<PAGE>

                     SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, DC 20549




                                 FORM 10-Q/A

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




For the quarter ended June 30, 2004                Commission File No. 0-20600
                      -------------                                    -------


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

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

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


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

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

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

Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date: As of August 16,
2004, 16,428,981 shares of Common Stock, $.01 par value, were outstanding.



<PAGE>
<PAGE>

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

On May 20, 2005, the Company concluded that its financial results for the
fiscal year ended September 30, 2004 and interim periods ended March 31,
June 30, September 30 and December 31, 2004 would be restated to reflect
additional non-operating gains and losses related to the correction of its
accounting for the conversion feature and related warrants to purchase the
Company's common stock associated with convertible debt issued by the
Company in January, March and October 2004 and the amortization expense
associated with debt discount. Historically, the Company had classified the
value of warrants to purchase common stock and the beneficial conversion
feature, when applicable, as equity as the Company believed these
instruments met the exceptions for recording these instruments as
liabilities. After further review the Company determined that these
instruments did not meet these exceptions and should have been classified as
liabilities on its balance sheet at the fair value of each instrument. In
subsequent periods the change in fair value of these instruments will result
in an adjustment to this liability with the corresponding gain or loss being
recorded in the statement of operations. At the date of their respective
conversion of the instrument or exercise of the warrants the corresponding
liability will be reclassified to equity. In addition, the Company recorded
individually immaterial adjustments to property and equipment, net and other
assets that increased other expenses by $0.1 million in the nine months
ended June 30, 2004 but had no impact on the three months ended June 30,
2004. These adjustments had a corresponding impact by decreasing these
assets in the June 30, 2004 balance sheet. The Company has also enhanced
certain disclosures at the request of the Securities and Exchange
Commission.

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

For the quarter ended June 30, 2004, there was a gain on the fair value of
the warrants and conversion feature, partially offset by the increase in
amortization expense that decreased the previously reported net loss by $4.3
million. This result decreased the Company's basic net loss per share from a
loss of $0.22 to net income of $0.04 and diluted net loss per share from a
loss of $0.22 to a net loss of $0.12 for the quarter ended June 30, 2004.
For the nine months ended June 30, 2004, there was a loss on the fair value
of the warrants and increased amortization expense that increased the
previously reported net loss by $1.6 million. This loss increased the
Company's basic and diluted loss per share from $0.68 to $0.77 and $0.68 to
$0.78, respectively, for the nine months ended June 30, 2004. The Company's
previously reported long-term and total liabilities increased by $7.7
million with a corresponding decrease in the Company's equity at June 30,
2004.

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

As a result of the restatement, the Company is filing this amended Form
10-Q/A for the period ended June 30, 2004 and has filed an amended Form
10-K/A for the fiscal year ended September 30, 2004 and amended Form 10-Q/A
reports for the period ended December 31, 2004. The quarter ended June 30,
2004 has been restated and presented in the Form 10-Q for the period ended
March 31, 2005. The previously reported amounts for the periods ended June
30, 2004 and 2003 have been modified for the presentation of discontinued
operations of two divisions of Zoltek Rt. as discussed in Note 4.


                                     2

<PAGE>
<PAGE>

PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

<TABLE>
                                                      ZOLTEK COMPANIES, INC.

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

                                                          (Unaudited)

<CAPTION>
                                                                                                JUNE 30,           SEPTEMBER 30,
ASSETS                                                                                            2004                 2003
--------------------------------------------------------------------------------------------------------------------------------
                                                                                        (Restated - See Note 2)
<S>                                                                                            <C>                  <C>
Current assets:
     Cash and cash equivalents...............................................................  $       50           $      838
     Accounts receivable, less allowance for doubtful accounts of $658 and
       $931, respectively....................................................................      11,150               10,380
     Inventories.............................................................................      26,268               26,978
     Other current assets....................................................................       1,851                1,483
                                                                                               ----------           ----------
          Total current assets...............................................................      39,319               39,679
Property and equipment, net..................................................................      78,626               77,373
Other assets.................................................................................       3,009                2,403
                                                                                               ----------           ----------
          Total assets.......................................................................  $  120,954           $  119,455
                                                                                               ==========           ==========


LIABILITIES AND SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------------------------
Current liabilities:
     Current maturities of long-term debt....................................................  $   16,902           $      933
     Trade accounts payable..................................................................      10,819               11,892
     Notes payable...........................................................................       2,281                2,916
     Accrued expenses........................................................................       2,780                3,203
     Other liabilities.......................................................................       1,854                1,945
                                                                                               ----------           ----------
          Total current liabilities..........................................................      34,636               20,889
Other long-term liabilities..................................................................       1,517                  509
Value of warrants and conversion feature associated with convertible debt issuances..........       9,748                    -
Long-term debt, less current maturities......................................................      21,773               33,541
                                                                                               ----------           ----------
          Total liabilities..................................................................      67,674               54,939
                                                                                               ----------           ----------
Commitments and contingencies (Notes 3 and 10)
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,
       16,428,981 and 16,307,338 shares issued and outstanding, respectively.................         163                  163
     Additional paid-in capital..............................................................     109,468              109,290
     Accumulated retained deficit............................................................     (45,140)             (32,505)
     Accumulated other comprehensive loss....................................................     (11,211)             (12,432)
                                                                                               ----------           ----------
          Total shareholders' equity.........................................................      53,280               64,516
                                                                                               ----------           ----------
          Total liabilities and shareholders' equity ........................................  $  120,954           $  119,455
                                                                                               ==========           ==========

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

                                     3

<PAGE>
<PAGE>

<TABLE>
                                                ZOLTEK COMPANIES, INC.

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

                                                        (Unaudited)

<CAPTION>
                                                                     THREE MONTHS ENDED JUNE 30,       NINE MONTHS ENDED JUNE 30,
                                                                     ---------------------------       --------------------------
                                                                        2004            2003              2004            2003
-----------------------------------------------------------------------------------------------------------------------------------
                                                                 (RESTATED-SEE NOTE 2)            (RESTATED-SEE NOTE 2)

<S>                                                                   <C>             <C>              <C>              <C>
Net sales........................................................     $ 13,285        $ 10,338         $  32,974        $  29,351
Cost of sales, excluding available unused capacity costs.........       10,869           8,060            27,396           23,423
Available unused capacity costs..................................          952           1,481             3,638            4,238
Application and development costs................................          786             865             2,290            2,669
Selling, general and administrative expenses.....................        1,324           1,330             4,265            4,980
                                                                      --------        --------         ---------        ---------
     Operating loss..............................................         (646)         (1,398)           (4,615)          (5,959)
Other income (expense):
    Interest expense, excluding amortization of financing fees,
      debt discount and beneficial conversion feature............         (882)           (530)           (2,266)          (1,422)
    Amortization of financing fees, debt discount and
      beneficial conversion feature..............................       (1,046)            (19)           (1,522)             (60)
    Gain (loss) on value of warrants and conversion feature......        4,627               -              (947)               -
    Interest income..............................................            7              22                19               56
    Other, net...................................................          114            (490)              (57)            (835)
                                                                      --------        --------         ---------        ---------
         Income (loss) from continuing operations before
           income taxes..........................................        2,174          (2,415)           (9,388)          (8,220)
Income tax expense...............................................          135             101               324               58
                                                                      --------        --------         ---------        ---------
Net loss from continuing operations..............................        2,039          (2,516)           (9,712)       $  (8,278)
Net income (loss) from discontinued operations...................       (1,286)         (1,273)           (2,923)          (2,964)
                                                                      --------        --------         ---------        ---------
     Net income (loss)...........................................     $    753        $ (3,789)        $ (12,635)       $ (11,242)
                                                                      ========        ========         =========        =========

Basic and diluted income (loss) per share:
     Continuing operations - basic...............................     $   0.12        $  (0.15)        $   (0.59)       $   (0.52)
     Discontinued operations - basic.............................        (0.08)          (0.08)            (0.18)           (0.17)
                                                                      --------        --------         ---------        ---------
         Total basic.............................................     $   0.04        $  (0.23)        $   (0.77)       $   (0.69)
                                                                      ========        ========         =========        =========
     Continuing operations - diluted.............................     $  (0.05)       $  (0.15)        $   (0.61)       $   (0.52)
     Discontinued operations - diluted...........................        (0.07)          (0.08)            (0.17)           (0.17)
                                                                      --------        --------         ---------        ---------
         Total diluted...........................................     $  (0.12)       $  (0.23)        $   (0.78)       $   (0.69)
                                                                      ========        ========         =========        =========

Weighted average common shares outstanding.......................       16,407          16,302            16,353           16,299
Weighted average common shares outstanding - diluted.............       18,744          16,302            17,273           16,299

                     The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
                                     4


<PAGE>
<PAGE>

<TABLE>
                                                  ZOLTEK COMPANIES, INC.

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

<CAPTION>
                                                                                               NINE MONTHS ENDED JUNE 30,
                                                                                               --------------------------
                                                                                                 2004             2003
----------------------------------------------------------------------------------------------------------------------------
                                                                                          (RESTATED-SEE NOTE 2)

<S>                                                                                           <C>              <C>
Cash flows from operating activities:
      Net loss..............................................................................  $   (12,635)     $   (11,242)
      Adjustments to reconcile net loss to net cash used in operating activities:
           Loss from discontinued operations................................................        2,923            2,964
           Depreciation and amortization....................................................        4,346            4,424
           Loss on value of warrants and conversion feature.................................          947                -
           Amortization of financing fees and debt discount.................................        1,522               60
           Foreign currency transaction losses..............................................          127              787
           Other, net.......................................................................          (38)             (36)
           Changes in assets and liabilities:
                 (Increase) decrease in accounts receivable.................................       (2,069)            (438)
                 Decrease in inventories....................................................           88              262
                 (Increase) decrease in prepaid expenses and other assets...................         (430)             585
                 (Decrease) in trade accounts payable.......................................       (1,002)            (285)
                 Increase (decrease) in other long-term liabilities.........................          909             (274)
                                                                                              -----------      -----------
                      Total adjustments.....................................................        7,323            7,855
                                                                                              -----------      -----------
Net cash used in continuing operations......................................................       (5,312)          (3,387)
Net cash used in discontinued operations....................................................       (1,544)          (1,921)
                                                                                              -----------      -----------
Net cash used in operating activities.......................................................       (6,856)          (5,109)
                                                                                              -----------      -----------

