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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
 For the fiscal year ended September 30, 2007
 Commission File Number 0-20600
 ZOLTEK COMPANIES, INC.
  Missouri
(State or other jurisdiction of 
incorporation or organization)
    
    43-1311101
(I.R.S. Employer Identification No.)3101 McKelvey Road, St. Louis, Missouri
(Address of principal executive offices)
    
    63044
(Zip Code)
     o þ
 o þ
 þ o
 þ
  þ o o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE
  Document
    
    Part of Form 10-KProxy Statement for the 2007Annual Meeting of Shareholders
    
    III




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##### 



ZOLTEK COMPANIES, INC.
 INDEX
 PART I.Item 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersItem 4a. Executive Officers of RegistrantPART II.Item 5. Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity SecuritiesItem 6. Selected Financial DataItem 7. Managements Discussion and Analysis of Financial Condition and
Results of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and
Financial DisclosuresItem 9A. Controls and ProceduresItem 9B. Other InformationPART III.Item 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder MattersItem 13. Certain Relationships,
Related Transactions and Director IndependenceItem 14. Principal Accountant Fees and ServicesPART IV.Item 15. Exhibits and Financial Statement SchedulesSignaturesExhibit IndexSubsidiaries of the RegistrantConsent of Grant Thornton LLPConsent of PricewaterhouseCoopers LLPCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer
  2




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PART I
 
 ITEM 1. BUSINESS
  Overview
       Company Operations
  3




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Employees
  Customers
   Business Strategy
   Sustainable Price Leadership.
 Support New Commercial Markets and Applications Development.
 4




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Capacity Leadership to Keep Pace with Increasing Demand.
 Industry Overview
        
    
    Oil Exploration and Production Deep sea drilling platforms,
buoyancy, umbilical, choke and kill lines and drill pipes
    
    Construction and Infrastructure Lightweight, pre-cast
construction reinforced with carbon fibers that protect the
structure from earthquakes
    
    Alternative Energy Compressed natural gas storage and fuel cells
    
    Fuel-Efficient Automobiles Many technologies for increasing
vehicle mileage involve reducing weight and incorporating
high-strength composites
 5




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Competition
     International
  Sources of Supply
  Environmental
   AVAILABLE INFORMATION
   6




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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
    
 Item 1A. Risk Factors
 The following are certain risk factors that could affect Zolteks business, financial results and
results of operations. These risk factors should be considered in connection with evaluating the
forward-looking statements contained in this Annual Report on Form 10-K because these factors could
cause the actual results and conditions to differ materially from those projected in
forward-looking statements. Before you buy the Companys securities, 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 here are not the only ones that the Company faces. If any of the risks
actually occur, the Companys business, financial condition, results of operations or cash flows
could be negatively affected. In that case, the trading price of its securities could decline, and
you may lose all or part of your investment.
 Risks Relating to Our Company
 We have
reported net losses from continuing operations for fiscal year 2007 and each of the five fiscal years
preceding it.
  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.
  7




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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.
  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.
    8




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We may not be successful in completing the proposed Mexican manufacturing facility
retrofitting on a timely and cost-effective basis.
  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.
  9




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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.
   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.
  10




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There are risks associated with the operation of our manufacturing facilities, which
could interrupt or limit our manufacturing capacity.
  Our stock price has been volatile and may continue to fluctuate.
  Our principal shareholder has effective 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.
  11




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Our management and our independent registered public accounting firm identified material
weaknesses during fiscal 2007 in the design and operation of our internal control, over financial reporting, which,
if not properly remediated, could result in material misstatements in our interim and annual
consolidated financial statements in future periods.
   
 Item 1B. Unresolved Staff Comments
  12




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Item 2. Properties
  Approximate AreaLocation
    
    Use
    
    (in square feet)St. Louis, Missouri (2)
    
    Administrative, marketing and
central engineering offices
    
    
    40,000St. Charles, Missouri (4)
    
    Technical fibers manufacturing
    
    
    107,000Abilene, Texas (2)
    
    Carbon fibers manufacturing
    
    
    278,000Salt Lake City, Utah I (2)
    
    Composite fabrication equipment
design and manufacturing
    
    
    65,000Salt Lake City, Utah II (1)
    
    Carbon fiber prepreg manufacturing
    
    
    35,000Nyergesujfalu, Hungary (2)
    
    Carbon fibers, acrylic fiber precursor
    
    
    2,000,000Guadalajara,
Mexico (3)
    
    Carbon fibers, acrylic fiber precursor
    
    
    1,400,000
 
 (1)
    
    Property subject to lease.(2)
    
    Properties subject to mortgage.(3)
    
    Property acquired in October 2007. Not available for use until retro-fit is
completed, which is expected to be completed by fiscal year end 2008.(4)
    
    Property owned. 
 Item 3. Legal Proceedings
    13




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Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 4A. Executive Officers of the Registrant
     14




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
    Fiscal year ended
    
    Fiscal year endedSeptember 30, 2007
    
    September 30, 2006High
    
    Low
    
    High
    
    LowFirst Quarter
    
    $
    27.99
    
    
    $
    18.75
    
    
    $
    13.24
    
    
    $
    8.03Second Quarter
    
    
    35.12
    
    
    
    20.26
    
    
    
    24.34
    
    
    
    8.38Third Quarter
    
    
    42.87
    
    
    
    29.70
    
    
    
    39.74
    
    
    
    19.87Fourth Quarter
    
    
    51.39
    
    
    
    35.18
    
    
    
    30.47
    
    
    
    17.38
 Equity Compensation Plan Information
 Number of securitiesremaining available forfuture issuance underNumber of securities to be
    
    
    
    
    
    equity compensationissued upon exercise of
    
    Weighted-average exercise
    
    plans (excludingoutstanding options, warrants
    
    price of outstanding options,
    
    securities reflected inPlan category
    
    and rights
    
    warrants and rights
    
    column (a))(a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    
    2,636,029
    
    
    
    25.93
    
    
    
    345,000Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    2,636,029
    
    
    
    25.93
    
    
    
    345,000
 15




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Performance Graph
  
 16




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Item 6. Selected Financial Data
 
 Statement of Operations
    
    Fiscal Year Ended September 30,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Net sales
    
    $
    150,880
    
    
    $
    92,357
    
    
    $
    55,377
    
    
    $
    34,525
    
    
    $
    28,258Cost of sales, excluding available unused capacity costs
    
    
    107,506
    
    
    
    69,994
    
    
    
    52,809
    
    
    
    29,137
    
    
    
    24,122Available unused capacity costs
    
    
    
    
    
    
    
    
    
    
    2,347
    
    
    
    4,466
    
    
    
    5,716Litigation charge (2)
    
    
    5,400
    
    
    
    22,795
    
    
    
    
    
    
    
    
    
    
    
    Selling, general and administrative expenses (3)
    
    
    19,865
    
    
    
    15,243
    
    
    
    7,847
    
    
    
    6,463
    
    
    
    8,300Operating income (loss) from continuing operations
    
    
    18,109
    
    
    
    (15,675
    )
    
    
    (7,626
    )
    
    
    (5,541
    )
    
    
    (9,880
    )Other expense and income tax expense
    
    
    (20,081
    )
    
    
    (50,090
    )
    
    
    (30,585
    )
    
    
    (11,552
    )
    
    
    (2,434
    )Net loss from continuing operations
    
    
    (1,972
    )
    
    
    (65,765
    )
    
    
    (38,211
    )
    
    
    (17,093
    )
    
    
    (12,314
    )Discontinued Operations:Operating loss, net of taxes
    
    
    (545
    )
    
    
    (187
    )
    
    
    (2,182
    )
    
    
    (5,055
    )
    
    
    (3,288
    )Gain (loss) on disposal of discontinued operation,
net of taxes
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    (659
    )
    
    
    Net loss on discontinued operations, net of taxes
    
    
    (545
    )
    
    
    (37
    )
    
    
    (2,182
    )
    
    
    (5,714
    )
    
    
    (3,288
    )Net loss
    
    $
    (2,517
    )
    
    $
    (65,802
    )
    
    $
    (40,393
    )
    
    $
    (22,807
    )
    
    $
    (15,602
    )Net loss per share:Basic and diluted loss per share:Continuing operations
    
    $
    (0.07
    )
    
    
    (2.91
    )
    
    $
    (2.12
    )
    
    $
    (1.04
    )
    
    $
    (0.76
    )Discontinued operations
    
    
    (0.02
    )
    
    
    (0.00
    )
    
    
    (0.12
    )
    
    
    (0.35
    )
    
    
    (0.20
    )Total
    
    $
    (0.09
    )
    
    
    (2.91
    )
    
    $
    (2.24
    )
    
    $
    (1.39
    )
    
    $
    (0.96
    )Basic weighted average common shares outstanding
    
    
    28,539
    
    
    
    22,575
    
    
    
    18,050
    
    
    
    16,372
    
    
    
    16,307
 Balance Sheet Data:
    
    September 30,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Working capital(4)
    
    $
    147,956
    
    
    $
    20,042
    
    
    $
    19,072
    
    
    $
    16,802
    
    
    $
    18,790Total assets (4)
    
    
    403,599
    
    
    
    187,684
    
    
    
    130,429
    
    
    
    122,455
    
    
    
    119,455Current maturities of long-term debt
    
    
    13,813
    
    
    
    1,365
    
    
    
    374
    
    
    
    570
    
    
    
    933Long-term debt, less current maturities
    
    
    6,851
    
    
    
    32,002
    
    
    
    40,421
    
    
    
    42,002
    
    
    
    33,541Shareholders equity (4)
    
    
    320,767
    
    
    
    111,661
    
    
    
    40,645
    
    
    
    44,230
    
    
    
    64,516
 
 (1)
    
    Prior year amounts have been reclassified for discontinued operations as
discussed in Note 3 to consolidated financial statements.(2)
    
    Litigation expenses related to the Scott Macon case in fiscal 2007 and the SP System case in fiscal 2006, as discussed in Note 8 to Consolidated
Financial Statements.(3)
    
    Includes application and development costs of $7,230, $4,887, $3,324, $3,070 and
$3,453 for fiscal years 2007, 2006, 2005, 2004 and 2003,
respectively.(4)
    
    The Company completed a public offering of shares in August 2007 and
realized net proceeds of $131.5 million, recorded as increases to cash and
equity. 17




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Item 7. Managements Discussion and Analysis of Financial Condition and
 OVERVIEW
      OUR BUSINESS
      18




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RESULTS OF OPERATIONS
 FISCAL YEAR ENDED SEPTEMBER 30, 2007 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30, 2006
      19




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FISCAL YEAR ENDED SEPTEMBER 30, 2006 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30, 2005
  20




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21




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LIQUIDITY AND CAPITAL RESOURCES
  Cash Provided By (Used In) Continuing Operating Activities
  Cash Used In Discontinued Operating Activities
  Cash Used In Investing Activities
     Cash Provided By Financing Activities
  22




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Future Contractual Obligations
  Less thanTotal
    
    
    1 year
    
    
    1-3 yearsConvertible debentures (a)
    
    $
    26,200
    
    
    $
    10,451
    
    
    $
    15,749Other long-term debt, including current maturities (a)
    
    
    9,719
    
    
    
    9,719
    
    
    
    Total debt
    
    
    35,919
    
    
    
    20,170
    
    
    
    15,749Contractual interest payments (b)
    
    
    2,435
    
    
    
    1,585
    
    
    
    850Legal liabilities (c)
    
    
    24,543
    
    
    
    24,543
    
    
    
    Purchase obligations (d)
    
    
    8,081
    
    
    
    8,081
    
    
    
    Total contractual obligations
    
    $
    70,978
    
    
    $
    54,379
    
    
    $
    16,599
  Conversion
    
    
    
    
    
    
    Less thanprice
    
    
    Total
    
    
    1 year
    
    
    1-3 yearsTotal contractual obligations
    
    
    
    
    
    $
    70,978
    
    
    $
    54,379
    
    
    $
    16,599May 2006 issuance
    
    
    25.51
    
    
    
    (16,200
    )
    
    
    (7,200
    )
    
    
    (9,000
    )July and October 2006 issuance
    
    
    25.51
    
    
    
    (10,000
    )
    
    
    (3,251
    )
    
    
    (6,749
    )Interest payments
    
    
    
    
    
    
    (2,435
    )
    
    
    (1,585
    )
    
    
    (850
    )Total contractual obligations assuming
conversion on September 30, 2007
    
    
    
    
    
    $
    42,343
    
    
    $
    42,323
    
    
    $
    
   (a)
    
    Convertible debentures and long-term debt are presented on the balance sheet net of debt
discount of $15.3 million.(b)
    
    Amounts represent the expected cash payment for interest on our debt.(c)
    
    Amount includes $18.6 million accrued for potential damages and litigation cost related to SP
Systems case and $5.9 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.
 Bond Related to SP Systems Case
   Revolving Credit Facility
  23




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Hungarian Grant
   Convertible Debt
 Fiscal 2007 Financing Activity
     24




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Fiscal 2006 Financing Activity
        25




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Fiscal 2005 Financing Activity
     26




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CONVERTIBLE DEBT ISSUANCES FISCAL 2003 THROUGH FISCAL 2007
 FEBRUARY
    
