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 six month periods ended June 30, 2012 and 2011.

                                                               (Unaudited)
                                                  Three Months             Six Months
 (In thousands, except per share amounts)        Ended June 30,          Ended June 30,
                                                2012        2011        2012        2011
 NET SALES                                  $  14,108   $  10,489   $  26,916   $  20,074
 Cost of sales                                 10,441       8,183      20,059      15,677
 GROSS MARGIN                                   3,667       2,306       6,857       4,397
 Technical services and research and
development                                       101          66         183         132
 Selling, general and administrative
expenses                                        1,359       1,065       2,583       2,224
 OPERATING INCOME                               2,207       1,175       4,091       2,041
 OTHER EXPENSE:
 Interest expense                                (112)       (101)       (254)       (197)
 Gain (loss) on foreign currency exchange
rate                                              (20)         (9)          3         (57)
 Other, net                                         1           7           1           7
 INCOME BEFORE INCOME TAX                       2,076       1,072       3,841       1,794
 Income tax expense                               517          91         886         138
 NET INCOME                                 $   1,559   $     981   $   2,955   $   1,656

 Income per common share:
 Basic                                      $    0.56   $    0.47   $    1.14   $    0.81
 Diluted                                    $    0.45   $    0.30   $    0.87   $    0.53

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 six month periods ended June 30, 2012 increased approximately $3,619,000 or 35% and $6,842,000 or 34%, respectively, as compared to the same three and six month periods of 2011 when we experienced increases in our consolidated net sales of $2,561,000 or 32% and $5,290,000 or 36%, respectively.

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

                   Three Months Ended June 30,                    Six Months Ended June 30,
Product          2012           2011        Variance           2012           2011        Variance
 HITOX     $  5,950   42% $  4,670   45% $ 1,280   27%   $ 11,318   42% $  8,720   44% $ 2,598   30%
 ALUPREM      3,894   28%    3,586   34%     308    9%      8,062   30%    6,965   35%   1,097   16%
 BARTEX       1,485   11%      918    9%     567   62%      2,924   11%    1,812    9%   1,112   61%
 HALTEX       1,024    7%      863    8%     161   19%      1,902    7%    1,626    8%     276   17%
 TIOPREM        418    3%      373    3%      45   12%        754    3%      777    3%     (23)  -3%
 SYNTHETIC    1,117    8%        -    0%   1,117    -       1,548    6%        -    0%   1,548    -
 RUTILE
 OTHER          220    1%       79    1%     141  178%        408    1%      174    1%     234  134%
 Total     $ 14,108  100% $ 10,489  100% $ 3,619   35%   $ 26,916  100% $ 20,074  100% $ 6,842   34%

HITOX sales increased 27% and 30% for the three and six month periods ended June 30, 2012, respectively, primarily related to a global increase in the average selling price of approximately 41% and 42%, respectively. This compares to an increase of 51% and 45% for the three and six month periods ended June 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 titanium dioxide ("TiO2") which resulted in an increase in volume and average selling price of 18% and 42%, respectively.

ALUPREM sales increased 9% during the second quarter of 2012 and 16% for the six month period ended June 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 22% and 31% during the same three and six month periods of 2011, respectively.

BARTEX sales increased 62% and 61% during the three and six month periods ended June 30, 2012. For the three and six month period, an increase in volume represented approximately 51% of the overall sales increase. This follows a decrease of approximately 6% during the second quarter of 2011 of which approximately 12% represented a decrease in volume. Sales remained flat during the six month period ended June 30, 2011 as compared to the same period of 2010.

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 six month periods ended June 30, 2012, sales increased 19% and 17%, respectively. This compares to an increase of 3% and 20% for the same three and six month periods of 2011, respectively.

TIOPREM sales increased 12% for the three month period ended June 30, 2012, of which approximately 24% related to an increase in selling price which was partially offset by a decrease in volume of 12%. Year to date, sales declined approximately 3%. For the same three and six month periods of 2011, sales increased significantly over the 2010 levels as the product gained greater acceptance in the global marketplace.

Synthetic Rutile ("SR") sales represented 8% and 6% of the overall sales for the three and six month periods ended June 30, 2012, respectively. We are optimistic that the sale of available SR to third parties will continue in the future; however, we have experienced a decrease in one order received earlier this year.

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

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 six month periods ended June 30, 2012 and 2011 (in thousands),
as well as a summary of the material changes.  All inter-company sales have been
eliminated.

