<PAGE>

                                UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, DC 20549




                                  FORM 10-Q

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




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


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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

Yes  x   No
    ---     ---

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

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


PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

<TABLE>
                                                  ZOLTEK COMPANIES, INC.

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

                                                       (Unaudited)

<CAPTION>
                                                                                             DECEMBER 31,   SEPTEMBER 30,
ASSETS                                                                                           2004           2004
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>            <C>
Current assets:
     Cash and cash equivalents..............................................................   $    430       $    267
     Accounts receivable, less allowance for doubtful accounts of $785 and
       $781, respectively...................................................................     11,393         11,811
     Inventories............................................................................     29,927         25,902
     Other current assets...................................................................      2,216          1,167
                                                                                               --------       --------
          Total current assets..............................................................     43,966         39,147
Property and equipment, net.................................................................     85,334         80,538
Other assets................................................................................      3,616          3,114
                                                                                               --------       --------
          Total assets......................................................................   $132,916       $122,799
                                                                                               ========       ========


LIABILITIES AND SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------------------
Current liabilities:
     Current maturities of long-term debt...................................................   $    475       $    570
     Trade accounts payable.................................................................     13,384         13,257
     Notes payable..........................................................................      2,104          2,441
     Accrued expenses and other liabilities.................................................      7,296          5,877
                                                                                               --------       --------
     Total current liabilities..............................................................     23,259         22,145
Other long-term liabilities.................................................................        190            357
Long-term debt, less current maturities.....................................................     51,097         43,718
                                                                                               --------       --------
          Total liabilities.................................................................     74,546         66,220
                                                                                               --------       --------
Commitments and contingencies (Notes 2 and 9)

Shareholders' equity:
     Preferred stock, $.01 par value, 1,000,000 shares authorized,
       no shares issued or outstanding......................................................          -              -
     Common stock, $.01 par value, 50,000,000 shares authorized,
       16,465,981 and 16,307,338 shares issued and outstanding, respectively................        165            163
     Additional paid-in capital.............................................................    118,383        115,803
     Accumulated deficit....................................................................    (52,742)       (49,242)
     Accumulated other comprehensive loss...................................................     (7,436)       (10,145)
                                                                                               --------       --------
          Total shareholders' equity........................................................     58,370         56,579
                                                                                               --------       --------
          Total liabilities and shareholders' equity .......................................   $132,916       $122,799
                                                                                               ========       ========

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

                                     2


<TABLE>
                                                  ZOLTEK COMPANIES, INC.

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

                                                      (Unaudited)

<CAPTION>
                                                                                           THREE MONTHS ENDED DECEMBER 31,
                                                                                           -------------------------------
                                                                                                  2004         2003
--------------------------------------------------------------------------------------------------------------------------

<S>                                                                                              <C>          <C>
Net sales.....................................................................................   $13,518      $ 8,152
Cost of sales, excluding available unused capacity costs......................................    12,396        7,003
Available unused capacity costs...............................................................       525        1,431
Application and development costs.............................................................       828          747
Selling, general and administrative expenses..................................................     1,411        1,598
                                                                                                 -------      -------
     Operating loss from continuing operations................................................    (1,642)      (2,627)
Other income (expense):
     Interest expense, excluding amortization of financing fees, debt discount and
       beneficial conversion feature..........................................................    (1,107)        (594)
     Amortization of financing fees, debt discount and beneficial conversion feature..........      (904)         (63)
     Interest income..........................................................................        67           12
     Other, net...............................................................................       574           73
                                                                                                 -------      -------
         Loss from continuing operations before income taxes..................................    (3,012)      (3,199)
Income tax expense............................................................................       115           78
                                                                                                 -------      -------
Net loss from continuing operations...........................................................    (3,127)      (3,277)
Discontinued operations:
     Operating loss, net of taxes.............................................................      (373)        (446)
                                                                                                 -------      -------
         Net loss on discontinued operations..................................................      (373)        (446)
                                                                                                 -------      -------
Net loss......................................................................................   $(3,500)     $(3,723)
                                                                                                 =======      =======
Net loss per share:
     Basic and diluted loss per share:

         Continuing operations................................................................   $ (0.19)     $ (0.20)
         Discontinued operation...............................................................     (0.02)       (0.03)
                                                                                                 -------      -------
              Total...........................................................................   $ (0.21)     $ (0.23)
                                                                                                 =======      =======
Weighted average common shares outstanding....................................................    16,446       16,310


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

                                     3


<TABLE>
                                                  ZOLTEK COMPANIES, INC.