    JANUARY
    
    MARCH
    
    OCTOBER
    
    FEBRUARY
    
    SEPTEMBER2003 (1)
    
    2004
    
    2004
    
    2004
    
    2005
    

2005 (1)Amount of debenture (millions)
    
    $
    8.1
    
    
    $
    7.0
    
    
    $
    5.75
    
    
    $
    20.0
    
    
    $
    20.0
    
    
    $
    5.0Per share conversion price on
debenture
    
    $
    3.25
    
    
    $
    5.40
    
    
    $
    6.25
    
    
    $
    12.00
    
    
    $
    20.00
    
    
    $
    12.50Interest rate
    
    
    7.0
    %
    
    
    6.0
    %
    
    
    6.0
    %
    
    
    7.0
    %
    
    
    7.5
    %
    
    
    7.5
    %Term of debenture
    
    60 months
    
    30 months
    
    30 months
    
    42 months
    
    42 months
    
    42 monthsWarrants issued
    
    
    405,000
    
    
    
    323,995
    
    
    
    230,000
    
    
    
    500,000
    
    
    
    457,142
    
    
    
    140,000Term of warrants
    
    60 months
    
    48 months
    
    48 months
    
    72 months
    
    48 months
    
    60 monthsPer share exercise price of
warrants
    
    $
    5.00
    
    
    $
    5.40
    
    
    $
    7.50
    
    
    $
    13.00
    
    
    $
    17.50
    
    
    $
    14.50Fair value per warrant at
issuance
    
    $
    0.93
    
    
    $
    2.27
    
    
    $
    5.43
    
    
    $
    6.02
    
    
    $
    10.47
    
    
    $
    9.34Value per share conversion
feature at issuance
    
    $
    3.11
    
    
    $
    1.78
    
    
    $
    5.06
    
    
    $
    4.31
    
    
    $
    10.47
    
    
    $
    9.91Stock price on date of agreement
    
    $
    1.58
    
    
    $
    5.40
    
    
    $
    9.53
    
    
    $
    9.60
    
    
    $
    16.68
    
    
    $
    13.15Stock volatility at issuance
    
    
    100
    %
    
    
    50
    %
    
    
    61
    %
    
    
    75
    %
    
    
    84
    %
    
    
    205
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Risk-free interest rate at issuance
    
    
    3.0
    %
    
    
    2.78
    %
    
    
    2.44
    %
    
    
    3.71
    %
    
    
    3.46
    %
    
    
    4.25
    %Converted
    
    Yes
    
    Yes
    
    Yes
    
    Yes
    
    Yes
    
    YesWarrants exercised
    
    Yes
    
    Yes
    
    Yes
    
    Yes
    
    Yes
    
    Yes
 DECEMBER
    
    FEBRUARY
    
    MAY
    
    JULY
    
    OCTOBER2005 (1)
    

2006 (1)
    

2006 (1)
    

2006
(1)
    

2006 (1)Amount of debenture (millions)
    
    $
    15.0
    
    
    $
    10.0
    
    
    $
    20.0
    
    
    $
    2.5
    
    
    $
    7.5Per share conversion price on
debenture
    
    $
    12.5
    
    
    $
    13.07
    
    
    $
    25.51
    
    
    $
    25.51
    
    
    $
    25.51Interest rate
    
    
    7.5
    %
    
    
    7.5
    %
    
    
    7.5
    %
    
    
    7.5
    %
    
    
    7.5
    %Term of debenture
    
    42 months
    
    42 months
    
    42 months
    
    42 months
    
    42 monthsWarrants issued
    
    
    420,000
    
    
    
    267,789
    
    
    
    274,406
    
    
    
    34,370
    
    
    
    102,835Term of warrants
    
    60 months
    
    60 months
    
    60 months
    
    60 months
    
    60 monthsPer share exercise price of
warrants
    
    $
    14.50
    
    
    $
    15.16
    
    
    $
    28.06
    
    
    $
    28.06
    
    
    $
    28.06Fair value per warrant at
issuance
    
    $
    5.92
    
    
    $
    10.56
    
    
    $
    26.03
    
    
    $
    23.89
    
    
    $
    22.13Value per share conversion
feature at issuance
    
    $
    10.72
    
    
    $
    10.20
    
    
    $
    18.80
    
    
    $
    19.21
    
    
    $
    19.57Stock price on date of agreement
    
    $
    8.80
    
    
    $
    13.99
    
    
    $
    32.25
    
    
    $
    29.28
    
    
    $
    26.81Stock volatility at issuance
    
    
    96
    %
    
    
    99
    %
    
    
    106
    %
    
    
    111
    %
    
    
    117
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Risk-free interest rate at issuance
    
    
    4.28
    %
    
    
    4.28
    %
    
    
    4.88
    %
    
    
    4.88
    %
    
    
    4.65
    %Converted
    
    Yes
    
    Yes
    
    Partial
    
    No
    
    NoWarrants exercised
    
    Yes
    
    Yes
    
    No
    
    No
    
    Partial
 
 (1)
    
    The warrants issued in connection with the February 2003, September
2005, December 2005, February 2006, May 2006, July 2006 and October
2006 convertible issuances meet the criteria of EITF 00-19 for equity
classification, as they do not contain similar registration rights
obligations with respect to the underlying shares. Accordingly, the
conversion features do not require derivative accounting. The
September 2005, February 2006, May 2006, July 2006 and October 2006
issuances do have a beneficial conversion feature; however, the
February 2003 and December 2005 issuances have no beneficial
conversion feature. 27




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##### Table of Contents



Warrant and Conversion Features
   FISCAL YEAR ENDED SEPTEMBER 30, 2007CONVERSIONWARRANTS
    
    
    FEATURES
    
    
    TOTALJanuary 2004 issuance  mark to market
    
    $
    (  314
    )
    
    $
    
    
    
    $
    (314
    )Loss on value of warrants and
conversion feature
    
    $
    (314
    )
    
    $
    
    
    
    $
    (314
    )
 FISCAL YEAR ENDED SEPTEMBER 30, 2006CONVERSIONWARRANTS
    
    
    FEATURES
    
    
    TOTALJanuary 2004 issuance  mark to market
    
    $
    (1,413
    )
    
    $
    
    
    
    $
    (1,413
    )March 2004 issuance  mark to market
    
    
    (730
    )
    
    
    
    
    
    
    (730
    )October 2004 issuance  mark to market
    
    
    (2,902
    )
    
    
    (5,671
    )
    
    
    (8,573
    )February 2005 issuance  mark to market
    
    
    (1,788
    )
    
    
    (16,799
    )
    
    
    (18,587
    )Loss on value of warrants and
conversion feature
    
    $
    (6,833
    )
    
    $
    (22,470
    )
    
    $
    (29,303
    )
 FISCAL YEAR ENDED SEPTEMBER 30, 2005CONVERSIONWARRANTS
    
    
    FEATURES
    
    
    TOTALJanuary 2004 issuance  mark to market
    
    $
    (1,083
    )
    
    $
    (8,164
    )
    
    $
    (9,247
    )February 2004 issuance  mark to market
    
    
    (775
    )
    
    
    (5,684
    )
    
    
    (6,459
    )October 2004 issuance  mark to market
    
    
    (2,025
    )
    
    
    (3,958
    )
    
    
    (5,983
    )February 2005 issuance  mark to market
    
    
    1,172
    
    
    
    3,943
    
    
    
    5,115Loss on value of warrants and
conversion feature
    
    $
    (2,711
    )
    
    $
    (13,863
    )
    
    $
    (16,574
    )
 Amortization of Financing Fees and Debt Discount
    28




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##### Table of Contents



FISCAL YEAR ENDED SEPTEMBER 30, 2007CONVERSIONWARRANTS
    
    
    FEATURES
    
    
    TOTALSeptember 2005 issuance
    
    $
    158
    
    
    $
    
    
    
    $
    158December 2005 issuance
    
    
    285
    
    
    
    
    
    
    
    285February 2006 issuance
    
    
    1,830
    
    
    
    1,882
    
    
    
    3,712May 2006 issuance
    
    
    1,560
    
    
    
    2,302
    
    
    
    3,862July 2006 issuance
    
    
    113
    
    
    
    138
    
    
    
    251October 2006 issuance
    
    
    235
    
    
    
    269
    
    
    
    504$
    4,181
    
    
    $
    4,591
    
    
    $
    8,772Deferred financing costs
    
    
    
    
    
    
    
    
    
    
    999Total
    
    
    
    
    
    
    
    
    
    $
    9,771
 FISCAL YEAR ENDED SEPTEMBER 30, 2006CONVERSIONWARRANTS
    
    
    FEATURES
    
    
    TOTALOctober 2004 issuance
    
    $
    204
    
    
    $
    400
    
    
    $
    604February 2005 issuance
    
    
    834
    
    
    
    7,830
    
    
    
    8,664September 2005 issuance
    
    
    906
    
    
    
    
    
    
    
    906December 2005 issuance
    
    
    548
    
    
    
    
    
    
    
    548February 2006 issuance
    
    
    312
    
    
    
    694
    
    
    
    1,006May 2006 issuance
    
    
    3,524
    
    
    
    332
    
    
    
    3,856July 2006 issuance
    
    
    28
    
    
    
    34
    
    
    
    62$
    6,356
    
    
    $
    9,290
    
    
    $
    15,646Deferred financing costs
    
    
    
    
    
    
    
    
    
    
    886Total
    
    
    
    
    
    
    
    
    
    $
    16,532
 FISCAL YEAR ENDED SEPTEMBER 30, 2005CONVERSIONWARRANTS
    
    
    FEATURES
    
    
    TOTALJanuary 2004 issuance
    
    $
    458
    
    
    $
    
    
    
    $
    458March 2004 issuance
    
    
    863
    
    
    
    
    
    
    
    863October 2004 issuance
    
    
    973
    
    
    
    1,902
    
    
    
    2,875February 2005 issuance
    
    
    850
    
    
    
    1,892
    
    
    
    2,742$
    3,144
    
    
    $
    3,794
    
    
    $
    6,938Deferred financing costs
    
    
    
    
    
    
    
    
    
    
    1,531Total
    
    
    
    
    
    
    
    
    
    $
    8,469
 29




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##### Table of Contents



SEPTEMBER 30, 2007CONVERSIONWARRANTS
    
    
    FEATURES
    
    
    TOTALMay 2006 issuance
    
    
    4,728
    
    
    
    6,981
    
    
    
    11,709July 2006 issuance
    
    
    403
    
    
    
    485
    
    
    
    888October 2006 issuance
    
    
    1,236
    
    
    
    1,422
    
    
    
    2,658$
    6,367
    
    
    $
    8,888
    
    
    
    15,255Debt acquisition cost and financing fees
    
    
    
    
    
    
    
    
    
    
    985Total
    
    
    
    
    
    
    
    
    
    $
    16,240
 SEPTEMBER 30, 2006CONVERSIONWARRANTS
    
    
    FEATURES
    
    
    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
 Earnings Per Share
  Legal Contingencies
    30




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##### Table of Contents



CRITICAL ACCOUNTING ESTIMATES
  ACCOUNTS RECEIVABLE COLLECTIBILITY
  INVENTORIES
   VALUATION OF LONG-LIVED ASSETS
  31




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##### Table of Contents



CONTINGENT LIABILITIES
   INCOME TAXES
   STOCK-BASED COMPENSATION
  32




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##### Table of Contents



RECENT ACCOUNTING PRONOUNCEMENTS
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    33




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 ZOLTEK COMPANIES, INC.
REPORT OF MANAGEMENT
     /s/ Zsolt RumyZsolt RumyChief Executive OfficerDecember 7, 2007 34




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      /s/ GRANT THORNTON LLPChicago, IllinoisDecember 7, 2007 35




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal ControlIntegrated Framework
     
    
    The Company did not maintain effective entity level controls and procedures to prevent
certain accounting entries from being recorded prior to formal documentation of the arrangements
being obtained.  Specifically, the Company lacked effective policies and procedures for the review
and recognition of revenue associated with certain sales contracts and the accurate recording of
that revenue. Additionally, the Company lacked effective policies and procedures to insure use
of an appropriate measurement date for the valuation of certain share-based payments. These
deficiencies resulted in more than a remote likelihood that a material misstatement of the annual
or interim financial statements would not be prevented or detected.
    
