TOR MINERALS INTERNATIONAL INC (Form: 10-Q, Received: 11/06/2013 12:00:43)

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 mineral 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 Synthetic Rutile (“SR”), HITOX and TIOPREM and our European Operation, located in Hattem, Netherlands, manufactures ALUPREM and BARYPREM.

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, 2013 and 2012.

		(Unaudited)
(In thousands, except per share amounts)		Three Months Ended September 30,				Nine Months Ended September 30,
		2013		2012		2013		2012
NET SALES	$	10,870	$	19,914	$	33,029	$	46,830
Cost of sales		9,289		16,068		28,242		36,127
GROSS MARGIN		1,581		3,846		4,787		10,703
Technical services and research and development		135		90		459		273
Selling, general and administrative expenses		1,119		1,242		3,644		3,825
(Gain) loss on disposal of assets		-		(6)		10		(6)
OPERATING INCOME		327		2,520		674		6,611
OTHER EXPENSE:
Interest expense, net		(103)		(143)		(286)		(397)
Loss on foreign currency exchange rate		(84)		(24)		(151)		(21)
Other, net		6		-		18		1
INCOME BEFORE INCOME TAX		146		2,353		255		6,194
Income tax expense		33		516		67		1,402
NET INCOME	$	113	$	1,837	$	188	$	4,792

Income per common share:
Basic	$	0.04	$	0.62	$	0.06	$	1.77
Diluted	$	0.03	$	0.53	$	0.06	$	1.43

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, 2013 decreased approximately $9,044,000, or 45%, and $13,801,000, or 29%, respectively, as compared to the same three and nine month periods of 2012 when we experienced increases in our consolidated net sales of $8,513,000 or 75% and $15,355,000 or 49%, respectively. The decline in sales for both the three and nine month periods is primarily related to a decrease in the sale of our SR and HITOX products, both of which continue to be affected by weakness in the broader market for titanium dioxide (“TiO2”).

Following is a summary of our consolidated products sales for the three and nine month periods ended September 30, 2013 and 2012 (in thousands). All inter-company sales have been eliminated.

		(Unaudited)
	Three Months Ended September 30,									Nine Months Ended September 30,
Product		2013			2012			Variance			2013			2012			Variance
HITOX	$	3,717	34%	$	3,914	20%	$	(197)	-5%	$	11,553	35%	$	15,232	33%	$	(3,679)	-24%
ALUPREM		3,432	32%		3,377	18%		55	2%		10,456	32%		10,795	25%		(339)	-3%
BARTEX / BARYPREM		2,135	19%		2,074	9%		61	3%		6,180	19%		5,642	10%		538	10%
HALTEX / OPTILOAD		877	8%		917	4%		(40)	-4%		2,627	8%		2,819	6%		(192)	-7%
TIOPREM		408	4%		623	3%		(215)	-35%		1,555	4%		1,377	3%		178	13%
SYNTHETIC RUTILE		96	1%		8,862	45%		(8,766)	-99%		96	<1%		10,410	22%		(10,314)	-99%
OTHER		205	2%		147	1%		58	39%		562	2%		555	1%		7	1%
Total	$	10,870	100%	$	19,914	100%	$	(9,044)	-45%	$	33,029	100%	$	46,830	100%	$	(13,801)	-29%

HITOX sales decreased 5% for the three month period ended September 30, 2013, primarily due to a decrease in selling price of approximately 12% which was partially offset by an increase in volume of 7%. This compares to a decrease of 27% for the same three month period of 2012, primarily due to a decrease in volume of 44%, which was partially offset by an increase in selling price of approximately 17%.

For the nine month period ended September 30, 2013, HITOX sales declined 24%, primarily due to a decrease in volume and selling price of approximately 19% and 5%, respectively. This compares to an increase of approximately 8% for the nine month period ended September 30, 2012, primarily due to an increase in average selling price of approximately 31%, offset by a reduction in volume of approximately 23%.

The decrease in sales volumes has been experienced throughout the 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.

ALUPREM sales increased 2% for the three month period ended September 30, 2013, primarily due to an increase in selling price in the European market, as well as the effect of the change in the foreign currency rate between the Euro and the U.S. Dollar as the Euro gained strength on the U.S. Dollar. The impact on our consolidated ALUPREM sales was an increase in selling price of approximately 3% and approximately 2% related to the change in currency rate. Our consolidated sales volume declined approximately 3%, primarily due to a decrease in volume of one of our significant U.S. customers, which was partially offset by an increase in volume in our European sales. For the three month period ended September 30, 2012, ALUPREM sales were flat in comparison with the prior year.

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

For the nine month period ended September 30, 2013, ALUPREM sales decreased approximately 3%, primarily related to decrease in volume in volume and selling price of approximately 2% and 2%, respectively, which was partially offset by the impact of the foreign currency rate, which increased sales approximately 1%. The year-to-date decrease in sales volume is primarily related to a decrease in the order pattern of one of our significant U.S. customers, which was partially offset by an increase in volume in our European sales; whereas, for the nine month period ended September 30, 2012, our consolidated ALUPREM sales increased approximately 10%, primarily due to an increase in volume related of a significant U.S. customer.

BARTEX/BARYPREM sales increased approximately 3% during the three month period ended September 30, 2013, primarily due to an increase in volume of approximately 0.5%, selling price of approximately 2.2% and the effect of the change in foreign currency of approximately 0.3%. This compares to an increase of approximately 58%, primarily related to an increase in volume and selling price of 51% and 7%, respectively, during the same three month period of 2012.

For the nine month period ended September 30, 2013, BARTEX/BARYPREM sales increased approximately 10% of which volume represented approximately 4.5%, selling price approximately 4.5% and the effect of the change in foreign currency rate increased sales approximately 1%. During the nine month period ended September 30, 2012, sales increased approximately 60% of which volume represented approximately 51% and selling price approximately 9%.

HALTEX/OPTILOAD sales decreased 4% during the three month period ended September 30, 2013, primary due to lower average selling prices from a change in product mix which reduced sales approximately 5%. Partially offsetting this reduction was an increase in volume of 1%. For the three month period ended September 30, 2012, HALTEX/OPTILOAD sales increased approximately 21% in volume.

For the nine month period ended September 30, 2013, HALTEX/OPTILOAD sales decreased 7%, primarily due to a reduction in volume of approximately 4% and a change in the product mix of approximately 3%. HALTEX/OPTILOAD volumes increased approximately 18% during the nine month period ended September 30, 2012.

TIOPREM sales decreased 35% for the three month period ended September 30, 2013, primarily due to a decrease in volume of approximately 28% and a decrease in selling price of approximately 7%. This compares to an increase of 82% for the three month period ended September 30, 2012, of which volume represented approximately 65% and selling price approximately 17%.

For the nine month period ended September 30, 2013, TIOPREM sales increased approximately 13% of which volume represented approximately 20% and the effect of the change in foreign currency increased sales approximately 1%. A decrease in selling price, primarily related to product mix, reduced sales approximately 8%. For the nine month period ended September 30, 2012, sales increased 23%, primarily due to an increase in volume.

Synthetic Rutile (“SR”) sales represented approximately 1% of our total consolidated sales for the three month period ended September 30, 2013, as compared to approximately 45% for the same three month period of 2012. For the nine month period ended September 30, 2013, SR sales represented less than 1% of our total consolidated sales. This compares to 22% for the same nine month period of 2012. During 2012, favorable market trends allowed us to sell a significant quantity of SR to new customers; whereas, during 2013, weak market conditions have limited our ability to sell SR to third parties.

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

U.S. Operation

Our U.S. 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 U.S. Operation for the three and nine month periods ended September 30, 2013 and 2012 (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		2013			2012			Variance			2013			2012			Variance
HITOX	$	2,438	32%	$	2,880	34%	$	(442)	-15%	$	7,458	32%	$	9,882	38%	$	(2,424)	-25%
ALUPREM		2,012	26%		2,347	27%		(335)	-14%		6,256	27%		7,104	27%		(848)	-12%
BARTEX		1,823	24%		1,787	21%		36	2%		5,105	22%		4,711	18%		394	8%
HALTEX / OPTILOAD		877	11%		917	11%		(40)	-4%		2,627	11%		2,819	11%		(192)	-7%
TIOPREM		365	5%		555	6%		(190)	-34%		1,337	6%		1,038	4%		299	29%
OTHER		165	2%		106	1%		59	56%		481	2%		476	2%		5	1%
Total	$	7,680	100%	$	8,592	100%	$	(912)	-11%	$	23,264	100%	$	26,030	100%	$	(2,766)	-11%

HITOX sales decreased 15% for the three month period ended September 30, 2013, primarily due to a decrease in volume of approximately 9% and selling price of 6%, respectively, due primarily to a weakening in the global TiO2 market. This compares to a decrease of 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%.

For the nine month period ended September 30, 2013, the decrease in HITOX sales of 25% is primarily related to a decrease in volume of 21% and selling price of 4%. During the same nine month period of 2012, sales increased 20%, primarily due to a tight supply of commodity titanium dioxide, resulting in an increase in selling price of approximately 32%, which was partially offset by a decrease in volume of 12%. The year over year decrease in volume is primarily related to the weakening in the global TiO2 market.

ALUPREM sales during the third quarter decreased approximately 14% as compared to an increase of 52% during the third quarter of 2012. For the nine month period ended September 30, 2013, U.S. ALUPREM sales decreased 12% as compared to an increase of 81% during the same nine month period of 2012. The decrease in sales for the three and nine month periods ended September 30, 2013 is due to a change in the ordering pattern of one of our significant U.S. customers.

BARTEX sales increased approximately 2% for the three month period ended September 30, 2013, primarily due to an increase in selling price. This compares to an increase of approximately 58%, primarily related to an increase in volume and selling price of 51% and 7%, respectively. For the nine month periods ended September 30, 2013 and 2012, BARTEX sales increased 8% and 60%, respectively, primarily due to an increase in volume of 3% and 51%, respectively, and an increase in selling price of 5% and 9%, respectively.

TIOPREM sales decreased approximately 34% during the three month period ended September 30, 2013, primarily due to a decrease in volume and selling price of approximately 27% and 7%, respectively, due to the impact of the weakening global TiO2 market. For the three month period ended September 30, 2012, TIOPREM sales increased approximately 260% due to an increase in volume and selling price of approximately 232% and 28%, respectively.

For the nine month period ended September 30, 2013, TIOPREM sales increased approximately 29%, primarily due to an increase in volume of approximately 41% which was partially offset by a decrease in selling price of approximately 12%. For the same nine month period of 2012, TIOPREM sales increased approximately 80%, primarily due to an increase in volume and selling price of approximately 52% and 28%, respectively.

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

European Operation

Our subsidiary in The Netherlands, TPT, manufactures and sells ALUPREM and BARYPREM to third party customers, as well as to our U.S. Operation for distribution to U.S. customers. In addition, TPT purchases HITOX from TMM for distribution in Europe. The following table represents TPT’s net sales (in thousands) for the three and nine month periods ended September 30, 2013 and 2012 to third party customers. All inter-company sales have been eliminated.

