, 2013, secured by a Caterpillar front-end loader.		16		35
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 7.8% at September 30, 2012, due July 1, 2029, secured by TPT's land and office building purchased July 2004.  (€304)		390		413
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.6% at September 30, 2012, due January 31, 2030, secured by TPT's land and building purchased January 2005.  (€304)		390		412
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.05% at September 30, 2012, due July 31, 2015, secured by TPT's assets.  (€121)		155		205
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.25% at September 30, 2012, due July 5, 2014, secured by TPT's assets.  (€393)		505		736
Malaysian Ringgit term note payable to a Malaysian bank, with an interest rate of 5.2% at September 30, 2012, due March 1, 2015, secured by TMM's property, plant and eqiupment. (RM 2,365)		774		-
Total		3,634		3,481
Less current maturities		818		813
Total long-term debt and notes payable - financial institutions	$	2,816	$	2,668

Six-percent Convertible Subordinated Debentures

As reported in the Company’s Forms 8-K filed with the SEC on May 6, 2009 and August 10, 2009, the Company’s Board of Directors authorized the issuance of its six-percent (6%) convertible subordinated debentures with detachable warrants (the “Debentures”) for the purpose of refinancing, in whole or in part, its debt to the bank and for general corporate purposes.  The Company received $1,500,000 from the sale of Debentures, due May 4, 2016, from nine accredited investors, four of whom are directors of the Company and another of whom is a greater than 5% shareholder. 

On May 3, 2012, the five remaining holders, four of whom are directors of the Company and another whom is a greater than 5% shareholder, of our Debentures converted their Debentures, and the Company issued 547,172 shares of common stock upon conversion of such Debentures.

8

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

Short-term Debt

U.S. Operations

On December 31, 2010, the Company entered into a U.S. credit agreement (the “Agreement”) with American Bank, N.A. (the “Lender”) which established a $1,000,000 line of credit (the “Line”).  On March 1, 2012, the Company entered into the first amendment to the Agreement with the Lender which increased the Line from $1,000,000 to $2,000,000 and extended the maturity date from July 1, 2012 to October 15, 2013.  Under the terms of the Agreement, the amount the Company is entitled to borrow under the Line is subject to a borrowing base, which is based on the loan value of the collateral pledged to the Lender to secure the indebtedness owing to the Lender by the Company.  Amounts advanced under the line of credit bear interest at a variable rate equal to one percent per annum point above the Wall Street Journal Prime Rate as such prime rate changes from time to time, with a minimum floor rate of 5.50%.  At September 30, 2012, the Company had $1,750,000 borrowed on the Line at a rate of 5.50%.

Under the terms of the Agreement, the Company must maintain a ratio of cash flow to debt service of at least 1.25 to 1.0 measured on a rolling four quarter basis.  At September 30, 2012, the ratio of cash flow to debt service was 6.93 to 1.0.

Netherlands Operations

On March 20, 2007, our subsidiary, TPT, entered into a short-term credit facility (the “Credit Facility”) with Rabobank which increased TPT’s line of credit from €650,000 to €1,100,000.  The Credit Facility was renewed on January 1, 2010 and has no stated maturity date.  The Credit Facility, which has a variable interest rate of bank prime plus 2.8% (currently at 3.419%), is secured by TPT’s accounts receivable and inventory.  At September 30, 2012, TPT had utilized €743,000 ($954,000) of its short-term credit facility.

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 be unable to refinance the demanded indebtedness, in which case the bank could foreclose on the assets of TPT.

9

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

Malaysian Operations

On May 21, 2012, our subsidiary, TMM, amended its banking facility with HSBC Bank Malaysia Berhad (“HSBC”) to extend the maturity date from April 30, 2012 to April 30, 2013.  The HSBC facility includes the following in Malaysian Ringgits (“RM”):  (1) overdraft of RM 500,000; (2) an import/export line (“ECR”) of RM 6,460,000; (3) a foreign exchange contract limit of RM 5,000,000 ($163,000, $2,113,000 and $1,635,000, respectively); and a term loan of RM 3,500,000 of which RM 2,365,000 had been drawn as of September 30, 2012 ($1,145,000 and $774,000, respectively).

On June 1, 2011, TMM amended its banking facility with RHB Bank Berhad (“RHB”) to extend the maturity date to April 30, 2012.  TMM is currently negotiating an extension to the maturity date with RHB.  The RHB facility includes the following:  (1) an overdraft line of credit up to RM 1,000,000; (2) an ECR of RM 9,300,000; (3) a bank guarantee of RM 1,200,000; and (4) a foreign exchange contract limit of RM 25,000,000 ($327,000, $3,042000, $392,000 and $8,178,000, respectively).  At September 30, 2012, the outstanding balance on the line of credit was RM 700,000 ($229,000) at a current interest rate of 4.18% and RM 5,143,000 ($1,683,000) was outstanding on the foreign exchange contract at a current interest rate of 2.98%.

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.  The ECR, a government supported financing arrangement specifically for exporters, is used by TMM for short-term financing of up to 180 days against customers’ and inter-company shipments.  At September 30, 2012, the outstanding balance on the ECR facilities was RM 7,130,000 ($2,332,000) at a current interest rate of 5.0%.

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.  However, if demand is made by HSBC or RHB, we may be unable to refinance the demanded indebtedness, in which case, the lenders could foreclose on the assets of TMM.  The credit facilities prohibit TMM from paying dividends and the HSBC facility further prohibits loans to related parties without the prior consent of HSBC.

10

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

Note 3. Fair Value Measurements

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, 2012.  The Company did not hold any non-financial assets and/or non-financial liabilities subject to fair value measurements at September 30, 2012 or September 30, 2011.

	September 30, 2012
(In thousands)	Balance at September 30, 2012		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Asset for foreign currency derivative financial instruments (including forward contracts)	$	88	$	-	$	88	$	-
	September 30, 2011
(In thousands)	Balance at September 30, 2011		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)	$	(70)	$	-	$	(70)	$	-

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

The fair value of the Company’s debt is based on estimates using standard pricing models that take into account the present value of future cash flows as of the consolidated and condensed balance sheet date.  The computation of the fair value of these instruments is generally performed by the Company.  The carrying amounts and estimated fair values of the Company’s long-term debt, including current maturities, are summarized below:

		September 30, 2012				December 31, 2011
(In thousands)		Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, including current portion	$	3,634	$	3,568	$	3,481	$	3,391
Long-term debt – convertible debentures		-		-		1,450		1,436
	$	3,634	$	3,568	$	4,931	$	4,827

The carrying amounts reported in the consolidated and condensed balance sheets for cash and cash equivalents, trade receivables, payables and accrued liabilities and short-term borrowings approximate fair value due to the short term nature of these instruments.  Accordingly, these items have been excluded from the above table.

11

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

Note 4. Capital Leases

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 consolidated balance sheets as property, plant and equipment.  Accumulated amortization of the leased equipment at September 30, 2012 was approximately $19,000.  The capital lease, which was scheduled to mature in February 2013, was paid off in September 2012.

On August 1, 2010, the Company entered into a financial lease agreement with Dell Financial Services for new computer servers.  The cost of the equipment under the capital lease, in the amount of $19,093, is included in the consolidated balance sheets as property, plant and equipment.  Accumulated amortization of the leased equipment at September 30, 2012 was approximately $17,000.  The capital lease is in the amount of $20,698 including interest of $1,605 (implicit interest rate 5.3%).  The lease term is 36 months with equal monthly installments of $575.  The net present value of the lease at September 30, 2012 was $6,000.

On September 4, 2011, TPT entered into a financial lease agreement with Diependael Leasing, BV for equipment related to the production of ALUPREM.  The cost of the equipment under the capital lease, in the amount of €38,360, is included in the consolidated balance sheets as property, plant and equipment.  Accumulated amortization of the leased equipment at September 30, 2012 was approximately €13,000.  The capital lease is in the amount of €41,256 including interest of €2,896 (implicit interest rate 4.786%).  The lease term is 36 months with equal monthly installments of €1,146.  The net present value of the lease at September 30, 2012 was €28,250 ($32,000).

On February 5, 2012, TPT entered into a financial lease agreement with Sympatec GmbH for lab equipment.  The cost of the equipment under the capital lease, in the amount of €52,128, is included in the consolidated and condensed balance sheets as property, plant and equipment.  Accumulated amortization of the leased equipment at September 30, 2012 was approximately €4,000.  The capital lease is in the amount of €56,988 including interest of €4,860 (implicit interest rate 16.785%).  The lease term is 12 months with equal monthly installments of €4,749.  The net present value of the lease at September 30, 2012 was €35,708 ($29,000).

12

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

Note 5. 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,
		2012		2011		2012		2011
Numerator:
Net Income	$	1,837	$	1,067	$	4,792	$	2,723
Preferred Stock Dividends		-		-		-		(15)
Numerator for basic earnings per share - income available to common shareholders		1,837		1,067		4,792		2,708
Effect of dilutive securities:
6% Convertible Debenture Interest Expense		-		22		36		66
Preferred Stock Dividends		-		-		-		15
Numerator for diluted income per share - income available to common shareholders after assumed conversions	$	1,837	$	1,089	$	4,828	$	2,789
Denominator:
Denominator for basic income per share - weighted-average shares		2,968		2,122		2,714		2,052
Effect of dilutive securities:
Employee stock options		(180)		37		(158)		40
Detachable warrants		461		555		457		542
6% Convertible Debenture		192		547		370		552
Preferred Stock		-		3		-		48
Dilutive potential common shares		473		1,142		669		1,182
Denominator for diluted income per share - weighted-average shares and assumed conversions		3,441		3,264		3,383		3,234
Basic income per common share	$	0.62	$	0.50	$	1.77	$	1.32
Diluted income per common share	$	0.53	$	0.33	$	1.43	$	0.86

For the three and nine month periods ended September 30, 2012 and 2011, approximately 45,000 and 24,000, respectively, of shares issuable upon exercise of employee stock options were excluded from the calculation of diluted earnings per share as the exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive.

13

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

Note 6. 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 (TPT)		Asia (TMM)		Inter-Company Eliminations		Consolidated
As of and for the three months ended:
September 30, 2012
Net Sales:
Customer sales	$	8,592	$	1,645	$	9,677	$	-	$	19,914
Intercompany sales		11		1,910		1,379		(3,300)		-
Total Net Sales	$	8,603	$	3,555	$	11,056	$	(3,300)	$	19,914
Location profit (loss)	$	447	$	293	$	1,195	$	(98)	$	1,837
September 30, 2011
Net Sales:
Customer sales	$	7,079	$	2,423	$	1,899	$	-	$	11,401
Intercompany sales		462		579		951		(1,992)		-
Total Net Sales	$	7,541	$	3,002	$	2,850	$	(1,992)	$	11,401
Location profit	$	717	$	269	$	93	$	(12)	$	1,067
As of and for the nine months ended:
September 30, 2012
Net Sales:
Customer sales	$	26,030	$	5,818	$	14,982	$	-	$	46,830
Intercompany sales		52		4,735		7,350		(12,137)		-
Total Net Sales	$	26,082	$	10,553	$	22,332	$	(12,137)	$	46,830
Location profit	$	2,036	$	585	$	2,322	$	(151)	$	4,792
Location assets	$	19,053	$	10,306	$	30,485	$	-	$	59,844
September 30, 2011
Net Sales:
Customer sales	$	18,329	$	8,047	$	5,099	$	-	$	31,475
Intercompany sales		462		2,207		5,438		(8,107)		-
Total Net Sales	$	18,791	$	10,254	$	10,537	$	(8,107)	$	31,475
Location profit	$	1,372	$	911	$	442	$	(2)	$	2,723
Location assets	$	14,654	$	10,191	$	19,146	$	-	$	43,991

14

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 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 Corpus Christi inventories that include an inter-company component, the net effect of these adjustments can decrease/increase location profit.

