##### 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 December 31, 2008
 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)
  þ o
  Large Accelerated Filer þ
    
    Accelerated Filer o
    
    Non-accelerated Filer o
    
    Smaller Reporting Company o
 o þ




---



##### 



ZOLTEK COMPANIES, INC.
INDEX
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)
    
    
    3Condensed Consolidated Balance Sheet  December 31, 2008 and September 30, 2008
    
    
    3Condensed Consolidated Statement of Operations  Three Months Ended December 31, 2008 and 2007
    
    
    4Condensed Consolidated Statement of Changes in Shareholders Equity  December 31, 2008
    
    
    5Condensed Consolidated Statement of Cash Flows  Three Months Ended December 31, 2008 and 2007
    
    
    6Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    26PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    27Item 5.
Other Information
    
    
    27Item 6. Exhibits
    
    
    27SIGNATURES
    
    
    28EXHIBIT INDEX
    
    
    29Exhibit 10.1Exhibit 10.2Exhibit 31.1Exhibit 32.1
   2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 ZOLTEK COMPANIES, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEET
 December 31,
    
    
    September 30,2008
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    17,517
    
    
    $
    29,224Restricted cash
    
    
    23,500
    
    
    
    23,500Accounts receivable, less allowance for doubtful accounts of $1,169
and $1,754, respectively
    
    
    35,450
    
    
    
    42,690Inventories, net
    
    
    53,217
    
    
    
    45,659Other current assets
    
    
    6,948
    
    
    
    9,432Total current assets
    
    
    136,632
    
    
    
    150,505Property and equipment, net
    
    
    262,764
    
    
    
    288,894Other assets
    
    
    619
    
    
    
    765Total assets
    
    $
    400,015
    
    
    $
    440,164Liabilities and Shareholders EquityCurrent liabilities:Legal liabilities
    
    $
    23,340
    
    
    $
    29,083Current maturities of long-term debt
    
    
    16,153
    
    
    
    12,601Trade accounts payable
    
    
    10,749
    
    
    
    15,093Accrued expenses and other liabilities
    
    
    6,762
    
    
    
    9,278Construction payables
    
    
    6,275
    
    
    
    8,450Total current liabilities
    
    
    63,279
    
    
    
    74,505Long-term debt, less current maturities
    
    
    2,247
    
    
    
    3,562Hungarian grant, long-term
    
    
    9,412
    
    
    
    10,882Deferred tax liabilities
    
    
    4,115
    
    
    
    4,521Other long-term liabilities
    
    
    25
    
    
    
    28Total liabilities
    
    
    79,078
    
    
    
    93,498Commitments 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, 34,405,642 and
34,389,428 shares issued and outstanding at December 31, 2008 and
September 30, 2008, respectively
    
    
    344
    
    
    
    344Additional paid-in capital
    
    
    492,371
    
    
    
    491,175Accumulated other comprehensive (loss) income
    
    
    (15,730
    )
    
    
    11,730Accumulated deficit
    
    
    (156,048
    )
    
    
    (156,583
    )Total shareholders equity
    
    
    320,937
    
    
    
    346,666Total liabilities and shareholders equity
    
    $
    400,015
    
    
    $
    440,164
   3




---



##### Table of Contents



ZOLTEK COMPANIES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months ended December 31,2008
    
    
    2007Net sales
    
    $
    38,629
    
    
    $
    40,072Cost of sales
    
    
    28,365
    
    
    
    29,313Gross profit
    
    
    10,264
    
    
    
    10,759Application and development costs
    
    
    1,721
    
    
    
    1,896Litigation charge (see Note 8)
    
    
    238
    
    
    
    Selling, general and administrative expenses
    
    
    4,830
    
    
    
    4,072Operating income from continuing operations
    
    
    3,475
    
    
    
    4,791Other income (expense):Interest income
    
    
    219
    
    
    
    1,192Gain (loss) on foreign currency transactions
    
    
    178
    
    
    
    (49
    )Other expense, net
    
    
    (254
    )
    
    
    (93
    )Interest expense, excluding amortization of financing fees and debt discount
    
    
    (568
    )
    
    
    (678
    )Amortization of financing fees and debt discount
    
    
    (1,965
    )
    