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

                                                        (Unaudited)

<CAPTION>
                                                                                           THREE MONTHS ENDED DECEMBER 31,
                                                                                           -------------------------------
                                                                                                 2004           2003
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>             <C>
Cash flows from operating activities:
      Net loss..............................................................................   $ (3,500)       $(3,723)
      Adjustments to reconcile net loss to net cash used by operating activities:
           Loss from discontinued operations................................................        373            446
           Depreciation and amortization....................................................      1,301          1,502
           Amortization of financing fees, debt discount and beneficial conversion feature..        904             63
           Foreign currency transaction losses..............................................        149             57
           Other, net.......................................................................        (44)           (36)
           Changes in assets and liabilities:
                 (Increase) in accounts receivable..........................................        (87)          (382)
                 (Increase) in inventories..................................................     (3,334)          (691)
                 Decrease in prepaid expenses and other assets..............................        110             91
                 Increase in trade accounts payable.........................................      1,215          2,555
                 Increase (decrease) in accrued expenses and other liabilities..............        851           (941)
                 Increase in other long-term liabilities....................................       (187)           171
                                                                                               --------        -------
                      Total adjustments.....................................................      1,251          2,772
                                                                                               --------        -------
      Net cash used by continuing operations................................................     (2,249)          (951)
      Net cash (used by) provided by discontinued operations................................       (951)           233
                                                                                               --------        -------
      Net cash used by operating activities.................................................     (3,200)          (711)
                                                                                               --------        -------

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

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

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

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

                                     4

<PAGE>
<TABLE>

                                                      ZOLTEK COMPANIES, INC.

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

<CAPTION>
                                     Total Share-              Add'l     Accumulated Other
                                       holders'    Common     Paid-In      Comprehensive    Treasury   Accumulated  Comprehensive
                                        Equity     Stock      Capital      Income (Loss)     Stock      (Deficit)   Income (Loss)
----------------------------------------------------------------------------------------------------------------------------------

<S>                                  <C>           <C>       <C>            <C>             <C>         <C>          <C>
Balance, September 30, 2004........  $   56,579    $ 163     $ 115,803      $ (10,145)      $     -     $(49,242)

Net loss...........................      (3,500)       -             -              -             -       (3,500)    $  (3,500)

Foreign currency translation
  adjustment.......................       2,709        -             -          2,709             -            -         2,709
                                                                                                                     ---------
         Comprehensive loss........                                                                                  $    (791)
                                                                                                                     =========
Warrants issued with sub-debt......       2,491        -         2,491              -             -            -

Exercise of stock options..........          91        2            89              -             -            -
                                     ----------    -----     ---------      ---------       -------     --------

Balance, December 31, 2004.........  $   58,370    $ 165     $ 118,383      $  (7,436)      $     -     $(52,742)
                                     ==========    =====     =========      =========       =======     ========



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


                                     5


                           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 2004 Annual
Report to Shareholders, which includes consolidated financial statements and
notes thereto for the fiscal year ended September 30, 2004. In the opinion
of management, all normal recurring adjustments and estimates considered
necessary for a fair presentation have been included. Certain
reclassifications have been made to conform prior year's data to the current
presentation. In the fourth quarter of fiscal 2004, the Company formally
adopted a plan to discontinue and exit two divisions of its Zoltek Rt.
operations which manufactured textile acrylic and nylon fibers and yarns.
These divisions had been included in the Specialty Products segment (see
Note 6). 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.

2.   FINANCING

Management will seek to fund its near-term operations from both the sale of
excess inventories and continued aggressive management of the Company's
working capital, as well as from sources that will include additional
borrowings and/or private equity. 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 and the completion of
the transaction discussed in "Fiscal 2005 Refinancing" below, the Company
has sufficient cash flows to continue operations.

