<PAGE>

                                UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, DC 20549


                               AMENDMENT NO. 1
                                     ON
                                 FORM 10-Q/A

              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                   OF THE SECURITIES EXCHANGE ACT OF 1934




For the quarter ended December 31, 2004            Commission File No. 0-20600
                      -----------------                                -------


                           ZOLTEK COMPANIES, INC.
                           ----------------------
           (Exact name of registrant as specified in its charter)

Missouri                                                43-1311101
--------                                                ----------
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organization)                          Identification No.)

3101 McKelvey Road, St. Louis, Missouri                 63044
---------------------------------------                 -----
(Address of principal executive offices)                (Zip Code)


Registrant's telephone number, including area code:  (314) 291-5110

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes  x   No
    ---     ---

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes  x   No
    ---     ---

Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date: As of February 1,
2005, 16,905,535 shares of Common Stock, $.01 par value, were outstanding.



<PAGE>
<PAGE>

EXPLANATORY NOTE
----------------

On May 20, 2005, the Company concluded that its financial results for the
fiscal year ended September 30, 2004 and interim periods ended March 31,
June 30, September 30 and December 31, 2004 would be restated to reflect
additional non-operating gains and losses related to the correction of its
accounting for the conversion feature and related warrants to purchase the
Company's common stock associated with convertible debt issued by the
Company in January, March and October 2004 and the amortization expense
associated with debt discount. Historically, the Company had classified the
value of warrants to purchase common stock and the beneficial conversion
feature, when applicable, as equity as the Company believed these
instruments met the exceptions for recording these instruments as
liabilities. After further review the Company determined that these
instruments did not meet these exceptions and should have been classified as
liabilities on its balance sheet at the fair value of each instrument. In
subsequent periods the change in fair value of these instruments will result
in an adjustment to this liability with the corresponding gain or loss being
recorded in the statement of operations. At the date of their respective
conversion of the instrument or exercise of the warrants the corresponding
liability will be reclassified to equity. In addition, the Company recorded
individually immaterial adjustments in 2004 that caused accounts receivable,
net, and property and equipment, net, to decrease $0.2 million and $0.1
million, respectively, in the restated December 31, 2004 and September 30,
2004 balance sheets. The Company has also enhanced certain disclosures at
the request of the Securities and Exchange Commission.

The impact of the restatements related to the change in accounting for the
conversion feature and the related warrants are summarized below:

For the quarter ended December 31, 2004, the loss on the fair value of
warrants and conversion feature and increased amortization expense,
increased the previously reported net loss by $26.4 million. This result
increased our basic and diluted loss per share from $0.21 to $1.82 for the
quarter ended December 31, 2004. The Company's previously reported long-term
and total liabilities increased by $40.9 million with a corresponding
decrease in the Company's equity.

The foregoing adjustments do not affect previously recorded net sales,
operating loss or cash flows from continuing operations. Furthermore, these
adjustments do not affect previously reported income tax expense as the
Company has recorded a full valuation allowance against all deferred tax
assets.

As a result of the restatement, the Company is filing this amended Form 10-Q
for the period ended December 31, 2004 and has filed an amended Form 10-K
for the fiscal year ended September 30, 2004 and amended Form 10-Q reports
for the periods ended June 30, 2004 and March 31, 2005.

                                     2

<PAGE>
<PAGE>

PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

<TABLE>
                                                     ZOLTEK COMPANIES, INC.

                                                   CONSOLIDATED BALANCE SHEET
                                                   --------------------------
                                    (Amounts in thousands, except share and per share amounts)

                                                           (Unaudited)

<CAPTION>
                                                                                         DECEMBER 31,          SEPTEMBER 30,
ASSETS                                                                                       2004                  2004
--------------------------------------------------------------------------------------------------------------------------------
                                                                                     (RESTATED-SEE NOTE 2) (RESTATED-SEE NOTE 2)
<S>                                                                                       <C>                  <C>
Current assets:
     Cash and cash equivalents..........................................................  $      430           $      267
     Accounts receivable, less allowance for doubtful accounts of $985 and
       $781, respectively...............................................................      11,193               11,611
     Inventories........................................................................      29,927               25,902
     Other current assets...............................................................       2,216                1,167
                                                                                          ----------           ----------
          Total current assets..........................................................      43,766               38,947
Property and equipment, net.............................................................      85,210               80,414
Other assets............................................................................       3,596                3,094
                                                                                          ----------           ----------
          Total assets..................................................................  $  132,572           $  122,455
                                                                                          ==========           ==========


LIABILITIES AND SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------------------------
Current liabilities:
     Current maturities of long-term debt...............................................  $      475           $      570
     Trade accounts payable.............................................................      13,384               13,257
     Notes payable......................................................................       2,104                2,441
     Accrued expenses and other liabilities.............................................       7,296                5,877
                                                                                          ----------           ----------
          Total current liabilities.....................................................      23,259               22,145
Other long-term liabilities.............................................................         190                  357
Value of warrants and conversion feature associated with convertible debt issuances.....      49,430               13,721
Long-term debt, less current maturities.................................................      42,599               42,002
                                                                                          ----------           ----------
          Total liabilities.............................................................     115,478               78,225
                                                                                          ----------           ----------
Commitments and contingencies (Notes 2 and 9)

Shareholders' equity:
     Preferred stock, $.01 par value, 1,000,000 shares authorized,
       no shares issued or outstanding..................................................           -                    -
     Common stock, $.01 par value, 50,000,000 shares authorized,
      16,465,981 and 16,307,338 shares issued and outstanding, respectively.............         165                  163
     Additional paid-in capital.........................................................     109,606              109,524
     Accumulated deficit................................................................     (85,241)             (55,312)
     Accumulated other comprehensive loss...............................................      (7,436)             (10,145)
                                                                                          ----------           ----------
          Total shareholders' equity....................................................      17,094               44,230
                                                                                          ----------           ----------
          Total liabilities and shareholders' equity ...................................  $  132,572           $  122,455
                                                                                          ==========           ==========

                  The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>

                                     3

<PAGE>
<PAGE>

<TABLE>
                                                    ZOLTEK COMPANIES, INC.

                                             CONSOLIDATED STATEMENT OF OPERATIONS
                                             ------------------------------------
                                         (Amounts in thousands, except per share data)
                                                          (Unaudited)

<CAPTION>
                                                                                               THREE MONTHS ENDED DECEMBER 31,
                                                                                               -------------------------------
                                                                                                    2004            2003
------------------------------------------------------------------------------------------------------------------------------
                                                                                            (RESTATED-SEE NOTE 2)

<S>                                                                                              <C>              <C>
Net sales......................................................................................  $  13,518        $   8,152
Cost of sales, excluding available unused capacity costs.......................................     12,396            7,003
Available unused capacity costs................................................................        525            1,431
Application and development costs..............................................................        828              747
Selling, general and administrative expenses...................................................      1,411            1,598
                                                                                                 ---------        ---------
     Operating loss from continuing operations.................................................     (1,642)          (2,627)
Other income (expense):

     Interest expense, excluding amortization of financing fees, debt discount and
       beneficial conversion feature...........................................................     (1,107)            (594)
     Amortization of financing fees and debt discount..........................................     (1,815)             (63)
     Loss on value of warrants and conversion feature and discount write-off...................    (25,518)               -
     Interest income...........................................................................         67               12
     Other, net................................................................................        574               73
                                                                                                 ---------        ---------
         Loss from continuing operations before income taxes...................................    (29,441)          (3,199)
Income tax expense.............................................................................        115               78
                                                                                                 ---------        ---------
Net loss from continuing operations............................................................    (29,556)          (3,277)
Discontinued operations:

     Operating loss, net of taxes..............................................................       (373)            (446)
                                                                                                 ---------        ---------
         Net loss on discontinued operations...................................................       (373)            (446)
                                                                                                 ---------        ---------
Net loss.......................................................................................  $ (29,929)       $  (3,723)
                                                                                                 =========        =========
Net loss per share:
     Basic and diluted loss per share:
         Continuing operations.................................................................  $   (1.80)       $   (0.20)
         Discontinued operation................................................................      (0.02)           (0.03)
                                                                                                 ---------        ---------
              Total............................................................................  $   (1.82)       $   (0.23)
                                                                                                 =========        =========
Weighted average common shares outstanding.....................................................     16,446           16,310


                  The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>


                                     4

<PAGE>
<PAGE>

<TABLE>
                                                      ZOLTEK COMPANIES, INC.

                                    CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                                    ---------------------------------------------------------
                                                      (Amounts in thousands)

<CAPTION>
                                     Total Share-              Add'l    Accumulated Other
                                       holders'   Common      Paid-In     Comprehensive    Treasury  Accumulated   Comprehensive
                                        Equity     Stock      Capital     Income (Loss)      Stock    (Deficit)     Income (Loss)
---------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>           <C>       <C>            <C>             <C>        <C>           <C>
Balance, September 30, 2004
  (Restated-See Note 2)............  $   44,230    $ 163     $ 109,524      $ (10,145)      $     -    $(55,312)

Net loss (Restated-See Note 2).....     (29,929)       -             -              -             -     (29,929)     $ (29,929)

Foreign currency translation
  adjustment.......................       2,709        -             -          2,709             -           -          2,709
                                                                                                                     ---------
         Comprehensive loss
           (Restated-See Note 2)...                                                                                  $ (27,220)
                                                                                                                     =========
Exercise of stock options..........          84        2            82              -             -           -
                                     ----------    -----     ---------      ---------       -------    --------
Balance, December 31, 2004
  (Restated-See Note 2)............  $   17,094    $ 165     $ 109,606      $  (7,436)      $     -    $(85,241)
                                     ==========    =====     =========      =========       =======    ========

                         The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>


                                     5

<PAGE>
<PAGE>

<TABLE>
                                                   ZOLTEK COMPANIES, INC.

                                            CONSOLIDATED STATEMENT OF CASH FLOWS
                                            ------------------------------------
                                                  (Amounts in thousands)
                                                        (Unaudited)

<CAPTION>
                                                                                             THREE MONTHS ENDED DECEMBER 31,
                                                                                             -------------------------------
                                                                                                  2004             2003
------------------------------------------------------------------------------------------------------------------------------
                                                                                          (RESTATED-SEE NOTE 2)

<S>                                                                                            <C>              <C>
Cash flows from operating activities:
      Net loss...............................................................................  $ (29,929)       $  (3,723)
      Adjustments to reconcile net loss to net cash used by operating activities:
           Loss from discontinued operations.................................................        373              446
           Depreciation and amortization.....................................................      1,301            1,502
           Amortization of financing fees, debt discount and beneficial conversion feature...      1,815               63
           Loss on value of warrants and conversion feature..................................     25,518                -
           Foreign currency transaction losses...............................................        149               57
           Other, net........................................................................        (44)             (36)
           Changes in assets and liabilities:
                 (Increase) in accounts receivable...........................................        (87)            (382)
                 (Increase) in inventories...................................................     (3,334)            (691)
                 Decrease in prepaid expenses and other assets...............................        110               91
                 Increase in trade accounts payable..........................................      1,215            2,555
                 Increase (decrease) in accrued expenses and other liabilities...............        851             (941)
                 Increase in other long-term liabilities.....................................       (187)             171
                                                                                               ---------        ---------
                      Total adjustments......................................................     27,680            2,772
                                                                                               ---------        ---------
      Net cash used by continuing operations.................................................     (2,249)            (951)
      Net cash (used by) provided by discontinued operations.................................       (951)             233
                                                                                               ---------        ---------
      Net cash used by operating activities..................................................     (3,200)            (711)
                                                                                               ---------        ---------

Cash flows from investing activities:
           Payments for purchase of property and equipment...................................     (2,497)            (470)
           Proceeds from sale of property and equipment......................................        146              119
                                                                                               ---------        ---------
      Net cash used in investing activities..................................................     (2,301)            (351)

Cash flows from financing activities:
           Proceeds from exercise of stock options...........................................         91                -
           Proceeds from issuance of convertible debt........................................     20,000                -
           Proceeds from issuance of notes payable...........................................          -              467
           Proceeds from issuance of note payable to related party...........................          -            1,400
           Payment of financing fees.........................................................       (984)               -
           Repayment of notes payable and long-term debt.....................................    (13,458)          (1,425)
                                                                                               ---------        ---------
Net cash provided by financing activities....................................................      5,649              442
Effect of exchange rate changes on cash......................................................         15              (19)
                                                                                               ---------        ---------
Net increase (decrease) in cash..............................................................        163             (646)
Cash and cash equivalents at beginning of period.............................................        267              838
                                                                                               ---------        ---------
Cash and cash equivalents at end of period...................................................  $     430        $     192
                                                                                               =========        =========

Supplemental disclosures of cash flow information:
Net cash paid during the period for:
     Interest................................................................................  $     466        $     531
     Income taxes............................................................................  $       -        $       -


                  The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>


                                     6

<PAGE>
<PAGE>

                           ZOLTEK COMPANIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
           ------------------------------------------------------

1.   BASIS OF PRESENTATION AND ACCOUNTING POLICIES

The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements and should be read in conjunction with the Company's Annual
Report on Form 10-K/A for the fiscal year ended September 30, 2004, as
amended, which includes consolidated financial statements and notes thereto
for the fiscal year ended September 30, 2004. In the opinion of management,
all normal recurring adjustments and estimates considered necessary for a
fair presentation have been included. Certain reclassifications have been
made to conform prior year's data to the current presentation. In the fourth
quarter of fiscal 2004, the Company formally adopted a plan to discontinue
and exit two divisions of its Zoltek Rt. operations which manufactured
textile acrylic and nylon fibers and yarns. These divisions had been
included in the Specialty Products segment (see Note 7). The prior period
financial statements have been conformed to current year discontinued
operations presentation.

