<PAGE>

                     SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, DC 20549





                                  FORM 10-Q



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






For the quarter ended June 30, 2003            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      No  x
                                            ---     ---

Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date: As of August 14,
2003, 16,307,338 shares of Common Stock, $.01 par value, were outstanding.



<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>
                                                                                                JUNE 30,    SEPTEMBER 30,
ASSETS                                                                                            2003          2002
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>           <C>
Current assets:
     Cash and cash equivalents.................................................................$      235    $      685
     Accounts receivable, less allowance for doubtful accounts of $844 and
       $742, respectively......................................................................    12,276        11,749
     Inventories...............................................................................    25,860        27,081
     Other current assets......................................................................     1,614         1,424
                                                                                               ----------    ----------
          Total current assets.................................................................    39,985        40,939
Property and equipment, net....................................................................    76,854        78,415
Other assets...................................................................................     3,101         2,068
                                                                                               ----------    ----------
          Total assets.........................................................................$  119,940    $  121,422
                                                                                               ==========    ==========


<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>           <C>
Current liabilities:
     Short-term notes payable..................................................................$    1,125    $        -
     Actual current maturities of long-term debt...............................................    16,461        14,014
     Long-term debt reclassified due to future uncertainty of covenant compliance..............     5,465             -
     Convertible debentures reclassified due to future uncertainty of
       covenant compliance of long-term debt...................................................     8,100             -
     Trade accounts payable....................................................................    12,642        12,535
     Accrued expenses and other liabilities....................................................     4,186         4,518
                                                                                               ----------    ----------
          Total current liabilities............................................................    47,979        31,067
Other long-term liabilities....................................................................       747           752
Long-term debt, less current maturities........................................................     4,051        13,699
                                                                                               ----------    ----------
          Total liabilities....................................................................    52,777        45,518
                                                                                               ----------    ----------

Shareholders' equity:
     Preferred stock, $.01 par value, 1,000,000 shares authorized,
       no shares issued or outstanding.........................................................         -             -
     Common stock, $.01 par value, 50,000,000 shares authorized,
       16,307,338 shares issued and outstanding................................................       163           163
     Additional paid-in capital................................................................   109,289       108,897
     Retained deficit..........................................................................   (28,145)      (16,903)
     Accumulated other comprehensive loss......................................................   (14,144)      (16,253)
                                                                                               ----------    ----------
          Total shareholders' equity...........................................................    67,163        75,904
                                                                                               ----------    ----------
          Total liabilities and shareholders' equity ..........................................$  119,940    $  121,422
                                                                                               ==========    ==========




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


                                     2

<PAGE>
<PAGE>


<TABLE>
                                                      ZOLTEK COMPANIES, INC.

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

<CAPTION>
                                                                       THREE MONTHS ENDED JUNE 30,     NINE MONTHS ENDED JUNE 30,
                                                                       ---------------------------     --------------------------
                                                                             2003         2002              2003         2002
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>          <C>               <C>          <C>
Net sales................................................................$    15,847  $    17,806       $    48,750  $    51,811
Cost of sales............................................................     13,934       15,447            43,090       45,039
                                                                         -----------  -----------       -----------  -----------
     Gross profit........................................................      1,913        2,359             5,660        6,772
Available unused capacity costs..........................................      1,481        1,476             4,238        4,692
Application and development costs........................................        865          767             2,669        2,761
Selling, general and administrative expenses.............................      2,153        2,578             7,370        7,608
                                                                         -----------  -----------       -----------  -----------
     Operating loss from continuing operations...........................     (2,586)      (2,462)           (8,617)      (8,289)
Other income (expense):
     Interest expense....................................................       (549)        (383)           (1,482)      (1,157)
     Interest income.....................................................         22            1                56           15
     Other, net..........................................................       (575)         (45)           (1,141)         (36)
                                                                         -----------  -----------       -----------  -----------
         Loss from continuing operations before income taxes.............     (3,688)      (2,889)          (11,184)      (9,467)
Income tax expense (benefit).............................................        101       (2,694)               58       (2,622)
                                                                         -----------  -----------       -----------  -----------
     Net loss from continuing operations.................................     (3,789)        (195)          (11,242)      (6,845)
Discontinued operations:
     Operating loss, net of taxes........................................          -            -                 -       (1,030)
     Gain on disposal of discontinued operations.........................          -            -                 -        1,319
                                                                         -----------  -----------       -----------  -----------
       Net gain on discontinued operations, net of taxes.................          -            -                 -          289
                                                                         -----------  -----------       -----------  -----------
Net loss.................................................................$    (3,789) $      (195)      $   (11,242) $    (6,556)
                                                                         ===========  ===========       ===========  ===========

Net loss per share:
     Basic and diluted loss per share:
         Continuing operations..........................................$      (0.23) $     (0.01)      $     (0.69) $     (0.42)
         Discontinued operations........................................           -            -                 -         0.02
                                                                        ------------  -----------       -----------  -----------
              Total.....................................................$      (0.23) $     (0.01)      $     (0.69) $     (0.40)
                                                                        ============  ===========       ===========  ===========

Weighted average common and common equivalent shares outstanding........      16,302       16,289            16,299       16,287





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



                                     3

<PAGE>
<PAGE>

<TABLE>
                                                   ZOLTEK COMPANIES, INC.

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

<CAPTION>
                                                                                               NINE MONTHS ENDED JUNE 30,
                                                                                               --------------------------
                                                                                                  2003             2002
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                           <C>              <C>
Cash flows from operating activities:
      Net loss................................................................................$   (11,242)     $    (6,556)
      Adjustments to reconcile net loss to net cash used by operating activities:
           Gain from discontinued operations..................................................          -             (289)
           Depreciation and amortization......................................................      4,684            4,946
           Unrealized foreign exchange gain or (loss).........................................        787             (699)
           Other, net.........................................................................        (36)             (17)
           Changes in assets and liabilities:
                 Decrease in accounts receivable..............................................         66            1,530
                 Decrease in inventories......................................................      2,091              558
                 (Increase) decrease in prepaid expenses and other assets.....................        157             (336)
                 Increase (decrease) in trade accounts payable and other accrued expenses.....     (1,342)             324
                 Increase (decrease) in other long-term liabilities...........................       (274)              88
                                                                                              -----------      -----------
                      Total adjustments.......................................................      6,133            6,105
                                                                                              -----------      -----------
      Net cash used by continuing operations..................................................     (5,109)            (451)
      Net cash used by discontinued operations................................................          -             (262)
                                                                                              -----------      -----------
Net cash used by operating activities.........................................................     (5,109)            (713)
                                                                                              -----------      -----------

Cash flows from investing activities:
      Payments for purchase of property and equipment.........................................     (1,262)          (1,624)
      Other, net..............................................................................        121               69
                                                                                              -----------      -----------
Net cash used by investing activities.........................................................     (1,141)          (1,555)
                                                                                              -----------      -----------

Cash flows from financing activities:
      Proceeds from exercise of stock options and warrants....................................         21               21
      Proceeds from issuance of long-term debt................................................     14,594            5,832
      Repayment of long-term debt.............................................................     (8,833)          (2,975)
                                                                                              -----------      -----------
Net cash provided by financing activities.....................................................      5,782            2,878
                                                                                              -----------      -----------
Effect of exchange rate changes on cash.......................................................         18              (18)
                                                                                              -----------      -----------
Net increase (decrease) in cash...............................................................       (450)             592
Cash and cash equivalents at beginning of period..............................................        685              667
                                                                                              -----------      -----------
Cash and cash equivalents at end of period....................................................$       235      $     1,259
                                                                                              ===========      ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Net cash paid (received) during the period for:
      Interest................................................................................$     1,489      $     1,103
      Income taxes............................................................................$         -      $    (2,731)




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


                                     4

<PAGE>
<PAGE>
                           ZOLTEK COMPANIES, INC.

