##### Table of Contents



UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 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, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to  to
 Commission File No. 0-20600
 
 ZOLTEK COMPANIES, INC.
  Missouri
    
    43-1311101(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)3101 McKelvey Road, St. Louis, Missouri
    
    63044(Address of principal executive offices)
    
    (Zip Code)
 (314) 291-5110
 þ o
  o þ o
 o þ




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##### 



ZOLTEK COMPANIES, INC.
INDEX
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets  June 30, 2007 and September 30, 2006Condensed Consolidated Statements of Operations  Three and Nine Months Ended June 30, 2007 and 2006Condensed
Consolidated Statements of Comprehensive Income (Loss)  Three
and Nine Months Ended June 30, 2007 and 2006Condensed Consolidated Statement of Changes in Shareholders Equity  June 30, 2007Condensed Consolidated Statements of Cash Flows  Nine Months Ended June 30, 2007 and 2006Notes to Condensed Consolidated Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II. OTHER INFORMATIONItem 1. Legal ProceedingsItem 6. ExhibitsSIGNATURESEXHIBIT INDEXCertification of Chief Executive OfficerCertification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer
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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 30,2007
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    11,500
    
    
    $
    10,802Restricted cash
    
    
    13,815
    
    
    
    6,634Accounts receivable, less allowance for doubtful accounts of $477 and
$729, respectively
    
    
    22,244
    
    
    
    17,009Inventories
    
    
    27,236
    
    
    
    21,721Other current assets
    
    
    8,485
    
    
    
    6,915Total current assets
    
    
    83,280
    
    
    
    63,081Property and equipment, net
    
    
    174,854
    
    
    
    122,284Other assets
    
    
    3,513
    
    
    
    2,319Total assets
    
    $
    261,647
    
    
    $
    187,684Liabilities and Shareholders EquityCurrent liabilities:Current maturities of long-term debt
    
    $
    11,786
    
    
    $
    1,365Note payable
to related party
    
    
    10,000
    
    
    
    Trade accounts payable
    
    
    16,902
    
    
    
    11,935Legal liabilities (see Note 4)
    
    
    20,259
    
    
    
    23,725Accrued expenses and other liabilities
    
    
    5,598
    
    
    
    6,014Total current liabilities
    
    
    64,545
    
    
    
    43,039Value of warrants and conversion feature associated with convertible debentures
    
    
    
    
    
    
    903Long-term debt, less current maturities
    
    
    10,176
    
    
    
    32,002Deferred revenue and other long-term liabilities
    
    
    7,127
    
    
    
    79Total liabilities
    
    
    81,848
    
    
    
    76,023Commitments and contingencies (see Notes 4 and 5)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, 29,499,294 and
25,652,982 shares issued and outstanding in 2007 and 2006, respectively
    
    
    295
    
    
    
    258Additional paid-in capital
    
    
    339,141
    
    
    
    287,299Accumulated deficit
    
    
    (162,180
    )
    
    
    (161,507
    )Accumulated other comprehensive income (loss)
    
    
    2,543
    
    
    
    (14,389
    )Total shareholders equity
    
    
    179,799
    
    
    
    111,661Total liabilities and shareholders equity
    
    $
    261,647
    
    
    $
    187,684
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##### Table of Contents



ZOLTEK COMPANIES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months ended June 30,
    
    
    Nine months ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    40,274
    
    
    $
    26,780
    
    
    $
    107,301
    
    
    $
    68,535Cost of sales
    
    
    28,334
    
    
    
    19,053
    
    
    
    76,922
    
    
    
    51,003Application and development costs
    
    
    1,985
    
    
    
    1,268
    
    
    
    5,397
    
    
    
    3,636Litigation
charges (see Note 4)
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    Selling, general and administrative expenses
    
    
    3,262
    
    
    
    2,524
    
    
    
    9,414
    
    
    
    7,843Operating income from continuing operations
    
    
    6,693
    
    
    
    3,935
    
    
    
    15,568
    
    
    
    6,053Other (expense) income:Interest expense, excluding amortization of financing fees,
debt discount, warrants and conversion feature
    
    
    (428
    )
    
    
    (709
    )
    
    
    (1,959
    )
    
    
    (2,040
    )Amortization of financing fees and debt discount
    
    
    (394
    )
    
    
    (11,332
    )
    
    
    (6,374
    )
    
    
    (15,891
    )Warrant issuance expense
    
    
    
    
    
    
    
    
    
    
    (6,362
    )
    
    
    Loss on value of warrants and conversion feature
    
    
    (242
    )
    
    
    (12,619
    )
    
    
    (314
    )
    
    
    (30,061
    )Interest income
    
    
    244
    
    
    
    59
    
    
    
    898
    
    
    
    59Other, net
    
    
    (544
    )
    
    
    (142
    )
    
    
    (1,284
    )
    
    
    (297
    )Income (loss) from continuing operations before income taxes
    
    
    5,329
    
    
    
    (20,808
    )
    
    
    173
    
    
    
    (42,177
    )Income tax expense
    
    
    309
    
    
    
    410
    
    
    
    804
    
    
    
