Note 5 - Financing Transactions

3 Months Ended

Dec. 31, 2011

5.	FINANCING TRANSACTIONS

HUNGARIAN GRANT

The Hungarian government has pledged a grant of 2.9 billion HUF to Zoltek’s Hungarian subsidiary, which translated at the December 31, 2011 exchange rate, is approximately $12.0 million. The grant is intended to provide a portion of the capital resources to modernize the subsidiary’s facility, establish a research and development center, and support buildup of manufacturing capacity of carbon fibers. As of December 31, 2011, Zoltek’s Hungarian subsidiary has received approximately 2.6 billion HUF in grant funding. These funds have been recorded as a liability on the Company’s consolidated balance sheet. The liability is being amortized over the life of the assets procured by the grant funds, offsetting the depreciation expense from the assets into which the proceeds of the grant are invested. The Company has presented bank guarantees amounting to 120% of the amount of the grant as received.

The Hungarian subsidiary may be required to repay all or a portion of the grant if, among other things, the Hungarian subsidiary: fails to obtain revenue targets; fails to employ an average annual staff of at least 1,200 employees; fails to utilize regional suppliers for at least 45% of its purchases; fails to obtain consent from the Hungarian government prior to selling assets created with grant funds; fails to use grant funds in accordance with the grant agreement; fails to provide appropriate security for the grant; makes or made an untrue statement or supplies or supplied false data in the grant agreement, grant application or during the time of the grant; defaults on its obligations by more than 30 days; withdraws any consents it gave in the grant agreement; or causes a partial or complete failure or hindrance of the project that is the subject of the grant. These targets must be achieved during a five-year measurement period from October 2012 to October 2017. Although there can be no assurance, the Company anticipates it will comply with the requirements of the grant agreement when the measurement period begins.

FINANCING ACTIVITY

Revolving Credit Facility

U.S. Operations – The Company’s U.S. subsidiary has a credit facility with a U.S. bank, the term of which expires March 1, 2012. There were $5.6 million in borrowings as of December 31, 2011, with $4.4 million of availability. There are no financial covenants associated with this facility.

Hungarian Operations – The Company’s Hungarian subsidiary has a credit facility with a Hungarian bank, which expires March 30, 2012. The overdraft facility has a total commitment of the lesser of 1.9 billion HUF ($8.0 million as of December 31, 2011) or a borrowing base ($8.6 million as of December 31, 2011). There were no borrowings under this credit facility at December 31, 2011. There are no financial covenants associated with this facility.

The Company intends to extend its existing lines of credit before expiration. Based on the history of relationships with its banks and its current financial position, the Company expects it will be able to successfully extend its lines of credit.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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