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 ------------------------------------------


1.  BASIS OF PRESENTATION AND ACCOUNTING POLICY

The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principals
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 2002 Annual
Report to Shareholders, which includes consolidated financial statements and
notes thereto for the fiscal year ended September 30, 2002. 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. The results for the periods ended June 30, 2003 are not
necessarily indicative of the results which may be expected for the fiscal
year ending September 30, 2003.

The unaudited interim consolidated financial statements include the accounts
and transactions of the Company and its majority-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 results of operations. All significant
inter-company transactions and balances have been eliminated upon
consolidation.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation-Transition and Disclosure" (FAS 148). FAS 148 amends SFAS No.
123, "Accounting for Stock-Based Compensation" (FAS 123), to provide
alternative methods of transition when an entity changes from the intrinsic
value method to the fair-value method of accounting for stock-based employee
compensation. FAS 148 amends the disclosure requirements of FAS 123 to
require more prominent and more frequent disclosure about the effects of
stock-based compensation by requiring pro forma data to be presented more
prominently and in a more user-friendly format in the footnotes to the
financial statements. In addition, FAS 148 requires that the information be
included in interim as well as annual financial statements. The transition
guidance and annual disclosure provisions of FAS 148 are effective for
fiscal years ending after December 15, 2002. The Company has adopted the
disclosure provisions of FAS 148 (see Note 5).

In April 2003, the FASB issued SFAS No. 149 (FAS 149), "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities" (FAS 149).
FAS 149 amends and clarifies the accounting guidance on (1) derivative
instruments (including certain derivative instruments embedded in other
contracts) and (2) hedging activities that fall within the scope of FASB
Statement No. 133 (FAS 133), Accounting for Derivative Instruments and
Hedging Activities. FAS 149 is effective (1) for contracts entered into or
modified after June 30, 2003, with certain exceptions, and (2) for hedging
relationships designated after June 30, 2003. The Company is continuing to
evaluate the effects of FAS 149, but the Company does not believe its
adoption will have a material impact on its financial condition and results
of operations.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, and Interpretation
of FASB Statements Nos. 5, 57, and 107 and recession of FASB Interpretation
No. 34". FIN 45 requires: (1) the guarantor of debt to recognize a
liability, at the inception of the guarantee, for the fair value of the
obligation undertaken in issuing this guarantee, (2) indirect guarantees of
debt to be recognized in the financial statements of the guarantor and (3)
the guarantor to disclose the background and nature of the guarantee, the
maximum potential amount to be paid under the guarantee, the carrying value
of the liability associated with the guarantee and any recourse of the
guarantor to recover amounts paid under the guarantee from third parties.
FIN 45 rescinds all the provisions of FIN 34, Disclosure of Indirect
Guarantees of Indebtedness of Others; as it has been incorporated into the
provisions of FIN 45. The provisions of FIN 45 are effective for all
guarantees issued or modified subsequent to December 31, 2002. The
disclosure requirements of FIN 45 are effective for the financial statements
of interim and annual periods ending after December 15, 2002. Other than the
guarantee of a lease obligation of Hardcore Composites, LLC described
elsewhere in this report, the Company does not have any material commitments
within the scope of FIN 45.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities, an interpretation of ARB 51".
The primary objectives of FIN 46 are to provide guidance on the
identification of entities for which control is achieved through means other
than through voting rights ("variable interest entities" or "VIEs") and how
to determine when and which business enterprise should consolidate the VIE
(the "primary beneficiary"). The Company is evaluating the impact of FIN 46
but at present the Company does not believe it is the primary beneficiary of
any VIEs.
                                     5

<PAGE>
<PAGE>

2.  DISCONTINUED OPERATIONS

In the fourth quarter of fiscal 2001, the Company formally adopted a plan to
dispose of its 45% interest in Hardcore Composites, which designs and
manufactures composite structures for the civil infrastructure market. On
March 1, 2002, the Company completed the sale of its interest in Hardcore
Composites to the 55% majority owner. (For further discussion see Note 2 of
the Notes to the Consolidated Financial Statements included in the Company's
2002 Annual Report.)

The Company has reported the results of operations of Hardcore as
discontinued operations for fiscal 2002 in the consolidated statement of
operations. Certain information with respect to the discontinued operations
of Hardcore Composites for the nine-month period ended June 30, 2002 is
summarized as follows (amounts in thousands):

<TABLE>
<CAPTION>
                                                                                      NINE MONTHS
                                                                                     ENDED JUNE 30,
                                                                                         2002
                                                                                     --------------
         <S>                                                                           <C>
         Net sales..................................................................   $     408
         Cost of sales..............................................................         886
                                                                                       ---------
         Gross loss.................................................................        (478)
         Selling, general and administrative expenses...............................         534
                                                                                       ---------
         Loss from operations.......................................................      (1,013)
         Other expenses.............................................................         (17)
                                                                                       ---------
         Net loss from operations...................................................      (1,030)
         Gain on disposal of discontinued operations................................       1,319
                                                                                       ---------
         Net gain on discontinued operations, net of taxes..........................   $     289
                                                                                       =========
</TABLE>

3.  COMPREHENSIVE LOSS

Comprehensive loss for the three- and nine-month periods ended June 30, 2003
and 2002 was as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                       THREE MONTHS ENDED JUNE 30,
                                                                                     ------------------------------
                                                                                        2003                2002
                                                                                     -----------          ---------
          <S>                                                                        <C>                  <C>
          Net loss.................................................................  $    (3,789)         $    (195)
          Foreign currency translation adjustment..................................         (524)             3,842
                                                                                     -----------          ---------
          Comprehensive loss.......................................................  $    (4,313)         $   3,647
                                                                                     ===========          =========

<CAPTION>
                                                                                       NINE MONTHS ENDED JUNE 30,
                                                                                     ------------------------------
                                                                                         2003               2002
                                                                                     -----------          ---------
          <S>                                                                        <C>                  <C>
          Net loss.................................................................  $   (11,242)         $  (6,556)
          Foreign currency translation adjustment..................................        2,109              4,074
                                                                                     -----------          ---------
          Comprehensive loss.......................................................  $    (9,133)         $  (2,482)
                                                                                     ===========          =========
</TABLE>

4.  DEBT

The Company's financing of its U.S. operations is separate from that of its
Hungarian operations. Availability of credit is based on the collateral
value at each operation. However, the covenants of the term loan and
revolving line of credit from a U.S. bank apply to the Company on a
consolidated basis.

US Operations - In May 2001, the Company entered into a two-year credit
facility with a U.S. bank in the amount of $14.0 million. The credit
facility was structured as a term loan in the amount of $4.0 million and a
revolving credit loan in the amount of $10.0 million. In December 2001, June
2002 and September 2002 the Company amended its credit agreement with the
U.S. bank to waive and modify certain financial covenants. In consideration
for these amendments, the interest rate on the term and revolving credit
loans was adjusted to the prime rate plus 1.0% per annum. As a result of
these waivers and modifications, at September 30, 2002, the Company was in
compliance with all financial covenants requirements included in the credit
agreement as amended.

The Company executed an amended credit facility agreement, dated as of
February 13, 2003, with the U.S. bank. The amended credit facility agreement
is structured as a term loan in the amount of $3.5 million (due February 13,
2005) and a revolving credit loan in the amount of $5.0 million (due January
31, 2004). The Company repaid $5.0 million of this loan from the proceeds of
the sale of


                                     6

<PAGE>
<PAGE>

subordinated convertible debentures as discussed below. Borrowings under the
new facility are based on a formula of eligible accounts receivable and
inventories of the Company's U.S.-based subsidiaries. The outstanding loans
under the agreement bear interest at the prime interest rate plus 2% per
annum. The loan agreement contains quarterly financial covenants related to
borrowings, working capital, debt coverage, current ratio and capital
expenditures. Total borrowings under the revolving credit agreement were
$3.9 million and the available credit under this agreement was $1.1 million
at June 30, 2003.