    The Company did not maintain effective policies and procedures related to the assessment
of reserves for possible liability arising from certain litigation matters.  These deficiencies
resulted in more than a remote likelihood that a material misstatement of the annual or interim
financial statements would not be prevented or detected. Internal ControlIntegrated Framework .
   /s/ GRANT THORNTON LLPChicago, IllinoisDecember 7, 2007 36




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
   /s/ PRICEWATERHOUSECOOPERS LLPSt. Louis, MissouriDecember 27, 2006 37




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##### Table of Contents



ZOLTEK COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
 September 30,2007
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    121,761
    
    
    $
    10,802Restricted cash
    
    
    13,815
    
    
    
    6,634Accounts receivable, less allowance for doubtful accounts of $729 and $718, respectively
    
    
    37,495
    
    
    
    17,009Inventories,
net
    
    
    27,941
    
    
    
    21,721Other current assets
    
    
    10,858
    
    
    
    6,915Total current assets
    
    
    211,870
    
    
    
    63,081Property, plant and equipment, net
    
    
    188,801
    
    
    
    122,284Other assets
    
    
    2,928
    
    
    
    2,319Total assets
    
    $
    403,599
    
    
    $
    187,684Liabilities and shareholders equityCurrent liabilities:Current maturities of long-term debt
    
    $
    13,813
    
    
    $
    1,365Trade accounts payable
    
    
    17,253
    
    
    
    11,935Legal liabilities
    
    
    24,543
    
    
    
    23,725Accrued expenses and other liabilities
    
    
    8,305
    
    
    
    6,014Total current liabilities
    
    
    63,914
    
    
    
    43,039Hungarian grant, long-term
    
    
    7,969
    
    
    
    Deferred Tax Liabilities
    
    
    4,046
    
    
    
    Value of warrants and beneficial conversion feature associated with convertible debt obligations
    
    
    
    
    
    
    903Other long-term liabilities
    
    
    52
    
    
    
    79Long-term debt, less current maturities
    
    
    6,851
    
    
    
    32,002Total liabilities
    
    
    82,832
    
    
    
    76,023Commitments
and Contigencies (see Note 8)
    
    
    
    
    
    
    Shareholders equity:Preferred stock, $.01 par value, 1,000,000 shares authorized,
no shares issued and outstanding
    
    
    
    
    
    
    Common stock, $.01 par value, 50,000,000 shares authorized,
33,653,735 and 25,652,982 shares issued and outstanding in 2007 and 2006, respectively
    
    
    337
    
    
    
    258Additional paid-in capital
    
    
    476,205
    
    
    
    287,299Accumulated other comprehensive income (loss)
    
    
    8,249
    
    
    
    (14,389
    )Accumulated deficit
    
    
    (164,024
    )
    
    
    (161,507
    )Total shareholders equity
    
    
    320,767
    
    
    
    111,661Total liabilities and shareholders equity
    
    $
    403,599
    
    
    $
    187,684
 The accompanying notes are an integral part of the consolidated financial statements.
 38




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##### Table of Contents



ZOLTEK COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 Fiscal Year Ended September 30,2007
    
    
    2006
    
    
    2005Net sales
    
    $
    150,880
    
    
    $
    92,357
    
    
    $
    55,377Cost of sales, excluding available unused capacity costs
    
    
    107,506
    
    
    
    69,994
    
    
    
    52,809Available unused capacity costs
    
    
    
    
    
    
    
    
    
    
    2,347Application and development costs
    
    
    7,230
    
    
    
    4,887
    
    
    
    3,324Litigation charge (see Note 8)
    
    
    5,400
    
    
    
    22,795
    
    
    
    Selling, general and administrative expenses
    
    
    12,635
    
    
    
    10,356
    
    
    
    4,523Operating income (loss) from continuing operations
    
    
    18,109
    
    
    
    (15,675
    )
    
    
    (7,626
    )Other income (expense):Interest expense, excluding amortization of financing fees, debt discount and
beneficial conversion feature
    
    
    (2,346
    )
    
    
    (2,645
    )
    
    
    (2,960
    )Warrant issue expense
    
    
    (6,362
    )
    
    
    
    
    
    
    Amortization of financing fees and debt discount
    
    
    (9,771
    )
    
    
    (16,532
    )
    
    
    (8,469
    )Loss on value of warrants and beneficial conversion feature
    
    
    (314
    )
    
    
    (29,303
    )
    
    
    (16,574
    )Interest income
    
    
    1,829
    
    
    
    281
    
    
    
    2Other, net
    
    
    (1,131
    )
    
    
    (1,003
    )
    
    
    (1,876
    )Income (loss) from continuing operations before income taxes
    
    
    14
    
    
    
    (64,877
    )
    
    
    (37,503
    )Income tax expense
    
    
    1,986
    
    
    
    888
    
    
    
    708Net loss from continuing operations
    
    
    (1,972
    )
    
    
    (65,765
    )
    
    
    (38,211
    )Discontinued operations:Operating loss, net of taxes
    
    
    (545
    )
    
    
    (187
    )
    
    
    (2,182
    )Gain on disposal of discontinued operation, net of taxes
    
    
    
    
    
    
    150
    
    
    
    Net loss on discontinued operations, net of taxes
    
    
    (545
    )
    
    
    (37
    )
    
    
    (2,182
    )Net loss
    
    $
    (2,517
    )
    
    $
    (65,802
    )
    
    $
    (40,393
    )Net loss per share:Basic and diluted loss per share:Continuing operations
    
    $
    ( 0.07
    )
    
    $
    (2.91
    )
    
    $
    (2.12
    )Discontinued operations
    
    
    (0.02
    )
    
    
    (0.00
    )
    
    
    (0.12
    )Total
    
    $
    (0.09
    )
    
    $
    (2.91
    )
    
    $
    (2.24
    )Weighted average common shares outstanding  basic and diluted
    
    
    28,539
    
    
    
    22,575
    
    
    
    18,050
 The accompanying notes are an integral part of the consolidated financial statements.
 39




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##### Table of Contents



ZOLTEK COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
 Total Share-
    
    
    
    
    
    
    Additional
    
    
    Accumulated Otherholders
    
    
    Common
    
    
    Paid-In
    
    
    Comprehensive
    
    
    AccumulatedEquity
    
    
    Stock
    
    
    Capital
    
    
    Income (Loss)
    
    
    DeficitBalance, September 30, 2004
    
    $
    44,230
    
    
    $
    163
    
    
    $
    109,524
    
    
    $
    (10,145
    )
    
    $
    (55,312
    )Net loss
    
    
    (40,393
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,393
    )Foreign currency translation adjustment
    
    
    (2,676
    )
    
    
    
    
    
    
    
    
    
    
    (2,676
    )Comprehensive loss
    
    
    (43,069
    )Value of warrants and conversion
feature at time of conversion
    
    
    26,845
    
    
    
    
    
    
    
    26,845Unamortized value of convertible debt
discount at time of conversion
    
    
    (5,463
    )
    
    
    
    
    
    
    (5,463
    )Warrants exercised
    
    
    2,525
    
    
    
    3
    
    
    
    2,522Value of warrants and beneficial conversion
feature issued with convertible debt
    
    
    2,303
    
    
    
    
    
    
    
    2,303Convertible debt converted
    
    
    13,161
    
    
    
    22
    
    
    
    13,139Interest paid in stock
    
    
    92
    
    
    
    
    
    
    
    92Issuance cost related to convertible
debt conversions
    
    
    (401
    )
    
    
    
    
    
    
    (401
    )Exercise of stock options
    
    
    422
    
    
    
    1
    
    
    
    421Balance, September 30, 2005
    
    
    40,645
    
    
    
    189
    
    
    
    148,982
    
    
    
    (12,821
    )
    
    
    (95,705
    )Net loss
    
    
    (65,802
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65,802
    )Foreign currency translation adjustment
    
    
    (1,568
    )
    
    
    
    
    
    
    
    
    
    
    (1,568
    )Comprehensive loss
    
    
    (67,370
    )Value of warrants and conversion
feature at time of conversion
    
    
    57,451
    
    
    
    
    
    
    
    57,451Unamortized value of convertible debt
discount at time of conversion
    
    
    (10,165
    )
    
    
    
    
    
    
    (10,165
    )Warrants exercised
    
    
    10,456
    
    
    
    17
    
    
    
    10,439Value of warrants and beneficial conversion
feature issued with convertible debt
    
    
    30,992
    
    
    
    
    
    
    
    30,992Convertible debt converted
    
    
    47,308
    
    
    
    47
    
    
    
    47,261Issuance cost related to convertible
debt conversions
    
    
    (1,403
    )
    
    
    
    
    
    
    (1,403
    )Stock option awards
    
    
    969
    
    
    
    
    
    
    
    969Exercise of stock options
    
    
    2,778
    
    
    
    5
    
    
    
    2,773Balance, September 30, 2006
    
    $
    111,661
    
    
    
    258
    
    
    
    287,299
    
    
    
    (14,389
    )
    
    
    (161,507
    )Net loss
    
    
    (2,517
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,517
    )Foreign currency translation adjustment
    
    
    22,638
    
    
    
    
    
    
    
    
    
    
    
    22,638Comprehensive income
    
    
    20,121Convertible debt converted
    
    
    34,497
    
    
    
    30
    
    
    
    34,467Unamortized value of convertible debt
discount at time of conversion
    
    
    (2,785
    )
    
    
    
    
    
    
    (2,785
    )Warrants exercised
    
    
    12,405
    
    
    
    9
    
    
    
    12,396Warrants issued in December 2006
    
    
    6,362
    
    
    
    
    
    
    
    6,362Value of warrants related to January
2004 issuance
    
    
    1,218
    
    
    
    
    
    
    
    1,218Issuance cost related to convertible
debt conversions
    
    
    2,796
    
    
    
    
    
    
    
    2,796Interest paid in stock
    
    
    322
    
    
    
    
    
    
    
    322Stock option awards
    
    
    1,253
    
    
    
    
    
    
    
    1,253Exercise of stock options
    
    
    1,392
    
    
    
    1
    
    
    
    1,392Secondary offering funds received, less
issue costs of $760
    
    
    131,525
    
    
    
    39
    
    
    
    131,486Balance, September 30, 2007
    
    $
    320,767
    
    
    $
    337
    
    
    $
    476,205
    
    
    $
    8,249
    
    
    $
    (164,024
    )
 The accompanying notes are an integral part of the consolidated financial statements
 40




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##### Table of Contents



ZOLTEK COMPANIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
 Fiscal Year Ended September 30,2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (2,517
    )
    
    $
    (65,802
    )
    
    $
    (40,393
    )Net loss from discontinued operations
    
    
    545
    
    
    
    37
    
    
    
    2,182Net income (loss) from continuing operations
    
    
    (1,972
    )
    
    
    (65,765
    )
    
    
    (38,211
    )Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    9,205
    
    
    
    5,853
    
    
    
    5,142Warrant issue expense
    
    
    6,362
    
    
    
    
    
    
    
    Amortization of financing fees, debt discount and beneficial conversion
feature
    
    
    9,771
    
    
    
    16,532
    
    
    
    8,469Loss on value of warrants and beneficial conversion feature
    
    
    314
    
    
    
    29,303
    
    
    
    16,574Foreign currency transaction losses
    
    
    606
    
    
    
    
    
    
    
    Deferred
taxes
    
    
    828
    
    
    
    
    
    
    
    Share based compensation expense
    
    
    1,253
    
    
    
    969
    
    
    
    Other, net
    
    
    
    
    
    
    
    
    
    
    117Changes in assets and liabilities:Increase in accounts receivable
    
    
    (18,320
    )
    
    
    (6,772
    )
    
    
    (1,276
    )(Increase) decrease in inventories
    
    
    (5,388
    )
    
    
    2,318
    
    
    
    (10
    )Increase in prepaid expenses and other assets
    
    
    (725
    )
    
    
    (3,686
    )
    
    
    (793
    )Increase in trade accounts payable
    
    
    3,224
    
    
    
    658
    
    
    
    2,828Decrease (increase) in accrued expenses and other liabilities
    
    
    (278
    )
    
    
    1,922
    
    
    
    207Increase in legal liabilities
    
    
    818
    
    
    
    21,948
    
    
    
    138Increase (decrease) in other long-term liabilities
    
    
    171
    
    
    
    (25
    )
    
    
    (366
    )Net cash provided by (used in) continuing operations
    
    
    5,869
    
    
    
    3,255
    
    
    
    (7,595
    )Net cash provided by (used in) discontinued operations
    
    
    1,010
    
    
    
    (450
    )
    
    
    (1,505
    )Net cash provided by (used in) operating activities
    
    
    6,879
    
    
    
    (2,805
    )
    
    
    (9,100
    )Cash flows from investing activities:Purchases of
property, plant and equipment
    
    
    (53,412
    )
    
    
    (40,795
    )
    
    
    (14,765
    )Change in cash restricted for letters of credit
    
    
    (7,181
    )
    
    
    (6,634
    )
    
    
    Proceeds from sale of property and equipment
    
    
    
    
    
    
    
    
    
    
    1Proceeds from Hungarian Government grant
    
    
    9,435
    
    
    
    
    
    
    
    Net cash used in continuing operations
    
    
    (51,158
    )
    
    
    (47,429
    )
    
    
    (14,764
    )Net cash used in discontinued operations
    
    
    
    
    
    
    (11
    )
    
    
    (26
    )Net cash used in investing activities
    
    
    (51,158
    )
    
    
    (47,440
    )
    
    
    (14,790
    )Cash flows from financing activities:Proceeds from exercise of stock options and warrants
    
    
    13,797
    
    
    
    13,234
    
    
    
    2,947Payment of issue costs related to secondary stock offering
    
    
    (760
    )
    
    
    
    
    
    
    Proceeds from secondary stock offering
    
    
    132,284
    
    
    
    
    
    
    
    Proceeds from issuance of convertible debt
    
    
    7,495
    
    
    
    47,505
    
    
    
    45,000Payment of financing fees
    
    
    (900
    )
    
    
    (1,541
    )
    
    
    (1,693
    )Repayment of notes payable and long-term debt
    
    
    3,538
    
    
    
    (3,744
    )
    