		(Unaudited)
	Three Months Ended September 30,									Nine Months Ended September 30,
Product		2013			2012			Variance			2013			2012			Variance
ALUPREM	$	1,420	67%	$	1,030	57%	$	390	38%	$	4,200	67%	$	3,691	62%	$	509	14%
HITOX		370	17%		317	19%		53	17%		952	15%		1,142	20%		(190)	-17%
BARYPREM		312	15%		287	23%		25	9%		1,075	17%		931	17%		144	15%
TIOPREM		22	1%		11	1%		11	100%		73	1%		54	1%		19	35%
Total	$	2,124	100%	$	1,645	100%	$	479	29%	$	6,300	100%	$	5,818	100%	$	482	8%

ALUPREM sales in Europe increased 38% for the three month period ended September 30, 2013, primarily due to an increase in volume, selling price and the effect of the change in foreign currency as the EURO strengthen against the U.S. Dollar of approximately 23%, 7% and 8%, respectively. This compares to a decrease of 38% for the three month period ended September 30, 2012, primarily due to decrease in volume of approximately 40%, which was partially offset by an increase in selling price of approximately 2%.

For the nine month period end September 30, 2013, ALUPREM sales increased approximately 14%, primarily due to an increase in volume and the effect of the change in foreign currency as the EURO strengthen against the U.S. Dollar of approximately 16% and 4%, respectively, which was partially offset by a decrease in selling price of approximately 6%. For the nine month period ended September 30, 2012, ALUPREM sales decreased approximately 31%, primarily due to a decrease in volume of approximately 33%, which was partially offset by an increase in selling price of approximately 2%.

HITOX sales in Europe increased approximately 17% for the three month period ended September 30, 2013, primarily due to an increase in volume and the effect of the change in foreign currency as the EURO strengthen against the U.S. Dollar of approximately 21% and 4%, respectively, which was partially offset by a decrease in selling price of approximately 8%. This compares to an increase of 37% during the three month period ended September 30, 2012, primarily due to an increase in volume and selling price of approximately 14% and 23%, respectively.

For the nine month period ended September 30, 2013, HITOX sales decreased approximately 17%, primarily due to a decrease in volume, selling price and the effect of the change in foreign currency of approximately 10%, 2% and 5%. For the nine month period ended September 30, 2012, HITOX sales increased approximately 3% primarily related to volume.

BARYPREM sales in Europe increased approximately 9% for the three month period ended September 30, 2013, primarily due to an increase in volume, selling price and the effect of the change in foreign currency as the EURO strengthen against the U.S. Dollar of approximately 2%, 5% and 2%, respectively. For the nine month period ended September 30, 2013, sales increased approximately 15% due to an increase in volume, selling price and the effect of the change in foreign currency of approximately 8%, 2% and 5%, respectively. This follows significant increases in volume during the same three and nine month periods of 2012 as the product gained greater acceptance in the European market.

TIOPREM sales in Europe increase approximately 100% during the three month period ended September 30, 2013, primarily due to an increase in volume, selling price and the effect of the change in foreign currency as the EURO strengthen against the U.S. Dollar of approximately 64%, 9% and 27%, respectively. For the nine month period ended September 30, 2013, sales increased approximately 35%, primarily due to an increase in volume, selling price and the effect of the change in foreign currency of approximately 18%, 5% and 12%, respectively. For the three and nine month periods ended September 30, 2012, sales decreased 81% and 75%, respectively, primarily due to a decline in volume resulting from a weak European economy.

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

Asian Operation

Our subsidiary in Malaysia, TMM, manufactures and sells HITOX and SR to third party customers, as well as to our U.S. Operation and TPT. The following table represents TMM’s sales (in thousands) for the three and nine month periods ended September 30, 2013 and 2012 to third party customers. All inter-company sales have been eliminated.

		(Unaudited)
	Three Months Ended September 30,									Nine Months Ended September 30,
Product		2013			2012			Variance			2013			2012			Variance
HITOX	$	909	85%	$	717	7%	$	192	27%	$	3,143	91%	$	4,208	28%	$	(1,065)	-25%
TIOPREM		21	2%		57	1%		(36)	-63%		145	4%		285	2%		(140)	-49%
SR		96	9%		8,862	92%		(8,766)	-99%		96	3%		10,410	69%		(10,314)	-99%
OTHER		40	4%		41	<1%		(1)	-2%		81	2%		79	1%		2	3%
Total	$	1,066	100%	$	9,677	100%	$	(8,611)	-89%	$	3,465	100%	$	14,982	100%	$	(11,517)	-77%

HITOX sales in Asia increased approximately 27% for the three month period ended September 30, 2013, primarily due to an increase in volume of approximately 62%, which was partially offset by a decrease in selling price of approximately 35%. This compares to an decrease of approximately 59% for the same three period of 2012, primarily related to a decrease in volume of approximately 74%, which was partially offset by an increase in selling price of approximately 15%.

For the nine month period ended September 30, 2013, HITOX sales decreased approximately 25%, primarily due to a decrease in volume and selling price of approximately 18% and 8%, respectively, which was partially offset by the effect of the change in the foreign currency exchange rate as the U.S. Dollar strengthened against the MR resulting in an increase in sales of approximately 1%. For the nine month period ended September 30, 2012, HITOX sales decreased approximately 11%, primarily due to a decrease in volume of approximately 43%, which was partially offset by an increase in selling price of approximately 32%.

TIOPREM sales in Asia decreased approximately 63% during the three month period ended September 30, 2013, primarily related to a decrease in volume. This compares to a decrease of approximately 56% during the same three month period of 2012, primarily related to a decrease in volume of approximately 61%, which was partially offset by an increase in selling price of approximately 5%.

For the nine month period ended September 30, 2013, TIOPREM sales decreased approximately 49% due primarily to a decrease in volume of approximately 51%, which was partially offset by an increase in selling price and the effect of the change in the foreign currency exchange rate of approximately 1% each. This compares to a decrease of approximately 13% related to a decrease in volume of approximately 29%, which was partially offset by an increase in selling price of approximately 16%.

SR sales represented approximately 9% of TMM’s total sales for the three month period ended September 30, 2013, as compared to approximately 92% for the same three month period of 2012. The decrease in SR sales of approximately 99% for the third quarter 2013 relates to a decrease in volume and selling price of approximately 98% and 1%; whereas, the increase in the third quarter of 2012 related to volume.

For the nine month period ended September 30, 2013, SR sales represented approximately 3% of TMM’s total sales. This compares to 69% for the same nine month period of 2012. The year to date decrease in SR sales of approximately 99% relates to a decrease in volume and selling price of approximately 98% and 1%, respectively; whereas, the 2012 year to date increase related to volume. During 2012, favorable market trends allowed us to sell a significant quantity of SR to new customers; whereas, during 2013, weak market conditions have limited our ability to sell SR to third parties.

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 and nine month periods ended September 30, 2013 and 2012.

		(Unaudited)
(In thousands)		Three Months Ended September 30,				Nine Months Ended September 30,
		2013		2012		2013		2012
NET SALES	$	10,870	$	19,914	$	33,029	$	46,830
Cost of sales		9,289		16,068		28,242		36,127
GROSS MARGIN	$	1,581	$	3,846	$	4,787	$	10,703
GROSS MARGIN %		15 %		19 %		14 %		23 %

For the three month period ended September 30, 2013, gross margin decreased approximately 4%. For the third quarter, the primary factors influencing the decrease in gross margin include a decrease in selling price of approximately 5% and an increase in the cost of raw materials and energy costs of approximately 6%, which were partially offset by improved operating efficiencies, resulting in an increase in the gross margin of approximately 7%.

For the nine month period ended September 30, 2013, gross margin decreased approximately 9%. The primary factors influencing the decrease in gross margin include a decrease in selling price of approximately 5% and an increase in the cost of raw materials of approximately 6%, which were partially offset by improved operating efficiencies, resulting in an increase in the gross margin of approximately 2%.

Selling, General, Administrative and Expenses (“SG&A”) : SG&A expense decreased approximately 10% during the three month period ended September 30, 2013, primarily due to a reduction in selling expense and legal fees of approximately 6% and 4%, respectively.

For the nine month period ended September 30, 2013, SG&A expenses decreased approximately 5%, primarily due to a decrease in selling expense, consulting fees and legal fees of approximately 2%, 2% and 3%, respectively, which was partially offset by an increase in accounting fees of approximately 2%, respectively.

Interest Expense : Net interest expense for the three and nine month periods ended September 30, 2013 decreased approximately $40,000 and $111,000, respectively, as compared to the same periods of 2012, primarily due to a decrease in our average outstanding long and short-term financing, as well as a reduction in interest rates on our long-term debt in the U.S. and on two term loans at TPT.

Income Taxes : For the three and nine month periods ended September 30, 2013, income tax expense consisted of federal income tax benefit of approximately $103,000 and $88,000, respectively; state income tax expense of approximately $2,000 and $7,000, respectively; and foreign tax expense of approximately $134,000 and $148,000, respectively. 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 tax expense of approximately $408,000 and $706,000, respectively. Taxes are based on an estimated annualized consolidated effective tax rate of 26.3% for the year ended December 31, 2013.

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,
		2013		2012
Fixed Rate term note payable to a U.S. bank, with an interest rate of 5.5% at September 30, 2013, due January 1, 2016, secured by real estate, leasehold improvements, property, plant and equipment, inventory and accounts receivable of our U.S. operation.	$	1,013	$	1,309
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 3.85% at September 30, 2013, due July 1, 2029, secured by TPT's land and office building purchased July 2004. (€260)		352		363
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 3.3% at September 30, 2013, due January 31, 2030, secured by TPT's land and building purchased January 2005. (€285)		386		395
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.05% at September 30, 2013, due July 31, 2015, secured by TPT's assets. (€71)		95		143
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.25% at September 30, 2013, due July 5, 2014, secured by TPT's assets. (€159)		216		442
Malaysian Ringgit term note payable to a Malaysian bank, with an interest rate of 5.2% at September 30, 2013, due March 1, 2015, secured by TMM's property, plant and eqiupment. (RM 2,917)		895		866

Total		2,957		3,518
Less current maturities		1,111		1,202
Total long-term debt - financial institutions	$	1,846	$	2,316

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

U.S. Operation

On October 24, 2013, Company agreed to change the loan agreement with American Bank, N.A. (the “Lender”). Under the terms of the change, the Lender lowered the required ratio of cash flow to debt service to 1.0 to 1.0 as measured on a rolling four quarter basis beginning with the four quarter period ending December 31, 2013 and continuing through the four quarter period ending December 31, 2014. Thereafter, the required ratio of cash flow to debt service shall be 1.25 to 1.0 measured on a rolling four quarter basis as originally detailed in of the loan agreement.

Asian Operation

On October 25, 2013, TMM entered into an agreement with RHB to amend the banking facility currently in place between TMM & RHB. Under the terms of the agreement, RHB granted a new term loan to TMM in the amount of RM 3,200,000 Malaysian Ringgits ($1,018,300). Under the terms of the agreement, the term loan will be amortized over a period of five (5) years and the interest rate will be 1.25% per annum above the Bank’s base lending rate which is currently 6.6% per annum. The funds will be used to finance part of the cost of plant improvements to increase efficiency and production capacity.