The unaudited interim consolidated financial statements include the accounts
and transactions of the Company and its wholly-owned subsidiaries.
Adjustments resulting from the translation of financial statements of the
Company's foreign subsidiaries are reflected as other comprehensive income
(loss) within shareholders' equity. Gains and losses from foreign currency
transactions are included in the consolidated statement of operations as
"Other, net." All significant inter-company transactions and balances have
been eliminated in consolidation.

Revenue Recognition
-------------------

Sales transactions are initiated through customer purchase order or sales
agreement which includes fixed pricing terms. The Company recognizes sales
for manufactured products on the date title to the sold product transfers to
the customer, which is either the shipping date or the date consumed by the
customer if sold on consignment. Revenues generated by its Entec Composite
Machines subsidiary are recognized on a percentage of completion basis based
on the percentage of total project cost incurred to date which include
change orders, revisions to estimates and provisions for anticipated losses
on contracts. Manufactured products are accepted prior to shipment and thus
an allowance for returns is not accrued as historical returns have not been
material. The Company reviews its accounts receivable on a monthly basis to
identify any specific customers for collectibility issues. If the Company
deems that an amount due from a customer is uncollectible, the amount is
recorded as expense in the statement of operations.

2.   RESTATEMENT

On May 20, 2005, the Company concluded that its financial results for the
fiscal year ended September 30, 2004 and interim periods ended March 31,
June 30, September 30 and December 31, 2004 would be restated to reflect
additional non-operating gains and losses related to the classification and
accounting for the conversion feature and the related warrants to purchase
the Company's common stock associated with convertible debt issued by the
Company in January, March and October 2004 and the amortization expense
associated with debt discount. Historically, the Company has classified the
value of warrants to purchase common stock and the beneficial conversion
feature, when applicable, as equity as the Company believed these
instruments met exceptions that did not require recording these instruments
as derivative liabilities. After further review the Company has determined
that these instruments did not meet these exceptions and should have been
classified as derivative liabilities at the fair value of each instrument,
and must be recorded as such on the balance sheet. In subsequent periods the
change in fair value of these instruments will result in an adjustment to
this liability with the corresponding gain or loss being recorded in the
statement of operations. At the date of their respective conversion of the
instrument or exercise of the warrants the corresponding derivative
liability will be reclassified to equity. In addition, the Company recorded
individually immaterial adjustments in 2004 that caused accounts receivable,
net, and property and equipment, net, to decrease $0.2 million and $0.1
million, respectively, in the December 31, 2004 and September 30, 2004
balance sheets.

The impact of the adjustments related to the classification and accounting
for the conversion feature and the related warrants are summarized below:

For the quarter ended December 31, 2004, the loss on the fair value of
warrants and conversion feature and increased amortization expense,
increased the previously reported net loss by $26.4 million. This result
increased our basic and diluted loss per share from


                                     7

<PAGE>
<PAGE>

$0.21 to $1.82 for the quarter ended December 31, 2004. The Company's
previously reported long-term and total liabilities increased by $40.9
million with a corresponding decrease in the Company's equity.

The foregoing adjustments do not affect previously recorded net sales,
operating loss or cash flows from continuing operations. Furthermore, these
adjustments do not affect previously reported income tax expense as the
Company has recorded a full valuation allowance against all deferred tax
assets.

As a result of the restatement, the Company is filing this amended Form
10-Q/A for the period ended December 31, 2004 and has filed an amended Form
10-K/A for the year ended September 30, 2004 and amended Form 10-Q/A reports
for the periods ended June 30, 2004 and March 31, 2005, which includes
restated information for the March 31, 2004 quarter. The following tables
summarize in a condensed format, the consolidated financial statements as
previously reported and as restated for the quarter ended December 31, 2004.

<TABLE>
<CAPTION>
                                                                                 SEPTEMBER 30, 2004
                                                                                 ------------------
                                                                                   AS
                                                                               PREVIOUSLY       AS
CONSOLIDATED BALANCE SHEET                                                      REPORTED     RESTATED
--------------------------                                                      --------     --------
<S>                                                                             <C>          <C>
Cash..........................................................................  $    267     $    267
Accounts receivable...........................................................    11,811       11,611
Inventories...................................................................    25,902       25,902
Other current assets..........................................................     1,167        1,167
                                                                                --------     --------
Total current assets..........................................................    39,147       38,947
Property and equipment........................................................    80,538       80,414
Other assets..................................................................     3,114        3,094
                                                                                --------     --------
Total assets..................................................................   122,799     $122,455
Total current liabilities.....................................................    22,145       22,145
Other long-term liabilities...................................................       357          357
Value of warrants and conversion feature associated with
   convertible debentures.....................................................         -       13,721
Long-term debt, less current maturities ......................................    43,718       42,002
                                                                                --------     --------
Total liabilities.............................................................    66,220       78,225
Common stock..................................................................       163          163
Additional paid in capital....................................................   115,803      109,524
Accumulated deficit...........................................................   (49,242)     (55,312)
Accumulated other comprehensive loss..........................................   (10,145)     (10,145)
                                                                                --------     --------
Total shareholders' equity....................................................    56,579       44,230
                                                                                --------     --------
Total liabilities and shareholders' equity....................................  $122,799     $122,455
                                                                                ========     ========
<CAPTION>
                                                                                  DECEMBER 31, 2004
                                                                                  -----------------
                                                                                   AS
                                                                               PREVIOUSLY       AS
CONSOLIDATED STATEMENT OF OPERATIONS                                            REPORTED     RESTATED
------------------------------------                                            --------     --------
<S>                                                                             <C>          <C>
Operating loss from continuing operations.....................................  $ (1,642)    $ (1,642)
Interest expense, excluding amortization of financing fees and debt discount..    (1,107)      (1,107)
Amortization of financing fees and debt discount..............................      (904)      (1,815)
Loss on value of warrants and conversion feature and discount write-off.......         -      (25,518)
Other net and interest income.................................................       641          641
                                                                                --------     --------
Loss from continuing operations before income taxes...........................    (3,012)     (29,441)
Income taxes..................................................................       115          115
                                                                                --------     --------
Loss from continuing operations...............................................    (3,127)     (29,556)
Loss from discontinued operations.............................................      (373)        (373)
                                                                                --------     --------
Net loss......................................................................  $ (3,500)    $(29,929)
                                                                                ========     ========
Basic and diluted loss per share:
     Continuing operations....................................................  $  (0.19)    $  (1.80)
     Discontinued operations..................................................     (0.02)       (0.02)
                                                                                --------     --------
         Total................................................................  $  (0.21)    $  (1.82)
                                                                                ========     ========
</TABLE>

                                     8

<PAGE>
<PAGE>

<TABLE>
<CAPTION>
                                                                                  DECEMBER 31, 2004
                                                                                  -----------------
                                                                                   AS
                                                                               PREVIOUSLY       AS
CONSOLIDATED BALANCE SHEET                                                      REPORTED     RESTATED
--------------------------                                                      --------     --------
<S>                                                                             <C>          <C>
Cash .........................................................................  $    430     $    430
Accounts receivable...........................................................    11,393       11,193
Inventories...................................................................    29,927       29,927
Other current assets..........................................................     2,216        2,216
                                                                                --------     --------
Total current assets..........................................................    43,966       43,766
Property and equipment........................................................    85,334       85,210
Other assets..................................................................     3,616        3,596
                                                                                --------     --------
Total assets..................................................................  $132,916     $132,572
                                                                                ========     ========
Total current liabilities.....................................................  $ 23,259     $ 23,259
Other long-term liabilities...................................................       190          190
Value of warrants and conversion feature associated with
   convertible debentures.....................................................         -       49,430
Long-term debt, less current maturities ......................................    51,097       42,599
                                                                                --------     --------
Total liabilities.............................................................    74,546      115,478
Common stock..................................................................       165          165
Additional paid in capital....................................................   118,383      109,606
Accumulated deficit...........................................................   (52,742)     (85,241)
Accumulated other comprehensive loss..........................................    (7,436)      (7,436)
                                                                                --------     --------
Total shareholders' equity....................................................    58,370       17,094
                                                                                --------     --------
Total liabilities and shareholders' equity....................................  $132,916     $132,572
                                                                                ========     ========
</TABLE>

3.   FINANCING

Management will seek to fund its near-term operations from the sale of
excess inventories, continued aggressive management of the Company's working
capital and existing borrowing capacity under the Company's revolving credit
facility. As the demand for carbon fiber continues to increase, the Company
will need additional financing to execute its capacity expansion program.
Based upon these forecasts, borrowing capacity, and the completion of the
transaction discussed in "--Fiscal 2005 Refinancing" below, the Company
believes it has sufficient cash flows to continue operations for at least
the next 12 months.

Due to the timing of development of markets for carbon fiber products, the
Company's operating activities have used cash in each of the past four
fiscal years and the first three months of the current fiscal year. As a
result, the Company has executed refinancing arrangements and incurred
borrowings under credit facilities, multiple convertible debenture
facilities, as well as long-term debt financing utilizing the equity in the
Company's real estate properties, to maintain adequate liquidity to support
the Company's operating and capital activities.

The Company anticipates it will require further financing in 2006 to support
its previously announced capacity expansion program.

WARRANT AND CONVERSION FEATURES
-------------------------------

In January, March and October of 2004 and February 2005, the Company issued
convertible notes and warrants which would require the Company to register
the resale of the shares of common stock upon conversion or exercise of
these securities. The Company accounts for the fair value of these
outstanding warrants to purchase common stock and conversion feature of its
convertible notes in accordance with SFAS No. 133 "Accounting For Derivative
Instruments And Hedging Activities" and EITF Issue No. 00-19 "Accounting For
Derivative Financial Instruments Indexed To And Potentially Settled In A
Company's Own Stock;" which require the Company to bifurcate and separately
account for the conversion feature and warrants as embedded derivatives
contained in the Company's convertible notes. Pursuant to SFAS No. 133, the
Company bifurcated the fair value of the conversion feature from the
convertible notes, since the conversion features were determined to not be
clearly and closely related to the debt host. In addition, since the
effective registration of the securities underlying the conversion feature
and warrants is an event outside of the control of the Company, pursuant to
EITF Issue No. 00-19, the Company recorded the fair value of the conversion
feature and warrants as long-term liabilities as it was assumed that the
Company would be required to net-cash settle the underlying securities. The
Company is required to carry these embedded derivatives on its balance sheet
at fair value and unrealized changes in the values of these embedded
derivatives are reflected in the consolidated statement of operations as
"Gain (loss) on value of warrants and conversion feature." See table below
for impact on the quarterly financial results ended December 31, 2004.

