##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the three months ended June 30, 2010
 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 No. 0-20600
 
 ZOLTEK COMPANIES, INC.
 
 Missouri
    
    43-1311101(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)3101 McKelvey Road, St. Louis, Missouri
    
    63044(Address of principal executive offices)
    
    (Zip Code)
  Yes þ No o
 Yes o No o
  Large Accelerated Filer o
    
    Accelerated Filer þ
    
    Non-accelerated Filer o
    
    Smaller Reporting Company o
 Yes o No þ




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##### 



ZOLTEK COMPANIES, INC.
INDEX
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)
    
    
    3Condensed Consolidated Balance Sheets  June 30, 2010 and September 30, 2009
    
    
    3Condensed Consolidated Statements of Operations  Three Months and Nine Months Ended June 30,
2010 and 2009
    
    
    4Condensed Consolidated Statement of Changes in Shareholders Equity  Nine Months
Ended June 30, 2010
    
    
    5Condensed Consolidated Statements of Comprehensive Loss  Three Months
and Nine Months Ended June 30, 2010 and 2009
    
    
    5Condensed Consolidated Statements of Cash Flows  Nine Months Ended June 30, 2010 and 2009
    
    
    6Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    27PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    28Item 6. Exhibits
    
    
    28SIGNATURES
    
    
    29EXHIBIT INDEX
    
    
    30Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 ZOLTEK COMPANIES, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
   June 30,
    
    
    September 30,2010
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    18,618
    
    
    $
    20,943Accounts receivable, less allowance for doubtful accounts of $186
and $2,356, respectively
    
    
    28,966
    
    
    
    30,507Inventories, net
    
    
    35,308
    
    
    
    48,058Other current assets
    
    
    8,435
    
    
    
    10,100Total current assets
    
    
    91,327
    
    
    
    109,608Property and equipment, net
    
    
    219,166
    
    
    
    256,910Other assets
    
    
    205
    
    
    
    327Total assets
    
    $
    310,698
    
    
    $
    366,845Liabilities and Shareholders EquityCurrent liabilities:Borrowings under credit lines
    
    $
    7,980
    
    
    $
    12,277Current maturities of long-term debt
    
    
    1,006
    
    
    
    4,159Trade accounts payable
    
    
    5,886
    
    
    
    9,408Accrued expenses and other liabilities
    
    
    7,587
    
    
    
    6,845Construction payables
    
    
    592
    
    
    
    792Total current liabilities
    
    
    23,051
    
    
    
    33,481Long-term debt, less current maturities
    
    
    
    
    
    
    981Hungarian grant, long-term
    
    
    8,069
    
    
    
    10,228Deferred tax liabilities
    
    
    2,289
    
    
    
    6,690Derivative liabilities
    
    
    1,408
    
    
    
    Total liabilities
    
    
    34,817
    
    
    
    51,380Commitments and contingencies (see Note 8)Shareholders equity:Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares issued or outstanding
    
    
    
    
    
    
    Common stock, $.01 par value, 50,000,000 shares authorized, 34,401,942 and
34,424,441 shares issued and outstanding at June 30, 2010 and
September 30, 2009, respectively
    
    
    344
    
    
    
    344Additional paid-in capital
    
    
    480,315
    
    
    
    494,311Accumulated other comprehensive loss
    
    
    (50,637
    )
    
    
    (18,405
    )Accumulated deficit
    
    
    (154,141
    )
    
    
    (160,785
    )Total shareholders equity
    
    
    275,881
    
    
    
    315,465Total liabilities and shareholders equity
    
    $
    310,698
    
    
    $
    366,845
   3




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##### Table of Contents



ZOLTEK COMPANIES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
   Three months ended June 30,
    
    
    Nine months ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net sales
    
    $
    42,448
    
    
    $
    30,306
    
    
    $
    97,344
    
    
    $
    104,941Cost of sales, excluding available unused capacity costs
    
    
    34,333
    
    
    
    21,515
    
    
    
    76,776
    
    
    
    75,020Available unused capacity costs
    
    
    3,460
    
    
    
    2,631
    
    
    
    10,514
    
    
    
    4,382Gross profit
    
    
    4,655
    
    
    
    6,160
    
    
    
    10,054
    
    
    
    25,539Application and development costs
    
    
    2,079
    
    
    