Cash flows from investing activities:
      Payments for purchase of property and equipment.......................................       (4,490)          (1,191)
      Proceeds from sale of property and equipment..........................................          135              121
                                                                                              -----------      -----------
Net cash used in continuing operations investing............................................       (4,355)          (1,070)
Net cash used in discontinued operations investing..........................................            -              (71)
                                                                                              -----------      -----------
Net cash used in investing activities.......................................................       (4,355)          (1,141)
                                                                                              -----------      -----------

Cash flows from financing activities:
      Proceeds from exercise of stock options...............................................          138               21
      Proceeds from issuance of convertible debt............................................       12,750                -
      Proceeds from issuance of notes payable...............................................       10,540           14,594
      Proceeds from issuance of note payable to related party...............................        1,400                -
      Payment of financing fees.............................................................       (1,152)               -
      Repayment of note payable to related party............................................       (1,400)               -
      Repayment of notes payable and long-term debt.........................................      (11,832)          (8,833)
                                                                                              -----------      -----------
Net cash provided by financing activities...................................................       10,444            5,782
                                                                                              -----------      -----------
Effect of exchange rate changes on cash.....................................................          (21)              18
                                                                                              -----------      -----------
Net decrease in cash........................................................................         (788)            (450)
Cash and cash equivalents at beginning of period............................................          838              685
                                                                                              -----------      -----------
Cash and cash equivalents at end of period..................................................  $        50      $       235
                                                                                              ===========      ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Net cash paid during the period for:
      Interest..............................................................................  $     1,491      $     2,980
      Income taxes..........................................................................  $         -      $         -

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

                                     5

<PAGE>
<PAGE>

                           ZOLTEK COMPANIES, INC.

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

1.   BASIS OF PRESENTATION AND ACCOUNTING POLICIES

The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements and should be read in conjunction with the Company's 2003 Form
10-K, which includes consolidated financial statements and notes thereto for
the fiscal year ended September 30, 2003. In the opinion of management, all
normal recurring adjustments and estimates considered necessary for a fair
presentation have been included. Certain reclassifications have been made to
conform prior year's data to the current presentation. In the fourth quarter
of fiscal 2004, the Company formally adopted a plan to discontinue and exit
two divisions of its Zoltek Rt. operations which manufactured textile
acrylic and nylon fibers and yarns. These divisions had been included in the
Specialty Products segment (see Note 7). The prior period financial
statements have been conformed to current year discontinued operations
presentation.

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

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

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

Stock Option Plan
-----------------

At June 30, 2004, the Company had stock-based employee compensation plans.
The Company accounts for those plans under the recognition and measurement
principles of Accounting Principles Board Opinion No. 25 ("APB 25"),
Accounting for Stock Issued to Employees, and its related interpretations.
No stock-based employee compensation costs are reflected in net loss, as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. During fiscal
2004, the Company granted 40,000 employee stock options with an exercise
price that equaled the Company's stock price on the applicable date of
grant. The following table illustrates the effect on net loss and loss per
share if the Company had applied the fair value recognition provisions of
Statement of Financial Accounting Standards No. 123 ("FAS 123"), Accounting
for Stock Based Compensation, to stock-based employee compensation (in
thousands, except per share):

<TABLE>
<CAPTION>
                                                                                          THREE MONTHS ENDED JUNE 30,
                                                                                          ---------------------------
                                                                                            2004               2003
                                                                                        -----------         -----------
                                                                                    (RESTATED-SEE NOTE 2)

<S>                                                                                     <C>                 <C>
         Reported net income (loss)...................................................  $       753         $    (3,789)
         Total stock-based employee compensation expense determined under
           fair value based method for all awards, net of tax effects.................          (46)                 (1)
                                                                                        -----------         -----------
         Pro forma net income (loss)..................................................  $       707         $    (3,790)
                                                                                        ===========         ===========
         Reported basic income (loss) per share.......................................  $      0.04         $     (0.23)
                                                                                        ===========         ===========
         Reported diluted loss per share..............................................  $     (0.12)        $     (0.23)
                                                                                        ===========         ===========
         Pro forma basic income (loss) per share......................................  $      0.04         $     (0.23)
                                                                                        ===========         ===========
         Pro forma diluted loss per share.............................................  $     (0.12)        $     (0.23)
                                                                                        ===========         ===========
</TABLE>


                                     6

<PAGE>
<PAGE>

<TABLE>
<CAPTION>
                                                                                           NINE MONTHS ENDED JUNE 30,
                                                                                           --------------------------
                                                                                            2004               2003
                                                                                        -----------         -----------
                                                                                    (RESTATED-SEE NOTE 2)

<S>                                                                                     <C>                 <C>
         Reported net loss............................................................  $   (12,635)        $   (11,242)
         Total stock-based employee compensation expense determined under
           fair value based method for all awards, net of tax effects.................         (138)               (281)
                                                                                        -----------         -----------
         Pro forma net loss...........................................................  $   (12,773)        $   (11,523)
                                                                                        ===========         ===========
         Reported basic...............................................................  $     (0.77)        $     (0.69)
                                                                                        ===========         ===========
         Pro forma basic..............................................................  $     (0.79)        $     (0.71)
                                                                                        ===========         ===========
         Reported diluted loss per share..............................................  $     (0.78)        $     (0.69)
                                                                                        ===========         ===========
         Pro forma diluted loss per share.............................................  $     (0.79)        $     (0.71)
                                                                                        ===========         ===========
</TABLE>

2.   RESTATEMENT

On May 20, 2005, the Company concluded that its financial results for the
fiscal year ended September 30, 2004 and interim periods ended March 31,
June 30, September 30 and December 31, 2004 would be restated to reflect
additional non-operating gains and losses related to the classification and
accounting for the conversion feature and the related warrants to purchase
the Company's common stock associated with convertible debt issued by the
Company in January, March and October 2004 and the amortization expense
associated with debt discount. The Company had classified the value of
warrants to purchase common stock and the beneficial conversion feature,
when applicable, as equity as the Company believed these instruments met
exceptions that did not require recording these instruments as derivative
liabilities. After further review the Company has determined that these
instruments did not meet these exceptions and should have been classified as
derivative liabilities at the fair value of each instrument, and must be
recorded as such on the balance sheet. The change in fair value of these
instruments results in an adjustment to this liability with the
corresponding gain or loss being recorded in the statement of operations. At
the date of their respective conversion of the instrument or exercise of the
warrants the corresponding derivative liability will be reclassified to
equity. In addition, the Company recorded individually immaterial
adjustments to property and equipment, net and other assets that increased
other expenses by $0.1 million in the nine months ended June 30, 2004 but
had no impact on the three months ended June 30, 2004.

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

For the quarter ended June 30, 2004, there was a gain on the fair value of
the warrants and conversion feature, partially offset by the increase in
amortization expense that decreased the previously reported net loss by $4.3
million. This result improved the Company's basic net loss per share from a
loss of $0.22 to net income of $0.04 and diluted net loss per share from a
loss of $0.22 to a net loss of $0.12 for the quarter ended June 30, 2004.
For the nine months ended June 30, 2004, there was a loss on the fair value
of the warrants and increased amortization expense that increased the
previously reported net loss by $1.6 million. This loss increased the
Company's basic and diluted loss per share from $0.68 to $0.77 and $0.68 to
$0.78, respectively, for the nine months ended June 30, 2004. The Company's
previously reported long-term and total liabilities increased by $7.7
million with a corresponding decrease in the Company's equity at June 30,
2004.

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

As a result of the restatement, the Company is filing this amended Form
10-Q/A for the period ended June 30, 2004 and has filed an amended Form
10-K/A for the fiscal year ended September 30, 2004 and amended Form 10-Q/A
reports for the period ended December 31, 2004 and March 31, 2005. The
previously reported amounts for the periods ended June 30, 2004 and 2003
have been modified for the presentation of discontinued operations of two
divisions of Zoltek Rt. as discussed in Note 4.


                                     7

<PAGE>
<PAGE>

<TABLE>
<CAPTION>
                                                                                                              NINE MONTHS ENDED
                                                                                    JUNE 30, 2004               JUNE 30, 2004
                                                                                    -------------               -------------
                                                                                    AS                          AS
                                                                                PREVIOUSLY      AS          PREVIOUSLY      AS
CONSOLIDATED STATEMENT OF OPERATIONS                                             REPORTED    RESTATED        REPORTED    RESTATED
------------------------------------                                             --------    --------        --------    --------
<S>                                                                             <C>          <C>            <C>          <C>
Operating loss from continuing operations.....................................  $   (646)    $   (646)      $  (4,615)   $ (4,615)
Interest expense, excluding amortization of financing fees and debt discount..      (882)        (882)         (2,266)     (2,266)
Amortization of financing fees and debt discount..............................      (710)      (1,046)         (1,051)     (1,522)
Gain or (loss) on value of warrants and conversion feature....................         -        4,627               -        (947)
Other net and interest income.................................................       121          121             105         (38)
                                                                                --------     --------       ---------    --------
(Loss) income from continuing operations before income taxes..................    (2,117)       2,174          (7,827)     (9,388)
Income taxes..................................................................       135          135             324         324
                                                                                --------     --------       ---------    --------
Income (loss) from continuing operations......................................    (2,252)       2,039          (8,151)     (9,712)
Net loss from discontinued operations.........................................    (1,286)      (1,286)         (2,923)     (2,923)
                                                                                --------     --------       ---------    --------
Net income (loss).............................................................  $ (3,538)    $    753       $ (11,074)   $(12,635)
                                                                                ========     ========       =========    ========
Basic and diluted income (loss) per share:
     Continuing operations - basic............................................  $  (0.14)    $   0.12       $   (0.50)   $  (0.59)
     Discontinued operations - basic..........................................     (0.08)       (0.08)          (0.18)      (0.18)
                                                                                --------     --------       ---------    --------
         Total - basic........................................................  $  (0.22)    $   0.04       $   (0.68)   $  (0.77)
                                                                                ========     ========       =========    ========
     Continuing operations - diluted..........................................  $  (0.14)    $  (0.05)      $   (0.50)   $  (0.61)
     Discontinued operations - diluted........................................     (0.08)       (0.07)          (0.18)      (0.17)
                                                                                --------     --------       ---------    --------
         Total - diluted......................................................  $  (0.22)    $  (0.12)      $   (0.68)   $  (0.78)
                                                                                ========     ========       =========    ========