                                     9


<PAGE>
<PAGE>

<TABLE>
<CAPTION>
                                                                             THREE MONTHS ENDED DECEMBER 31, 2004
                                                                             ------------------------------------
                                                                                     (RESTATED-SEE NOTE 2)

                                                                                          CONVERSION
                                                                            WARRANTS       FEATURES         TOTAL
                                                                            --------       --------         -----

<S>                                                                        <C>            <C>             <C>
         January 2004 issuance - mark to market .........................  $  (1,816)     $  (7,125)      $  (8,941)
         March 2004 issuance - mark to market ...........................     (1,249)        (4,903)         (6,152)
         October 2004 issuance - mark to market .........................     (2,398)        (8,026)        (10,424)
                                                                           ---------      ---------       ---------
                  Totals.................................................  $  (5,463)     $ (20,055)      $ (25,518)
                                                                           =========      =========       =========
</TABLE>

Fiscal 2005 Refinancing
-----------------------

In February 2005, the Company issued convertible debentures in the aggregate
principal amount of $20.0 million to institutional private equity investors.
The convertible debentures have a stated maturity of 42 months and bear
interest at a variable rate of six-month LIBOR plus 4% which was 7.5% at
March 2005, and are presently convertible into 1,000,000 shares of common
stock at a conversion price of $20.00 per share. The Company also issued to
the investors four-year warrants to purchase an aggregate of 457,142 shares
of common stock of the Company at an exercise price of $17.50 per share. The
fair value of the debt discount associated with the warrants and conversion
feature of the debt at the time of issuance was $15.3 million and will be
amortized over the life of the convertible debt. Proceeds from issuance of
these convertible debentures were used to repay mortgage debt of $6.0
million and the balance to expand the capacity of carbon fiber operations to
meet demand.

In October 2004, the Company issued convertible debentures in the aggregate
principal amount of $20.0 million to institutional private equity investors.
The convertible debentures have a stated maturity of 42 months and bear
interest at 7.5% per annum and are presently convertible into 1,666,666
shares of common stock at a conversion price of $12.00 per share. The
Company also issued to the investors six-year warrants to purchase an
aggregate of 500,000 shares of common stock of the Company at an exercise
price of $13.00 per share. The fair value of the debt discount associated
with the warrants and conversion feature of the debt at the time of issuance
was $10.2 million and will be amortized over the life of the convertible
debt. Proceeds from issuance of these convertible debentures were used to
reduce existing Hungarian bank debt by $12.0 million and the balance for
working capital purposes which allowed the Company to refinance the
remaining Hungarian bank debt to a three-year term loan for $3.0 million
with no financial covenants going forward.

In December 2004, the Company's U.S. bank extended the maturity and waived
the financial covenants of the Company's revolving credit loan, term loan
and mortgage on an existing property to January 1, 2006. The Company's U.S.
bank also increased the amount available under the revolving credit loan by
$0.5 million to $5.5 million and increased the term loan by $0.1 million to
$0.8 million. The principal of the term loan is payable on a quarterly basis
of $0.1 million with the remainder of the principal due at the maturity date
of January 1, 2006 and is therefore classified current. The mortgage is
payable on a monthly basis of $15,344 of principal and interest with the
remainder of the principal due at the maturity date of January 1, 2006 and
is therefore classified as current.

Fiscal 2004 Refinancing
-----------------------

In January 2004, the Company issued and sold convertible debentures in the
aggregate principal amount of $7.0 million to institutional private equity
and other investors (including $250,000 to each of Mr. Rumy and Mr.
McDonnell who are members of the Company's Board of Directors). The
convertible debentures have a stated maturity of 30 months and bear interest
at 6% per annum and are convertible into 1,295,954 shares of common stock at
the date of issuance at a conversion price of $5.40 per share for each
investor other than Messrs. Rumy and McDonnell and $5.42 per share for each
of Messrs. Rumy and McDonnell. The Company also issued to the investors
five-year warrants to purchase an aggregate of 323,994 shares of common
stock of the Company at an exercise price of $5.40 per share for each
investor other than Messrs. Rumy and McDonnell and $5.42 per share for each
of Messrs. Rumy and McDonnell. The fair value of the debt discount
associated with the warrants and the conversion feature, at the time of
issuance, was $3.0 million and will be amortized over the life of the
convertible debt. Proceeds from the issuance of these convertible debentures
were used for working capital purposes.

As part of the Company's January 2004 refinancing, the bank lender to the
Company's Hungarian subsidiary amended certain financial covenants and
extended the maturity date of its loan to December 31, 2004. In connection
with such actions, the bank required that the Company make arrangements to
settle intercompany accounts payable by Zoltek U.S. operations to its
Hungarian subsidiary in the amount of approximately $2.8 million. The bank
was unwilling to keep open its offer to restructure Zoltek Rt.'s loans until
after the Company's January 2004 refinancing package was completed. Prior to
the refinancing, the Company did not have cash on hand or available
borrowings that would enable it to make the settlement of the intercompany
accounts required by the Hungarian bank. In order to proceed expeditiously
to resolve the Company's financing requirements, Zsolt Rumy, the Company's
Chief Executive Officer and a director of the Company, in December 2003
loaned the Company $1.4 million in cash and posted a $1.4 million letter of
credit for the benefit of the Company. This arrangement was approved by the
Company's board of directors and audit committee. The loan

                                     10

<PAGE>
<PAGE>

by Mr. Rumy bore interest on the amount advanced and the notional amount of
the letter of credit at a rate per annum equal to LIBOR plus 11% with a
LIBOR floor of 2%, the same interest rate as the mortgage financing
discussed below. As a result of the Company completing the refinancing
transactions making available the cash to settle the intercompany accounts,
the letter of credit was released. After converting $250,000 into
convertible debt as part of the January 2004 financing, the remaining $1.15
million loan was repaid during the third quarter of fiscal 2004.

Also in January 2004, the Company entered into a mortgage note with a bank
in the aggregate principal amount of $6.0 million. The note has a stated
maturity of three years and bears interest at a rate of LIBOR plus 11%
(13.5% per annum as of December 31, 2004) with a LIBOR floor of 2%. The
Company will pay interest only on a monthly basis with principal balance due
at time of maturity. The loan is collateralized by a security interest in
the Company's headquarters facility and its two U.S. manufacturing
facilities that produce carbon and technical fibers. The proceeds of this
transaction were used to pay down debt of $6.0 million with its U.S. bank.
Of such proceeds, $0.5 million was held in an escrow account to be released
when the Company completed certain post-closing requirements. The Company
completed these requirements during the third quarter of fiscal 2004 and the
$0.5 million was released from escrow.

In March 2004, the Company issued and sold convertible debentures in the
aggregate principal amount of $5.75 million to institutional private equity
investors and Mr. Dill ($750,000) who is member of the Company's board of
directors. The convertible debentures have a stated maturity of 30 months
and bear interest at 6% per annum and have been converted into 895,908
shares of common stock at a conversion price of $6.25 per share for each
investor other than Mr. Dill and $7.82 per share for Mr. Dill. The Company
also issued to the investors five-year warrants to purchase an aggregate of
223,997 shares of common stock of the Company at an exercise price of $7.50
per share for each investor other than Mr. Dill whose warrants have an
exercise price of $7.82 per share. The fair value of the debt discount
associated with the warrants and conversion feature, at the time of
issuance, was $5.7 million and will be amortized over the life of the
convertible debt. Proceeds from the issuance of these convertible debentures
are being used for working capital and capital expenditures.

Each issuance of convertible debt is summarized in the table below which
sets forth the significant term of the debt, warrants and assumptions
associated with valuing the conversion feature and warrants:

<TABLE>
<CAPTION>
                                                (1)FEBRUARY 2003     JANUARY 2004    MARCH 2004     OCTOBER 2004    FEBRUARY 2005
                                                   -------------     ------------    ----------     ------------    -------------
<S>                                                  <C>               <C>            <C>              <C>             <C>
Amount of debenture (millions)...................    $8.1              $7.0           $5.75            $20.0           $20.0
Per share conversion price on debenture..........    $3.25             $5.40          $6.25            $12.00          $20.00
Interest rate....................................    7.5%              6.0%           6.0%             7.0%            7.5%
Term of debenture................................    60 months         30 months      30 months        42 months       42 months
Warrants issued..................................    405,000           323,995        230,000          500,000         457,142
Term of warrant..................................    60 months         48 months      48 months        72 months       48 months
Per share exercise price of warrants.............    $5.00             $5.40          $7.50            $13.00          $17.50
Fair value per warrant at issuance...............    $0.93             $2.27          $5.43            $6.02           $10.47
Value per share conversion feature at issuance...    $3.11             $1.78          $5.06            $4.31           $10.47
Stock price on date of agreement.................    $1.58             $5.40          $9.53            $9.60           $16.68
Stock volatility at issuance.....................    100%              50%            61%              75%             84%
Dividend yield...................................    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%

<FN>
--------------------------------
(1)    The warrants issued in connection with the February 2003 convertible
       issuance meets the criteria of EITF 00-19 for equity classification
       as it does not contain similar registration rights obligations with
       respect to the underlying shares. The conversion feature does not
       require derivative accounting and no beneficial conversion feature
       exists on this issuance.
</TABLE>

Earnings Per Share
------------------

If the results of the Company reflected a net income, an additional 6.9
million shares would be included in calculating the diluted earnings per
share. The additional shares relate to issuance of convertible debt of $6.4
million, warrants of 1.5 million of which 0.3 million would be dilutive
using the treasury stock method and stock options of 1.1 million of which
0.2 million would be dilutive using the treasury stock method.

Credit Facilities
-----------------

US Operations - The Company's current credit facility with its U.S. Bank is
described above under "--Fiscal 2005 Refinancing." No financial covenants
apply to the credit facility from the U.S. bank, which mature on January 1,
2006. Total borrowings under the U.S. credit facility, including the
revolving line of credit and term loan, were $5.6 million at December 31,
2004.

                                     11

<PAGE>
<PAGE>

Hungarian Operations - The Company's Hungarian subsidiary has a credit
facility with a Hungarian bank. Total borrowings under this credit facility
were $2.8 million at December 31, 2004. Due to the fiscal 2005 refinancing
(see "--Refinancing"), the credit facility is a term loan with interest
payments over the next three years and repayment of principal at the
maturity date on December 31, 2007.

The Company's convertible debt issuances in fiscal 2004 and 2005 have
restrictive covenants related to minimum cash balances, dividends and use of
proceeds.