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

Note 7. Stock Options and Equity Compensation Plan

For the three and nine month periods ended September 30, 2012, the Company recorded stock-based employee compensation expense of $13,000 and $71,000, respectively.  For the three and nine month periods ended September 30, 2011, the Company recorded stock-based employee compensation expense of $7,000 and $53,000, respectively.  This compensation expense is included in the selling, general and administrative expenses in the accompanying consolidated statements of income.

The Company granted 21,000 and 23,500 options during the nine month periods ended September 30, 2012 and 2011, respectively.

As of September 30, 2012, there was approximately $313,000 of stock-based employee compensation expense related to non-vested awards which is expected to be recognized over a weighted average period of 3.9 years.

As most options issued under the 2000 Incentive Plan are incentive stock options, the Company does not normally receive significant excess tax benefits relating to the compensation expense recognized on vested options.

Note 8. Inventories

A summary of inventory follows:
 

(In thousands)		September 30,		December 31,
		2012		2011
Raw materials	$	12,576	$	13,170
Work in progress		3,469		1,709
Finished goods		4,047		3,254
Supplies		927		804
Total Inventories		21,019		18,937
Inventory reserve		(314)		(264)
Net Inventories	$	20,705	$	18,673

15

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

Note 9. Derivatives and Other Financial Instruments

The Company has exposure to certain risks relating to its ongoing business operations, including financial, market, political and economic risks.  The following discussion provides information regarding our exposure to the risks of changing energy prices and foreign currency 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.  The natural gas and foreign exchange contracts are used to mitigate uncertainty and volatility, and to cover underlying exposures.

Foreign Currency Forward Contracts

We manage the risk of changes in foreign currency exchange rates, primarily at our Malaysian operation, through the use of foreign currency contracts.  Foreign exchange contracts are used 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.  We report the fair value of the derivatives on our consolidated and condensed balance sheets and changes in the fair value are recognized in earnings in the period of the change.

At September 30, 2012, we marked these contracts to market, recording $88,000 as a current asset on the consolidated and condensed balance sheet.  For the three and nine month periods ended September 30, 2012, we recorded a net gain on these contracts of $88,000 and $75,000, respectively, as a component of our net income.  For the three and nine month periods ended September 30, 2011, we recorded a net loss of $70,000 and $85,000, respectively, as a component of our net income.

The following table summarizes the gross fair market value of all derivative instruments, which are not designated as hedging instruments and their location in our Condensed Consolidated Balance Sheet:

(In thousands)
Asset Derivatives
			September 30,		December 31,
Derivative Instrument	Location		2012		2011
Foreign Currency Exchange Contracts	Other Current Assets	$	88	$	16
		$	88	$	16

The following table summarizes the impact of the Company’s derivatives on the condensed consolidated financial statements of operations for the three and nine month periods ended September 30, 2012 and 2011:
 

			Amount of (Loss) Gain Recognized in Income (In thousands)
	Location of Gain		Three Months Ended				Nine Months Ended
Derivative	(Loss) on Derivative		September 30,				September 30,
Instrument	Instrument		2012		2011		2012		2011
Foreign Currency    Exchange Contracts	Other Expense:    Gain (loss) on foreign   currency exchange rate	$	88	$	(70)	$	75	$	(85)

16

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

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

Company Overview

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

Our U.S. Operation, located in Corpus Christi, Texas, manufactures HITOX, BARTEX, HALTEX/OPTILOAD and TIOPREM.  The facility is also the global headquarters for the Company.  The Asian Operation, located in Ipoh, Malaysia, manufactures SR, HITOX and TIOPREM and our European Operation, located in Hattem, Netherlands, manufactures ALUPREM.

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 U.S. 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.

Following are our results for the three and nine month periods ended September 30, 2012 and 2011.

		(Unaudited)
(In thousands, except per share amounts)		Three Months Ended September 30,				Nine Months Ended September 30,
		2012		2011		2012		2011
NET SALES	$	19,914	$	11,401	$	46,830	$	31,475
Cost of sales		16,068		9,026		36,127		24,703
GROSS MARGIN		3,846		2,375		10,703		6,772
Technical services and research and development		90		74		273		206
Selling, general and administrative expenses		1,242		1,098		3,825		3,322
Gain on disposal of assets		(6)		-		(6)		-
OPERATING INCOME		2,520		1,203		6,611		3,244
OTHER EXPENSE:
Interest expense		(143)		(139)		(397)		(336)
Gain (loss) on foreign currency exchange rate		(24)		63		(21)		6
Other, net		-		-		1		7
INCOME BEFORE INCOME TAX		2,353		1,127		6,194		2,921
Income tax expense		516		60		1,402		198
NET INCOME	$	1,837	$	1,067	$	4,792	$	2,723
Income per common share:
Basic	$	0.62	$	0.50	$	1.77	$	1.32
Diluted	$	0.53	$	0.33	$	1.43	$	0.86

17

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

Results of Operations

Net Sales:  Consolidated net sales for the three and nine month periods ended September 30, 2012 increased approximately $8,513,000 or 75% and $15,355,000 or 49%, respectively, as compared to the same three and nine month periods of 2011 when we experienced increases in our consolidated net sales of $3,858,000 or 51% and $9,148,000 or 41%, respectively.

Following is a summary of our consolidated products sales for the three and nine month periods ended September 30, 2012 and 2011 (in thousands).  All inter-company sales have been eliminated.

		(Unaudited)
	Three Months Ended September 30,									Nine Months Ended September 30,
Product		2012			2011			Variance			2012			2011			Variance
HITOX	$	3,914	20%	$	5,352	47%	$	(1,438)	-27%	$	15,232	33%	$	14,072	44%	$	1,160	8%
ALUPREM		3,664	18%		3,680	32%		(16)	0%		11,726	25%		10,645	34%		1,081	10%
BARTEX		1,787	9%		1,132	10%		655	58%		4,711	10%		2,944	9%		1,767	60%
HALTEX		917	4%		759	7%		158	21%		2,819	6%		2,385	8%		434	18%
TIOPREM		623	3%		342	3%		281	82%		1,377	3%		1,119	4%		258	23%
SYNTHETIC RUTILE		8,862	45%		-	0%		8,862	N/A		10,410	22%		-	0%		10,410	N/A
OTHER		147	1%		136	1%		11	8%		555	1%		310	1%		245	79%
Total	$	19,914	100%	$	11,401	100%	$	8,513	75%	$	46,830	100%	$	31,475	100%	$	15,355	49%

HITOX sales for the third quarter of 2012 decreased 27% primarily due to a decrease in volume of approximately 44% which was partially offset by an increase in the average selling price of approximately 17%.  The third quarter decrease in sales volumes has been experienced throughout the titanium dioxide (“TiO2”) market as both producers and consumers have been undertaking inventory correction initiatives primarily due to the economic weakness and uncertainty as well as to align production levels and inventories to the current demand levels for TiO2 products.  For the nine month period ended September 30, 2012, HITOX sales increased 8% primarily due to an increase in average selling price of approximately 31% offset by a reduction in volume of approximately 23%.  This compares to an increase of 82% and 57% for the three and nine month periods ended September 30, 2011, respectively, primarily due to the stabilization and recovery in the paint and plastics end markets, as well as a tight supply of commodity TiO2 which resulted in an increase in volume and average selling price for the nine month period of 33% and 24%, respectively.

ALUPREM sales remained flat during the third quarter of 2012 and increased 10% for the nine month period ended September 30, 2012, as compared to the same periods of 2011 primarily due to an increase in volume of a significant U.S. customer, which was partially offset by a decrease in volume in European sales as this business is being affected by the slowdown in the European economy.  This compares to an increase of 35% and 32% during the same three and nine month periods of 2011, respectively.

BARTEX sales increased 58% and 60% during the three and nine month periods ended September 30, 2012.  For the three and nine month period, an increase in volume represented approximately 51% of the overall sales increase.  This follows an increase of approximately 15% and 5% for the three and nine month periods ended September 30, 2011, respectively.

HALTEX sales increased primarily due to new business for our standard HALTEX and newer OPTILOAD specialty products which are gaining acceptance in the marketplace.  For the three and nine month periods ended September 30, 2012, sales increased 21% and 18%, respectively.  This compares to an increase of 23% and 21% for the same three and nine month periods of 2011, respectively.

18

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

TIOPREM sales increased 82% for the three month period ended September 30, 2012, of which approximately 65% related to an increase in volume and 17% to an increase in the average selling price.  Year to date, sales increased approximately 23%.  For the same three and nine month periods of 2011, sales increased 90% and 321%, respectively.

Synthetic Rutile (“SR”) sales represented 45% and 22% of the overall sales for the three and nine month periods ended September 30, 2012, respectively.  There were no SR sales in 2011.  As long as favorable conditions continue in the market for synthetic rutile, the Company plans to continue to sell SR to third parties and is currently exploring opportunities to expand sales to new customers and for applications outside of the pigment market.

Corpus Christi Operation

Our Corpus Christi operation manufactures and sells HITOX, BARTEX, HALTEX/OPTILOAD and TIOPREM 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 and nine month periods ended September 30, 2012 and 2011 (in thousands), as well as a summary of the material changes.  All inter-company sales have been eliminated.

		(Unaudited)
	Three Months Ended September 30,									Nine Months Ended September 30,
Product		2012			2011			Variance			2012			2011			Variance
HITOX	$	2,880	34%	$	3,369	47%	$	(489)	-15%	$	9,882	38%	$	8,244	45%	$	1,638	20%
ALUPREM		2,347	27%		1,547	22%		800	52%		7,104	27%		3,916	22%		3,188	81%
BARTEX		1,787	21%		1,132	16%		655	58%		4,711	18%		2,944	16%		1,767	60%
HALTEX		917	11%		759	11%		158	21%		2,819	11%		2,385	13%		434	18%
TIOPREM		555	6%		154	2%		401	260%		1,038	4%		577	3%		461	80%
OTHER		106	1%		118	2%		(12)	-10%		476	2%		263	1%		213	81%
Total	$	8,592	100%	$	7,079	100%	$	1,513	21%	$	26,030	100%	$	18,329	100%	$	7,701	42%

• HITOX sales decreased 15% for the three month period ended September 30, 2012, primarily due to a decrease in volume of approximately 31% which was partially offset by an increase in selling price of 16%.  U.S. sales decreased approximately 28% while sales in Canada, Mexico and South America increased approximately 17%, 18% and 21%, respectively, as compared to the same period in 2011.  This compares to an increase in the third quarter of 2011 of 72% of which volume and selling price represented 34% and 38%, respectively.  Year to date, HITOX sales increased 20%, primarily related to an increase in the average selling price of 32% offset by a decrease in volume of 12%.  HITOX sales in the U.S., Canada and Mexico increased 14%, 71% and 81%, respectively, while sales in South America decreased 21% as compared to the same nine month period of 2011.  For the nine month period ended September 30, 2011, HITOX sales increased 34%, of which volume and selling price presented 14% and 20%, respectively.

• ALUPREM sales during the third quarter increased 52%, as compared to an increase of 59% during the third quarter of 2011.  Year to date, U.S. ALUPREM sales increased 81%, as compared to an increase of 54% during the same nine month period of 2011.  The year-over-year increases are primarily due to an increase in volume of a significant customer.

·         TIOPREM sales in the U.S. increased 260% and 80% the three and nine month periods ended September 30, 2012, respectively.  For the quarter ended September 30, 2012, volume increased 232% and the average selling price increased 28%.  Year to date, volume increased 52% and selling price increased approximately 28%.  During the same nine month period of 2011, sales increased significantly due primarily to an increase in volume of approximately 148% and an increase in average selling price of approximately 33% as the product gained greater acceptance in the U.S. market.