The Company was not in compliance with the certain financial covenants under
its amended credit agreement with the U.S. bank as of June 30, 2003. The
Company subsequently received waivers from the U.S. bank for these financial
covenant violations as of June 30, 2003. The Company currently does not
anticipate that it will be in compliance with these financial covenants as
of September 30, 2003 and, accordingly, the $3.3 million term loan with the
U.S. bank has been classified as a current liability at June 30, 2003.

The Company also entered into a debenture purchase agreement, dated as of
February 13, 2003, under which the Company agreed to issue and sell to 14
investors, including certain directors, subordinated convertible debentures
in the aggregate principal amount of $8.1 million. The subordinated
convertible debentures have stated maturities of five years, bear interest
at 7% per annum and are convertible into an aggregate of 2,314,286 shares of
common stock of the Company at a conversion price of $3.50 per share. The
Company also issued to the investors five-year warrants to purchase an
aggregate of 405,000 shares of common stock of the Company at an exercise
price of $5.00 per share. The fair value of the warrants, at the time of
issuance, was estimated to be $376,650. Proceeds from the issuance of these
convertible debentures were used to repay existing borrowings as well as for
working capital.

The subordinated convertible debentures contain certain cross-default
provisions related to the Company's other debt agreements. Accordingly, the
covenant non-compliances under the Company's senior U.S. credit facility at
June 30, 2003 resulted in the possibility of a default event being declared
by the subordinated convertible debenture holders, which would result in
that debt being immediately due and payable. Since the Company subsequently
received waivers from its senior U.S. lender the convertible debentures are
no longer in default. However, the Company currently does not anticipate
that it will be in compliance with financial covenants included in the
amended credit agreement with the senior U.S credit facility as of September
30, 2003. Accordingly, the Company has classified the subordinated
convertible debentures as a current liability at June 30, 2003. However, in
the event of future non-compliance under the Company's senior U.S. bank
credit facility, the Company could request a waiver of the cross-default
provision for the convertible debenture holders and believes that the
holders would be receptive to such a request in conjunction with the
proposed refinancing of the Company described below.

As of June 30, 2003, the Company had a balloon mortgage payment of $1.5
million on its operating facility in Salt Lake City due to a U.S. bank. The
Company has not made this payment, however, the Company has agreed with the
U.S. bank to renew the note with a maturity date of November 2004.

Hungarian Operations - In May 2001, the Company's Hungarian subsidiary
entered into a credit facility with a Hungarian bank. The facility consists
of a $6.0 million bank guarantee and factoring facility, a $4.0 million
capital investment facility and a $2.0 million working capital facility. All
of the Hungarian bank debt is due on November 30, 2003. Therefore, $10.8
million of the debt is classified as current debt on the balance sheet as of
June 30, 2003. The Company is seeking to obtain an extension of the
Hungarian bank debt.

In March 2003, the Company's Hungarian subsidiary entered into a credit
agreement with another Hungarian bank for $2.2 million. The facility
consists of a bank guarantee, factoring and mortgages and expires September
30, 2004. The Hungarian subsidiary was not in compliance of one of its
financial covenants at June 30, 2003, of which it has not requested or
received a waiver. Therefore, the entire amount of the debt, $2.2 million,
was classified as current at that date. Management is taking action to cure
this default.

Total borrowings of the Hungarian subsidiary were $12.9 million at June 30,
2003. Borrowings under the Hungarian bank credit facilities cannot be used
in Zoltek's U.S. operations.

Proposed Refinancing - The Company currently is seeking to obtain new
financing to replace, entirely or in part, the credit agreement with the
U.S. bank. The Company anticipates that this new financing will include a
combination of senior, revolving, term and mortgage debt and may include
additional equity investment. The Company's objective is to obtain financing
that will result in substantially all of its debt that presently is
classified as current will be classified as long-term. Based on indications
of interest to date, the Company believes it will achieve its financing
objective, including negotiating covenants that it will be able to meet in
the future. However, the Company can give no assurances that it will be
successful in its attempt to obtain new financing and, if the Company is
unsuccessful, it would have a material adverse effect on its future
financial condition and its ability to continue to pursue its current
business plan.


                                     7

<PAGE>
<PAGE>

5.  STOCK OPTION PLAN

At June 30, 2003, 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. 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 JUNE 30,       NINE MONTHS ENDED JUNE 30,
                                                                -----------------------------      --------------------------
                                                                    2003              2002             2003           2002
                                                                -----------       -----------      -----------    -----------
<S>                                                             <C>               <C>              <C>            <C>
Reported net loss.............................................  $    (3,789)      $      (195)     $   (11,242)   $    (6,556)
Total stock-based employee compensation expense
  determined under fair value based method for all awards,
  net of tax effects..........................................           (1)             (142)            (281)          (556)
                                                                -----------       -----------      -----------    -----------
Pro forma net loss............................................  $    (3,790)      $      (337)     $   (11,523)   $    (7,112)
                                                                ===========       ===========      ===========    ===========
Reported diluted loss per share...............................  $     (0.23)      $    (0.01)      $     (0.69)   $     (0.42)
Pro forma diluted loss per share..............................  $     (0.23)      $    (0.02)      $     (0.70)   $     (0.44)
</TABLE>

6.   SEGMENT INFORMATION

The Company's strategic business units are based on product lines and have
been grouped into two reportable segments: Carbon Fibers and Specialty
Products.

The Carbon Fibers segment manufactures carbon fibers used as reinforcement
material in aircraft brakes, low-cost carbon fibers for reinforcement of
composites, oxidized acrylic fibers for heat/fire barrier applications,
resin-coated carbon fibers and composite manufacturing equipment. It also
facilitates development of product and process applications to increase the
demand for carbon fibers as the Company seeks to aggressively market carbon
fibers for commercial applications. The Carbon Fiber's segment is located
geographically in the United States and Hungary.

The Specialty Products segment manufactures and markets acrylic fibers and
nylon fibers to the textile industry and nylon compounds and industrial
materials in European markets. The Specialty Products segment is located in
Hungary. The following table presents financial information on the Company's
operating segments as of June 30, 2003 and September 30, 2002 and for the
three- and nine- month periods ended June 30, 2003 and 2002 (in thousands):

<TABLE>
<CAPTION>
                                                                                 THREE MONTHS ENDED JUNE 30, 2003
                                                                                 --------------------------------
                                                                                                    Corporate
                                                                                                   Headquarters
                                                                   Carbon          Specialty           and
                                                                   Fibers          Products        Eliminations         Total
                                                                -----------       -----------      ------------      -----------
<S>                                                             <C>               <C>              <C>               <C>
Net sales ......................................................$     6,711       $     9,136      $         -       $    15,847
Available unused capacity expenses..............................      1,481                 -                -             1,481
Operating loss..................................................     (2,264)              (40)            (282)           (2,586)
Depreciation and amortization expense...........................      1,216               280               55             1,551
Capital expenditures............................................        244               299                3               546





                                     8

<PAGE>
<PAGE>


<CAPTION>
                                                                                 THREE MONTHS ENDED JUNE 30, 2002
                                                                                 --------------------------------
                                                                                                    Corporate
                                                                                                   Headquarters
                                                                   Carbon          Specialty           and
                                                                   Fibers          Products        Eliminations         Total
                                                                -----------       -----------      ------------      -----------
<S>                                                             <C>               <C>              <C>               <C>
Net sales ......................................................$     7,841       $     9,965      $         -       $    17,806
Available unused capacity expenses..............................      1,476                 -                -             1,476
Operating loss..................................................     (1,224)             (227)          (1,011)           (2,462)
Depreciation and amortization expense...........................      1,274               436               77             1,787
Capital expenditures............................................        226               251               28               505