    688Net income (loss) from continuing operations
    
    
    5,020
    
    
    
    (21,218
    )
    
    
    (631
    )
    
    
    (42,865
    )Discontinued operations:Loss from discontinued operations, net of taxes
    
    
    (24
    )
    
    
    (260
    )
    
    
    (42
    )
    
    
    (58
    )Net income (loss)
    
    $
    4,996
    
    
    $
    (21,478
    )
    
    $
    (673
    )
    
    $
    (42,923
    )Net income (loss) per share:Basic income (loss) per share:Continuing operations
    
    $
    0.17
    
    
    $
    (0.90
    )
    
    $
    (0.02
    )
    
    $
    (1.99
    )Discontinued operations
    
    
    (0.00
    )
    
    
    (0.01
    )
    
    
    (0.00
    )
    
    
    (0.00
    )Total
    
    $
    0.17
    
    
    $
    (0.91
    )
    
    $
    (0.02
    )
    
    $
    (1.99
    )Diluted income (loss) per share:Continuing operations
    
    $
    0.17
    
    
    $
    (0.90
    )
    
    $
    (0.02
    )
    
    $
    (1.99
    )Discontinued operations
    
    
    (0.00
    )
    
    
    (0.01
    )
    
    
    (0.00
    )
    
    
    (0.00
    )Total
    
    $
    0.17
    
    
    $
    (0.91
    )
    
    $
    (0.02
    )
    
    $
    (1.99
    )Weighted average common shares outstanding  basic
    
    
    29,353
    
    
    
    23,567
    
    
    
    27,526
    
    
    
    21,540Weighted average common shares outstanding  diluted
    
    
    30,007
    
    
    
    23,567
    
    
    
    27,526
    
    
    
    21,540
 CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 Three months ended June 30,
    
    
    Nine months ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
(loss)
    
    $
    4,996
    
    
    $
    (21,478
    )
    
    $
    (673
    )
    
    $
    (42,923
    )Foreign
currency translation adjustments
    
    
    2,362
    
    
    
    (1,579
    )
    
    
    16,932
    
    
    
    (5,071
    )Comprehensive
income (loss)
    
    $
    7,358
    
    
    $
    (23,057
    )
    
    $
    16,259
    
    
    $
    (47,994
    )
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##### Table of Contents



ZOLTEK COMPANIES, INC.
 
 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
 Addl
    
    
    
    
    
    
    Accumulated OtherCommon
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Total ShareholdersStock
    
    
    Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    EquityBalance, September 30, 2006
    
    $
    258
    
    
    $
    287,299
    
    
    $
    (161,507
    )
    
    $
    (14,389
    )
    
    $
    111,661Convertible debt converted
    
    
    25
    
    
    
    29,735
    
    
    
    
    
    
    
    
    
    
    
    29,760Unamortized value of convertible debt discount at
time of conversion
    
    
    
    
    
    
    (2,785
    )
    
    
    
    
    
    
    
    
    
    
    (2,785
    )Valuation of warrants related to January 2004
issuance
    
    
    
    
    
    
    1,218
    
    
    
    
    
    
    
    
    
    
    
    1,218Value of warrants issued
    
    
    
    
    
    
    6,362
    
    
    
    
    
    
    
    
    
    
    
    6,362Discount for warrants and beneficial
conversion feature issued with convertible debt
    
    
    
    
    
    
    2,796
    
    
    
    
    
    
    
    
    
    
    
    2,796Stock option compensation expense
    
    
    
    
    
    
    888
    
    
    
    
    
    
    
    
    
    
    
    888Warrants exercised
    
    
    9
    
    
    
    12,396
    
    
    
    
    
    
    
    
    
    
    
    12,405Exercise of stock options
    
    
    3
    
    
    
    1,232
    
    
    
    
    
    
    
    
    
    
    
    1,235Net loss
    
    
    
    
    
    
    
    
    
    
    (673
    )
    
    
    
    
    
    
    (673
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,932
    
    
    
    16,932Balance, June 30, 2007
    
    $
    295
    
    
    $
    339,141
    
    
    $
    (162,180
    )
    
    $
    2,543
    
    
    $
    179,799
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##### Table of Contents



ZOLTEK COMPANIES, INC.
 
 CONSDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine months ended June 30,2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (673
    )
    
    $
    (42,923
    )Net loss from discontinued operations
    
    
    42
    
    
    
    58Net loss from continuing operations
    
    
    (631
    )
    
    
    (42,865
    )Adjustments to reconcile net loss to net cash from operating activities:Depreciation and amortization
    
    
    7,189
    
    
    
    4,603Amortization of financing fees and debt discount
    
    
    6,374
    
    
    
    16,557Warrant issuance expense
    
    
    6,362
    
    
    
    Loss on value of warrants and conversion feature
    
    
    314
    
    
    
    30,061Foreign currency transaction losses
    
    
    628
    
    
    
    Stock option compensation expense
    
    
    888
    
    
    
    276Changes in assets and liabilities:Increase in accounts receivable
    
    
    (4,178
    )
    
    
    (6,006
    )(Increase) decrease in inventories
    
    
    (5,172
    )
    