Long-term debt consists of the following (amounts in thousands):

<TABLE>
<CAPTION>
                                                                                       December 31,          September 30,
                                                                                          2004                   2004
                                                                                       ------------          -------------
                                                                                  (Restated-See Note 2)  (Restated-See Note 2)

<S>                                                                                     <C>                   <C>
Note payable with interest at 9%, payable in monthly installments of
  principal and interest of $15,392 to maturity in January 2006...................      $  1,396              $   1,419

Non-interest bearing note payable (discounted at 8%) to the City of Abilene,
  Texas to be repaid from real estate and personal property tax abatements........         1,762                  1,781

Convertible debentures due February 2008 bearing interest at 7.0%.................         8,100                  8,100

Revolving credit agreement, maturing in January 2006, bearing interest at prime
  plus 2.0% (prime rate at December 31, 2004 was 5.5%)............................         5,000                  5,000

Term loan, $0.4 million payable in 2005, balance payable in January 2006, bearing
  interest at prime plus 2.0% (prime rate at December 31, 2004 was 5.5%)..........           600                    700

Convertible debentures due June 2006 bearing interest at 6%.......................         7,000                  7,000

Convertible debentures due September 2006 bearing interest at 6%..................         5,750                  5,750

Convertible debentures due April 2008 bearing interest at 7.5%....................        20,000                      -

Mortgage payable with interest of 13.5% interest only payments
  maturity in January 2007........................................................         6,000                  6,000

Facilities with Hungarian banks (interest rate of 5.5% to 10.6%)..................         2,831                 13,568
                                                                                        --------               --------

    Total debt....................................................................        58,439                 49,318


Less: Beneficial conversion feature and debt discount associated with warrants....       (15,365)                (6,746)
  Less: amounts payable within one year...........................................          (475)                  (570)
                                                                                        --------              ---------
Total long-term debt .............................................................      $ 42,599              $  42,002
                                                                                        ========              =========
</TABLE>

                                     12

<PAGE>
<PAGE>

Value of derivative liabilities at:
-----------------------------------

<TABLE>
<CAPTION>
                                                                DECEMBER 31, 2004                       SEPTEMBER 30, 2004
                                                                -----------------                       ------------------
                                                              (RESTATED-SEE NOTE 2)                    (RESTATED-SEE NOTE 2)

                                                                    CONVERSION                              CONVERSION
                                                        WARRANTS     FEATURES      TOTAL        WARRANTS     FEATURES      TOTAL
                                                        --------     --------      -----        --------     --------      -----
<S>                                                    <C>           <C>          <C>           <C>         <C>          <C>
January 2004 issuance  ..............................  $   3,660     $  13,477    $ 17,137      $   1,844   $    6,351   $    8,195
March 2004 issuance  ................................      2,448         9,230      11,678          1,198        4,328        5,526
October 2004 issuance................................      5,406        15,209      20,615              -            -            -
                                                       ---------     ---------    --------      ---------   ----------   ----------
         Totals......................................  $  11,514     $  37,916    $ 49,430      $   3,042   $   10,679   $   13,721
                                                       =========     =========    ========      =========   ==========   ==========
</TABLE>

4.   DISCONTINUED OPERATIONS

In the fourth quarter of fiscal 2004, the Company formally adopted a plan to
discontinue and exit two divisions of its Zoltek Rt. operations which
manufacture textile acrylic and nylon fibers and yarns. These divisions were
not part of the long-term strategy of the Company and were not expected to
be profitable in the foreseeable future due to the continued pricing
pressure from competitive manufacturers. These divisions had been included
in the Specialty Products segment (see Note 6). The wind-down of these
production lines was substantially completed by February 1, 2005. Certain
information with respect to the discontinued operations of the textile
acrylic and nylon fibers divisions for the quarters ended December 31, 2004
and 2003 is summarized as follows (amounts in thousands):

<TABLE>
<CAPTION>
                                                                                    THREE MONTHS ENDED DECEMBER 31,
                                                                                    -------------------------------
                                                                                       2004               2003
                                                                                     ---------          ---------
<S>                                                                                  <C>                <C>
         Net sales.................................................................  $   1,277          $   5,179
         Cost of sales.............................................................      1,321              5,177
                                                                                     ---------          ---------
              Gross profit (loss)..................................................        (44)                 2
         Selling, general and administrative expenses..............................       (629)              (530)
                                                                                     ---------          ---------
              Loss from operations.................................................       (673)              (528)
         Other income..............................................................        300                 82
                                                                                     ---------          ---------
         Loss on discontinued operations...........................................  $    (373)         $    (446)
                                                                                     =========          =========
</TABLE>

5.   COMPREHENSIVE LOSS

Comprehensive loss for the quarters ended December 31, 2004 and 2003
(unaudited) was as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                    THREE MONTHS ENDED DECEMBER 31,
                                                                                    -------------------------------
                                                                                        2004                2003
                                                                                     ----------          ---------
                                                                                 (RESTATED-SEE NOTE 2)

<S>                                                                                  <C>                 <C>
          Net loss.................................................................  $  (29,929)         $  (3,723)
          Foreign currency translation adjustment..................................       2,709             (1,220)
                                                                                     ----------          ---------
          Comprehensive loss.......................................................  $  (27,220)         $  (2,503)
                                                                                     ==========          =========
</TABLE>

6.   STOCK OPTION PLAN

At December 31, 2004, the Company had stock-based employee compensation
plans. The Company accounts for those plans under the recognition and
measurement principles of Accounting Principles Board Opinion No. 25 ("APB
25"), Accounting for Stock Issued to Employees, and its related
interpretations. No stock-based employee compensation costs are reflected in
net loss, as all options granted under those plans had an exercise price
equal to the market value of the underlying common stock on the date of
grant. During the first quarter of fiscal 2005, the Company granted 150,000
employee stock options with an exercise price that


                                     13

<PAGE>
<PAGE>

equaled the Company's stock price on the applicable date of grant. The
following table illustrates the effect on net loss and loss per share if the
Company had applied the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123 ("FAS 123"), Accounting for Stock
Based Compensation, to stock-based employee compensation (in thousands,
except per share):

<TABLE>
<CAPTION>
                                                                                    THREE MONTHS ENDED DECEMBER 31,
                                                                                    -------------------------------
                                                                                        2004                2003
                                                                                     -----------         -----------
                                                                                (RESTATED-SEE NOTE 2)

<S>                                                                                  <C>                 <C>
         Reported net loss.........................................................  $   (29,929)        $    (3,723)
         Total stock-based employee compensation expense determined under
           fair value based method for all awards, net of tax effects..............          (51)                (13)
                                                                                     -----------         -----------
         Pro forma net loss........................................................  $   (29,980)        $    (3,736)
                                                                                     ===========         ===========
         Reported basic and diluted loss per share.................................  $     (1.82)        $     (0.23)
                                                                                     ===========         ===========
         Pro forma basic and diluted loss per share................................  $     (1.82)        $     (0.23)
                                                                                     ===========         ===========
</TABLE>

The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted
average assumption:

<TABLE>
<CAPTION>
                                                                                        THREE MONTHS ENDED DECEMBER 31,
                                                                                        -------------------------------
                                                                                            2004              2003
                                                                                          ---------         ---------
<S>                                                                                        <C>               <C>
         ASSUMPTIONS
         -----------
         Expected life of option.....................................................      6 years           6 years
         Risk-free interest rate.....................................................        4.25%             4.25%
         Volatility of stock.........................................................          77%               77%
         Expected dividend yield.....................................................           --                --
</TABLE>

7.   SEGMENT INFORMATION

The Company's strategic business units are based on product lines and have
been grouped into three reportable segments: Carbon Fibers, Technical Fibers
and Specialty Products. In the fourth quarter of fiscal 2004, the Company
discontinued two divisions within its specialty fibers segment and the
results are reported as a discontinued operation. Segment information for
fiscal 2004 has been reclassified to reflect such change.

The Carbon Fibers segment manufactures low-cost carbon fibers used as
reinforcement material in composites, carbon fiber composite products and
filament winding equipment used in the composite industry. The Technical
Fibers segment manufactures aircraft brake pads and oxidized acrylic fibers
for heat/fire barrier applications. These two segments also facilitate
development of product and process applications to increase the demand for
carbon fibers and technical fibers and seek to aggressively market carbon
fibers and technical fibers. The Carbon Fibers and Technical Fibers segments
are located geographically in the United States and Hungary. The Specialty
Products segment located in Hungary, formerly manufactured and marketed
acrylic and nylon products and fibers primarily to the textile industry and
currently manufactures and markets plastic netting and filtration media for
industrial markets. In the fourth quarter of fiscal 2004, the Company
discontinued the acrylic and nylon products within this segment. With the
exception of the Technical Fibers segment, none of the segments are
substantially dependent on sales from one customer or a small group of
customers.

Management evaluates the performance of its operating segments on the basis
of operating income (loss) contribution to the Company. The following table
presents financial information on the Company's operating segments as of and
for the first quarter ended December 31, 2004 and 2003 and balance sheet at
September 30, 2004 (amounts in thousands):

<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED DECEMBER 31, 2004
                                                                          ------------------------------------
                                                           Carbon        Technical     Specialty       Corporate
                                                           Fibers         Fibers        Products     Headquarters       Total
                                                         ---------       ---------     ---------     ------------     ---------
<S>                                                      <C>             <C>           <C>              <C>           <C>
Net sales............................................    $   7,052       $   3,778     $   2,688        $    -        $  13,518
Cost of sales, excluding available unused capacity...        7,075           2,969         2,352             -           12,396
Available unused capacity expenses...................          525               -             -             -              525
Operating (loss) income..............................       (1,682)            357           288          (605)          (1,642)
Depreciation and amortization expense................          892             239           141            29            1,301
Capital expenditures.................................        2,151             160           175            11            2,497
</TABLE>


                                     14

<PAGE>
<PAGE>

<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED DECEMBER 31, 2003
                                                                          ------------------------------------
                                                           Carbon        Technical     Specialty       Corporate
                                                           Fibers         Fibers        Products     Headquarters       Total
                                                         ---------       ---------     ---------     ------------     ---------
<S>                                                      <C>             <C>           <C>              <C>           <C>
Net sales............................................    $   2,610       $   3,281     $   2,261        $    -        $   8,152
Cost of sales, excluding available unused capacity...        2,406           2,785         1,812             -            7,003
Available unused capacity expenses...................        1,431               -             -             -            1,431
Operating (loss) income..............................       (2,086)            165           (77)         (629)          (2,627)
Depreciation and amortization expense................        1,102             156           217            27            1,502
Capital expenditures.................................          124              90           216            40              470

<CAPTION>
                                                                                      TOTAL ASSETS
                                                                                      ------------
                                                           Carbon        Technical     Specialty       Corporate
                                                           Fibers         Fibers        Products     Headquarters       Total
                                                         ---------       ---------     ---------     ------------     ---------
<S>                                                      <C>             <C>           <C>              <C>           <C>
December 31, 2004 (Restated-See Note 2)..............    $  69,784       $  34,304     $  24,792        $3,692        $ 132,572
September 30, 2004 (Restated-See Note 2).............       63,306          19,701        36,429         3,019          122,455
</TABLE>

GEOGRAPHIC INFORMATION (IN THOUSANDS)
-------------------------------------

<TABLE>
<CAPTION>
                                                               REVENUES (1)
                                                           THREE MONTHS ENDED                  LONG-LIVED ASSETS(2)
                                                           ------------------                  --------------------
                                                      DECEMBER 31,     DECEMBER 31,     DECEMBER 31,          SEPTEMBER 30,
                                                          2004            2003              2004                  2004
                                                          ----            ----              ----                  ----
                                                                                    (RESTATED-SEE NOTE 2)  (RESTATED-SEE NOTE 2)
<S>                                                    <C>              <C>              <C>                    <C>
United States....................................      $   5,568        $  4,915         $  46,517              $  46,582
Western Europe...................................          4,726             735                 -                      -
Eastern Europe...................................          2,771           2,143            38,693                 33,832
Asia ............................................            453             334                 -                      -
Other............................................              -              25                 -                      -
                                                       ---------        --------         ---------              ---------
Total............................................      $  13,518        $  8,152         $  85,210              $  80,414
                                                       =========        ========         =========              =========
<FN>
------------------------
(1)  Revenues are attributed to the entity recognizing the sale, as it is
     not practical to accumulate every customer's country of domicile.

(2)  Property and equipment net of accumulated depreciation based on country
     location of assets.
</TABLE>

8.   INVENTORIES

Inventories consist of the following (amounts in thousands):

<TABLE>
<CAPTION>
                                                               DECEMBER 31,     SEPTEMBER 30,
                                                                  2004              2004
                                                               -----------      -------------
<S>                                                             <C>              <C>
         Raw materials......................................    $   8,076        $   5,462
         Work-in-process....................................          957            1,177
         Finished goods.....................................       19,379           18,317
         Supplies, spares and other.........................        1,515              946
                                                                ---------        ---------
                                                                $  29,927        $  25,902
                                                                =========        =========
</TABLE>

9.   NEW ACCOUNTING PRONOUNCEMENTS

The FASB issued FASB Interpretation No. 46-R "Consolidation of Variable
Interest Entities" (FIN No. 46-R) in December 2003, which addressed the
requirements for consolidating certain variable interest entities. FIN No.
46-R applied immediately to variable interest entities created after January
31, 2003 and to variable interest entities that are considered special
purpose entities as of December 31, 2003. FIN No. 46-R applied to all other
variable interest entities as of March 31, 2004. The Company currently has
no interests in entities that are considered special purpose entities.
Additionally, the Company has no significant variable interests in
non-special purpose entities. Accordingly, the adoption of FIN No. 46-R had
no material impact on the Company's financial statements.