<CAPTION>
                                                                                  NINE MONTHS ENDED JUNE 30, 2003
                                                                                  -------------------------------
                                                                                                    Corporate
                                                                                                   Headquarters
                                                                   Carbon          Specialty           and
                                                                   Fibers          Products        Eliminations         Total
                                                                -----------       -----------      ------------      -----------
<S>                                                             <C>               <C>              <C>               <C>
Net sales.......................................................$    20,496       $    28,254      $         -       $    48,750
Available unused capacity expenses..............................      4,238                 -                -             4,238
Operating loss..................................................     (5,631)           (1,143)          (1,843)           (8,617)
Depreciation and amortization expense...........................      3,754               746              184             4,684
Capital expenditures............................................        798               449               15             1,262

<CAPTION>
                                                                                  NINE MONTHS ENDED JUNE 30, 2002
                                                                                  -------------------------------
                                                                                                    Corporate
                                                                                                   Headquarters
                                                                   Carbon          Specialty           and
                                                                   Fibers          Products        Eliminations         Total
                                                                -----------       -----------      ------------      -----------
<S>                                                             <C>               <C>              <C>               <C>
Net sales.......................................................$    23,613       $    28,198      $         -       $    51,811
Available unused capacity expenses..............................      4,692                 -                -             4,692
Operating loss..................................................     (4,852)             (579)          (2,858)           (8,289)
Depreciation and amortization expense...........................      3,885               821              240             4,946
Capital expenditures............................................        911               685               28             1,624

<CAPTION>
                                                                                           TOTAL ASSETS
                                                                                           ------------
                                                                                                    Corporate
                                                                                                   Headquarters
                                                                   Carbon          Specialty           and
                                                                   Fibers          Products        Eliminations          Total
                                                                -----------       -----------      ------------      ------------
<S>                                                             <C>               <C>              <C>               <C>
June 30, 2003...................................................$    96,767       $    27,658      $     (4,485)     $    119,940
September 30, 2002..............................................     99,511            25,024            (3,113)          121,422
</TABLE>

<TABLE>
GEOGRAPHIC INFORMATION / (IN THOUSANDS)
---------------------------------------

<CAPTION>
                                                                               REVENUES (1)
                                                                            NINE MONTHS ENDED             LONG-LIVED ASSETS (2)
                                                                            -----------------             ---------------------
                                                                           JUNE 30,    JUNE 30,           JUNE 30,  SEPTEMBER 30,
                                                                             2003        2002               2003        2002
                                                                             ----        ----               ----        ----
<S>                                                                      <C>          <C>               <C>          <C>
United States............................................................$    17,699  $    18,469       $    47,450  $    50,366
Hungary..................................................................     31,051       33,342            29,946       28,660
                                                                         -----------  -----------       -----------  -----------
Total....................................................................$    48,750  $    51,811       $    77,396  $    79,026
                                                                         ===========  ===========       ===========  ===========
<FN>
------------------------
(1)  Revenues are attributed to the entity recognizing the sale in the
     interim statements, as it is not practical to accumulate every
     customer's country of domicile on an interim basis.
(2)  Property and equipment and intangibles, net of accumulated depreciation
     and amortization, are based on country location of assets.
</TABLE>




                                     9

<PAGE>
<PAGE>

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

GENERAL
-------

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 performance
benefits of carbon fibers - light weight, high strength and stiffness - have
been demonstrated in aerospace applications for many years. Eventually
carbon fibers were introduced in high performance sporting goods, but carbon
fiber's high price and lack of availability prevented it from general
introduction into higher volume commercial applications. The Company has
developed and is implementing a strategy to manufacture and sell carbon
fibers into commercial applications competitive to other materials.

In addition to its underlying strategy to penetrate future markets, the
Company is the leading supplier of carbon fibers to the aircraft brake
industry. Also, the Company participates in traditional carbon fiber
markets, such as sporting goods and conductive thermoplastic manufacturing.
The Company also manufactures and markets oxidized acrylic fibers, an
intermediate product of the carbon fiber manufacturing process, for fire and
heat resistant applications. The Company sells acrylic and nylon fibers into
the textile markets and manufactures other specialty products in Hungary.
The Company intends to sell or discontinue these products when it can
utilize a significant portion of the acrylic fiber capacity to supply
precursor for its carbon fiber manufacturing operations.

The Company's strategic plan of introducing low-cost carbon fibers into high
potential end uses to attract significant new applications for carbon fiber
reinforced composites in automotive, infrastructure, wind energy, oil and
gas production and other industries has been well received. The Company
believes it is the lowest cost producer of carbon fibers and it is well
positioned to produce sufficient volumes of carbon fibers to satisfy
indicated near future demand. The Company is participating in ongoing
development projects and expects that certain of these emerging applications
will begin to generate significant orders during fiscal 2004.

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-scale 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 have been slower
to develop than initially anticipated. During fiscal 2002, the Company
reassessed it strategy and reconfirmed the validity of the strategy. The
Company has specifically targeted three significant and emerging
applications: flame retardant bedding and home furnishings, wind energy and
automotive. Although the Company has not yet achieved the sales volume it
had expected, development of the use of carbon fibers is continuing in each
of the Company's current targeted market segments.

*    Flame-retardant bedding and furniture will begin to be mandated by
     various state governments starting in 2004. The first regulations in
     place relate to the mattress products. The Company, in cooperation with
     a major supplier to the mattress industry, has developed a solution for
     the regulations put in place by the State of California. The Company
     believes its Pyron products will offer the best and most economical
     solution for this application. The California law for mattresses is
     scheduled to be in effect beginning January 1, 2004, and the U.S.
     federal regulations are expected to be substantially similar to
     California and are scheduled to be in place January 1, 2005. At this
     time it is not clear when the industry will implement the introduction
     of the flame resistant mattresses, but it is the Company's belief that
     the potential exposure to product liability will force the industry to
     comply when the California law requires and do so across the United
     States. The Company believes this application will result in
     significant orders in fiscal 2004.

*    Wind energy is one of the fastest growing industries globally. The
     desire by consumers and the government support for renewable energy has
     been growing in the past decade. Of all the possible technologies, wind
     generated electricity is the most competitive and technically viable
     renewable energy source. The wind turbine's ability to generate
     electricity is increased by the square of its blade length. With 55-60
     meter (approximately 175-200 feet) long blades, a wind turbine can
     generate 3 MW of electricity at costs competitive with fossil fuels.
     All the major wind turbine manufacturers have announced plans to
     introduce such large turbines in 2004. The length of these blades
     requires the use of carbon fibers. The Company has active projects to
     introduce these blades into full production in 2004 and we expect
     significant carbon fiber orders from this application in fiscal 2004.

*    The Company believes that use of carbon fibers in automobiles will
     become the most significant application within 10 years. The
     performance properties of carbon fiber reinforced composites can reduce
     the weight of a car by 60% over steel and 35% over aluminum. This
     allows either a significant improvement in the car's performance and/or
     fuel consumption. Both are significant attributes for the automobile
     industry. The Company has been working with BMW exclusively to
     efficiently and reliably produce structural parts for automobiles. The
     results from this development work have been favorable. As a result,
     the Company believes that the introduction of carbon fibers in series
     production cars is imminent. The Company anticipates that significant
     orders will be


                                     10

<PAGE>
<PAGE>

     forthcoming from BMW and other automobile manufacturers to support the
     introduction of products in 2005 model year and accelerate from that
     point forward.