    
    2,390Increase in other current assets and other assets
    
    
    (1,663
    )
    
    
    (4,466
    )Increase in trade accounts payable
    
    
    3,484
    
    
    
    3,409Decrease in accrued expenses and other liabilities
    
    
    (5,915
    )
    
    
    (240
    )Increase in other long-term liabilities
    
    
    237
    
    
    
    8Net cash provided by continuing operations
    
    
    7,917
    
    
    
    3,727Net cash provided by discontinued operations
    
    
    1,905
    
    
    
    299Net cash provided by operating activities
    
    
    9,822
    
    
    
    4,026Cash flows from investing activities:Purchases of property and equipment
    
    
    (42,788
    )
    
    
    (28,897
    )Proceeds received from Hungarian government grant
    
    
    7,547
    
    
    
    Net cash used in investing activities
    
    
    (35,241
    )
    
    
    (28,897
    )Cash flows from financing activities:Proceeds from exercise of stock options and warrants
    
    
    13,642
    
    
    
    11,281Net
borrowings under note payable to related party
    
    
    10,000
    
    
    
    Proceeds from issuance of convertible debt
    
    
    7,494
    
    
    
    45,000Change in cash restricted for letters of credit
    
    
    (7,181
    )
    
    
    (6,634
    )Payment of financing fees
    
    
    (875
    )
    
    
    (1,508
    )Borrowings (repayment) of notes payable and long-term debt
    
    
    3,176
    
    
    
    (3,821
    )Net cash provided by financing activities
    
    
    26,256
    
    
    
    44,318Effect of exchange rate changes on cash and cash equivalents
    
    
    (139
    )
    
    
    (42
    )Net increase in cash and cash equivalents
    
    
    698
    
    
    
    19,405Cash and cash equivalents at beginning of period
    
    
    10,802
    
    
    
    255Cash and cash equivalents at end of period
    
    $
    11,500
    
    
    $
    19,660Non-cash conversion of convertible debentures
    
    $
    29,760
    
    
    $
    47,158
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ZOLTEK COMPANIES, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1. ORGANIZATION AND BASIS OF PRESENTATION
      2. INVENTORIES
  June 30,
    
    
    September 30,2007
    
    
    2006Raw materials
    
    $
    6,269
    
    
    $
    5,737Work-in-process
    
    
    12,154
    
    
    
    10,319Finished goods
    
    
    8,063
    
    
    
    5,142Supplies and other
    
    
    750
    
    
    
    523$
    27,236
    
    
    $
    21,721
  7




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##### Table of Contents



3. DEBT
   June 30,
    
    
    September 30,2007
    
    
    2006Note payable with interest at 9%, payable in eleven monthly installments of
principal and interest of $15 to maturity in January 2008
    
    $
    1,292
    
    
    $
    1,346Non-interest bearing note payable (discounted at 8%) to the City of Abilene, Texas
to be repaid from real estate and personal property tax abatements
    
    
    1,995
    
    
    
    1,946Facilities with Hungarian banks (interest rates of 5.5% to 10.6%)
    
    
    6,602
    
    
    
    3,217Convertible debentures final payment due February 2008 bearing interest at 7.0%
    
    
    1,250
    
    
    
    2,700Convertible debentures final payment due March 2009 bearing interest at 7.5%
    
    
    
    
    
    
    3,000Convertible debentures final payment due May 2009 bearing interest at 7.5%
    
    
    
    
    
    
    15,000Convertible debentures final payment due August 2009 bearing interest at 7.5%
    
    
    
    
    
    
    10,000Convertible debentures final payment due November 2009 bearing interest at 7.5%
    
    
    20,000
    
    
    
    20,000Convertible debentures final payment due January 2010 bearing interest at 7.5%
    
    
    10,000
    
    
    
    2,505Total long-term debt including current maturities
    
    
    41,139
    
    
    
    59,714Less: Debt discount associated with conversion feature and warrants
    
    
    (19,177
    )
    
    
    (26,347
    )Less: Amounts payable within one year, net of discount of $7,003 and $0
    
    
    (11,786
    )
    
    
    (1,365
    )Total long-term debt, less current maturities
    
    $
    10,176
    
    
    $
    32,002
 4. COMMITMENTS AND CONTINGENCIES
 Legal
   8




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Environmental
  9




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##### Table of Contents



Concentration of Credit Risk
  5. FINANCING
 Bond Related to SP Systems Case
   Revolving Credit Facility
  Hungarian Grant
  10




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##### Table of Contents



Convertible Debt
       Convertible Debt Issuances Outstanding as of June 30, 2007May
    
    July
    
    October2006
    
    2006
    
    2006Amount of debenture (millions)
    
    
    $20.0
    
    
    
    $2.5
    
    
    
    $7.5Per share conversion price on debenture
    
    
    $25.51
    
    
    
    $25.51
    
    
    
    $25.51Interest rate
    
    
    $7.5%
    
    
    
    7.5%
    
    
    
    7.5%Term of debenture
    
    
    42 months
    
    
    
    42 months
    

    