In October 2004, the government passed the "Homeland Investment Act," which
allows companies to repatriate cash balances from their controlled foreign
subsidiaries at a reduced tax rate and created a new deduction for U.S.
manufacturers related to qualified production activities for income tax
purposes. The Company is still considering the implications and evaluating
whether the Company will repatriate funds from its Hungarian subsidiary.

                                     15

<PAGE>
<PAGE>

In December 2004, the FASB issued interpretation No. 123-R "Accounting for
Stock-Based Compensation" (FAS No. 123-R), which addressed the requirement
for expensing the cost of employee services received in exchange for an
award of equity instrument. FAS No. 123-R will apply to all equity
instruments awarded, modified or repurchased for fiscal years ending after
June 15, 2005. The Company is currently evaluating the effect of this
interpretation on the Company's financial statements when implemented.

10.  COMMITMENTS AND CONTINGENCIES

Legal
-----

In October 2003, the Company was named as a defendant in a civil action
filed in the Court of Common Pleas for Cuyahoga County, Ohio by the former
owner of Hardcore Composites Operations, LLC ("Hardcore") alleging breach by
Hardcore and the Company of their respective obligations under a sublease,
the Company's guaranty of the sublease, and prior settlement agreement among
the parties. The former owner's action claims damages in the amount of $0.3
million for breaches by the Company of its obligations under the guaranty
and the settlement agreement and, in addition, demands $0.5 million in
damages from Hardcore and the Company, jointly and severally, under the
terms of the settlement agreement. In October 2004, the Court of Common
Pleas for Cuyahoga County, Ohio ruled in favor of the former owner of
Hardcore Composites in the amount of $1.1 million. In prior periods, the
Company has accrued $1.1 million in respect of the possible liability in
this matter, which it believes is its maximum obligation under this
guaranty. The Company is vigorously defending this matter, has filed
counterclaims and filed an appeal that represents its only recourse
regarding this guaranty. Management believes that the ultimate resolution of
this litigation will not have a further material adverse effect on the
Company's results of operations, financial condition or cash flow. To date,
the Company has not made any payments of any portion of this obligation,
although it posted an appeal bond in the amount of $1.3 million. The Company
executed a guaranty of Hardcore Composite's lease obligations of
approximately $30,000 per month to the former owner. The lease of the
Hardcore Composites manufacturing facility expires March 31, 2008. Hardcore
no longer occupies the facility and, accordingly, in connection with the
ongoing litigation with the former owner, Zoltek is asserting that Zoltek
has no further ongoing guarantee obligation with respect to the lease. The
Company also is the obligee on aggregate original value of unsecured
promissory notes of $9.3 million in connection with the sale of Hardcore,
for which a full valuation allowance has been recorded. A full valuation
allowance is appropriate in light of Hardcore's current financial condition
which, among other relevant factors, make the collection of the promissory
notes doubtful.

In September 2004, the Company was named a defendant in a civil action filed
by an investment banker that formerly was retained by the Company to locate
equity investors, alleging breach by the Company of its obligations under
the agreement signed by the parties. The investment banker alleges it is
owed commissions from equity investments obtained by the Company from a
different source. The Company has asserted various defenses, including that
the investment banker breached the agreement by not performing reasonable
efforts to obtain financing for the Company and, therefore, the agreement
was terminated by the Company prior to obtaining new financing. The
litigation is in its early stages and, accordingly, the Company is unable to
predict the timing or the outcome of this litigation or the impact on the
Company's financial condition, results of operations and cash flow.

The Company is a plaintiff in a patent infringement lawsuit pending in the
United States Court of Federal Claims. The lawsuit, which has been pending
since 1996, involves the alleged unauthorized use of the Company's carbon
fiber processing technology in the manufacture of extremely stealthy
aircraft. A preliminary court ruling has been favorable for the Company, but
the Company cannot predict the timing or the outcome of this litigation or
the impact on the Company's financial condition, results of operations and
cash flow.

The Company is a party to various claims and legal proceedings arising out
of the normal course of its business. In the opinion of management, the
ultimate outcome of these claims and lawsuits will not have a material
adverse effect upon the financial condition or results of operations of the
Company and its subsidiaries taken as a whole.

Environmental
-------------

The Company's operations generate various hazardous wastes, including
gaseous, liquid and solid materials. Zoltek believes that all of its
facilities are in substantial compliance with applicable environmental and
safety regulations applicable to their respective operations. Zoltek expects
that compliance with current environmental regulations will not have a
material adverse effect on the business, results of operations or financial
condition of the Company. There can be no assurance, however, that the
application of future national or local environmental laws, regulations and
enforcement policies will not have a material adverse effect on the
business, results of operations or financial condition of the Company.

                                     16

<PAGE>
<PAGE>

Sources of Supply
-----------------

As part of its growth strategy, the Company has developed its own precursor
acrylic fibers such that all of its carbon fiber and technical fiber
products, excluding the aircraft brake products, are now manufactured from
this precursor. The primary source of raw material for the precursor is ACN
(acrylonitrile), which is a commodity product with multiple sources.

The Company currently obtains most of its acrylic fiber precursor to supply
its technical fiber operations for the aircraft brake applications from a
single supplier which is the only supplier that currently produces precursor
approved for use in aircraft brake applications. The Company believes this
supplier is a reliable source of supply at the Company's current operating
levels. However, the Company has initiated trials at all of its aircraft
brake manufacturing customers with its own precursor-based products, which
might protect its business if there were an interruption in supply from the
aforementioned supplier.

The major materials used by the Specialty Products Business Segment include
basic commodity products, which are widely available from a variety of
sources.

Concentration of Credit Risk
----------------------------

In the first quarter of fiscal 2005 and 2004, the Company reported sales of
$2.1 million and $1.5 million to a major aircraft brake manufacturer which
was the only customer that represented greater than 10% of the Company
sales.

11.  SUBSEQUENT EVENTS

See Note 3 for subsequent financing transaction in February 2005.

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS

GENERAL
-------

On May 20, 2005, the Company concluded that its financial results for the
fiscal year ended September 30, 2004 and interim periods ended March 31,
June 30, September 30 and December 31, 2004 would be restated to reflect
additional non-operating gains and losses related to the correction of its
accounting for the conversion feature and related warrants to purchase the
Company's common stock associated with convertible debt issued by the
Company in January, March and October 2004 and the amortization expense
associated with debt discount. Historically, the Company had classified the
value of warrants to purchase common stock and the beneficial conversion
feature, when applicable, as equity as the Company believed these
instruments met the exceptions for recording these instruments as
liabilities. After further review the Company has determined that these
instruments did not meet these exceptions and should have been classified as
liabilities on its balance sheet at the fair value of each instrument. In
subsequent periods the change in fair value of these instruments will result
in an adjustment to this liability with the corresponding gain or loss being
recorded in the statement of operations. At the date of their respective
conversion of the instrument or exercise of the warrants the corresponding
liability will be reclassified to equity. In addition, the Company recorded
individually immaterial adjustments in 2004 that caused accounts receivable,
net, and property and equipment, net, to decrease $0.2 million and $0.1
million, respectively, in the December 31, 2004 and September 30, 2004
balance sheets. See further discussion in Note 2 to the Consolidated
Financial Statements included in this Form 10-Q/A for discussion of this
restatement.

The Company's mission is to commercialize the use of carbon fibers as a
low-cost but high performance reinforcement for composites used as the
primary building material in everyday commercial products. The Company has
developed and is implementing a strategy to manufacture and sell carbon
fibers into commercial applications at costs competitive with other
materials. In addition, through its technical fibers segment the Company is
the leading supplier of carbon fibers to the aircraft brake industry, and
manufactures and markets oxidized acrylic fibers, an intermediate product of
the carbon fiber manufacturing process, for fire and heat resistance
applications.

The Company introduced its carbon fibers strategic plan in 1995 to develop a
low-cost process to produce carbon fibers and build significant capacity
while encouraging growth of new applications. As part of its strategy to
establish availability of carbon fibers on a scale sufficient to encourage
growth of large-volume applications, the Company completed a major carbon
fiber production capacity expansion in fiscal 1998 at its Abilene, Texas
facility. While the Company succeeded in developing its infrastructure to
become the low-cost producer, the large volume applications were slower to
develop than anticipated. From 1998 to mid-2003 total carbon fiber usage did
not grow significantly and aerospace applications actually declined. This
situation resulted in substantial overcapacity and destructive pricing in
the industry. Much of the new carbon fiber business was captured by the
aerospace fibers as certain manufacturers sold their aerospace-grade fibers
on the commercial markets at prices that did not cover their total costs,
undermining the Company's commercialization strategy.

                                     17

<PAGE>
<PAGE>

The carbon fiber market conditions began to change during the second quarter
of fiscal 2004. Two major aerospace programs, the Airbus A-380 and the
Boeing 7E7, have absorbed virtually all of the aerospace fiber capacity, and
resulted in the divergence of the aerospace and commercial markets for
carbon fibers. Since the beginning of fiscal 2004, the Company has entered
into several significant supply relationships with carbon fibers customers.
Increasing sales of carbon fiber products during fiscal 2004 and the first
quarter of fiscal 2005 confirmed this shift. The divergence of the two
markets was accelerated by the strength in the development of the carbon
fiber wind turbine blade market. Currently Zoltek believes it is in a unique
position of having installed capacity, the technical capability to increase
the scale of its productive capacity with relatively short lead times and
the fiber quality that can attract current available and future new
business.

The recent increase in the demand for carbon fibers relates to several
different applications including aerospace. During the first quarter of
fiscal 2005, the Company experienced growth in customer demand in the carbon
and technical fiber business units, as sales increased $4.4 million and $0.5
million, respectively, over the first quarter of fiscal 2004. The improved
sales in the carbon fibers and technical fibers business units resulted in a
reduction in the overall operating loss from continuing operations reported
by the Company from a loss of $2.6 million in 2004 to a loss of $1.6 million
in 2005.

The Company has specifically targeted three significant and emerging
applications: wind energy, flame retardant bedding and home furnishings, and
automotive. Development of the use of carbon fibers is continuing in each of
these targeted market segments.

With the new orders in place and indications for additional significant
orders, the Company has restarted its major carbon fiber manufacturing
facility in Abilene, Texas which had been temporarily idled. The Company has
begun operation of manufacturing lines with aggregate rated capacity of 3
million pounds per year and expects to begin operation of additional
manufacturing lines with aggregate rated capacity of 2 million pounds per
year by the end of the first half of fiscal 2005. The Hungarian carbon fiber
manufacturing facility currently is operating at full capacity. Maintaining
the excess capacity has been costly, but the Company believed it has been
necessary to assure customers of adequate supply and encourage them to shift
to carbon fibers from other materials. With the reactivation of the Abilene
plant, unused capacity costs are expected to continue to decline and,
ultimately, be fully absorbed in ongoing production as all the carbon fiber
lines start operating in the first half of fiscal 2005.

In order to meet demand for carbon fibers for wind energy and other
commercial carbon fiber applications, Zoltek has undertaken a three-phase
capacity expansion program. First, Zoltek has initiated the start-up of the
five installed lines at its Abilene, Texas facility and activated sufficient
precursor capacity to support all of the Company's carbon fiber capacity,
which are scheduled to be fully operational in the first half of fiscal
2005. Second, Zoltek plans to add two new carbon fiber lines and add
sufficient precursor capacity at the Company's Hungarian facility by the end
of fiscal 2005. The third phase of the expansion program calls for a
doubling of the carbon fiber and precursor capacity levels after the second
phase, to be operational in 2006.

During the fourth quarter of fiscal 2004, the Company discontinued the nylon
fiber operation and the acrylic textile business. These divisions were
deemed not to be part of the long-term strategy of the Company and not
expected to be profitable in the foreseeable future due to the continued
pricing pressure from competitive manufacturers. The wind-down of these
product lines was substantially completed by February 1, 2005. The Company
will utilize a portion of the acrylic fiber capacity to supply precursor for
its growing carbon fiber manufacturing operations. The results from
operations of these two divisions have been reclassified to discontinued
operations for fiscal 2005 and 2004.

