Note 7 - Commitments and Contingencies

3 Months Ended

Dec. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

7. COMMITMENTS AND CONTINGENCIES

LEGAL

In September and October 2013, a total of 13 purported class actions arising out of the execution of the merger agreement were filed in the Circuit Court of St. Louis County, Missouri against Zoltek and Zoltek’s directors by purported shareholders of Zoltek. All but one of the lawsuits also named Toray and/or Merger Sub as defendants. The Circuit Court of St. Louis County, Missouri consolidated the actions under the caption In Re: Zoltek Companies, Inc. Shareholder Litigation, Cause No. 13-SL-CC-3419, on November 26, 2013 (the “Consolidated Action”). The Consolidated Action alleges, among other things, that (1) each of the Company’s directors breached his fiduciary duties to the Company’s shareholders in connection with approval of the transactions contemplated by the merger agreement, (2) the Company, Toray and Merger Sub aided and abetted the Company’s directors in such breaches of their fiduciary duties, and (3) the Company failed to disclose certain material information in the Definitive Proxy Statement. The Consolidated Action seeks, among other things, injunctive relief preventing the parties from completing the merger and directing the Company directors to account to the Company and the purported class for all damages suffered as a result of the breaches of fiduciary duties and awards of attorneys’ fees and expenses for the plaintiffs.

On January 15, 2014: (1) the parties agreed to withdraw certain pending discovery motions; (2) the lead plaintiffs agreed not to pursue injunctive or other relief to delay the Company’s Special Meeting of Shareholders or the consummation of the merger; (3) the Company agreed not to oppose a motion to be filed by the plaintiffs after the Special Meeting and consummation of the merger for leave to further amend the amended petition in the Consolidated Action; and (4) the Company agreed to furnish the lead plaintiffs copies of certain minutes of meetings of the Board of Directors, presentations made by Company management and the Company’s financial advisor, and confidentiality agreements executed by parties participating in the Company’s strategic alternatives evaluation process. These agreements were memorialized in a stipulated Order and Judgment entered by the Court on January 17, 2014.

The Company believes that the lawsuits are without merit and intends to defend against them vigorously. There can be no assurance, however, with regard to the outcome of this litigation.

Legal contingencies have a high degree of uncertainty. The Company records reserves when losses from contingencies can be reasonably estimated and become probable. The reserves would reflect management’s estimate of the probable cost of ultimate resolution of the matters and are revised accordingly as facts and circumstances change and, ultimately, when matters are brought to closure. If any litigation matter is resolved unfavorably, the Company could incur obligations in excess of management’s estimate of the outcome, and such resolution could have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity. In addition, the Company may incur additional legal costs in connection with pursuing and defending such actions.

The Company is exposed to various claims and legal proceedings arising out of the normal course of its business. Although there can be no assurance, in the opinion of management, the ultimate outcome of such claims and lawsuits when and if they arise should not have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity. As of December 31, 2013, Zoltek has no recorded material legal reserves.

CONCENTRATION OF CREDIT RISK

Zoltek's carbon fiber products are primarily sold to customers in the wind energy and composite industries and its technical fibers are primarily sold to customers in the aerospace industry. Entec Composite Machines’ products are primarily sold in the composite industry. The Company performs ongoing credit evaluations and generally requires collateral for significant export sales to new customers. The Company maintains reserves for potential credit losses and such losses have been within management's expectations.

In the three months ended December 31, 2013 and 2012, the Company reported aggregate sales of $17.2 million and $17.6 million, respectively, to Vestas Wind Systems, a leading wind turbine manufacturer.

ENVIRONMENTAL

The Company's operations generate various hazardous wastes, including gaseous, liquid and solid materials. The operations of the Company's carbon fibers and technical fibers business segments utilize thermal oxidation of various by-product streams designed to comply with applicable laws and regulations. The plants produce air emissions that are regulated and permitted by various environmental authorities. The plants are required to verify by performance tests that certain emission rates are not exceeded. The Company does not believe that compliance by its carbon fibers and technical fibers operations with applicable environmental regulations will have a material adverse effect upon the Company's future capital expenditure requirements, results of operations or competitive position. There can be no assurance, however, as to the effect of interpretation of current laws or future changes in federal, state or international environmental laws or regulations on the business segment's results of operations or financial condition.

SOURCES OF SUPPLY

As part of its growth strategy, the Company has developed and manufactures its own precursor acrylic fibers and all of its carbon fibers and technical fibers. The primary source of raw material for the precursor is ACN (acrylonitrile), which is a commodity product with multiple sources.