<PAGE>

                     SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549

                                  FORM 10-K

                Annual Report Pursuant to Section 13 or 15(d)
                   of the Securities Exchange Act of 1934

For the fiscal year ended September 30, 2003    Commission File Number 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 Identification No.)
incorporation or organization)

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

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

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
                                                               value $.01
                                                            (Title of class)

         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 if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ X ].

         Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-25 of the Act). Yes   . No X .
                                                 ---    ---

         State the aggregate market value of the voting stock held by
non-affiliates of the registrant as of March 31, 2003: approximately
$26,883,318.

         Indicate the number of shares outstanding of each of the
registrant's classes of common stock as of: January 12, 2004: 16,307,338
shares of Common Stock, par value $.01 per share.


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                     DOCUMENTS INCORPORATED BY REFERENCE
         The following documents are incorporated by reference into the
indicated Part of this Report:

           Document                                    Part of Form 10-K
           --------                                    -----------------

Proxy Statement for the 2004
  Annual Meeting of Shareholders                             III



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                                   PART I

Item 1.  Business
------   --------

         This Annual Report on Form 10-K for the fiscal year ended September
30, 2003 and the documents incorporated by reference herein contain
forward-looking statements, which are inherently subject to risks and
uncertainties. See "--Special Note Regarding Forward-Looking Statements."

OVERVIEW

         Zoltek Companies, Inc. (the "Company" or "Zoltek") is an applied
technology and advanced materials company. The Company's primary focus and
mission is to lead the commercialization of carbon fibers as a low-cost but
high performance reinforcement for composites used as the primary building
material in everyday commercial products.

         Zoltek believes it is the leader in developing commercial markets
for carbon fibers and carbon fiber reinforced composites for a diverse range
of applications based upon carbon fibers' distinctive combination of
physical and chemical properties, principally corrosion and fatigue
resistance, high-strength, low-weight and stiffness. Zoltek's business
strategy consists of the following elements:

         o Continue Reducing Production Costs -- Zoltek believes its
         proprietary process and equipment design technology enables it to
         produce carbon fibers at costs substantially lower than those
         generally prevailing in the industry and to supply carbon fibers
         for applications, which are not economically viable for higher cost
         competitors. Zoltek intends to continue to reduce its total
         production costs through various means, including use of its
         acrylic fiber precursor manufacturing technology, optimized process
         capabilities and reduced equipment cost.

         o Sustainable Price Leadership -- Zoltek's ultimate objective is to
         sell carbon fibers to high volume users. The Company's pricing
         strategy is to market carbon fibers for use as a base reinforcement
         material in composites at sustainable price levels resulting in
         composite costs per unit of strength or stiffness which compete
         favorably with alternative base construction materials such as
         steel and aluminum. The Company believes this will result in
         significant new product applications for carbon fibers.

         o Leverage Capacity Leadership -- In order to encourage new
         applications development for carbon fibers, the Company believes it
         is necessary to maintain significant available capacity. From
         fiscal 1997 through early fiscal 1999 the Company pursued an
         aggressive capacity expansion program and the Company believes it
         currently has the largest rated capacity for carbon fibers
         production in the world. The Company believes that its significant
         available capacity will encourage potential high volume users to
         commit to incorporating carbon fibers into their products. Zoltek
         has developed a standardized continuous carbonization line design
         in order to shorten lead time from the decision to add lines to the
         time when the lines become operational to six months, which is
         significantly shorter than experienced by other carbon fiber
         manufacturers.

         o Support New Commercial Market and Applications Development -- To
         accelerate the commercialization of carbon fibers and carbon fiber
         composites across a broad range of mass-market applications, the
         Company has pursued various initiatives and developed significant
         partnerships with potential users of carbon fibers to act as a
         catalyst in the development of new low-cost, high volume products.

         Zoltek believes that it has substantially achieved its strategic
goals of lowering its costs, establishing sustainable but competitive
selling prices and increasing its capacity. Market development has been a
very expensive and time-consuming effort that has not yet resulted in
significant sales volumes. While the actual financial results of this
strategy have not developed to date, the Company believes it is well
positioned to benefit from being a first mover in this emerging market.
Based on recent market trends and application qualifications, the Company
believes it will be successful in the implementation of all the elements of
its strategy. Specifics concerning current and developing applications for
carbon fibers are discussed below in "--Current and Developing
Applications."

