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 and flame retardants used in the manufacture of paints, industrial coatings, plastics, catalysts and solid surface applications. We have operations in the US, Asia and Europe.

Our US Operation, located in Corpus Christi, Texas, manufactures HITOX, BARTEX, HALTEX and TIOPREM. The facility is also the Global Headquarters for the Company. The Asian Operation, located in Ipoh, Malaysia, manufactures SR and HITOX and our European Operation, located in Hattem, Netherlands, manufactures Alumina based products.

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

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

2009 Outlook

Due to the downturn in the global economy, we have experienced a decrease in HITOX sales of approximately 35% and a decrease in BARTEX sales of approximately 30% during the first six months of 2009 and anticipate this trend to continue through 2009. However, we have experienced an increase in our specialty grade ALUPREM sales during the first six months of 2009 over the corresponding period in 2008 of approximately 15% which is primarily related to the purchasing pattern of one of our US customers. We anticipate the sales of our specialty grade ALUPREM to continue strong throughout 2009. While the decline in the economy has impacted the introduction of our new TIOPREM and OPTILOAD product lines, we anticipate that we will be able to sell these products in plastics, top coat paint and paper applications which were not previously available to us with our traditional HITOX and HALTEX products.

Our new production technologies, installed at our Malaysian operation in May 2008 and at our US operation in March 2009, have replaced fuel oil and natural gas with electricity as our primary source of energy, thereby reducing our overall energy costs. In addition, we have seen a decrease in the cost of freight between Malaysia and the US during the first quarter of 2009. As a result, we were able to secure the delivery of our first shipment of SR, which arrived at our US operation in April 2009, at approximately 25% less than we paid for freight in 2008. Based on our current forecast, this shipment of SR should provide sufficient raw materials to meet most of our US production requirements for 2009.

However, as a result of our projected decrease in worldwide sales of HITOX, our Malaysian operation will be required to decrease their SR production from the 2008 production level of four months to only two months in 2009. As a result, we expect to incur additional costs related to idle facility expense in 2009 at our Malaysian operation of approximately $250,000 or 25% as compared to 2008.

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

At our US operation, we are scaling back our production requirements and reducing costs in 2009. Based on our forecast, we anticipate a reduction in direct and indirect production costs of approximately 30% and a reduction in our SG&A expense of approximately 25%. This is being accomplished through various cost cutting measures, including a reduction in salaries of approximately 20%, elimination of overtime, a reduction in staff and a delay in filling vacant positions. In addition, we are reducing and/or eliminating discretionary spending. Similar cost savings measures have also been implemented at our operations in Malaysia and the Netherlands. However, a portion of the savings may not be immediately recognized due to various laws and regulations relating to termination benefits in these countries. There is no assurance that cost reductions will offset our expected revenue decline in 2009, in which case we would continue to experience a loss from our operations.

Looking to the future

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

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

We introduced four new colored pigments that are heat stable and branded these new products under the name TIOPREM in 2008. In addition, we introduced our new HALTEX line, OPTILOAD, in late 2008. While the decline in the economy has impacted the introduction of these new products, we anticipate that we will be able to sell these products in plastics, top coat paint and paper applications, which were not previously available to us with our traditional HITOX and HALTEX products. However, we believe that these products have the potential to greatly expand our addressable market and we hope that they will be contributing to our results in the second half of 2009.

Actual results could differ materially from those indicated by these forward looking statements because of various risks and uncertainties. See the information under the caption "Forward Looking Information" appearing below the Table of Contents of this report.

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

The following are our results for the three and six month periods ended June 30,
2009 and 2008.