                  Three Months Ended June 30,                      Six Months Ended June 30,
Product        2012           2011         Variance            2012            2011         Variance
 HITOX    $ 3,606   40%  $ 2,621   44%  $   985   38%    $  7,002   40%  $  4,875   43%  $ 2,127   44%
 ALUPREM    2,326   26%    1,179   20%    1,147   97%       4,757   27%     2,369   21%    2,388  101%
 BARTEX     1,485   17%      918   16%      567   62%       2,924   17%     1,812   16%    1,112   61%
 HALTEX     1,024   12%      863   15%      161   19%       1,902   11%     1,626   15%      276   17%
 TIOPREM      272    3%      237    4%       35   15%         483    3%       423    4%       60   14%
 OTHER        186    2%       64    1%      122  191%         370    2%       145    1%      225  155%
 Total    $ 8,899  100%  $ 5,882  100%  $ 3,017   51%    $ 17,438  100%  $ 11,250  100%  $ 6,188   55%

º HITOX sales increased 38% for the three month period ended June 30, 2012, primarily due to an increase in selling price of 39% which was partially offset by a small decrease in volume. Sales in the U.S., Canada and Mexico increased 43%, 88% and 135%, respectively, and sales in South America decreased approximately 41%, as compared to the same period in 2011. This compares to an increase in the second quarter of 2011 of 21% of which volume and selling price represented 6% and15%, respectively. Year to date, the increase in HITOX sales of 44% is primarily related to a tight supply of commodity titanium dioxide resulting in an increase in selling price which represents 43% of the year to date increase. During the same six month period of 2011, sales increased 17% of which volume and selling price presented 5% and 12%, respectively.

º ALUPREM sales during the second quarter increased 97% as compared to an increase of 34% during the second quarter of 2011. Year to date, U.S. ALUPREM sales increased 101% as compared to an increase of 51% during the same six month period of 2011. The year over year increases are primarily due to an increase in volume of a significant customer.

º TIOPREM sales in the U.S. increased 15% and 14% the three and six month periods ended June 30, 2012, respectively. For the quarter, volume decreased 8% and selling price increased sales 23%; and year to date, volume decreased 14% and selling price increased sales 28%. During the same three and six month periods of 2011, sales increased significantly due primarily to an increase in volume 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 six month periods ended June 30, 2012 and 2011 to
third party customers.  All inter-company sales have been eliminated.

                  Three Months Ended June 30,                      Six Months Ended June 30,
Product        2012           2011          Variance           2012           2011          Variance
 ALUPREM  $ 1,568   79%  $ 2,407   80%  $   (839) -35%    $ 3,305   79%  $ 4,596   82%  $ (1,291) -28%
 HITOX        388   20%      510   17%      (122) -24%        825   20%      873   15%       (48)  -5%
 TIOPREM       30    1%       90    3%       (60) -67%         43    1%      155    3%      (112) -72%
 Total    $ 1,986  100%  $ 3,007  100%  $ (1,021) -34%    $ 4,173  100%  $ 5,624  100%  $ (1,451) -26%

º ALUPREM sales in Europe decreased 35% and 28% for the three and six month periods ended June 30, 2012, respectively, primarily due to a decrease in volume of 30% for the quarter and 26% year to date. The decrease in volume is primarily the result of the current European economy. This compares to an increase of 17% and 23% for the same three and six month periods of 2011, respectively.

º HITOX sales in Europe decreased 24% and 5% for the three and six month periods ended June 30, 2012, respectively, primarily due to a weak European economy. For the three and six month periods ended June 30, 2012, volume decreased 29% and 22%, respectively. This compares to an increase in sales of 164% and 113% for the same three and six month periods of 2011, respectively. For the three and six month periods ended June 30, 2011, volume increased 43% and 42%, respectively, and selling price increased period sales 78% and 52%, respectively.

º TIOPREM sales in Europe represented 1% and 3% of TPT's sales during the three and six month periods ended June 30, 2012 and 2011, respectively. For the three and six month periods ended June 30, 2012, sales decreased 67% and 72%, respectively, primarily due to a decline in the European economy. This follows significant increases in volume during the same three and six month periods of 2011 as product gained greater acceptance in the European market.

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

                    Three Months Ended June 30,                     Six Months Ended June 30,
Product          2012           2011         Variance           2012           2011          Variance
 HITOX      $ 1,956   61%  $ 1,539   96%  $   417   27%    $ 3,491   66%  $ 2,972   93%  $   519    17%
 TIOPREM        116    3%       46    3%       70  152%        228    4%      199    6%       29  1031%
 SYNTHETIC    1,117   35%        -    0%    1,117    -       1,548   29%        -    0%    1,548     -
 RUTILE
 OTHER           34    1%       15    1%       19  127%         38    1%       29    1%        9    31%
 Total      $ 3,223  100%  $ 1,600  100%  $ 1,623  101%    $ 5,305  100%  $ 3,200  100%  $ 2,105    66%

º HITOX sales in Asia increased 27% and 17% for the three and six month periods ended June 30, 2012, respectively. For the quarter, selling price represented 49% of the increase which was partially offset by a decrease in volume of 22%. Year to date, sales increased 43% due to an increase in selling price and volume decreased 26%. This compares to an increase of 109% and 111% for the same three and six month periods of 2011, respectively, primarily related to an increase in volume 90% and 96%, respectively, and selling price of 19% and 15%.