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 quarter 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 with long-term debt financing utilizing the equity in the Company's real
estate properties, to maintain adequate liquidity to support the Company's
operating and capital activities.

The Company may require further financing in 2006 if outstanding debt
obligations are not refinanced or converted as expected by the Company.

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

In February 2005, the Company issued convertible debentures in the aggregate
principal amount of $20.0 million to institutional private equity investors.
The convertible debentures have a stated maturity of 42 months and bear
interest at a variable rate of six-month LIBOR, currently 7.5% per annum and
are presently convertible into 1,000,000 shares of common stock at a
conversion price of $20.00 per share. The Company also issued to the
investors four-year warrants to purchase an aggregate of 457,142 shares of
common stock of the Company at an exercise price of $17.50 per share. The
fair value of the debt discount associated with the warrants at the time of
issuance was estimated to be $3.2 million and will be amortized as a
non-cash interest expense over the term of the convertible debt. Proceeds
from issuance of these convertible debentures will be used to repay mortgage
debt of $6.0 million and the balance to expand the capacity of carbon fiber
operations to meet demand. At the time of this transaction, the investors
converted $8.0 million principal amount of convertible debt that was
previously issued to them into 1,355,555 shares of common stock; as a
result, the February 2005 financing will result in a net increase of
approximately $6.0 million in long-term debt.

In October 2004, the Company issued convertible debentures in the aggregate
principal amount of $20.0 million to institutional private equity investors.
The convertible debentures have a stated maturity of 42 months and bear
interest at 7.5% per annum and are presently convertible into 1,666,666
shares of common stock at a conversion price of $12.00 per share. The
Company also issued to the investors six-year warrants to purchase an
aggregate of 500,000 shares of common stock of the Company at an exercise
price of $13.00 per share. The fair value of the debt discount associated
with the warrants at the time of issuance was $2.5 million and will be
amortized as a non-cash interest expense over the term of the convertible
debt. Proceeds from issuance of these convertible debentures were used to
reduce existing Hungarian bank debt by $12.0 million and the balance for
working capital purposes which allowed the Company to refinance the
remaining Hungarian bank debt to a three-year term loan for $3.0 million
with no financial covenants going forward.

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

                                     6

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

In January 2004, the Company issued and sold convertible debentures in the
aggregate principal amount of $7.0 million to institutional private equity
and other investors (including $250,000 to each of Mr. Rumy and Mr.
McDonnell who are members of the Company's Board of Directors). The
convertible debentures have a stated maturity of 30 months and bear interest
at 6% per annum and are convertible presently into 1,295,954 shares of
common stock 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 beneficial conversion feature, at the time
of issuance, of $2.0 million 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 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%
(13.5% per annum as of December 31, 2004) with a LIBOR floor of 2%. The
Company will pay interest only on a monthly basis with principal balance due
at time of maturity. The loan is collateralized by a security interest in
the Company's headquarters facility and its two U.S. manufacturing
facilities that produce carbon and technical fibers. The proceeds of this
transaction were used to pay down debt of $6.0 million with its U.S. bank.
Of such proceeds, $0.5 million was held in an escrow account to be released
when the Company completed certain post-closing requirements. The Company
completed these requirements during the third quarter of fiscal 2004 and the
$0.5 million was released from escrow.

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

In March 2004, the Company issued and sold convertible debentures in the
aggregate principal amount of $5.75 million to institutional private equity
investors and Mr. Dill ($750,000) who is member of the Company's board of
directors. The convertible debentures have a stated maturity of 30 months
and bear interest at 6% per annum and are convertible presently 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 beneficial conversion feature, at the time
of issuance, of $4.0 million is being amortized as non-cash interest expense
over the term of the convertible debentures. Proceeds from the issuance of
these convertible debentures are being used for working capital and capital
expenditures.

If the results of the Company reflected a net income, an additional 6.9
million shares would be included in calculating the diluted earnings per
share. The additional shares relate to issuance of convertible debt of $6.4
million, warrants of 1.5 million of which .3 million would be dilutive using
the treasury stock method and stock options of 1.1 million of which .2
million would be dilutive using the treasury stock method.