                                                              (Unaudited)
                                                    Three Months        Six Months
(In thousands, except per share amounts)           Ended June 30,     Ended June 30,
                                                   2009      2008     2009      2008
NET SALES                                       $  5,654  $ 6,916  $ 11,357  $ 13,662
Cost of sales                                      4,789    5,912     9,678    11,998
GROSS MARGIN                                         865    1,004     1,679     1,664
Technical services and research and development       40       61        92       127
Selling, general and administrative expenses         725    1,154     1,736     2,229
Gain on disposal of assets                             -        -         -        (2)
OPERATING INCOME (LOSS)                              100     (211)     (149)     (690)
OTHER INCOME (EXPENSE):
Interest income                                        -        -         2         1
Interest expense                                    (136)    (131)     (248)     (275)
Gain (loss) on foreign currency exchange rate        (12)      (2)       42        (1)
Other, net                                             2        9         4        10
LOSS BEFORE INCOME TAX                               (46)    (335)     (349)     (955)
Income tax expense (benefit)                         (38)       3       (72)      (28)
NET LOSS                                        $     (8) $  (338) $   (277) $   (927)

Loss per diluted common share:                  $  (0.00) $ (0.04) $  (0.03) $  (0.12)


23

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

Results of Operations

Net Sales: Consolidated net sales for the quarter ended June 30, 2009 decreased approximately $1,262,000 or 18% compared to the second quarter 2008 primarily due to decreases in HITOX, ALUPREM and BARTEX sales. For the six month period ended June 30, 2009, consolidated net sales decreased approximately $2,305,000 or 17% primarily due to decreases in both HITOX and BARTEX sales which were partially offset by an increase in ALUPREM and HALTEX sales.

Following is a summary of our consolidated products sales for the three and six month periods ended June 30, 2009 and 2008 (in thousands). All inter-company sales have been eliminated.

                        (Unaudited)
               Three Months Ended June 30,                    Six Months Ended June 30,
Product      2009          2008         Variance           2009           2008         Variance
HITOX   $ 2,840   50% $ 3,501   51% $   (661) -19%   $  4,783   42% $  7,306   54% $ (2,523) -35%
ALUPREM   1,781   32%   2,208   32%     (427) -19%      4,525   40%    3,929   29%      596   15%
BARTEX      618   11%     814   12%     (196) -24%      1,203   11%    1,724   13%     (521) -30%
HALTEX      333    6%     284    4%       49   17%        649    6%      564    4%       85   15%
TIOPREM       3   <1%      26   <1%      (23) -88%          3   <1%       26   <1%      (23) -88%
OTHER        79    1%      83    1%       (4)  -5%        194    1%      113   <1%       81   72%
Total   $ 5,654  100% $ 6,916  100% $ (1,262) -18%   $ 11,357  100% $ 13,662  100% $ (2,305) -17%

HITOX sales declined 19% in the second quarter 2009 as compared to the same period in 2008. This follows a decline of 49% in the first quarter 2009 as compared to the same period in 2008. HITOX sales increased in the second quarter 2009 at all of the Company's three operations compared to the first quarter 2009. For the first six months of 2009, sales of HITOX declined by 35% versus the same period a year ago primarily as a result of the weak North American market and the impact of the global economy. While the economy continues to impact our current year's sales, many customers have depleted their inventory held at the end of 2008 and are now starting to order replacement inventory.

ALUPREM sales were 19% lower in the second quarter 2009 than the second quarter 2008, primarily due to a decline in sales in Europe of approximately 42% which was partially offset by an increase in US sales primarily due to a change in the order pattern of a significant US customer. For the first six months of 2009, ALUPREM sales increased 15% primarily due to a change in the ordering pattern of a significant US customer.

BARTEX sales declined approximately 24% during the second quarter 2009 as compared to the same period in 2008. For the first six months of 2009, BARTEX sales decreased 30% compared to the same period of 2008. The decrease in BARTEX sales is primarily as a result of the downturn in the US economy.

HALTEX sales increased 17% during the second quarter 2009 and 15% for the first six months of 2009, in each case as compared to the same periods in 2008. Because our HALTEX product line is not as closely tied to the construction industry, the product sales have not had as great an impact from the economic slowdown as our other products. In addition, sales of our new HALTEX line, OPTILOAD, is gaining acceptance in the marketplace.