Carbon fiber sales in current markets have been depressed. The aircraft
brake business which has been the Company's strongest market, has been
significantly affected by the events of 9/11 and the following major
reduction in the number of aircraft in service and the reduced build rate of
new aircraft. The other existing commercial carbon fiber markets have been
affected by excess capacity across the industry and distressed pricing
across most existing markets. The Company's strategy for near-term sales
increases was to rely primarily on what had been growing commercial markets
(conductive plastics used in electronic products and sporting goods). These
markets began to decline in 1998 and no new major markets developed to take
their place. As a consequence of the delays in market development, the
Company's carbon fiber manufacturing capacity continues to be underutilized.
For these reasons, the Company has temporarily idled a significant part its
plant in Abilene, Texas. Maintaining this excess capacity has been costly,
but the Company believes it is necessary toto assure customers of adequate
supply and encourage them to shift to carbon fibers from other materials.

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

THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THREE MONTHS ENDED JUNE 30, 2002
-----------------------------------------------------------------------------

The Company's sales decreased 11.0% to $15.8 million in the third quarter of
fiscal 2003 from $17.8 million in the third quarter of fiscal 2002. Carbon
fiber sales decreased 14.4% ($1.1 million) to $6.7 million in the third
quarter of fiscal 2003 compared to $7.8 million in the third quarter of
fiscal 2002. Carbon fiber sales decreased due to depressed demand from
aircraft brake customers, reflecting the worldwide decline in the airline
industry activity. Sales of acrylic and other products produced at Zoltek
Rt. decreased by $0.8 million (8.3%) to $9.1 million in the third quarter of
fiscal 2003 compared to $9.9 million in the third quarter of fiscal 2002.
Overall, pricing in the textile markets remains depressed due to continued
weakened economic conditions globally and particularly, in the primary
European markets in which Zoltek Rt. competes. The reduced revenue was the
result of curtailment of acrylic fiber production to limit sales at
unfavorable profit levels. The Company expects these depressed conditions
impacting the carbon fiber and acrylic markets to continue throughout the
remainder of fiscal 2003 and possibly into early fiscal 2004.

Gross profit decreased $0.4 million to $1.9 million (12.1% of sales) in the
third quarter of fiscal 2003 from $2.3 million (13.2%) in the third quarter
of fiscal 2002. Gross profit on carbon fibers decreased by $0.5 million to
$1.0 million (14.8% of sales) in the third quarter of fiscal 2003 compared
to $1.5 million (19.0% of sales) in the third quarter of fiscal 2002, due
primarily to decreased selling margins and curtailed operations. The carbon
fibers business has been impacted from industry-wide excess capacity that
resulted in distressed pricing across most existing markets and lower sales
volume that have not supported the level of fixed manufacturing cost. Gross
profit on specialty products was $0.9 million (10.0% of sales) in the third
quarter of fiscal 2003 and $0.9 million (8.7% of sales) in the third quarter
of fiscal 2002.

The Company continued to incur costs related to the underutilized productive
capacity for carbon fibers at the Abilene, Texas facility. These costs
included depreciation and other overhead associated with the unused
capacity. These costs, which were separately identified on the income
statement, were approximately $1.5 million during the third quarter of
fiscal 2003 and $1.5 million in the third quarter of fiscal 2002. The
Company believes it is necessary to maintain available capacity to encourage
and facilitate the development of significant new large-scale applications.

Application and market development direct costs were $0.9 million in the
third quarter of fiscal 2003 and $0.8 million in the third quarter of fiscal
2002. 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, alternate energy technologies and deep sea oil drilling.

Selling, general and administrative expenses decreased $0.4 million to $2.2
million in the third quarter of fiscal 2003 from $2.6 million in the third
quarter of fiscal 2002 primarily due to cost cutting measures.

Interest expense increased $0.1 million to $0.5 million for the third
quarter of fiscal 2003 from $0.4 million in the third quarter of fiscal year
2002, as a result of increased interest payable under the Company's amended
credit facility and the issuance of convertible subordinated debentures in
February 2003.

Other expenses increased $0.5 million to $0.6 million for the third quarter
2003 from $0.1 million in the third quarter of fiscal 2002 due to an
increase in the foreign currency transactional losses on the Company's debt
at its Hungarian subsidiary which is denominated in U.S dollars or Euros.


                                     11

<PAGE>
<PAGE>

Income tax expense increased $2.8 million to $0.1 million for the third
quarter 2003 from an income tax benefit of $2.7 million. The Company
received an income tax refund of $2.7 million in the third quarter of fiscal
2002. A valuation allowance was recorded against the income tax benefit
resulting from the pre-tax loss for the third quarter 2003.

The foregoing resulted in a net loss of $3.8 million for the third quarter
of fiscal 2003 compared to a net loss of $0.2 million for the third quarter
of fiscal 2002. Similarly, the Company reported a net loss per share of
$0.23 and $0.01 on a basic and diluted basis for the third quarter of fiscal
2003 and fiscal 2002, respectively. The weighted average common shares
outstanding were 16.3 million for both the third quarter of fiscal 2003 and
the third quarter of fiscal 2002.

NINE MONTHS ENDED JUNE 30, 2003 COMPARED TO NINE MONTHS ENDED JUNE 30, 2002
---------------------------------------------------------------------------

The Company's sales decreased 5.9% ($3.1 million) to $48.7 million in fiscal
2003 from $51.8 million in fiscal year 2002. Carbon fiber sales decreased
13.2% ($3.1 million) to $20.5 million in fiscal 2003 from $23.6 million in
fiscal 2002. Carbon fiber sales decreased due to depressed demand from
aircraft brake customers, reflecting the worldwide decline in the airline
industry activity. Sales of the Specialty Products business segment were
flat $28.2 million in fiscal 2003 and in fiscal 2002. Overall, demand in the
textile markets remains depressed due to continued weakened economic
conditions globally and, particularly, in the primary European markets in
which Zoltek Rt. competes. The reduced revenue was the result of curtailment
of acrylic fiber production to limit sales at unfavorable profit levels. The
Company expects these depressed conditions impacting the carbon fiber and
acrylic markets to continue throughout the remainder of fiscal 2003 and
possibly into early fiscal 2004.

Gross profit decreased to $5.7 million (11.7% of sales) in fiscal 2003 from
$6.8 million (13.1% of sales) in the corresponding period of fiscal 2002.
Gross profit from carbon fibers decreased $0.9 million (20.9%) in fiscal
2003 to $3.4 million (16.5% of sales) from $4.3 million (18.0% of sales) for
fiscal 2002. The carbon fibers business has been impacted from industry-wide
excess capacity that resulted in distressed pricing across most existing
markets and lower sales volume that have not supported the level of fixed
manufacturing cost. Gross profit on specialty products decreased 14.3%, or
$0.3 million, from $2.5 million in fiscal 2002 to $2.2 million in fiscal
2003. Gross margin on specialty products decreased to 7.7% of sales for
fiscal 2003 compared to 9.0% of sales for fiscal 2002 due primarily to price
decreases and product mix.

The Company continued to incur costs related to the underutilized productive
capacity for carbon fibers at the Abilene, Texas facilities. These costs
included depreciation and other overhead associated with the unused
capacity. These costs, which were separately identified on the income
statement, were approximately $4.2 million during the first nine months of
fiscal 2003 and $4.7 million in the first nine months of fiscal 2002. The
Company believes it is necessary to maintain available capacity to encourage
development of significant new large-scale applications.

Application and development direct costs were $2.7 million in the first nine
months of fiscal 2003 and $2.8 million in the corresponding period of fiscal
2002. 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, alternate energy technologies and deep sea oil drilling.

Selling, general and administrative expenses were $7.4 million in the first
nine months of fiscal 2003 compared to $7.6 million in first nine months of
fiscal 2002. The decrease in expense was primarily due to cost cutting
measures, partially offset by the adverse effect of the exchange rate of the
Hungarian currency.