                                     7

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

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

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

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

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

<TABLE>
<CAPTION>
                                                                                            December 31,  September 30,
                                                                                                2004          2004
                                                                                            ------------  -------------

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

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

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

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

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

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

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

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

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

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

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

          Less: Beneficial conversion feature and debt discount associated with warrants..     (6,867)        (5,030)
          Less: amounts payable within one year...........................................       (475)          (570)
                                                                                              -------        -------
     Total long-term debt ................................................................    $51,097        $43,718
                                                                                              =======        =======
</TABLE>

3.   DISCONTINUED OPERATIONS

In the fourth quarter of fiscal 2004, the Company formally adopted a plan to
discontinue and exit two divisions of its Zoltek Rt. operations which
manufacture textile acrylic and nylon fibers and yarns. These divisions were
not part of the long-term strategy of the Company and were not expected to
be profitable in the foreseeable future due to the continued pricing
pressure from competitive manufacturers. These divisions had been included
in the Specialty Products segment (see Note 6). The wind-down of

                                     8

these production lines was substantially completed by February 1, 2005.
Certain information with respect to the discontinued operations of the
textile acrylic and nylon fibers divisions for the quarters ended December
31, 2004 and 2003 is summarized as follows (amounts in thousands):

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

4.  COMPREHENSIVE LOSS

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

<TABLE>
<CAPTION>
                                                                                  THREE MONTHS ENDED DECEMBER 31,
                                                                                  -------------------------------
                                                                                        2004            2003
                                                                                       ------          ------
<S>                                                                                   <C>             <C>
          Net loss..............................................................      $(3,500)        $(3,723)
          Foreign currency translation adjustment...............................        2,709          (1,220)
                                                                                      -------         -------
          Comprehensive loss....................................................      $  (791)        $(2,503)
                                                                                      =======         =======
</TABLE>

5.   STOCK OPTION PLAN

At December 31, 2004, the Company had stock-based employee compensation
plans. The Company accounts for those plans under the recognition and
measurement principles of Accounting Principles Board Opinion No. 25 ("APB
25"), Accounting for Stock Issued to Employees, and its related
interpretations. No stock-based employee compensation costs are reflected in
net loss, as all options granted under those plans had an exercise price
equal to the market value of the underlying common stock on the date of
grant. During the first quarter of fiscal 2005, the Company granted 150,000
employee stock options with an exercise price that equaled the Company's
stock price on the applicable date of grant. The following table illustrates
the effect on net loss and loss per share if the Company had applied the
fair value recognition provisions of Statement of Financial Accounting
Standards No. 123 ("FAS 123"), Accounting for Stock Based Compensation, to
stock-based employee compensation (in thousands, except per share):

<TABLE>
<CAPTION>
                                                                                  THREE MONTHS ENDED DECEMBER 31,
                                                                                  -------------------------------
                                                                                        2004            2003
                                                                                       ------          ------
<S>                                                                                   <C>             <C>
         Reported net loss......................................................      $(3,500)        $(3,723)
         Total stock-based employee compensation expense determined under
           fair value based method for all awards, net of tax effects...........          (51)            (13)
                                                                                      -------         -------
         Pro forma net loss.....................................................      $(3,551)        $(3,736)
                                                                                      =======         =======
         Reported basic and diluted loss per share..............................      $ (0.21)        $ (0.23)
                                                                                      =======         =======
         Pro forma basic and diluted loss per share.............................      $ (0.22)        $ (0.23)
                                                                                      =======         =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                  THREE MONTHS ENDED DECEMBER 31,
                                                                                  -------------------------------
                                                                                        2004            2003
                                                                                       ------          ------
<S>                                                                                   <C>             <C>
         Assumptions
         -----------

         Expected life of option................................................      6 years         6 years
         Risk-free interest rate................................................        4.25%           4.25%
         Volatility of stock....................................................          77%             77%
         Expected dividend yield................................................           --              --
</TABLE>