On October 25, 2013, TMM entered into an agreement with HSBC to amend the banking facility currently in place between TMM & HSBC. Under the terms of the agreement, HSBC granted a new term loan to TMM in the amount of RM 5,000,000 Malaysian Ringgits ($1,591,090). Under the terms of the agreement, the term loan will be amortized over a period of five (5) years and the interest rate will be 2.0% per annum above the Bank’s base lending rate which is currently 6.6% per annum. The funds will be used to finance part of the cost of plant improvements to increase efficiency and production capacity.

Short-term Debt

U.S. Operation

On December 31, 2010, the Company entered into a credit agreement (the “Agreement”) with American Bank, N.A. (the “Lender”) which established a $1,000,000 line of credit (the “Line”), and on March 1, 2012, the Line was increased from $1,000,000 to $2,000,000. On May 15, 2013, the Company and the Lender entered into the second amendment which extended the maturity date from October 15, 2013 to October 15, 2014 and reduced the minimum interest rate floor from 5.5% to 4.5%. 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 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 4.50%. At September 30, 2013, the Company had an outstanding balance on the Line of $700,000.

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, 2013, the ratio of cash flow to debt service was 1.49 to 1.0.

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

European Operation

On March 20, 2007, 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 3.42%), is secured by TPT’s accounts receivable and inventory. At September 30, 2013, TPT had utilized €899,000 ($1,216,000) 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 Rabobank could foreclose on the assets of TPT.

Asian Operation

On May 21, 2013, TMM amended its banking facility with HSBC to extend the maturity date from April 30, 2013 to April 30, 2014. 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; and (3) a foreign exchange contract limit of RM 5,000,000 ($153,000, $1,983,000 and $1,534,000, respectively).

On April 17, 2013, TMM amended its banking facility with RHB to extend the maturity date from March 5, 2013 to March 24, 2014. 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 ($307,000, $2,854,000, $368,000 and $7,673,000, respectively). At September 30, 2013, the outstanding balance on the line of credit was RM 700,000 ($215,000) at a current interest rate of 4.83% and RM 2,405,000 ($738,000) was outstanding on the foreign exchange contract at a current interest rate of 2.80%.

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, 2013, the outstanding balance on the ECR facilities was RM 12,935,000 ($3,970,000) 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.

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 $1,000,000 for the nine months ended September 30, 2013 as compared to a decrease of $1,823,000 for the nine months ended September 30, 2012.

		(Unaudited)
		Nine Months Ended September 30,
(In thousands)		2013		2012
Net cash provided by (used in)
Operating activities	$	(1,447)	$	(1,842)
Investing activities		(3,527)		(3,060)
Financing activities		4,102		3,010
Effect of exchange rate fluctuations		(128)		69
Net decrease in cash and cash equivalents	$	(1,000)	$	(1,823)

Operating Activities

Operating activities used $1,447,000 in cash during the first nine months of 2013 as compared to using cash of $1,842,000 during the same period of 2012. Following are the major changes in working capital affecting cash used by operating activities for the nine month period ended September 30, 2013:

Accounts Receivable : Accounts receivable increased $903,000 as compared to an increase of $9,499,000 for the same period in 2012 which included a large SR sale billed in September 2012. The current year increase in accounts receivable is primarily due to stronger sales in the third quarter 2013 compared to the fourth quarter of 2012. Accounts receivable increased $585,000 at the U.S. Operation, $237,000 at TPT and $81,000 at TMM.
Inventories : Inventories increased $5,011,000 as compared to an increase of $1,601,000 for the same period in 2012. Inventories at the U.S. Operation increased $982,000, primarily related to an increase in finished goods. TMM’s inventory increased approximately $4,124,000, primarily related to an increase in SR feedstock. TPT’s inventory decreased approximately $95,000, primarily due to a decrease in raw materials.
Other Current Assets : Other current assets decreased $814,000 as compared to an increase of $788,000 for the same period in 2012. Other current assets at the U.S. Operation decreased $270,000 and TMM’s decreased approximately $667,000, primarily related to the timing of deposits paid on inventory and equipment purchases. TPT’s increased $123,000, primarily due to the prepayment of payroll taxes.
Accounts Payable and Accrued Expenses : Trade accounts payable and accrued expenses increased $1,135,000 as compared to an increase of $2,684,000 for the same period in 2012. Accounts payable and accrued expenses at the U.S. Operation decreased $1,025,000, primarily related to the timing of raw material purchases; TPT’s increased $97,000, primarily related to capital expenditures; and TMM’s increased $2,063,000, primarily relating to raw materials for the production of SR and capital expenditures.

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

Investing Activities

We used $3,527,000 of cash in investing activities during the first nine months of 2013, primarily for the purchase of fixed assets as compared to $3,060,000 during the same period 2012. Net investments for each of our three locations are as follows:

U.S. Operation : We invested approximately $645,000, primarily related to capital maintenance and production equipment, as compared to $1,068,000 for the same period in 2012.
European Operation : We invested approximately $974,000 at TPT for production equipment, as compared to $1,161,000 for the same period in 2012.
Asian Operation : We invested approximately $1,908,000 at TMM, primarily related to capital improvements in our SR production facility to improve yield and efficiencies, as compared to $831,000 for the same period in 2012.

Financing Activities

Financing activities provided cash of $4,102,000 during the nine month period ended September 30, 2013 as compared to $3,010,000 for the same period 2012. Significant factors relating to financing activities include the following:

Lines of Credit

· U.S. Operation: Borrowings on our U.S. line of credit increased $700,000 during the first nine months of 2013 as compared to $1,750,000 during the same period of 2012.

· European Operation: Borrowings on TPT’s line of credit increased $195,000 during the nine month period ended September 30, 2013 as compared to an increase of $255,000 during the same period of 2012.

· Asian Operation: Borrowings on TMM’s line of credit decreased $91,000 during the nine month period ended September 30, 2013 as compared to a decrease of $349,000 during the same period of 2012.

Export Credit Refinancing Facility (ECR): TMM’s borrowing on the ECR increased $3,600,000 during the nine month period ended September 30, 2013 for working capital related to the production of SR as compared to an increase of $1,032,000 for the same period in 2012.

Capital Leases : Capital leases decreased approximately $30,000 during the first nine months of 2013 as compared to an increase of approximately $5,000 for the same period in 2012.

Long-term Debt :

· U.S. Operation: Our U.S. long-term debt decreased $296,000 and $295,000 for the nine month periods ended September 30, 2013 and 2012, respectively.

· European Operation: TPT’s long-term debt decreased $326,000 and $310,000 for the nine month periods ended September 30, 2013 and 2012, respectively.

· Asian Operation: TMM’s long-term debt increased $83,000 and $774,000 for the nine month periods ended September 30, 2013 and 2012, respectively.

Proceeds from Issuance of Common Stock: We received $267,000 from the issuance of common stock during the first nine months of 2013 related to the exercise of stock options. For the same nine month period of 2012, we received $148,000 from the issuance of common stock related to the exercise of stock options.

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 2012 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 have materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

EXHIBIT 10.3

PRIVATE AND CONFIDENTIAL

Our Ref : CS/MME/IPH/GWISCOP13149-102321021C/fara/mr
CARM : 130507 & 130704

25 October 2013

TOR MINERALS (M) SDN BHD
No 4 1/2 Miles Lahat Road,
30200 Ipoh,
Perak.

Dear Sirs,

Banking Facility(ies) ("Facilities")
Customer No. 383-136280

We have reviewed your Facilities and agree to continue providing you the Facilities as revised below for a further period.

The Facilities are subject to review at any time, in any event by June 2014.

The Facilities are subject always to the Bank's customary overriding right of suspension, withdrawal and repayment on demand. Other terms herein also apply which may allow the Bank to cease providing the Facilities to you.

Please send us two signed/certified copies of your next set of audited account or where they are out of date (more than 6 months), updated management accounts are to be submitted before the review date mentioned above.

Facilities		Limit
		Previously (RM)	Revised (RM)
Overdraft		500,000.00	500,000.00
Term Loan 1		3,402,777.00	*3,208,333.00
Term Loan 2		Nil	5,000,000.00
Bank Guarantees		500,000.00	500,000.00
Import/Export Line ^# consisting of:- • Documentary credits • Bankers Acceptance Import • Bankers Acceptance Export • Export Credit Refinancing Scheme (Pre Shipment) • Export Credit Refinancing Scheme (Post Shipment) • Loans Against Imports • Foreign Currency Loans against Imports	[Tenor : 120 days] [Tenor : 120 days] [Tenor : 120 days] [Tenor : 120 days] [Tenor : 120 days] [Tenor : 120 days]	6,460,000.00 (6,460,000.00) (6,460,000.00) (2,500,000.00) (6,460,000.00) (2,500,000.00) (6,460,000.00) (2,500,000.00)	10,460,000.00 (10,460,000.00) (10,460,000.00) (5,000,000.00) (10,460,000.00) (5,000,000.00) (10,460,000.00) (5,000,000.00)
Total Gross Foreign Exchange Contract Limit (inclusive of marked-to-market losses incurred from time to time)		5,000,000.00	5,000,000.00

# This Combined Limit applies to each facility within this Line subject to total utilisation of this Line not exceeding the Combined Limit at any one time.

* Outstanding principal sum as at date hereof.

Purpose :

Overdraft

Working capital requirements.

Term Loan 1

To finance upgrading of existing production line and capex.

Term Loan 2

To support the Group capex of approx RM 9,045,000.00 to increase efficiency and production capacity which will invariably increase import/export bills business.

Bank Guarantees

For issuance of security deposit-/tender-/performance- bonds and other guarantee requirements related to your business.

Import Line

To finance your imports and domestic purchases.

Export Line

To finance your exports and domestic sales.

Export Credit Refinancing Scheme (Pre/Post Shipment)

Pre-shipment ECR - as working capital for production of eligible goods for export.

Post-shipment ECR - to finance export sales of eligible goods on credit terms upon shipment.

Total Gross Foreign Exchange Contract Limit

( inclusive of marked-to-market losses incurred from time to time )

Spot and forward foreign exchange contracts and currency option transactions to hedge against fluctuations in foreign exchange rates for your trade-related and other permitted transactions as we may agree to.

The Bank shall have no obligation to monitor or ensure the usage of the Facilities for their stated purpose(s). It shall have the right to recall the Facilities if not used for the purpose(s) stated.

The Facilities are also granted subject to satisfactory conduct of your current accounts in accordance with guidelines issued by Bank Negara Malaysia and/or policies of the Bank or other financial institutions you have current accounts with from time to time.

If there is any breach which may subject any of your current accounts (be it with the Bank or other financial institution) to closure, the Bank shall have the right to recall the Facilities. This is notwithstanding that your current account(s) with the Bank whether held solely or jointly with others are conducted satisfactorily.

The Bank may rely on information furnished by the Credit Bureau established by Bank Negara Malaysia for information whether any of your current accounts have become liable to closure.