<CAPTION>
                                                                                  JUNE 30, 2004
                                                                                  -------------
                                                                                  AS
                                                                              PREVIOUSLY       AS
CONSOLIDATED BALANCE SHEET                                                     REPORTED     RESTATED
--------------------------                                                     --------     --------
<S>                                                                           <C>           <C>
Total current assets........................................................  $   39,319    $  39,319
Property and equipment......................................................      78,750       78,626
Other assets................................................................       3,029        3,009
                                                                              ----------    ---------
Total assets................................................................  $  121,098    $ 120,954
                                                                              ==========    =========
Total current liabilities...................................................  $   34,636    $  34,636
Other long-term liabilities.................................................       1,517        1,517
Value of warrants and conversion feature associated with
  convertible debentures....................................................           -        9,748
Long-term debt, less current maturities ....................................      23,825       21,773
                                                                              ----------     --------
Total liabilities...........................................................      59,978       67,674
Common stock................................................................         163          163
Additional paid in capital..................................................     115,747      109,468
Accumulated deficit.........................................................     (43,579)     (45,140)
Accumulated other comprehensive loss........................................     (11,211)     (11,211)
                                                                              ----------    ---------
Total shareholders' equity..................................................      61,120       53,280
                                                                              ----------    ---------
Total liabilities and shareholders' equity..................................  $  121,098    $ 120,954
                                                                              ==========    =========
</TABLE>

3.   FINANCING

Management will seek to fund its near-term operations from the sale of
excess inventories, continued aggressive management of the Company's working
capital and existing borrowing capacity under the Company's revolving credit
facility. As the demand for carbon fiber continues to increase, the Company
will need additional financing to execute its capacity expansion program.
Based upon these forecasts, borrowing capacity, and the completion of the
transaction discussed in "--Fiscal 2004 Refinancing" below, the Company
believes it has sufficient cash flows to continue operations for at least
the next 12 months.

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

                                     8

<PAGE>
<PAGE>

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

In January and March of 2004, the Company issued convertible notes and
warrants which would require the Company to register the resale of the
shares of common stock upon conversion or exercise of these securities. The
Company accounts for the fair value of these outstanding warrants to
purchase common stock and conversion feature of its convertible notes in
accordance with SFAS No. 133 "Accounting For Derivative Instruments And
Hedging Activities" and EITF Issue No. 00-19 "Accounting For Derivative
Financial Instruments Indexed To And Potentially Settled In A Company's Own
Stock;" which require the Company to bifurcate and separately account for
the conversion feature and warrants as embedded derivatives contained in the
Company's convertible notes. Pursuant to SFAS No. 133, the Company
bifurcated the fair value of the conversion feature from the convertible
notes, since the conversion features were determined to not be clearly and
closely related to the debt host. In addition, since the effective
registration of the securities underlying the conversion feature and
warrants is an event outside of the control of the Company, pursuant to EITF
Issue No. 00-19, the Company recorded the fair value of the conversion
feature and warrants as long-term liabilities as it was assumed that the
Company would be required to net-cash settle the underlying securities. The
Company is required to carry these embedded derivatives on its balance sheet
at fair value and unrealized changes in the values of these embedded
derivatives are reflected in the consolidated statement of operations as
"Gain (loss) on value of warrants and conversion feature." See table below
for impact on the quarterly and nine-month financial results ended June 30,
2004.

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED JUNE 30, 2004      NINE MONTHS ENDED JUNE 30, 2004
                                                        --------------------------------      -------------------------------
                                                            (RESTATED - SEE NOTE 2)               (RESTATED - SEE NOTE 2)

                                                                  CONVERSION                             CONVERSION
                                                        WARRANTS   FEATURES      TOTAL       WARRANTS     FEATURES      TOTAL
                                                        --------   --------      -----       --------     --------      -----
<S>                                                     <C>        <C>          <C>          <C>         <C>          <C>
January 2004 issuance - mark to market ..............   $    534   $   2,207    $  2,741     $    (610)  $   (2,223)  $   (2,833)
March 2004 issuance - mark to market ................        355       1,521       1,876           355        1,531        1,886
                                                        --------   ---------    --------     ---------   ----------   ----------
         Totals......................................   $    889   $   3,728    $  4,617     $    (255)  $     (692)  $     (947)
                                                        ========   =========    ========     =========   ==========   ==========
</TABLE>

2004 Refinancing
----------------

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

As part of the Company's January 2004 refinancing, the bank lender to the
Company's Hungarian subsidiary amended certain financial covenants and
extended the maturity date of its loan to December 31, 2004. In connection
with such actions, the bank required that the Company make arrangements to
settle intercompany accounts payable by Zoltek U.S. operations to its
Hungarian subsidiary in the amount of approximately $2.8 million. The bank
was unwilling to keep open its offer to restructure Zoltek Rt.'s loans until
after the Company's January 2004 refinancing package was completed. Prior to
the refinancing, the Company did not have cash on hand or available
borrowings that would enable it to make the settlement of the intercompany
accounts required by the Hungarian bank. In order to proceed expeditiously
to resolve the Company's financing requirements, Zsolt Rumy, the Company's
Chief Executive Officer and a director of the Company, in December 2003
loaned the Company $1.4 million in cash and posted a $1.4 million letter of
credit for the benefit of the Company. This arrangement was approved by the
Company's board of directors and audit committee. The loan by Mr. Rumy bore
interest on the amount advanced and the notional amount of the letter of
credit at a rate per annum equal to LIBOR plus 11% with a LIBOR floor of 2%,
the same interest rate as the mortgage financing discussed below. As a
result of the Company completing the refinancing transactions making
available the cash to settle the intercompany accounts, the letter of credit
was released. After converting $250,000 into convertible debt as part of the
January 2004 financing, the remaining $1.15 million loan was repaid during
the third quarter of fiscal 2004.

Also in January 2004, the Company entered into a mortgage note with a bank
in the aggregate principal amount of $6.0 million. The note has a stated
maturity of three years and bears interest at a rate of LIBOR plus 11% with
a LIBOR floor of 2%. The note provided for payment of interest only on a
monthly basis with principal balance due at time of maturity. The loan is
collateralized by a security interest in the Company's headquarters facility
and its two U.S. manufacturing facilities that produce carbon and technical
fibers. The proceeds of this transaction were used to pay down debt of $6.0
million with its U.S. bank. Of such proceeds, $0.5 million was held in


                                     9

<PAGE>
<PAGE>

an escrow account to be released when the Company completed certain
post-closing requirements. The Company completed these requirements during
the third quarter of fiscal 2004 and the $0.5 million was released from
escrow.

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

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

<TABLE>
<CAPTION>
                                                                     (1)FEBRUARY 2003    JANUARY 2004    MARCH 2004
                                                                        -------------    ------------    ----------
<S>                                                                       <C>              <C>            <C>
         Amount of debenture (millions)...........................        $8.1             $7.0           $5.75
         Per share conversion price on debenture..................        $3.25            $5.40          $6.25
         Interest rate............................................        7.5%             6.0%           6.0%
         Term of debenture........................................        60 months        30 months      30 months
         Warrants issued..........................................        405,000          323,995        230,000
         Term of warrant..........................................        60 months        48 months      48 months
         Per share exercise price of warrants.....................        $5.00            $5.40          $7.50
         Fair value per warrant at issuance.......................        $0.93            $2.27          $5.43
         Value per share conversion feature at issuance...........        $3.11            $1.78          $5.06
         Stock price on date of agreement.........................        $1.58            $5.40          $9.53
         Stock volatility at issuance.............................        100%             50%            61%
         Dividend yield...........................................        0.0%             0.0%           0.0%
         Risk free interest rate at issuance......................        3.0%             2.78%          2.44%

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

2003 Refinancing
----------------
The Company's calculation of diluted earnings per share for the three-month
and nine-month periods ended June 30, 2004 and the three-month and six-month
periods ended March 31, 2005 did not capture the effects of convertible and
potentially dilutive securities in the appropriate sequence.

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 amended 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 $4.6 million and the available credit under this
agreement was $0.4 million at September 30, 2003.

The Company also entered into a debenture purchase agreement, dated as of
February 13, 2003, under which the Company issued and sold 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.

                                     10

<PAGE>
<PAGE>

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

The following is the diluted impact of the convertible debt and warrants on
earnings (loss) per share:

<TABLE>
<CAPTION>
                                                                                    THREE MONTHS ENDED
                                                                                      JUNE 30, 2004
                                                                                      -------------
<S>                                                                                     <C>
         Numerators:
         Income (loss) from continuing operations...................................    $    2,039
         Impact of convertible debt and warrants:
                  Add: interest expense.............................................           653
                  Add: amortization of financing fees and debt discount.............         1,057
                  Less: gain on value of conversion feature and warrants............        (4,617)
                                                                                        ----------
         Loss from continuing operations............................................          (868)
         Loss from discontinued operations..........................................        (1,286)
                                                                                        ----------
         Net loss ..................................................................    $   (2,154)
                                                                                        ==========
         Denominators:
         Average shares outstanding - basic.........................................        16,407
         Impact of convertible debt and warrants....................................         2,337
                                                                                        ----------
         Average shares outstanding - diluted.......................................        18,744
                                                                                        ==========
         Earnings (loss) per share - basic:
                  Continuing operations.............................................    $     0.12
                  Discontinued operations...........................................         (0.08)
                                                                                        ----------
         Basic earnings (loss) per share............................................    $     0.04
                                                                                        ==========
         Loss per share - diluted:
                  Continuing operations.............................................    $    (0.05)
                  Discontinued operations...........................................         (0.07)
                                                                                        ----------
         Diluted loss per share.....................................................    $    (0.12)
                                                                                        ==========

<CAPTION>
                                                                                    NINE MONTHS ENDED
                                                                                      JUNE 30, 2004
                                                                                      -------------
<S>                                                                                     <C>
         Numerators:
         Loss from continuing operations............................................    $  (9,712)
         Impact of convertible debt:
                  Add: interest expense.............................................           85
                  Add: amortization of financing fees and debt discount.............          548
                  Less: gain on value of conversion feature.........................       (1,531)
                                                                                        ---------
         Loss from continuing operations............................................      (10,610)
         Loss from discontinued operations..........................................       (2,923)
                                                                                        ---------
         Net loss ..................................................................    $ (13,533)
                                                                                        =========
         Denominators:
         Average shares outstanding - basic.........................................       16,353
         Impact of convertible debt.................................................          920
                                                                                        ---------
         Average shares outstanding - diluted.......................................       17,273
                                                                                        =========
         Loss per share - basic:
                  Continuing operations.............................................    $   (0.59)
                  Discontinued operations...........................................        (0.18)
                                                                                        ---------
         Basic loss per share.......................................................    $   (0.77)
                                                                                        =========
         Loss per share - diluted:
                  Continuing operations.............................................    $   (0.61)
                  Discontinued operations...........................................        (0.17)
                                                                                        ---------
         Diluted loss per share.....................................................    $   (0.78)
                                                                                        =========
</TABLE>

In accordance with SFAS No. 128, Earnings per Share, the Company has
adjusted the numerator in the diluted earnings per share calculation for the
mark to market gain (loss), interest expense, amortization of debt discount
and amortization of deferred financing cost on the Company's convertible
debentures and warrants. The Company does have outstanding stock options,
warrants and convertible debt outstanding at June 30, 2004 and 2003 which
are not included in the determination of diluted earnings per share
presented above because the impact of these potential additional shares is
anti-dilutive. Had these securities been dilutive, an additional 2.9 million
shares for the quarter ended June 30, 2004, 3.8 million shares for the nine
months ended June 30, 2004 and 3.7 million shares for the quarter and nine
months ended June 30, 2003 would have been included in the Company's diluted
earnings per share calculation.