6.   SEGMENT INFORMATION

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

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

                                     9

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

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

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

<CAPTION>
                                                                                      TOTAL ASSETS
                                                                                      ------------
                                                           Carbon        Technical     Specialty       Corporate
                                                           Fibers         Fibers        Products     Headquarters        Total
                                                           ------        ---------     ---------     ------------        -----
<S>                                                       <C>             <C>           <C>             <C>            <C>
December 31, 2004....................................     $69,908         $34,504       $24,792         $3,712         $133,016
September 30, 2004...................................      63,430          19,901        36,429          3,039          122,799
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                REVENUES (1)
                                                                             THREE MONTHS ENDED           LONG-LIVED ASSETS (2)
                                                                             ------------------           ---------------------
                                                                        DECEMBER 31,    DECEMBER 31,  DECEMBER 31,    SEPTEMBER 30,
                                                                           2004            2003           2004            2004
                                                                          -------          -----         ------          ------
<S>                                                                       <C>             <C>            <C>             <C>
United States.........................................................    $ 5,568         $4,915         $46,517         $46,582
Western Europe........................................................      4,726            735               -               -
Eastern Europe........................................................      2,771          2,143          38,817          33,056
Asia .................................................................        453            334               -               -
Other.................................................................          -             25               -               -
                                                                          -------        -------         -------         -------
Total.................................................................    $13,518         $8,152         $85,334         $80,538
                                                                          =======        =======         =======         =======
<FN>
----------
(1)  Revenues are attributed to the entity recognizing the sale, as it is
     not practical to accumulate every customer's country of domicile.
(2)  Property and equipment net of accumulated depreciation based on country
     location of assets.
</TABLE>

                                     10

7.   INVENTORIES

Inventories consist of the following (amounts in thousands):

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

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.

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

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

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 in the amount of $0.3
million for breaches by the Company of its obligations under the guaranty
and the settlement agreement and, in addition, demands $0.5 million in
damages from Hardcore and the Company, jointly and severally, under the
terms of the settlement agreement. During the third quarter of fiscal 2004,
Hardcore filed a petition under Chapter 11 of the U.S. Bankruptcy Code. In
October 2004, the Court of Common Pleas for Cuyahoga County, Ohio ruled in
favor of the former owner of Hardcore Composites in the amount of $1.1
million. In prior periods, the Company has accrued $1.1 million in respect
of the possible liability in this matter. The Company is vigorously
defending this matter, has filed counterclaims and filed an appeal.
Management believes that the ultimate resolution of this litigation will not
have a further material adverse effect on the Company's results of
operations, financial condition or cash flow.

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

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

                                     11

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

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

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

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

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

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

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

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

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

10.  SUBSEQUENT EVENTS

See Note 2 for subsequent financing transaction in February 2005.


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

GENERAL
-------

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

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

                                     12

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

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

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

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

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

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

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

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

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

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

                                     13

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

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

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

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

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

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

Amortization of financing fees, debt discount and warrants discount,
deferred financing and beneficial conversion feature costs which are
non-cash expenses was approximately $0.9 million in the first quarter of
fiscal 2005 compared to $0.1 million in the first quarter of fiscal 2004.
The increase in amortization resulted from the Company's refinancing
transactions (see "--Liquidity and Capital Resources").

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

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

The foregoing resulted in a net loss from continuing operations of $3.1
million for the first quarter of fiscal 2005 compared to a net loss of $3.3
million for the first quarter of fiscal 2004. Similarly, the Company
reported a net loss per share of $0.19 and $0.20 on a basic and diluted
basis for the first quarter of fiscal 2005 and 2004, respectively. The
weighted average common shares outstanding were 16.4 million for the first
quarter of fiscal 2005 and 16.3 million for the corresponding period of
fiscal 2004.

                                     14

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

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

Management will seek to fund its near-term operations from both the sale of
excess inventories and continued aggressive management of the Company's
working capital, as well as from sources that will include additional
borrowings and/or private equity. 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 and the completion of
the transaction discussed in "Fiscal 2005 Refinancing" below, the Company
has sufficient cash flows to continue operations.

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 quarter 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 with long-term debt financing utilizing the equity in the Company's real
estate properties, to maintain adequate liquidity to support the Company's
operating and capital activities.

The Company may require further financing in 2006 if outstanding debt
obligations are not refinanced or converted as expected by the Company.