    2,063
    
    
    
    6,029
    
    
    
    5,513Selling, general and administrative expenses
    
    
    3,455
    
    
    
    4,322
    
    
    
    12,699
    
    
    
    14,726Operating (loss) income
    
    
    (879
    )
    
    
    (225
    )
    
    
    (8,674
    )
    
    
    5,300Other income (expense):Interest income
    
    
    3
    
    
    
    18
    
    
    
    17
    
    
    
    343(Loss) gain on foreign currency transactions
    
    
    (361
    )
    
    
    842
    
    
    
    (397
    )
    
    
    2,092Other income (expense), net
    
    
    155
    
    
    
    51
    
    
    
    (476
    )
    
    
    (409
    )Gain on derivative liabilities
    
    
    737
    
    
    
    
    
    
    
    1,870
    
    
    
    Interest expense, excluding amortization of financing fees and
debt discount
    
    
    (83
    )
    
    
    (305
    )
    
    
    (347
    )
    
    
    (1,250
    )Amortization of financing fees and debt discount
    
    
    
    
    
    
    (1,137
    )
    
    
    (289
    )
    
    
    (4,694
    )(Loss) income before income taxes
    
    
    (428
    )
    
    
    (756
    )
    
    
    (8,296
    )
    
    
    1,382Income tax expense (benefit)
    
    
    16
    
    
    
    673
    
    
    
    (2,383
    )
    
    
    1,803Net loss
    
    $
    (444
    )
    
    $
    (1,429
    )
    
    $
    (5,913
    )
    
    $
    (421
    )Basic and diluted loss per share
    
    $
    (0.01
    )
    
    $
    (0.04
    )
    
    $
    (0.17
    )
    
    $
    (0.01
    )Weighted average common shares outstanding  basic
    
    
    34,405,312
    
    
    
    34,396,331
    
    
    
    34,415,635
    
    
    
    34,400,731Weighted average common shares outstanding  diluted
    
    
    34,405,312
    
    
    
    34,396,331
    
    
    
    34,415,635
    
    
    
    34,400,731
   4




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##### Table of Contents



ZOLTEK COMPANIES, INC.
 
 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
   Total
    
    
    
    
    
    
    Additional
    
    
    Accumulated OtherShareholders
    
    
    Common
    
    
    Paid-In
    
    
    Comprehensive
    
    
    AccumulatedEquity
    
    
    Stock
    
    
    Capital
    
    
    Loss
    
    
    DeficitBalance, September 30, 2009
    
    $
    315,465
    
    
    $
    344
    
    
    $
    494,311
    
    
    $
    (18,405
    )
    
    $
    (160,785
    )Stock option compensation expense
    
    
    1,879
    
    
    
    
    
    
    
    1,879
    
    
    
    
    
    
    
    Cumulative effect of change in accounting principle
    
    
    (3,061
    )
    
    
    
    
    
    
    (15,618
    )
    
    
    
    
    
    
    12,557Conversion to liability of restricted shares
    
    
    (240
    )
    
    
    
    
    
    
    (240
    )
    
    
    
    
    
    
    Difference between compensation expense and
Change in liability for restricted stock awards
    
    
    126
    
    
    
    
    
    
    
    126
    
    
    
    
    
    
    
    Cash settlement of restricted shares
    
    
    (143
    )
    
    
    
    
    
    
    (143
    )
    
    
    
    
    
    
    Net loss
    
    
    (5,913
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,913
    )Foreign currency translation adjustment
    
    
    (32,232
    )
    
    
    
    
    
    
    
    
    
    
    (32,232
    )
    
    
    Balance, June 30, 2010
    
    $
    275,881
    
    
    $
    344
    
    
    $
    480,315
    
    
    $
    (50,637
    )
    
    $
    (154,141
    )
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
   Three months ended June 30,
    
    
    Nine months ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net loss
    
    $
    (444
    )
    
    $
    (1,429
    )
    
    $
    (5,913
    )
    
    $
    (421
    )Foreign currency translation adjustment
    
    
    (21,798
    )
    
    
    21,189
    
    
    
    (32,232
    )
    
    
    (38,635
    )Comprehensive (loss) income
    
    $
    (22,242
    )
    
    $
    19,760
    
    
    $
    (38,145
    )
    
    $
    (39,056
    )
   5




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##### Table of Contents



ZOLTEK COMPANIES, INC.
 
 CONSDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
   Nine months ended June 30,2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (5,913
    )
    
    $
    (421
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation
    
    
    12,347
    
    
    
    11,994Amortization of financing fees and debt discount
    
    
    289
    
    
    
    4,694Deferred taxes
    
    
    (2,687
    )
    
    
    742Gain on derivative liabilities
    
    
    (1,870
    )Unrealized foreign currency transaction losses (gains)
    
    
    1,103
    
    
    
    (2,759
    )Stock option compensation expense
    
    
    2,054
    
    
    
    2,210Loss on disposal of assets
    
    
    154
    
    
    
    282Changes in assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (3,149
    )
    
    
    7,984Decrease (increase) in inventories
    
    
    8,227
    
    
    
    (9,590
    )(Increase) decrease in other current assets and other assets
    
    
    (951
    )
    
    
    1,565Decrease in trade accounts payable
    
    
    (2,098
    )
    
    
    (4,875
    )Increase in accrued expenses and other liabilities
    
    
    2,105
    
    
    
    2,754Decrease in legal liabilities
    
    
    
    
    
    
    (5,583
    )Net cash provided by operating activities
    
    
    9,611
    
    
    
    8,997Cash flows from investing activities:Purchases of property and equipment
    
    
    (2,878
    )
    
    
    (15,475
    )Proceeds received from sale of fixed assets
    
    
    83
    
    
    
    115Proceeds received from Hungarian grant
    
    
    149
    
    
    
    1,588Decrease in construction payables
    
    
    (200
    )
    
    
    (6,080
    )Net cash used for investing activities
    
    
    (2,846
    )
    
    
    (19,852
    )Cash flows from financing activities:Repayment of convertible debentures
    
    
    (4,249
    )
    
    
    (7,850
    )Cash settlement of restricted shares
    
    
    (244
    )
    
    
    (75
    )(Repayment of) borrowings under notes payable and credit lines
    
    
    (4,373
    )
    
    
    6,742Net cash used for by financing activities
    
    
    (8,866
    )
    
    
    (1,183
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (224
    )
    
    
    60Net decrease in cash and cash equivalents
    
    
    (2,325
    )
    
    
    (11,978
    )Cash and cash equivalents at beginning of period
    
    
    20,943
    
    
    
    29,224Cash and cash equivalents at end of period
    
    $
    18,618
    
    
    $
    17,246Supplemental disclosures of cash flow information:Non-cash conversion of convertible debentures
    
    
    
    
    
    
    251
   6




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##### Table of Contents



ZOLTEK COMPANIES, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1. ORGANIZATION AND BASIS OF PRESENTATION
  Basis of Presentation
   Adoption of New Accounting Pronouncements
  2. INVENTORIES
  June 30,
    
    
    September 30,2010
    
    
    2009Raw materials
    
    $
    7,729
    
    
    $
    7,349Work-in-process
    
    
    5,799
    
    
    
    8,977Finished goods
    
    
    16,925
    
    
    
    26,758Consigned inventory
    
    
    4,414
    
    
    
    4,471Supplies and other
    
    
    441
    
    
    
    503$
    35,308
    
    
    $
    48,058
   7




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##### Table of Contents



3. SEGMENT INFORMATION
   Three months ended June 30, 2010Carbon
    
    
    Technical
    
    
    Corporate/Fibers
    
    
    Fibers
    
    
    Other
    
    
    TotalNet sales
    
    $
    35,260
    
    
    $
    6,771
    
    
    $
    417
    
    
    $
    42,448Cost of sales, excluding available unused capacity costs
    
    
    28,914
    
    
    
    5,187
    
    
    
    232
    
    
    
    34,333Available unused capacity costs
    
    
    3,189
    
    
    
    271
    
    
    
    
    
    
    
    3,460Gross profit
    
    
    3,157
    
    
    
    1,313
    
    
    
    185
    
    
    
    4,655Operating income (loss)
    
    
    1,279
    
    
    
    1,065
    
    
    
    (3,223
    )
    
    
    (879
    )Depreciation
    
    
    3,369
    
    
    
    349
    
    
    
    212
    
    
    
    3,930Capital expenditures
    
    
    757
    
    
    