RESULTS OF OPERATIONS
---------------------

THREE MONTHS ENDED DECEMBER 31, 2004 COMPARED TO THREE MONTHS ENDED
-------------------------------------------------------------------
DECEMBER 31, 2003
-----------------

The Company's sales increased by 66%, or $5.3 million, to $13.5 million in
the first quarter of fiscal 2005 from $8.2 million in the first quarter of
fiscal 2004. Carbon fiber sales increased 170%, or $4.5 million, to $7.1
million in the first quarter of fiscal 2005 from $2.6 million in the first
quarter of fiscal 2004 as production and sales of sporting goods and wind
energy orders continued and the Company experienced a general increase in
the overall demand for carbon fiber from prior years. Technical fiber sales
increased 15%, or $0.5 million, to $3.8 million in the first quarter of
fiscal 2005 from $3.3 million in the first quarter of fiscal 2004. Technical
fiber sales increased as demand improved not only in the aircraft brake
customers but also for the flame-retardant market. Sales of the continuing
components of the specialty products business segment increased 18%, or $0.4
million, to $2.7 million in the first quarter of fiscal 2005 from $2.3
million in the first quarter of fiscal 2004 as the sales of the Mavibond
division which produces filtration media increased due to higher demand from
Eastern European customers and the strengthening Hungarian forint compared
to the first quarter of fiscal 2004.

The Company's cost of sales (excluding available unused capacity costs)
increased by 77%, or $5.4 million, to $12.4 million in the first quarter of
fiscal 2005 from $7.0 million in the first quarter of fiscal 2004. Carbon
and technical fiber cost of sales increased by


                                     18

<PAGE>
<PAGE>

92% or $4.8 million to $10.0 million in the first quarter of 2005 from $5.2
million in the first quarter of 2004 as sales of carbon and technical fibers
increased 83% for the quarter. The overall margin percentage decreased from
14% in the first quarter of fiscal 2004 to 8% in fiscal 2005 as the Company
incurred start-up inefficiencies within its Abilene, Texas facility. During
this start-up phase, the carbon fiber lines did not produce enough product
to cover the fixed costs, which were classified as available unused capacity
costs in prior years when the lines were idled. The Company expects that the
efficiency of this manufacturing operation will improve during 2005 as the
start-up progresses. The cost of sales of the Company's specialty products
business segment increased 30% compared to the 18% increase in sales,
reflecting sales mix factors.

The Company continued to incur costs related to the underutilized productive
capacity for carbon fibers at the Abilene, Texas facility and prepreg
operation. These costs included depreciation and other overhead associated
with the unused capacity. These costs, which were separately identified on
the income statement, were approximately $0.5 million during the first
quarter of fiscal 2005 and $1.4 million in the first quarter of fiscal 2004.
The Company believes it has been necessary to maintain available capacity to
encourage development of significant new large-scale applications. With the
increased orders in fiscal 2004 and the first quarter of fiscal 2005, unused
capacity costs are expected to continue to decrease significantly during the
fiscal year and to be fully absorbed in ongoing operations in the first half
of fiscal 2005 for its Abilene, Texas facility and by the end of fiscal 2005
for its prepreg operation. See additional discussion of the Abilene facility
under "--Liquidity and Capital Resources."

Application and market development costs were $0.8 million in the first
quarter of fiscal 2005 and $0.7 million in the first quarter of fiscal 2004.
These costs included product and market development efforts, product trials
and sales and product development personnel and related travel. Targeted
emerging applications include automobile components, fire/heat barrier and
alternate energy technologies. As a significant amount of the Company's
research and development is performed in Hungary, the strengthening of the
Hungarian Forint against the U.S. Dollar compared to the first quarter of
fiscal 2004 caused a slight increase in cost.

Selling, general and administrative expenses were $1.4 million in the first
quarter of fiscal 2005 compared to $1.6 million in the first quarter of
fiscal 2004. Although sales for the quarter increased 65% and carbon fiber
sales increased 170%, the decrease in expenses was from all business
segments.

Operating loss was $1.6 million in the first quarter of fiscal 2005 compared
to a loss of $2.6 million in the first quarter of fiscal 2004, an
improvement of $1.0 million. Carbon fiber operating loss improved from a
loss of $2.1 million in the first quarter of fiscal 2004 to a loss of $1.6
million in the first quarter of fiscal 2005. The operating income in
technical fibers increased from income of $0.2 million in the first quarter
of fiscal 2004 to $0.4 million in the first quarter of fiscal 2005.
Corporate headquarters operating loss was flat with a loss of $0.6 million
in the first quarter of fiscal 2005. Specialty product operating results
improved from a loss of $0.1 million in the first quarter of fiscal 2004 to
income of $0.3 million in the first quarter of fiscal 2005. The decrease in
the Company's total operating loss was a result of the significant
improvement in the carbon fibers and technical fibers business units as
sales and production have increased to absorb more fixed manufacturing cost
during the first half of 2005.

Interest expense was approximately $1.1 million in the first quarter of
fiscal 2005 compared to $0.6 million in the first quarter of fiscal 2004.
The increase in interest resulted from higher debt levels after the
Company's refinancing transactions (see "--Liquidity and Capital
Resources"). Due to the limited variable rate debt, the impact from the
increase in interest rate was immaterial.

Amortization of financing fees, debt discount and beneficial conversion
feature costs which are non-cash expenses was approximately $1.8 million in
the first quarter of fiscal 2005 compared to $0.1 million in the first
quarter of fiscal 2004. The increase in amortization resulted from the
Company's refinancing transactions (see "--Liquidity and Capital
Resources").

Loss on value of warrants and conversion feature and discount write-off, a
non-cash item, increased $25.5 million from no expense in fiscal 2004 to a
loss of $25.5 million in fiscal 2005 (see "--Liquidity -- Financing"). The
increase in the loss was attributable to an increase in our stock price
during 2004 as the Company had to market to market the value of the warrants
and conversion feature following the issuance of convertible debt
instruments in January, March and October 2004. No such obligations existed
in the prior year.

Other income/expense, net, was an income of $0.6 million in the first
quarter of fiscal 2005 compared to an income of $0.1 million for the first
quarter of fiscal 2004. The increase in the foreign currency transactional
gain during the three months ended December 31, 2004 on the Company's
intercompany debt at its Hungarian subsidiary was denominated in Forints but
will be repaid in U.S. Dollars as the money was loaned at Forint to U.S.
Dollar rate of approximately 200 to 1 compared to a rate of 180 to 1 as of
December 31, 2004.

Income tax expense was $0.1 million for the first quarter of fiscal 2005
compared to an income tax expense of $0.1 million for the corresponding
period in the prior year. A valuation allowance was recorded against the
income tax benefit resulting from the pre-tax loss in both the first
quarters of fiscal 2005 and 2004 due to uncertainties in the Company's
ability to utilize tax losses in the future. The expense for 2005 relates to
local taxes for the Hungarian facility.

                                     19

<PAGE>
<PAGE>

The foregoing resulted in a net loss from continuing operations of $29.6
million for the first quarter of fiscal 2005 compared to a net loss of $3.3
million for the first quarter of fiscal 2004. Similarly, the Company
reported a net loss per share of $1.80 and $0.20 on a basic and diluted
basis for the first quarter of fiscal 2005 and 2004, respectively. The
weighted average common shares outstanding were 16.4 million for the first
quarter of fiscal 2005 and 16.3 million for the corresponding period of
fiscal 2004.

The loss from discontinued operations of $0.4 million for the first quarter
of fiscal 2005 was flat compared to the first quarter of fiscal 2004. The
significant decrease in sales was offset by a significant decrease in cost
during 2005 as the Company sold off its prior existing inventory balance
during fiscal 2005. The Company reported a net loss per share of $0.02 and
$0.03 on a basic and diluted basis for the first quarter of fiscal 2005 and
2004, respectively.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

Management will seek to fund its near-term operations from the sale of
excess inventories, continued aggressive management of the Company's working
capital and existing borrowing capacity under the Company's revolving credit
facility. As the demand for carbon fiber continues to increase, the Company
will need additional financing to execute its capacity expansion program.
Based upon these forecasts, borrowing capacity, and the completion of the
transaction discussed in "Fiscal 2005 Refinancing" below, the Company
believes it has sufficient cash flows to continue operations for at least
the next 12 months.

Due to the timing of development of markets for carbon fiber products, the
Company's operating activities have used cash in each of the past four
fiscal years and the first three months of the current fiscal year. As a
result, the Company has executed refinancing arrangements and incurred
borrowings under credit facilities, multiple convertible debenture
facilities, as well as long-term debt financing utilizing the equity in the
Company's real estate properties, to maintain adequate liquidity to support
the Company's operating and capital activities.

The Company anticipates it will require further financing in 2006 to support
its previously announced capacity expansion program.

WARRANT AND CONVERSION FEATURES
-------------------------------

In January, March and October of 2004 and February 2005, the Company issued
convertible notes and warrants which would require the Company to register
the resale of the shares of common stock upon conversion or exercise of
these securities. The Company accounts for the fair value of these
outstanding warrants to purchase common stock and conversion feature of its
convertible notes in accordance with SFAS No. 133 "Accounting For Derivative
Instruments And Hedging Activities" and EITF Issue No. 00-19 "Accounting For
Derivative Financial Instruments Indexed To And Potentially Settled In A
Company's Own Stock;" which require the Company to bifurcate and separately
account for the conversion feature and warrants as embedded derivatives
contained in the Company's convertible notes. Pursuant to SFAS No. 133, the
Company bifurcated the fair value of the conversion feature from the
convertible notes, since the conversion features were determined to not be
clearly and closely related to the debt host. In addition, since the
effective registration of the securities underlying the conversion feature
and warrants is an event outside of the control of the Company, pursuant to
EITF Issue No. 00-19, the Company recorded the fair value of the conversion
feature and warrants as long-term liabilities as it was assumed that the
Company would be required to net-cash settle the underlying securities. The
Company is required to carry these embedded derivatives on its balance sheet
at fair value and


                                     20

<PAGE>
<PAGE>

unrealized changes in the values of these embedded derivatives are reflected
in the consolidated statement of operations as "Gain (loss) on value of
warrants and conversion feature." See table below for impact on the
quarterly financial results ended December 31, 2004.

<TABLE>
<CAPTION>
                                                                               THREE MONTHS ENDED DECEMBER 31, 2004
                                                                               ------------------------------------
                                                                                       (RESTATED-SEE NOTE 2)

                                                                                            CONVERSION
                                                                              WARRANTS       FEATURES         TOTAL
                                                                              --------       --------         -----
<S>                                                                          <C>            <C>             <C>
         January 2004 issuance - mark to market ...........................  $  (1,816)     $  (7,125)      $  (8,941)
         March 2004 issuance - mark to market .............................     (1,249)        (4,903)         (6,152)
         October 2004 issuance - mark to market ...........................     (2,398)        (8,026)        (10,424)
                                                                             ---------      ---------       ---------
                  Totals...................................................  $  (5,463)     $ (20,055)      $ (25,518)
                                                                             =========      =========       =========
</TABLE>

Fiscal 2005 Refinancing
-----------------------

In February 2005, the Company issued convertible debentures in the aggregate
principal amount of $20.0 million to institutional private equity investors.
The convertible debentures have a stated maturity of 42 months and bear
interest at a variable rate of six-month LIBOR plus 4% which was 7.5% at
March 2005, and are presently convertible into 1,000,000 shares of common
stock at a conversion price of $20.00 per share. The Company also issued to
the investors four-year warrants to purchase an aggregate of 457,142 shares
of common stock of the Company at an exercise price of $17.50 per share. The
fair value of the debt discount associated with the warrants and conversion
feature of the debt at the time of issuance was $15.3 million and will be
amortized over the life of the convertible debt. Proceeds from issuance of
these convertible debentures were used to repay mortgage debt of $6.0
million and the balance to expand the capacity of carbon fiber operations to
meet demand.