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

In February 2005, the Company issued convertible debentures in the aggregate
principal amount of $20.0 million to institutional private equity investors.
The convertible debentures have a stated maturity of 42 months and bear
interest at a variable rate of six-month LIBOR, currently 7.5% per annum and
are presently convertible into 1,000,000 shares of common stock at a
conversion price of $20.00 per share. The Company also issued to the
investors four-year warrants to purchase an aggregate of 457,142 shares of
common stock of the Company at an exercise price of $17.50 per share. The
fair value of the debt discount associated with the warrants at the time of
issuance was estimated to be $3.2 million and will be amortized as a
non-cash interest expense over the term of the convertible debt. Proceeds
from issuance of these convertible debentures will be used to repay mortgage
debt of $6.0 million and the balance to expand the capacity of carbon fiber
operations to meet demand. At the time of this transaction, the investors
converted $8.0 million principal amount of convertible debt that was
previously issued to them into 1,355,555 shares of common stock; as a
result, the February 2005 financing will result in a net increase of
approximately $6.0 million in long-term debt.

In October 2004, the Company issued convertible debentures in the aggregate
principal amount of $20.0 million to institutional private equity investors.
The convertible debentures have a stated maturity of 42 months and bear
interest at 7.5% per annum and are presently convertible into 1,666,666
shares of common stock at a conversion price of $12.00 per share. The
Company also issued to the investors six-year warrants to purchase an
aggregate of 500,000 shares of common stock of the Company at an exercise
price of $13.00 per share. The fair value of the debt discount associated
with the warrants at the time of issuance was $2.5 million and will be
amortized as a non-cash interest expense over the term of the convertible
debt. Proceeds from issuance of these convertible debentures were used to
reduce existing Hungarian bank debt by $12.0 million and the balance for
working capital purposes which allowed the Company to refinance the
remaining Hungarian bank debt to a three-year term loan for $3.0 million
with no financial covenants going forward.

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

                                     15

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

In January 2004, the Company issued and sold convertible debentures in the
aggregate principal amount of $7.0 million to institutional private equity
and other investors (including $250,000 to each of Mr. Rumy and Mr.
McDonnell who are members of the Company's Board of Directors). The
convertible debentures have a stated maturity of 30 months and bear interest
at 6% per annum and are convertible presently into 1,295,954 shares of
common stock 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 beneficial conversion feature, at the time
of issuance, of $2.0 million 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 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%
(13.5% per annum as of December 31, 2004) with a LIBOR floor of 2%. The
Company will pay interest only on a monthly basis with principal balance due
at time of maturity. The loan is collateralized by a security interest in
the Company's headquarters facility and its two U.S. manufacturing
facilities that produce carbon and technical fibers. The proceeds of this
transaction were used to pay down debt of $6.0 million with its U.S. bank.
Of such proceeds, $0.5 million was held in an escrow account to be released
when the Company completed certain post-closing requirements. The Company
completed these requirements during the third quarter of fiscal 2004 and the
$0.5 million was released from escrow.

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

In March 2004, the Company issued and sold convertible debentures in the
aggregate principal amount of $5.75 million to institutional private equity
investors and Mr. Dill ($750,000) who is member of the Company's board of
directors. The convertible debentures have a stated maturity of 30 months
and bear interest at 6% per annum and are convertible presently 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 beneficial conversion feature, at the time
of issuance, of $4.0 million is being amortized as non-cash interest expense
over the term of the convertible debentures. Proceeds from the issuance of
these convertible debentures are being used for working capital and capital
expenditures.

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

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

                                     16

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

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

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

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

Net cash used by continuing operating activities was $2.2 million for the
first quarter of fiscal 2005. The cash flows used by continuing operating
activities during the three months ended December 31, 2004 were primarily
due to the net loss of $3.5 million plus a decrease in net operating assets
of $1.3 million, offset by non-cash items, including depreciation and
amortization of $2.2 million. The increase in net operating assets consisted
of an increase in receivables and other assets of $0.1 million as carbon
fiber sales increased during the period. In addition, accrued expenses and
other liabilities and trade payables increased $1.9 million with an increase
in inventories of $3.3 million as the Company built up its precursor
inventory for the start up of the new lines.