    16
    
    
    
    
    
    
    
    773
 Three months ended June 30, 2009Carbon
    
    
    Technical
    
    
    Corporate/Fibers
    
    
    Fibers
    
    
    Other
    
    
    TotalNet sales
    
    $
    25,012
    
    
    $
    4,652
    
    
    $
    642
    
    
    $
    30,306Cost of sales, excluding available unused capacity costs
    
    
    17,204
    
    
    
    3,729
    
    
    
    582
    
    
    
    21,515Available unused capacity costs
    
    
    2,392
    
    
    
    239
    
    
    
    
    
    
    
    2,631Gross profit
    
    
    5,416
    
    
    
    684
    
    
    
    60
    
    
    
    6,160Operating income (loss)
    
    
    2,284
    
    
    
    297
    
    
    
    (2,806
    )
    
    
    (225
    )Depreciation
    
    
    3,259
    
    
    
    413
    
    
    
    296
    
    
    
    3,968Capital expenditures
    
    
    2,374
    
    
    
    47
    
    
    
    
    
    
    
    2,421
 Nine months ended June 30, 2010Carbon
    
    
    Technical
    
    
    Corporate/Fibers
    
    
    Fibers
    
    
    Other
    
    
    TotalNet sales
    
    $
    78,856
    
    
    $
    17,174
    
    
    $
    1,314
    
    
    $
    97,344Cost of sales, excluding available unused capacity costs
    
    
    62,293
    
    
    
    13,469
    
    
    
    1,014
    
    
    
    76,776Available unused capacity costs
    
    
    9,349
    
    
    
    1,165
    
    
    
    
    
    
    
    10,514Gross profit
    
    
    7,214
    
    
    
    2,540
    
    
    
    300
    
    
    
    10,054Operating income (loss)
    
    
    944
    
    
    
    1,857
    
    
    
    (11,475
    )
    
    
    (8,674
    )Depreciation
    
    
    10,082
    
    
    
    1,241
    
    
    
    1,024
    
    
    
    12,347Capital expenditures
    
    
    1,966
    
    
    
    528
    
    
    
    384
    
    
    
    2,878
 Nine months ended June 30, 2009Carbon
    
    
    Technical
    
    
    Corporate/Fibers
    
    
    Fibers
    
    
    Other
    
    
    TotalNet sales
    
    $
    86,641
    
    
    $
    16,407
    
    
    $
    1,893
    
    
    $
    104,941Cost of sales, excluding available unused capacity costs
    
    
    61,085
    
    
    
    12,363
    
    
    
    1,572
    
    
    
    75,020Available unused capacity costs
    
    
    3,594
    
    
    
    788
    
    
    
    
    
    
    
    4,382Gross profit
    
    
    21,962
    
    
    
    3,256
    
    
    
    321
    
    
    
    25,539Operating income (loss)
    
    
    13,518
    
    
    
    1,430
    
    
    
    (9,648
    )
    
    
    5,300Depreciation
    
    
    9,923
    
    
    
    1,222
    
    
    
    849
    
    
    
    11,994Capital expenditures
    
    
    14,737
    
    
    
    584
    
    
    
    154
    
    
    
    15,475
  8




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##### Table of Contents



Total AssetsCarbon
    
    
    Technical
    
    
    Corporate/Fibers
    
    
    Fibers
    
    
    Other
    
    
    TotalJune 30, 2010
    
    $
    253,977
    
    
    $
    21,101
    
    
    $
    35,620
    
    
    $
    310,698September 30, 2009
    
    
    293,200
    
    
    
    27,614
    
    
    
    46,031
    
    
    
    366,845
 4. FINANCING AND DEBT
 Credit Facilities
    June 30,
    
    
    September 30,2010
    
    
    2009US facility (current interest rate of 3.10%  variable with Libor)
    
    $
    7,980
    
    
    $
    8,343Facility with Hungarian bank (current interest rate of 2.7% to 6.8%, depending on currency)
    
    
    
    
    
    
    3,934Total credit lines
    
    $
    7,980
    
    
    $
    12,277
 Hungarian Grant
   Convertible Debt and Warrants
   9




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##### Table of Contents



As of September 30, 2009Numberof shares
    
    
    Conversion
    
    
    Principalissuable
    
    
    price
    
    
    outstandingMay 2006
    
    
    70,560
    
    
    $
    25.51
    
    
    $
    1,799,986July 2006
    
    
    19,640
    
    
    