    
    (1,554
    )Income from continuing operations before income taxes
    
    
    1,085
    
    
    
    3,609Income tax expense
    
    
    550
    
    
    
    1,005Net income
    
    $
    535
    
    
    $
    2,604Basic and diluted income per share
    
    $
    0.02
    
    
    $
    0.08Weighted average common shares outstanding  basic
    
    
    34,404,631
    
    
    
    33,756,205Weighted average common shares outstanding  diluted
    
    
    34,476,681
    
    
    
    33,956,205
   4




---



##### 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) Income
    
    
    DeficitBalance, September 30, 2008
    
    $
    346,666
    
    
    $
    344
    
    
    $
    491,175
    
    
    $
    11,730
    
    
    $
    (156,583
    )Convertible debt converted
    
    
    251
    
    
    
    
    
    
    
    251Stock option compensation expense
    
    
    945
    
    
    
    
    
    
    
    945Net income
    
    
    535
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    535Foreign currency translation adjustment
    
    
    (27,460
    )
    
    
    
    
    
    
    
    
    
    
    (27,460
    )Balance, December 31, 2008
    
    $
    320,937
    
    
    $
    344
    
    
    $
    492,371
    
    
    $
    (15,730
    )
    
    $
    (156,048
    )
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 Three months ended December 31,2008
    
    
    2007Net income
    
    $
    535
    
    
    $
    2,604Foreign currency translation adjustments
    
    
    (27,460
    )
    
    
    2,073Comprehensive (loss) income
    
    $
    (26,925
    )
    
    $
    4,677
   5




---



##### Table of Contents



ZOLTEK COMPANIES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three months endedDecember 31,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    535
    
    
    $
    2,604Adjustments to reconcile net income (loss) to net cash from operating activities:Depreciation
    
    
    4,073
    
    
    
    3,360Amortization of financing fees and debt discount
    
    
    1,965
    
    
    
    1,554Deferred taxes
    
    
    439
    
    
    
    64Foreign currency transaction losses
    
    
    721
    
    
    
    226Stock option compensation expense
    
    
    945
    
    
    
    484Changes in assets and liabilities:Decrease in accounts receivable
    
    
    4,722
    
    
    
    5,667Increase in inventories
    
    
    (8,377
    )
    
    
    (7,007
    )Increase (decrease) in other current assets and other assets
    
    
    2,083
    
    
    
    (6,146
    )Decrease in trade accounts payable
    
    
    (2,551
    )
    
    
    251(Decrease) increase in accrued expenses and other liabilities
    
    
    (1,629
    )
    
    
    856Decrease in legal liabilities
    
    
    (5,558
    )
    
    
    (159
    )Net cash used in operating activities
    
    
    (2,632
    )
    
    
    1,754Cash flows from investing activities:Purchases of property and equipment
    
    
    (8,334
    )
    
    
    (47,480
    )Decrease in construction payables
    
    
    (1,349
    )
    
    
    (2,602
    )Proceeds received from Hungarian grant
    
    
    
    
    
    
    779Change in cash restricted for letters of credit
    
    
    
    
    
    
    (9,685
    )Net cash used for investing activities
    
    
    (9,683
    )
    
    
    (58,988
    )Cash flows from financing activities:Proceeds from exercise of stock options and warrants
    
    
    
    
    
    
    720Repayment of convertible debt
    
    
    (2,448
    )
    
    
    Borrowings (repayment) of notes payable and long-term debt
    
    
    3,074
    
    
    
    (1,550
    )Net cash provided (used) by financing activities
    
    
    626
    
    
    
    (830
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (18
    )
    
    
    (48
    )Net decrease in cash and cash equivalents
    
    
    (11,707
    )
    
    
    (58,112
    )Cash and cash equivalents at beginning of period
    
    
    29,224
    
    
    
    121,761Cash and cash equivalents at end of period
    
    $
    17,517
    
    
    $
    63,649Supplemental disclosures of cash flow information:Non-cash conversion of convertible debentures
    
    
    251
    
    
    
    2,853
   6




---



##### 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 Standards
  2. INVENTORIES
  December 31,
    
    
    September 30,2008
    
    
    2008Raw materials
    
    $
    12,571
    
    
    $
    10,749Work-in-process
    
    
    12,181
    
    
    