    
    (22,349
    )Net cash provided by financing activities
    
    
    155,454
    
    
    
    55,454
    
    
    
    23,905Effect of
exchange rate changes on cash and cash equivalents
    
    
    (216
    )
    
    
    (272
    )
    
    
    (26
    )Net increase (decrease) in cash and cash equivalents
    
    
    110,959
    
    
    
    10,547
    
    
    
    (12
    )Cash and cash equivalents at beginning of year
    
    
    10,802
    
    
    
    255
    
    
    
    267Cash and cash equivalents at end of year
    
    $
    121,761
    
    
    $
    10,802
    
    
    $
    255Supplemental disclosures of cash flow information:Net cash paid during the year for:Interest
    
    $
    3,856
    
    
    $
    3,793
    
    
    $
    3,679Income taxes
    
    
    
    
    
    
    888
    
    
    
    708Non-cash conversion of convertible securities
    
    
    34,497
    
    
    
    47,308
    
    
    
    13,161
 The accompanying notes are an integral part of the consolidated financial statements.
 41




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##### Table of Contents



ZOLTEK COMPANIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
  USE OF ESTIMATES
  REVENUE RECOGNITION
  ACCOUNTS RECEIVABLE
  CONCENTRATION OF CREDIT RISK
   CASH AND CASH EQUIVALENTS
  INVENTORIES
  42




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##### Table of Contents



PROPERTY AND EQUIPMENT
   Buildings and improvements
    
    10 to 30 yearsMachinery and equipment
    
    3 to 20 yearsFurniture and fixtures
    
    7 to 10 yearsComputer hardware and software
    
    2 to 5 years
   FOREIGN CURRENCY TRANSLATION
  FINANCIAL INSTRUMENTS
    APPLICATION AND DEVELOPMENT EXPENSES
  43




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##### Table of Contents



INCOME TAXES
  EARNINGS PER SHARE
  RECENT ACCOUNTING PRONOUNCEMENTS
       2. FINANCING TRANSACTIONS
 Fiscal 2007 Financing Activity
  Bond Related to SP Systems Case
   44




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##### Table of Contents



Revolving Credit Facility
  Hungarian Grant
   Convertible Debt
 Fiscal
2007 Activity
     45




---



##### Table of Contents



Fiscal 2006 Financing Activity
        46




---



##### Table of Contents



Fiscal 2005 Financing Activity
     47




---



##### Table of Contents



CONVERTIBLE DEBT ISSUANCES FISCAL 2003 THROUGH FISCAL 2007FEBRUARY
    
    JANUARY
    
    MARCH
    
    OCTOBER
    
    FEBRUARY
    
    SEPTEMBER2003 (1)
    
    2004
    
    2004
    
    2004
    
    2005
    

2005 (1)Amount of debenture (millions)
    
    $
    8.1
    
    
    $
    7.0
    
    
    $
    5.75
    
    
    $
    20.0
    
    
    $
    20.0
    
    
    $
    5.0Per share conversion price on
debenture
    
    $
    3.25
    
    
    $
    5.40
    
    
    $
    6.25
    
    
    $
    12.00
    
    
    $
    20.00
    
    
    $
    12.50Interest rate
    
    
    7.0
    %
    
    
    6.0
    %
    
    
    6.0
    %
    
    
    7.0
    %
    
    
    7.5
    %
    
    
    7.5
    %Term of debenture
    
    60 months
    
    30 months
    
    30 months
    
    42 months
    
    42 months
    
    42 monthsWarrants issued
    
    
    405,000
    
    
    
    323,995
    
    
    
    230,000
    
    
    
    500,000
    
    
    
    457,142
    
    
    
    140,000Term of warrants
    
    60 months
    
    48 months
    
    48 months
    
    72 months
    
    48 months
    
    60 monthsPer share exercise price of
warrants
    
    $
    5.00
    
    
    $
    5.40
    
    
    $
    7.50
    
    
    $
    13.00
    
    
    $
    17.50
    
    
    $
    14.50Fair value per warrant at
issuance
    
    $
    0.93
    
    
    $
    2.27
    
    
    $
    5.43
    
    
    $
    6.02
    
    
    $
    10.47
    
    
    $
    9.34Value per share conversion
feature at issuance
    
    $
    3.11
    
    
    $
    1.78
    
    
    $
    5.06
    
    
    $
    4.31
    
    
    $
    10.47
    
    
    $
    9.91Stock price on date of agreement
    
    $
    1.58
    
    
    $
    5.40
    
    
    $
    9.53
    
    
    $
    9.60
    
    
    $
    16.68
    
    
    $
    13.15Stock volatility at issuance
    
    
    100
    %
    
    
    50
    %
    
    
    61
    %
    
    
    75
    %
    
    
    84
    %
    
    
    205
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Risk-free interest rate at issuance
    
    
    3.0
    %
    
    
    2.78
    %
    
    
    2.44
    %
    
    
    3.71
    %
    
    
    3.46
    %
    
    
    4.25
    %Converted
    
    Yes
    
    Yes
    
    Yes
    
    Yes
    
    Yes
    
    YesWarrants exercised
    
    Yes
    
    Yes
    
    Yes
    
    Yes
    
    Yes
    
    Yes
 DECEMBER
    
    FEBRUARY
    
    MAY
    
    JULY
    
    OCTOBER2005 (1)
    

2006 (1)
    

2006 (1)
    

2006 (1)
    

2006 (1)Amount of debenture (millions)
    
    $
    15.0
    
    
    $
    10.0
    
    
    $
    20.0
    
    
    $
    2.5
    
    
    $
    7.5Per share conversion price on
debenture
    
    $
    12.5
    
    
    $
    13.07
    
    
    $
    25.51
    
    
    $
    25.51
    
    
    $
    25.51Interest rate
    
    
    7.5
    %
    
    
    7.5
    %
    
    
    7.5
    %
    
    
    7.5
    %
    
    
    7.5
    %Term of debenture
    
    42 months
    
    42 months
    
    42 months
    
    42 months
    
    42 monthsWarrants issued
    
    
    420,000
    
    
    
    267,789
    
    
    
    274,406
    
    
    
    34,370
    
    
    
    102,835Term of warrants
    
    60 months
    
    60 months
    
    60 months
    
    60 months
    
    60 monthsPer share exercise price of
warrants
    
    $
    14.50
    
    
    $
    15.16
    
    
    $
    28.06
    
    
    $
    28.06
    
    
    $
    28.06Fair value per warrant at
issuance
    
    $
    5.92
    
    
    $
    10.56
    
    
    $
    26.03
    
    
    $
    23.89
    
    
    $
    22.13Value per share conversion
feature at issuance
    
    $
    10.72
    
    
    $
    10.20
    
    
    $
    18.80
    
    
    $
    19.21
    
    
    $
    19.57Stock price on date of agreement
    
    $
    8.80
    
    
    $
    13.99
    
    
    $
    32.25
    
    
    $
    29.28
    
    
    $
    26.81Stock volatility at issuance
    
    
    96
    %
    
    
    99
    %
    
    
    106
    %
    
    
    111
    %
    
    
    117
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Risk-free interest rate at issuance
    
    
    4.28
    %
    
    
    4.28
    %
    
    
    4.88
    %
    
    
    4.88
    %
    
    
    4.65
    %Converted
    
    Yes
    
    Yes
    
    Partial
    
    No
    
    NoWarrants exercised
    
    Yes
    
    Yes
    
    No
    
    No
    
    Partial
 
 (1)
    
    The warrants issued in connection with the February 2003,
September 2005, December 2005, February 2006, May 2006, July 2006 and
October 2006 convertible issuances meet the criteria of EITF 00-19 for
equity classification, as they do not contain similar registration
rights obligations with respect to the underlying shares. Accordingly,
the conversion features do not require derivative accounting. The
September 2005, February 2006, May 2006, July 2006 and October 2006
issuances do have a beneficial conversion feature; however, the
February 2003 and December 2005 issuances have no beneficial
conversion feature. 48




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##### Table of Contents



Warrant and Conversion Features
   FISCAL YEAR ENDED SEPTEMBER 30, 2007CONVERSIONWARRANTS
    
    
    FEATURES
    
    
    TOTALJanuary 2004 issuance  mark to market
    
    $
    (                  314
    )
    
    $
    
    
    
    $
    (314
    )Loss on value of warrants and
conversion feature
    
    $
    (314
    )
    
    $
    
    
    
    $
    (314
    )
 FISCAL YEAR ENDED SEPTEMBER 30, 2006CONVERSIONWARRANTS
    
    
    FEATURES
    
    
    TOTALJanuary 2004 issuance  mark to market
    
    $
    (1,413
    )
    
    $
    
    
    
    $
    (1,413
    )March 2004 issuance  mark to market
    
    
    (730
    )
    
    
    
    
    
    
    (730
    )October 2004 issuance  mark to market
    
    
    (2,902
    )
    
    
    (5,671
    )
    
    
    (8,573
    )February 2005 issuance  mark to market
    
    
    (1,788
    )
    
    
    (16,799
    )
    
    
    (18,587
    )Loss on value of warrants and
conversion feature
    
    $
    (6,833
    )
    
    $
    (22,470
    )
    
    $
    (29,303
    )
 FISCAL YEAR ENDED SEPTEMBER 30, 2005CONVERSIONWARRANTS
    
    
    FEATURES
    
    
    TOTALJanuary 2004 issuance  mark to market
    
    $
    (1,083
    )
    
    $
    (8,164
    )
    
    $
    (9,247
    )February 2004 issuance  mark to market
    
    
    (775
    )
    
    
    (5,684
    )
    
    
    (6,459
    )October 2004 issuance  mark to market
    
    
    (2,025
    )
    
    
    (3,958
    )
    
    
    (5,983
    )February 2005 issuance  mark to market
    
    
    1,172
    
    
    
    3,943
    
    
    
    5,115Loss on value of warrants and
conversion feature
    
    $
    (2,711
    )
    
    $
    (13,863
    )
    
    $
    (16,574
    )
 Amortization of Financing Fees and Debt Discount
    49




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##### Table of Contents



FISCAL YEAR ENDED SEPTEMBER 30, 2007CONVERSIONWARRANTS
    
    
    FEATURES
    
    
    TOTALSeptember 2005 issuance
    
    $
    158
    
    
    $
    
    
    
    $
    158December 2005 issuance
    
    
    285
    
    
    
    
    
    
    
    285February 2006 issuance
    
    
    1,830
    
    
    
    1,882
    
    
    
    3,712May 2006 issuance
    
    
    1,560
    
    
    
    2,302
    
    
    
    3,862July 2006 issuance
    
    
    113
    
    
    
    138
    
    
    
    251October 2006 issuance
    
    
    235
    
    
    
    269
    
    
    
    504$
    4,181
    
    
    $
    4,591
    
    
    $
    8,772Deferred financing costs
    
    
    
    
    
    
    
    
    
    
    999Total
    
    
    
    
    
    
    
    
    
    $
    9,771
 FISCAL YEAR ENDED SEPTEMBER 30, 2006CONVERSIONWARRANTS
    
    
    FEATURES
    
    
    TOTALOctober 2004 issuance
    
    $
    204
    
    
    $
    400
    
    
    $
    604February 2005 issuance
    
    
    834
    
    
    
    7,830
    
    
    
    8,664September 2005 issuance
    
    
    906
    
    
    
    
    
    
    
    906December 2005 issuance
    
    
    548
    
    
    
    
    
    
    
    548February 2006 issuance
    
    
    312
    
    
    
    694
    
    
    
    1,006May 2006 issuance
    
    
    3,524
    
    
    
    332
    
    
    
    3,856July 2006 issuance
    
    
    28
    
    
    
    34
    
    
    
    62$
    6,356
    
    
    $
    9,290
    
    
    $
    15,646Deferred financing costs
    
    
    
    
    
    
    
    
    
    
    886Total
    
    
    
    
    
    
    
    
    
    $
    16,532
 FISCAL YEAR ENDED SEPTEMBER 30, 2005CONVERSIONWARRANTS
    
    
    FEATURES
    
    
    TOTALJanuary 2004 issuance
    
    $
    458
    
    
    $
    
    
    
    $
    458March 2004 issuance
    
    
    863
    
    
    
    
    
    
    
    863October 2004 issuance
    
    
    973
    
    
    
    1,902
    
    
    
    2,875February 2005 issuance
    
    
    850
    
    
    
    1,892
    
    
    
    2,742$
    3,144
    
    
    $
    3,794
    
    
    $
    6,938Deferred financing costs
    
    
    
    
    
    
    
    
    
    
    1,531Total
    
    
    
    
    
    
    
    
    
    $
    8,469
 50




---



##### Table of Contents



SEPTEMBER 30, 2007CONVERSIONWARRANTS
    
    
    FEATURES
    
    
    TOTALMay 2006 issuance
    
    
    4,728
    
    
    
    6,981
    
    
    
    11,709July 2006 issuance
    
    
    403
    
    
    
    485
    
    
    
    888October 2006 issuance
    
    
    1,236
    
    
    
    1,422
    
    
    
    2,658$
    6,367
    
    
    $
    8,888
    
    
    
    15,255Debt acquisition cost and financing fees
    
    
    
    
    
    
    
    
    
    
    985Total
    
    
    