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         Current Business - Carbon Fibers and Technical Fibers - The most
         -----------------------------------------------------
significant current application for carbon fibers produced by the Company is
for aircraft brake manufacturers who use the Company's fibers as base
materials for the carbon/carbon composite brake systems used in most newly
designed aircraft (both for new and replacement brakes). The Company also
competes in a broad range of current commercial applications of carbon
fibers.

         The Company believes that, in addition to the carbon fibers, its
intermediate product, stabilized and oxidized acrylic fiber, has a
significant market potential in the field of flame and heat resistant
applications. These products, sold under the PYRON(R) trade name, represent
significant near-term market potential for the Company. The Company believes
it is well positioned to supply material to the flame/heat barrier market
and that its products offer an excellent cost/performance value to
manufacturers as they design new products to comply with voluntary and
legislated new open flame fire safety standards.

         Current Business - Non-core Specialty Products - In fiscal year
         ----------------------------------------------
1996, the Company acquired its Hungarian operation, now called Zoltek Rt.,
to obtain the technology and competitive source for acrylic fibers, the
precursor for carbon fibers. Along with the acrylic fibers, sold into the
textile markets, Zoltek Rt. also produces several other industrial products.
The Company plans to divest these products and operations, other than the
acrylic facilities, as the carbon fiber business grows.

         The Company is a Missouri corporation founded in 1975. The Company
entered the carbon fibers business in fiscal 1989 and the Company divested
its original industrial equipment business in fiscal 1995. After entering
the carbon fibers business, the Company significantly grew the aircraft
brake business and developed the strategy it is now pursuing. In November
1992, the Company completed its initial public offering. The Company
completed follow-on equity offerings in November 1995 and September 1996.

COMPANY OPERATIONS

         The Company manufactures, markets and develops applications for
carbon fibers. The Company has three carbon fiber manufacturing plants.
Abilene, Texas facility is the Company's major carbon fiber manufacturing
facility with auxiliary processing capabilities. St. Charles, Missouri
facility is primarily dedicated to the aircraft brake and other friction
products manufacturing. The plant in Hungary primarily produces carbon
fibers, intermediate oxidized fibers, carbon fiber textile products and
acrylic precursor and nylon fiber products.

         Acrylic fiber precursor comprises more than 50% of the total cost
of producing carbon fibers. During 1999, the Company converted the specialty
products business segment's Mavilon (acrylic) production line to the
production of precursor. During 2000, the Company began to manufacture
production quantities of precursor and currently all of the Company's carbon
fibers are produced from this precursor, except the aircraft brake
materials, for which other precursor is required under longstanding aircraft
program qualifications. The Company expects that eventually all of its
acrylic fiber capacity will be converted to precursor manufacturing and this
technology will be transferable to other potential suppliers to assure
sufficient cost-competitive supply of raw material to support the Company's
long-term carbon fiber growth strategy.

         The Company's rated annual carbon fibers production capacity is
11.0 million pounds which the Company believes to be the largest in the
world. The Company sells carbon fibers under the PANEX(R) trade name and its
flame and heat resistant fibers under the PYRON trade name. The Company
performs certain downstream processing to facilitate the use of carbon
fibers, such as weaving, needling, blending with other fibers, chopping and
milling.

         Also, at its newly established facility in Salt Lake City, the
Company develops and manufactures resin pre-impregnated carbon fibers
(prepregs). At its other Salt Lake City facility (Entec Composite Machines),
the Company designs and builds composite manufacturing equipment and markets
the equipment along with manufacturing technology and materials.

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         The Company's primary focus is creating integrated solutions for
large potential end users by working directly with users in the primary
market sectors targeted by the Company. The Company also provides composite
design and engineering for development of applications for carbon fiber
reinforced composites.

         The specialty products operations, which consists of the Company's
non-carbon fiber related operations of the Hungarian-based subsidiary,
Zoltek Rt., manufactures and markets acrylic fibers, nylon products and
industrial materials. The Company acquired Zoltek Rt. in fiscal 1996 to
secure access to the technology underlying the production of precursor, the
acrylic fiber raw material utilized in the manufacture of carbon fiber.
Along with acrylic fibers, Zoltek Rt. also produces nylon-6 fibers and
granules, plastic netting and CMC (carboxyl methyl cellulose). As a result
of removing the Mavilon production from the acrylic textile market in 1999,
the Company permanently removed from production $25 million to $35 million
of low-margin acrylic fiber annual revenue historically sold for textile
applications. As the demand for carbon fibers grows, the Company expects to
exit all of these businesses.