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

Corpus Christi Operation

Our Corpus Christi operation manufactures and sells HITOX, BARTEX and HALTEX to
third party customers.  In addition, we purchase ALUPREM and HITOX from our
subsidiaries, TPT and TMM, for distribution in the Americas.  Following is a
summary of net sales for our Corpus Christi operation for the three and six
month periods ended June 30, 2009 and 2008 (in thousands), as well as a summary
of the material changes.  All inter-company sales have been eliminated.

                       (Unaudited)
              Three Months Ended June 30,                  Six Months Ended June 30,
Product      2009          2008        Variance         2009          2008         Variance
HITOX   $ 2,100   54% $ 2,432   61% $ (332) -14%   $ 3,598   46% $ 5,195   65% $ (1,597) -31%
ALUPREM     732   19%     391   10%    341   87%     2,198   28%     414    5%    1,784  431%
BARTEX      618   16%     814   20%   (196) -24%     1,203   16%   1,724   22%     (521) -30%
HALTEX      333    9%     284    7%     49   17%       649    8%     564    7%       85   15%
TIOPREM       3   <1%       -    0%      3               3   <1%       -    0%        3
OTHER        75    2%      77    2%     (2)  -3%       155    2%     101    1%       54   53%
Total   $ 3,861  100% $ 3,998  100% $ (137)  -3%   $ 7,806  100% $ 7,998  100% $   (192)  -2%

º HITOX - Sales during the second quarter increased 8% and 63% in Canada and South America, respectively, as compared to the same period in 2008; however, US sales trailed the second quarter last year by 20% resulting in a net decrease for the quarter of 14%. Year to date, HITOX sales decreased in the US market, as well as in the balance of North America, Central and South America. The decrease is primarily related to the global decline in the construction industry.

º ALUPREM - Increase in US sales of ALUPREM primarily due to a change in the order pattern of a significant customer.

º BARTEX - Decrease in US sales of BARTEX primarily related to a decrease in demand from existing customers as they deplete their existing inventory as a result of the US economy.

º HALTEX - Increase in US sales of HALTEX primarily related to an increase in customer demand and the growing acceptance of our new product, OPTILOAD, in the marketplace.

Netherlands Operation

Our subsidiary in the Netherlands, TPT, manufactures and sells ALUPREM to third
party customers, as well as to our Corpus Christi operation for distribution to
our US customers.  In addition, TPT purchases HITOX from TMM for distribution in
Europe.  The following table represents TPT's ALUPREM and HITOX sales (in
thousands) for the three and six month periods ended June 30, 2009 and 2008 to
third party customers.  All inter-company sales have been eliminated.

                        (Unaudited)
               Three Months Ended June 30,                   Six Months Ended June 30,
Product      2009          2008        Variance          2009          2008         Variance
ALUPREM $ 1,049   86% $ 1,817   85% $ (768)  -42%   $ 2,327   89% $ 3,515   86% $ (1,188)  -34%
HITOX       176   14%     291   14%   (115)  -40%       290   11%     528   13%     (238)  -45%
TIOPREM       -    0%      26    1%    (26) -100%         -    0%      26    1%      (26) -100%
Total   $ 1,225  100% $ 2,134  100% $ (909)  -43%   $ 2,617  100% $ 4,069  100% $ (1,452)  -36%

º ALUPREM - Decrease in European sales of ALUPREM primarily related to a decrease in volume and the effects of the foreign currency exchange rate as the Euro weakens against the USD.

º HITOX - Decrease in European sales of HITOX primarily related to impact of the global economy on the construction industry, as well as the effects of the foreign exchange rate.

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

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 six
month periods ended June 30, 2009 and 2008 to third party customers.  All
inter-company sales have been eliminated.