    
    
    
    
    
    
    $
    16,240
 SEPTEMBER 30, 2006CONVERSIONWARRANTS
    
    
    FEATURES
    
    
    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
 51




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##### Table of Contents



3. DISCONTINUED OPERATIONS
  2007
    
    
    2006
    
    
    2005Net sales
    
    $
    1,843
    
    
    $
    4,964
    
    
    $
    13,008Cost of sales
    
    
    2,220
    
    
    
    4,369
    
    
    
    11,424Gross profit
    
    
    (377
    )
    
    
    595
    
    
    
    1,584Selling, general and administrative expenses
    
    
    (144
    )
    
    
    (383
    )
    
    
    (3,735
    )Gain (loss) from operations
    
    
    (521
    )
    
    
    212
    
    
    
    (2,151
    )Other loss
    
    
    (24
    )
    
    
    (399
    )
    
    
    (31
    )Net loss from operations
    
    
    (545
    )
    
    
    (187
    )
    
    
    (2,182
    )Gain (loss) on disposal of discontinued operations
    
    
    
    
    
    
    150
    
    
    
    Loss on discontinued operations
    
    $
    (545
    )
    
    $
    (37
    )
    
    $
    (2,182
    )
 4. INVENTORIES
  SEPTEMBER 30,2007
    
    
    2006Raw materials
    
    $
    7,941
    
    
    $
    5,737Work-in-process
    
    
    11,832
    
    
    
    10,319Finished goods
    
    
    7,632
    
    
    
    5,142Supplies and other
    
    
    536
    
    
    
    523$
    27,941
    
    
    
    21,721
  5.
PROPERTY, PLANT AND EQUIPMENT
  SEPTEMBER 30,2007
    
    
    2006Land
    
    $
    2,265
    
    
    $
    1,674Buildings and improvements
    
    
    46,153
    
    
    
    50,887Machinery and equipment
    
    
    166,021
    
    
    
    102,673Furniture, fixtures and software
    
    
    6,042
    
    
    
    5,534Construction in progress
    
    
    36,183
    
    
    
    17,297256,664
    
    
    
    178,065Less: accumulated depreciation
    
    
    (67,863
    )
    
    
    (55,781
    )$
    188,801
    
    
    $
    122,284
 6. INCOME TAXES
  52




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##### Table of Contents



2007
    
    
    2006
    
    
    2005From continuing operations:Current:Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    Non-U.S.
    
    
    1,158
    
    
    
    888
    
    
    
    7081,158
    
    
    
    888
    
    
    
    708Deferred:Federal
    
    
    
    
    
    
    
    
    
    
    State
    
    
    (157
    )
    
    
    
    
    
    
    Non-U.S.
    
    
    985
    
    
    
    
    
    
    
    828
    
    
    
    
    
    
    
    Total Continuing Operations
    
    $
    1,986
    
    
    $
    888
    
    
    $
    708From discontinued operations:Current:Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    Non-U.S.
    
    
    19
    
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    Deferred:Federal
    
    
    
    
    
    
    
    
    
    
    State
    
    
    
    
    
    
    
    
    
    
    Non-U.S.
    
    
    
    
    
    
    
    
    
    
    Total Discontinued Operations
    
    
    19
    
    
    
    
    
    
    
    Total
    
    $
    2,005
    
    
    $
    888
    
    
    $
    708
  SEPTEMBER 30,2007
    
    
    2006Deferred
Tax AssetsLegal
liabilities
    
    $
    1,812
    
    
    $
    Reserves
    
    
    117
    
    
    
    292Other assets
    
    
    416
    
    
    
    Accrued
employee compensation
    
    
    178
    
    
    
    Net
operating loss and credit carryforwards
    
    
    37,493
    
    
    
    40,16940,016
    
    
    
    40,461Deferred
Tax LiabilitiesProperty,
plant and equipment
    
    
    (9,943
    )
    
    
    (7,247
    )Employee
compensation
    
    
    (391
    )
    
    
    Prepaid
expenses
    
    
    (185
    )
    
    
    (82
    )Other liabilities
    
    
    (567
    )
    
    
    (11,086
    )
    
    
    (7,329
    )Total Deferred Taxes
    
    
    28,930
    
    
    
    33,132Less: Valuation allowance
    
    
    (29,758
    )
    
    
    (33,132
    )Net
Deferred Tax Liability
    
    $
    (828
    )
    
    $
    Classification
of Deferred Taxes:Current
Deferred Tax Asset (included in Other Current Assets)
    
    $
    3,218
    
    
    $
    Long-Term
Deferred Tax Liability
    
    
    (4,046
    )
    
    
    $
    (828
    )
    
    $
    
  53




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##### Table of Contents



2007
    
    
    2006
    
    
    2005At statutory rate:Income taxes
on income (loss) from continuing operations
    
    $
    5
    
    
    $
    (22,058
    )
    
    $
    (12,751
    )Increases (decreases):Lower effective tax rate on non-U.S. operations
    
    
    (2,805
    )
    
    
    (985
    )
    
    
    525Change in valuation allowance on net operating loss
    
    
    1,428
    
    
    
    12,339
    
    
    
    4,125Change in valuation allowance on capital loss
    
    
    
    
    
    
    (523
    )
    
    
    State Taxes, net of federal benefit
    
    
    (157
    )
    
    
    
    
    
    
    Local taxes,
non-U.S.
    
    
    1,177
    
    
    
    888
    
    
    
    708Amortization of warrant discount
    
    
    3,926
    
    
    
    5,659
    
    
    
    2,359Fair market value of warrants
    
    
    107
    
    
    
    9,963
    
    
    
    5,635Nonqualified stock option expense
    
    
    (1,115
    )
    
    
    (3,617
    )
    
    
    Other
    
    
    (561
    )
    
    
    (778
    )
    
    
    107$
    2,005
    
    
    $
    888
    
    
    $
    708
  2007
    
    
    2006
    
    
    2005Domestic
    
    $
    (16,093
    )
    
    $
    (71,069
    )
    
    $
    (35,936
    )Foreign
    
    
    16,107
    
    
    
    6,192
    
    
    
    (1,567
    )Income (loss) from continuing operations before income taxes
    
    $
    14
    
    
    $
    (64,877
    )
    
    $
    (37,503
    )
  54




---



##### Table of Contents



7. DEBT
 Credit Facilities
    SEPTEMBER 30,2007
    
    
    2006Note payable with interest at 9%, payable in monthly installments of
principal and interest of $15 to maturity in January 2008
    
    $
    1,272
    
    
    $
    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
    
    
    2,030
    
    
    
    1,946Facilities with Hungarian banks (interest rate of 5.5% to 10.6%)
    
    
    6,417
    
    
    
    3,217Convertible debentures due February 2008 bearing interest at 7.0%
    
    
    
    
    
    
    2,700Convertible debentures due March 2009 bearing interest at 7.5%
    
    
    
    
    
    
    3,000Convertible debentures due May 2009 bearing interest at 7.5%
    
    
    
    
    
    
    15,000Convertible debentures due August 2009 bearing interest at 7.5%
    
    
    
    
    
    
    10,000Convertible debentures due November 2009 bearing interest at 7.5%
    
    
    16,200
    
    
    
    20,000Convertible debentures due January 2010 bearing interest at 7.5%
    
    
    2,505
    
    
    
    2,505Convertible debentures due April 2010 bearing interest at 7.5%
    
    
    7,495
    
    
    
    Total debt
    
    
    35,919
    
    
    
    59,714Less: Beneficial conversion feature and debt discount associated with warrants
    
    
    (15,255
    )
    
    
    (26,347
    )Less: amounts payable within one year
    
    
    (13,813
    )
    
    
    (1,365
    )Total long-term debt
    
    $
    6,851
    
    
    
    32,002
 8. COMMITMENTS AND CONTINGENCIES
 LEASES
  55




---



##### Table of Contents



LEGAL
       56




---



##### Table of Contents



SOURCES OF SUPPLY
  9. PROFIT SHARING PLAN
  10. STOCK COMPENSATION EXPENSE
   WTD. AVG.
    
    WTD. AVG.
    
    WTD. AVG.OPTIONS
    
    EXERCISE PRICE
    
    EXERCISABLE
    
    EXERCISE PRICEBalance, September 30, 2005
    
    
    1,051,667
    
    
    
    8.37
    
    
    
    812,028
    
    
    
    8.85Granted
    
    
    197,500
    
    
    
    10.06Exercised
    
    
    (537,833
    )
    
    
    5.21Cancelled
    
    
    (158,500
    )
    
    
    12.52Balance, September 30, 2006
    
    
    552,834
    
    
    
    10.94
    
    
    
    343,495
    
    
    
    12.65Granted
    
    
    77,500
    
    
    
    29.51Exercised
    
    
    (220,524
    )
    
    
    6.31Cancelled
    
    
    (40,000
    )
    
    
    28.01Balance, September 30, 2007
    
    
    369,810
    
    
    
    16.02
    
    
    
    264,800
    
    
    
    17.23
 57




---



##### Table of Contents



OPTIONS OUTSTANDING

    
    OPTIONS EXERCISABLERANGE OF

    
    
    
    
    
    WTD. AVG.
    
    WTD. AVG.
    
    
    
    
    
    WTD. AVG.PRICES

    
    NUMBER
    
    REMAINING LIFE
    
    EXERCISE PRICE
    
    NUMBER
    
    EXERCISE PRICE$
    1.33 -
    2.80

    
    
    17,000
    
    
    5 years
    
    $
    2.44
    
    
    
    17,000
    
    
    $
    2.443.25 -
    5.67

    
    
    35,000
    
    
    5 years
    
    
    5.49
    
    
    
    35,000
    
    
    
    5.496.25 -
    9.25

    
    
    117,800
    
    
    7 years
    
    
    8.37
    
    
    
    50,300
    
    
    
    8.069.60 -
    15.99

    
    
    92,510
    
    
    7 years
    
    
    13.47
    
    
    
    80,000
    
    
    
    14.0324.50 -
    39.00

    
    
    107,500
    
    
    7 years
    
    
    32.16
    
    
    
    82,500
    
    
    
    33.951.33 -
    39.00

    
    
    369,810
    
    
    7 years
    
    
    16.02
    
    
    
    264,800
    
    
    $
    17.23
     FISCAL YEAR ENDED SEPTEMBER 30,2005Reported net loss
    
    $
    (40,393
    )Total stock-based employee compensation expense
determined under fair value based method for all awards
    
    
    (294
    )Pro forma net loss
    
    $
    (40,687
    )Reported basic loss per share
    
    $
    (2.23
    )Pro forma basic loss per share
    
    $
    (2.25
    )Reported diluted loss per share
    
    $
    (2.23
    )Pro forma diluted loss per share
    
    $
    (2.25
    )
   FISCAL YEAR ENDED SEPTEMBER 30ASSUMPTIONS
    
    2007
    
    2006
    
    2005Expected life of option
    
    3-7.5 years
    
    3-8 years
    
    4-8 yearsRisk-free interest rate
    
    
    4.90
    %
    
    
    4.32
    %
    
    
    3.80
    %Volatility of stock
    
    
    68
    %
    
    
    96
    %
    
    
    76
    %Cancellation experience
    
    
    30
    %
    
    
    30
    %
    
    
    51
    %
 58




---



##### Table of Contents



11. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
    FISCAL YEAR ENDED SEPTEMBER 30, 2007CARBON
    
    TECHNICAL
    
    CORPORATE/FIBERS
    
    FIBERS
    
    OTHER
    
    TOTALNet sales
    
    $
    116,365
    
    
    $
    31,697
    
    
    $
    2,818
    
    
    $
    150,880Cost of sales
    
    
    82,223
    
    
    
    23,689
    
    
    
    1,594
    
    
    
    107,506Operating income (loss)
    
    
    26,536
    
    
    
    7,435
    
    
    
    (15,862
    )
    
    
    18,109Depreciation and amortization expense
    
    
    7,387
    
    
    
    1,333
    
    
    
    485
    
    
    
    9,205Capital expenditures
    
    
    47,321
    
    
    
    2,148
    
    
    
    3,943
    
    
    
    53,412
 FISCAL YEAR ENDED SEPTEMBER 30, 2006CARBON
    
    TECHNICAL
    
    CORPORATE/FIBERS
    
    FIBERS
    
    OTHER
    
    TOTALNet sales
    
    $
    65,677
    
    
    $
    25,195
    
    
    $
    1,485
    
    
    $
    92,357Cost of sales
    
    
    49,386
    
    
    
    19,211
    
    
    
    1,397
    
    
    
    69,994Operating income (loss)
    
    
    10,383
    
    
    
    4,620
    
    
    
    (30,678
    )
    
    
    (15,675
    )Depreciation and amortization expense
    
    
    4,601
    
    
    
    1,125
    
    
    
    127
    
    
    
    5,853Capital expenditures
    
    
    31,742
    
    
    
    7,833
    
    
    
    1,220
    
    
    
    40,795
 FISCAL YEAR ENDED SEPTEMBER 30, 2005CARBON
    
    TECHNICAL
    
    CORPORATE/FIBERS
    
    FIBERS
    
    OTHER
    
    TOTALNet sales
    
    $
    34,487
    
    
    $
    19,693
    
    
    $
    1,197
    
    
    $
    55,377Cost of sales, excluding available unused capacity
expenses
    
    
    36,677
    
    
    