    
    42 monthsWarrants issued
    
    
    274,406
    
    
    
    34,370
    
    
    
    102,835Term of warrants
    
    
    60 months
 
    
     
    60 months
 


    
    
    60 monthsPer share exercise price of warrants
    
    
    $28.06
    
    
    
    $28.06
    
    
    
    $28.06Fair value per warrant at issuance
    
    
    $26.03
    
    
    
    $23.89
    
    
    
    $12.64Value per share conversion
feature at issuance
    
    
    $18.80
    
    
    
    $19.21
    
    
    
    $19.57Stock price on date of agreement
    
    
    $32.25
    
    
    
    $29.28
    
    
    
    $26.81Stock volatility at issuance
    
    
    106%
    
    
    
    111%
    
    
    
    117%Dividend yield
    
    
    0.0%
    
    
    
    0.0%
    
    
    
    0.0%Risk-free interest rate at issuance
    
    
    4.88%
    
    
    
    4.88%
    
    
    
    4.65%Converted
    
    
    No
    
    
    
    No
    
    
    
    NoWarrants exercised
    
    
    No

    
    
    
    No

    
    
    
    No
 11




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Amortization of Financing Fees and Debt Discount
   Three months ended June 30, 2007
    
    
    Nine months ended June 30, 2007Conversion
    
    
    
    
    
    
    
    
    
    
    ConversionWarrants
    
    
    Feature
    
    
    Total
    
    
    Warrants
    
    
    Feature
    
    
    TotalSeptember 2005 issuance
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    158
    
    
    $
    
    
    
    $
    158December 2005 issuance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    285
    
    
    
    
    
    
    
    285February 2006 issuance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,830
    
    
    
    1,882
    
    
    
    3,712May 2006 issuance
    
    
    61
    
    
    
    89
    
    
    
    150
    
    
    
    369
    
    
    
    537
    
    
    
    906July 2006 issuance
    
    
    7
    
    
    
    8
    
    
    
    15
    
    
    
    82
    
    
    
    99
    
    
    
    181October 2006 issuance
    
    
    20
    
    
    
    23
    
    
    
    43
    
    
    
    162
    
    
    
    187
    
    
    
    349$
    88
    
    
    $
    120
    
    
    $
    208
    
    
    $
    2,886
    
    
    $
    2,705
    
    
    $
    5,591Deferred financing costs
    
    
    
    
    
    
    
    
    
    
    186
    
    
    
    
    
    
    
    
    
    
    
    783Total
    
    
    
    
    
    
    
    
    
    $
    394
    
    
    
    
    
    
    
    
    
    
    $
    6,374
 Three months ended June 30, 2006
    
    
    Nine months ended June 30, 2006Conversion
    
    
    
    
    
    
    
    
    
    
    ConversionWarrants
    
    
    Feature
    
    
    Total
    
    
    Warrants
    
    
    Feature
    
    
    TotalOctober 2004 issuance
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    653
    
    
    $
    
    
    
    $
    653February 2005 issuance
    
    
    113
    
    
    
    6,406
    
    
    
    6,519
    
    
    
    901
    
    
    
    7,798
    
    
    
    8,699September 2005 issuance
    
    
    100
    
    
    
    
    
    
    
    100
    
    
    
    879
    
    
    
    
    
    
    
    879December 2005 issuance
    
    
    178
    
    
    
    
    
    
    
    178
    
    
    
    414
    
    
    
    
    
    
    
    414February 2006 issuance
    
    
    201
    
    
    
    207
    
    
    
    408
    
    
    
    335
    
    
    
    345
    
    
    
    680May 2006 issuance
    
    
    255
    
    
    
    377
    
    
    
    632
    
    
    
    255
    
    
    
    377
    
    
    
    632May 2006 issuance
    
    
    3,300
    
    
    
    
    
    
    
    3,300
    
    
    
    3,300
    
    
    
    
    
    
    
    3,300$
    4,147
    
    
    $
    6,990
    
    
    $
    11,137
    
    
    $
    6,737
    
    
    $
    8,520
    
    
    $
    15,257Deferred financing costs
    
    
    
    
    
    
    
    
    
    
    195
    
    
    
    
    
    
    
    
    
    
    
    634Total
    
    
    
    
    
    
    
    
    
    $
    11,332
    
    
    
    
    
    
    
    
    
    
    $
    15,891
  June 30, 2007ConversionWarrants
    
    
    Feature
    
    
    TotalMay 2006 issuance
    
    $
    6,469
    
    
    $
    9,553
    
    
    $
    16,022July 2006 issuance
    
    
    754
    
    
    
    909
    
    
    
    1,663October 2006 issuance
    
    
    1,120
    
    
    
    1,289
    
    
    
    2,409$
    8,343
    
    
    $
    11,751
    
    
    $
    20,094Debt acquisition cost and financing fees
    
    
    
    
    
    
    
    
    
    
    1,251Total
    
    
    
    
    
    
    
    
    
    $
    21,345
 12




---



##### Table of Contents



September 30, 2006ConversionWarrants
    
    
    Feature
    
    
    TotalSeptember 2005 issuance
    
    $
    1,003
    
    
    $
    
    
    