º TIOPREM sales in Asia increased 152% and 1031% during the three and six month periods ended June 30, 2012. The year of year increase is primarily due to the product gaining greater acceptance in the global marketplace

º SR sales represented 35% and 29% of TMM's sales for the three and six month periods ended June 30, 2012. The increase in volume relates to the tight supply of commodity titanium dioxide. We are optimistic that the sale of available SR to third parties will continue in the future, however, we have experienced a decrease in one order received earlier this year.

               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 June 30, 2012 and 2011.

                                  (Unaudited)
                      Three Months           Six Months
 (In thousands)      Ended June 30,        Ended June 30,
                    2012       2011       2012       2011
 NET SALES       $ 14,108   $ 10,489   $ 26,916   $ 20,074
 Cost of sales     10,441      8,183     20,059     15,677
 GROSS MARGIN    $  3,667   $  2,306   $  6,857   $  4,397
 GROSS MARGIN %     26.0 %     22.0 %     25.5 %     21.9 %

For the three month and six month periods ended June 30, 2012, gross margin increased approximately 4%. For both the quarter and year to date periods, gross margin increased primarily due to an increase in the selling price of approximately 15%. 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 4%.

Selling, General, Administrative and Expenses ("SG&A"): SG&A expense increased approximately 29% during the three month period ended June 30, 2012 primarily due to an increase in selling expenses of approximately 120% and professional fees and services of approximately 194%. For the six month period ended June 30, 2012, SG&A expenses increased approximately 17% primarily due to an increase in selling expenses, professional fees and services which increased approximately 78% and 101%, respectively. The increase in selling expenses for both periods is primarily related to sales at TMM.

Interest Expense: Net interest expense for the three and six month periods ended June 30, 2012 increased approximately $11,000 and $57,000, 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 six month periods ended June 30, 2012, income tax expense consisted of federal income tax expense of approximately $287,000 and $583,000, respectively; state income tax expense of approximately $3,000 and $5,000, respectively; and foreign deferred tax expense of approximately $227,000 and $298,000, respectively. For the three and six month periods ended June 30, 2011, income tax expense consisted of federal income tax expense of approximately $6,000 and $11,000, respectively; state income tax expense of approximately $2,000 and $3,000, respectively; and foreign deferred tax expense of approximately $83,000 and $124,000, respectively. Taxes are based on an estimated annualized consolidated effective tax rate of 23.1% for the year ended December 31, 2012.

               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)                                           June 30,        December 31,
                                                           2012             2011
Fixed Rate term note payable to a U.S. bank, with
an interest rate of 6.65% at June 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.                                           $       1,497    $        1,680
Term note payable to a U.S. equipment financing
company, with an interest rate of 5.24% at June
30, 2012, due April 1, 2013, secured by a
Caterpillar front-end loader.                                   22                35
Fixed rate Euro term note payable to a Netherlands
bank, with an interest rate of 7.8% at June 30,
2012, due July 1, 2029, secured by TPT's land and
office building purchased July 2004.  (€309)                   391               413
Fixed rate Euro term note payable to a Netherlands
bank, with an interest rate of 4.6% at June 30,
2012, due January 31, 2030, secured by TPT's land
and building purchased January 2005.  (€309)                   391               412
Fixed rate Euro term note payable to a Netherlands
bank, with an interest rate of 4.05% at June 30,
2012, due July 31, 2015, secured by TPT's assets.
(€133)                                                         169               205
Fixed rate Euro term note payable to a Netherlands
bank, with an interest rate of 4.25% at June 30,
2012, due July 5, 2014, secured by TPT's assets.
(€451)                                                         571               736
Malaysian Ringgit term note payable to a Malaysian
bank, with an interest rate of 5.2% at June 30,
2012, due March 1, 2015, secured by TMM's
property, plant and equipment. (RM 1,702)                      536                 -
Total                                                        3,577             3,481
Less current maturities                                        813               813
Total long-term debt and notes payable - financial
institutions                                         $       2,764    $        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.

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

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") which matures July 1, 2012. 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 June 30, 2012, the Company had $1,000,000 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 June 30, 2012, the ratio of cash flow to debt service was 7.6 to 1.0.

Netherlands Operation

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 3.694%), is secured by TPT's accounts receivable and inventory. At June 30, 2012, TPT had utilized €807,000 ($1,022,000) 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.

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 ($157,000, $2,033,000 and $1,574,000, respectively); and a term loan of RM 3,500,000 of which RM 1,702,000 had been drawn as of June 30, 2012 ($1,102,000 and $536,000, 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 ($315,000, $2,927,000, $378,000 and $7,870,000, respectively). At June 30, 2012, the outstanding balance on the line of credit was RM 700,000 ($220,000) at a current interest rate of 4.24% and RM 4,589,000 ($1,445,000) was outstanding on the foreign exchange contract at a current interest rate of 3%.

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 . . .