Net cash used by continuing operating activities was $1.0 million for the
first quarter of fiscal 2004. The cash flows used by continuing operating
activities during the three months ended December 31, 2003 were primarily
due to the net loss of $3.7 million offset by non-cash items including
depreciation and amortization of $2.0 million plus a decrease in net
operating assets of $0.5 million. The decrease in net operating assets
consisted of an increase of $0.7 million in inventories, an increase of $0.4
million in accounts receivable, a decrease of $0.1 million in prepaid and
other assets and a $0.9 million decrease in accrued expenses and other
liabilities a $2.5 million increase in trade payables and a $0.2 million
increase in long-term liabilities.

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

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

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

Inventories consist of the following (amounts in thousands):

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

                                     17

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

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

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

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

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

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

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

A summary of significant contractual obligations is shown below. See Note 2
to the consolidated financial statements for discussion of the Company's
debt agreements.

<TABLE>
<CAPTION>
                                                                                LESS THAN                3-5     MORE THAN
                                                                      TOTAL      1 YEAR    1-3 YEARS    YEARS     5 YEARS
                                                                     -------     ------    ---------   -------    -------
<S>                                                                  <C>         <C>        <C>        <C>        <C>
         Convertible debentures...................................    40,850                $40,850
         Long-term debt, including current maturities.............    17,589        475      17,114    $     -    $     -
                                                                     -------     ------     -------    -------    -------
              Total debt..........................................    58,439        475      57,964          -          -
         Operating leases.........................................       232         58         174          -          -
                                                                     -------     ------     -------    -------    -------
              Total debt and operating leases.....................    58,671        533      58,138          -          -
              Contractural interest payments......................    11,088      4,400       6,688
         Purchase obligations.....................................     1,403      1,403           -          -          -
                                                                     -------     ------     -------    -------    -------
              Total contractual obligations.......................   $71,162     $6,336     $64,826    $     -    $     -
                                                                     =======     ======     =======    =======    =======
</TABLE>

The future contractual obligations and debt could be reduced by $40 million
in exchange for 6.4 million shares of common stock if all the convertible
debt excluding the February 2005 transaction discussed in Note 2.

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

In October 2003, the Company was named as a defendant in a civil action
filed in the Court of Common Pleas for Cuyahoga County, Ohio by the former
owner of Hardcore Composites Operations, LLC ("Hardcore") alleging breach by
Hardcore and the Company of their respective obligations under a sublease,
the Company's guaranty of the sublease, and prior settlement agreement among
the parties. The former owner's action claims damages in the amount of $0.3
million for breaches by the Company of its obligations under the guaranty
and the settlement agreement and, in addition, demands $0.5 million in
damages from Hardcore and the Company, jointly and severally, under the
terms of the settlement agreement. During the third quarter of fiscal 2004,
Hardcore filed a petition under Chapter 11 of the U.S. Bankruptcy Code. In
October 2004, the Court of Common Pleas for Cuyahoga County, Ohio ruled in
favor of the former owner of Hardcore Composites in the amount of $1.1
million. The Company has accrued $1.1 million in respect of the possible
liability in this matter. The Company is vigorously defending this matter,
has filed counterclaims and filed an appeal. Management believes that the
ultimate resolution of this litigation will not have a further material
adverse effect on the Company's results of operations, financial condition
or cash flow.

                                     18

NEW ACCOUNTING PRONOUNCEMENTS

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

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

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

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. The Company does not
believe such risk is material because a significant amount of the Company's
current debt is at fixed rates. However, the February 2005 convertible debt
issuance of $20.0 million bears interest at a variable rate and the Company
plans to address the risk issue. At December 31, 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 variable
rate debt would result in a $0.5 million increase in interest expense based
on the debt levels at December 31, 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 December 31, 2004 and 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 December 31, 2004
and 2003 amounted to $3.5 million and $3.5 million, respectively. As of
December 2004, the Company has a long-term loan with its Zoltek Rt.
subsidiary of $5,730,670. The loan will be repaid in U.S. Dollars over time.
The Company could realize gain or loss on the loan as the value of the
Forint

                                     19

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

                                    * * *

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

ITEM 4.  CONTROLS AND PROCEDURES

The registrant carried out an evaluation, under the supervision and with the
participation of the registrant's management, including the registrant's
Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the registrant's disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer has
concluded that the registrant's disclosure controls and procedures as of
December 31, 2004 were effective to ensure that information required to be
disclosed by the registrant in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange
Commission's rules and forms.