    $
    1,003December 2005 issuance
    
    
    1,894
    
    
    
    
    
    
    
    1,894February 2006 issuance
    
    
    2,278
    
    
    
    2,343
    
    
    
    4,621May 2006 issuance
    
    
    6,899
    
    
    
    10,187
    
    
    
    17,086July 2006 issuance
    
    
    791
    
    
    
    952
    
    
    
    1,743$
    12,865
    
    
    $
    13,482
    
    
    $
    26,347Debt acquisition cost and financing fees
    
    
    
    
    
    
    
    
    
    
    1,582Total
    
    
    
    
    
    
    
    
    
    $
    27,929
 Warrant and Conversion Features
  Three months ended June 30, 2007
    
    
    Nine months ended June 30, 2007Conversion
    
    
    
    
    
    
    
    
    
    
    ConversionWarrants
    
    
    Features
    
    
    Total
    
    
    Warrants
    
    
    Features
    
    
    TotalJanuary 2004 issuance  mark to market
    
    $
    (242
    )
    
    $
    
    
    
    $
    (242
    )
    
    $
    (314
    )
    
    $
    
    
    
    $
    (314
    )Loss on value of warrants and
conversion feature
    
    $
    (242
    )
    
    $
    
    
    
    $
    (242
    )
    
    $
    (314
    )
    
    $
    
    
    
    $
    (314
    )
 Three months ended June 30, 2006
    
    
    Nine months ended June 30, 2006Conversion
    
    
    
    
    
    
    
    
    
    
    ConversionWarrants
    
    
    Features
    
    
    Total
    
    
    Warrants
    
    
    Features
    
    
    TotalJanuary 2004 issuance
    
    $
    (568
    )
    
    $
    
    
    
    $
    (568
    )
    
    $
    (1,679
    )
    
    $
    
    
    
    $
    (1,679
    )March 2004 issuance
    
    
    (253
    )
    
    
    
    
    
    
    (253
    )
    
    
    (730
    )
    
    
    
    
    
    
    (730
    )October 2004 issuance
    
    
    (2,715
    )
    
    
    
    
    
    
    (2,715
    )
    
    
    (7,017
    )
    
    
    (1,556
    )
    
    
    (8,573
    )February 2005 issuance
    
    
    (3,975
    )
    
    
    (5,108
    )
    
    
    (9,083
    )
    
    
    (6,820
    )
    
    
    (12,259
    )
    
    
    (19,079
    )Loss on value of warrants and
conversion feature
    
    $
    (7,511
    )
    
    $
    (5,108
    )
    
    $
    (12,619
    )
    
    $
    (16,246
    )
    
    $
    (13,815
    )
    
    $
    (30,061
    )
 Earnings Per Share
  Three months endedJune 30, 2007Numerators:Net income from continuing operations
    
    $
    5,020Impact of convertible debt and warrants:Add: interest expense
    
    
    25Income from continuing operations
    
    
    5,045Loss from discontinued operations
    
    
    (24
    )Adjusted net income
    
    $
    5,021
 13




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##### Table of Contents



Three months endedJune 30, 2007Denominators:Average shares outstanding  basic
    
    
    29,353Impact of convertible debt, warrants and stock options
    
    
    654Average shares outstanding  diluted
    
    
    30,007Income per share  basic:Continuing operations
    
    $
    0.17Discontinued operations
    
    
    (0.00
    )Basic income per share
    
    $
    0.17Income per share  diluted:Continuing operations
    
    $
    0.17Discontinued operations
    
    
    (0.00
    )Diluted income per share
    
    $
    0.17
  6. STOCK OPTION COMPENSATION EXPENSE
   Wtd. Avg.
    
    Wtd. Avg.
    
    Wtd. Avg.Options
    
    Exercise Price
    
    Exercisable
    
    Exercise PriceBalance, March 31, 2007
    
    
    486,910
    
    
    $
    13.21
    
    
    
    354,400
    
    
    $
    13.72Granted
    
    
    150,000
    
    
    
    29.70Exercised
    
    
    (84,300
    )
    
    
    7.36Cancelled
    
    
    
    
    
    
    Balance June 30, 2007
    
    
    552,610
    
    
    
    18.99
    
    
    
    298,100
    
    
    
    15.71
 14




---



##### Table of Contents



Options Outstanding
    
    Options ExercisableRange of
    
    
    
    
    
    Wtd. Avg.
    
    Wtd. Avg.
    