    25.51
    
    
    
    501,016October 2006
    
    
    76,381
    
    
    
    25.51
    
    
    
    1,948,479166,581
    
    
    
    
    
    
    $
    4,249,481
 Amortization of Financing Fees and Debt Discount
    Three months ended June 30, 2009
    
    
    Nine months ended June 30, 2009Conversion
    
    
    
    
    
    
    
    
    
    
    ConversionWarrants
    
    
    feature
    
    
    Total
    
    
    Warrants
    
    
    feature
    
    
    TotalMay 2006 issuance
    
    $
    326
    
    
    $
    482
    
    
    $
    808
    
    
    $
    1,378
    
    
    $
    2,032
    
    
    $
    3,410July 2006 issuance
    
    
    51
    
    
    
    62
    
    
    
    113
    
    
    
    209
    
    
    
    255
    
    
    
    464October 2006 issuance
    
    
    70
    
    
    
    81
    
    
    
    151
    
    
    
    263
    
    
    
    303
    
    
    
    566$
    447
    
    
    $
    625
    
    
    
    1,072
    
    
    $
    1,850
    
    
    $
    2,590
    
    
    
    4,440Deferred financing costs
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    
    
    
    
    
    
    
    
    254Total
    
    
    
    
    
    
    
    
    
    $
    1,137
    
    
    
    
    
    
    
    
    
    
    $
    4,694
  September 30, 2009ConversionWarrants
    
    
    feature
    
    
    TotalMay 2006 issuance
    
    $
    18
    
    
    $
    26
    
    
    $
    44July 2006 issuance
    
    
    15
    
    
    
    17
    
    
    
    32October 2006 issuance
    
    
    54
    
    
    
    62
    
    
    
    116$
    87
    
    
    $
    105
    
    
    
    192Debt acquisition cost and
financing fees
    
    
    
    
    
    
    
    
    
    
    97Total
    
    
    
    
    
    
    
    
    
    $
    289
 Long-term Debt
  June 30,
    
    
    September 30,2010
    
    
    2009Note payable with interest currently at 4.24% (variable with Libor, payable in monthly
installments of interest to maturity in January 2011)
    
    $
    1,006
    
    
    $
    1,083Convertible debentures final payment due November 2009 (interest rate of 5.58% 
variable with Libor)
    
    
    
    
    
    
    1,800Convertible debentures final payment due January 2010 (interest rate of 5.12% 
variable with Libor)
    
    
    
    
    
    
    501
  10




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##### Table of Contents



June 30,
    
    
    September 30,2010
    
    
    2009Convertible debentures final payment due April 2010 (interest rate of 4.63% 
variable with Libor)
    
    
    
    
    
    
    1,948Total long-term debt including current maturities
    
    
    1,006
    
    
    
    5,332Less: Debt discount associated with conversion features and warrants
    
    
    
    
    
    
    (192
    )Less: Amounts payable within one year, net of discount of $0 and $192
    
    
    1,006
    
    
    
    (4,159
    )Total long-term debt, less current maturities
    
    $
    
    
    
    $
    981
 5. DERIVATIVE INSTRUMENTS AND FAIR VALUE MEASUREMENT
  Level 1
 Level 2
 Level 3
    Outstanding Warrant Issuances
 May 2006
    
    
    July 2006
    
    
    October 2006
    
    
    December 2006Warrants issued
    
    274,406 shares
    
    
    34,370 shares
    
    
    102,835 shares
    
    
    827,789  sharesExpiration of warrants
    
    May 2011
    
    
    July 2011
    
    
    October 2011
    
    
    December 2012Per share exercise price of warrants
    
    $
    28.06
    
    
    $
    28.06
    
    
    $
    28.06
    
    
    $
    28.06Expected remaining life of warrants
    
    0.9 years
    
    
    1.0 years
    
    
    1.3 years
    
    
    2.5 yearsRisk-free interest rate
    
    
    0.41
    %
    
    
    0.41
    %
    
    
    0.41
    %
    
    
    1.13
    %Stock volatility
    
    
    74.1
    %
    
    
    74.1
    %
    
    
    74.1
    %
    
    
    74.1
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    11




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Balance  October 1, 2009
    
    $
    3,061Conversion to liability of restricted shares
    
    
    240Cash settlements of restricted shares
    
    
    (72
    )Change in fair value of restricted shares
    
    
    49Change in fair value of warrants
    
    
    (1,870
    )Balance  June 30, 2010
    
    $
    1,408
  Fair Value Measurements at Reporting Date UsingTotal Fair
    
    
    Quoted Prices in
    
    
    Significant Other
    
    
    SignificantValue Assets
    
    
    Active Markets for
    
    
    Observable
    
    
    Unobservable(in thousands)
    