    15,361
    
    
    
    771
    
    
    
    52,809Available unused capacity expenses
    
    
    2,347
    
    
    
    
    
    
    
    
    
    
    
    2,347Operating income (loss)
    
    
    (8,214
    )
    
    
    2,658
    
    
    
    (2,070
    )
    
    
    (7,626
    )Depreciation and amortization expense
    
    
    3,922
    
    
    
    877
    
    
    
    343
    
    
    
    5,142Capital expenditures
    
    
    11,850
    
    
    
    2,611
    
    
    
    304
    
    
    
    14,765
 TOTAL ASSETSCARBON
    
    TECHNICAL
    
    CORPORATE/FIBERS
    
    FIBERS
    
    OTHER
    
    TOTALSeptember 30, 2007
    
    $
    217,662
    
    
    $
    36,833
    
    
    $
    149,104
    
    
    $
    403,599September 30, 2006
    
    
    128,747
    
    
    
    25,199
    
    
    
    33,738
    
    
    
    187,684September 30, 2005
    
    
    93,386
    
    
    
    22,662
    
    
    
    14,381
    
    
    
    130,429
 59




---



##### Table of Contents



2007
    
    
    2006
    
    
    2005NET
    
    
    
    
    
    
    NET
    
    
    
    
    
    
    NETLONG LIVED
    
    
    
    
    
    
    LONG LIVED
    
    
    
    
    
    
    LONG LIVEDNET SALES (a)
    
    

ASSETS (b)
    
    

NET SALES (a)
    
    

ASSETS (b)
    
    

NET SALES (a)
    
    

ASSETS (b)United States
    
    $
    38,506
    
    
    $
    194,365
    
    
    $
    36,359
    
    
    $
    49,497
    
    
    $
    21,533
    
    
    $
    45,978Western Europe
    
    
    101,641
    
    
    
    
    
    
    
    38,108
    
    
    
    
    
    
    
    22,764
    
    
    
    Eastern Europe
    
    
    5,056
    
    
    
    205,902
    
    
    
    9,621
    
    
    
    72,787
    
    
    
    6,058
    
    
    
    42,040Asia
    
    
    4,983
    
    
    
    
    
    
    
    698
    
    
    
    
    
    
    
    4,879
    
    
    
    Other areas
    
    
    694
    
    
    
    
    
    
    
    7,571
    
    
    
    
    
    
    
    143
    
    
    
    Total
    
    $
    150,880
    
    
    $
    400,267
    
    
    $
    92,357
    
    
    $
    122,284
    
    
    $
    55,377
    
    
    $
    88,018
 
 (a)
    
    Revenues are attributed to countries based on the location of the
customer.(b)
    
    Property and equipment net of accumulated depreciation based on country
location of assets. 12. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
 (Amounts in thousands, except per share data)FISCAL YEAR 2007
    
    1ST QUARTER
    
    
    2ND QUARTER
    
    
    3RD QUARTER
    
    
    4TH QUARTERNet sales
    
    $
    30,285
    
    
    $
    36,742
    
    
    $
    40,274
    
    
    $
    43,579Income (loss) from continuing operations
    
    
    (5,595
    )
    
    
    (57
    )
    
    
    5,020
    
    
    
    (1,340
    )Income (loss) from discontinued operations
    
    
    (68
    )
    
    
    51
    
    
    
    (24
    )
    
    
    (504
    )Net income (loss)
    
    $
    (5,663
    )
    
    $
    (6
    )
    
    $
    4,996
    
    
    $
    (1,844
    )Basic and diluted loss per share:Continuing operations  basic
    
    $
    (0.22
    )
    
    $
    (0.00
    )
    
    $
    0.17
    
    
    $
    (0.04
    )Discontinued operations  basic
    
    
    (0.00
    )
    
    
    0.00
    
    
    
    (0.00
    )
    
    
    (0.02
    )Total basic
    
    $
    (0.22
    )
    
    $
    (0.00
    )
    
    $
    0.17
    
    
    $
    (0.06
    )Continuing operations  diluted
    
    $
    (0.23
    )
    
    $
    (0.00
    )
    
    $
    0.17
    
    
    $
    (0.04
    )Discontinued operations  diluted
    
    
    (0.00
    )
    
    
    0.00
    
    
    
    (0.00
    )
    
    
    (0.02
    )Total diluted
    
    $
    (0.23
    )
    
    $
    (0.00
    )
    
    $
    0.17
    
    
    $
    (0.06
    )
 FISCAL YEAR 2006
    
    1ST QUARTER
    
    
    2ND QUARTER
    
    
    3RD QUARTER
    
    
    4TH QUARTERNet sales
    
    $
    15,557
    
    
    $
    26,199
    
    
    $
    26,787
    
    
    $
    23,814Income (loss) from continuing operations
    
    
    6,128
    
    
    
    (27,784
    )
    
    
    (21,216
    )
    
    
    (22,893
    )Income (loss) from discontinued operations
    
    
    160
    
    
    
    41
    
    
    
    (252
    )
    
    
    14Net income (loss)
    
    $
    6,288
    
    
    $
    (27,743
    )
    
    $
    (21,468
    )
    
    $
    (22,879
    )Basic and diluted income (loss) per share:Continuing operations  basic
    
    $
    0.31
    
    
    $
    (1.31
    )
    
    $
    (0.90
    )
    
    $
    (0.89
    )Discontinued operations  basic
    
    
    0.01
    
    
    
    0.00
    
    
    
    (0.01
    )
    
    
    (0.00
    )Total basic
    
    $
    0.32
    
    
    $
    (1.31
    )
    
    $
    (0.91
    )
    
    $
    (0.89
    )Continuing operations  diluted
    
    $
    0.27
    
    
    $
    (1.31
    )
    
    $
    (0.90
    )
    
    $
    (0.89
    )Discontinued operations  diluted
    
    
    .01
    
    
    
    0.00
    
    
    
    (0.01
    )
    
    
    (0.00
    )Total diluted
    
    $
    0.28
    
    
    $
    (1.31
    )
    
    $
    (0.91
    )
    
    $
    (0.89
    )
 FISCAL YEAR 2005
    
    1ST QUARTER
    
    
    2ND QUARTER
    
    
    3RD QUARTER
    
    
    4TH QUARTERNet sales
    
    $
    11,194
    
    
    $
    13,230
    
    
    $
    16,073
    
    
    $
    14,880Income (loss) from continuing operations
    
    
    (29,187
    )
    
    
    2,621
    
    
    
    (1,293
    )
    
    
    (10,352
    )Loss from discontinued operations
    
    
    (742
    )
    
    
    (475
    )
    
    
    (175
    )
    
    
    (790
    )Net income (loss)
    
    $
    (29,929
    )
    
    $
    2,146
    
    
    $
    (1,468
    )
    
    $
    (11,142
    )Basic and diluted income (loss) per share:Continuing operations  basic
    
    $
    (1.62
    )
    
    $
    0.14
    
    
    $
    (0.07
    )
    
    $
    (0.57
    )Discontinued operations  basic
    
    
    (0.04
    )
    
    
    (0.02
    )
    
    
    (0.01
    )
    
    
    (0.04
    )Total basic
    
    $
    (1.66
    )
    
    $
    0.12
    
    
    $
    (0.08
    )
    
    $
    (0.61
    )Continuing operations  diluted
    
    $
    (1.78
    )
    
    $
    (0.21
    )
    
    $
    (0.13
    )
    
    $
    (0.52
    )Discontinued operations  diluted
    
    
    (0.04
    )
    
    
    (0.02
    )
    
    
    (0.01
    )
    
    
    (0.03
    )Total diluted
    
    $
    (1.82
    )
    
    $
    (0.23
    )
    
    $
    (0.14
    )
    
    $
    (0.55
    )
 13. SUBSEQUENT EVENTS
   
 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures
 60
    Table of Contents  Item 9A. Controls and Procedures
 EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
   MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  
    
    pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company;
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that receipts and
expenditures of the Company are being made only in accordance with authorizations of
management and directors of the Company; and
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Companys assets that could have a material effect
on the interim or annual consolidated financial statements.
   61
    Table of Contents  
    
    The Company did not maintain effective entity level controls and procedures to prevent
certain accounting entries from being recorded prior to formal documentation of the
arrangements being obtained.  Specifically, the Company lacked effective policies and
procedures for the review of revenue associated with certain customers sales contracts.
Additionally, the Company lacked effective policies and procedures to insure use of an
appropriate measurement date for the valuation of certain share-based payments (i.e.,
stock options).
    
    The Company did not maintain effective policies and procedures related to the
assessment of reserves for possible liability arising from certain litigation matters.
  REMEDIATION OF MATERIAL WEAKNESSES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
   
    
    Periodic meetings involving senior management, accounting and financial reporting
personnel, and applicable department responsible for contract oversight to confirm
documented terms and conditions have not been altered; and
    
    Review by financial reporting department of all existing significant contracts (and
establish requirement of all future contracts) for accounting implications, and
preparation of and approval by Chief Financial Officer of memo summarizing proper
accounting treatment.
  
    
    Establish formal policies and procedures in the granting and allocation process to
ensure that the measurement date and the grant date are the same;
    
    Establish formal policies and procedures to develop inter-departmental
communication protocol whereby the share-based compensation administrator will timely
notify accounting personnel of grants, modifications to grants, or other relevant information so that
accounting can make the necessary fair value adjustments;
    
    A member of our financial reporting and human resources groups will be consulted in
respect to assisting the share-based compensation administrator in the oversight of
documentation and accounting for all stock option grants; and
    
    Enhance the knowledge base of our personnel including providing instruction to the
share-based compensation administrator, Vice-President-Human Resources, Compensation
Committee and Chief Executive Officer regarding the definition of measurement date
issues for subsequent administration and instruction regarding the requirements of FAS
123(R) so they can properly account for share-based compensation.
  
    
    Liability requirements as quantified by the accounting and financial reporting
departments will be reviewed by the Audit Committee and outside legal counsel on a
quarterly basis; and
 62
    Table of Contents  
    
    Outside accounting professionals, when deemed necessary, will be consulted to assist
with interpretation and clarification of accounting standards.
 CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
   
    
    improved compliance with previously established cycle counting process by
instituting greater management oversight;
    
    targeted inventory product codes with significant dollar values, critical to
manufacture process and susceptible to inaccuracies;
    
    provided additional training for cycle count personnel, and
    
    required review and approval of all cycle counts by another trained individual.
 63
    Table of Contents  
    
    new cost standards were developed based on a collaboration between accounting,
engineering and plant personnel whereby current costs to manufacture products were
identified and production capacities were determined; and
    
    reviews of manufacturing variances against benchmarks were implemented to validate
production costs and inventory values.
  Item 9B. Other Information
 64
    Table of Contents  PART III
 
 Item 10. Directors and Executive Officers of the Registrant
  
 Item 11. Executive Compensation
  65
    Table of Contents  Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
   EQUITY COMPENSATION PLAN INFORMATION
 NUMBER OF SECURITIESREMAINING AVAILABLEWEIGHTED AVERAGE
    
    FOR FUTURE ISSUANCENUMBER OF SECURITIES TO
    
    EXERCISE PRICE OF
    
    UNDER EQUITYBE ISSUED UPON EXERCISE
    
    OUTSTANDING OPTIONS
    
    COMPENSATION PLANSOF OUTSTANDING OPTIONS
    
    UNDER EQUITY
    
    (EXCLUDING SECURITIESWARRANTS AND RIGHTS
    
    WARRANTS AND RIGHTS
    
    REFLECTED IN COLUMN)PLAN CATEGORY
    
    (#)
    
    ($)
    
    (#)Equity Compensation Plans
Approved by Security Holders
    
    
    369,810
    (1)
    
    $
    16.02
    
    
    
    345,000
    (1)Equity Compensation Plans Not
Approved by Security Holders
    
    
    0
    (2)
    
    
    0
    
    
    
    0
    (2)Total
    
    
    369,810
    
    
    $
    16.02
    
    
    
    345,000
 
 (1)
    
    Under the Companys Directors Stock Option Plan, there is at all times
reserved for issuance a number of shares of Common Stock equal to the
total number of shares then issuable pursuant to all option grants which
are then outstanding under such plan.(2)
    
    The Company currently has no equity compensation plans that are not
approved by security holders. 
 Item 13. Certain Relationships and Related Transactions and Director Independance
  
 Item 14. Principal Accountant Fees and Services
  66
    Table of Contents  PART IV
 
 Item 15. Exhibits and Financial Statement Schedule
            12-09
Valuation and Qualifying Accounts and Reserves
  RATIO OF EARNINGS AVAILABLE TO COVER FIXED CHARGES
  Fiscal Year Ended September 30,2007
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Ratio of earnings
available to cover fixed charges (i)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (i)
    
    Due to our losses in fiscal years 2002, 2003, 2004, 2005, 2006 and 2007,
there was a deficiency of earnings to cover fixed charges in each such
period. Additional earnings of $9.4 million, $11.9 million, $16.7
million, $37.5 million, $64.9 million and $2.0 million would have been required in
each of such periods, respectively, for earnings to cover fixed
charges.  67
    Table of Contents  ExhibitNumber
    