    14,962Finished goods
    
    
    27,615
    
    
    
    18,844Supplies and other
    
    
    850
    
    
    
    1,104$
    53,217
    
    
    $
    45,659
   7




---



##### Table of Contents



3. SEGMENT INFORMATION
   Three months ended December 31, 2008Carbon
    
    
    Technical
    
    
    Corporate/Fibers
    
    
    Fibers
    
    
    Other
    
    
    TotalNet sales
    
    $
    32,716
    
    
    $
    5,265
    
    
    $
    648
    
    
    $
    38,629Cost of sales
    
    
    23,730
    
    
    
    4,003
    
    
    
    632
    
    
    
    28,365Gross profit
    
    
    8,986
    
    
    
    1,262
    
    
    
    16
    
    
    
    10,264Operating income (loss)
    
    
    6,507
    
    
    
    530
    
    
    
    (3,562
    )
    
    
    3,475Depreciation
    
    
    3,371
    
    
    
    419
    
    
    
    283
    
    
    
    4,073Capital expenditures
    
    
    7,825
    
    
    
    436
    
    
    
    73
    
    
    
    8,334
 Three months ended December 31, 2007Carbon
    
    
    Technical
    
    
    Corporate/Fibers
    
    
    Fibers
    
    
    Other
    
    
    TotalNet sales
    
    $
    34,120
    
    
    $
    5,033
    
    
    $
    919
    
    
    $
    40,072Cost of sales
    
    
    24,958
    
    
    
    3,713
    
    
    
    642
    
    
    
    29,313Gross profit
    
    
    9,162
    
    
    
    1,320
    
    
    
    277
    
    
    
    10,759Operating income (loss)
    
    
    7,816
    
    
    
    83
    
    
    
    (3,108
    )
    
    
    4,791Depreciation
    
    
    2,593
    
    
    
    542
    
    
    
    225
    
    
    
    3,360Capital expenditures
    
    
    12,062
    
    
    
    316
    
    
    
    102
    
    
    
    12,480
 Total AssetsCarbon
    
    
    Technical
    
    
    Corporate/Fibers
    
    
    Fibers
    
    
    Other
    
    
    TotalDecember 31, 2008
    
    $
    309,713
    
    
    $
    30,730
    
    
    $
    59,572
    
    
    $
    400,015September 30, 2008
    
    
    344,974
    
    
    
    32,705
    
    
    
    62,485
    
    
    
    440,164
 4. FINANCING
 Bond Related to SP Systems Case
  Revolving Credit Facility
    8




---



##### Table of Contents



Hungarian Grant
   Financing Activity
  Convertible Debt
  Three months ended December 31, 2008
    
    
    Three months ended December 31, 2007Number
    
    
    
    
    
    
    
    
    
    
    Numberof shares
    
    
    Price
    
    
    
    
    
    
    of shares
    
    
    Conversionconverted
    
    
    converted
    
    
    Equity value
    
    
    converted
    
    
    price
    
    
    Equity valueMay 2006
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    62,719
    
    
    $
    25.51
    
    
    $
    1,599,962July 2006
    
    
    16,264
    
    
    
    15.40
    
    
    
    250,466
    
    
    
    9,820
    
    
    
    25.51
    
    
    
    250,508October 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,200
    
    
    
    25.51
    
    
    
    999,99216,264
    
    
    
    
    
    
    $
    250,466
    
    
    
    111,739
    
    
    
    
    
    
    $
    2,850,462
 As of December 31, 2008Numberof shares
    
    
    Conversion
    
    
    Debtoutstanding
    
    
    price
    
    
    outstandingMay 2006
    
    
    282,242
    
    
    $
    25.51
    
    
    $
    7,200,000July 2006
    
    
    49,100
    
    
    
    25.51
    
    
    
    1,252,534October 2006
    
    
    152,762
    
    
    
    25.51
    
    
    
    3,896,947484,104
    
    
    
    
    
    
    $
    12,349,481
    9




---



##### Table of Contents



Outstanding Convertible Debt Issuances
 May 2006 (1)
    
    

July 2006 (1)
    
    

October 2006 (1)Original principal amount of debentures (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 shares
    
    
    
    34,370 shares
    
    
    