    (Liabilities)
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    at 06/30/10
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Warrant  Date of IssuanceMay 2006
    
    $
    48
    
    
    
    
    
    
    
    
    
    
    $
    48July 2006
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    9October 2006
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    46December 2006
    
    
    1,088
    
    
    
    
    
    
    
    
    
    
    
    1,088Restricted Shares
    
    
    217
    
    
    
    
    
    
    
    
    
    
    
    217Total
    
    $
    1,408
    
    
    
    
    
    
    
    
    
    
    $
    1,408
 6. EARNINGS PER SHARE
   Three months ended
    
    
    Nine months endedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Numerators:Net loss
    
    $
    (444
    )
    
    $
    (1,429
    )
    
    $
    (5,913
    )
    
    $
    (421
    )Denominators:Average shares outstanding  basic and diluted
    
    
    34,405
    
    
    
    34,396
    
    
    
    34,416
    
    
    
    34,401Basic and diluted loss per share
    
    $
    (0.01
    )
    
    $
    (0.04
    )
    
    $
    (0.17
    )
    
    $
    (0.01
    )
   12




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7. STOCK OPTION COMPENSATION EXPENSE
  Stock option awards
  Wtd. avg.Options
    
    
    exercise priceBalance, September 30, 2009
    
    
    408,337
    
    
    $
    23.60Granted
    
    
    37,500
    
    
    
    8.52Exercised
    
    
    
    
    
    
    Cancelled
    
    
    (6,250
    )
    
    
    29.70Balance, June 30, 2010
    
    
    439,587
    
    
    $
    22.23Exercisable, June 30, 2010
    
    
    403,337
    
    
    $
    22.26
  Options outstanding
    
    
    Options exercisableRange of
    
    
    
    
    
    
    Wtd. avg.
    
    
    Wtd. avg.
    
    
    
    
    
    
    Wtd. avg.exercise prices
    
    
    
    
    Number
    
    remaining life
    
    
    exercise price
    
    
    Number
    
    
    exercise price$
    2.07-5.47
    
    
    
    
    39,500
    
    4 years
    
    
    $
    5.30
    
    
    
    39,500
    
    
    $
    5.308.40-8.60
    
    
    
    
    80,087
    
    5 years
    
    
    
    8.53
    
    
    
    80,087
    
    
    
    8.5313.98-24.12
    
    
    
    
    87,500
    
    7 years
    
    
    
    19.71
    
    
    
    51,250
    
    
    
    18.1826.22-29.70
    
    
    
    
    142,500
    
    7 years
    
    
    
    29.09
    
    
    
    142,500
    
    
    
    29.0931.07-36.73
    
    
    
    
    90,000
    
    5 years
    
    
    
    33.43
    
    
    
    90,000
    
    
    
    33.432.07-36.73
    
    
    
    
    439,587
    
    6 years
    
    
    
    22.23
    
    
    
    403,337
    
    
    
    22.26
  Assumptions
    
    Fiscal 2010
    
    Fiscal 2009
    
    Fiscal 2008Expected life of option
    
    3.8 years
    
    3.8 & 4 years
    
    4 & 7.5 yearsRisk-free interest rate
    
    0.4%
    
    0.5%
    
    
    1.8%Volatility of stock
    
    77%
    
    79%
    
    
    66%Forfeiture experience on employee options
    
    N/A
    
    25%
    
    
    30%
  Restricted stock awards.
  13




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##### Table of Contents



8. COMMITMENTS AND CONTINGENCIES
 LEGAL
   CONCENTRATION OF CREDIT RISK
    ENVIRONMENTAL
  SOURCES OF SUPPLY
  9. INCOME TAXES
   14