    
    
    
    
    Wtd. Avg.Exercise Prices
    
    Number
    
    Remaining Life
    
    Exercise Price
    
    Number
    
    Exercise Price$
    1.33-2.80
    
    
    
    42,000
    
    
    5 years
    
    $
    2.45
    
    
    
    42,000
    
    
    $
    2.453.25-5.67
    
    
    
    35,000
    
    
    4 years
    
    
    5.49
    
    
    
    35,000
    
    
    
    5.256.25-9.25
    
    
    
    125,600
    
    
    6 years
    
    
    8.28
    
    
    
    58,600
    
    
    
    7.929.60-15.99
    
    
    
    92,510
    
    
    6 years
    
    
    13.47
    
    
    
    80,000
    
    
    
    13.9926.22-39.00
    
    
    
    257,500
    
    
    5 years
    
    
    30.72
    
    
    
    82,500
    
    
    
    33.951.33-39.00
    
    
    
    552,610
    
    
    5 years
    
    
    18.99
    
    
    
    298,100
    
    
    
    15.71
    Fiscal year ending September 30,Assumptions
    
    2007
    
    2006
    
    2005Expected life of option
    
    
    3 to 7.5
    years
    
    
    3 & 8
    years

    
    
    4 & 8
    yearsRisk-free interest rate
    
    
    4.90
    %
    
    
    4.32
    %
    
    
    3.80
    %Volatility of stock
    
    
    68
    %
    
    
    96
    %
    
    
    76
    %Forfeiture experience
    
    
    44
    %
    
    
    30
    %
    
    
    51
    %
 7. SEGMENT INFORMATION
    Three months ended June 30, 2007Carbon
    
    Technical
    
    Corporate/Fibers
    
    Fibers
    
    Other
    
    TotalNet sales
    
    $
    28,903
    
    
    $
    10,642
    
    
    $
    729
    
    
    $
    40,274Cost of sales
    
    
    19,636
    
    
    
    8,185
    
    
    
    513
    
    
    
    28,334Operating income (loss)
    
    
    7,384
    
    
    
    2,043
    
    
    
    (2,734
    )
    
    
    6,693Depreciation and amortization expense
    
    
    1,888
    
    
    
    480
    
    
    
    329
    
    
    
    2,697Capital expenditures
    
    
    12,285
    
    
    
    
    
    
    
    233
    
    
    
    12,518
 15




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##### Table of Contents



Three months ended June 30, 2006Carbon
    
    Technical
    
    Corporate/Fibers
    
    Fibers
    
    Other
    
    TotalNet sales
    
    $
    17,975
    
    
    $
    8,470
    
    
    $
    335
    
    
    $
    26,780Cost of sales
    
    
    12,442
    
    
    
    6,338
    
    
    
    273
    
    
    
    19,053Operating income (loss)
    
    
    3,826
    
    
    
    1,686
    
    
    
    (1,577
    )
    
    
    3,935Depreciation and amortization expense
    
    
    1,351
    
    
    
    122
    
    
    
    112
    
    
    
    1,585Capital expenditures
    
    
    12,562
    
    
    
    2,497
    
    
    
    496
    
    
    
    15,555
 Nine months ended June 30, 2007Carbon
    
    Technical
    
    Corporate/Fibers
    
    Fibers
    
    Other
    
    TotalNet sales
    
    $
    79,098
    
    
    $
    26,219
    
    
    $
    1,984
    
    
    $
    107,301Cost of sales
    
    
    56,694
    
    
    
    19,101
    
    
    
    1,127
    
    
    
    76,922Operating income (loss)
    
    
    16,006
    
    
    
    6,026
    
    
    
    (6,464
    )
    
    
    15,568Depreciation and amortization expense
    
    
    4,891
    
    
    
    1,289
    
    
    
    1,009
    
    
    
    7,189Capital expenditures
    
    
    37,951
    
    
    
    2,752
    
    
    
    2,085
    
    
    
    42,788
 Nine months ended June 30, 2006Carbon
    
    Technical
    
    Corporate/Fibers
    
    Fibers
    
    Other
    
    TotalNet sales
    
    $
    48,372
    
    
    $
    19,292
    
    
    $
    871
    
    
    $
    68,535Cost of sales
    
    
    35,642
    
    
    
    14,762
    
    
    
    599
    
    
    
    51,003Operating income (loss)
    
    
    8,054
    
    
    
    3,348
    
    
    
    (5,349
    )
    
    
    6,053Depreciation and amortization expense
    
    
    3,552
    
    
    
    737
    
    
    
    371
    
    
    
    4,660Capital expenditures
    
    
    22,955
    
    
    
    5,132
    
    
    
    810
    
    
    
    28,897
 Total AssetsCarbon
    
    Technical
    
    Corporate/Fibers
    
    Fibers
    
    Other
    
    TotalJune 30, 2007
    
    $
    198,774
    
    
    $
    38,211
    
    
    $
    24,662
    
    
    $
    261,647September 30, 2006
    
    
    128,747
    
    
    
    25,199
    
    
    
    33,738
    
    
    
    187,684
 8. DISCONTINUED OPERATIONS
  Three months ended
    
    
    Nine months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    242
    
    
    $
    1,192
    
    
    $
    1,748
    
    
    $
    4,036Cost of sales
    
    
    204
    
    
    
    1,063
    
    
    
    1,557
    
    
    
    3,493Gross profit
    
    
    38
    
    
    
    129
    
    
    
    191
    
    
    
    543Selling, general and administrative expenses
    
    
    11
    
    
    
    68
    
    
    
    134
    
    
    
    317Income from operations
    
    
    27
    
    
    
    61
    
    
    
    57
    
    
    
    226Other loss
    
    
    (51
    )
    