Interest expense was approximately $1.5 million in the first nine months of
fiscal 2003 compared to $1.2 million in the corresponding period of fiscal
year 2002. The increase in interest expense resulted from increased
borrowings under the Company's credit facility in the first quarter and the
increased interest rate related to the Company's amended credit facility and
the issuance of convertible subordinated debentures in February 2003.

Other expenses increased $1.0 million to $1.1 million for the first nine
months of fiscal 2003 from $0.1 million for the first nine months of fiscal
2002 due to an increase in the foreign currency transactional losses on the
Company's debt at its Hungarian subsidiary which is denominated in U.S.
dollars or Euros.

Income tax expense increased $2.8 million to $0.1 million for the first nine
months of fiscal 2003 from an income tax benefit of $2.7 million for the
corresponding period in the prior year. As a result of the US federal income
tax regulations, the Company received an income tax refund of $2.7 million
in the third quarter of fiscal 2002. A valuation allowance was recorded
against the income tax benefit resulting from the pre-tax loss for the first
nine months of fiscal 2003.

The foregoing resulted in a net loss from continuing operations of $11.2
million for the first nine months of fiscal 2003 compared to a net loss of
$6.8 million for the corresponding period of fiscal 2002. Similarly, the
Company reported net loss from continuing

                                     12

<PAGE>
<PAGE>

operations per share of $0.69 and $0.42 on a basic and diluted basis for the
first nine months of fiscal 2003 and fiscal 2002, respectively. The weighted
average common shares outstanding were 16.3 million for both the first nine
months of fiscal 2003 and fiscal 2002.

The net gain from discontinued operations for the first nine months of
fiscal 2002 included a $1.0 million loss from the results of operations and
a $1.3 million gain from the disposal of Hardcore Composites. The foregoing
resulted in a net gain from discontinued operations of $0.3 million in the
first nine months of fiscal 2002, or $0.02 per share on a basic and diluted
basis.

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

The Company's primary sources of liquidity historically have been cash flow
from operating activities and borrowings under credit facilities,
supplemented with the net proceeds from three previous public equity
offerings, and long-term debt financing utilizing the equity in the
Company's real estate properties. Additional sources of future liquidity are
expected from the sale of the non-core businesses of the Company's Hungarian
operations.

The Company's financing of its U.S. operations is separate from that of its
Hungarian operations. Availability of credit is based on the collateral
value at each operation. However, the covenants of the term loan and
revolving line of credit from a U.S. bank apply to the Company on a
consolidated basis.

US Operations - In May 2001, the Company entered into a two-year credit
facility with a U.S. bank in the amount of $14.0 million. The credit
facility was structured as a term loan in the amount of $4.0 million and a
revolving credit loan in the amount of $10.0 million. In December 2001, June
2002 and September 2002 the Company amended its credit agreement with the
U.S. bank to waive and modify certain financial covenants. In consideration
for these amendments, the interest rate on the term and revolving credit
loans was adjusted to the prime rate plus 1.0% per annum. As a result of
these waivers and modifications, at September 30, 2002, the Company was in
compliance with all financial covenants requirements included in the credit
agreement as amended.

The Company executed an amended credit facility agreement, dated as of
February 13, 2003, with the U.S. bank. The amended credit facility agreement
is structured as a term loan in the amount of $3.5 million (due February 13,
2005) and a revolving credit loan in the amount of $5.0 million (due January
31, 2004). The Company repaid $5.0 million of this loan from the proceeds of
the sale of subordinated convertible debentures as discussed below.
Borrowings under the new facility are based on a formula of eligible
accounts receivable and inventories of the Company's U.S. - based
subsidiaries. The outstanding loans under the agreement bear interest at the
prime interest rate plus 2% per annum. The loan agreement contains quarterly
financial covenants related to borrowings, working capital, debt coverage,
current ratio and capital expenditures. Total borrowings under the revolving
credit agreement were $3.9 million and the available credit under this
agreement was $1.1 million at June 30, 2003.

The Company was not in compliance with the certain financial covenants under
its amended credit agreement with the U.S. bank as of June 30, 2003. The
Company subsequently received waivers from the U.S. bank for these financial
covenant violations as of June 30, 2003. The Company currently does not
anticipate that it will be in compliance with these financial covenants as
of September 30, 2003 and, accordingly, the $3.3 million term loan with the
U.S. bank has been classified as a current liability at June 30, 2003.

The Company also entered into a debenture purchase agreement, dated as of
February 13, 2003, under which the Company agreed to issue and sell to 14
investors, including certain directors, subordinated convertible debentures
in the aggregate principal amount of $8.1 million. The subordinated
convertible debentures have stated maturities of five years, bear interest
at 7% per annum and are convertible into an aggregate of 2,314,286 shares of
common stock of the Company at a conversion price of $3.50 per share. The
Company also issued to the investors five-year warrants to purchase an
aggregate of 405,000 shares of common stock of the Company at an exercise
price of $5.00 per share. The fair value of the warrants, at the time of
issuance, was estimated to be $376,650. Proceeds from the issuance of these
convertible debentures were used to repay existing borrowings as well as for
working capital.

The subordinated convertible debentures contain certain cross-default
provisions related to the Company's other debt agreements. Accordingly, the
covenant non-compliances under the Company's senior U.S. credit facility at
June 30, 2003 resulted in the possibility of a default event being declared
by the subordinated convertible debenture holders, which would result in
that debt being immediately due and payable. Since the Company subsequently
received waivers from its senior U.S. lender the convertible debentures are
no longer in default. However, the Company currently does not anticipate
that it will be in compliance with financial covenants included in the
amended credit agreement with the senior U.S credit facility as of September
30, 2003. Accordingly, the Company has classified the subordinated
convertible debentures as a current liability at June 30, 2003. However, in
the event of future non-compliance under the Company's senior U.S. bank
credit facility, the Company could request a waiver of the cross-default
provision for the convertible debenture holders and believes that the
holders would be receptive to such a request in conjunction with the
proposed refinancing of the Company described below.


                                     13

<PAGE>
<PAGE>

As of June 30, 2003, the Company had a balloon mortgage payment of $1.5
million on its operating facility in Salt Lake City due to a U.S. bank. The
Company has not made this payment, however, the Company has agreed with the
U.S. bank to renew the note with a maturity date of November 2004.

Hungarian Operations - In May 2001, the Company's Hungarian subsidiary
entered into a credit facility with a Hungarian bank. The facility consists
of a $6.0 million bank guarantee and factoring facility, a $4.0 million
capital investment facility and a $2.0 million working capital facility. All
of the Hungarian bank debt is due on November 30, 2003. Therefore, $10.8
million of the debt is classified as current debt on the balance sheet as of
June 30, 2003. The Company is seeking to obtain an extension of the
Hungarian bank debt.

In March 2003, the Company's Hungarian subsidiary entered into a credit
agreement with another Hungarian bank for $2.2 million. The facility
consists of a bank guarantee, factoring and mortgages and expires September
30, 2004. The Hungarian subsidiary was not in compliance of one of its
financial covenants at June 30, 2003, of which it has not requested or
received a waiver. Therefore, the entire amount of the debt, $2.2 million,
was classified as current at that date Management is taking action to cure
this default.

Total borrowings of the Hungarian subsidiary were $12.9 million at June 30,
2003. Borrowings under the Hungarian bank credit facilities cannot be used
in Zoltek's U.S. operations.