Reliance by the Bank on such information shall not subject it to any liability to you or other parties should there be inaccuracy in such information unknown to the Bank.

Please arrange for your authorised signatories, in accordance with your company's Board Resolution (or similar corporate authorisation) given or to be given to the Bank, to sign this letter. Please return it together with the required documents before 12 April 2014 after which this offer will lapse, unless the Bank in its discretion agrees to any extension thereof.

Please also check and ensure the correctness of the attached list of securities together with the acceptance of this offer.

We are pleased to be of assistance to you and look forward to the development of a mutually beneficial and lasting banking relationship including your opening and/or maintaining your main working capital / operating account with us. Should you have any query, please do not hesitate to contact our Lim Jit Foo at telephone no. 05-208 3846.

Yours faithfully,

HSBC Bank Malaysia Berhad

Relationship Manager

Terms and Conditions

(Annexure to Letter of Offer

- to be read as an integral part thereof)

General Terms

Existing Security :

a) Debenture

A debenture creating fixed and floating charges over all the assets of Tor Minerals (M) Sdn Bhd. Such debenture secures all amounts in respect of general banking facilities owing from time to time - this includes future advances, with the company's unlimited covenant to pay.

It is stamped to secure RM13,500,000.00.

b) First Party Charge

First legal charge over HS (D) KA 1376/75, Lot No. 70808 and HSD (D) KA 1377/75, Lot 70809, Mukim Ulu Kinta, District of Kinta in the name of Tor Minerals (M) Sdn Bhd as the Chargor. Such charge secures all amounts in respect of general banking facilities owing from time to time - this includes future advances, with the Chargor's unlimited covenant to pay.

c) General Security Agreement Relating to Goods

General Security Agreement Relating to Goods from Tor Minerals (M) Sdn Bhd

d) Blanket Counter Indemnity

Blanket Counter Indemnity from Tor Minerals (M) Sdn Bhd

e) Letter of Awareness

Letter of Awareness from Tor Minerals (M) Sdn Bhd

f) Letter of Undertaking

Letter of Undertaking from Tor Minerals (M) Sdn Bhd undertakes not to
declare or pay any dividend without the prior
consent of the bank.

g) Letter of Undertaking

Letter of Undertaking from Tor Minerals (M) Sdn Bhd undertakes not to lend to related
companies.

h) Letter of Undertaking

Letter of Undertaking from Tor Minerals (M) Sdn Bhd undertakes to upstamp the debenture
whenever required by the bank.

i) Co-Lenders' Agreement

Co-Lenders' Agreement between RHB Bank Bhd and HSBC Bank Malaysia Bhd to rank pari passu.

j) Letter of Confirmation

Letter of Confirmation to RHB Bank Bhd for its additional
stamping to rank subsequent to the
original stamping.

k) Security Sharing Agreement

Security Sharing Agreement RHB Bank Bhd, HSBC Bank (M) Bhd, RHB Bank Bhd
Labuan & HSBC Bank (M) Bhd Labuan.

New Security to be obtained :

a) Debenture

An "all monies" debenture creating fixed and floating charges over all the assets of Tor Minerals (M) Sdn Bhd. Such "all monies" debenture secures all amounts in respect of general banking facilities owing from time to time - this includes future advances, with the company's unlimited covenant to pay.

It is to be upstamped to secure RM22,500,000.00

b) Letter of Awareness

Letter of Awareness of total increase facilities granted to Tot Minerals (M) Sdn Bhd from Tor Minerals International

c) Letter of Consent

Letter of Consent from RHB Bank Bhd allowing the Bank to rank Pari Passu for additional facilities.

Attestation

Our solicitors will contact you to arrange for attestation.

Representations and warranties:

1. You and companies within your Group are in compliance with all applicable environmental laws, regulations and guidelines ('environmental laws') in force from time to time in the place(s) where the business of your company and companies within your Group is/are conducted.

2. Where the Facilities include an Import/Export Line, you are in compliance with the Strategic Trade Act 2010 and undertake to obtain and/or ensure the continuing validity of the relevant permit(s) and/or broker registration certificate where required under the said Act prior to each utilization of the Import/Export Line.

Covenants :

You shall during the tenor of the facility:

1. inform the Bank regarding any management structure change/change in the composition of the Board/major shareholders in your business.

2. submit audited accounts on your business whenever requested by the Bank to do so.

3. inform the Bank of any significant internal or external business developments which may affect the financial position of your business.

4. ensure that audited financial statements submitted to the Bank shall be by external audit firms/partners acceptable to the Bank. The Bank shall have the right to require engagement of alternative external audit firms/partners if otherwise not acceptable, without assigning reason therefore.

5. Ensure that the ratio of Total Bank Borrowings to Tangible Networth (hereinafter known as "Gearing Ratio") calculated annually in accordance with the formula below, does not exceed 150% at all times.

Formula: Gearing Ratio = Total Bank Borrowings

Tangible Net Worth

Tangible Networth is defined as aggregate of paid up share capital, profit and loss account and other reserves LESS Intangibles (such as goodwill).

6. ensure not to declare or pay any dividend without the Bank's prior consent.

7. Ensure no advances to related companies

8. ensure a facility utilization ratio is to be maintained at not lesser than 70%.

9. Ensure that trade debts due from the holding company/any related company must not exceed 25% of total annual turnover or RM10,000,000.00 whichever is lower at the close of every financial year.

10. To inform the Bank if there any adverse findings/comments by the Department of Environmental/Atomic Energy License Board/relevant approval authorities relating to the company operation.

11. Ensure that utilization of trade facility granted herein is restricted to the preapproved list of supplier counterparties as shown below (save for review/changes at the Bank's sole discretion):-

List of Suppliers/Buyers

a. Kinta Amang Dressing Plant Sdn Bhd

b. Petronas Dagangan Berhad

c. Boustead Petroleum Marketing Sdn Bhd

d. Shell Malaysia Trading Sdn Bhd

e. Tor Minerals International Inc

f. Tor Processing & Trade B.V.

g. Sakuma Sdn Bhd

h. Leong Sin Nam& Company Sdn Bhd

i. Beh Minerals Sdn Bhd

j. Syarikat Pendorong Sdn Bhd

We may, at our sole and absolute discretion, refuse to allow drawings under the facilities if the drawee is considered by us to be unacceptable and/or if the transaction in question does not meet our operational requirements in respect of these facilities.

DoDocuments Required:

1) Board of Partnership Resolurion (whichever is applicable )

A suitable board or partnership resolution (or similar corporate authorisation)

a) from the authorizing:-

i. the negotiation and acceptance of the Facilities

ii. the creation of the relevant security (ies), as listed herein, in favour of the Bank;

iii. the provision of cash cover/margin on demand by the Bank to cover documentary credits, bank guarantees, performance bonds issued by the Bank

iv. person(s) authorized to sign and accept on your behalf, this Letter, the security documentation and all other documents as may be required by the Bank;

2) To submit your next set of audited account or where they are out of date (more than 6 months), updated management accounts are to be submitted before the review date mentioned above.

If at any time the Bank shall consider security for the Facilities to be insufficient or is required you shall within 14 days from the date of a notice from the Bank provide such security or further security as the Bank shall require, whether in cash or otherwise, of such value and for such tenure as the Bank shall specify.

Conditions precedent

The Facilities shall only be available for drawing or utilisation if:

• no misrepresentation or breach of warranty made to the Bank express or implied has occurred;

• all fees, costs and expenses due and payable under the Facilities or under any of the Security Documents shall have been fully paid and settled;

• no Event of Default and no event which with the giving of notice or lapse of time would constitute an Event of Default shall have occurred or is continuing;

• the Bank shall have received all documents, opinions, certificates, or evidence of authorisations as it shall require;

Drawdown conditions for Term Loan 2

1. Submission of Purchase/Contract Agreements.

2. Drawdown of loan must be in accordance with the claim schedule submitted against original/certified invoices and or other documentary evidences.

3. Drawdown amount will be on 70% fo the invoice/receipts on Documentary Credit issuance.

The conditions precedent are for the sole benefit of the Bank, who may waive their compliance without prejudice to its rights herein or in any Security Document.

Waiver shall not preclude us from demanding that any waived provision be complied with or remedied subsequently. Waiver of a condition precedent shall not mean waiver of any other condition precedent or term.

SPECIFIC TERMS APPLICABLE TO A FACILITY

Overdraft

Interest

• Interest is charged at 1.25% per annum at daily rests above the Bank's Base Lending Rate (presently at 6.60% per annum). The effective rate is therefore presently 7.85% per annum subject to fluctuations at our absolute discretion.

• Interest will be payable monthly, to the debit of your current account on every 26th day of the month, or as otherwise stipulated by the Bank.

• In the event the approved limit is exceeded, or if the Bank has demanded repayment of the overdraft, additional interest will be charged at one percentum (1%) per annum, or such other higher rate determined by the Bank from time to time, above the applicable rate of interest of the overdraft on the excess amount, or the amount outstanding and unpaid after demand for repayment, as the case may be.

• The additional interest shall accrue from day to day and may be debited to your current account but this shall not oblige the Bank to allow or continue to allow any excesses on your overdraft or shall be without prejudice to any right or remedy of the Bank arising upon demand for repayment, as the case may be.

• Interest due shall be capitalised and added for all purposes to the principal sum, and bear interest at the relevant applicable rate, notwithstanding any demand by the Bank and/or cessation of the banker and customer relationship.

Commitment Fee

A commitment fee of 1.0% per annum will be charged on the unutilised portion of the overdraft facility as permitted under the Rules of the Association of Banks in Malaysia.

Repayment

The overdraft, in accordance with banking practice, is subject to the Bank's customary overriding right of repayment on demand. This shall be notwithstanding anything to the contrary herein contained and whether it is prior to the time for annual review.

Where the overdraft is recalled, it shall be your sole responsibility to immediately fund your account without any further notice to you from the Bank to meet any un-presented cheques in circulation to avoid such cheques being returned for lack or insufficiency of funds. In the event you fail to do so, the Bank shall be entitled to refuse to honour any such cheques still in circulation and shall not incur any liability to you whatsoever.

Term Loan 1

Term Loan remains subject to all terms and conditions contained in the prior documentation.

Term Loan 2

Interest

Interest is charged at 2.00% per annum at monthly rests above the Cost of Funds. (Quotations are obtainable on request). Interest will be payable monthly to the debit of your current account on the 26 ^th day of the month or on such other date as may be notified by the Bank from time to time to the debit of your current account or to another account(s) to be opened by the Bank for the purpose.

Late payment Interest

In the event of late payment of principal and/or interest, additional interest on the amount overdue will be charged at an additional 1.0% per annum over the above interest rate, from the due date until the date of payment.

Repayment

By 59 equal monthly installments of RM83,333.00 (excluding interest) and a final payment of RM83,353.00 (excluding interest) commencing one month after full drawdown or 12 months after initial drawdown, whichever is the earlier.

Prepayment of Loan

You may prepay the loan or part thereof by giving the Bank three ( 3 ) months prior written notice of your intention to prepay or by paying three ( 3 ) months interest in lieu of notice.