19

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

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 U.S. customers.  In addition, TPT purchases HITOX from TMM for distribution in Europe.  The following table represents TPT’s ALUPREM and HITOX sales (in thousands) for the three and nine month periods ended September 30, 2012 and 2011 to third party customers.  All inter-company sales have been eliminated.

		(Unaudited)
	Three Months Ended September 30,									Nine Months Ended September 30,
Product		2012			2011			Variance			2012			2011			Variance
ALUPREM	$	1,317	80%	$	2,133	88%	$	(816)	-38%	$	4,622	79%	$	6,729	83%	$	(2,107)	-31%
HITOX		317	19%		231	10%		86	37%		1,142	20%		1,104	14%		38	3%
TIOPREM		11	1%		59	2%		(48)	-81%		54	1%		214	3%		(160)	-75%
Total	$	1,645	100%	$	2,423	100%	$	(778)	-32%	$	5,818	100%	$	8,047	100%	$	(2,229)	-28%

• ALUPREM sales in Europe decreased 38% and 31% for the three and nine month periods ended September 30, 2012, respectively, primarily due to a decrease in volume of 40% for the quarter and 33% year to date.  The decrease in volume is primarily the result of the current weakness in the European economy.  This compares to an increase of 22% during both same the three and nine month periods of 2011.

• HITOX sales in Europe increased 37% during the third quarter of 2012, primarily due to an increase in volume of 14% and an increase in the average selling price of 23%.  For the nine month period ended September 30, 2012, HITOX sales experienced only a modest increase of 3%.  This compares to an increase in sales of 24% and 85% for the same three and nine month periods of 2011, respectively.  For the nine month period ended September 30, 2011, volume increased 33% and selling price increased sales 52%.

·         TIOPREM sales in Europe represented 1% of TPT’s sales during the three and nine month periods ended September 30, 2012.  For the three and nine month periods ended September 30, 2012, sales decreased 81% and 75%, respectively, primarily due to a decline in the European economy.  This follows significant increases in volume during the same three and nine month periods of 2011 as product gained greater acceptance in the European market.  For the same three and nine month periods of 2011, TIOPREM sales increased 181% and 569%, respectively.

20

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

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 and nine month periods ended September 30, 2012 and 2011 to third party customers.  All inter-company sales have been eliminated.

		(Unaudited)
	Three Months Ended September 30,									Nine Months Ended September 30,
Product		2012			2011			Variance			2012			2011			Variance
HITOX	$	717	7%	$	1,752	92%	$	(1,035)	-59%	$	4,208	28%	$	4,724	93%	$	(516)	-11%
TIOPREM		57	1%		129	7%		(72)	-56%		285	2%		328	6%		(43)	-13%
SYNTHETIC RUTILE		8,862	92%		-	0%		8,862	N/A		10,410	69%		-	0%		10,410	N/A
OTHER		41	<1%		18	1%		23	128%		79	1%		47	1%		32	68%
Total	$	9,677	100%	$	1,899	100%	$	7,778	410%	$	14,982	100%	$	5,099	100%	$	9,883	194%

• HITOX sales in Asia decreased 59% and 11% for the three and nine month periods ended September 30, 2012, respectively.  For the quarter ended September 30, 2012, a decrease in volume represented 74% of the decline in sales, which was partially offset by an increase in the average selling price of 15%.  Year to date, sales decreased 11% due to decrease in volume of 43% offset by an increase in the average selling price of approximately 32%.  This compares to an increase of 119% and 114% for the same three and nine month periods of 2011, respectively, primarily related to an increase in volume 85% and 92%, respectively, and selling price of 34% and 22%.

• TIOPREM sales in Asia decreased 56% and 13% during the three and nine month periods ended September 30, 2012.  The year-over-year decrease is primarily related to a decrease in volume of 61% and 29%, respectively, offset by an increase in the average selling price of 5% and 16%, respectively.

• SR sales represented 92% and 69% of TMM’s sales for the three and nine month periods ended September 30, 2012.  There were no SR sales in 2011.  As long as favorable conditions continue in the market for synthetic rutile, the Company plans to continue to sell SR to third parties and is currently exploring opportunities to expand sales to new customers and for applications outside of the pigment market.

21

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

Other Consolidated Results

Gross Margin:  The following table represents our net sales, cost of sales and gross margin for the three month periods ended September 30, 2012 and 2011.

		(Unaudited)
(In thousands)		Three Months Ended September 30,				Nine Months Ended September 30,
		2012		2011		2012		2011
NET SALES	$	19,914	$	11,401	$	46,830	$	31,475
Cost of sales		16,068		9,026		36,127		24,703
GROSS MARGIN	$	3,846	$	2,375	$	10,703	$	6,772
GROSS MARGIN %		19%		21%		23%		22%

For the three month period ended September 30, 2012, gross margin decreased approximately 2%.  Increases in raw materials and energy costs reduced the gross margin approximately 3%, a temporary reduction in operating efficiencies related to incremental maintenance resulted in a decrease of approximately 4% and the product mix sold during the quarter accounted for a reduction of approximately 3%.  Partially offsetting these negative factors was the impact of an increase in the average selling price of approximately 5%.

For the nine month period ended September 30, 2012, gross margin increased approximately 1%.  Year to date, gross margin increased primarily due to an increase in the selling price of approximately 11%.  Increases in raw materials and energy costs reduced the gross margin approximately 7%, and a reduction in operating efficiencies resulted in a decrease of approximately 3%.

Selling, General, Administrative and Expenses (“SG&A”):

SG&A expense increased approximately 14% during the three month period ended September 30, 2012, primarily due to an increase for bad debt of approximately 7% and professional fees and services of approximately 4%.  For the nine month period ended September 30, 2012, SG&A expenses increased approximately 16%, primarily due to an increase in selling expenses and professional fees and services which increased approximately 4% and 6%, respectively.

Interest Expense:  Net interest expense for the three and nine month periods ended September 30, 2012 increased approximately $4,000 and $61,000, respectively, as compared to the same periods of 2011, primarily due to an increase in our long and short-term financing.

Income Taxes:  For the three and nine month periods ended September 30, 2012, income tax expense consisted of federal income tax expense of approximately $105,000 and $688,000, respectively; state income tax expense of approximately $3,000 and $8,000, respectively; and foreign deferred tax expense of approximately $408,000 and $706,000, respectively.  For the three and nine month periods ended September 30, 2011, income tax expense consisted of federal income tax expense of $6,000 and $18,000, respectively; state income tax expense of $2,000 and $4,000, respectively; and foreign deferred tax expense of $52,000 and $176,000, respectively.  For the year ended December 31, 2012, taxes are based on an estimated annualized consolidated effective tax rate of 22.7%.

22

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

Liquidity, Capital Resources and Other Financial Information

Long-term Debt – Financial Institutions

Following is a summary of our long-term debt to financial institutions:

		(Unaudited)
(In thousands)		September 30,		December 31,
		2012		2011
Fixed Rate term note payable to a U.S. bank, with an interest rate of 6.65% at September 30, 2012, due January 1, 2016, secured by real estate, leasehold improvements, property, plant and equipment, inventory and accounts receivable of our U.S. operation.	$	1,404	$	1,680
Term note payable to a U.S. equipment financing company, with an interest rate of 5.24% at September 30, 2012, due April 1, 2013, secured by a Caterpillar front-end loader.		16		35
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 7.8% at September 30, 2012, due July 1, 2029, secured by TPT's land and office building purchased July 2004.  (€304)		390		413
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.6% at September 30, 2012, due January 31, 2030, secured by TPT's land and building purchased January 2005.  (€304)		390		412
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.05% at September 30, 2012, due July 31, 2015, secured by TPT's assets.  (€121)		155		205
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.25% at September 30, 2012, due July 5, 2014, secured by TPT's assets.  (€393)		505		736
Malaysian Ringgit term note payable to a Malaysian bank, with an interest rate of 5.2% at September 30, 2012, due March 1, 2015, secured by TMM's property, plant and eqiupment. (RM 2,365)		774		-
Total		3,634		3,481
Less current maturities		818		813
Total long-term debt and notes payable - financial institutions	$	2,816	$	2,668

Six-percent Convertible Subordinated Debentures

As reported in the Company’s Forms 8-K filed with the SEC on May 6, 2009 and August 10, 2009, the Company’s Board of Directors authorized the issuance of its six-percent (6%) convertible subordinated debentures with detachable warrants (the “Debentures”) for the purpose of refinancing, in whole or in part, its debt to the bank and for general corporate purposes.  The Company received $1,500,000 from the sale of Debentures, due May 4, 2016, from nine accredited investors, four of whom are directors of the Company and another of whom is a greater than 5% shareholder. 

On May 3, 2012, the five remaining holders, four of whom are directors of the Company and another whom is a greater than 5% shareholder, of our Debentures converted their Debentures, and the Company issued 547,172 shares of common stock upon conversion of such Debentures.

23

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

Short-term Debt

U.S. Operations

On December 31, 2010, the Company entered into a U.S. credit agreement (the “Agreement”) with American Bank, N.A. (the “Lender”) which established a $1,000,000 line of credit (the “Line”).  On March 1, 2012, the Company entered into the first amendment to the Agreement with the Lender which increased the Line from $1,000,000 to $2,000,000 and extended the maturity date from July 1, 2012 to October 15, 2013.  Under the terms of the Agreement, the amount the Company is entitled to borrow under the Line is subject to a borrowing base, which is based on the loan value of the collateral pledged to the Lender to secure the indebtedness owing to the Lender by the Company.  Amounts advanced under the line of credit bear interest at a variable rate equal to one percent per annum point above the Wall Street Journal Prime Rate as such prime rate changes from time to time, with a minimum floor rate of 5.50%.  At September 30, 2012, the Company had $1,750,000 borrowed on the Line at a rate of 5.50%.

Under the terms of the Agreement, the Company must maintain a ratio of cash flow to debt service of at least 1.25 to 1.0 measured on a rolling four quarter basis.  At September 30, 2012, the ratio of cash flow to debt service was 6.93 to 1.0.

Netherlands Operations

On March 20, 2007, our subsidiary, TPT, entered into a short-term credit facility (the “Credit Facility”) with Rabobank which increased TPT’s line of credit from €650,000 to €1,100,000.  The Credit Facility was renewed on January 1, 2010 and has no stated maturity date.  The Credit Facility, which has a variable interest rate of bank prime plus 2.8% (currently at 3.419%), is secured by TPT’s accounts receivable and inventory.  At September 30, 2012, TPT had utilized €743,000 ($954,000) of its short-term credit facility.

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 be unable to refinance the demanded indebtedness, in which case the bank could foreclose on the assets of TPT.

24

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

Malaysian Operations

On May 21, 2012, our subsidiary, TMM, amended its banking facility with HSBC Bank Malaysia Berhad (“HSBC”) to extend the maturity date from April 30, 2012 to April 30, 2013.  The HSBC facility includes the following in Malaysian Ringgits (“RM”):  (1) overdraft of RM 500,000; (2) an import/export line (“ECR”) of RM 6,460,000; (3) a foreign exchange contract limit of RM 5,000,000 ($163,000, $2,113,000 and $1,635,000, respectively); and a term loan of RM 3,500,000 of which RM 2,365,000 had been drawn as of September 30, 2012 ($1,145,000 and $774,000, respectively).

On June 1, 2011, TMM amended its banking facility with RHB Bank Berhad (“RHB”) to extend the maturity date to April 30, 2012.  TMM is currently negotiating an extension to the maturity date with RHB.  The RHB facility includes the following:  (1) an overdraft line of credit up to RM 1,000,000; (2) an ECR of RM 9,300,000; (3) a bank guarantee of RM 1,200,000; and (4) a foreign exchange contract limit of RM 25,000,000 ($327,000, $3,042000, $392,000 and $8,178,000, respectively).  At September 30, 2012, the outstanding balance on the line of credit was RM 700,000 ($229,000) at a current interest rate of 4.18% and RM 5,143,000 ($1,683,000) was outstanding on the foreign exchange contract at a current interest rate of 2.98%.