         For historical financial information regarding the Company's
various business segments, see Note 10 of the accompanying Notes to
Consolidated Financial Statements.

CARBON FIBERS INDUSTRY OVERVIEW

         Carbon fiber composite materials are suited for a diverse range of
applications based on their distinctive combination of physical and chemical
properties. Carbon fibers are used as reinforcements in composite materials
that combine reinforcement carbon fibers with resins or other matrix
materials to form a substance with high strength, light weight, exceptional
stiffness and other exceptional properties not found in either component
alone. Carbon fibers most often are manufactured from acrylic fiber raw
material ("precursor"), which is desirable due to the linear orientation of
its molecular structure and high carbon content (approximately 60%). While
most other producers of carbon fibers utilize custom-made acrylic raw
material, the Company utilizes less costly textile-type acrylic fiber.

         Beginning in the early 1980s, the Company's predecessor developed a
family of products for use in what then was a new type of carbon/carbon
composite brakes utilized in military and large commercial aircraft. This
business has provided the base for the Company's carbon fiber business.
Currently, Zoltek supplies the three major aircraft brake manufacturers and
has long-term supply contracts for this application with two of those
manufacturers. The high cost of qualifying products for aerospace use and
the resistance to change by aircraft manufacturers and airlines are barriers
to entry to other potential suppliers.

         Until recently, the high cost of carbon fibers precluded all but
the most demanding applications, limiting carbon fibers use primarily to the
aerospace industry. During the past decade, as addition of new capacity
occasionally outpaced demand from aerospace applications, manufacturers sold
excess production at significantly reduced prices into specialty sporting
goods and industrial applications where the high performance of carbon
fibers would demand relatively high prices. As a result, the distinctive
characteristics of carbon fibers and the techniques for fabricating carbon
fiber composites became more broadly understood and some new and diverse
transitional applications developed. In sporting goods (the first
significant commercial application), the strength-to-weight ratio,
stiffness, rapid damping and fatigue resistance characteristics of carbon
fibers have made them a desirable and affordable material for a wide range
of products such as golf club shafts and tennis racquets.

         Extensive commercially viable applications are only possible at
carbon fiber prices significantly lower than those historically prevailing
for aerospace applications. Commercial applications targeted by the Company,
due to the favorable weight, strength and stiffness properties of carbon
fibers, include wind turbine blades, compressed natural gas (CNG) tanks,
civil structures, construction components, automotive body and structural
members, mass transit vehicle components, high strength piping, marine uses
and alternative energy systems. In all cases carbon fiber reinforced
composites are competing with other materials like steel, aluminum and other
composite reinforcements.

         The Company believes that the substantial majority of current
worldwide carbon fibers capacity remains dedicated to production of
high-cost, high-priced material for primary aerospace applications. This
market segment differs in important respects from the commercial markets
targeted by Zoltek. However, significant


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industry over-capacity coupled with slower than expected development of
major new markets resulted in excessive and destructive price competition,
completely blurring the differentiation of the two distinctly diverse
markets. While the basic technology to manufacture commercial and aerospace
carbon fibers is the same and fiber-to-fiber properties when compared to
Zoltek's fibers are equivalent, demands for specific fabrication methods,
level of quality documentation and certification costs make the aerospace
fibers significantly higher cost.

         As long as severe over-capacity exists, aerospace carbon fiber
manufacturers have used commercial applications to sell fibers on an
incremental cost basis. In some circumstances, aerospace carbon fiber
manufacturers sort fibers to improve the consistency of their prime product
and sell part of their production on the commercial markets. However, the
Company believes that once the over-capacity is eliminated, the aerospace
fibers manufacturers will not be able to economically justify adding
capacity to pursue the commercial markets. In the past six months the Airbus
A-380 airplane entered production phase and recently Boeing announced the
introduction of the 7E7 airplane, both of which incorporate substantial
amounts of carbon fibers. The demand for carbon fibers for these two
programs is expected to eliminate the excess capacity in aerospace fibers
and Zoltek believes this should result in the long expected separation of
the two divergent markets.

         The Company has received indications from its customers and market
development partners that the aerospace carbon fiber manufacturers are
raising prices and warning customers that carbon fiber availability will be
restrained within six months. This situation led to the 1.8 million pound
contracts from Chinese and Taiwanese sporting goods manufacturers announced
by the Company in October 2003. Zoltek believes it is well positioned to
capitalize on the changes in market conditions with significant available
capacity, favorable quality and properties of its Panex-35 fibers compared
to other commercial carbon fibers and aerospace fibers, its established
internal source of precursor and low manufacturing costs.