Term Loan commitment fee

A commitment fee of 1% on the undrawn amounts under the Term Loan shall be chargeable where the Term Loan Schedule is not adhered to.

Utilisation

This loan must be drawn down by 365 months days from date of this letter and any portion not drawn down by such date shall be automatically cancelled and will not be further made available.

Documentary Credit

DC Opening Charges

At the prevailing rates prescribed by the Association of Banks in Malaysia, currently at 0.1% for each month or part thereof (minimum RM200-00).

Where a bill under a Documentary Credit is drawn at usance, in addition to the above, an opening charge on usance period of 0.1% is levied on the amount of the Documentary Credit for each month or part thereof.

The facility is subject to our right to call for cash cover/cash margin on demand for prospective and contingent liabilities under the documentary credits issued/to be issued by us.

Bankers Acceptance

Availability

We may, at our sole and absolute discretion, refuse to allow drawings under this Bankers Acceptance facility if the drawee is considered by us to be unacceptable and/or if the transaction in question does not meet our operational requirements in respect of this Bankers Acceptance facility.

Commission

Bankers Acceptance ( BA ) commission is charged at 1.25% per annum subject to fluctuations at the Bank's discretion.

Interest

Interest will be charged at a rate quoted by the Bank for the respective tenor at the time of discounting. Quotations are obtainable on request.

Sales proceeds of all BAs financed must be credited to your current account to meet payments on maturing BAs. Notwithstanding this , all BAs drawn must be paid on their respective maturity dates and if there is default in such payment, the matured BAs will be charged at:-

i) the maximum interest margin plus penalty (if any) prescribed by Bank Negara Malaysia from time to time; or

ii) the original discount rate plus a late payment fee of 1.0%; or

iii) the prevailing BA discounting rate plus a late payment fee of 1.0% effective on the day the BA goes into past due; or

iv) 3.5% per annum over our then prevailing Base Lending Rate, plus a late payment fee of RM150.00

whichever is the highest, for the period overdue.

Procedures for accepting or discounting BAs will be subject to the conditions and guidelines laid down from time to time by Bank Negara Malaysia or other statutory bodies.

Loans Against Imports

Availability

We may, at our sole and absolute discretion, refuse to allow drawings under this Loans Against Imports facility if the drawee is considered by us to be unacceptable and/or if the transaction in question does not meet our operational requirements in respect of this Loans Against Imports facility.

Interest

Interest is charged at 1.25% per annum at daily rests above our Base Lending Rate (presently at 6.60 % per annum). The effective rate is therefore presently at 7.85 % per annum subject to fluctuations at our absolute discretion and payable upon maturity of any bills drawn by us and accepted by you on all goods covered by the Loan Against Imports by debiting your account with all sums due to the Bank.

Additional Interest on Overdue Bills

• In the event of late payment of bills, additional interest on the amount overdue will be charged at an additional 1.0% per annum over the prescribed interest rate, levied from due date until the date of payment.

• All interest due shall be capitalised and added for all purposes to the principal sum and bear interest at the relevant applicable rate notwithstanding any demand by the Bank and/or cessation of the banker and customer relationship for whatever reason.

Foreign Currency Loans Against Imports (FCY LAI)

Availability

We may, at our sole and absolute discretion, refuse to allow drawings under this Foreign Currency Loans Against Imports facility if the drawee is considered by us to be unacceptable and/or if the transaction in question does not meet our operational requirements in respect of this Foreign Currency Loans Against Imports facility.

Interest and repayment

Interest on FCY LAI will be charged at 1.75 % per annum above the Bank's funding cost of the relevant currency, and payable upon maturity of all bills drawn by us and accepted by you on all goods covered under a Trust Receipt by debiting your foreign currency account or your Ringgit current account (at the prevailing foreign exchange rates) with all sums due to the Bank. Interest is calculated on a 360 or 365 day year as per the norm for the relevant particular currency.

In the event of late payment, additional interest on the amount overdue will be charged at an additional 1.0% per annum over the applicable interest rate, levied from due date until the date of payment.

Commission in lieu of Exchange

• Commission in lieu of Exchange of 0.1% (maximum of MYR500) will be levied for same currency settlement at the point of financing under a FCY LAI and/or at the point of payment of a FCY LAI using your FCY deposits.

• The FCY LAI financing is made available to you at your request and you will be responsible to bear the exchange risk for the life of the FCY LAI .

Early settlement

Premature settlement of the FCY LAI is normally not permitted. If an early retirement of FCY LAI is allowed, an appropriate compensation charge (conclusively calculated by the Bank) will be levied for exchange differences/costs.

We reserve our overriding right to demand for cash cover to cover any shortfall in view of exchange rate factors/variations.

In the event of prepayment, an amount equivalent to the funding loss shall be imposed. If the making of a repayment leaves a residual balance which is not in our opinion a marketable amount, the Bank may by notice in writing to you demand immediate repayment of such residue.

Export Credit Refinancing Scheme (Pre/Post Shipment)

Availability

We may, at our sole and absolute discretion, refuse to allow drawings under this Export Credit Refinancing Scheme (Pre/Post Shipment) facility if the drawee is considered by us to be unacceptable and/or if the transaction in question does not meet our operational requirements in respect of this Export Credit Refinancing Scheme (Pre/Post Shipment) facility.

Interest

Interest is charged at 1.00% above Export Import Bank of Malaysia Berhad's (Exim Bank) funding rate, currently at 3.20% per annum. The effective rate is therefore 4.20% per annum, subject to fluctuations at Exim Bank's discretion.

Procedures of the ECR Scheme are subject to conditions and guidelines laid down from time to time by Exim Bank.

Bank Guarantees

Commission

Commission of not less than 0.10% per month (or part thereof) subject to a minimum of RM200.00 shall be charged for the full liability period (inclusive of any claims period) of Guarantees issued.

Where a Guarantee does not have a claims period, additional commission of not less than 0.10% per month shall be charged from the date of expiry to the date of return of the Guarantee or on receipt of notification from the beneficiary that the Bank is no longer liable under the Guarantee.

Content of Guarantees

• All Guarantees issued by us must bear an expiry date.

• We are at liberty to refuse to issue any particular guarantee which wording and effect is not acceptable to us.

• Amendments made to any Guarantee are for the Bank's own requirements only. In no case shall the Bank be obliged to advise or assess if any provisions therein are appropriate for you for the underlying transaction guaranteed.

Other Conditions

• Guarantees issued to or on behalf of non-residents are subject to exchange control regulations prevailing from time to time; it shall be your responsibility to ensure that any notification/registration requirements are complied with, unless the Bank expressly agrees to notify/register the same on your behalf.

• Financial Guarantees to be issued favouring non-residents shall be subject to your confirmation (which you deemed to give when applying for such Guarantees) that the underlying facility secured is obtained in compliance with the prevailing foreign exchange administration rules.

• Where the Bank agrees to transmit any Guarantee to the beneficiary, it shall be at the applicant's cost and the Bank shall not be liable for any failure or delay or loss in transit.

• Should a Guarantee issued be demanded on or become payable, we may immediately debit your account with the amount payable. You shall arrange to have funds available therefor.

The facility remains subject to our immediate right to settlement/cash cover on demand, as stated in the terms of your Counter Indemnity in the event of any claims being made under any Guarantee issued.

Nothing herein shall require payment demanded on a Guarantee to have been made by the Bank from its own funds before it is entitled to rely on any of its rights.

Total Gross Foreign Exchange Contract Limit

( inclusive of marked-to-market losses incurred from time to time )

Utilisation and determination of limit

The Bank reserves the right at its discretion to decide:

• whether or not any utilisation of the facility may be made; and

• to specify further conditions on which utilisation may be made.

The amount of any and each utilisation of the facility or the aggregate amount and value thereof for determining the available limit or if a call for cash cover is required shall be calculated by the Bank, whose calculation shall be conclusive.

Cash cover

• The Bank shall have an overriding right to call for cash cover on demand if in its view a negative foreign exchange position requires such cover, and/ or to close out any or all contracts outstanding at any time, without further reference to you and to demand settlement of the balance due.

• The right to call for cash cover is in addition to and without prejudice to any relevant rights contained in the English Law IFEMA / in any Master Agreement governing FX Transactions between you and the Bank.

Contract forms

FEX transactions are governed by the conditions appearing in and on the reverse of the standard contract form. You agree to check the same upon receipt, and sign the copy and return it to the Bank forthwith.

Exchange Control Regulations

FEX transactions are subject to applicable Exchange Control Regulations as amended from time to time.

The determination whether the tenure or amount of any FEX transaction is permitted under the Exchange Control Regulations shall be made by the Bank in good faith, and shall be binding on you. The Bank shall have no liability to you as a result of any determination so made.

Where an FEX transaction is required to be registered with the Controller of Foreign Exchange, you shall be responsible to register the same (and provide evidence thereof as the Bank may require), unless the Bank had expressly agreed to submit the registration on your behalf.

If prior registration/permission is required before entering into a FEX transaction, the Bank may decline to enter into any such FEX transaction if you are unable to furnish such Controller registration/permission to the Bank.

All FEX transactions entered into between the parties shall be to hedge underlying trade transactions and other permitted purposes, and not for speculative purposes.

Either party may electronically record all telephonic conversations and any such tape recordings may be submitted in evidence in any proceedings for any purpose relating to an FEX transaction. Neither party shall be obliged to maintain such recordings for the availability of the other.

Upon request, you shall provide the Bank with documentary evidence of underlying commitments to support the FEX transactions.

This may be required before transacting or at any time prior to the maturity of the FEX transaction, whether the FEX transaction is based on a firm commitment or on anticipatory basis. Satisfactory documentary evidence may also be required where you seek to cancel or extend any FEX transaction.

The Bank shall have the right to unwind or cancel any FEX transactions immediately if the underlying contract therefore does not materialise, or if satisfactory documentary evidence is not furnished when requested.

Without prejudice to anything herein contained, the Bank reserves the right (and without need for reference to you) to:

• reduce the amount of a FEX transaction where the amount of receipts/payments on the underlying transaction for firm hedges is reduced to less than the amount of the FEX transaction;

• adjust the maturity date of a FEX transaction where the Bank is satisfied that the due or expected date of payment/receipt of the underlying transaction for firm hedges has changed, provided always that the new maturity date does not exceed the period permitted under exchange control and other relevant rules/laws;

and any differences arising therefrom shall be payable by you and may be debited to your current or other accounts notwithstanding that the day originally stipulated for settlement may not have arrived.

The Bank is obliged to report any cancellation of FEX transactions or if it is of the view that the proceeds thereof are not used for the intended purpose or where otherwise required by the Controller under prevailing Exchange Control Regulations.

Master Agreement

In the absence of an executed agreement governing the FEX transactions, the latest published English Law IFEMA terms shall apply. Each utilisation of the Foreign Exchange Contract Limit (whether or not the relevant IFEMA Document has been signed) shall be deemed to be subject to and shall be subject to the English Law IFEMA terms unless the relevant Confirmation/contract specifies to the contrary.