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.  The ECR, a government supported financing arrangement specifically for exporters, is used by TMM for short-term financing of up to 180 days against customers’ and inter-company shipments.  At September 30, 2012, the outstanding balance on the ECR facilities was RM 7,130,000 ($2,332,000) at a current interest rate of 5.0%.

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.  However, if demand is made by HSBC or RHB, we may be unable to refinance the demanded indebtedness, in which case, the lenders could foreclose on the assets of TMM.  The credit facilities prohibit TMM from paying dividends and the HSBC facility further prohibits loans to related parties without the prior consent of HSBC.

25

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

Cash and Cash Equivalents

As noted on the following table, cash and cash equivalents decreased $1,823,000 for the nine months ended September 30, 2012 as compared to a decrease of $452,000 for the nine months ended September 30, 2012.

		(Unaudited)
		Nine Months Ended September 30,
(In thousands)		2012		2011
Net cash provided by (used in)
Operating activities	$	(1,842)	$	(1,329)
Investing activities		(3,060)		(2,733)
Financing activities		3,010		3,808
Effect of exchange rate fluctuations		69		(198)
Net decrease in cash and cash equivalents	$	(1,823)	$	(452)

Operating Activities

Operating activities used $1,842,000 in cash during the first nine months of 2012 as compared to $1,329,000 during the same period of 2011.  Following are the major changes in working capital affecting cash used by operating activities for the nine month period ended September 30, 2012:

• Accounts Receivable:  Accounts receivable increased $9,499,000 as compared to an increase of $1,880,000 for the same period in 2011.  The increase in accounts receivable is primarily due the sale of SR to a third party by TMM during the third quarter of 2012.  TMM’s accounts receivable increased $8,488,000 for the nine month period ended September 30, 2012.  Accounts receivable increased $1,274,000 at the Corpus Christi operation and decreased $263,000 at TPT.
• Inventories: Inventories increased $1,601,000 as compared to an increase of $4,142,000 for the same period in 2011.  Inventories at the Corpus Christi operation increased $1,151,000 primarily related to an increase in raw materials.  TMM’s increased approximately $255,000 primarily related to an increase in SR feedstock.  TPT’s increased approximately $195,000 primarily due to an increase in raw materials.
• Other Current Assets:  Other current assets increased $788,000 as compared to an increase of $478,000 for the same period in 2011.  Prepaid expenses at the Corpus Christi operation and TMM increased $655,000 and $183,000, respectively, primarily due to deposits on inventory and equipment.  TPT’s prepaid expenses decreased $50,000 primarily due to the timing of a tax refund.
• Accounts Payable and Accrued Expenses:  Trade accounts payable and accrued expenses increased $2,684,000, as compared to an increase of $643,000 for the same period in 2011.  Accounts payable and accrued expenses at the Corpus Christi operation increased $495,000, primarily related to the timing of raw material purchases; TPT’s accounts payable and accrued expenses increased $408,000, primarily related to capital expenditures and TMM’s accounts payable and accrued expenses increased $1,781,000, primarily relating to raw materials for the production of SR and capital expenditures.

26

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

Investing Activities

We used cash of $3,060,000 in investing activities during the first nine months of 2012 primarily for the purchase of fixed assets as compared to $2,733,000 during the same period 2011.  Net investments for each of our three locations are as follows:

• Corpus Christi Operation:  We invested approximately $1,068,000 primarily related to capital maintenance and production equipment, as compared to $328,000 for the same period in 2011.
• Netherlands Operation:  We invested approximately $1,161,000 at TPT for production equipment, as compared to $2,162,000 for the same period in 2011.
• Malaysian Operation:  We invested approximately $831,000 at TMM related to capital maintenance and production equipment, as compared to $243,000 for the same period in 2011.

Financing Activities

Financing activities provided $3,010,000 during the nine month period ended September 30, 2012 as compared to $3,808,000 for the same period 2011.  Significant factors relating to financing activities include the following:

• Lines of Credit:  Our domestic line of credit increased $1,750,000 during the nine month period ended September 30, 2012.  Borrowings on TPT’s line of credit increased $255,000.  TMM’s line of credit decreased $349,000.  The funds were primarily used for working capital.  Our lines of credit increased $339,000 during the same period of 2011.
• Export Credit Refinancing Facility (ECR):  TMM’s borrowing on the ECR increased $1,032,000 during the nine month period ended September 30, 2012 for working capital related to the production of SR, as compared to an increase of $2,428,000 for the same period in 2011.
• Capital Leases:  Capital leases increased approximately $5,000 during the first nine months of 2012 primarily due to two new leases at TPT, as compared to a decrease of approximately $44,000 for the same period in 2011.
• Long-term Debt – Financial Institutions:  Long-term debt increased approximately $169,000 during the nine month period ended September 30, 2012.  Long-term debt at TMM increased $774,000 primarily related to capital improvements for the SR production plant.  Long-term debt decreased $295,000 and $310,000 at the U.S. Operation and TPT, respectively.  This compares to an increase in long-term debt of approximately $509,000 for the same period in 2011.
• Proceeds from Issuance of Common Stock:  We received $148,000 from the issuance of common stock during the first nine months of 2012 related to the exercise of stock options.  For the same nine month period of 2011, we received $606,000 from the issuance of common stock, of which $425,000 related to the exercise of warrants and $181,000 to the exercise of stock options.
• Preferred Stock Dividends:  We paid dividends of $30,000 on our Series A convertible preferred stock for the nine month period ended September 30, 2011; however, no dividends were paid during the same period of 2012 as the outstanding Series A convertible preferred stock was converted to common stock during 2011.

27

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

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 2011 Annual Report on Form 10-K.

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 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 Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective (i) to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms; and (ii) to ensure 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 the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Controls

During the last fiscal quarter, there were no changes in the Company's internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

28

Part II  -  Other Information

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

On May 3, 2012, the five remaining holders, four of whom are directors of the Company and another whom is a greater than 5% shareholder, of our Debentures converted their Debentures, and the Company issued 547,172 shares of common stock upon conversion of such Debentures.

No underwriters were involved in the foregoing sale of securities.  The sale was made in reliance upon an exemption from the registration provisions of the Securities Act of 1933, as amended (the “Securities Act”), set forth in Section 4(2) under the Securities Act.  The sale was made to an “accredited investor” as such term is defined in Regulation D under the Securities Act with whom we had a previous relationship and we did not partake in any general solicitation or advertisement.  All of the foregoing securities sold as a result of the exercise of warrants are deemed restricted securities for purposes of the Security Act.

Item 6. Exhibits

(a)	Exhibits
	Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	Exhibit 31.2	Certification of 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 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:	October 31, 2012	OLAF KARASCH Olaf Karasch President and Chief Executive Officer
Date:	October 31, 2012	BARBARA RUSSELL Barbara Russell Chief Financial Officer
29

EX-31

Exhibit 31.1

CERTIFICATIONS

I, Olaf Karasch, certify that:

1. I have reviewed this Form 10-Q of TOR Minerals International, Inc.;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant's other certifying officer(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) 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 report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) 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 officer(s) 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):

(a) 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

(b) 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.

Date: October 31, 2012

/s/ Olaf Karasch

Olaf Karasch
President and Chief Executive Officer

EX-31

Exhibit 31.2

CERTIFICATIONS

I, Barbara Russell, certify that:

1. I have reviewed this Form 10-Q of TOR Minerals International, Inc.;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant's other certifying officer(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) 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 report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) 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 officer(s) 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):

(a) 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

(b) 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.

Date: October 31, 2012

/s/ Barbara Russell

Barbara Russell
Chief Financial Officer

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, 2012 (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)
October 31, 2012

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, 2012 (the "Report") as filed with the Securities and Exchange Commission, the undersigned 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
Chief Financial Officer
(Principal Financial Officer)
October 31, 2012

XML

Inventories (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Inventory Disclosure [Abstract]
Raw materials	$ 12,576	$ 13,170
Work in progress	3,469	1,709
Finished goods	4,047	3,254
Supplies	927	804
Total Inventories	21,019	18,937
Inventory reserve	(314)	(264)
Net Inventories	$ 20,705	$ 18,673

XML

Calculation of Basic and Diluted Earnings per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Numerator:
Net Income	$ 1,837	$ 1,067	$ 4,792	$ 2,723
Preferred Stock Dividends				(15)
Numerator for basic earnings per share - income available to common shareholders	1,837	1,067	4,792	2,708
Effect of dilutive securities:
6% Convertible Debenture Interest Expense		22	36	66
Preferred Stock Dividends				15
Numerator for diluted income per share - income available to common shareholders after assumed conversions	$ 1,837	$ 1,089	$ 4,828	$ 2,789
Denominator:
Denominator for basic income per share - weighted-average shares	2,968	2,122	2,714	2,052
Effect of dilutive securities:
Employee stock options	(180)	37	(158)	40
Detachable warrants	461	555	457	542
6% Convertible Debenture	192	547	370	552
Preferred Stock		3		48
Dilutive potential common shares	473	1,142	669	1,182
Denominator for diluted income per share - weighted-average shares and assumed conversions	3,441	3,264	3,383	3,234
Basic income per common share (in dollars per share)	$ 0.62	$ 0.50	$ 1.77	$ 1.32
Diluted income per common share (in dollars per share)	$ 0.53	$ 0.33	$ 1.43	$ 0.86

XML

Debt (Detail Textuals)	Sep. 30, 2012
Fixed term note payable 6.65% due January 1, 2016
Debt Instrument [Line Items]
Interest rate on note payable	6.65%
Fixed term note payable 5.24% due April 1, 2013
Debt Instrument [Line Items]
Interest rate on note payable	5.24%
Fixed term note payable 7.8% due July 1, 2029
Debt Instrument [Line Items]
Interest rate on note payable	7.80%
Fixed term note payable 4.6% due January 31, 2030
Debt Instrument [Line Items]
Interest rate on note payable	4.60%
Fixed term note payable 4.05% due July 31, 2015
Debt Instrument [Line Items]
Interest rate on note payable	4.05%
Fixed term note payable 4.25% due July 5, 2014
Debt Instrument [Line Items]
Interest rate on note payable	4.25%
Fixed term note payable 5.2% due March 1, 2015
Debt Instrument [Line Items]
Interest rate on note payable	5.20%

XML

Derivatives and Other Financial Instruments (Details Textuals) (Foreign Currency Exchange Contracts, USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Foreign Currency Exchange Contracts
Derivatives, Fair Value [Line Items]
Current liability on the consolidated and condensed balance sheet	$ 88,000		$ 88,000
Net loss on contracts		(70,000)		(85,000)
Derivative, Gain on Derivative	$ 88,000		$ 75,000

XML

Stock Options and Equity Compensation Plan (Detail Textuals) (Selling, general and administrative expenses, USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Selling, general and administrative expenses
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based employee compensation expense	$ 13,000	$ 7,000	$ 71,000	$ 53,000

XML

Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 3.   Fair Value Measurements

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, 2012.  The Company did not hold any non-financial assets and/or non-financial liabilities subject to fair value measurements at September 30, 2012 or September 30, 2011.