                     (Unaudited)
            Three Months Ended June 30,              Six Months Ended June 30,
Product     2009        2008       Variance        2009         2008        Variance
HITOX   $ 564   99% $ 778   99% $ (214) -28%   $ 895   96% $ 1,583   99% $ (688) -43%
OTHER       4    1%     6    1%     (2) -33%      39    4%      12    1%     27  225%

º HITOX - Decrease in Asian sales primarily related to a decrease in volume related to impact of the global economy on the construction industry. However, compared to the first quarter 2009, second quarter HITOX sales in the Asian market increased 70%.

Other Consolidated Results

Gross Margin: For the three month period ended June 30, 2009, gross margin increased approximately .08% percent, from 14.5% in 2008 to 15.3% in 2009. For the six month periods ended June 30, 2009 and 2008, gross margin increased approximately 2.6%, from 12.2% to 14.8%. The primary factors affecting our gross margin include the mix of products sold during the three and six month periods compared to the same periods in 2008, as well as a reduction in the cost of energy and raw materials. Also contributing to the year to date increase in the gross margin were cost reduction measures implemented during the first quarter 2009, primarily at the US operation, which reduced indirect costs approximately 19% primarily related to a reduction in labor and equipment repairs which were reduced approximately 20% and 31%, respectively, as compared to the same six month period 2008.

Technical Services and Selling, General, Administrative and Expenses ("SG&A"):
Total SG&A expenses decreased approximately 37% and 22% during the three and six month periods ended June 30, 2009, respectively, as compared to the comparable periods in 2008, primarily due to a reduction in staff, travel and other discretionary expenses. At the US operation, SG&A decreased approximately 55% and 37%, respectively, compared to the same three and six month periods in 2008 as a result of the Company's cost cutting initiative implemented during the first quarter 2009. Similar measures have also been implemented at the European and Asian operations.

Interest Expense: Net interest expense increased approximately $5,000 and decreased approximately $27,000 as compared to the same three and six month periods in 2008, respectively. The year to date reduction in interest expense is primarily related to the decrease in long-term debt.

Income Taxes: Income taxes consisted of a foreign deferred tax benefit of approximately $40,000 and state income tax expense of $2,000 for the three month period ended June 30, 2009, compared to state income tax expense of $3,000 for the same three month period in 2008. For the six-month periods ended June 30, 2009 and 2008, we recorded a foreign deferred tax benefit of approximately $75,000 and $33,000, respectively, and state income tax expense of $3,000 and $5,000, respectively. Taxes are based on an estimated annualized consolidated effective rate of 20.6%

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

Liquidity, Capital Resources and Other Financial Information

Liquidity

Going Concern

The consolidated financial statements included in this report have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As discussed in Note 3, the Company has significant borrowings which require, among other things, compliance with certain financial covenants, specifically a Consolidated Fixed Charge Ratio and a Consolidated Funded Debt to EBITDA Ratio, on a quarterly basis. As a result of the operating losses incurred throughout 2008 and the first quarter of 2009, the Company was not in compliance with these ratio covenants under our US Credit Agreement (the "Credit Agreement") with Bank of America, N.A. (the "Bank") as of December 31, 2008 and March 31, 2009.

As reported in the Company's Form 8-K filed with the Securities and Exchange Commission on May 6, 2009 the Company amended and restated the Credit Agreement with the Bank. Under the terms of the amendment, subject to the Company's compliance with the terms and conditions contained in the amendment, including revised financial covenants, the Bank agreed not to exercise any of its rights or remedies relating to the existing events of default under the Credit Agreement. The Bank also agreed to extend the maturity date on our Line of Credit (the "Line") from April 1, 2009 to October 1, 2009. In addition, the amendment modified the maturity date for our real estate term loan (the "Loan") from November 30, 2010 to October 1, 2009 and our term loan (the "Term Loan") from May 1, 2012 to October 1, 2009. The Credit Agreement is secured by all of the Company's assets in the US. The interest rate on the Line, the Loan and the Term Loan was increased from prime plus two percent to prime plus two and one-half percent, which was 5.75% at June 30, 2009. As a result, all of the Company's debt owed to the Bank matures on October 1, 2009.