TARGETED DEVELOPING APPLICATIONS

         Zoltek has established ten application categories to manage its
application and market development efforts. In the past the Company pursued
all applications with similar resources. After a review of Zoltek's strategy
in 2002, the Company decided to concentrate on three of these categories
that are the primary application categories that are believed to offer the
highest potential for substantial sales over coming years. These application
categories are as follows:

      o  FIRE/HEAT BARRIER: Home furnishings - mattresses, furniture;
         Automotive - thermal blankets, fire-wall Industrial; Apparel --
         high temperature environments; Aircraft - fire barrier

         Zoltek's technical fibers business segment currently supplies its
PYRON products for use as fire barrier material in a number of applications.
The Company has entered into an exclusive development and supplier
relationship with Leggett & Platt, Inc., the largest supplier of mattress
manufacturing materials in the United States. California consumer safety law
requires mattresses sold after January 1, 2004 to have a specified level of
"flame resistance." Based upon input from industry participants, the Company
believes that all major suppliers will add fire resistant materials to their
mattresses sold in the United States. Management believes that Zoltek's
PYRON product line offers an effective and economical solution to this
market requirement. Based on this belief, management estimates industry
demand for its PYRON fibers could be very significant depending on
penetration relative to competing materials. Initial supply to the
institutional market already has commenced.

         PYRON fibers and blended yarns are used in a number of flame and
heat-resistant clothing and flame protective applications. These
applications are slowly moving from exclusively industrial and institutional
applications to consumer use that has much greater long-term potential.
PYRON fibers are used widely in Europe in the automotive industry for its
fire retardant and containment qualities.

         Carbon fibers are used in fire-retardant coatings to prevent or
control fire-related disasters in chemical plants, nuclear power plants,
refineries and offshore drilling platforms. Used as an additive or
reinforcement, carbon fiber heightens the ability of the fire-retardant
coating to withstand exceptionally high temperatures.

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      o  ALTERNATIVE ENERGY: Wind turbine blades; Compressed natural gas
         vessels for transport, cars and buses; Fuel cells; Solar panels;
         Flywheels

          Carbon fiber is an enabling material to make many alternative
energy concepts work and it is utilized in many known applications primarily
because carbon fiber offers a combination of light weight, stiffness and
strength in the design of complex systems. Wind turbines are providing a
significant part of the electricity generated in Europe and fast expanding
into the United States and they are continuing to grow in size and blade
length. The newest designs are producing three mega-watts or higher of
electricity and each of the three blades is 45 meters or longer, and as long
as 75 meters. For these lengths, carbon fiber reinforced composite is the
only practical solution.

         Zoltek is actively working with companies in the European wind
turbine industry to promote the conversion to carbon fibers. The significant
opportunity in this sector is the result of a requirement in Europe for 10%
of all energy to be "renewable." In the past few months, Zoltek's PANEX-35
carbon fibers have been tested and certified for design and production of
wind blades and the Company has started initial shipments.

         Compressed natural gas tanks, usually designed for 3,000 psi
working pressure, that are transporting natural gas for either logistics or
as fuel, must be light weight to be economically feasible. Carbon fiber
composites become the only available material to achieve the desired
structural properties. The Company is actively working with CNG tank
producers to broaden the use of lightweight high pressure tanks for high
volume transportation and automotive use. Carbon fiber-reinforced CNG tanks
are primarily sold into the bus and other vehicle fleet market, as the
reduction of weight directly translates to increased payload capability. The
use of CNG tanks in Asian automotive applications is currently growing
rapidly and Zoltek is actively working with several companies in these
markets. Zoltek's Salt Lake City facility is marketing the technology,
equipment and carbon fibers as a package. As a result, Zoltek obtained a
contract to supply the largest manufacturer of CNG tanks in China and in
Argentina, although the Company cannot predict when that contract will
result in significant carbon fiber sales.

      o  AUTOMOTIVE: Body and frame, aesthetic moldings and finishes, steering
         columns, drive shafts and clutches and brakes

         Zoltek believes the automotive market will eventually be the
largest market for carbon fibers, although it is several years away from
full development. Zoltek is the exclusive development partner with BMW using
carbon fiber to build the entire structural components of a series
production car. This project has been costly; Zoltek and BMW have invested
well over $5 million and $50 million, respectively, to date. The Company
believes the results of this project have been exceptional and it has
progressed into the second stage when the actual commercial car model will
be selected and designed. Along with this development project, Zoltek
continues to be the preferred carbon fiber supplier to BMW for the duration
of the development project and for five years thereafter. Through this
agreement the Company expects to supply a continuously growing amount of
carbon fibers to BMW and its component suppliers as BMW proceeds with a
carbon fiber composite parts migration program to increase use of carbon
fiber composite manufacturing process.