                                     11

<PAGE>
<PAGE>

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

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, which has been waived through
February 13, 2005.

US Operations - The Company's current credit facility with its U.S. Bank is
described above under "2003 Refinancing." Total borrowings under the U.S.
credit facility including revolving credit and term loan were $4.1 million
at June 30, 2004, all of which has been classified as current due to the
maturity in February 2005.

Hungarian Operations - 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 December 31, 2004. Total borrowings under this
credit facility were $10.6 million at June 30, 2004, all of which has been
classified as current.

In March 2003, the Company's Hungarian subsidiary entered into a credit
agreement with another Hungarian bank for $2.2 million of which $1.6 million
is outstanding as of June 30, 2004. The facility consists of a bank
guarantee, factoring and mortgages and expires December 31, 2004.

 Total borrowings of the Hungarian subsidiary were $12.2 million at June 30,
2004, of which $11.4 million has been classified as current due to their
stated maturity of December 31, 2004. Borrowings under the Hungarian bank
credit facilities cannot be used in Zoltek's U.S. operations.

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

<TABLE>
<CAPTION>
                                                                                             June 30,          September 30,
                                                                                               2004                2003
                                                                                             --------          -------------
                                                                                        (Restated-See Note 2)
<S>                                                                                          <C>                <C>
     Note payable with interest at 9%, payable in monthly installments of
       principal and interest of $15,392 to maturity in November 2004.....................   $  1,277           $   1,507

     Note payable with interest at 9.95%, payable in monthly installments of
       principal and interest of $19,288 to maturity in September 2009....................          -               1,042

     Note payable with interest at 9.5%, payable in monthly installments of
       principal and interest of $27,672 to maturity in December 2009 ....................          -               1,558

     Non-interest bearing note payable (discounted at 8%) to the City of Abilene,
       Texas to be repaid from real estate and personal property tax abatements ..........      1,746               1,706

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

     Revolving credit agreement, maturing in December 2004, bearing interest
       at prime plus 2.0% in fiscal 2002 (prime rate at September 30, 2003 was 4.00%).....      3,270               4,670
</TABLE>


                                     12

<PAGE>
<PAGE>

<TABLE>
<CAPTION>
                                                                                             June 30,          September 30,
                                                                                               2004                2003
                                                                                             --------          -------------
                                                                                        (Restated-See Note 2)
<S>                                                                                          <C>                 <C>
     Term loan, $0.4 million payable in January 2005, balance payable in
       2005, bearing interest at prime plus 2.0% (prime rate at September
       30, 2003 was 4.00%)................................................................        900                3,300

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

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

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

     Facilities with Hungarian banks (interest rate of 5.5% to 10.6%).....................     12,259               12,566
                                                                                             --------             --------

         Total debt.......................................................................     46,302               34,474

          Less: conversion feature and debt discount associated with warrants.............     (7,627)                   -
          Less: amounts payable within one year...........................................    (16,902)                (933)
                                                                                             --------            ---------
     Total Long-term debt ................................................................   $ 21,773            $  33,541
                                                                                             ========            =========
</TABLE>

Value of derivative liabilities at:
-----------------------------------
<TABLE>
<CAPTION>
                                                                                              JUNE 30, 2004
                                                                                              -------------
                                                                                         (RESTATED - SEE NOTE 2)

                                                                                                CONVERSION
                                                                                    WARRANTS     FEATURES       TOTAL
                                                                                    --------     --------     ---------
<S>                                                                                 <C>          <C>          <C>
         January 2004 issuance..................................................    $  1,346     $  4,534     $   5,880
         March 2004 issuance....................................................         862        3,006         3,868
                                                                                    --------     --------     ---------
                  Totals........................................................    $  2,208     $  7,540     $   9,748
                                                                                    ========     ========     =========
</TABLE>

4.   DISCONTINUED OPERATIONS

In the fourth quarter of fiscal 2004, the Company formally adopted a plan to
discontinue and exit two divisions of its Zoltek Rt. operations which
manufacture textile acrylic and nylon fibers and yarns. These divisions were
not part of the long-term strategy of the Company and were not expected to
be profitable in the foreseeable future due to the continued pricing
pressure from competitive manufacturers. These divisions had been included
in the Specialty Products segment (see Note 7). The wind down of these
production lines was substantially completed by February 1, 2005. Certain
information with respect to the discontinued operations of the textile
acrylic and nylon fibers divisions for the three months and nine months
ended June 30, 2004 and 2003 is summarized as follows (amounts in
thousands):

<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED JUNE 30,  NINE MONTHS ENDED JUNE 30,
                                                                                2004        2003             2004         2003
                                                                             ---------   ---------        ---------    ---------
<S>                                                                          <C>         <C>              <C>          <C>
         Net sales........................................................   $   4,076   $   5,509        $  13,645    $  19,399
         Cost of sales....................................................       4,444       5,874           14,457       19,667
                                                                             ---------   ---------        ---------    ---------
              Gross profit (loss).........................................        (368)       (365)            (812)        (268)
         Selling, general and administrative expenses.....................        (834)       (823)          (2,079)      (2,390)
                                                                             ---------   ---------        ---------    ---------
              Loss from operations........................................      (1,202)     (1,188)          (2,891)      (2,658)
         Other income (expense)...........................................         (84)        (85)             (32)        (306)
                                                                             ---------   ---------        ---------    ---------
         Loss on discontinued operations..................................   $  (1,286)  $  (1,273)       $  (2,923)   $  (2,964)
                                                                             =========   =========        =========    =========
</TABLE>

                                     13

<PAGE>
<PAGE>

5.  COMPREHENSIVE LOSS

Comprehensive loss for the three- and nine-month periods ended June 30, 2004
and 2003 was as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                         THREE MONTHS ENDED JUNE 30,
                                                                                         ---------------------------
                                                                                          2004                2003
                                                                                       ----------           ---------
                                                                                  (RESTATED-SEE NOTE 2)

<S>                                                                                    <C>                  <C>
          Net income (loss)........................................................    $      753           $  (3,789)
          Foreign currency translation adjustment..................................          (732)               (524)
                                                                                       ----------           ---------
          Comprehensive income (loss)..............................................    $       21           $  (4,313)
                                                                                       ==========           =========

<CAPTION>
                                                                                         NINE MONTHS ENDED JUNE 30,
                                                                                         --------------------------
                                                                                          2004                2003
                                                                                       ----------           ---------
                                                                                  (RESTATED-SEE NOTE 2)

<S>                                                                                    <C>                  <C>
          Net loss.................................................................    $  (12,635)          $ (11,242)
          Foreign currency translation adjustment..................................         1,221               2,109
                                                                                       ----------           ---------
          Comprehensive loss.......................................................    $  (11,414)          $  (9,133)
                                                                                       ==========           =========
</TABLE>

6.   SEGMENT INFORMATION

The Company's strategic business units are based on product categories and
have been presented as three reportable segments: Carbon Fibers, Technical
Fibers and Specialty Products. Effective in the fourth quarter of fiscal
2003, the Company began reporting the former Carbon Fibers segment as two
reportable segments: Carbon Fibers and Technical Fibers. The Company made
this change based on the current economic characteristics of these two
operating segments. Segment information for fiscal 2003 has been
reclassified to reflect this change.

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

Management evaluates the performance of its operating segments on the basis
of operating income (loss) contribution to the Company. The following table
presents financial information on the Company's operating segments as of and
for the three months and nine months ended June 30, 2004 and 2003 (amounts
in thousands):

<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED JUNE 30, 2004
                                                                           --------------------------------
                                                                                                      Corporate
                                                                                                    Headquarters
                                                          Technical      Carbon       Specialty         and
                                                           Fibers        Fibers        Products     Eliminations      Total
                                                          ---------     ---------     ---------     ------------    ---------
<S>                                                       <C>           <C>           <C>             <C>           <C>
Net sales............................................     $   4,127     $   5,669     $   3,489       $       -     $  13,285
Net sales - intersegment.............................           595           501             -          (1,096)            -
Cost of sales, excluding available unused capacity...         4,062         5,594         2,907          (1,694)       10,869
Available unused capacity expenses...................             -           952             -               -           952
Operating (loss) income..............................           271        (1,010)          408            (315)         (646)
Depreciation and amortization expense................           389           961           186              24         1,560
Capital expenditures.................................           411           825           167              32         1,435
</TABLE>

                                     14

<PAGE>
<PAGE>

<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED JUNE 30, 2003
                                                                           --------------------------------
                                                                                                      Corporate
                                                                                                    Headquarters
                                                          Technical      Carbon       Specialty         and
                                                           Fibers        Fibers        Products     Eliminations      Total
                                                          ---------     ---------     ---------     ------------    ---------
<S>                                                       <C>           <C>           <C>             <C>           <C>
Net sales............................................     $   3,080     $   3,631     $   3,627       $       -     $  10,338
Net sales - intersegment.............................           670           393             -          (1,063)            -
Cost of sales, excluding available unused capacity...         3,092         4,149         2,344          (1,525)        8,060
Available unused capacity expenses...................             -         1,481             -               -         1,481
Operating (loss) income..............................           485        (2,711)        1,148            (320)       (1,398)
Depreciation and amortization expense................           233           983           280              55         1,551
Capital expenditures.................................           270           (26)          299               3           546