    Description3.1
    
    Restated Articles of Incorporation of the Registrant dated
October 7, 1992, filed as Exhibit 3.1 to Registrants
Registration Statement on Form S-3 (Reg. No. 333-143996) and incorporated herein by reference.3.2
    
    Certificate of Amendment of Restated Articles of Incorporation of the
Registrant dated February 15, 1996, filed as Exhibit 3.2 to Registrants Registration Statement on Form S-3 (Reg. No. 333-143996) and incorporated herein by reference.3.3
    
    Certificate of Amendment of Restated Articles of Incorporation of the
Registrant dated February 7, 1997, filed as Exhibit 3.3 to Registrants Registration
Statement on Form S-3 (Reg. No. 333-143996) and incorporated herein by reference.3.4
    
    Restated By-Laws of the Registrant dated September 22,
1992, filed as Exhibit 3.4 to Registrants Registration Statement on Form S-3 (Reg. No. 333-143996) and incorporated herein by reference.4.10
    
    Form of certificate for Common Stock, filed as Exhibit 4.1 to Registrants
Registration Statement on Form S-1 (Reg. No. 33-51142) and incorporated
herein by reference.4.11
    
    Form of Warrant, dated May 11, 2001, issued to Southwest Bank of St. Louis
with respect to 12,500 shares of Registrants Common Stock, filed as
Exhibit 4.2 to Registrants Annual Report on Form 10-K for the year ended
September 30, 2001 and incorporated herein by reference.4.12
    
    Subordinated Convertible Debenture Purchase Agreement, dated as of
February 13, 2003, by and among Zoltek Companies, Inc. and the investors
named therein, filed as Exhibit 4.1 to Registrants Current Report on Form
8-K dated February 18, 2003 and incorporated herein by reference.4.13
    
    Form of Subordinated Debenture, filed as Exhibit 4.2 to
Registrants Current Report on Form 8-K dated February 18,
2003 and incorporated herein by reference.4.14
    
    Form of Warrant, filed as Exhibit 4.3 to Registrants Current
Report on Form 8-K dated February 18, 2003 and incorporated
herein by reference.4.15
    
    Securities Purchase Agreement, dated as of December 19, 2003,
by and among Zoltek Companies, Inc. and the investors named
therein, filed as Exhibit 4.6 to Registrants Annual Report
on Form 10-K for the fiscal year ended September 30, 2003 and
incorporated herein by reference.4.16
    
    Form of 6% Convertible Debenture, filed as Exhibit 4.7 to
Registrants Annual Report on Form 10-K for the fiscal year
ended September 30, 2003 and incorporated herein by
reference.4.17
    
    Form of Warrant, filed as Exhibit 4.8 to Registrants Annual
Report on Form 10-K for the fiscal year ended September 30,
2003 and incorporated herein by reference.4.18
    
    Securities Purchase Agreement, dated as of March 11, 2004, by
and among Zoltek Companies, Inc. and the investors named
therein, filed as Exhibit 4.2 to Registrants Registration
Statement on Form S-3 (Reg. No. 333-115043) and incorporated
herein by reference.4.19
    
    Form of 6% Convertible Debenture, filed as Exhibit 4.3 to
Registrants Registration Statement on Form S-3 (Reg. No.
333-115043) and incorporated herein by reference.4.20
    
    Form of Warrant, filed as Exhibit 4.4 to Registrants
Registration Statement on Form S-3 (Reg. No. 333-115043) and
incorporated herein by reference.4.21
    
    Loan and Warrant Agreement, dated as of October 14, 2004,
filed as Exhibit 4.1 to Registrants Current Report on Form
8-K dated October 19, 2004 and incorporated herein by
reference.4.22
    
    Security Agreement, dated as of October 14, 2004, filed as
Exhibit 4.3 to Registrants Current Report on Form 8-K dated
October 19, 2004 and incorporated herein by reference.4.23
    
    Mortgage Agreement, dated as of October 14, 2004, filed as
Exhibit 4.4 to Registrants Current Report on Form 8-K dated
October 19, 2004 and incorporated herein by reference.4.24
    
    Form of Warrant, filed as Exhibit 4.5 to Registrants Current
Report on Form 8-K dated October 19, 2004 and incorporated
herein by reference.4.25
    
    Loan and Warrant Agreement, dated as of February 9, 2005, by
and among the Registrant, the Lenders and the Agent, filed as
Exhibit 4.1 to the Registrants Quarterly Report on Form 10-Q
for the quarter ended December 31, 2004 and incorporated
herein by reference.4.26
    
    Form of Senior Convertible Note, dated as of February 9,
2005, filed as Exhibit 4.2 to the Registrants Quarterly
Report on Form 10-Q for the quarter ended December 31, 2004
and incorporated herein by reference.4.27
    
    Form of Warrant, dated as of February 9, 2005, filed as
Exhibit 4.3 to the Registrants Quarterly Report on Form 10-Q
for the quarter ended December 31, 2004 and incorporated
herein by reference.4.28
    
    Form of Registration Rights Agreement, dated as of February
9, 2005, filed as Exhibit 4.4 to the Registrants Quarterly
Report on Form 10-Q for the quarter ended December 31, 2004
and incorporated herein by reference.4.29
    
    Loan and Warrant Agreement, dated as of September 29, 2005,
among the Registrant, the Lenders and the Agent, filed as
Exhibit 4.1 to the Registrants Current Report on Form 8-K
dated September 29, 2005 and incorporated herein by
reference.4.30
    
    Form of Note, filed as Exhibit 4.2 to the Registrants
Current Report on Form 8-K dated September 29, 2005 and
incorporated herein by reference.4.31
    
    Form of Warrant, filed as Exhibit 4.3 to the Registrants
Current Report on Form 8-K dated September 29, 2005 and
incorporated herein by reference.4.32
    
    Registration Rights Agreement, dated as of September 30,
2005, by and among the Registrant and the Lenders parties
thereto, filed as Exhibit 4.4 to the Registrants Current
Report on Form 8-K dated September 29, 2005 and incorporated
herein by reference.4.33
    
    Waiver and Consent, dated as of February 3, 2006, by and
among the Registrant and the Lender parties thereto, filed
as Exhibit 4.5 to the Registrants Current Report on Form
8-K dated February 6, 2006, and incorporated herein by
reference.4.34
    
    Amendment No. 1 to Loan and Warrant Agreement and
Registration Rights Agreement among the Registrant and the
Lender parties thereto, filed as Exhibit 4.2 to the
Registrants Current Report on Form 8-K dated April 28, 2006
and incorporated herein by reference.4.35
    
    Form of Note, filed as Exhibit 4.3 to the Registrants
Current Report on Form 8-K dated April 28, 2006 and
incorporated herein by reference.4.36
    
    Form of Warrant, filed as Exhibit 4.4 to the Registrants
Current Report on Form 8-K dated April 28, 2006 and
incorporated herein by reference.4.37
    
    Amendment No. 2 to Loan and Warrant Agreement and
Registration Rights Agreement, dated as of December 14,
2006, among the Registrant and the Lenders, filed as Exhibit
4.3 to the Registrants Current Report on Form 8-K dated
December 14, 2006 and incorporated herein by reference.4.38
    
    Form of Warrant, filed as Exhibit 4.4 to the Registrants
Current Report on Form 8-K dated December 14, 2006 and
incorporated herein by reference.10.1
    
    Loan Agreement, dated December 29, 1989, by and between Zoltek Corporation and
Southwest Bank of St. Louis, as amended by letter, dated August 13, 1992, filed as Exhibit 10.7 to
Registrants Registration Statement on Form S-1 (Reg. No. 33-51142) is incorporated herein by this
reference10.2
    
    Zoltek Companies, Inc. Long Term Incentive Plan, filed as Appendix B to Registrants
definitive proxy statement for the 1997 Annual Meeting of Shareholders is incorporated herein by
this reference*10.3
    
    Zoltek Companies, Inc. Amended and Restated Directors Stock Option Plan, filed as Exhibit
10.1 to Registrants Quarterly Report on Form 10-Q dated August 13, 1999, is incorporated
herein by this reference*10.4
    
    Precursor Agreement, dated as of July 1, 1994, by and between Zoltek Corporation and
Courtaulds Fibres Limited, filed as Exhibit 10.9 to Registrants Annual Report on Form 10-K for the
fiscal year ended September 30, 1994, is incorporated herein by this reference (An application for
confidential treatment has been made for a portion of Exhibit 10.5.)10.5
    
    Materials Supply Agreement, dated as of June 15, 1994, by and between Zoltek Companies,
Inc. and The B.F. Goodrich Company, filed as Exhibit 10.10 to Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 1994, is incorporated herein by this
reference (An application for confidential treatment has been made for a portion of Exhibit 10.6.)10.6
    
    Promissory Note, dated November 14, 1994, by and between Zoltek Corporation and Southwest
Bank of St. Louis, filed as Exhibit 10.2 to the Registrants Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995, is incorporated herein by this reference10.7
    
    Credit Agreement, dated May 11, 2001, between Southwest Bank of St. Louis and Zoltek
Companies, Inc., Zoltek Corporation, Cape Composites, Inc., Engineering Technology
Corporation, Zoltek Properties, Inc., and Hardcore Composites Operations, LLC, filed as Exhibit
10.1 to Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 is
incorporated herein by reference10.8
    
    First Amendment to Credit Agreement, dated as of February 13, 2003, by and among Zoltek
Companies, Inc., Zoltek Corporation, Cape Composites, Inc., Engineering Technology
Corporation, Zoltek Properties, Inc. and Southwest Bank of St. Louis, filed as Exhibit 10.1 to
Registrants Current Report on Form 8-K dated February 18, 2003 is incorporated herein by reference10.9
    
    Zoltek Companies, Inc. 2003 Long-Term Equity Incentive Plan, filed as Appendix A to
Registrants definitive proxy statement for the 2002 Annual Meeting of Shareholders is
incorporated herein by reference*10.10
    
    Promissory Note, dated January 13, 2004, by and between Zoltek Properties, Inc. and Beal
Bank, S.S.B. filed as Exhibit 10.13 to Registrants Annual Report on Form 10-K for
the fiscal year ended September 30, 2003, is incorporated herein by this reference, incorporated
herein by reference.10.11
    
    Second Amendment to Credit Agreement, dated as of January 13, 2003, by and among Zoltek
Companies, Inc., Zoltek Corporation, Cape Composites, Inc., Engineering Technology Corporation,
Zoltek Properties, Inc. and Southwest Bank of St. Louis filed as Exhibit 10.14 to Registrants
Annual Report on Form 10-K for the fiscal year ended September 30, 2003, is incorporated herein by
this reference21
    
    Subsidiaries of the Registrant23.1
    
    Consent of Grant Thornton LLP.23.2
    
    Consent of PricewaterhouseCoopers LLP.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended is filed herewith.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended is filed herewith.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 is filed herewith.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 is filed herewith.
  68
    Table of Contents  SIGNATURES
  ZOLTEK COMPANIES, INC.
 By
    
    /s/ Zsolt RumyZsolt Rumy, Chairman of the Board, President andChief Executive Officer
   Signature
    
    Title
    
    Date/s/ Zsolt Rumy
    
    Chairman, President,
    
    December 7, 2007Zsolt Rumy
    
    Chief Executive Officer and Director/s/ Kevin Schott
    
    Chief Financial Officer
    
    December 7, 2007Kevin Schott/s/ Linn H. Bealke
    
    Director
    
    December 7, 2007Linn H. Bealke/s/ James W. Betts
    
    Director
    
    December 7, 2007James W. Betts/s/ Charles A. Dill
    
    Director
    
    December 7, 2007Charles A. Dill/s/ George E. Husman
    
    Director
    
    December 7, 2007George E. Husman/s/ Michael D. Latta
    
    Director
    
    December 7, 2007Michael D. Latta
 69
    Table of Contents  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2007Rule 12-09 Valuation and Qualifying Accounts and Reserves(Amounts in thousands)Column A
    
    Column B
    
    
    Column C
    
    
    Column D
    
    
    Column EAdditionsBalance at
    
    
    Charged to
    
    
    Charged to
    
    
    
    
    
    
    Balance atbeginning
    
    
    costs and
    
    
    other accounts
    
    
    Deductions
    
    
    endof period
    
    
    expenses
    
    
    describe
    
    
    describe
    
    
    of periodRESERVE FOR DOUBTFUL ACCOUNTS
    
    $
    729
    
    
    $
    52
    
    
    $
    
    
    
    $
    
    
    
    $
    781RESERVE FOR INVENTORY VALUATION
    
    $
    1,300
    
    
    $
    
    
    
    $
    
    
    
    $
    655
    (2)
    
    $
    645DEFERRED TAX VALUATION
    
    $
    34,217
    
    
    $
    
    
    
    $
    628
    (5)
    
    $
    5,087
    (3)(4)(6)
    
    $
    29,758
  Rule 12-09 Valuation and Qualifying Accounts and Reserves(Amounts in thousands)Column A
    
    Column B
    
    
    Column C
    
    
    Column D
    
    
    Column EAdditionsBalance at
    
    
    Charged to
    
    
    Charged to
    
    
    
    
    