In the event of any conflict between the terms of this facility letter, those of the English Law IFEMA and the standard contracts terms, the terms shall prevail in the following order:-

(a) the terms of the latest published English law IFEMA (a copy is available on request)

(b) the terms of this facility letter; and lastly

The Bank shall have the right to set-off from or debit any amount due from any of your accounts with the Bank and/or the HSBC Group.

GENERAL TERMS APPLICABLE TO THE FACILITIES

Review of Facilities

The Bank may charge a facilities management fee annually (for assessing and tailoring facilities to suit changing requirements of customers) or upon amendment of existing facilities, which charges shall be paid before any of the facilities are utilised and if remaining unpaid shall be debited without further notice to your current/disbursement/other account opened by the Bank for the purpose. Notwithstanding these charges, the Bank reserves the absolute discretion to exercise its remedies provided hereunder and/or whether to grant, vary, restructure, adjust or otherwise modify any facility or its terms, and/or temporary excess or temporary drawing against uncleared effects.

Variation of Terms

Notwithstanding anything to the contrary, the Bank may in its absolute discretion without discharging any of your liabilities herein and/or under the security documents vary or add to the terms herein.

Variations include, but are not limited to

rates of interest (including overdue and excess interest), additional interest commission, commitment fees, and other banking charges (including varying the mode or method of calculating interest, commission or such other charges or otherwise)
the amount or form of the Facilities granted so as to convert or cancel one or more facility or create two or more facilities comprised in the Facilities (provided always at the applicable rate of interest)

Except for fluctuations to the Base Lending Rate or otherwise expressly provided, variations or additions shall take effect upon notice to you.

Events Of Default

Without prejudice to our customary overriding right of repayment on demand, the Facilities may be immediately suspended or terminated and all sums (including contingent sums) payable on demand in the event:‑

a) you default in the payment of any sum due under the Facilities (whether instalments, interest or otherwise); or

b) you have given incomplete, misleading or incorrect material information to the Bank in relation to procuring the provision or continued provision of the Facilities, or your account is conducted in an unsatisfactory manner; or

c) you fail to observe or perform any of your covenants or obligations to the Bank; or

d) a petition is presented and not withdrawn or stayed by an order of Court within a period of thirty (30) days of its presentment or an order is made or resolution passed for your winding-up, dissolution or liquidation; or

e) you commence a meeting for the purpose of making or proposing and/or entering into any arrangement with or for the benefit of your creditors; or

f) a receiver or other similar officer is appointed over the whole or any part of your assets or undertaking; or

g) you cease or threaten to cease to carry on business or are unable to pay your debts, or dispose or threaten to dispose of the whole or a substantial part of your undertaking or assets; or

h) for any reason any guarantee or security given for the repayment of the Facilities shall be challenged, terminated or lapse for any reason whatsoever or if the guarantor or security provider shall be in default under the terms of such guarantee or security or dies or becomes of unsound mind or is wound up or commits any act of bankruptcy or similar; or

i) you allege that all or a material part of these terms or any security document have ceased to be of full force or effect; or

j) any of your other indebtedness to us or any third party or parties becomes capable in accordance with the relevant terms thereof of being accelerated in repayment or declared due prematurely by reason of your default or your failure to make any payment in respect thereof on the due date for each payment or if due on demand when demanded or any security for such indebtedness becomes enforceable; or

k) where the purpose of the facility is to finance acquisition of property, you or any other party to the sale and purchase agreement commits or threatens to commit a breach of any term, stipulation, covenant or undertaking contained in such agreement, or if a petition is presented for the winding-up of the developer of the property (where applicable) being financed; or

l) if your company, any security provider or a Related Corporation (as defined in the Companies Acts 1965) is under investigation under the provisions of Part IX of the Companies Act 1965 or any securities legislation and regulations in force from time to time; or

m) in the Bank's opinion, there is any change or threatened change in circumstances which would materially and adversely affect your company's business or financial condition or the ability to perform your obligations under this letter or any other agreement with the Bank, including, if your company is not a listed entity, any change or threatened change in your shareholders or directors, or if your company is a listed entity, any change or threatened change in your single largest shareholder or directors; or

n) in the Bank's opinion, there is any change or threatened change in circumstances which materially and adversely affect the ability of any guarantor or security provider to perform its obligations under any security given to the Bank; or

o) any applicable law or regulations or their interpretation or application is amended or changes, making it unlawful for the Bank to comply with its obligations herein or to allow the Facilities to continue to be outstanding.

The events of default are more comprehensively dealt within the security documentation.

If there are circumstances likely to lead to events of default among other things due to irregularities in your financial affairs or your inability to meet your indebtedness to us it is proposed that you contact us for an early appraisal of your commitment.

Early termination event

If in the Bank's opinion, circumstances have arisen which materially and adversely affect the reputation of, and/or otherwise bring negative publicity to, the Bank or HSBC Group, by reason of the provision or continued provision of the Facilities, the Bank is entitled to exit the Facilities and to require you to fully pay and discharge all your outstanding obligations under the Facilities within such period of time as stated in the Bank's written notice to you, failing which the Bank is entitled to call an event of default for non-payment by you,

Other Terms and Conditions

a) Payment of outgoings for property charged as security (where applicable)

You undertake to forward us on a regular basis for our records, the receipts you receive for payments of quarterly Municipal Assessment and Annual Quit Rent in respect of the property charged.

b) Availability

Availability of the Facilities is subject to legal documentation having been completed to the satisfaction of the Bank. If security documentation cannot be perfected for any reason within 3 months of the acceptance date of this Letter, the Bank reserves the right to withdraw the Facilities offered without further reference to you. In any event, any part of the Facilities not drawn down within 12 months from the date hereof shall be automatically cancelled.

c) Fees and charges

The Bank shall charge at its absolute discretion, where applicable, fees as follows:

• Facility Arrangement Fee; and/or

• Facility Management Fee;

which charges shall be paid before any Facilities is utilised and if remaining unpaid shall be debited without further notice to your current/disbursement/other account whether or not opened by the Bank for the purpose. Please refer to the Bank's standard Tariff and Charges (available for download at www.hsbc.com.my subject to variation from time to time. If there is any conflict between the said Tariff and Charges and any fees and charges specifically stated herein, the fees and charges specifically stated herein shall prevail. (If you are a "small and medium enterprise" within the National SME Development Council's definition, such fees and charges shall not apply to you.)

Notwithstanding these charges, the Bank reserves the absolute discretion whether to grant or otherwise any facility, restructuring / adjustment of facility and/or temporary excess or temporary drawing against uncleared effects.

d) Legal expenses and other charges

All stamp duty and solicitors' fees that is payable (assessed on a 'solicitor and client' basis) incurred by the Bank:

i) in connection with or incidental to the provision of the Facilities; and/or

ii) in its enforcement of its rights under any of the Facilities or any security provided;

shall be payable by you.

Such amounts may be debited without prior notice to your current or other account(s) or a disbursement/suspense account opened by the Bank for the purpose.

e) Insurance of property charged as security (where applicable)

The insurable risks of your business and the properties charged or secured to the Bank are to be arranged by the Bank and insured with HSBC Amanah Takaful (Malaysia) Sdn Bhd or the Bank's other panel insurers. If you and/or the chargor are not agreeable to such insurance with HSBC Amanah Takaful (Malaysia) Sdn Bhd, kindly advise your Relationship Manager or the Bank's Corporate Credit Administration Department.

If you, or the proprietor, as the case may be, fails to insure or fails to continue to insure the properties, the Bank may but shall not be under any duty to, take up or pay the premium for such insurance and any moneys expended thereto may be debited to any of your accounts with the Bank.

f) Inspection and valuation of property charged as security (where applicable)

Inspection and valuation of any property charged or forming security shall be at least once in every two years by us or by a firm on the Bank's panel of valuers, the cost in connection therewith being for your account.

g) Security denominated in foreign currency (where applicable)

In the case of foreign currency denominated security, the rate of exchange to be applied for the conversion of such currency shall be our spot rate of exchange (as conclusively determined by us) for purchasing such currency on the date of settlement and in the event of a shortfall you will promptly pay to us such additional amount as makes the net amount received by us equal to the full amount payable by you or the security provider, as the case may be.

h) Withholding or deduction

All payments by you under the Facilities are to be made in immediately available funds free and clear of and without any withholding or deduction for any and all present or future taxes, duties or other such levies.

If you are compelled by law to make any such withholding or deductions you will pay to us such additional amounts required to enable us to receive the amount which would be payable if no such withholding or deduction had been required.

You shall provide us with evidence that such taxes, duties or other such levies have been paid by forwarding us official receipts within 30 days of payment.

i) Maintenance of shareholding (applicable if third party security, guarantee and/or letter of awareness is provided by the borrower's related company)

The relevant related company of the Borrower within the same group of companies shall undertake not to divest its shareholding or any part thereof in the Borrower or the security provider or guarantor (as applicable) without first obtaining the Bank's consent.

j) Increased costs

If the effect of any, or a change in any, law or regulation is to increase the cost to us of advancing, maintaining or funding this Facilities or to reduce effective return to us, we reserve the right to require payment on demand of such amounts as we consider necessary to compensate us therefore.

k) Non- contravention of legislation prohibiting connected party lending

Please note that applicable banking legislation has imposed certain prohibitions on our providing banking facilities to persons related to our officers, directors or employees, and that of our holding company, The Hong Kong and Shanghai Banking Corporation Limited (incorporated in Hong Kong SAR). These are section 62 of the Banking and Financial Institutions Act 1989 ("BAFIA") read with the Guidelines on Credit Transactions and Exposures with Connected Parties issued by Bank Negara Malaysia, and also Section 83 of the Banking Ordinance of Hong Kong SAR (collectively, the "Prohibitions").

In acknowledging/accepting this Letter you are to advise us whether you are in any way connected to any of our officers, directors or employees, and/or the directors or employees of The Hong Kong and Shanghai Banking Corporation Limited within the meaning of the Prohibitions, and in the absence thereof, you represent you are not so connected.

You are required to immediately advise the Bank in writing should such relationships creating a prohibited lending under the aforesaid Prohibitions be established subsequent to the acceptance of the Facilities.

(Please note that for the purposes of the BAFIA, "officer" encompasses "any employee of the financial institution" and that "director" and "officer" also includes a spouse, child or parent of a director or officer. The texts and summary clarifications of these Prohibitions will be made available upon request.)

l) Terms and conditions in other documentation

• Other terms and conditions as contained in the Bank's legal or security documentation executed or to be executed by you shall apply.

• For avoidance of doubt, additional, modified, or other terms and conditions to those stated herein may be advised by our solicitors and may be contained in those other documents when formalising such documentation on our behalf.

• You are to carefully read and understand all terms and should obtain independent legal advice thereto before signing.

m) Default/Late Payment Interest not otherwise provided for

Where a specific default, excess or late payment interest rate is not otherwise provided for under the terms of any specific facility, the Bank may charge the following for any payments that are overdue, or if payable on demand, from the date the amount is stated to be due pursuant to such demand:

• For Ringgit-denominated facilities or amounts, or after any amounts due in other currencies are converted to Ringgit

1% per annum above the interest rate applicable for the particular facility, or if none, 3.5 % above the Bank's prevailing Base Lending Rate or such other rate as may be determined by the Bank from time to time.