<CAPTION>
                                                                            NINE MONTHS ENDED JUNE 30, 2004
                                                                            -------------------------------
                                                                                                      Corporate
                                                                                                    Headquarters
                                                          Technical      Carbon       Specialty         and
                                                           Fibers        Fibers        Products     Eliminations      Total
                                                          ---------     ---------     ---------     ------------    ---------
<S>                                                       <C>           <C>           <C>             <C>           <C>
Net sales............................................     $  10,611     $  13,438     $   8,925       $       -     $  32,974
Net sales - intersegment.............................         1,371         1,492             -          (2,863)            -
Cost of sales, excluding available unused capacity...        10,297        13,030         7,249          (3,180)       27,396
Available unused capacity expenses...................             -         3,638             -               -         3,638
Operating (loss) income..............................           699        (4,309)          606          (1,611)       (4,615)
Depreciation and amortization expense................           902         2,889           482              73         4,346
Capital expenditures.................................           615         3,488           395              (8)       (4,490)

<CAPTION>
                                                                            NINE MONTHS ENDED JUNE 30, 2003
                                                                            -------------------------------
                                                                                                      Corporate
                                                                                                    Headquarters
                                                          Technical      Carbon       Specialty         and
                                                           Fibers        Fibers        Products     Eliminations      Total
                                                          ---------     ---------     ---------     ------------    ---------
<S>                                                       <C>           <C>           <C>             <C>           <C>
Net sales............................................     $   9,421     $  11,075     $   8,855       $       -     $  29,351
Net sales - intersegment.............................         1,186         2,877             -          (4,063)            -
Cost of sales, excluding available unused capacity...         8,748        12,606         6,422          (4,353)       23,423
Available unused capacity expenses...................             -         4,238             -               -         4,238
Operating (loss) income..............................           762        (6,393)        1,515          (1,843)       (5,959)
Depreciation and amortization expense................           749         3,005           486             184         4,424
Capital expenditures.................................           480           318           378              15         1,191

<CAPTION>
                                                                                     TOTAL ASSETS
                                                                                     ------------
                                                                                                      Corporate
                                                                                                    Headquarters
                                                          Technical      Carbon       Specialty         and
                                                           Fibers        Fibers        Products     Eliminations      Total
                                                          ---------     ---------     ---------     ------------    ---------
<S>                                                       <C>           <C>           <C>             <C>           <C>
June 30, 2004 (Restated - See Note 2)................     $  18,929     $  61,439     $  37,478       $   3,108     $ 120,954
September 30, 2003...................................        22,611        66,226        32,569          (1,951)      119,455
</TABLE>

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

<CAPTION>
                                         REVENUES (1)                REVENUES (1)
                                      THREE MONTHS ENDED           NINE MONTHS ENDED            LONG-LIVED ASSETS (2)
                                      ------------------           -----------------            ---------------------
                                                                                         (Restated See Note 2)
                                     JUNE 30,     JUNE 30,       JUNE 30,      JUNE 30,        JUNE 30,        SEPTEMBER 30,
                                       2004        2003            2004          2003            2004              2003
                                       ----        ----           ------        -----           ------            ------
<S>                                 <C>          <C>            <C>           <C>             <C>               <C>
United States.....................  $   5,855    $   5,292      $  15,248     $  17,699       $  46,383         $  45,936
Hungary...........................      7,430        5,046         17,726        11,652          32,243            31,437
                                    ---------    ---------      ---------     ---------       ---------         ---------
Total.............................  $  13,285    $  10,338      $  32,974     $  29,351       $  78,626         $  77,373
                                    =========    =========      =========     =========       =========         =========

<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, net of accumulated depreciation, are based on
     country location of assets.
</TABLE>

                                     15

<PAGE>
<PAGE>

7.   INVENTORIES

Inventories consist of the following (amounts in thousands):

<TABLE>
<CAPTION>
                                                                                           JUNE 30,      SEPTEMBER 30,
                                                                                             2004            2003
                                                                                          ---------      -------------
<S>                                                                                       <C>             <C>
         Raw materials.................................................................   $   5,170       $   4,859
         Work-in-process...............................................................       1,654           1,132
         Finished goods................................................................      16,932          19,057
         Supplies, spares and other....................................................       2,512           1,930
                                                                                          ---------       ---------
                                                                                          $  26,268       $  26,978
                                                                                          =========       =========
</TABLE>

8.   NEW ACCOUNTING PRONOUNCEMENTS

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

9.   COMMITMENTS AND CONTINGENCIES

Legal
-----

In October 2003, the Company was named as a defendant in a civil action
filed in the Court of Common Pleas for Cuyahoga County, Ohio by the former
owner of Hardcore Composites Operations, LLC ("Hardcore") alleging breach by
Hardcore and the Company of their respective obligations under a sublease,
the Company's guaranty of the sublease, and prior settlement agreement among
the parties. The former owner's action claims damages from the Company in
the amount of $300,000 for breaches by the Company of its obligations under
the guaranty and the settlement agreement and, in addition, demands $450,000
in damages from the Company and Hardcore, jointly and severally, under the
terms of the settlement agreement. During the quarter ended June 30, 2004,
Hardcore filed a petition under Chapter 11 of the U.S. Bankruptcy Code. The
Company is vigorously defending this matter and has asserted counterclaims.
Management believes that the ultimate resolution of this litigation will not
have a material adverse effect on the Company's results of operations, cash
flow or financial condition.

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

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

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

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

The Company currently obtains most of its acrylic fiber precursor to supply
its carbon fiber operations for the aircraft brake applications from a
single supplier which is the only supplier that currently produces precursor
approved for use in aircraft brake applications. The Company believes this
supplier is a reliable source of supply at the Company's current operating
levels. However, the Company has initiated trials at an aircraft brake
manufacturer with its own precursor-based products, which might serve as an
alternative source of supply should there be an interruption in supply from
the supplier.

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

                                     16

<PAGE>
<PAGE>

Liquidity
---------

See discussion under Note 3 - "Financing"

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

GENERAL
-------

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

The Company's mission is to commercialize the use of carbon fibers as a
low-cost but high performance reinforcement for composites used as the
primary building material in everyday commercial products. The 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 at costs competitive with other
materials.

In addition to its underlying strategy to penetrate developing markets,
through the Carbon Fibers segment 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 resistance applications.

The Company's strategic plan of introducing low-cost carbon fibers into high
volume 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 eventually produce sufficient volumes of carbon fibers to
satisfy indicated future demand. The Company is participating in ongoing
development projects. Recent strengthening of the market for current and
emerging applications has begun to generate meaningful orders and the demand
from existing and potential new customers exceeds the Company's current
capacity.

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

The carbon fiber market conditions began to change during the second quarter
of fiscal 2004. Two major aerospace programs, the Airbus A-380 and the
Boeing 7E7, have absorbed virtually all of the aerospace fiber capacity, and
resulted in the divergence of the aerospace and commercial markets for
carbon fibers. The Company's receipt of previously announced carbon fiber
orders aggregating 1.8 million pounds from Asian sporting goods
manufacturers toward the beginning of this fiscal year was an early
indication of this shift. Significant sales increases in carbon fiber
products in the second and third quarters of fiscal 2004 confirmed this
shift. Further causing the divergence of the two markets was the quick pace
of development of the carbon fiber wind turbine blade market. Currently


                                     17

<PAGE>
<PAGE>

Zoltek believes it is in a unique position of having installed capacity and
fiber quality that can attract current available and future new business.

The recent increase in the demand for carbon fibers relates to several
different applications including aerospace. During the third quarter of
2004, the Company experienced its second sequential quarter of significant
growth in customer demand in the carbon and technical fiber business units,
as sales (excluding inter-segment sales) increased $3.9 and $1.4 million
over the first and second quarters of 2004, respectfully. The improved sales
in the carbon fibers and technical fibers business units resulted in a
reduction in the overall operating loss reported by the Company from a loss
of $3.2 million in the first quarter of 2004 to a loss of $2.5 million in
the second quarter of 2004 to a loss of $1.8 million in the third quarter of
2004.

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

     o   Wind energy is one of the fastest growing industries globally. The
         desire by consumers and government support for renewable energy has
         been growing in the past decade. Of all the current 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 put forth a significant effort to qualify
         and certify our Panex(R)-35 fibers for this application.

         The largest supplier of wind turbines has approved the Company as a
         one of two sources of carbon fiber for the production of blades and
         we expect significant carbon fiber orders from this application in
         the remainder of fiscal 2004 and increased orders in fiscal 2005.
         Another significant blade manufacturer has now begun using our
         fibers. Also, the Company's Entec subsidiary is in the process of
         building machinery to make the blades for the wind turbines with an
         automated process, to be used by a leading supplier of wind
         turbines, which the Company believes will lead to meaningful carbon
         fiber sales beginning in fiscal 2005.

     o   The Company's PYRON(R) products offer one of the best and most
         economical solutions for flame and heat resistance insulation
         applications in protective clothing, mattress and furniture
         applications. The Company is marketing its products in a variety of
         textile formats in protective clothing applications, from firemen's
         uniforms, factory protective clothing and auto racing uniforms.
         These applications continue to grow a significant rate.

         Fire barrier in automobiles has been a significant application for
         some time. New applications for fire barriers are continuing to
         develop. The largest opportunity in this potential application
         category, other than automotive, appears to be fire barriers for
         mattresses and, eventually, for furniture. While most applications
         are market and safety driven, the consumer applications are
         demanded by government regulations.