    102,835 sharesTerm 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
    
    
    $
    22.13Value per share of 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
    %Principal shares converted
    
    
    Partial
    
    
    
    Partial
    
    
    
    PartialWarrants exercised
    
    
    No
    
    
    
    No
    
    
    
    Partial
 
 (1)
    
    The May 2006, July 2006 and October 2006 issuances had a beneficial conversion feature.  Amortization of Financing Fees and Debt Discount
  Three months ended December 31, 2008ConversionWarrants
    
    
    Features
    
    
    TotalMay 2006 issuance
    
    $
    601
    
    
    $
    887
    
    
    $
    1,488July 2006 2005 issuance
    
    
    69
    
    
    
    85
    
    
    
    154October 2006 issuance
    
    
    106
    
    
    
    122
    
    
    
    228$
    776
    
    
    $
    1,094
    
    
    $
    1,870Deferred financing costs
    
    
    
    
    
    
    
    
    
    
    95Total
    
    
    
    
    
    
    
    
    
    $
    1,965
  10




---



##### Table of Contents



Three months ended December 31, 2007ConversionWarrants
    
    
    Features
    
    
    TotalMay 2006 issuance
    
    $
    416
    
    
    $
    614
    
    
    $
    1,030July 2006 2005 issuance
    
    
    73
    
    
    
    90
    
    
    
    163October 2006 issuance
    
    
    117
    
    
    
    133
    
    
    
    250$
    606
    
    
    $
    837
    
    
    $
    1,443Deferred financing costs
    
    
    
    
    
    
    
    
    
    
    111Total
    
    
    
    
    
    
    
    
    
    $
    1,554
  December 31, 2008ConversionWarrants
    
    
    Feature
    
    
    TotalMay 2006 issuance
    
    $
    965
    
    
    $
    1,426
    
    
    $
    2,391July 2006 issuance
    
    
    189
    
    
    
    228
    
    
    
    417October 2006 issuance
    
    
    264
    
    
    
    304
    
    
    
    568$
    1,418
    
    
    $
    1,958
    
    
    $
    3,376Debt acquisition cost and financing fees
    
    
    
    
    
    
    
    
    
    
    314Total
    
    
    
    
    
    
    
    
    
    $
    3,690
 September 30, 2008ConversionWarrants
    
    
    Feature
    
    
    TotalMay 2006 issuance
    
    $
    1,566
    
    
    $
    2,313
    
    
    $
    3,879July 2006 issuance
    
    
    259
    
    
    
    311
    
    
    
    570October 2006 issuance
    
    
    370
    
    
    
    426
    
    
    
    796$
    2,195
    
    
    $
    3,050
    
    
    $
    5,245Debt acquisition cost and financing fees
    
    
    
    
    
    
    
    
    
    
    416Total
    
    
    
    
    
    
    
    
    
    $
    5,661
 Earnings Per Share
   Three months endedDecember 31,2008
    
    
    2007Numerators:Net income
    
    $
    535
    
    
    $
    2,604Denominators:Average shares outstanding  basic
    
    
    34,405
    
    
    
    33,756Impact of convertible debt, warrants and stock options
    
    
    72
    
    
    
    200Average shares outstanding  diluted
    
    
    34,477
    
    
    
    33,956Basic income per share
    
    $
    0.02
    
    
    $
    0.08Diluted income per share
    
    $
    0.02
    
    
    $
    0.08
  11




---



##### Table of Contents



5. DEBT
 Credit Facilities
      December 31,
    
    
    September 30,2008
    
    
    2008Note payable with interest at 4.25% (variable with Libor, payable in monthly
installments of interest to maturity in January 2011)
    
    $
    1,157
    
    
    $
    1,184Line credit U.S. facility (interest rate of 3.6%  variable with Libor)
    
    
    2,510
    
    
    
    Facilities with Hungarian banks (interest rate of 5.5% to 7.0%)
    
    
    5,759
    
    
    
    5,175Convertible debentures final payment due November 2009 bearing interest at 8.8%
    
    
    7,200
    
    
    
    9,000Convertible debentures final payment due January 2010 bearing interest at 7.5%
    
    
    1,252
    
    
    
    1,500Convertible debentures final payment due April 2010 bearing interest at 7.5%
    