    
    (321
    )
    
    
    (99
    )
    
    
    (284
    )Loss on discontinued operations
    
    $
    (24
    )
    
    $
    (260
    )
    
    $
    (42
    )
    
    $
    (58
    )
 9. NEW ACCOUNTING PRONOUNCEMENTS
   * * *
 16




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##### Table of Contents



Special Note Regarding Forward-Looking Statements
    17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 General
                     18




---



##### Table of Contents



Results of Operations
 Three
months ended June 30, 2007 compared to three months ended June 30, 2006
         19




---



##### Table of Contents



3⁄4
     Nine
months ended June 30, 2007 compared to nine months ended
June 30, 2006
       20




---



##### Table of Contents



Liquidity and Capital Resources
  Cash
Provided By (Used In) Continuing Operating Activities
  21




---



##### Table of Contents



Cash Provided By Discontinued Operating Activities
  Cash
Used In Investing Activities
    Cash
Provided By Financing Activities
    Future
Contractual Obligations
  Less thanTotal
    
    
    1 year
    
    
    1-3 yearsConvertible debentures (a)
    
    $
    31,250
    
    
    $
    11,501
    
    
    $
    19,749Long-term debt, including current maturities (a)
    
    
    19,889
    
    
    
    17,290
    
    
    
    2,599Total debt
    
    
    51,139
    
    
    
    28,791
    
    
    
    22,348Contractual interest payments (b)
    
    
    4,191
    
    
    
    2,573
    
    
    
    1,618
 22




---



##### Table of Contents



Less thanTotal
    
    
    1 year
    
    
    1-3 yearsLegal liabilities (c)
    
    
    20,259
    
    
    
    20,259
    
    
    
    Purchase obligations (d)
    
    
    4,249
    
    
    
    4,249
    
    
    
    Total contractual obligations
    
    $
    79,838
    
    
    $
    55,872
    
    
    $
    23,966
 
 (a)
    
    Convertible debentures and long-term debt are presented on the balance sheet net of
debt discount of $19.2 million.(b)
    
    Amounts represent the expected cash payment for interest on our debt.(c)
    
    Amount includes $18.9 million accrued for potential damages and litigation cost
related to SP Systems case and $1.4 million related to the investment banker case and
other pending litigation. See Note 4.(d)
    
    Purchase obligations include agreements to purchase goods or services that are
enforceable and legally binding and that specify all significant terms, including fixed
or minimum quantities to be purchased, fixed, minimum or variable price provisions, and
the approximate timing of the transactions. Purchase obligations exclude agreements that
are cancelable at any time without penalty.  Conversion
    
    
    Less thanprice
    
    
    Total
    
    
    1 year
    
    
    1-3 yearsTotal contractual obligations
    
    
    
    
    
    $
    79,838
    
    
    $
    55,872
    
    
    $
    23,966February 2003 issuance
    
    $
    3.50
    
    
    
    (1,250
    )
    
    
    (1,250
    )
    
    
    May 2006 issuance
    
    
    25.51
    
    
    
    (20,000
    )
    
    
    (8,000
    )
    
    
    (12,000
    )July and October 2006 issuance
    
    
    25.51
    
    
    
    (10,000
    )
    
    
    (2,251
    )
    
    
    (7,749
    )Interest payments
    
    
    
    
    
    
    (4,191
    )
    
    
    (2,573
    )
    
    
    (1,618
    )Total contractual obligations assuming
conversion on June 30, 2007
    
    
    
    
    
    $
    44,397
    
    
    $
    41,798
    
    
    $
    2,599
  Bond Related to SP Systems Case
   Revolving Credit Facility
  23




---



##### Table of Contents



Hungarian Grant
  Convertible Debt
       Convertible Debt Issuances Outstanding as of June 30, 2007May
    
    July
    
    October2006
    
    2006
    
    2006Amount of debenture (millions)
    
    $20.0
    
    
    $2.5
    
    
    $7.5Per share conversion price on debenture
    
    $25.51
    
    
    $25.51
    
    
    $25.51Interest rate
    
    7.5%
    
    
    7.5%
    
    
    7.5%Term of debenture
    
    42 months

    
    42 months

    
    42 months
 24




---



##### Table of Contents



Convertible Debt Issuances Outstanding as of June 30, 2007May
    
    July
    
    October2006
    
    2006
    
    2006Warrants issued
    
    274,406
    
    
    34,370
    
    
    102,835Term of warrants
    
    60 months
    
    60 months
    
    60 monthsPer share exercise price of warrants
    
    $28.06
    
    
    $28.06
    
    
    $28.06Fair value per warrant at issuance
    
    $26.03
    
    
    $23.89
    
    
    $12.64Value per share conversion
feature at issuance
    
    $18.80
    
    
    $19.21
    
    
    $19.57Stock price on date of agreement
    
    $32.25
    
    
    $29.28
    
    
    $26.81Stock volatility at issuance
    
    106%
    
    
    111%
    
    
    117%Dividend yield
    
    0.0%
    
    
    0.0%
    
    
    0.0%Risk-free interest rate at issuance
    
    4.88%
    
    
    4.88%
    
    
    4.65%Converted
    
    No
    
    No
    
    NoWarrants exercised
    
    No
    
    No
    
    No
 Amortization of Financing Fees and Debt Discount
  Warrant and Conversion Features
  Legal
    25