		September 30, 2012
(In thousands)		Balance at September 30,  2012		Quoted Prices  in Active Markets for Identical  Items (Level 1)		Significant  Other  Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Asset for foreign currency derivative financial instruments (including forward contracts)	$	88	$	-	$	88	$	-
		September 30, 2011
(In thousands)		Balance at September 30,  2011		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)	$	(70)	$	-	$	(70)	$	-

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

The fair value of the Company’s debt is based on estimates using standard pricing models that take into account the present value of future cash flows as of the consolidated and condensed balance sheet date.  The computation of the fair value of these instruments is generally performed by the Company.  The carrying amounts and estimated fair values of the Company’s long-term debt, including current maturities, are summarized below:

		September 30, 2012				December 31, 2011
(In thousands)		Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, including current portion	$	3,634	$	3,568	$	3,481	$	3,391
Long-term debt – convertible debentures		-		-		1,450		1,436
	$	3,634	$	3,568	$	4,931	$	4,827

The carrying amounts reported in the consolidated and condensed balance sheets for cash and cash equivalents, trade receivables, payables and accrued liabilities and short-term borrowings approximate fair value due to the short term nature of these instruments.  Accordingly, these items have been excluded from the above table.

XML

Debt (Detail Textuals 4)	9 Months Ended								9 Months Ended														9 Months Ended
	Sep. 30, 2012 USD ($)	Sep. 30, 2011 USD ($)	Sep. 30, 2012 Overdraft facility HSBC Bank Malaysia Berhad	May 21, 2012 Overdraft facility HSBC Bank Malaysia Berhad USD ($)	May 21, 2012 Overdraft facility HSBC Bank Malaysia Berhad MYR	Sep. 30, 2012 Overdraft facility RHB Bank Berhad	Jun. 01, 2011 Overdraft facility RHB Bank Berhad USD ($)	Jun. 01, 2011 Overdraft facility RHB Bank Berhad MYR	Sep. 30, 2012 Line of credit USD ($)	Sep. 30, 2012 Line of credit MYR	May 21, 2012 Line of credit HSBC Bank Malaysia Berhad USD ($)	May 21, 2012 Line of credit HSBC Bank Malaysia Berhad MYR	Sep. 30, 2012 Line of credit RHB Bank Berhad USD ($)	Sep. 30, 2012 Line of credit RHB Bank Berhad MYR	Jun. 01, 2011 Line of credit RHB Bank Berhad USD ($)	Jun. 01, 2011 Line of credit RHB Bank Berhad MYR	May 21, 2012 Foreign exchange contract limit HSBC Bank Malaysia Berhad USD ($)	May 21, 2012 Foreign exchange contract limit HSBC Bank Malaysia Berhad MYR	Sep. 30, 2012 Foreign exchange contract limit RHB Bank Berhad USD ($)	Sep. 30, 2012 Foreign exchange contract limit RHB Bank Berhad MYR	Jun. 01, 2011 Foreign exchange contract limit RHB Bank Berhad USD ($)	Jun. 01, 2011 Foreign exchange contract limit RHB Bank Berhad MYR	Sep. 30, 2012 Term loan HSBC Bank Malaysia Berhad USD ($)	Sep. 30, 2012 Term loan HSBC Bank Malaysia Berhad MYR	May 21, 2012 Term loan HSBC Bank Malaysia Berhad USD ($)	May 21, 2012 Term loan HSBC Bank Malaysia Berhad MYR	Jun. 01, 2011 Bank guarantee RHB Bank Berhad USD ($)	Jun. 01, 2011 Bank guarantee RHB Bank Berhad MYR
Line of Credit Facility [Line Items]
Maximum credit facility				$ 163,000	500,000		$ 327,000	1,000,000			$ 2,113,000	6,460,000			$ 3,042,000	9,300,000	$ 1,635,000	5,000,000			$ 8,178,000	25,000,000			$ 1,145,000	3,500,000	$ 392,000	1,200,000
Outstanding balance									2,332,000	7,130,000			229,000	700,000					1,683,000	5,143,000
Current interest rate			1.25%			1.25%			5.00%	5.00%			4.18%	4.18%					2.98%	2.98%
Interest rate above the funding rate									1.00%	1.00%
Short-term financing term									180 Days	180 Days
Proceeds from long-term bank debt	$ 774,000	$ 877,000																					$ 774,000	2,365,000

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Debt (Detail Textuals 3) (Line of credit, Rabobank)	Sep. 30, 2012 USD ($)	Sep. 30, 2012 EUR (€)	Mar. 20, 2007 EUR (€)
Line of Credit Facility [Line Items]
Short-term credit facility with Rabobank			€ 650,000
Maximum credit facility			1,100,000
Variable interest prime rate of bank			2.80%
Current interest rate	3.419%	3.419%
Outstanding balance	$ 954,000	€ 743,000

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Fair Value Measurements (Details) (Fair value measurements, recurring, Derivative financial instruments, liabilities, USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Sep. 30, 2011
Fair Value
Fair Value Assets and Liabilities Measured On Recurring Basis [Line Items]
Liability for foreign currency derivative financial instruments (including forward contracts)		$ (70)
Asset for foreign currency derivative financial instruments (including forward contracts)	88
Quoted Prices in Active Markets for Identical Items (Level 1)
Fair Value Assets and Liabilities Measured On Recurring Basis [Line Items]
Liability for foreign currency derivative financial instruments (including forward contracts)
Asset for foreign currency derivative financial instruments (including forward contracts)
Significant Other Observable Inputs (Level 2)
Fair Value Assets and Liabilities Measured On Recurring Basis [Line Items]
Liability for foreign currency derivative financial instruments (including forward contracts)		(70)
Asset for foreign currency derivative financial instruments (including forward contracts)	88
Significant Unobservable Inputs (Level 3)
Fair Value Assets and Liabilities Measured On Recurring Basis [Line Items]
Liability for foreign currency derivative financial instruments (including forward contracts)
Asset for foreign currency derivative financial instruments (including forward contracts)

XML

Fair Value Measurements (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Carrying Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term debt, including current portion	$ 3,634	$ 3,481
Long-term debt - convertible debentures		1,450
Liabilities, fair value disclosure	3,634	4,931
Fair Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term debt, including current portion	3,568	3,391
Long-term debt - convertible debentures		1,436
Liabilities, fair value disclosure	$ 3,568	$ 4,827

XML

Debt

9 Months Ended

Sep. 30, 2012

Debt Disclosure [Abstract]

Debt

Note 2.   Debt

Long-term Debt – Financial Institutions

Following is a summary of our long-term debt to financial institutions:

		(Unaudited)
(In thousands)		September 30,		December 31,
		2012		2011
Fixed Rate term note payable to a U.S. bank, with an interest rate of 6.65% at September 30, 2012, due January 1, 2016, secured by real estate, leasehold improvements, property, plant and equipment, inventory and accounts receivable of our U.S. operation.	$	1,404	$	1,680
Term note payable to a U.S. equipment financing company, with an interest rate of 5.24% at September 30, 2012, due April 1, 2013, secured by a Caterpillar front-end loader.		16		35
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 7.8% at September 30, 2012, due July 1, 2029, secured by TPT's land and office building purchased July 2004.  (€304)		390		413
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.6% at September 30, 2012, due January 31, 2030, secured by TPT's land and building purchased January 2005.  (€304)		390		412
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.05% at September 30, 2012, due July 31, 2015, secured by TPT's assets.  (€121)		155		205
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.25% at September 30, 2012, due July 5, 2014, secured by TPT's assets.  (€393)		505		736
Malaysian Ringgit term note payable to a Malaysian bank, with an interest rate of 5.2% at September 30, 2012, due March 1, 2015, secured by TMM's property, plant and eqiupment. (RM 2,365)		774		-
Total		3,634		3,481
Less current maturities		818		813
Total long-term debt and notes payable - financial institutions	$	2,816	$	2,668

Six-percent Convertible Subordinated Debentures

As reported in the Company’s Forms 8-K filed with the SEC on May 6, 2009 and August 10, 2009, the Company’s Board of Directors authorized the issuance of its six-percent (6%) convertible subordinated debentures with detachable warrants (the “Debentures”) for the purpose of refinancing, in whole or in part, its debt to the bank and for general corporate purposes.  The Company received $1,500,000 from the sale of Debentures, due May 4, 2016, from nine accredited investors, four of whom are directors of the Company and another of whom is a greater than 5% shareholder. 

On May 3, 2012, the five remaining holders, four of whom are directors of the Company and another whom is a greater than 5% shareholder, of our Debentures converted their Debentures, and the Company issued 547,172 shares of common stock upon conversion of such Debentures.

Short-term Debt

U.S. Operations

On December 31, 2010, the Company entered into a U.S. credit agreement (the “Agreement”) with American Bank, N.A. (the “Lender”) which established a $1,000,000 line of credit (the “Line”).  On March 1, 2012, the Company entered into the first amendment to the Agreement with the Lender which increased the Line from $1,000,000 to $2,000,000 and extended the maturity date from July 1, 2012 to October 15, 2013.  Under the terms of the Agreement, the amount the Company is entitled to borrow under the Line is subject to a borrowing base, which is based on the loan value of the collateral pledged to the Lender to secure the indebtedness owing to the Lender by the Company.  Amounts advanced under the line of credit bear interest at a variable rate equal to one percent per annum point above the Wall Street Journal Prime Rate as such prime rate changes from time to time, with a minimum floor rate of 5.50%.  At September 30, 2012, the Company had $1,750,000 borrowed on the Line at a rate of 5.50%.

Under the terms of the Agreement, the Company must maintain a ratio of cash flow to debt service of at least 1.25 to 1.0 measured on a rolling four quarter basis.  At September 30, 2012, the ratio of cash flow to debt service was 6.93 to 1.0.

Netherlands Operations

On March 20, 2007, our subsidiary, TPT, entered into a short-term credit facility (the “Credit Facility”) with Rabobank which increased TPT’s line of credit from €650,000 to €1,100,000.  The Credit Facility was renewed on January 1, 2010 and has no stated maturity date.  The Credit Facility, which has a variable interest rate of bank prime plus 2.8% (currently at 3.419%), is secured by TPT’s accounts receivable and inventory.  At September 30, 2012, TPT had utilized €743,000 ($954,000) of its short-term credit facility.

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 be unable to refinance the demanded indebtedness, in which case the bank could foreclose on the assets of TPT.

Malaysian Operations

On May 21, 2012, our subsidiary, TMM, amended its banking facility with HSBC Bank Malaysia Berhad (“HSBC”) to extend the maturity date from April 30, 2012 to April 30, 2013.  The HSBC facility includes the following in Malaysian Ringgits (“RM”):  (1) overdraft of RM 500,000; (2) an import/export line (“ECR”) of RM 6,460,000; (3) a foreign exchange contract limit of RM 5,000,000 ($163,000, $2,113,000 and $1,635,000, respectively); and a term loan of RM 3,500,000 of which RM 2,365,000 had been drawn as of September 30, 2012 ($1,145,000 and $774,000, respectively).

On June 1, 2011, TMM amended its banking facility with RHB Bank Berhad (“RHB”) to extend the maturity date to April 30, 2012.  TMM is currently negotiating an extension to the maturity date with RHB.  The RHB facility includes the following:  (1) an overdraft line of credit up to RM 1,000,000; (2) an ECR of RM 9,300,000; (3) a bank guarantee of RM 1,200,000; and (4) a foreign exchange contract limit of RM 25,000,000 ($327,000, $3,042000, $392,000 and $8,178,000, respectively).  At September 30, 2012, the outstanding balance on the line of credit was RM 700,000 ($229,000) at a current interest rate of 4.18% and RM 5,143,000 ($1,683,000) was outstanding on the foreign exchange contract at a current interest rate of 2.98%.

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.  The ECR, a government supported financing arrangement specifically for exporters, is used by TMM for short-term financing of up to 180 days against customers’ and inter-company shipments.  At September 30, 2012, the outstanding balance on the ECR facilities was RM 7,130,000 ($2,332,000) at a current interest rate of 5.0%.