    
    Balance atbeginning
    
    
    costs and
    
    
    other accounts
    
    
    Deductions
    
    
    endof period
    
    
    expenses
    
    
    describe
    
    
    describe
    
    
    of periodRESERVE FOR DOUBTFUL ACCOUNTS
    
    $
    718
    
    
    $
    306
    
    
    $
    
    
    
    $
    295
    (1)
    
    $
    729RESERVE FOR INVENTORY VALUATION
    
    $
    3,100
    
    
    $
    
    
    
    $
    
    
    
    $
    1,800
    (2)
    
    $
    1,300DEFERRED TAX VALUATION
    
    $
    22,401
    
    
    $
    14,233
    
    
    $
    
    
    
    $
    2,417
    (3)
    
    $
    34,217
 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2005Rule 12-09 Valuation and Qualifying Accounts and Reserves(Amounts in thousands)Column A
    
    Column B
    
    
    Column C
    
    
    Column D
    
    
    Column EAdditionsBalance at
    
    
    Charged to
    
    
    Charged to
    
    
    
    
    
    
    Balance atbeginning
    
    
    costs and
    
    
    other accounts
    
    
    Deductions
    
    
    endof period
    
    
    expenses
    
    
    describe
    
    
    describe
    
    
    of periodRESERVE FOR DOUBTFUL ACCOUNTS
    
    $
    981
    
    
    $
    425
    
    
    $
    
    
    
    $
    688
    (1)
    
    $
    718RESERVE FOR INVENTORY VALUATION
    
    $
    5,187
    
    
    $
    
    
    
    $
    
    
    
    $
    2,087
    (2)
    
    $
    3,100DEFERRED TAX VALUATION
    
    $
    14,497
    
    
    $
    7,904
    
    
    $
    
    
    
    $
    
    
    
    $
    22,401
 
 (1)
    
    Write-off of uncollectible receivable, net of recovery.(2)
    
    Reduction in inventory reserve for inventory items sold during fiscal 2005.(3)
    
    Expiration of capital loss carryforward and utilization against current
foreign income taxes payable.(4)
    
    Removal of NOLs related to non-qualified stock options and the related valuation allowance.(5)
    
    Addition of a valuation allowance on the Texas tax credits that were created from prior years Texas NOL.  The credits are created and calculated under the newly enacted Texas margin tax law.(6)
    
    Prior Year true-ups. 71
    Table of Contents  Exhibit Index
 Exhibit Number
    
    Description3.1
    
    Restated Articles of Incorporation
of the Registrant dated October 7, 1992, filed as Exhibit 3.1 to
Registrants Registration Statement on Form S-3 (Reg.
No.333-143996) and incorporated herein by reference.3.2
    
    Certificate of Amendment of Restated Articles of Incorporation of the
Registrant dated February 15, 1996, filed as Exhibit 3.2 to
Registrants Registration Statement on Form S-3 (Reg.
No.333-143996) and incorporated herein by reference.3.3
    
    Certificate of Amendment of Restated Articles of Incorporation of the
Registrant dated February 7, 1997, filed as Exhibit 3.3 to
Registrants Registration Statement on Form S-3 (Reg.
No.333-143996) and incorporated herein by reference.3.4
    
    Restated By-Laws of the Registrant
dated September 22, 1992, filed as Exhibit 3.4 to
Registrants Registration Statement on Form S-3 (Reg.
No.333-143996) and incorporated herein by reference.4.10
    
    Form of certificate for Common Stock, filed as Exhibit 4.1 to Registrants
Registration Statement on Form S-1 (Reg. No. 33-51142) and incorporated
herein by reference.4.11
    
    Form of Warrant, dated May 11, 2001, issued to Southwest Bank of St. Louis
with respect to 12,500 shares of Registrants Common Stock, filed as
Exhibit 4.2 to Registrants Annual Report on Form 10-K for the year ended
September 30, 2001 and incorporated herein by reference.4.12
    
    Subordinated Convertible Debenture Purchase Agreement, dated as of
February 13, 2003, by and among Zoltek Companies, Inc. and the investors
named therein, filed as Exhibit 4.1 to Registrants Current Report on Form
8-K dated February 18, 2003 and incorporated herein by reference.4.13
    
    Form of Subordinated Debenture, filed as Exhibit 4.2 to
Registrants Current Report on Form 8-K dated February 18,
2003 and incorporated herein by reference.4.14
    
    Form of Warrant, filed as Exhibit 4.3 to Registrants Current
Report on Form 8-K dated February 18, 2003 and incorporated
herein by reference.4.15
    
    Securities Purchase Agreement, dated as of December 19, 2003,
by and among Zoltek Companies, Inc. and the investors named
therein, filed as Exhibit 4.6 to Registrants Annual Report
on Form 10-K for the fiscal year ended September 30, 2003 and
incorporated herein by reference.4.16
    
    Form of 6% Convertible Debenture, filed as Exhibit 4.7 to
Registrants Annual Report on Form 10-K for the fiscal year
ended September 30, 2003 and incorporated herein by
reference.4.17
    
    Form of Warrant, filed as Exhibit 4.8 to Registrants Annual
Report on Form 10-K for the fiscal year ended September 30,
2003 and incorporated herein by reference.4.18
    
    Securities Purchase Agreement, dated as of March 11, 2004, by
and among Zoltek Companies, Inc. and the investors named
therein, filed as Exhibit 4.2 to Registrants Registration
Statement on Form S-3 (Reg. No. 333-115043) and incorporated
herein by reference.4.19
    
    Form of 6% Convertible Debenture, filed as Exhibit 4.3 to
Registrants Registration Statement on Form S-3 (Reg. No.
333-115043) and incorporated herein by reference.4.20
    
    Form of Warrant, filed as Exhibit 4.4 to Registrants
Registration Statement on Form S-3 (Reg. No. 333-115043) and
incorporated herein by reference.4.21
    
    Loan and Warrant Agreement, dated as of October 14, 2004,
filed as Exhibit 4.1 to Registrants Current Report on Form
8-K dated October 19, 2004 and incorporated herein by
reference.4.22
    
    Security Agreement, dated as of October 14, 2004, filed as
Exhibit 4.3 to Registrants Current Report on Form 8-K dated
October 19, 2004 and incorporated herein by reference.4.23
    
    Mortgage Agreement, dated as of October 14, 2004, filed as
Exhibit 4.4 to Registrants Current Report on Form 8-K dated
October 19, 2004 and incorporated herein by reference.4.24
    
    Form of Warrant, filed as Exhibit 4.5 to Registrants Current
Report on Form 8-K dated October 19, 2004 and incorporated
herein by reference.4.25
    
    Loan and Warrant Agreement, dated as of February 9, 2005, by
and among the Registrant, the Lenders and the Agent, filed as
Exhibit 4.1 to the Registrants Quarterly Report on Form 10-Q
for the quarter ended December 31, 2004 and incorporated
herein by reference.4.26
    
    Form of Senior Convertible Note, dated as of February 9,
2005, filed as Exhibit 4.2 to the Registrants Quarterly
Report on Form 10-Q for the quarter ended December 31, 2004
and incorporated herein by reference.4.27
    
    Form of Warrant, dated as of February 9, 2005, filed as
Exhibit 4.3 to the Registrants Quarterly Report on Form 10-Q
for the quarter ended December 31, 2004 and incorporated
herein by reference.4.28
    
    Form of Registration Rights Agreement, dated as of February
9, 2005, filed as Exhibit 4.4 to the Registrants Quarterly
Report on Form 10-Q for the quarter ended December 31, 2004
and incorporated herein by reference.4.29
    
    Loan and Warrant Agreement, dated as of September 29, 2005,
among the Registrant, the Lenders and the Agent, filed as
Exhibit 4.1 to the Registrants Current Report on Form 8-K
dated September 29, 2005 and incorporated herein by
reference.
 72
    Table of Contents  Exhibit Number
    
    Description4.30
    
    Form of Note, filed as Exhibit 4.2 to the Registrants
Current Report on Form 8-K dated September 29, 2005 and
incorporated herein by reference.4.31
    
    Form of Warrant, filed as Exhibit 4.3 to the Registrants
Current Report on Form 8-K dated September 29, 2005 and
incorporated herein by reference.4.32
    
    Registration Rights Agreement, dated as of September 30,
2005, by and among the Registrant and the Lenders parties
thereto, filed as Exhibit 4.4 to the Registrants Current
Report on Form 8-K dated September 29, 2005 and incorporated
herein by reference.4.33
    
    Waiver and Consent, dated as of February 3, 2006, by and
among the Registrant and the Lender parties thereto, filed
as Exhibit 4.5 to the Registrants Current Report on Form
8-K dated February 6, 2006, and incorporated herein by
reference.4.34
    
    Amendment No. 1 to Loan and Warrant Agreement and
Registration Rights Agreement among the Registrant and the
Lender parties thereto, filed as Exhibit 4.2 to the
Registrants Current Report on Form 8-K dated April 28, 2006
and incorporated herein by reference.4.35
    
    Form of Note, filed as Exhibit 4.3 to the Registrants
Current Report on Form 8-K dated April 28, 2006 and
incorporated herein by reference.4.36
    
    Form of Warrant, filed as Exhibit 4.4 to the Registrants
Current Report on Form 8-K dated April 28, 2006 and
incorporated herein by reference.4.37
    
    Amendment No. 2 to Loan and Warrant Agreement and
Registration Rights Agreement, dated as of December 14,
2006, among the Registrant and the Lenders, filed as Exhibit
4.3 to the Registrants Current Report on Form 8-K dated
December 14, 2006 and incorporated herein by reference.4.38
    
    Form of Warrant, filed as Exhibit 4.4 to the Registrants
Current Report on Form 8-K dated December 14, 2006 and
incorporated herein by reference.10.1
    
    Loan Agreement, dated December 29, 1989, by and between Zoltek Corporation and
Southwest Bank of St. Louis, as amended by letter, dated August 13, 1992, filed as Exhibit 10.7 to
Registrants Registration Statement on Form S-1 (Reg. No. 33-51142) is incorporated herein by this
reference10.2
    
    Zoltek Companies, Inc. Long Term Incentive Plan, filed as Appendix B to Registrants
definitive proxy statement for the 1997 Annual Meeting of Shareholders is incorporated herein by
this reference*10.3
    
    Zoltek Companies, Inc. Amended and Restated Directors Stock Option Plan, filed as Exhibit
10.1 to Registrants Quarterly Report on Form 10-Q dated August 13, 1999, is incorporated
herein by this reference*10.4
    
    Precursor Agreement, dated as of July 1, 1994, by and between Zoltek Corporation and
Courtaulds Fibres Limited, filed as Exhibit 10.9 to Registrants Annual Report on Form 10-K for the
fiscal year ended September 30, 1994, is incorporated herein by this reference (An application for
confidential treatment has been made for a portion of Exhibit 10.5.)10.5
    
    Materials Supply Agreement, dated as of June 15, 1994, by and between Zoltek Companies,
Inc. and The B.F. Goodrich Company, filed as Exhibit 10.10 to Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 1994, is incorporated herein by this
reference (An application for confidential treatment has been made for a portion of Exhibit 10.6.)10.6
    
    Promissory Note, dated November 14, 1994, by and between Zoltek Corporation and Southwest
Bank of St. Louis, filed as Exhibit 10.2 to the Registrants Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995, is incorporated herein by this reference10.7
    
    Credit Agreement, dated May 11, 2001, between Southwest Bank of St. Louis and Zoltek
Companies, Inc., Zoltek Corporation, Cape Composites, Inc., Engineering Technology
Corporation, Zoltek Properties, Inc., and Hardcore Composites Operations, LLC, filed as Exhibit
10.1 to Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 is
incorporated herein by reference10.8
    
    First Amendment to Credit Agreement, dated as of February 13, 2003, by and among Zoltek
Companies, Inc., Zoltek Corporation, Cape Composites, Inc., Engineering Technology
Corporation, Zoltek Properties, Inc. and Southwest Bank of St. Louis, filed as Exhibit 10.1 to
Registrants Current Report on Form 8-K dated February 18, 2003 is incorporated herein by reference10.9
    
    Zoltek Companies, Inc. 2003 Long-Term Equity Incentive Plan, filed as Appendix A to
Registrants definitive proxy statement for the 2002 Annual Meeting of Shareholders is
incorporated herein by reference*10.10
    
    Promissory Note, dated January 13, 2004, by and between Zoltek Properties, Inc. and Beal
Bank, S.S.B. filed as Exhibit 10.13 to Registrants Annual Report on Form 10-K for
the fiscal year ended September 30, 2003, is incorporated herein by this reference, incorporated
herein by reference.10.11
    
    Second Amendment to Credit Agreement, dated as of January 13, 2003, by and among Zoltek
Companies, Inc., Zoltek Corporation, Cape Composites, Inc., Engineering Technology Corporation,
Zoltek Properties, Inc. and Southwest Bank of St. Louis filed as Exhibit 10.14 to Registrants
Annual Report on Form 10-K for the fiscal year ended September 30, 2003, is incorporated herein by
this reference21
    
    Subsidiaries of the Registrant23.1
    
    Consent of Grant Thornton LLP.23.2
    
    Consent of PricewaterhouseCoopers LLP.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended is filed herewith.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended is filed herewith.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 is filed herewith.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 is filed herewith.
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