As reported in the Company's Form 8-K filed with the Securities and Exchange Commission on May 6, 2009, the Company's Board of Directors has authorized, subject to shareholder approval, the issuance of up to $4 million of its six-percent (6%) convertible subordinated debentures with detachable warrants (the "Debentures") for the purpose of refinancing its debt to the Bank and general corporate purposes. Under the current authorization, the Company received, on May 4, 2009, $1 million from the sale of Debentures due May 4, 2016, from three of the Company's directors.

In addition to the above referenced Debentures, in June 2009 the Company received subscription agreements from five additional accredited investors, one of which is a director and another of which is a greater than 5% shareholder, for 19 Units for an aggregate purchase price of $475,000. These subscription agreements have been accepted by the Company subject to shareholder approval at the Company's annual meeting on August 21, 2009. The proceeds are held in restricted cash and will be used to reduce the Company's debt to the Bank after receiving shareholder approval.

Under the terms of the Credit Agreement, the Company has agreed to use all proceeds in excess of $1 million that it receives after May 1, 2009 from the issuance of any of its capital stock, from capital contributions in respect to its capital stock, from the issuance of debentures or the incurrence of permitted subordinated indebtedness (as defined in the Credit Agreement) to prepay the loans and other obligations under the Credit Agreement.

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

The Company is diligently working to establish a corporate lending relationship with a new financial institution for the Company's US operations prior to October 1, 2009, the revised maturity date under the Credit Agreement, to refinance outstanding debt with the Bank prior to its revised maturity. However, there can be no assurance that the Company will be able to successfully refinance the debt or sell any material part of the Debentures. If the Company is unable to refinance the debt due to the Bank prior to its revised maturity or if the Company defaults under the terms of the Credit Agreements prior to its revised maturity and the Bank were to accelerate the maturity of such indebtedness, the Company does not have sufficient liquidity to pay off the indebtedness owed to the Bank, and the Bank would be entitled to exercise all of its rights and remedies as a secured lender under the Credit Agreement which could force the Company into bankruptcy or liquidation.

In addition, the Company's two subsidiaries, TOR Minerals Malaysia, Sdn. Bhd. ("TMM") and TOR Processing and Trade, BV ("TPT") have short-term credit facilities and term loans at banks in Malaysia and the Netherlands, respectively. At June 30, 2009, TMM's utilization under the credit facilities and term loans with HSBC Bank Malaysia, Bhd. ("HSBC") and RHB Bank, Bhd. ("RHB") totaled $2,000,000 and TPT's utilization under the credit facility and term loans with Rabobank totaled $2,939,000. The credit facilities with HSBC, RHB and Rabobank are subject to demand provisions and are subject to certain subjective acceleration covenants based on the judgment of the banks. While the banks have made no indication that they will demand payment of the debt in Malaysia or in the Netherlands, in light of the Company's liquidity difficulties, there can be no assurances that this debt will not be called for payment prior to the stated maturity date.

Since early 2007, the Company has actively pursued new production methods and new product development. As a result, the Company introduced new products to the market in 2008 and completed a new powder treatment facility in Malaysia in May 2008. In addition, the Company has invested in a new powder treatment facility at the US operation which was commissioned in April 2009. With the new process equipment, the Company will replace natural gas with electricity as the primary energy source at the US operation. The Company believes that the changes in the manufacturing process in the US and Malaysia, as well as the potential acceptance of its new products in the market, will improve cash flows. However, the introduction of new products and the sales volume of existing product lines may be negatively impacted by the decline in the global economy. To offset the possible decline in sales revenue associated with the economy, the Company has implemented numerous cost cutting measures at each of the three operations, including, but not limited to, reductions in staff, salaries, travel and other discretionary expenses.

The events described above raise substantial doubt about the Company's ability to continue as a going concern. Our ability to continue to operate as a going concern is dependent on our ability to successfully establish a corporate . . .