         The first regulations in place relate to the mattress products
         in the State of California. 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. It is expected that consumer product safety standards
         that regulate flame-retardant bedding and furniture will begin to
         be enforced by the State of California starting in 2005. So far the
         mattress industry is vigorously opposing the California regulations
         and is seeking to defer offering compliant products until the U.S.
         federal regulations are imposed. The American Home Fire Safety Act,
         which is expected to be the basis for the federal regulations, has
         been passed by the Senate and introduced in the House. The federal
         standards are expected to be more stringent than the final version
         of the California regulation. In view of recent legal developments
         regarding implementation of these laws and rules at this time, it
         is not clear when the industry will implement the introduction of
         the flame-resistant mattresses. However, it is the Company's belief
         that the potential exposure to product liability eventually will
         force the industry to comply with the standards, and to do so
         across the United States. The Company is already selling its
         products to institutional mattress manufacturers, protective
         clothing manufacturers and automotive flame barrier applications
         and expects sales to grow for these applications.

     o   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% versus steel and 35% versus
         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 under an exclusive arrangement to efficiently and
         reliably produce structural parts for automobiles. The results from
         this development work have been favorable. Accordingly, the Company
         believes that the introduction of carbon fibers in series
         production cars will occur within the next few years. The Company
         anticipates that significant orders eventually will be forthcoming
         from BMW.

                                     18

<PAGE>
<PAGE>

         In addition to BMW, the Company has worked with other auto
         companies and their vendors. Current indications are that a number
         of other applications are coming to fruition. The Company expects
         that components made with the Company's carbon fibers will appear
         on series production cars by 2005.

With the new orders in place and indications for additional significant
orders, the Company has restarted its major carbon fiber manufacturing
facility in Abilene, Texas which had been temporarily idled. The Company has
begun operation of manufacturing lines with aggregate rated capacity of 2
million pounds per year and expects to begin operation of additional
manufacturing lines with aggregate rated capacity of 3 million pounds per
year by the end of calendar year 2004. The Hungarian carbon fiber
manufacturing facility currently is operating at full capacity. Maintaining
the excess capacity has been costly, but the Company believed it has been
necessary to assure customers of adequate supply and encourage them to shift
to carbon fibers from other materials. With the reactivation of the Abilene
plant, unused capacity costs are expected to diminish and, ultimately, be
fully absorbed in ongoing production as all the carbon fiber lines start
operating.

The Company also moved its fiber prepreg facilities from San Diego to Salt
Lake City in the first quarter of fiscal 2004. This facility is now ready
for production and samples are being supplied to prior customers for
re-qualification.

Outside of the carbon fiber business, the Company sells acrylic and nylon
fibers into textile markets and manufactures other specialty products in its
Hungary facility. The Company is currently developing plans to discontinue
the nylon fiber operation and to exit from the acrylic textile business and
will utilize a significant portion of the acrylic fiber capacity to supply
precursor for its growing carbon fiber manufacturing operations. The Company
completed these plans in the fourth quarter of fiscal 2004. This did result
in a charge to earnings, which included severance.

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

THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THREE MONTHS ENDED JUNE 30, 2003
-----------------------------------------------------------------------------

The Company's sales increased by 29%, or $3.0 million, to $13.3 million in
the third quarter of fiscal 2004 from $10.3 million in the third quarter of
fiscal 2003. A decrease in sales of the specialty products unit was more
than offset by the increases in carbon fiber sales (excluding intersegment)
and technical fiber sales (excluding intersegment). Carbon fiber sales
(excluding intersegment) increased 55%, or $2.1 million, to $5.7 million in
the third quarter of fiscal 2004 from $3.6million in the third quarter of
fiscal 2003. The carbon fiber sales in fiscal 2004 included a decrease of
$1.3 million from 2003 related to the Company's decision to relocate its
prepreg operations from California to Utah to combine its operations with
another of the Company's facilities. Carbon fibers sales other than prepreg
sales increased by $3.4 million in fiscal 2004 from fiscal 2003 as
production and sales of sporting goods and wind energy orders continued
during the third quarter of fiscal 2004 and the Company experienced a
general increase in the overall demand for carbon fiber from prior years.
Technical fiber sales (excluding intersegment) increased 33%, or $1.0
million, to $4.1 million in the third quarter fiscal 2004 from $3.1 million
in the third quarter fiscal 2003. Technical fiber sales increased as demand
improved not only in the aircraft brake customers but also for the
flame-retardant market. Sales of the specialty products business segment
decreased 3%, or $0.1 million, to $3.5 million in the third quarter of
fiscal 2004 from $3.6 million in the third quarter of fiscal 2003.

The Company's cost of sales (excluding available unused capacity costs)
increased by 35%, or $2.8 million, to $10.9 million in the third quarter of
fiscal 2004 from $8.1 million in the third quarter of fiscal 2003. Carbon
and technical fiber cost of sales (excluding intersegment) increased by 37%
or $2.2 million to $8.0 million in the third quarter of 2004 from $5.8
million in the third quarter of 2003 as sales of carbon and technical fiber
(excluding intersegment) increased 46% for the same period.

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 $1.0 million during the third quarter of
fiscal 2004 and $1.5 million in the third quarter of fiscal 2003. The
Company believes it has been necessary to maintain available capacity to
encourage development of significant new large-scale applications. With the
increased orders in fiscal 2004, unused capacity costs are expected to
continue to decrease significantly during that period and to be fully
absorbed in ongoing operations by the end of fiscal 2005. See additional
discussion of the Abilene facility under "--Liquidity and Capital
Resources."

Application and market development costs were $0.8 million in the third
quarter of fiscal 2004 and $0.9 million in the third quarter of fiscal 2003.
These costs included product and market development efforts, product trials
and sales and product development personnel and related travel. Targeted
emerging applications include automobile components, fire/heat barrier and
alternate energy technologies.

Selling, general and administrative expenses were $1.3 million in the third
quarter of fiscal 2004 compared to $1.3 million in the third quarter of
fiscal 2003. Although sales for the quarter increased 10% and carbon fiber
sales increased 37% the Company has continued cost containment measures
related to non-operations departments implemented during fiscal 2003.

                                     19

<PAGE>
<PAGE>

Operating loss was $0.6 million in the third quarter of fiscal 2004 compared
to a loss of $1.4 million in the third quarter of fiscal 2003, an
improvement of $0.8 million. Carbon fiber operating loss improved from a
loss of $2.7 million in the third quarter of fiscal 2003 to a loss of $1.0
million in the third quarter of fiscal 2004. The operating income in
technical fibers decreased from income of $0.5 million in the third quarter
of fiscal 2003 to $0.3 million in the third quarter of fiscal 2004.
Corporate headquarters operating loss was flat with a loss of $0.3 million
in the third quarter of fiscal 2004. Specialty product operating income
decreased from an income of $1.1 million in the third quarter of 2003 to an
income of $0.4 million in the third quarter of 2004; the income decreased
due the to decrease in sales and margins related to this business unit. The
decrease in the Company's total operating loss was a result of the
significant improvement in the carbon fibers and technical fibers business
units as sales and production have increased to absorb fixed manufacturing
cost and the continued reduction of operating expenses due to the cost
containment measures implemented during 2003.

Interest expense was approximately $0.9 million in the third quarter of
fiscal 2004 compared to $.5 million in the third quarter of fiscal 2003. The
increase in interest resulted from higher debt levels after the Company's
refinancing transactions (see "--Liquidity and Capital Resources").

Amortization of warrants discount, deferred financing and beneficial
conversion feature costs which are non-cash expenses was approximately $1.0
million in the third quarter of fiscal 2004 compared to zero in the third
quarter of fiscal 2003. The increase in amortization resulted from the
Company's refinancing transactions (see "--Liquidity and Capital
Resources").

Income on value of warrants and conversion feature and discount write-off, a
non-cash item, increased $4.6 million from no activity in fiscal 2003 to a
gain of $4.6 million in fiscal 2004 (see "--Liquidity -- Financing"). The
increase in the income was attributable to a decrease in our stock price
during 2004 following the issuance of convertible debt instruments in
January and March 2004 as the Company had to mark to market the value of the
warrant and conversion feature. No such obligations existed in the prior
year.

Other income/expense, net, was immaterial in the third quarter of fiscal
2004 compared to an expense of $0.5 million for the third quarter of fiscal
2003 due to an increase in the foreign currency transactional loss during
the three months ended June 30, 2003 on the Company's debt at its Hungarian
subsidiary which is denominated in Euros.

Income tax expense was $0.1 million for the third quarter of fiscal 2004
compared to an income tax expense of $0.1 million for the corresponding
period in the prior year. A valuation allowance was recorded against the
income tax benefit resulting from the pre-tax loss in both the third
quarters of fiscal 2004 and 2003 due to uncertainties in the Company's
ability to utilize tax losses in the future.

The foregoing resulted in a net income from continuing operations of $2.0
million for the third quarter of fiscal 2004 compared to a net loss of $2.5
million for the third quarter of fiscal 2003. Similarly, the Company
reported a net income per share from continuing operations of $0.12 and a
loss per share from continuing operations of $0.05 on a basic and diluted
basis, respectively, for the third quarter of fiscal 2004 and a net loss per
share from continuing operations of $0.15 on a basic and diluted basis for
the third quarter of fiscal 2003, respectively. The weighted average basic
and diluted common shares outstanding were 16.4 million and 18.7 million,
respectively, for the third quarter of fiscal 2004 and 16.3 million for the
corresponding period of fiscal 2003.

The loss from discontinued operations of $1.3 million for the third quarter
of fiscal 2004 was flat compared to the third quarter of fiscal 2003. The
significant decrease in sales was offset by a significant decrease in cost
during 2004 as the Company continued to decrease production of the
unprofitable acrylic fiber divisions. The Company reported a net loss per
share from discontinued operations of $0.08 and $0.08 on a basic and $0.07
and $0.08 on a diluted basis for the third quarter of fiscal 2004 and 2003,
respectively.

NINE MONTHS ENDED JUNE 30, 2004 COMPARED TO NINE MONTHS ENDED JUNE 30, 2003
---------------------------------------------------------------------------

The Company's sales increased 12.2%, or $3.6 million, to $33.0 million in
fiscal 2004 from $29.4 million in fiscal 2003. Carbon fiber sales (excluding
intersegment) increased 21%, or $2.3 million, to $13.4 million in fiscal
2004 from $11.1 million in fiscal 2003. The carbon fiber units sales in
fiscal 2004 increased despite a decrease of $4.4 million from 2003 related
to the Company's decision to relocate its prepreg operations from California
to Utah to combine its operations with another of the Company's facilities.
Carbon fiber sales, other than prepreg, increased by $6.7 million in fiscal
2004 from fiscal 2003 as production and sales for sporting goods and wind
energy applications continued to grow during the third quarter of fiscal
2004 and the Company experienced a general increase in the overall demand
for carbon fiber. Technical fiber sales (excluding intersegment) increased
12.6%, or $1.2 million, to $10.6 million in fiscal 2004 from $9.4 million in
fiscal 2003. Technical fiber sales increased due to the stronger demand and
the timing of orders from aircraft brake customers during the third quarter
of 2004 as this segment's principal customer returned to historical shipment
levels. Sales of the specialty products business segment increased 1.1%, or
$0.1 million, to $8.9 million in fiscal 2004 from $8.8 million in fiscal
2003.