• For non-Ringgit-denominated facilities or amounts, before the amounts due are converted to Ringgit

1% per annum above the interest rate applicable for the particular facility, or if none, 3.5% above the Bank's prevailing Cost of Funds (for such tenor as selected by the Bank) or such other rate as may be determined by the Bank from time to time.

Such interest shall be capitalised and added for all purposes to the principal or overdue sum, as the case may be for that facility, and shall bear interest at the relevant applicable rate notwithstanding any demand by the Bank and/or cessation of the banker and customer relationship for whatever reason and before as well as after judgment.

n) Priorities

Subject to the provision of the security documents (where applicable), if any amount received or recovered in respect of your liabilities hereunder or any part thereof is less than the amount then due, the Bank shall apply that amount to interest, profit, principal or any other amount then due and payable in such proportions and order of priority and generally in such manner as the Bank may determine.

o) Repayments generally and ascertaining of limits

Unless otherwise provided, interest due shall be capitalised and added for all purposes to the principal sum and shall bear interest at the relevant applicable rate notwithstanding any demand by the Bank and/or cessation of the banker and customer relationship for whatever reason and before as well as after judgment.

Any amounts of interest or other non-principal sums debited to your accounts which is capitalised shall be not affect the determining whether the principal limit under any security given for the Facilities has been exceeded or not.

p) Bankers common law rights applicable

We may combine, consolidate or merge all or any of your accounts and may set off or transfer any sum outstanding to the credit of any such accounts with our Bank in or towards the satisfaction of any of your liabilities under the Facilities.

The Bank may also debit any of your accounts in respect of amounts payable under any security documents or security for the Facilities if the security party fails to make any required payments thereunder.

q) Conclusive evidence

A certificate signed by an officer of the Bank as to any amount(s) payable hereunder shall be conclusive evidence save for manifest error.

r) Disclosure and use of information

You consent to the Bank disclosing information relating to you, the Facilities, your accounts and other facilities presently held, or which may subsequently be opened or obtained ("Information") to:

i) any person it considers necessary:

A) in providing the Facilities or other services;

B) as part of its operating procedures (including its accounting, client relationship and risk management functions),

including to members of the HSBC Group (in or outside Malaysia), any service provider (including debt collection agencies) or other third party;

ii) any bureaus or agencies established by Bank Negara Malaysia or by other regulatory authorities, including the Central Credit Reference Information System - "CCRIS" and the Credit Bureau Malaysia;

iii) the Controller of Foreign Exchange;

iv) any authority, central depository or depository agent in relation to the securities industry, where relevant

v) the Association of Banks in Malaysia;

vi) the Bank's potential assignees;

vii) any of your present or prospective guarantors or security providers;

viii) any person the Bank believes in good faith to be tendering payment of monies on your behalf.

Information may be used, stored, transferred, compiled, matched or exchanged by or with any of the parties mentioned above ('Users').

Information shall be kept confidential by the Users, unless disclosure is required under any laws or regulations which apply to a User.

When the Bank provides or obtains any Information, it takes utmost care in compiling, collating or processing the Information. The Customer agrees that as long as the Bank acts in good faith, it and its officers shall not be liable for any loss or damage (whether indirect, consequential or punitive) or any monetary loss to you or any other person for any inaccuracy, incompleteness or authenticity of the Information the Bank provides or relies on and whether caused by any technical, hardware or software failure of any kind, interruption, error, omission, delay, viruses, act of God, act of war or terrorism, strikes, industrial action or otherwise.

The Bank, as part of its procedures in granting or continuing to grant banking and/or credit facilities and services to its customers may conduct credit and other financial checks and verify customer and/or security party information from time to time from various selected sources. You consent to such checks being conducted.

The consents given shall be irrevocable.

s) Credit Reporting Agency

You consent to:

(i) the Bank to carrying out credit checks and obtaining credit reports and information on your business and/or your company including on all partners, directors, shareholders, guarantors and security providers (as applicable) (collectively, " Data Subjects ") from the Credit Bureau Malaysia and any other registered credit reporting agency; and

(ii) the Credit Bureau Malaysia sourcing and retaining information on your business and/or your company and all Data Subjects from any available data source, and disclosing to the Bank any such information as may be requested by the Bank.

You warrant that you have been irrevocably authorised by the Data Subjects to give this consent on their behalf.

t) Notices

• Any notice demand or request may be given by ordinary or registered post (not being AR registered post) sent to you at its address herein stated or to your last known address and such notice shall be deemed to have been duly served three (3) days after it is posted notwithstanding that it is returned by the postal authorities undelivered.

• Notice as to fluctuation of the Base Lending Rate, variation of interest, commission, fees and all other bank charges may also be effected by a notification of the variation in the periodic statements furnished to you from time to time or by way of an unsigned notice or letter produced by the Bank's computer or by way of advertisement in any newspaper or by notification at any of the Bank's premises or in such manner we deem fit and such variation shall take effect from the date stipulated therein.

u) Payments received to be in gross

All monies received for the purpose of being applied in reduction of any monies owing to the Bank (whether from payments received or from the realisation of any security or otherwise) shall be treated as payments in gross and not as appropriated or attributed to any specific part or item of the monies owing to the Bank, even if appropriated thereto by any person otherwise purportedly entitled to so appropriate.

v) Suspense account

In the advent of any liquidation or analogous thereto, any monies received by the Bank in respect of the Facilities or any security granted may be kept to the credit of a non-interest bearing suspense account for such terms as the Bank deems fit without any obligation in the meantime to apply the same or any part thereof towards settlement of any liabilities due, and the Bank may prove for and agree to accept any distributions in respect of the whole or any part of such money and liabilities in the same manner as if no security had been created.

w) Remedies concurrent

The Bank shall have the right to exercise any rights or remedies available to it under this letter, any security or otherwise (including pursuing any right of sale or possession) against you or any party providing security for the Facilities concurrently or successively as it may consider appropriate.

x) Severability

If any provision herein is or becomes prohibited or unenforceable by law or any applicable regulations, the remaining Terms shall remain valid and enforceable and/or continue to be valid and enforceable in any other jurisdiction where the law provides that it is valid.

y) Exercise of remedies

The Bank may exercise any right, power or remedy it may have, whether it is stated here or conferred upon it by law even after a delay.

All rights and powers of the Bank in law or equity are exercisable even if they overlap with any rights and powers in these Terms.

If the Bank does not act when it is entitled to, that does not mean it:

i) has agreed to your breach; or

ii) has given up its right; or

iii) is prevented from acting later.

Where the Bank has expressly waived a default by you, this shall not impair any right, power or remedy of the Bank for any of your other defaults, whether occurring prior or subsequent to the waiver.

aa) Interpretation

Unless the context otherwise requires:

• words importing the singular number include the plural and vice versa and reference to any gender includes all genders;

• reference to 'facility' shall mean a facility comprised within the Facilities

• references to "the Bank", "we", or "our" in this letter shall be understood to refer to HSBC Bank Malaysia Berhad.

The headings herein are for convenience and shall not affect construction of the terms of this letter.

Where there are two (2) or more persons comprising the borrower, whether in partnership or otherwise, all covenants and terms shall be made by and be binding upon them jointly and severally.

bb) Governing law

Except where expressly provided otherwise for any facility, the terms herein shall be governed by and interpreted in accordance with the laws of Malaysia and the parties agree that the Malaysian courts shall have non-exclusive jurisdiction. The parties irrevocably waive any assertion of forum non conveniens to resolution of dispute in the Malaysian courts.

cc) Successors and assigns

This letter shall be binding upon your heirs estate personal representatives and successors in title and on the successors in title and assigns of the Bank. You shall not assign any of your rights or obligations hereunder. Unless expressly agreed otherwise by us, we may assign or transfer all or any part of our rights, benefits and/or obligations under this facility letter or in respect of any of the facilities, and any security provided thereto, to any person by delivering to you a notice in writing, or where required, by entry into more formal agreements (which you hereby agree to execute if so requested by the Bank). Such transfer shall take effect as from the effective date specified in the notice or agreement and we shall thereafter be released from such rights, benefits and/or obligations.

*** END OF ANNEXURE ***

Customer's acknowledgment/acceptance

We have viewed the foregoing terms of this Letter including the Annexure(s) and agree to the terms thereto.

We acknowledge that notwithstanding anything to the contrary herein contained and whether it is prior to the time for annual review the Facilities may be reviewed at any time and are subject to the Bank's overriding right of suspension, withdrawal and repayment on demand, as well as the right to call for cash cover or other acceptable security on demand (which shall be in addition, and not subject to, any similar right stipulated for any of the Facilities). Nothing contained in this Letter shall be deemed to impose on the Bank any obligation to make or to continue to make available the Facilities or any advances thereunder to us. We also acknowledge that in the event of a recall of an overdraft facility, we shall be obliged to immediately fund our overdraft account with sufficient funds to meet any un-presented cheques still in circulation and that the Bank is under no obligation whatsoever to issue any notices or requests to us to do so. Any failure on our part to do so will entitle the Bank to refuse payment on such cheques, for which the Bank shall not be liable to us in any way whatsoever.

We confirm our acceptance of the Facilities and that the Bank's agreement to provide us with the Facilities will not contravene a) the provisions of Section 62 of the Banking and Financial Institutions Act 1989 read with BNM's Guidelines on Credit Transactions and Exposures with Connected Parties, and b) Section 83 of the Banking Ordinance of the Hong Kong Special Administrative Region ('Prohibitions').

We acknowledge the Bank's right to recall the Facilities in the event of any contravention of the said Prohibitions.

We further agree that your Letter embodies in writing all the terms for the Facilities to be granted to us and hereby confirm that any warranties, promises, representations or collateral agreements that may have been made to us, orally or otherwise by you in the course of the pre-contractual negotiations which have not now been included in this Letter shall hereafter be deemed to have lapsed and not legally binding upon you nor shall it be raised as a defence or to support any claim by us in any legal proceedings.

We are responsible for assessing the terms in this Letter and the Facilities and shall seek our own independent legal advice on them.

We acknowledge that we will be opening and/or maintaining my/our main working capital / operating account with you.

It shall be our sole responsibility to register any foreign currency facility granted where it is required to be registered with the Controller of Foreign Exchange before drawdown, in accordance with the Exchange Control Notices. Where we propose to make any prepayments for any foreign currency facility before its due date, it shall be our sole responsibility to register such prepayments with the Controller of Foreign Exchange where required by the Exchange Control Notices.

We undertake that all our FEX transactions shall be to hedge underlying trade transactions and other permitted purposes, and not for speculative purposes. Our FEX transactions shall be in compliance with Malaysian Exchange Control Regulations and supported by appropriate documentation which may be required by the Bank. We acknowledge that where we enter into any FEX transaction, we shall do so in reliance only upon our own judgment and assessment and obtain our own independent advice and not in reliance on any advice of the Bank or its personnel in accordance with Section 7 of IFEMA terms.

We also confirm that the securities list attached to the letter of offer is correct.