    
    3,897
    
    
    
    4,549Total long-term debt including current maturities
    
    
    21,775
    
    
    
    21,408Less: Debt discount associated with conversion feature and warrants
    
    
    (3,375
    )
    
    
    (5,245
    )Less:
Amounts payable within one year, net of discount of $2,831 and $5,867
    
    
    (16,153
    )
    
    
    (12,601
    )Total long-term debt, less current maturities
    
    $
    2,247
    
    
    $
    3,562
  AnnualDecember 31,
    
    Maturities2009
    
    $
    18,9842010
    
    
    2,3582011
    
    
    433Total
    
    $
    21,775
  12




---



##### Table of Contents



6. STOCK OPTION COMPENSATION EXPENSE
  Stock option awards.
  Wtd. Avg.Options
    
    
    Exercise PriceBalance, September 30, 2008
    
    
    415,587
    
    
    $
    25.52Granted
    
    
    
    
    
    
    Exercised
    
    
    Cancelled
    
    
    
    
    
    
    Balance, December 31, 2008
    
    
    415,587
    
    
    $
    25.52Exercisable,
December 31, 2008
    
    
    233,087
    
    
    $
    23.65
  13




---



##### 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
    
    
    
    2,000
    
    
    4 years
    
    $
    2.07
    
    
    
    2,000
    
    
    $
    2.076.25-9.25
    
    
    
    35,087
    
    
    6 years
    
    
    8.58
    
    
    
    35,087
    
    
    
    8.589.60-24.12
    
    
    
    113,500
    
    
    7 years
    
    
    18.29
    
    
    
    56,000
    
    
    
    14.3026.22-29.70
    
    
    
    175,000
    
    
    9 years
    
    
    29.20
    
    
    
    50,000
    
    
    
    27.9630.00-39.00
    
    
    
    90,000
    
    
    9 years
    
    
    33.43
    
    
    
    90,000
    
    
    
    33.431.33-39.00
    
    
    
    415,587
    
    
    8 years
    
    
    25.52
    
    
    
    233,087
    
    
    
    23.50
  Assumptions
    
    Fiscal 2008
    
    Fiscal 2007
    
    Fiscal 2006Expected life of option
    
    4 & 4.5 years
    
    3 & 7.5 years
    
    3 & 8 yearsRisk-free interest rate
    
    1.8%
    
    4.9%
    
    4.32%Volatility of stock
    
    66%
    
    68%
    
    96%
  Restricted stock awards.
    7. COMMITMENTS AND CONTINGENCIES
 LEGAL
   14




---



##### Table of Contents



nd
    CONCENTRATION OF CREDIT RISK
   ENVIRONMENTAL
  SOURCES OF SUPPLY
   15




---



##### Table of Contents



8. INCOME TAXES
    9. NEW ACCOUNTING PRONOUNCEMENTS
     .
  16




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 General
 ® ®
        17




---



##### Table of Contents



RESULTS OF OPERATIONS
 THREE MONTHS ENDED DECEMBER 31, 2008 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2007
            18




---



##### Table of Contents



Liquidity and Capital Resources
   Cash Used In Continuing Operating Activities
  Cash Used In Investing Activities
    Cash Provided (Used) By Financing Activities
   19




---



##### Table of Contents



Future
Contractual Obligations
  Payments Due by PeriodLess than
    
    
    
    
    
    
    3-5
    
    
    OverTotal
    
    
    1 year
    
    
    1-3 years
    
    
    years
    
    
    5 yearsConvertible debentures (a)
    
    $
    12,349
    
    
    $
    9,558
    
    
    $
    2,791
    
    
    
    
    
    
    
    Other long-term debt, including current maturities (a)
    
    
    9,426
    
    
    
    9,426
    
    
    
    
    
    
    
    
    
    
    
    Total long-term debt obligations
    
    
    21,775
    
    
    
    18,984
    
    
    
    2,791
    
    
    
    
    
    
    
    Operating lease obligations (b)
    
    
    3,714
    
    
    
    1,085
    
    
    
    1,770
    
    
    
    857
    
    
    
    2Capital leases obligations
    
    
    323
    
    
    
    202
    
    
    
    121
    
    
    
    
    
    
    