In October 2004, the Company issued convertible debentures in the aggregate
principal amount of $20.0 million to institutional private equity investors.
The convertible debentures have a stated maturity of 42 months and bear
interest at 7.5% per annum and are presently convertible into 1,666,666
shares of common stock at a conversion price of $12.00 per share. The
Company also issued to the investors six-year warrants to purchase an
aggregate of 500,000 shares of common stock of the Company at an exercise
price of $13.00 per share. The fair value of the debt discount associated
with the warrants and conversion feature of the debt at the time of issuance
was $10.2 million and will be amortized over the life of the convertible
debt. Proceeds from issuance of these convertible debentures were used to
reduce existing Hungarian bank debt by $12.0 million and the balance for
working capital purposes which allowed the Company to refinance the
remaining Hungarian bank debt to a three-year term loan for $3.0 million
with no financial covenants going forward.

In December 2004, the Company's U.S. bank extended the maturity and waived
the financial covenants of the Company's revolving credit loan, term loan
and mortgage on an existing property to January 1, 2006. The Company's U.S.
bank also increased the amount available under the revolving credit loan by
$0.5 million to $5.5 million and increased the term loan by $0.1 million to
$0.8 million. The principal of the term loan is payable on a quarterly basis
of $0.1 million with the remainder of the principal due at the maturity date
of January 1, 2006 and is therefore classified current. The mortgage is
payable on a monthly basis of $15,344 of principal and interest with the
remainder of the principal due at the maturity date of January 1, 2006 and
is therefore classified as current.

Fiscal 2004 Refinancing
-----------------------

In January 2004, the Company issued and sold convertible debentures in the
aggregate principal amount of $7.0 million to institutional private equity
and other investors (including $250,000 to each of Mr. Rumy and Mr.
McDonnell who are members of the Company's Board of Directors). The
convertible debentures have a stated maturity of 30 months and bear interest
at 6% per annum and are convertible into 1,295,954 shares of common stock at
the date of issuance at a conversion price of $5.40 per share for each
investor other than Messrs. Rumy and McDonnell and $5.42 per share for each
of Messrs. Rumy and McDonnell. The Company also issued to the investors
five-year warrants to purchase an aggregate of 323,994 shares of common
stock of the Company at an exercise price of $5.40 per share for each
investor other than Messrs. Rumy and McDonnell and $5.42 per share for each
of Messrs. Rumy and McDonnell. The fair value of the debt discount
associated with the warrants and the conversion feature, at the time of
issuance, was $3.0 million and will be amortized over the life of the
convertible debt. Proceeds from the issuance of these convertible debentures
were used for working capital purposes.

As part of the Company's January 2004 refinancing, the bank lender to the
Company's Hungarian subsidiary amended certain financial covenants and
extended the maturity date of its loan to December 31, 2004. In connection
with such actions, the bank required that the Company make arrangements to
settle intercompany accounts payable by Zoltek U.S. operations to its
Hungarian subsidiary in the amount of approximately $2.8 million. The bank
was unwilling to keep open its offer to restructure Zoltek Rt.'s loans until
after the Company's January 2004 refinancing package was completed. Prior to
the refinancing, the Company did not have cash on hand or


                                     21

<PAGE>
<PAGE>

available borrowings that would enable it to make the settlement of the
intercompany accounts required by the Hungarian bank. In order to proceed
expeditiously to resolve the Company's financing requirements, Zsolt Rumy,
the Company's Chief Executive Officer and a director of the Company, in
December 2003 loaned the Company $1.4 million in cash and posted a $1.4
million letter of credit for the benefit of the Company. This arrangement
was approved by the Company's board of directors and audit committee. The
loan by Mr. Rumy bore interest on the amount advanced and the notional
amount of the letter of credit at a rate per annum equal to LIBOR plus 11%
with a LIBOR floor of 2%, the same interest rate as the mortgage financing
discussed below. As a result of the Company completing the refinancing
transactions making available the cash to settle the intercompany accounts,
the letter of credit was released. After converting $250,000 into
convertible debt as part of the January 2004 financing, the remaining $1.15
million loan was repaid during the third quarter of fiscal 2004.

Also in January 2004, the Company entered into a mortgage note with a bank
in the aggregate principal amount of $6.0 million. The note has a stated
maturity of three years and bears interest at a rate of LIBOR plus 11%
(13.5% per annum as of December 31, 2004) with a LIBOR floor of 2%. The
Company will pay interest only on a monthly basis with principal balance due
at time of maturity. The loan is collateralized by a security interest in
the Company's headquarters facility and its two U.S. manufacturing
facilities that produce carbon and technical fibers. The proceeds of this
transaction were used to pay down debt of $6.0 million with its U.S. bank.
Of such proceeds, $0.5 million was held in an escrow account to be released
when the Company completed certain post-closing requirements. The Company
completed these requirements during the third quarter of fiscal 2004 and the
$0.5 million was released from escrow.

Due to the January 2004 refinancing completed subsequent to the Company's
fiscal year end, the Company's U.S. bank waived the financial covenants
through February 13, 2005, the maturity date of the term loan. Additionally,
the expiration of the Company's revolving credit loan was extended from
January 31, 2004 to January 31, 2005. The refinancing allowed the Company to
execute its 2004 business plan, which was uncertain prior to the
refinancing.

In March 2004, the Company issued and sold convertible debentures in the
aggregate principal amount of $5.75 million to institutional private equity
investors and Mr. Dill ($750,000) who is member of the Company's board of
directors. The convertible debentures have a stated maturity of 30 months
and bear interest at 6% per annum and have been converted into 895,908
shares of common stock at a conversion price of $6.25 per share for each
investor other than Mr. Dill and $7.82 per share for Mr. Dill. The Company
also issued to the investors five-year warrants to purchase an aggregate of
223,997 shares of common stock of the Company at an exercise price of $7.50
per share for each investor other than Mr. Dill whose warrants have an
exercise price of $7.82 per share. The fair value of the debt discount
associated with the warrants and conversion feature, at the time of
issuance, was $5.7 million and will be amortized over the life of the
convertible debt. Proceeds from the issuance of these convertible debentures
are being used for working capital and capital expenditures.

Each issuance of convertible debt is summarized in the table below which
sets forth the significant term of the debt, warrants and assumptions
associated with valuing the conversion feature and warrants:

<TABLE>
<CAPTION>
                                                (1)FEBRUARY 2003     JANUARY 2004    MARCH 2004      OCTOBER 2004    FEBRUARY 2005
                                                   -------------     ------------    ----------      ------------    -------------
<S>                                                  <C>               <C>            <C>              <C>             <C>
Amount of debenture (millions)...................    $8.1              $7.0           $5.75            $20.0           $20.0
Per share conversion price on debenture..........    $3.25             $5.40          $6.25            $12.00          $20.00
Interest rate....................................    7.5%              6.0%           6.0%             7.0%            7.5%
Term of debenture................................    60 months         30 months      30 months        42 months       42 months
Warrants issued..................................    405,000           323,995        230,000          500,000         457,142
Term of warrant..................................    60 months         48 months      48 months        72 months       48 months
Per share exercise price of warrants.............    $5.00             $5.40          $7.50            $13.00          $17.50
Fair value per warrant at issuance...............    $0.93             $2.27          $5.43            $6.02           $10.47
Value per share conversion feature at issuance...    $3.11             $1.78          $5.06            $4.31           $10.47
Stock price on date of agreement.................    $1.58             $5.40          $9.53            $9.60           $16.68
Stock volatility at issuance.....................    100%              50%            61%              75%             84%
Dividend yield...................................    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%

<FN>
--------------------------------
(1)    The warrants issued in connection with the February 2003 convertible
       issuance meets the criteria of EITF 00-19 for equity classification
       as it does not contain similar registration rights obligations with
       respect to the underlying shares. The conversion feature does not
       require derivative accounting and no beneficial conversion feature
       exists on this issuance.
</TABLE>

Earnings Per Share
------------------

If the results of the Company reflected a net income, an additional 6.9
million shares would be included in calculating the diluted earnings per
share. The additional shares relate to issuance of convertible debt of $6.4
million, warrants of 1.5 million of which


                                     22

<PAGE>
<PAGE>

0.3 million would be dilutive using the treasury stock method and stock
options of 1.1 million of which 0.2 million would be dilutive using the
treasury stock method.

Credit Facilities
-----------------

US Operations - The Company's current credit facility with its U.S. Bank is
described above under "--Fiscal 2005 Refinancing." No financial covenants
apply to the credit facility from the U.S. bank, which mature on January 1,
2006. Total borrowings under the U.S. credit facility, including the
revolving line of credit and term loan, were $5.6 million at December 31,
2004.

Hungarian Operations - The Company's Hungarian subsidiary has a credit
facility with a Hungarian bank. Total borrowings under this credit facility
were $2.8 million at December 31, 2004. Due to the fiscal 2005 refinancing
(see "--Refinancing" in Note 2), the credit facility is a term loan with
interest payments over the next three years and repayment of principal at
the maturity date.

Abilene, Texas Facility
-----------------------

In the third quarter of fiscal 2001, the Company elected to temporarily idle
a significant part of the operations located at the Abilene, Texas facility.
The Company resumed manufacturing at this facility during fiscal 2004. Given
that these assets were previously idled and did not generate significant
cash flow in 2004, the Company performed an impairment test and found that
no impairment existed at September 30, 2004. No triggering event occurred in
the first quarter of 2005 that required the Company to perform an additional
analysis at December 31, 2004.

Cash Used By Continuing Operating Activities
--------------------------------------------

Net cash used by continuing operating activities was $2.2 million for the
first quarter of fiscal 2005. The cash flows used by continuing operating
activities during the three months ended December 31, 2004 were primarily
due to the net loss from continuing operations of $29.6 million plus a
decrease in net operating assets of $1.4 million, offset by non-cash items,
including depreciation and amortization loss on value of warrants and
conversion feature of $28.7 million. The increase in net operating assets
consisted of an increase in receivables and other assets of $0.1 million as
carbon fiber sales increased during the period. In addition, accrued
expenses and other liabilities and trade payables increased $1.9 million
with an increase in inventories of $3.3 million as the Company built up its
precursor inventory for the start up of the new lines.

Net cash used by continuing operating activities was $1.0 million for the
first quarter of fiscal 2004. The cash flows used by continuing operating
activities during the three months ended December 31, 2003 were primarily
due to the net loss from continuing operations of $3.3 million offset by
non-cash items including depreciation and amortization of $1.6 million plus
a decrease in net operating assets of $0.5 million. The decrease in net
operating assets consisted of an increase of $0.7 million in inventories, an
increase of $0.4 million in accounts receivable, a decrease of $0.1 million
in prepaid and other assets and a $0.9 million decrease in accrued expenses
and other liabilities a $2.5 million increase in trade payables and a $0.2
million increase in long-term liabilities.

Cash Used by Discontinued Operating Activities
----------------------------------------------

Net cash used by discontinued operating activities was $1.0 million for the
first quarter of fiscal 2005. The cash flow used by discontinued operating
activities during the three months ended December 31, 2004 was primarily
related to the net loss of $0.4 million plus increases in net operating
assets of $0.6 million. The increase in net operating assets consisted of a
decrease in receivables and inventory of $0.8 million and $0.8 million,
respectively, offset by decreases in payables of $2.2 million. The decrease
in receivables and inventory related to the discontinuation of the textile
acrylic division as the sales and inventory purchases decreased
significantly for the quarter.

Net cash provided by discontinued operating activities was $0.2 million for
the first quarter of fiscal 2004. The cash flow used by discontinued
operating activities during the three months ended December 31, 2003 was
primarily related to the net loss of $0.4 million plus decreases in net
operating assets of $0.6 million. The decrease in net operating assets
consisted of a decrease in receivables of $0.6 million. The decrease in
receivables related to the discontinuation of the textile acrylic division
as the sales and inventory purchases decreased significantly from the prior
period.