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.  However, if demand is made by HSBC or RHB, we may be unable to refinance the demanded indebtedness, in which case, the lenders could foreclose on the assets of TMM.  The credit facilities prohibit TMM from paying dividends and the HSBC facility further prohibits loans to related parties without the prior consent of HSBC.

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Capital Leases (Detail Textuals) (Financial lease agreement)			9 Months Ended		9 Months Ended			9 Months Ended
	Sep. 30, 2012 Toyota Financial Services USD ($)	Mar. 13, 2008 Toyota Financial Services USD ($)	Sep. 30, 2012 Dell Financial Services USD ($)	Aug. 01, 2010 Dell Financial Services USD ($)	Sep. 30, 2012 Diependael Leasing USD ($)	Sep. 30, 2012 Diependael Leasing EUR (€)	Sep. 04, 2011 Diependael Leasing EUR (€)	Sep. 30, 2012 Sympatec GmbH USD ($)	Sep. 30, 2012 Sympatec GmbH EUR (€)	Feb. 05, 2012 Sympatec GmbH EUR (€)
Capital Leased Assets [Line Items]
Cost of the equipment under the capital lease		$ 26,527		$ 19,093			€ 38,360			€ 52,128
Accumulated amortization of the leased equipment	19,000		17,000			13,000			4,000
Capital lease amount			20,698			41,256			56,988
Capital lease amount Including interest			1,605			2,896			4,860
Implicit interest rate			5.30%		4.786%	4.786%		16.785%	16.785%
Lease term			36 months		36 months	36 months		12 months	12 months
Equal monthly installments			575			1,146			4,749
Net present value of the lease			$ 6,000		$ 32,000	€ 28,250		$ 29,000	€ 35,708

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Derivatives and Other Financial Instruments (Details) (Foreign Currency Exchange Contracts, Not designated as hedging instrument, USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Derivatives, Fair Value [Line Items]
Derivative asset fair value gross asset	$ 88	$ 16
Other Current Assets
Derivatives, Fair Value [Line Items]
Derivative asset fair value gross asset	$ 88	$ 16

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Condensed Consolidated Statements of Income (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Income Statement [Abstract]
NET SALES	$ 19,914	$ 11,401	$ 46,830	$ 31,475
Cost of sales	16,068	9,026	36,127	24,703
GROSS MARGIN	3,846	2,375	10,703	6,772
Technical services and research and development	90	74	273	206
Selling, general and administrative expenses	1,242	1,098	3,825	3,322
Gain on disposal of assets	(6)		(6)
OPERATING INCOME	2,520	1,203	6,611	3,244
OTHER EXPENSE:
Interest expense	(143)	(139)	(397)	(336)
Gain (loss) on foreign currency exchange rate	(24)	63	(21)	6
Other, net			1	7
INCOME BEFORE INCOME TAX	2,353	1,127	6,194	2,921
Income tax expense	516	60	1,402	198
NET INCOME	1,837	1,067	4,792	2,723
Less: Preferred Stock Dividends				15
Basic Income Available to Common Shareholders	1,837	1,067	4,792	2,708
Plus: 6% Convertible Debenture Interest Expense		22	36	66
Plus: Preferred Stock Dividends				15
Diluted Income Available to Common Shareholders	$ 1,837	$ 1,089	$ 4,828	$ 2,789
Income per common share:
Basic (in dollars per share)	$ 0.62	$ 0.50	$ 1.77	$ 1.32
Diluted (in dollars per share)	$ 0.53	$ 0.33	$ 1.43	$ 0.86
Weighted average common shares outstanding:
Basic (in shares)	2,968	2,122	2,714	2,052
Diluted (in shares)	3,441	3,264	3,383	3,234

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$ 4,792	$ 2,723
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	1,842	1,544
Gain on disposal of assets	(6)
Share-based compensation	71	53
Convertible debenture interest expense	22	50
Deferred income taxes	572	158
Provision for bad debts	69
Changes in working capital:
Trade accounts receivables	(9,499)	(1,880)
Inventories	(1,601)	(4,142)
Other current assets	(788)	(478)
Accounts payable and accrued expenses	2,684	643
Net cash used in operating activities	(1,842)	(1,329)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment	(3,068)	(2,733)
Proceeds from sales of property, plant and equipment	8
Net cash used in investing activities	(3,060)	(2,733)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from lines of credit	1,656	339
Net proceeds from export credit refinancing facility	1,032	2,428
Net proceeds from (payments on) capital leases	5	(44)
Proceeds from long-term bank debt	774	877
Payments on long-term bank debt	(605)	(368)
Proceeds from the issuance of common stock, and exercise of common stock options	148	606
Preferred stock dividends paid		(30)
Net cash provided by financing activities	3,010	3,808
Effect of foreign currency exchange rate fluctuations on cash and cash equivalents	69	(198)
Net decrease in cash and cash equivalents	(1,823)	(452)
Cash and cash equivalents at beginning of year	3,381	2,559
Cash and cash equivalents at end of period	1,558	2,107
Supplemental cash flow disclosures:
Interest paid	397	139
Non-cash financing activities:
Conversion of debentures	$ 1,240	$ 25

XML

Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Net Sales:
Net Sales	$ 19,914	$ 11,401	$ 46,830	$ 31,475
Net Income	1,837	1,067	4,792	2,723
Location assets	59,844	43,991	59,844	43,991	47,967
Customer sales
Net Sales:
Net Sales	19,914	11,401	46,830	31,475
Intercompany sales
Net Sales:
Net Sales
United States (Corpus Christi)
Net Sales:
Net Sales	8,603	7,541	26,082	18,791
Net Income	447	717	2,036	1,372
Location assets	19,053	14,654	19,053	14,654
United States (Corpus Christi) | Customer sales
Net Sales:
Net Sales	8,592	7,079	26,030	18,329
United States (Corpus Christi) | Intercompany sales
Net Sales:
Net Sales	11	462	52	462
Europe (TPT)
Net Sales:
Net Sales	3,555	3,002	10,553	10,254
Net Income	293	269	585	911
Location assets	10,306	10,191	10,306	10,191
Europe (TPT) | Customer sales
Net Sales:
Net Sales	1,645	2,423	5,818	8,047
Europe (TPT) | Intercompany sales
Net Sales:
Net Sales	1,910	579	4,735	2,207
Asia (TMM)
Net Sales:
Net Sales	11,056	2,850	22,332	10,537
Net Income	1,195	93	2,322	442
Location assets	30,485	19,146	30,485	19,146
Asia (TMM) | Customer sales
Net Sales:
Net Sales	9,677	1,899	14,982	5,099
Asia (TMM) | Intercompany sales
Net Sales:
Net Sales	1,379	951	7,350	5,438
Inter-Company Eliminations
Net Sales:
Net Sales	(3,300)	(1,992)	(12,137)	(8,107)
Net Income	(98)	(12)	(151)	(2)
Location assets
Inter-Company Eliminations | Customer sales
Net Sales:
Net Sales
Inter-Company Eliminations | Intercompany sales
Net Sales:
Net Sales	$ (3,300)	$ (1,992)	$ (12,137)	$ (8,107)

XML

Derivatives and Other Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of gross fair market value of derivative instruments

(In thousands)
Asset Derivatives
			September 30,		December 31,
Derivative Instrument	Location		2012		2011
Foreign Currency Exchange Contracts	Other Current Assets	$	88	$	16
		$	88	$	16

Schedule of impact of derivatives on the condensed consolidated financial statements of income

			Amount of (Loss) Gain Recognized in Income (In thousands)
	Location of Gain		Three Months Ended				Nine Months Ended
Derivative	(Loss) on Derivative		September 30,				September 30,
Instrument	Instrument		2012		2011		2012		2011
Foreign Currency    Exchange Contracts	Other Expense:     Gain (loss) on foreign   currency exchange rate	$	88	$	(70)	$	75	$	(85)

XML

Segment Information (Detail Textuals)	9 Months Ended
	Sep. 30, 2011 segments
Segment Reporting [Abstract]
Number of geographic segments	3

XML

Debt (Details) In Thousands, unless otherwise specified	Sep. 30, 2012 USD ($)	Dec. 31, 2011 USD ($)	Sep. 30, 2012 Fixed term note payable 6.65% due January 1, 2016 USD ($)	Dec. 31, 2011 Fixed term note payable 6.65% due January 1, 2016 USD ($)	Sep. 30, 2012 Fixed term note payable 5.24% due April 1, 2013 USD ($)	Dec. 31, 2011 Fixed term note payable 5.24% due April 1, 2013 USD ($)	Sep. 30, 2012 Fixed term note payable 7.8% due July 1, 2029 USD ($)	Sep. 30, 2012 Fixed term note payable 7.8% due July 1, 2029 EUR (€)	Dec. 31, 2011 Fixed term note payable 7.8% due July 1, 2029 USD ($)	Sep. 30, 2012 Fixed term note payable 4.6% due January 31, 2030 USD ($)	Sep. 30, 2012 Fixed term note payable 4.6% due January 31, 2030 EUR (€)	Dec. 31, 2011 Fixed term note payable 4.6% due January 31, 2030 USD ($)	Sep. 30, 2012 Fixed term note payable 4.05% due July 31, 2015 USD ($)	Sep. 30, 2012 Fixed term note payable 4.05% due July 31, 2015 EUR (€)	Dec. 31, 2011 Fixed term note payable 4.05% due July 31, 2015 USD ($)	Sep. 30, 2012 Fixed term note payable 4.25% due July 5, 2014 USD ($)	Sep. 30, 2012 Fixed term note payable 4.25% due July 5, 2014 EUR (€)	Dec. 31, 2011 Fixed term note payable 4.25% due July 5, 2014 USD ($)	Sep. 30, 2012 Fixed term note payable 5.2% due March 1, 2015 USD ($)	Sep. 30, 2012 Fixed term note payable 5.2% due March 1, 2015 MYR	Dec. 31, 2011 Fixed term note payable 5.2% due March 1, 2015 USD ($)
Debt Instrument [Line Items]
Total	$ 3,634	$ 3,481	$ 1,404	$ 1,680	$ 16	$ 35	$ 390	€ 304	$ 413	$ 390	€ 304	$ 412	$ 155	€ 121	$ 205	$ 505	€ 393	$ 736	$ 774	2,365
Less current maturities	818	813
Total long-term debt and notes payable - financial institutions	$ 2,816	$ 2,668

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Accounting Policies

9 Months Ended

Sep. 30, 2012

Organization, Consolidation and Presentation Of Financial Statements [Abstract]

Accounting Policies

Note 1. Accounting Policies

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. (“TOR”, “we”, “us”, “our” or the “Company”) and its wholly-owned subsidiaries, TOR Processing and Trade, B.V. (“TPT”) and TOR Minerals Malaysia, Sdn. Bhd. (“TMM”), 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 our annual consolidated 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, 2011, in our Annual Report on Form 10-K filed with the SEC on March 12, 2012. Operating results for the three and nine month periods ended September 30, 2012, are not necessarily indicative of the results for the year ending December 31, 2012.

Income Taxes: The Company records 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.

For the three and nine month periods ended September 30, 2012, income tax expense consisted of federal income tax expense of approximately $105,000 and $688,000, respectively; state income tax expense of approximately $3,000 and $8,000, respectively; and foreign deferred tax expense of approximately $408,000 and $706,000, respectively. For the three and nine month periods ended September 30, 2011, income tax expense consisted of federal income tax expense of $6,000 and $18,000, respectively; state income tax expense of $2,000 and $4,000, respectively; and foreign deferred tax expense of $52,000 and $176,000, respectively. For the year ended December 31, 2012, taxes are based on an estimated annualized consolidated effective tax rate of 22.7%.