Proposed Refinancing - The Company currently is seeking to obtain new
financing to replace, entirely or in part, the credit agreement with the
U.S. bank. The Company anticipates that this new financing will include a
combination of senior, revolving, term and mortgage debt and may include
additional equity investment. The Company's objective is to obtain financing
that will result in substantially all of its debt that presently is
classified as current will be classified as long-term. Based on indications
of interest to date, the Company believes it will achieve its financing
objective, including negotiating covenants that it will be able to meet in
the future. However, the Company can give no assurances that it will be
successful in its attempt to obtain new financing and, if the Company is
unsuccessful, it would have a material adverse effect on its future
financial condition and its ability to continue to pursue its current
business plan.

Notes payable consists of promissory notes issued by the Company's Hungarian
subsidiary to settle a supplier payable for advance purchases of raw
material prior to published price increases with scheduled payment due dates
through July 2003.

Inventories consist of the following (amounts in thousands):

<TABLE>
<CAPTION>
                                                                                           JUNE 30,     SEPTEMBER 30,
                                                                                             2003           2002
                                                                                          ---------     -------------
<S>                                                                                       <C>             <C>
         Raw materials....................................................................$   4,618       $   4,893
         Work-in-process..................................................................      795           1,913
         Finished goods...................................................................   19,389          18,897
         Supplies, spares and other.......................................................    1,058           1,378
                                                                                          ---------       ---------
                                                                                          $  25,860       $  27,081
                                                                                          =========       =========
</TABLE>

The Company has undertaken aggressive steps to sell carbon fiber inventories
to improve its cash flow. The Company has decreased the actual inventory by
$2.0 million but this decrease was partially offset by the significant
increase in the value of the Hungarian currency against the U.S. Dollar,
which has increased the value of the Hungarian inventory.

Management believes that the Company is able to raise sufficient financing
to support the execution of its strategic plans. However, failure to obtain
new financing, an extension of the Hungarian loans, comply with its
obligations under its amended credit facilities and increase carbon fiber
sales on a timely basis could have a material adverse effect on the
Company's results of operations and financial condition. Management will
seek to fund its continuing operations from continued sale of the excess
inventory, bank borrowings and to continue to aggressively manage the
Company's working capital.

In fiscal 2001, the Company placed $27.7 million of assets in service that
were previously classified as construction in progress. These assets are
primarily located at the Abilene, Texas facility. In the third quarter of
fiscal 2001, the Company elected to temporarily idle a significant part of
the Abilene operations. Management believes it may be necessary to return
this facility to full operations within the next year given identified
future market demand for carbon fiber products. In light of the expected
resumption of manufacturing at this time, the Company does not believe that
any impairment exists based on an analysis of expected future net cash flow
to be generated from this facility over the expected remaining useful life.
However, if the forecasted levels of demand do not materialize within the
next year, the Company would likely be required to recognize an impairment
charge with respect to the manufacturing assets if the fair value is
determined to be less than the carrying value.


                                     14

<PAGE>
<PAGE>

Cash Used By Operating Activities
---------------------------------
Net cash used by operating activities was $5.1 million for the nine months
ended June 30, 2003. The cash flows used by operating activities during the
nine months ended June 30, 2003 were primarily due to the net loss of $11.2
million offset by non-cash items including depreciation and amortization of
$4.7 million and unrealized foreign exchange gain of $0.8 million plus a
decrease in net operating assets of $0.7 million. The decrease in net
operating assets consisted of a decrease in inventories of $2.1 million due
primarily to a concerted effort to reduce inventories offset by a $0.8
million decrease in accrued expenses and other liabilities, a $0.5 million
decrease in trade payables and a $0.3 million decrease in long-term
liabilities.

Cash Used For Investing
-----------------------
Net cash used for investing activities for the nine months ended June 30,
2003 was $1.2 million which included capital expenditures, primarily at the
Hungarian subsidiary, for the period.

Cash Provided By Financing Activities
-------------------------------------
Net cash provided by financing activities was $5.8 million for the nine
months ended June 30, 2003. Net cash provide for the period included
borrowings under the amended credit agreement, issuance of $8.1 million in
subordinated debentures and an additional credit facility of $2.2 million at
the Hungarian subsidiary offset by pay down of the former credit facility
and payments made under the existing credit agreements and mortgages.

Historically, cash used in investing activities has been expended for
equipment additions and the expansion of the Company's carbon fibers
production capacity. In the first nine months of fiscal 2003, the Company
made capital expenditures of $1.3 million for various projects compared to
$1.6 million during the corresponding period of fiscal 2002. The Company
expects capital expenditures to total less than $1.5 million for fiscal 2003
unless near-term demand increases significantly.

A summary of significant contractual obligations is shown below. See Note 5
to the Condensed 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>
         Notes payable...............................................$  1,125     $  1,125
         Long-term debt, including current maturities................  34,077       27,955     $   1,503    $   3,833    $     787
                                                                     --------     --------     ---------    ---------    ---------
              Total debt.............................................  35,202       29,080         1,503        3,833          787
         Operating leases............................................   2,940        1,537         1,156          116          130
                                                                     --------     --------     ---------    ---------    ---------
              Total debt and operating leases........................$ 38,142     $ 30,617     $   2,659    $   3,949    $     917
                                                                     ========     ========     =========    =========    =========
</TABLE>

In fiscal 2002, as a part of the sale of the Company's interest in Hardcore
Composites, the Company continues to guarantee Hardcore Composite's lease
obligations of approximately $30,000 per month to the former owner. The
obligation relates to a lease of the Hardcore Composites manufacturing
facility, which expires in March 31, 2008.

CRITICAL ACCOUNTING POLICIES
----------------------------

Outlined below are accounting policies that Zoltek believes are key to a
full understanding of the Company's operations and financial results. All of
the Company's accounting policies are in compliance with U. S. generally
accepted accounting principles (GAAP).

Revenue recognition

The Company recognizes sales on the date title to the sold product transfers
to the customer, which generally approximates the shipping date.
Historically, the Company has experienced very low levels of product returns
due to damaged goods or products that do not meet customer specifications.
Additionally, the Company generally does not offer any volume or other
incentives to encourage sales.

Inventories

The Company evaluates its ending inventories for estimated excess quantities
and obsolescence. This evaluation includes analyses of sales levels by
product and projections of future demand within specific time horizons.
Inventories in excess of future demand, if any, are reserved. Remaining
inventory balances are adjusted to approximate the lower of cost on a
first-in, first-out basis or market value. Cost includes material, labor and
overhead. If future demand or market conditions are less favorable than the
Company's projections, additional inventory write-downs may be required and
would be reflected in cost of sales on the Company's statement of operations
in the period in which the revision is made.

                                     15

<PAGE>
<PAGE>

In recent years, carbon fiber sales have been depressed by excess capacity
across the industry, distressed pricing across most existing markets and
weakening economic conditions globally. These factors combined with the high
level of inventories maintained by the Company, have resulted in the Company
reducing the cost of certain carbon fiber inventories to their lower
estimated market values. If these industry conditions do not improve in a
reasonable period of time, or further deteriorate, it is possible that the
market value of certain of the Company's carbon fiber inventories may
further decrease resulting in additional charges to cost of sales.

Application and development expenses


The Company is actively pursuing the development of a number of applications
for the use of its carbon fiber and related products. The Company is
currently party to several developmental agreements with various prospective
users of these products for the purpose of accelerating the development of
various carbon fiber applications. Additionally, the Company is executing
several internal development strategies to further the use of carbon fiber
and consumer and industrial products made from carbon fiber. As a result,
the Company incurs certain costs for research, development and engineering
of products and manufacturing processes. These costs are expensed as
incurred and totaled approximately $2.7 million and $2.8 million in the
first nine months of fiscal 2003 and 2002, respectively. Application and
development expenses are presented as an operating item on the Company's
consolidated statement of operations. Given the Company's position and
strategy within the carbon fiber industry, it is expected that similar or
greater levels of application and development expenses could be incurred in
future periods.