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10. FOREIGN CURRENCY TRANSLATION
   11. NEW ACCOUNTING PRONOUNCEMENTS
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 General
 ® ®
   15




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16




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KEY PERFORMANCE INDICATORS
  Revenue.
 Gross profit.
 Operating expenses.
 Cash flow from operating activities.
 Liquidity and cash flows.
 BUSINESS TRENDS
   17




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
    
    Increased Sales Efforts in Selected International Markets.We have identified
international markets with high growth potential for our existing and emerging commercial
applications. Accordingly, we have added sales personnel and
increased our marketing efforts in India, China and Korea, which have shown growth for wind
energy, oil and gas, and other applications.
 
    
    Business Development in Emerging Applications. We have identified emerging applications
for our products with high growth potential across a variety of industries and regions. In
addition to producing carbon fibers for the existing prepreg technology used by our large
wind turbine customers, we have recently begun shipments of carbon fibers qualified for use
in the infusion process utilized by other wind turbine blade manufacturers. We also are
seeking to qualify our products for use in aerospace secondary structures such as floor,
luggage bins and seats, and anticipate increased sales in this market as the production of
new jetliners increases.Additionally, we are gearing up for the anticipated next phase of wider use of carbon fibers
in automotive applications through the formation of our new subsidiary, Zoltek Automotive,
LLC in April 2010. The new subsidiary will define automotive application opportunities,
develop approaches to successfully demonstrate these applications, and develop and implement
them into high-volume production either by itself or by partnering with other like-minded
companies.
 
    
    Operating Cash Flows and Cash Management.Despite a 7.2% decrease in sales for the
first nine months of 2010 as compared to the first nine months of 2009, we reported cash
flows from operating activities of $9.6 million during the first nine months of fiscal
2010, compared to operating cash flows of $9.0 million during the first nine months of
fiscal 2009. Reduced inventories provided cash of $8.2 million during the first nine
months of fiscal 2010. The Company paid down $4.2 million of its convertible debt and
had reported $2.9 million of capital expenditures during the first nine months of fiscal
2010. We paid down our remaining convertible debt with operating cash flows and our lines
of credit during April 2010.
  RESULTS OF OPERATIONS
 THREE MONTHS ENDED JUNE 30, 2010 COMPARED TO THREE MONTHS ENDED JUNE 30, 2009
      18




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19




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NINE MONTHS ENDED JUNE 30, 2010 COMPARED TO NINE MONTHS ENDED JUNE 30, 2009
       20




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21




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Liquidity and Capital Resources
  Cash Provided By Operating Activities
   Cash Used In Investing Activities
    Cash (Used In) Provided By Financing Activities
  Credit Facilities
    22




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June 30,
    
    
    September 30,2010
    
    
    2009US facility (current interest rate of 3.10%  variable with Libor)
    
    $
    7,980
    
    
    $
    8,343Facility with Hungarian bank (current interest rate of
2.7% to 6.8%, depending on currency)
    
    
    
    
    
    
    3,934Total credit lines
    
    $
    7,980
    
    
    $
    12,277
 Hungarian Grant
   Convertible Debt and Warrants
   As of September 30, 2009Numberof shares
    
    
    Conversion
    
    
    Principalissuable
    
    
    price
    
    
    outstandingMay 2006
    
    
    70,560
    
    
    $
    25.51
    
    
    $
    1,799,986July 2006
    
    
    19,640
    
    
    
    25.51
    
    
    
    501,016October 2006
    
    
    76,381
    
    
    
    25.51
    
    
    
    1,948,479166,581
    
    
    
    
    
    
    $
    4,249,481
 Amortization of Financing Fees and Debt Discount
    23




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Three months ended June 30, 2009
    
    
    Nine months ended June 30, 2009Conversion
    
    
    
    
    
    
    
    
    
    
    ConversionWarrants
    
    
    feature
    
    
    Total
    
    
    Warrants
    
    
    feature
    
    
    TotalMay 2006 issuance
    
    $
    326
    
    
    $
    482
    
    
    $
    808
    
    
    $
    1,378
    
    
    $
    2,032
    
    
    $
    3,410July 2006 issuance
    
    
    51
    
    
    
    62
    
    
    
    113
    
    
    
    209
    
    
    
    255
    
    
    