When accounting for uncertainties in income taxes, 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, 2009 through December 31, 2011. Our state return, which are filed in Texas, is` subject to examination for the tax years ended December 31, 2008 through December 31, 2011. Our tax returns in various non-U.S. jurisdictions are subject to examination for various tax years ended December 31, 2006 through December 31, 2011.

As of January 1, 2012, we did not have any unrecognized tax benefits and there was no change during the nine month period ended September 30, 2012. In addition, we did not recognize any interest and penalties in our consolidated financial statements during the nine month period ended September 30, 2012. If any interest or penalties related to any income tax liabilities are imposed in future reporting periods, we expect to record both of these items as components of income tax expense.

Recently Adopted and Recently Issued Accounting Standards

The Company reviewed significant newly issued accounting pronouncements and concluded that they are either not applicable to the Company’s business or that no material effect is expected on the consolidated financial statements as a result of future adoption.

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Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Statement Of Income and Comprehensive Income [Abstract]
NET INCOME	$ 1,837	$ 1,067	$ 4,792	$ 2,723
Currency translation adjustment, net of tax:
Net foreign currency translation adjustment gain (loss)	758	(1,305)	540	(546)
Other comprehensive income (loss), net of tax	758	(1,305)	540	(546)
COMPREHENSIVE INCOME (LOSS)	$ 2,595	$ (238)	$ 5,332	$ 2,177

XML

Debt (Tables)

9 Months Ended

Sep. 30, 2012

Debt Disclosure [Abstract]

Schedule of long-term debt to financial institutions

		(Unaudited)
(In thousands)		September 30,		December 31,
		2012		2011
Fixed Rate term note payable to a U.S. bank, with an interest rate of 6.65% at September 30, 2012, due January 1, 2016, secured by real estate, leasehold improvements, property, plant and equipment, inventory and accounts receivable of our U.S. operation.	$	1,404	$	1,680
Term note payable to a U.S. equipment financing company, with an interest rate of 5.24% at September 30, 2012, due April 1, 2013, secured by a Caterpillar front-end loader.		16		35
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 7.8% at September 30, 2012, due July 1, 2029, secured by TPT's land and office building purchased July 2004.  (€304)		390		413
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.6% at September 30, 2012, due January 31, 2030, secured by TPT's land and building purchased January 2005.  (€304)		390		412
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.05% at September 30, 2012, due July 31, 2015, secured by TPT's assets.  (€121)		155		205
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.25% at September 30, 2012, due July 5, 2014, secured by TPT's assets.  (€393)		505		736
Malaysian Ringgit term note payable to a Malaysian bank, with an interest rate of 5.2% at September 30, 2012, due March 1, 2015, secured by TMM's property, plant and eqiupment. (RM 2,365)		774		-
Total		3,634		3,481
Less current maturities		818		813
Total long-term debt and notes payable - financial institutions	$	2,816	$	2,668

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Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Oct. 31, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	TOR MINERALS INTERNATIONAL INC
Entity Central Index Key	0000842295
Trading Symbol	torm
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		2,967,977
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3

XML

Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

Schedule of assets and liabilities measured and recognized at fair value on a recurring basis, classified as level of fair value hierarchy

		September 30, 2012
(In thousands)		Balance at September 30,  2012		Quoted Prices  in Active Markets for Identical  Items (Level 1)		Significant  Other  Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Asset for foreign currency derivative financial instruments (including forward contracts)	$	88	$	-	$	88	$	-
		September 30, 2011
(In thousands)		Balance at September 30,  2011		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)	$	(70)	$	-	$	(70)	$	-

Schedule of carrying and estimated fair values of the Company's long-term debt, including current maturities

		September 30, 2012				December 31, 2011
(In thousands)		Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, including current portion	$	3,634	$	3,568	$	3,481	$	3,391
Long-term debt – convertible debentures		-		-		1,450		1,436
	$	3,634	$	3,568	$	4,931	$	4,827

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
CURRENT ASSETS:
Cash and cash equivalents	$ 1,558	$ 3,381
Trade accounts receivable, net	14,374	4,921
Inventories	20,705	18,673
Other current assets	1,629	832
Total current assets	38,266	27,807
PROPERTY, PLANT AND EQUIPMENT, net	21,554	20,138
OTHER ASSETS	24	22
Total Assets	59,844	47,967
CURRENT LIABILITIES:
Accounts payable	4,647	3,222
Accrued expenses	3,076	1,754
Notes payable under lines of credit	4,616	2,886
Export credit refinancing facility	2,332	1,254
Current deferred tax liability	55	46
Current maturities - capital leases	51	28
Current maturities of long-term debt - financial institutions	818	813
Current maturities of long-term debt - convertible debentures		91
Total current liabilities	15,595	10,094
LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES
Capital leases	16	34
Long-term debt - financial institutions	2,816	2,668
Long-term debt - convertible debentures, net		1,127
DEFERRED TAX LIABILITY	1,201	619
Total liabilities	19,628	14,542
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock $1.25 par value: authorized, 6,000 shares;2,968 and 2,400 shares issued and outstanding at 9/30/2012 and 12/31/2011, respectively	3,709	2,999
Additional paid-in capital	28,971	28,222
Retained earnings (Accumulated deficit)	3,033	(1,759)
Accumulated other comprehensive income:
Cumulative foreign currency translation adjustment	4,503	3,963
Total shareholders' equity	40,216	33,425
Total Liabilities and Shareholders' Equity	$ 59,844	$ 47,967

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Segment Information

9 Months Ended

Sep. 30, 2012

Segment Reporting [Abstract]

Segment Information

Note 6.   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 (TPT)		Asia (TMM)		Inter-Company Eliminations		Consolidated
As of and for the three months ended:
September 30, 2012
Net Sales:
Customer sales	$	8,592	$	1,645	$	9,677	$	-	$	19,914
Intercompany sales		11		1,910		1,379		(3,300)		-
Total Net Sales	$	8,603	$	3,555	$	11,056	$	(3,300)	$	19,914
Location profit (loss)	$	447	$	293	$	1,195	$	(98)	$	1,837
September 30, 2011
Net Sales:
Customer sales	$	7,079	$	2,423	$	1,899	$	-	$	11,401
Intercompany sales		462		579		951		(1,992)		-
Total Net Sales	$	7,541	$	3,002	$	2,850	$	(1,992)	$	11,401
Location profit	$	717	$	269	$	93	$	(12)	$	1,067
As of and for the nine months ended:
September 30, 2012
Net Sales:
Customer sales	$	26,030	$	5,818	$	14,982	$	-	$	46,830
Intercompany sales		52		4,735		7,350		(12,137)		-
Total Net Sales	$	26,082	$	10,553	$	22,332	$	(12,137)	$	46,830
Location profit	$	2,036	$	585	$	2,322	$	(151)	$	4,792
Location assets	$	19,053	$	10,306	$	30,485	$	-	$	59,844
September 30, 2011
Net Sales:
Customer sales	$	18,329	$	8,047	$	5,099	$	-	$	31,475
Intercompany sales		462		2,207		5,438		(8,107)		-
Total Net Sales	$	18,791	$	10,254	$	10,537	$	(8,107)	$	31,475
Location profit	$	1,372	$	911	$	442	$	(2)	$	2,723
Location assets	$	14,654	$	10,191	$	19,146	$	-	$	43,991

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 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 Corpus Christi inventories that include an inter-company component, the net effect of these adjustments can decrease/increase location profit.

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

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Calculation of Basic and Diluted Earnings per Share

9 Months Ended

Sep. 30, 2012

Earnings Per Share [Abstract]

Calculation of Basic and Diluted Earnings per Share

Note 5.   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,
		2012		2011		2012		2011
Numerator:
Net Income	$	1,837	$	1,067	$	4,792	$	2,723
Preferred Stock Dividends		-		-		-		(15)
Numerator for basic earnings per share -  income available to common shareholders		1,837		1,067		4,792		2,708
Effect of dilutive securities:
6% Convertible Debenture Interest Expense		-		22		36		66
Preferred Stock Dividends		-		-		-		15
Numerator for diluted income per share -  income available to common shareholders  after assumed conversions	$	1,837	$	1,089	$	4,828	$	2,789
Denominator:
Denominator for basic income per share -  weighted-average shares		2,968		2,122		2,714		2,052
Effect of dilutive securities:
Employee stock options		(180)		37		(158)		40
Detachable warrants		461		555		457		542
6% Convertible Debenture		192		547		370		552
Preferred Stock		-		3		-		48
Dilutive potential common shares		473		1,142		669		1,182
Denominator for diluted income per share - weighted-average shares and assumed conversions		3,441		3,264		3,383		3,234
Basic income per common share	$	0.62	$	0.50	$	1.77	$	1.32
Diluted income per common share	$	0.53	$	0.33	$	1.43	$	0.86

For the three and nine month periods ended September 30, 2012 and 2011, approximately 45,000 and 24,000, respectively, of shares issuable upon exercise of employee stock options were excluded from the calculation of diluted earnings per share as the exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive.

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Accounting Policies (Detail Textuals) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Organization, Consolidation and Presentation Of Financial Statements [Abstract]
Federal income tax expense	$ 105,000	$ 6,000	$ 688,000	$ 18,000
State income tax expense	3,000	2,000	8,000	4,000
Foreign deferred tax expense	$ 408,000	$ 52,000	$ 706,000	$ 176,000
Estimated annualized consolidated effective tax rate			22.70%

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Calculation of Basic and Diluted Earnings per Share (Tables)

9 Months Ended

Sep. 30, 2012

Earnings Per Share [Abstract]

Schedule of computation of basic and diluted earnings per share

(in thousands, except per share amounts)		Three Months Ended September 30,				Nine Months Ended September 30,
		2012		2011		2012		2011
Numerator:
Net Income	$	1,837	$	1,067	$	4,792	$	2,723
Preferred Stock Dividends		-		-		-		(15)
Numerator for basic earnings per share -  income available to common shareholders		1,837		1,067		4,792		2,708
Effect of dilutive securities:
6% Convertible Debenture Interest Expense		-		22		36		66
Preferred Stock Dividends		-		-		-		15
Numerator for diluted income per share -  income available to common shareholders  after assumed conversions	$	1,837	$	1,089	$	4,828	$	2,789
Denominator:
Denominator for basic income per share -  weighted-average shares		2,968		2,122		2,714		2,052
Effect of dilutive securities:
Employee stock options		(180)		37		(158)		40
Detachable warrants		461		555		457		542
6% Convertible Debenture		192		547		370		552
Preferred Stock		-		3		-		48
Dilutive potential common shares		473		1,142		669		1,182
Denominator for diluted income per share - weighted-average shares and assumed conversions		3,441		3,264		3,383		3,234
Basic income per common share	$	0.62	$	0.50	$	1.77	$	1.32
Diluted income per common share	$	0.53	$	0.33	$	1.43	$	0.86

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Derivatives and Other Financial Instruments

9 Months Ended

Sep. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Other Financial Instruments

Note 9.   Derivatives and Other Financial Instruments

The Company has exposure to certain risks relating to its ongoing business operations, including financial, market, political and economic risks.  The following discussion provides information regarding our exposure to the risks of changing energy prices and foreign currency 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.  The natural gas and foreign exchange contracts are used to mitigate uncertainty and volatility, and to cover underlying exposures.

Foreign Currency Forward Contracts

We manage the risk of changes in foreign currency exchange rates, primarily at our Malaysian operation, through the use of foreign currency contracts.  Foreign exchange contracts are used 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.  We report the fair value of the derivatives on our consolidated and condensed balance sheets and changes in the fair value are recognized in earnings in the period of the change.

At September 30, 2012, we marked these contracts to market, recording $88,000 as a current asset on the consolidated and condensed balance sheet.  For the three and nine month periods ended September 30, 2012, we recorded a net gain on these contracts of $88,000 and $75,000, respectively, as a component of our net income.  For the three and nine month periods ended September 30, 2011, we recorded a net loss of $70,000 and $85,000, respectively, as a component of our net income.