Inventories consist of the following (amounts in thousands):

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,   SEPTEMBER 30,
                                                                         2004            2004
                                                                      ------------   -------------
<S>                                                                    <C>             <C>
         Raw materials...............................................  $   8,076       $   5,462
         Work-in-process.............................................        957           1,177
         Finished goods..............................................     19,379          18,317
         Supplies, spares and other..................................      1,515             946
                                                                       ---------       ---------
                                                                       $  29,927       $  25,902
                                                                       =========       =========
</TABLE>

                                     23

<PAGE>
<PAGE>

Cash Used For Investing Activities
----------------------------------

Net cash used for continuing investing activities for the three months
ended December 31, 2004 was $2.3 million which consisted of capital
expenditures. These expenditures related to the expansion of the Company's
precursor facility and carbon fiber operations to meet the additional demand
for carbon fiber products.

Net cash used for investing activities for the three months ended December
31, 2003 was $0.4 million which included capital expenditures primarily at
the Hungarian subsidiary related to expansion of its precursor facility.

Historically, cash used in investing activities has been expended for
equipment additions and the expansion of the Company's carbon fibers
production capacity. The Company expects capital expenditures to increase in
connection with the restart of the Abilene carbon fiber lines, the expansion
of its precursor facility in Hungary and the installation of additional
carbon fiber lines to meet the increased demand for carbon fiber. See 2005
refinancing for information related to additional funding for expansion.

Cash Provided By Financing Activities
-------------------------------------

Net cash provided by financing activities was $5.7 million and $0.4 million
for the three months ended December 31, 2004 and 2003, respectively. The
various financing transactions for the first quarters of 2005 and 2004 are
described above.

Future Contractual Obligations
------------------------------

A summary of significant contractual obligations is shown below. See Note 3
to the consolidated financial statements for discussion of the Company's
debt agreements.

<TABLE>
<CAPTION>
                                                                                LESS THAN                    3-5       MORE THAN
                                                                     TOTAL       1 YEAR      1-3 YEARS      YEARS       5 YEARS
                                                                   --------     ---------    ---------    ---------    ---------

<S>                                                                <C>          <C>          <C>          <C>          <C>
     Convertible debentures......................................  $ 40,850     $            $  40,850
     Long-term debt, including current maturities................    17,589          475        17,114    $       -    $       -
                                                                   --------     --------     ---------    ---------    ---------
          Total debt.............................................    58,439          475        57,964            -            -
     Operating leases............................................       232           58           174            -            -
                                                                   --------     --------     ---------    ---------    ---------
          Total debt and operating leases........................    58,671          533        58,138            -            -
          Contractual interest payments..........................    11,088        4,400         6,688            -            -
     Purchase obligations........................................     1,403        1,403             -            -            -
                                                                   --------     --------     ---------    ---------    ---------
          Total contractual obligations..........................  $ 71,162     $  6,336     $  64,826    $       -    $       -
                                                                   ========     ========     =========    =========    =========
</TABLE>

The future contractual obligations and debt could be reduced by $40 million
in exchange for 6.4 million shares of common stock if all the convertible
debt, excluding the February 2005 transaction discussed in Note 3.

<TABLE>
<CAPTION>
                                                    Conversion                 Less than                    4-5        More than
                                                       price        Total        1 year     1-3 years      years        5 years
                                                    ----------    ---------    ---------    ---------     --------     ---------
<S>                                                  <C>          <C>          <C>          <C>           <C>          <C>
Total contractual obligation.......................               $  71,162    $   6,336    $  64,826     $      -     $       -
February 2003 issuance.............................  $   3.25        (8,100)           -       (8,100)           -             -
January 2004 issuance..............................      5.40        (7,000)           -       (7,000)           -             -
March 2004 issuance................................      6.25        (5,750)           -       (5,750)           -             -
October 2004 issuance..............................     12.00       (20,000)           -      (20,000)           -             -
Interest payments..................................                  (8,005)      (2,832)      (5,173)           -             -
                                                                  ---------    ---------    ---------     --------     ---------
     Total contractual obligations assuming
      conversion...................................               $  22,307    $   3,504    $  18,803     $      -     $       -
                                                                  =========    =========    =========     ========     =========
</TABLE>

In October 2003, the Company was named as a defendant in a civil action
filed in the Court of Common Pleas for Cuyahoga County, Ohio by the former
owner of Hardcore Composites Operations, LLC ("Hardcore") alleging breach by
Hardcore and the Company of their respective obligations under a sublease,
the Company's guaranty of the sublease, and prior settlement agreement among
the parties. The former owner's action claims damages in the amount of $0.3
million for breaches by the Company of its obligations under the guaranty
and the settlement agreement and, in addition, demands $0.5 million in
damages from Hardcore and the Company, jointly and severally, under the
terms of the settlement agreement. During the third quarter of fiscal 2004,
Hardcore filed a petition under Chapter 11 of the U.S. Bankruptcy Code. In
October 2004, the Court of Common Pleas for Cuyahoga County, Ohio ruled in
favor of the former owner of Hardcore Composites in the amount of $1.1
million. The Company has accrued $1.1 million in respect of the possible
liability in this matter. The Company is vigorously defending this matter,
has filed counterclaims and filed an appeal.

                                     24

<PAGE>
<PAGE>

Management believes that the ultimate resolution of this litigation will not
have a further material adverse effect on the Company's results of
operations, financial condition or cash flow.

NEW ACCOUNTING PRONOUNCEMENTS

The FASB issued FASB Interpretation No. 46-R "Consolidation of Variable
Interest Entities" (FIN No. 46-R) in December 2003, which addressed the
requirements for consolidating certain variable interest entities. FIN No.
46-R applied immediately to variable interest entities created after January
31, 2003 and to variable interest entities that are considered special
purpose entities as of December 31, 2003. FIN No. 46-R applied to all other
variable interest entities as of March 31, 2004. The Company currently has
no interests in entities that are considered special purpose entities.
Additionally, the Company has no significant variable interests in
non-special purpose entities. Accordingly, the adoption of FIN No. 46-R had
no material impact on the Company's financial statements.

In October 2004, the government passed the "Homeland Investment Act," which
allows companies to repatriate cash balances from their controlled foreign
subsidiaries at a reduced tax rate and created a new deduction for U.S.
manufacturers related to qualified production activities for income tax
purposes. The Company is still considering the implications and evaluating
whether the Company will repatriate funds from its Hungarian subsidiary.

In December 2004, the FASB issued interpretation No. 123-R "Accounting for
Stock-Based Compensation" (FAS No. 123-R), which addressed the requirement
for expensing the cost of employee services received in exchange for an
award of equity instrument. FAS No. 123-R will apply to all equity
instruments awarded, modified or repurchased for fiscal years ending after
June 15, 2005. The Company is currently evaluating the effect of this
interpretation on the Company's financial statements when implemented.

                                    * * *

The forward-looking statements contained in this report are inherently
subject to risks and uncertainties. The Company's actual results could
differ materially from those in the forward-looking statements. Potential
risks and uncertainties consist of a number of factors, including the
Company's ability to re-activate its formerly idle manufacturing facilities
on a timely and cost-effective basis, to meet current order levels for
carbon fibers, successfully add new capacity for the production of carbon
fiber and precursor raw material, execute plans to exit its specialty
products business and reduce costs, achieve profitable operations, raise new
capital and increase its borrowing at acceptable costs, manage changes in
customers' forecasted requirements for the Company's products, continue
investing in application and market development, manufacture low-cost carbon
fibers and profitably market them, and penetrate existing, identified and
emerging markets, as well as other matters discussed herein.

                                     25

<PAGE>
<PAGE>

ITEM 4.  CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

The Company's management, under the supervision and with the participation
of the Company's management, including the Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the Company's
disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities and Exchange Act of 1934, as amended (The
Exchange Act), as of the end of the period covered by this report.
Management had previously concluded that the Company's disclosure controls
and procedures were effective as of the end of the period covered by this
report. However, in connection with the restatement of our previously issued
consolidated financial statements described below, management determined
that material weaknesses existed in the Company's internal control over
financial reporting as of the end of the period covered by this report.
Because of these material weaknesses, management concluded that the
Company's disclosure controls and procedures were not effective as of the
end of the period covered by this report.

RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

As discussed in Note 2 to the consolidated financial statements, we have
restated our previously issued financial statements. Management evaluated
the materiality of the correction on its consolidated financial statements
using the guidelines of Staff Accounting Bulletin No. 99, "Materiality" and
concluded that the effects of the corrections were material to its 2004
annual consolidated financial statements as well as its interim consolidated
financial statements for the quarters ended March 31, 2004, June 30, 2004,
December 31, 2004 and March 31, 2005. Accordingly, management concluded that
it would restate its previously issued 2004 annual consolidated financial
statements as well as its interim consolidated financial statements for the
quarters ended March 31, 2004, June 30, 2004, December 31, 2004 and March
31, 2005.

MATERIAL WEAKNESS IN INTERNAL CONTROL OVER FINANCIAL REPORTING

A material weakness is a control deficiency or combination of control
deficiencies that results in more than a remote likelihood that a material
misstatement of the annual or interim consolidated financial statements will
not be prevented or detected.

As of the end of the period covered by this report, the Company did not
maintain effective controls over the completeness and accuracy of its
accounting for its convertible debt and related amortization of financing
fees and debt discount and gain (loss) on value of warrants and conversion
feature. Specifically, the Company did not maintain effective controls over
the accounting for derivative liabilities in connection with its convertible
debt issued in January, March and October 2004 and February 2005.
Specifically, the Company did not have controls over the completeness and
accuracy of: (i) the beneficial conversion feature embedded in the Company's
convertible debt; or (ii) the common stock purchase warrants issued in
connection with the Company's convertible debt. This control deficiency
resulted in accounting errors in total liabilities, shareholders' equity,
interest expense, amortization expense, fair value gains and losses which
resulted in the restatement of the Company's 2004 annual consolidated
financial statements, as well as, the Company's interim consolidated
financial statements for the quarters ended March 31, 2004, June 30, 2004,
December 31, 2004 and March 31, 2005. In addition, this control deficiency
could result in a misstatement of total liabilities, shareholders' equity,
interest expense, amortization expense, fair value gains and losses that
would result in a material misstatement to the annual or interim
consolidated financial statements that would not be prevented or detected.
Accordingly, management determined that this control deficiency constitutes
a material weakness.

As of the end of the period covered by this report, the Company did not
maintain effective controls over the completeness and accuracy of its
earning per share disclosures. Specifically, the Company did not maintain
effective review and approval controls over the appropriate sequencing of
warrants and convertible debt instruments for determining diluted earnings
per share. This control deficiency resulted in the restatement of the
Company's interim consolidated financial statements for the quarter ended
March 31, 2005. Further, this control deficiency could result in a
misstatement of earnings per share that would result in a material
misstatement to the annual or interim consolidated financial statements that
would not be prevented or detected. Accordingly, management determined that
this control deficiency constitutes a material weakness.

MANAGEMENT'S REMEDIATION PLAN

The Company, under the supervision of its Chief Executive Officer and Chief
Financial Officer, is currently evaluating steps that it can take to
remediate the material weaknesses in its internal control over financial
reporting, including steps that can be taken in the process of documenting
and evaluating the applicable accounting treatment for non-routine or
complex transactions as they may arise.

CHANGES IN INTERNAL CONTROL

There were no changes in the Company's internal control over financial
reporting that occurred during the fiscal quarter covered by this report
that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.


                                     26

<PAGE>
<PAGE>

                           ZOLTEK COMPANIES, INC.

PART II. OTHER INFORMATION

            (a) Exhibits:

                Exhibit 31.1: Certification of Chief Executive Officer
                pursuant to Rule 13a-14(a) under the Securities Exchange Act
                of 1934, as amended.

                Exhibit 31.2: Certification of Chief Financial Officer
                pursuant to Rule 13a-14(a) under the Securities Exchange Act
                of 1934, as amended.

                Exhibit 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.

                Exhibit 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.




                                  SIGNATURE
                                  ---------

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                            Zoltek Companies, Inc.
                                                 (Registrant)

Date: December 16, 2005                By:     /s/ KEVIN SCHOTT
      -----------------                   ----------------------------
                                                  Kevin Schott
                                            Chief Financial Officer


                                     27