    Total debt and leases
    
    
    25,812
    
    
    
    20,271
    
    
    
    4,682
    
    
    
    857
    
    
    
    2Legal liabilities (c)
    
    
    23,340
    
    
    
    23,340
    
    
    
    
    
    
    
    
    
    
    
    Contractual interest payments (c)
    
    
    1,143
    
    
    
    980
    
    
    
    163
    
    
    
    
    
    
    
    Purchase obligations (e)
    
    
    2,545
    
    
    
    2,545
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    52,840
    
    
    $
    47,136
    
    
    $
    4,845
    
    
    $
    857
    
    
    
    2
 
 (a)
    
    Convertible debentures and long-term debt are presented on the balance sheet net of debt
discount of $3.4 million.(b)
    
    Includes four-year contract for nitrogen gas facility and equipment at approximately
$840,000 per year.(c)
    
    Amount accrued for potential damages and litigation cost related to SP Systems case. See Note
7 of the Notes to Condensed Consolidated Financial Statements.(d)
    
    Amounts represent the expected cash payment of interest on our debt.(e)
    
    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 than
    
    
    
    
    
    
    3-5
    
    
    Overprice
    
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    years
    
    
    5 yearsTotal contractual obligations
    
    
    
    
    
    $
    52,840
    
    
    $
    47,136
    
    
    $
    4,845
    
    
    $
    857
    
    
    $
    2May 2006 issuance
    
    $
    25.51
    
    
    
    (7,200
    )
    
    
    (7,200
    )
    
    
    
    
    
    
    
    
    
    
    July and October 2006 issuance
    
    $
    25.51
    
    
    
    (5,149
    )
    
    
    (2,358
    )
    
    
    (2,791
    )
    
    
    
    
    
    
    Interest payments
    
    
    
    
    
    
    (1,143
    )
    
    
    (980
    )
    
    
    (163
    )
    
    
    
    
    
    
    Total contractual obligations assuming
conversion on December 31, 2008
    
    
    
    
    
    $
    39,348
    
    
    $
    36,598
    
    
    $
    1,891
    
    
    $
    857
    
    
    $
    2
  Bond Related to SP Systems Case
   20




---



##### Table of Contents



Revolving Credit Facility
   Hungarian Grant
   Financing Activity
  Convertible Debt
  Three months ended December 31, 2008
    
    
    Three months ended December 31, 2007Number
    
    
    
    
    
    
    
    
    
    
    Numberof shares
    
    
    Price
    
    
    
    
    
    
    of shares
    
    
    Conversionconverted
    
    
    converted
    
    
    Equity value
    
    
    converted
    
    
    price
    
    
    Equity valueMay 2006
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    62,719
    
    
    $
    25.51
    
    
    $
    1,599,962July 2006
    
    
    16,264
    
    
    
    15.40
    
    
    
    250,466
    
    
    
    9,820
    
    
    
    25.51
    
    
    
    250,508October 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,200
    
    
    
    25.51
    
    
    
    999,99216,264
    
    
    
    
    
    
    $
    250,466
    
    
    
    111,739
    
    
    
    
    
    
    $
    2,850,462
 As of December 31, 2008Numberof shares
    
    
    Conversion
    
    
    Debtoutstanding
    
    
    price
    
    
    outstandingMay 2006
    
    
    282,242
    
    
    $
    25.51
    
    
    $
    7,200,000July 2006
    
    
    49,100
    
    
    
    25.51
    
    
    
    1,252,534October 2006
    
    
    152,762
    
    
    
    25.51
    
    
    
    3,896,947484,104
    
    
    
    
    
    
    $
    12,349,481
    21




---



##### Table of Contents



Outstanding Convertible Debt Issuances
 May 2006 (1)
    
    

July 2006 (1)
    
    

October 2006 (1)Original principal amount of debentures (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 shares
    
    
    
    34,370 shares
    
    
    
    102,835 sharesTerm 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
    
    
    $
    22.13Value per share of 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
    %Principal shares converted
    
    
    Partial
    
    
    
    Partial
    
    
    
    PartialWarrants exercised
    
    
    No
    
    
    
    No
    
    
    
    Partial
 
 (1)
    