---



##### Table of Contents



New
Accounting Pronouncements
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   26




---



##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
       27




---



##### Table of Contents



Changes in Internal Control Over Financial Reporting
  Managements Remediation Initiatives and Interim Measures
  
    
    Improve compliance with its previously established cycle counting
process, by instituting greater management oversight, providing
additional training for cycle count personnel, mandating use of
specifically designed cycle count worksheets, requiring review and
approval of all cycle counts by another trained individual, and
adding secondary verification that all cycle count adjustments
have been entered into the Companys inventory system in a timely
manner.
    
    Designing and implementing controls over the inventory costing and
valuation process based on feedback and input from Accounting,
Engineering and Plant personnel, including formal identification
of current costs of manufactured products, development of new cost
standards to be utilized in the manufacturing process, and
implementation of routine review of manufacturing variances
against benchmarks to validate production costs and inventory
values.
 28




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##### Table of Contents





ZOLTEK COMPANIES, INC.





PART II. OTHER INFORMATION





Item 1.
Legal Proceedings




Item 1A.
Risk Factors


The following are risk factors that could affect our business, financial results and results
of operations. These risk factors should be considered in connection with evaluating the
forward-looking statements and information contained or incorporated by reference in this
quarterly report because these factors could cause the actual results and conditions to differ
materially from those projected in forward-looking statements. Before you buy our common stock, you
should know that making such an investment involves a high degree of risk, including the risks
described below. The risks that we have highlighted in this quarterly
report are not the only
ones that we face. If any of the risks actually occur, our business, financial condition, results
of operations or cash flows could be negatively affected. In that case, the trading price or value
of our common stock could decline, and you may lose all or part of your investment.




Risks
    Relating to Our Company




We
    have reported net losses for fiscal year 2006 and each of the
    four fiscal years preceding it and for the nine months ended
    June 30, 2007 and we may not report net income in the
    future.








We
    have experienced negative cash flows from operations for each of
    the four fiscal years prior to fiscal 2006 and may experience
    negative cash flows in the future, which may adversely affect
    our ability to fund our operations.




and/or




Our
    operations and sales in foreign countries are subject to
    risks.








Our
    operating results have been adversely affected by difficulties
    in operating our carbon fibers plant in Abilene,
    Texas and may continue to be in the future.








29



---



##### Table of Contents





Our
    ability to fund and manage our anticipated growth will affect
    our operating results.








Our
    operations are dependent upon our senior management and
    technical personnel.








Ongoing
    legal proceedings in which we are involved could result in our
    having to pay substantial damages and adversely affect our
    operating results.
























Our
    ability to raise capital to fund our expansion program may be
    limited by our obligations under an appeal bond.








30



---



##### Table of Contents





We may
    not be successful in completing the proposed Mexican
    manufacturing facility acquisition or retrofitting the facility
    on a timely and cost-effective basis if the facility is
    acquired.








Our
    operating results may fluctuate.








Developments
    by competitors may reduce demand for our products and
    technologies, which may adversely affect our
    sales.








A
    limited number of customers generate a significant portion of
    our revenue and may terminate their contracts with us in the
    event of certain changes in control or may require that we make
penalty payments in the event we fail to perform.








Failure
    to keep pace with technological developments may adversely
    affect our operations.








The
    price volatility of many of our raw materials and rising energy
    costs may result in increased production costs, which we may not
    be able to pass on to our customers.








We
    could be adversely affected by environmental and safety
    requirements.












31



---



##### Table of Contents





Our
    business depends upon the maintenance of our proprietary
    technology.








We
    have incurred and will continue to incur increased costs and
    demands upon our management as a result of complying with the
    laws and regulations affecting public companies, which could
    affect our operating results and make it more difficult to
    attract and retain qualified management.








Our
    management and our former independent registered public
    accounting firm have identified material weaknesses in the
    design and operation of our internal controls, which, if not
    properly remediated, could result in material misstatements in
    our interim and annual consolidated financial statements in
    future periods.








There
    are risks associated with the operation of our manufacturing
    facilities, which could interrupt or limit our manufacturing
    capacity.








Risks
Related to Our Common Stock




Our stock
    price has been volatile and may continue to fluctuate.






32



---



##### Table of Contents



Our
principal shareholder has voting control over the Company.








Our board
    of directors has the authority to issue preferred stock, which
    could affect the rights of holders of common stock.








Our
    classified board of directors could discourage a change in
    control.








Future
    sales of common stock could affect the price of our common
    stock.








We do not
    currently intend to pay dividends on our common stock.




33




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##### Table of Contents



SIGNATURE
  Zoltek Companies, Inc.(Registrant)Date:
August 6, 2007
    
    By:
    
    /s/ KEVIN SCHOTTKevin SchottChief Financial Officer
 34




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit Number
    
    Description of Document31.1
    
    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.
 35