                                     20

<PAGE>
<PAGE>

The Company's cost of sales (excluding available unused capacity costs)
increased by 17%, or $4.0 million, to $27.4 million in fiscal 2004 from
$23.4 million in fiscal 2003. Carbon and technical fibers cost of sales
(excluding intersegment) increased by 17.3%, or $3.1 million, to $20.4
million in fiscal 2004 from $17.3 million in fiscal 2003 as sales of carbon
and technical fibers (excluding intersegment) increase the same amount for
the period.

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 consolidated
statement of operations, were approximately $3.6 million during the first
nine months of fiscal 2004 and $4.2 million in the first nine months of
fiscal 2003. The Company believes it has been necessary to maintain
available capacity to encourage development of significant new large-scale
applications. With the increased orders during fiscal 2004, the Company
expects unused capacity costs to decrease significantly during the fourth
quarter of 2004 and be fully absorbed in ongoing operations by the end of
fiscal 2005. See additional discussion of the Abilene facility under "--
Liquidity and Capital Resources."

Application and development costs were $2.3 million in the first nine months
of fiscal 2004 and $2.7 million in the first nine months of fiscal 2003.
These costs included product and market development efforts, product trials
and sales and product development personnel and related travel. Targeted
emerging applications include automobile components, fire/heat barrier and
alternate energy technologies.

Selling, general and administrative expenses were $4.3 million in the first
nine months of fiscal 2004 compared to $5.0 million in the first nine months
of fiscal 2003. The decrease in expense was primarily due to the cost
containment measures implemented during fiscal 2003.

Operating loss was $4.6 million in the first nine months of fiscal 2004
compared to a loss of $6.0 million in the first nine months of fiscal 2003,
an improvement of $1.4 million. Carbon fibers operating loss decreased from
a loss of $6.4 million in the first nine months of fiscal 2003 to a loss of
$4.3 million in the first nine months of fiscal 2004. Operating income in
technical fibers was flat with income of $0.7 million in both periods.
Corporate headquarters operating loss decreased from a loss of $1.8 million
in the first nine months of fiscal 2003 to a loss of $1.6 million in the
first nine months of fiscal 2004. Specialty products operating income
decreased from a $1.5 million income in the first nine months of fiscal 2003
to an income of $0.6 million in the first nine months of fiscal 2004. The
decrease in the consolidated operating loss was a result of the improvement
in margins of the carbon fibers business unit and the reduction of operating
expenses due to the cost containment measures implemented during 2003.

Interest expense was approximately $2.3 million in the first nine months of
fiscal 2004 compared to $1.4 million in the corresponding period of fiscal
2003. The increase resulted from higher debt levels after the Company's
refinancing transactions (see "-Liquidity and Capital Resources").

Amortization of warrants, deferred financing costs and beneficial conversion
which are non-cash expenses were approximately $1.5 million in the first
nine months of fiscal 2004 compared to zero in the first nine months of
fiscal 2003. The increase in amortization resulted from warrants issued and
beneficial conversion feature on the Company's refinancing transactions (see
"-Liquidity and Capital Resources").

Loss on value of warrants and conversion feature, which is a non-cash item,
increased $0.9 million from no activity in fiscal 2004 to a loss of $0.9
million in fiscal 2004 (see "--Liquidity -- Financing"). The increase in the
loss is attributable to the increase in our stock price during 2004
following the issuance of convertible debt instruments in January and March
2004 as the Company had to mark to market the value of the warrant and
conversion feature. No such obligations existed in the prior year.

Other income/expense, net, was a loss of $0.1 million for the first nine
months of fiscal 2004 compared to an expense of $0.8 million for the first
nine months of fiscal 2003 due to an decrease in the foreign currency
transactional losses during the 9 months ended June 30, 2003 on the
Company's debt at its Hungarian subsidiary which is denominated in Euros.

Income tax expense was $0.3 million for the first nine months of fiscal 2004
compared to $0.1 million for the corresponding period in the prior year. A
valuation allowance was recorded against the income tax benefit resulting
from the pre-tax loss for both fiscal 2004 and 2003.

The foregoing resulted in a net loss from continuing operations of $9.7
million for the first nine months of fiscal 2004 compared to a loss of $8.3
million for the corresponding period of fiscal 2003. Similarly, the Company
reported a loss per share from continuing operations of $0.59 and $0.52 on a
basic basis and $0.61 and $0.52 on a diluted basis for the first nine months
of fiscal 2004 and 2003, respectively. The weighted average common shares
outstanding were 16.4 million and 16.3 million on a basic basis and 17.2
million and 16.3 million on a diluted basis for the first nine months of
fiscal 2004 and 2003, respectively.

                                     21

<PAGE>
<PAGE>

The loss from discontinued operations of $2.9 million for the nine months of
fiscal 2004 was flat compared to the nine months of fiscal 2003. The
significant decrease in sales was offset by a significant decrease in cost
during 2004 as the Company continued to decrease production of the
unprofitable acrylic fiber divisions. The Company reported a loss per share
from discontinued operations of $0.18 and $0.17 on a basic and $0.17 and
$0.17 on a diluted basis for the nine months of fiscal 2004 and 2003,
respectively.

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

Management will seek to fund its near-term operations from the sale of
excess inventories, continued aggressive management of the Company's working
capital and existing borrowing capacity under the Company's revolving credit
facility. As the demand for carbon fiber continues to increase, the Company
will need additional financing to execute its capacity expansion program.
Based upon these forecasts, borrowing capacity, and the completion of the
transaction discussed in "Fiscal 2004 Refinancing" below, the Company
believes it has sufficient cash flows to continue operations for at least
the next 12 months.

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

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

In January and March of 2004, the Company issued convertible notes and
warrants which would require the Company to register the resale of the
shares of common stock upon conversion or exercise of these securities. The
Company accounts for the fair value of these outstanding warrants to
purchase common stock and conversion feature of its convertible notes in
accordance with SFAS No. 133 "Accounting For Derivative Instruments And
Hedging Activities" and EITF Issue No. 00-19 "Accounting For Derivative
Financial Instruments Indexed To And Potentially Settled In A Company's Own
Stock;" which requires the Company to bifurcate and separately account for
the conversion feature and warrants as embedded derivatives contained in the
Company's convertible notes. Pursuant to SFAS No. 133, the Company
bifurcated the fair value of the conversion feature from the convertible
notes, since the conversion feature were determined to not be clearly and
closely related to the debt host. In addition, since the effective
registration of the securities underlying the conversion feature and
warrants is an event outside of the control of the Company, pursuant to EITF
Issue No. 00-19, the Company recorded the fair value of the conversion
feature and warrants as long-term liabilities as it was assumed that the
Company would be required to net-cash settle the underlying securities. The
Company is required to carry these embedded derivatives on its balance sheet
at fair value and unrealized changes in the values of these embedded
derivatives are reflected in the consolidated statement of operation as
"Gain (loss) on value of warrants and conversion feature." See table below
for impact on the quarterly and nine-month financial results ended June 30,
2004.

<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED JUNE 30, 2004          NINE MONTHS ENDED JUNE 30, 2004
                                                    --------------------------------          -------------------------------
                                                           (RESTATED SEE NOTE 2)                  (RESTATED SEE NOTE 2)

                                                               CONVERSION                               CONVERSION
                                                    WARRANTS    FEATURES     TOTAL           WARRANTS    FEATURES      TOTAL

<S>                                                 <C>        <C>          <C>             <C>         <C>          <C>
January 2004 issuance - mark to market............  $    534   $   2,207    $  2,741        $    (610)  $   (2,223)  $   (2,833)
March 2004 issuance - mark to market..............       355       1,521       1,876              355        1,531        1,886
                                                    --------   ---------    --------        ---------   ----------   ----------
         Totals...................................  $    889   $   3,728    $  4,617        $    (255)  $     (692)  $     (947)
                                                    ========   =========    ========        =========   ==========   ==========
</TABLE>

2004 Refinancing
----------------

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

                                     22

<PAGE>
<PAGE>

As part of the Company's January 2004 refinancing, the bank lender to the
Company's Hungarian subsidiary amended certain financial covenants and
extended the maturity date of its loan to December 31, 2004. In connection
with such actions, the bank required that the Company make arrangements to
settle intercompany accounts payable by Zoltek U.S. operations to its
Hungarian subsidiary in the amount of approximately $2.8 million. The bank
was unwilling to keep open its offer to restructure Zoltek Rt.'s loans until
after the Company's January 2004 refinancing package was completed. Prior to
the refinancing, the Company did not have cash on hand or available
borrowings that would enable it to make the settlement of the intercompany
accounts required by the Hungarian bank. In order to proceed expeditiously
to resolve the Company's financing requirements, Zsolt Rumy, the Company's
Chief Executive Officer and a director of the Company, in December 2003
loaned the Company $1.4 million in cash and posted a $1.4 million letter of
credit for the benefit of the Company. This arrangement was approved by the
Company's board of directors and audit committee. The loan by Mr. Rumy bore
interest on the amount advanced and the notional amount of the letter of
credit at a rate per annum equal to LIBOR plus 11% with a LIBOR floor of 2%,
the same interest rate as the mortgage financing discussed below. As a
result of the Company completing the refinancing transactions making
available the cash to settle the intercompany accounts, the letter of credit
was released. After converting $250,000 into convertible debt as part of the
January 2004 financing, the remaining $1.15 million loan was repaid during
the third quarter of fiscal 2004.