There were no changes in the registrant's internal control over financial
reporting that occurred during the quarter ended December 31, 2004 that have
materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.

                                     20

                           ZOLTEK COMPANIES, INC.

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The information set forth under Item 5 of this Part II is incorporated
herein by this reference.

Item 5. Other Information.

On February 9, 2005, the Company completed the private placement (the
"Private Placement") of $20 million aggregate principal amount of Senior
Convertible Notes (the "Notes") pursuant to the terms of a Loan and Warrant
Agreement, dated as of February 9, 2005, among the Company, the lenders
parties thereto ("Lenders") and an administrative agent ("Agent") for the
Lenders (the "Loan Agreement"), a copy of which is attached hereto as
Exhibit 4.1.

The Notes, the form of which is attached hereto as Exhibit 4.2, are
convertible into shares of the Company's Common Stock at a conversion price
of $20.00 (subject to possible adjustment). The Notes bear interest at the
rate of six-month LIBOR plus 4% per annum, payable quarterly. Principal of
the Notes is due and payable on August 9, 2008.

Pursuant to the Loan Agreement, the Company also issued to the Lenders
warrants to purchase up to 457,142 additional shares of the Company's Common
Stock (the "Warrants"). The Warrants, the form of which is attached hereto
as Exhibit 4.3, are exercisable during a 4-year term ending on February 9,
2009 and have an exercise price equal to $17.50 (subject to adjustment).

The conversion price of the Notes and the exercise price of the Warrants are
both subject to adjustment under certain circumstances, as set forth in the
Notes and the Warrants. The number of shares of Common Stock issuable under
the Notes and the Warrants are subject to the occurrences of certain events
described therein such as the declaration by the Company of a stock
dividend, a subdivision or combination of its outstanding shares of Common
Stock, a reclassification of the outstanding securities of the Company
(including due to reorganization of the Company itself) or the issuance of
common equity securities at a price less than the applicable conversion or
exercise price.

Pursuant to the Loan and Warrant Agreement, subject to certain exceptions
the Company will generally be restricted from incurring additional
indebtedness until such time as the Company shall have granted to the
Lenders a first priority lien on Company's headquarters facility and the
Company's leasehold on its Missouri Research Park facility and a second
priority lien on the Company's interest in its Abilene, Texas facility.

All of the Lenders were "Accredited Investors," as defined in Rule 501 of
Regulation D under the Securities Act of 1933, as amended (the "Securities
Act"), and the securities offered and sold in the Private Placement have not
been registered under the Securities Act and were sold without registration
in reliance upon the exemption from securities registration under both Rule
506 of Regulation D and Section 4(2) of the Securities Act. Pursuant to the
terms of the Private Placement, the Company has entered into a Registration
Rights Agreement with the Lenders, a copy of which is attached hereto as
Exhibit 4.4 ("Registration Rights Agreement"), pursuant to which the Lenders
shall have the right to demand registration of the Common Stock and to
participate in certain subsequent offerings of securities by the Company or
other shareholders.

The foregoing summary of the Private Placement is qualified in its entirety
by the Loan Agreement, Notes, Warrants and the Registration Rights
Agreement, and should be read in conjunction with, the exhibits attached
hereto of such documents.

Item 6. Exhibits

See Exhibit Index


                                     21

                                  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: February 9, 2005                        By:    /s/ KEVIN SCHOTT
      ----------------                           ---------------------------
                                                        Kevin Schott
                                                   Chief Financial Officer



                                     22

                                Exhibit Index
                                -------------

   Exhibit No.                             Description
   -----------                             -----------

       4.1          Loan and Warrant Agreement, dated as of February 9,
                    2005, by and among the Registrant, the Lenders and the
                    Agent.

       4.2          Form of Senior Convertible Note, dated as of February 9,
                    2005

       4.3          Form of Warrant, dated as of February 9, 2005

       4.4          Form of Registration Rights Agreement, dated as of
                    February 9, 2005.

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

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

      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.

      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.




                                     23