The following table summarizes the gross fair market value of all derivative instruments, which are not designated as hedging instruments and their location in our Condensed Consolidated Balance Sheet: 

(In thousands)
Asset Derivatives
			September 30,		December 31,
Derivative Instrument	Location		2012		2011
Foreign Currency Exchange Contracts	Other Current Assets	$	88	$	16
		$	88	$	16

The following table summarizes the impact of the Company’s derivatives on the condensed consolidated financial statements of operations for the three and nine month periods ended September 30, 2012 and 2011: 

			Amount of (Loss) Gain Recognized in Income (In thousands)
	Location of Gain		Three Months Ended				Nine Months Ended
Derivative	(Loss) on Derivative		September 30,				September 30,
Instrument	Instrument		2012		2011		2012		2011
Foreign Currency    Exchange Contracts	Other Expense:     Gain (loss) on foreign   currency exchange rate	$	88	$	(70)	$	75	$	(85)

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Stock Options and Equity Compensation Plan

9 Months Ended

Sep. 30, 2012

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

Stock Options and Equity Compensation Plan

Note 7. Stock Options and Equity Compensation Plan

For the three and nine month periods ended September 30, 2012, the Company recorded stock-based employee compensation expense of $13,000 and $71,000, respectively. For the three and nine month periods ended September 30, 2012, the Company recorded stock-based employee compensation expense of $7,000 and $53,000, respectively. This compensation expense is included in the selling, general and administrative expenses in the accompanying consolidated statements of income.

The Company granted 21,000 and 23,500 options during the nine month periods ended September 30, 2012 and 2011, respectively.

As of September 30, 2012, there was approximately $313,000 of stock-based employee compensation expense related to non-vested awards which is expected to be recognized over a weighted average period of 3.9 years.

As most options issued under the 2000 Incentive Plan are incentive stock options, the Company does not normally receive significant excess tax benefits relating to the compensation expense recognized on vested options.

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Inventories

9 Months Ended

Sep. 30, 2012

Inventory Disclosure [Abstract]

Inventories

Note 8.   Inventories

A summary of inventory follows:

(In thousands)		September 30,		December 31,
		2012		2011
Raw materials	$	12,576	$	13,170
Work in progress		3,469		1,709
Finished goods		4,047		3,254
Supplies		927		804
Total Inventories		21,019		18,937
Inventory reserve		(314)		(264)
Net Inventories	$	20,705	$	18,673

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Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2012

Organization, Consolidation and Presentation Of Financial Statements [Abstract]

Basis of Presentation and Use of Estimates

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. (“TOR”, “we”, “us”, “our” or the “Company”) and its wholly-owned subsidiaries, TOR Processing and Trade, B.V. (“TPT”) and TOR Minerals Malaysia, Sdn. Bhd. (“TMM”), 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 our annual consolidated 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, 2011, in our Annual Report on Form 10-K filed with the SEC on March 12, 2012. Operating results for the three and nine month periods ended September 30, 2012, are not necessarily indicative of the results for the year ending December 31, 2012.

Income Taxes

Income Taxes: The Company records 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.

For the three and nine month periods ended September 30, 2012, income tax expense consisted of federal income tax expense of approximately $105,000 and $688,000, respectively; state income tax expense of approximately $3,000 and $8,000, respectively; and foreign deferred tax expense of approximately $408,000 and $706,000, respectively. For the three and nine month periods ended September 30, 2011, income tax expense consisted of federal income tax expense of $6,000 and $18,000, respectively; state income tax expense of $2,000 and $4,000, respectively; and foreign deferred tax expense of $52,000 and $176,000, respectively. For the year ended December 31, 2012, taxes are based on an estimated annualized consolidated effective tax rate of 22.7%.

When accounting for uncertainties in income taxes, 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, 2009 through December 31, 2011. Our state return, which are filed in Texas, is` subject to examination for the tax years ended December 31, 2008 through December 31, 2011. Our tax returns in various non-U.S. jurisdictions are subject to examination for various tax years ended December 31, 2006 through December 31, 2011.

As of January 1, 2012, we did not have any unrecognized tax benefits and there was no change during the nine month period ended September 30, 2012. In addition, we did not recognize any interest and penalties in our consolidated financial statements during the nine month period ended September 30, 2012. If any interest or penalties related to any income tax liabilities are imposed in future reporting periods, we expect to record both of these items as components of income tax expense.

Recently Adopted and Recently Issued Accounting Standards

Recently Adopted and Recently Issued Accounting Standards

The Company reviewed significant newly issued accounting pronouncements and concluded that they are either not applicable to the Company’s business or that no material effect is expected on the consolidated financial statements as a result of future adoption.

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Calculation of Basic and Diluted Earnings per Share (Detail Textuals)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Earnings Per Share [Abstract]
Antidilutive securities excluded from computation of earnings per share (in shares)	45,000	24,000	45,000	24,000

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Inventories (Tables)

9 Months Ended

Sep. 30, 2012

Inventory Disclosure [Abstract]

Schedule of inventory

(In thousands)		September 30,		December 31,
		2012		2011
Raw materials	$	12,576	$	13,170
Work in progress		3,469		1,709
Finished goods		4,047		3,254
Supplies		927		804
Total Inventories		21,019		18,937
Inventory reserve		(314)		(264)
Net Inventories	$	20,705	$	18,673

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Debt (Detail Textuals 1) (Six-percent Convertible Subordinated Debentures, USD $)	0 Months Ended	9 Months Ended
	May 03, 2012	Sep. 30, 2009 investors
Six-percent Convertible Subordinated Debentures
Debt Instrument [Line Items]
Interest rate on note payable		6.00%
Proceeds from sale of debentures		$ 1,500,000
Total accredited investors		9
Accredited investors - directors		4
Proportion of shareholder	5.00%
Issue of common Stock (in shares)	547,172

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Derivatives and Other Financial Instruments (Details 1) (Foreign Currency Exchange Contracts, Other Expense: Gain (loss) on foreign currency exchange rate, Not designated as hedging instrument, USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Foreign Currency Exchange Contracts | Other Expense: Gain (loss) on foreign currency exchange rate | Not designated as hedging instrument
Derivatives, Fair Value [Line Items]
Derivatives, (Loss) Gain Recognized in Income	$ 88	$ (70)	$ 75	$ (85)

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Condensed Consolidated Balance Sheets (Parentheticals) (USD $) In Thousands, except Per Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Statement Of Financial Position [Abstract]
Common stock, par value (in dollars per share)	$ 1.25	$ 1.25
Common stock, shares authorized	6,000	6,000
Common stock, shares issued	2,968	2,400
Common stock, shares outstanding	2,968	2,400

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Capital Leases

9 Months Ended

Sep. 30, 2012

Leases, Capital [Abstract]

Capital Leases

Note 4. Capital Leases

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 consolidated balance sheets as property, plant and equipment. Accumulated amortization of the leased equipment at September 30, 2012 was approximately $19,000. The capital lease, which was scheduled to mature in February 2013, was paid off in September 2012.

On August 1, 2010, the Company entered into a financial lease agreement with Dell Financial Services for new computer servers. The cost of the equipment under the capital lease, in the amount of $19,093, is included in the consolidated balance sheets as property, plant and equipment. Accumulated amortization of the leased equipment at September 30, 2012 was approximately $17,000. The capital lease is in the amount of $20,698 including interest of $1,605 (implicit interest rate 5.3%). The lease term is 36 months with equal monthly installments of $575. The net present value of the lease at September 30, 2012 was $6,000.

On September 4, 2011, TPT entered into a financial lease agreement with Diependael Leasing, BV for equipment related to the production of ALUPREM. The cost of the equipment under the capital lease, in the amount of €38,360, is included in the consolidated balance sheets as property, plant and equipment. Accumulated amortization of the leased equipment at September 30, 2012 was approximately €13,000. The capital lease is in the amount of €41,256 including interest of €2,896 (implicit interest rate 4.786%). The lease term is 36 months with equal monthly installments of €1,146. The net present value of the lease at September 30, 2012 was €28,250 ($32,000).

On February 5, 2012, TPT entered into a financial lease agreement with Sympatec GmbH for lab equipment. The cost of the equipment under the capital lease, in the amount of €52,128, is included in the consolidated and condensed balance sheets as property, plant and equipment. Accumulated amortization of the leased equipment at September 30, 2012 was approximately €4,000. The capital lease is in the amount of €56,988 including interest of €4,860 (implicit interest rate 16.785%). The lease term is 12 months with equal monthly installments of €4,749. The net present value of the lease at September 30, 2012 was €35,708 ($29,000).

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Debt (Detail Textuals 2) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012 Line of credit American Bank, N.A.	Mar. 01, 2012 Line of credit American Bank, N.A.	Dec. 31, 2010 Line of credit American Bank, N.A.
Line of Credit Facility [Line Items]
Line of credit initial amount					$ 1,000,000
Line of credit amount				2,000,000
Minimum floor rate for line of credit				5.50%
Variable interest prime rate of bank				1.00%
Description of variable rate basis			line of credit bear interest at a variable rate equal to one percent per annum point above the Wall Street Journal Prime Rate as such prime rate changes from time to time, with a minimum floor rate of 5.50
Cash flow to debt service ratio- measured on a rolling four quarter basis			1.25 to 1.0
Cash flow to debt service ratio			6.93 to 1.0
Line of credit facility, covenant terms			Under the terms of the Agreement, the Company must maintain a ratio of cash flow to debt service of at least 1.25 to 1.0 measured on a rolling four quarter basis
Net proceeds from lines of credit	$ 1,656,000	$ 339,000	$ 1,750,000

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Stock Options and Equity Compensation Plan (Details Textuals 1) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized stock-based employee compensation expense	313,000
Unrecognized compensation cost weighted average recognition period	3 years 10 months 24 days
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Incentive stock options granted	21,000	23,500

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2012

Segment Reporting [Abstract]

Schedule of company's manufacturing operations by geographic area

(In thousands)		United States (Corpus Christi)		Europe (TPT)		Asia (TMM)		Inter-Company Eliminations		Consolidated
As of and for the three months ended:
September 30, 2012
Net Sales:
Customer sales	$	8,592	$	1,645	$	9,677	$	-	$	19,914
Intercompany sales		11		1,910		1,379		(3,300)		-
Total Net Sales	$	8,603	$	3,555	$	11,056	$	(3,300)	$	19,914
Location profit (loss)	$	447	$	293	$	1,195	$	(98)	$	1,837
September 30, 2011
Net Sales:
Customer sales	$	7,079	$	2,423	$	1,899	$	-	$	11,401
Intercompany sales		462		579		951		(1,992)		-
Total Net Sales	$	7,541	$	3,002	$	2,850	$	(1,992)	$	11,401
Location profit	$	717	$	269	$	93	$	(12)	$	1,067
As of and for the nine months ended:
September 30, 2012
Net Sales:
Customer sales	$	26,030	$	5,818	$	14,982	$	-	$	46,830
Intercompany sales		52		4,735		7,350		(12,137)		-
Total Net Sales	$	26,082	$	10,553	$	22,332	$	(12,137)	$	46,830
Location profit	$	2,036	$	585	$	2,322	$	(151)	$	4,792
Location assets	$	19,053	$	10,306	$	30,485	$	-	$	59,844
September 30, 2011
Net Sales:
Customer sales	$	18,329	$	8,047	$	5,099	$	-	$	31,475
Intercompany sales		462		2,207		5,438		(8,107)		-
Total Net Sales	$	18,791	$	10,254	$	10,537	$	(8,107)	$	31,475
Location profit	$	1,372	$	911	$	442	$	(2)	$	2,723
Location assets	$	14,654	$	10,191	$	19,146	$	-	$	43,991