    The May 2006, July 2006 and October 2006 issuances had a beneficial conversion feature.  Amortization of Financing Fees and Debt Discount
  Three months ended December 31, 2008ConversionWarrants
    
    
    Features
    
    
    TotalMay 2006 issuance
    
    $
    601
    
    
    $
    887
    
    
    $
    1,488July 2006 2005 issuance
    
    
    69
    
    
    
    85
    
    
    
    154October 2006 issuance
    
    
    106
    
    
    
    122
    
    
    
    228$
    776
    
    
    $
    1,094
    
    
    $
    1,870Deferred financing costs
    
    
    
    
    
    
    
    
    
    
    95Total
    
    
    
    
    
    
    
    
    
    $
    1,965
  22




---



##### Table of Contents



Three months ended December 31, 2007ConversionWarrants
    
    
    Features
    
    
    TotalMay 2006 issuance
    
    $
    416
    
    
    $
    614
    
    
    $
    1,030July 2006 2005 issuance
    
    
    73
    
    
    
    90
    
    
    
    163October 2006 issuance
    
    
    117
    
    
    
    133
    
    
    
    250$
    606
    
    
    $
    837
    
    
    $
    1,443Deferred financing costs
    
    
    
    
    
    
    
    
    
    
    111Total
    
    
    
    
    
    
    
    
    
    $
    1,554
  December 31, 2008ConversionWarrants
    
    
    Feature
    
    
    TotalMay 2006 issuance
    
    $
    965
    
    
    $
    1,426
    
    
    $
    2,391July 2006 issuance
    
    
    189
    
    
    
    228
    
    
    
    417October 2006 issuance
    
    
    264
    
    
    
    304
    
    
    
    568$
    1,418
    
    
    $
    1,958
    
    
    $
    3,376Debt acquisition cost and financing fees
    
    
    
    
    
    
    
    
    
    
    314Total
    
    
    
    
    
    
    
    
    
    $
    3,690
 September 30, 2008ConversionWarrants
    
    
    Feature
    
    
    TotalMay 2006 issuance
    
    $
    1,566
    
    
    $
    2,313
    
    
    $
    3,879July 2006 issuance
    
    
    259
    
    
    
    311
    
    
    
    570October 2006 issuance
    
    
    370
    
    
    
    426
    
    
    
    796$
    2,195
    
    
    $
    3,050
    
    
    $
    5,245Debt acquisition cost and financing fees
    
    
    
    
    
    
    
    
    
    
    416Total
    
    
    
    
    
    
    
    
    
    $
    5,661
 Earnings Per Share
   Three months endedDecember 31,2008
    
    
    2007Numerators:Net income
    
    $
    535
    
    
    $
    2,604Denominators:Average shares outstanding  basic
    
    
    34,405
    
    
    
    33,756Impact of convertible debt, warrants and stock options
    
    
    72
    
    
    
    200Average shares outstanding  diluted
    
    
    34,477
    
    
    
    33,956Basic income per share
    
    $
    0.02
    
    
    $
    0.08Diluted income per share
    
    $
    0.02
    
    
    $
    0.08
  23




---



##### Table of Contents



LEGAL
      NEW ACCOUNTING PRONOUNCEMENTS
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
    24




---



##### Table of Contents



* * *
 Special Note Regarding Forward-Looking Statements
   * * *
  25




---



##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of Controls and Procedures
    26




---



##### Table of Contents



ZOLTEK COMPANIES, INC.
 
 PART II. OTHER INFORMATION
 
 Item 1.
Legal Proceedings
  
 Item 5.
Other Information
  
 Item 6.
Exhibits
   27




---



##### Table of Contents



SIGNATURE
  Zoltek Companies, Inc.
(Registrant)Date:  February 9, 2009
    By:
    /s/ ZSOLT RUMYZsolt RumyChief Executive Officer and
Chief Financial Officer  28




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit Number
    
    Description of Document10.1
    
    
    Revolving Credit Note, dated as of January 1, 2009, by and among Zoltek Companies, Inc.,
Zoltek Corporation and Southwest Bank of St. Louis.10.2
    
    
    Letter Agreement, dated as of February 6, 2009, by and among Zoltek Companies, Inc. and
Southwest Bank of St. Louis.31.1
    
    
    Certification of Chief Executive Officer and 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 and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  29