Unused capacity costs

The Company is currently not operating its continuous carbonization lines
located at the Abilene, Texas facility at full capacity. As a result, the
Company has elected to categorize certain costs related to these idle assets
as unused capacity costs. Such costs totaled $4.2 million and $4.7 million
for the nine months ended June 30, 2003 and 2002, respectively, and include
depreciation and other overhead expenses associated with unused capacity.
The unused capacity costs are presented as an operating item on the
Company's consolidated statement of operations. As discussed above,
management currently intends to return certain unused portions of the
Abilene, Texas facility to service in fiscal 2003. However, until the
facility is operating at certain production levels, these unused capacity
costs will continue to be incurred.

Valuation of long-lived assets

Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If
the sum of the expected future undiscounted cash flows is less than the
carrying amount of the asset, a loss is recognized for the difference
between the fair value and the carrying value of the asset. In determining
expected future undiscounted cash flows attributable to a long-lived asset
or a group of long-lived assets, the Company must make certain judgments and
estimations including the expected market conditions and demand for products
produced by the assets, expected product pricing assumptions, and
assumptions related to the expected costs to operate the assets. These
judgments and assumptions are particularly challenging as they relate to the
Company's long-lived assets due to the developmental stage and current
market conditions of the carbon fiber industry. It is possible that actual
future cash flows related to the Company's long-lived assets may materially
differ from the Company's determination of expected future undiscounted cash
flows. Additionally, if the Company's expected future undiscounted cash
flows were less than the carrying amount of the asset being analyzed, it
would be necessary for the Company to make significant judgments regarding
the fair value of the asset due to the specialized nature of much of the
Company's carbon fiber production equipment in order to determine the amount
of the impairment charge.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to changes in interest rates primarily as a result of
borrowing activities under its credit facility. The nature and amount of the
Company's debt may vary as a result of future business requirements, market
conditions and other factors. The extent of the Company's interest rate risk
is not quantifiable or predictable because of the variability of future
interest rates and business financing requirements, but the Company does not
believe such risk is material. At June 30, 2003, the Company did not have
any interest rate swap agreements outstanding. However, a one percent
increase in the weighted average interest rate of the Company's debt would
result in a $0.3 million increase in interest expense based on the debt
levels at June 30, 2003.

The Company views as long-term its investment in Zoltek Rt., which has a
functional currency other than the U.S. dollar. As a result, the Company
does not hedge this net investment. In terms of foreign currency translation
risk, the Company is exposed to Zoltek Rt.'s functional currency, which is
the Hungarian Forint. The Company's net foreign currency investment in
Zoltek Rt. translated into U.S. dollars using period-end exchange rates was
$30.0 million and $18.7 million at June 30, 2003 and 2002, respectively. The
potential loss in value of the Company's net foreign currency investment in
Zoltek Rt. resulting from a hypothetical 10% adverse change in quoted
foreign currency exchange rate of the Hungarian Forint at June 30, 2003 and
2002 amounted to $2.7 million and $3.0 million,


                                     16

<PAGE>
<PAGE>

respectively. In addition, Zoltek Rt. routinely sells its products to
customers located primarily throughout Europe in sales transactions that are
denominated in foreign currencies other than the Hungarian Forint. Also,
Zoltek Rt. has debt that is denominated in foreign currencies other than the
Hungarian Forint. As a result, Zoltek Rt. is exposed to foreign currency
risks related to these transactions. The Company does not currently employ a
foreign currency hedging strategy related to the sales of Zoltek Rt.

                                    * * *
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 return to operating on a profitable basis, obtain a
waiver of its debt coverage covenants as of September 30, 2003 and otherwise
comply with its obligations under its credit agreements, refinance those
agreements at their maturity dates, manage its excess carbon fiber
production capacity and inventory levels, continue investing in application
and market development, manufacture low-cost carbon fibers and profitably
market them at decreasing price points and penetrate existing, identified
and emerging markets, as well as other matters discussed herein.

ITEM 4.  CONTROLS AND PROCEDURES

Based on his evaluation as of June 30, 2003, Zsolt Rumy, the Company's Chief
Executive Officer and Chief Financial Officer has concluded that the
Company's disclosure controls and procedures (as defined in Rule 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are
effective. There have been no changes in internal control over financial
reporting that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.






                                     17

<PAGE>
<PAGE>

                           ZOLTEK COMPANIES, INC.

PART II. OTHER INFORMATION

         Item 6.  EXHIBITS AND REPORTS ON FORM 8-K
                  --------------------------------

                  (a)      Exhibit 31: Certification by Chief Executive
                           Officer and Chief Financial Officer pursuant to
                           rule 13a-14(a) under the Securities Exchange Act
                           of 1934, as amended.

                  (b)      Exhibit 32: Certification of Chief Executive
                           Officer and Chief Financial Officer pursuant to
                           18 U. S. C. Section 1350, as adopted pursuant to
                           Section 906 of the Sarbanes-Oxley Act of 2002.

                  (c)      Reports on Form 8-K: No reports on Form 8-K were
                           filed during the three months ended June 30,
                           2003.


                                  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:  August 14, 2003                      By:        /s/ Zsolt Rumy
       ---------------                         --------------------------------
                                                         Zsolt Rumy
                                                    Chief Executive Officer
                                                    Chief Financial Officer





                                     18

<PAGE>
<PAGE>

I, Zsolt Rumy, certify that:

         (1)      I have reviewed this quarterly report on Form 10-Q of
                  Zoltek Companies, Inc.;

         (2)      Based on my knowledge, this quarterly report does not
                  contain any untrue statement of a material fact or omit to
                  state a material fact necessary in order to make the
                  statements made, in light of the circumstances under which
                  such statements were made, not misleading with respect to
                  the period covered by this quarterly report;

         (3)      Based on my knowledge, the financial statements, and other
                  financial information included in this quarterly report,
                  fairly present in all material respects the financial
                  condition, results of operations and cash flows of the
                  registrant as of, and for, the periods presented in this
                  quarterly report;

         (4)      I am responsible for establishing and maintaining
                  disclosure controls and procedures (as defined in Exchange
                  Act Rules 13a-15(e) and 15d-15(e)) for the registrant and
                  have:

                  (a)      designed such disclosure controls and procedures
                           or caused such disclosure controls and procedures
                           to be designed under my supervision, to ensure
                           that material information relating to the
                           registrant, including its consolidated
                           subsidiaries, is made known to me by others
                           within those entities, particularly during the
                           period for which this quarterly report is being
                           prepared;

                  (b)      evaluated the effectiveness of the registrant's
                           disclosure controls and procedures and presented
                           in this report my conclusion about the
                           effectiveness of the disclosure controls and
                           procedures, as of the end of the period covered
                           by this quarterly report based on such
                           evaluation; and

                  (c)      Disclosed in this report any change in the
                           registrants internal control over financial
                           reporting that occurred during the registrants
                           most recent fiscal quarter that has materially
                           affected, or is reasonably likely to materially
                           affect, the registrant's internal control over
                           financial reporting; and

         (5)      I have disclosed, based on my most recent evaluation, to
                  the registrant's auditors and the audit committee of the
                  registrant's board of directors (or persons performing the
                  equivalent function):

                  (a)      all significant deficiencies and material
                           weakness in the design or operation of internal
                           controls over financial reporting which are
                           reasonably likely to adversely affect the
                           registrants ability to record, process, summarize
                           and report financial information; and

                  (b)      any fraud, whether or not material, that involves
                           management or other employees who have a
                           significant role in the registrant's internal
                           controls; and


August 14, 2003                              /s/ Zsolt Rumy
                                             ----------------------------------
                                             Zsolt Rumy
                                             Chief Executive Officer
                                             Chief Financial Officer







                                     19