.s/s Olaf Karasch
OLAF KARASCH
Authorised signatories and Company's Chop

Date: October 25, 2013

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, 2013 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.
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 (Registrant’s telephone number, including area code) ____________________________
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, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “ accelerated filer” and “smaller reporting company” 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 November 1, 2013 3,011,686

Table of Contents

Part I - Financial Information
			Page No.
Item 1.	Condensed Consolidated Financial Statements
		Condensed Consolidated Income Statements -- Three and nine months ended September 30, 2013 and 2012	3
		Condensed Consolidated Statements of Comprehensive Income (Loss) -- Three and nine months ended September 30, 2013 and 2012	4
		Condensed Consolidated Balance Sheets -- September 30, 2013 and December 31, 2012	5
		Condensed Consolidated Statements of Cash Flows -- Nine months ended September 30, 2013 and 2012	6

	Notes to the Condensed Consolidated Financial Statements		7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		16

Item 4.	Controls and Procedures		28

Part II - Other Information

Item 6.	Exhibits		29

Signatures			29

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,
		2013		2012		2013		2012
NET INCOME	$	113	$	1,837	$	188	$	4,792
OTHER COMPREHENSIVE INCOME (LOSS), net of tax
Currency translation adjustment, net of tax:
Net foreign currency translation adjustment gain (loss)		(265)		758		(951)		540
Other comprehensive gain (loss), net of tax		(265)		758		(951)		540
COMPREHENSIVE INCOME (LOSS)	$	(152)	$	2,595	$	(763)	$	5,332

See accompanying notes.

TOR Minerals International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)

		September 30, 2013		December 31, 2012
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,799	$	2,799
Trade accounts receivable, net		4,896		3,972
Inventories, net		27,141		22,895
Other current assets		956		1,822
Total current assets		34,792		31,488
PROPERTY, PLANT AND EQUIPMENT, net		23,806		22,933
OTHER ASSETS		23		25
Total Assets	$	58,621	$	54,446

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	5,998	$	4,608
Accrued expenses		1,479		1,864
Notes payable under lines of credit		2,869		2,109
Export credit refinancing facility		3,970		394
Current deferred tax liability		173		173
Current maturities - capital leases		17		33
Current maturities of long-term debt – financial institutions		1,111		1,202
Total current liabilities		15,617		10,383
CAPITAL LEASES		-		12
LONG-TERM DEBT - FINANCIAL INSTITUTIONS		1,846		2,316
DEFERRED TAX LIABILITY		840		1,007
Total liabilities		18,303		13,718
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock $1.25 par value: authorized, 6,000 shares; 3,012 shares issued and outstanding at September 30, 2013 and 2,987 shares issued and outstanding at December 31, 2012		3,765		3,733
Additional paid-in capital		29,338		29,017
Retained earnings		3,457		3,269
Accumulated other comprehensive income:
Cumulative translation adjustment		3,758		4,709
Total shareholders' equity		40,318		40,728
Total Liabilities and Shareholders' Equity	$	58,621	$	54,446

See accompanying notes.

TOR Minerals International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

		Nine Months Ended September 30,
		2013		2012
*CASH FLOWS FROM OPERATING ACTIVITIES:*
Net Income	$	188	$	4,792
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation		2,355		1,842
(Gain) loss on disposal of assets		10		(6)
Share-based compensation		85		71
Convertible debenture interest expense		-		22
Deferred income taxes		(123)		572
Change in inventory reserve		(15)		(48)
Provision for bad debts		3		69
Changes in working capital:
Trade accounts receivables		(903)		(9,499)
Inventories		(4,996)		(1,553)
Other current assets		814		(788)
Accounts payable and accrued expenses		1,135		2,684
Net cash used in operating activities		(1,447)		(1,842)

*CASH FLOWS FROM INVESTING ACTIVITIES:*
Additions to property, plant and equipment		(3,529)		(3,068)
Proceeds from sales of property, plant and equipment		2		8
Net cash used in investing activities		(3,527)		(3,060)

*CASH FLOWS FROM FINANCING ACTIVITIES:*
Net proceeds from lines of credit		804		1,656
Net proceeds from export credit refinancing facility		3,600		1,032
Net (payments on) proceeds from capital leases		(30)		5
Proceeds from long-term bank debt		276		774
Payments on long-term bank debt		(815)		(605)
Proceeds from the issuance of common stock and exercise of common stock options		267		148
Net cash provided by financing activities		4,102		3,010
Effect of foreign currency exchange rate fluctuations on cash and cash equivalents		(128)		69
Net decrease in cash and cash equivalents		(1,000)		(1,823)
Cash and cash equivalents at beginning of year		2,799		3,381
Cash and cash equivalents at end of period	$	1,799	$	1,558

Supplemental cash flow disclosures:
Interest paid	$	286	$	397
Income taxes paid	$	214	$	-

TOR Minerals International, Inc. and Subsidiaries
Condensed Consolidated Income Statements
(Unaudited)
(In thousands, except per share amounts)


		Three Months Ended September 30,				Nine Months Ended September 30,
		2013		2012		2013		2012
NET SALES	$	10,870	$	19,914	$	33,029	$	46,830
Cost of sales		9,289		16,068		28,242		36,127
GROSS MARGIN		1,581		3,846		4,787		10,703
Technical services and research and development		135		90		459		273
Selling, general and administrative expenses		1,119		1,242		3,644		3,825
(Gain) loss on disposal of assets		-		(6)		10		(6)
OPERATING INCOME		327		2,520		674		6,611
OTHER EXPENSE:
Interest expense, net		(103)		(143)		(286)		(397)
Loss on foreign currency exchange rate		(84)		(24)		(151)		(21)
Other, net		6		-		18		1
Total Other Expense		(181)		(167)		(419)		(417)
INCOME BEFORE INCOME TAX		146		2,353		255		6,194
Income tax expense		33		516		67		1,402
NET INCOME	$	113	$	1,837	$	188	$	4,792
Plus: 6% Convertible Debenture Interest Expense		-		-		-		36
Income Available to Common Shareholders	$	113	$	1,837	$	188	$	4,828

Income per common share:
Basic	$	0.04	$	0.62	$	0.06	$	1.77
Diluted	$	0.03	$	0.53	$	0.06	$	1.43
Weighted average common shares outstanding:
Basic		3,012		2,968		2,999		2,714
Diluted		3,422		3,441		3,271		3,383

See accompanying notes.

		Fair Value Measurements
(In thousands)		Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liability
December 31, 2012
Currency forward contracts	$	(1)	$	-	$	(1)	$	-
September 30, 2013
Currency forward contracts	$	(23)	$	-	$	(23)	$	-

(in thousands, except per share amounts)		Three Months Ended September 30,				Nine Months Ended September 30,
		2013		2012		2013		2012
Numerator:
Net Income	$	113	$	1,837	$	188	$	4,792
Numerator for basic earnings per share - income available to common shareholders		113		1,837		188		4,792
Effect of dilutive securities:
6% Convertible Debenture Interest Expense		-		-		-		36
Numerator for diluted income per share - income available to common shareholders after assumed conversions	$	113	$	1,837	$	188	$	4,828
Denominator:
Denominator for basic income per share - weighted-average shares		3,012		2,968		2,999		2,714
Effect of dilutive securities:
Employee stock options		8		25		2		33
Detachable warrants		402		448		270		454
6% Convertible Debenture		-		-		-		182
Dilutive potential common shares		410		473		272		669
Denominator for diluted income per share - weighted-average shares and assumed conversions		3,422		3,441		3,271		3,383
*Basic income per common share*	$	0.04	$	0.62	$	0.06	$	1.77
*Diluted income per common share*	$	0.03	$	0.53	$	0.06	$	1.43

(In thousands)		United States (Corpus Christi)		Europe (TPT)		Asia (TMM)		Inter-Company Eliminations		Consolidated

As of and for the three months ended:
*September 30, 2013*
Net Sales:
Customer sales	$	7,680	$	2,124	$	1,066	$	-	$	10,870
Intercompany sales		53		1,674		1,703		(3,430)		-
Total Net Sales	$	7,733	$	3,798	$	2,769	$	(3,430)	$	10,870

Location income (loss)	$	(389)	$	353	$	80	$	69	$	113

*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 income	$	447	$	293	$	1,195	$	(98)	$	1,837
As of and for the nine months ended:
*September 30, 2013*
Net Sales:
Customer sales	$	23,264	$	6,300	$	3,465	$	-	$	33,029
Intercompany sales		110		4,997		7,342		(12,449)		-
Total Net Sales	$	23,374	$	11,297	$	10,807	$	(12,449)	$	33,029

Location income (loss)	$	(361)	$	618	$	(113)	$	44	$	188

Location assets	$	21,048	$	11,305	$	26,268	$	-	$	58,621

*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 income	$	2,036	$	585	$	2,322	$	(151)	$	4,792

Location assets	$	19,053	$	10,306	$	30,485	$	-	$	59,844

(In thousands)
Liability Derivatives
			September 30,		December 31,
Derivative Instrument	Location		2013		2012
Foreign Currency Exchange Contracts	Accrued Expenses	$	23	$	1

			Amount of Gain (Loss) Recognized in Income (In thousands)
	Location of Gain		Three Months Ended				Nine Months Ended
Derivative	(Loss) on Derivative		September 30,				September 30,
Instrument	Instrument		2013		2012		2013		2012
Foreign Currency Exchange Contracts	Loss on foreign currency exchange rate	$	(23)	$	88	$	1	$	75

(a)	Exhibits
	Exhibit 10.1	Change to Loan Agreement with American Bank, N.A. dated October 24, 2013
	Exhibit 10.2	Amendment to Banking Facility with RHB Bank Berhad, dated October 25, 2013
	Exhibit 10.3	Amendment to Banking Facility with HSBC Bank Malaysia Berhad, dated October 25, 2013

	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

	TOR Minerals International, Inc.
	____________
	(Registrant)

Date:	November 6, 2013	OLAF KARASCH Olaf Karasch President and Chief Executive Officer

Date:	November 6, 2013	BARBARA RUSSELL Barbara Russell Chief Financial Officer

Facility	Limit/Existing Limit (RM)	New/Additional/ Reduction (RM)	Total/Revised Limit (RM)
Overdraft / Revolving Credit	1,000,000		1,000,000
Term Loan		3,200,000
Multi-Trade Line comprising Letter of Credit (Sight/Usance)/Trust Receipt/Bankers Acceptance/Bills Purchased/Export Credit Refinancing/Foreign Currency Trade Financing/Promissory Notes/Shipping Guarantee	14,300,000	(5,000,000)	9,300,000
(Tenor where applicable is up to 180 days)
Bankers Guarantee	1,200,000		1,200,000
Foreign Exchange Contract Line	25,000,000		25,000,000

Total	41,500,000	(1,800,000)	39,700,000

(In thousands)		September 30,		December 31,
		2013		2012
Raw materials	$	17,652	$	14,002
Work in progress		2,837		2,848
Finished goods		5,698		5,238
Supplies		1,028		868
Total Inventories		27,215		22,956
Inventory reserve		(74)		(61)
Net Inventories	$	27,141	$	22,895