    464October 2006 issuance
    
    
    70
    
    
    
    81
    
    
    
    151
    
    
    
    263
    
    
    
    303
    
    
    
    566$
    447
    
    
    $
    625
    
    
    
    1,072
    
    
    $
    1,850
    
    
    $
    2,590
    
    
    
    4,440Deferred financing costs
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    
    
    
    
    
    
    
    
    254Total
    
    
    
    
    
    
    
    
    
    $
    1,137
    
    
    
    
    
    
    
    
    
    
    $
    4,694
  September 30, 2009ConversionWarrants
    
    
    feature
    
    
    TotalMay 2006 issuance
    
    $
    18
    
    
    $
    26
    
    
    $
    44July 2006 issuance
    
    
    15
    
    
    
    17
    
    
    
    32October 2006 issuance
    
    
    54
    
    
    
    62
    
    
    
    116$
    87
    
    
    $
    105
    
    
    
    192Debt acquisition cost and financing fees
    
    
    
    
    
    
    
    
    
    
    97Total
    
    
    
    
    
    
    
    
    
    $
    289
 5. DERIVATIVE INSTRUMENTS AND FAIR VALUE MEASUREMENT
  Level 1
 Level 2
 Level 3
    24




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Outstanding Warrant Issuances
 May 2006
    
    
    July 2006
    
    
    October 2006
    
    
    December 2006Warrants issued
    
    274,406 shares
    
    
    34,370 shares
    
    
    102,835 shares
    
    
    827,789  sharesExpiration of warrants
    
    May 2011
    
    
    July 2011
    
    
    October 2011
    
    
    December 2012Per share exercise price of warrants
    
    $
    28.06
    
    
    $
    28.06
    
    
    $
    28.06
    
    
    $
    28.06Expected remaining life of warrants
    
    0.9 years
    
    
    1.0 years
    
    
    1.3 years
    
    
    2.5 yearsRisk-free interest rate
    
    
    0.41
    %
    
    
    0.41
    %
    
    
    0.41
    %
    
    
    1.13
    %Stock volatility
    
    
    74.1
    %
    
    
    74.1
    %
    
    
    74.1
    %
    
    
    74.1
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    Balance  October 1, 2009
    
    $
    3,061Conversion to liability of restricted shares
    
    
    240Cash settlements of restricted shares
    
    
    (72
    )Change in fair value of restricted shares
    
    
    49Change in fair value of warrants
    
    
    (1,870
    )Balance  June 30, 2010
    
    $
    1,408
  Fair Value Measurements at Reporting Date UsingTotal Fair
    
    
    Quoted Prices in
    
    
    Significant Other
    
    
    SignificantValue Assets
    
    
    Active Markets for
    
    
    Observable
    
    
    Unobservable(in thousands)
    
    (Liabilities)
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    at 06/30/10
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Warrant  Date of IssuanceMay 2006
    
    $
    48
    
    
    
    
    
    
    
    
    
    
    $
    48July 2006
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    9October 2006
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    46December 2006
    
    
    1,088
    
    
    
    
    
    
    
    
    
    
    
    1,088Restricted Shares
    
    
    217
    
    
    
    
    
    
    
    
    
    
    
    217Total
    
    $
    1,408
    
    
    
    
    
    
    
    
    
    
    $
    1,408
 LEGAL
   25




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CRITICAL ACCOUNTING ESTIMATES
  FAIR VALUE OF FINANCIAL INSTRUMENTS
  NEW ACCOUNTING PRONOUNCEMENTS
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
  Foreign Currency Risk
    26




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Commodity Price Risk
  * * *
 Special Note Regarding Forward-Looking Statements
   * * *
  27




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Item 4. Controls and Procedures


Evaluation of Controls and Procedures











Item 5. Other Information


(a)
    
    On August 9, 2010, the Company announced that Karen M. Bomba resigned as Chief Operating Officer of the Company, effective as of August 13, 2010, to take a management position with a manufacturing company in the aerospace parts business. PART II. OTHER INFORMATION
 
   
    28




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SIGNATURE
  Zoltek Companies, Inc.
(Registrant)Date: August 9, 2010
    By:
    /s/ ZSOLT RUMYZsolt RumyChief Executive Officer  29




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description of Document
    31.1
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as amended.

31.2
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as amended.32.1
    
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  30