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

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

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

<TABLE>
<CAPTION>
                                                                  (1)FEBRUARY 2003  JANUARY 2004    MARCH 2004
                                                                     -------------  ------------    ----------
<S>                                                                    <C>            <C>            <C>
         Amount of debenture (millions)...........................     $8.1           $7.0           $5.75
         Per share conversion price on debenture..................     $3.25          $5.40          $6.25
         Interest rate............................................     7.5%           6.0%           6.0%
         Term of debenture........................................     60 months      30 months      30 months
         Warrants issued..........................................     405,000        323,995        230,000
         Term of warrant..........................................     60 months      48 months      48 months
         Per share exercise price of warrants.....................     $5.00          $5.40          $7.50
         Fair value per warrant at issuance.......................     $0.93          $2.27          $5.43
         Value per share conversion feature at issuance...........     $3.11          $1.78          $5.06
         Stock price on date of agreement.........................     $1.58          $5.40          $9.53
         Stock volatility at issuance.............................     100%           50%            61%
         Dividend yield...........................................     0.0%           0.0%           0.0%
         Risk free interest rate at issuance......................     3.0%           2.78%          2.44%

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

2003 Refinancing
----------------

The Company executed an amended credit facility agreement, dated as of
February 13, 2003, with its U.S. bank. The amended credit facility agreement
is structured as a term loan in the amount of $3.5 million with an
outstanding balance of $0.9 million at June 30,


                                     23

<PAGE>
<PAGE>

2004 (due February 13, 2005) and a revolving credit loan in the amount of
$5.0 million (originally due January 31, 2004, now due January 31, 2005 -
see above). The Company repaid $5.0 million of this loan from the proceeds
of the sale of convertible debentures as discussed below. Borrowings under
the amended 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. Total borrowings and available borrowings at June 30, 2004 under
the revolving credit agreement were $3.3 and $1.7 million respectively.

The Company also entered into a convertible debenture purchase agreement,
dated as of February 13, 2003, under which the Company issued and sold to 14
investors, including certain directors, convertible debentures in the
aggregate principal amount of $8.1 million. The 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 debt discount associated with the warrants, at the time of
issuance, was estimated to be $376,650 and is being amortized as non-cash
interest expense over the term of the convertible debentures. Proceeds from
the issuance of these convertible debentures were used to repay existing
borrowings as well as for working capital.

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

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, which has been waived through
February 13, 2005.

US Operations - The Company's current credit facility with its U.S. Bank is
described above under "2003 Refinancing." Total borrowings under the U.S.
credit facility including revolving credit and term loan were $4.1 million
at June 30, 2004, all of which has been classified as current due to the
maturity in February 2005.

Hungarian Operations - 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 December 31, 2004. Total borrowings under this
credit facility were $10.6 million at June 30, 2004, all of which has been
classified as current.

In March 2003, the Company's Hungarian subsidiary entered into a credit
agreement with another Hungarian bank for $2.2 million of which $1.6 million
is outstanding as of June 30, 2004. The facility consists of a bank
guarantee, factoring and mortgages and expires December 31, 2004.

 Total borrowings of the Hungarian subsidiary were $12.2 million at June 30,
2004, of which $11.4 million has been classified as current due to their
stated maturity of December 31, 2004. Borrowings under the Hungarian bank
credit facilities cannot be used in Zoltek's U.S. operations.

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

In the third quarter of fiscal 2001, the Company elected to temporarily idle
a significant part of the operations located at the Abilene, Texas facility.
The Company has resumed certain levels of manufacturing at this facility
during the third quarter of 2004. Accordingly, the Company does not believe
that any impairment of its carrying value exists based on an analysis of
expected future net cash flow to be generated from this facility over the
expected remaining useful life.

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

The $1.9 million increase in cash used in continuing operations was the
result of higher working capital requirements in fiscal 2004 as the
increased demand for carbon fiber products and increased revenue from fiscal
2003 increased receivables by $1.4 million for the nine months ended June
30, 2004.

The Company has undertaken steps to sell carbon fiber inventories to improve
its cash flow. The Company has decreased the carbon fiber and specialty
unit's actual inventory by $1.4 million which was offset by an increase
inventory in the Entec division related to building machinery for the second
largest wind turbine provider to make carbon fiber composite blades for the
wind turbines with an automated process, the machine is scheduled to be
delivered in the fourth quarter of 2004.



                                     24

<PAGE>
<PAGE>

Inventories consist of the following (amounts in thousands):

<TABLE>
<CAPTION>
                                                            JUNE 30,      SEPTEMBER 30,
                                                              2004            2003
                                                           ---------       ---------
<S>                                                        <C>             <C>
         Raw materials...................................  $   5,170       $   4,859
         Work-in-process.................................      1,654           1,132
         Finished goods..................................     16,932          19,057
         Supplies, spares and other......................      2,512           1,930
                                                           ---------       ---------
                                                           $  26,268       $  26,978
                                                           =========       =========
</TABLE>

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

Net cash used for investing activities for the nine months ended June 30,
2004 was $4.4 million which consisted of capital expenditures. The primary
capital expenditures consisted of the $1.7 million purchase of the Company's
Abilene nitrogen plant which was previously leased in an arrangement
accounted for as an operating lease and the expenditures related to the
expansion of the Company's precursor facility and carbon fiber operations.

Historically, cash used in investing activities has been expended for
equipment additions and the expansion of the Company's carbon fibers
production capacity. The Company expects capital expenditures to increase
(excluding the one-time nitrogen plant refinancing) in connection with the
restart of the Abilene carbon fiber lines to meet the increase demand for
carbon fiber.

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

Net cash provided by financing activities was $10.4 million for the nine
months ended June 30, 2004. The financing transactions are described above.


                                     25

<PAGE>
<PAGE>

A summary of significant contractual obligations is shown below. See Note 3
to the Consolidated Financial Statements for discussion of the Company's
debt agreements. The Company's financial commitments as of June 30, 2004
included the following:

<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...............................................  $  2,281     $  2,281
    Convertible debentures......................................    20,850                  $  20,850
    Long-term debt, including current maturities................    25,452       16,902         7,103    $   1,447    $       -
                                                                  --------     --------     ---------    ---------    ---------
         Total debt.............................................    48,583       19,183        27,953        1,447            -
    Operating leases............................................       333           58           174          101            -
                                                                  --------     --------     ---------    ---------    ---------
         Total debt and operating leases........................  $ 48,916     $ 19,241     $  28,127    $   1,548    $       -
                                                                  ========     ========     =========    =========    =========
</TABLE>

In October 2003, the Company was named as a defendant in a civil action
filed in the Court of Common Pleas for Cuyahoga County, Ohio by the former
owner of Hardcore Composites Operations, LLC ("Hardcore") alleging breach by
Hardcore and the Company of their respective obligations under a sublease,
the Company's guaranty of the sublease, and prior settlement agreement among
the parties. The former owner's action claims damages from the Company in
the amount of $300,000 for breaches by the Company of its obligations under
the guaranty and the settlement agreement and, in addition, demands $450,000
in damages from the Company and Hardcore, jointly and severally, under the
terms of the settlement agreement. During the quarter ended June 30, 2004,
Hardcore filed a petition under Chapter 11 of the U.S. Bankruptcy Code. The
Company is vigorously defending this matter and has asserted counterclaims.
Management believes that the ultimate resolution of this litigation will not
have a material adverse effect on the Company's results of operations, cash
flow or financial condition.

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

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

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 consolidated statement
of operations in the period in which the revision is made.

In recent years, carbon fiber sales have been depressed by excess capacity
across the industry, distressed pricing across most existing markets and
weak 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. Although conditions have improved for carbon fiber,
the increased product demand is currently not for products contained in the
Company's inventory, if the markets for these products do not improve, 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.


                                     26

<PAGE>
<PAGE>

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 developmental 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 $2.3 million and $2.7 million in the
first nine months of fiscal 2004 and 2003, respectively, and $0.8 million
and $0.9 million for the three months ended June 30 2004 and 2003,
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

As of June 30, 2004, the Company was not operating its continuous
carbonization lines located at the Abilene, Texas facility. As a result, the
Company has elected to categorize certain costs related to these idle assets
as unused capacity costs. Such costs totaled $3.6 million and $4.2 million
for the nine months ended June 30, 2004 and 2003, respectively, and $1.0
million and $1.5 million for the three months ended June 30, 2004 and 2003,
respectively. With the new orders in place and indications for additional
significant orders, the Company has restarted its major carbon fiber
manufacturing facility in Abilene, Texas which had been temporarily idled.
The Company has begun operation of manufacturing lines with aggregate rated
capacity of 2 million pounds per year and expects to begin operation of
additional manufacturing lines with aggregate rated capacity of 3 million
pounds per year in the latter part of calendar 2004.

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.

Income taxes

The Company accounts for certain income and expense items differently for
financial reporting and income tax purposes. Deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax basis of assets and liabilities applying enacted statutory
tax rates in effect for the year in which the differences are expected to
reverse. A valuation allowance is provided against certain deferred tax
assets when realization of those assets are not considered to be more likely
than not.

NEW ACCOUNTING PRONOUNCEMENTS

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

                                     27

<PAGE>
<PAGE>

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, 2004, 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 $0.5 million increase in interest expense based on the debt
levels at June 30, 2004.

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
$35.4 million and $35.4 million at June 30, 2004 and September 30, 2003,
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, 2004 and September 30 2003 amounted to $3.5 million and $3.5
million, 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. 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. and, at current sales
levels, does not believe these risks will have a material adverse impact on
the Company's results of operations or financial position.

                                    * * *

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 covenants as of June 30, 2004, and otherwise comply with
its obligations under its credit agreements, refinance those agreements at
their maturity dates, increase production capacity to meet increased orders
on a timely and profitable basis, 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

DISCLOSURE CONTROLS AND PROCEDURES

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

RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

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

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<PAGE>

MATERIAL WEAKNESS IN INTERNAL CONTROL OVER FINANCIAL REPORTING

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

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

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

MANAGEMENT'S REMEDIATION PLAN

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

CHANGES IN INTERNAL CONTROL

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

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                           ZOLTEK COMPANIES, INC.

PART II. OTHER INFORMATION

            (a) Exhibits:

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

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

                Exhibit 32.1: Certification of Chief Executive Officer
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                Section 906 of the Sarbanes-Oxley Act of 2002.

                Exhibit 32.2: Certification of Chief Financial Officer
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                Section 906 of the Sarbanes-Oxley Act of 2002.

            (b) Reports on Form 8-K:

                The registrant filed the following Current Reports on Form
                8-K during the period ended June 30, 2004:

                1.  The registrant filed a Current Report on Form 8-K on
                    May 20, 2004, reporting pursuant to Item 12 on the
                    Company's financial results for the quarter ended
                    March 31, 2004.



                                  SIGNATURE
                                  ---------

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

                                                 Zoltek Companies, Inc.
                                                     (Registrant)

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


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