         In the short term auto companies are looking to use carbon fiber
composites for reducing weight to improve performance and to introduce
decorative products customers are willing to pay for. For the long term,
auto companies are looking to carbon fiber composites to reduce weight to
facilitate introduction of alternate fuels to reduce the reliance on oil.
All alternate fuel possibilities require the reduction of weight. Carbon
fiber reinforced composites can reduce the weight of a steel automobile by
as much as 60%, significantly increasing its performance or assist in
achieving the necessary weight reduction targets. In addition to the
performance benefits, applying lean production techniques, auto companies
and their suppliers are concentrating on reducing the cost of assembly by
eliminating the need for assembly. Composite structures can reduce complex
metal assemblies by as much as 90%, resulting in competitive costs with much
lower cost materials like steel and aluminum.

         While the BMW development contract is the flagship auto project for
the Company, substantially all automotive companies have programs underway
exploring the development of a wide variety of carbon fiber-reinforced parts
and assemblies. Zoltek is pursuing efforts with all European and U.S. auto
companies and their


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suppliers to advance the use of carbon fiber composites in series car
models. However, there are a number of show cars produced by hand, utilizing
aerospace production methods for minimum volume that Zoltek has not pursued
to date.

EXISTING AND NEW POTENTIAL APPLICATIONS

Existing applications that have been providing the carbon fiber revenues for
the past several years and the potential new applications are as follows:

      o  FRICTION: Aircraft and aerospace brakes - space shuttle, military,
         commercial, business; Automotive brakes and clutches - racing, high
         performance cars

         Aircraft brake application is the largest single market Zoltek
serves. While other materials soften under rising temperatures,
carbon/carbon (carbon fibers fused in a carbon matrix) grows stronger.
Carbon-carbon is used in aircraft brakes because its performance is enhanced
by heat while the brake system is significantly lighter weight compared to
metal alternatives. All Airbus commercial aircraft and the newer commercial
model Boeing aircraft and most military aircraft use carbon/carbon composite
brakes. Goodrich, Messier-Bugatti and its US subsidiary, A-Carb, and
Honeywell supply over 90% of these brakes world-wide. Zoltek continues to
be the majority supplier to this market with a ten-year agreement with
Goodrich entered into in June 1994 and later extended to 2009, multi-year
contract with Messier-Bugatti and annual supply contracts for military
brakes with Honeywell. This market was growing 15-25% annually until 2001
but has declined by almost 50% since that time due to the reduction in
commercial flights, reduction of inventory by airlines and FAA approval of
reusing about 25% of worn brakes. The Company expects that this market will
resume its growth by 2005.

         Friction-related products cut across several other application
categories including automotive, aerospace and industrial, capitalizing on
unique properties of carbon fibers. Developed originally as a lightweight
heat shield for spacecraft, carbon-carbon has become a key material in
advanced braking systems, automotive friction products (clutches and brakes)
and rocket nozzles. Currently automotive friction applications for carbon
fiber are limited to high performance and high price-point cars but this is
changing. In 2003, the Company installed a system to produce carbon fiber
fabrics for automotive friction products on a continuous and high volume
basis. Management believes this category has the potential for significant
long-term growth.

      o  SPORTING GOODS: golf clubs, hockey sticks, archery arrows, fishing
         poles, water skis, snow skis, snowboards

         Sporting goods represent a transitional application in the
progression of carbon fiber from an "advanced" material, limited to
high-priced aerospace applications, to a price-sensitive, mass-market
material. Carbon fibers have significantly improved the performance of many
sporting good products. Zoltek anticipates continued growth in future demand
as "graphite" golf clubs, skis, racquets and similar equipment become less
expensive, and therefore, less of a novelty item and more of a staple. Until
recently, "graphite" clubs and racquets had been produced from aerospace
fibers sold at artificially low prices.

         Zoltek acquired a prepreg facility to enable the Company to supply
the sporting goods market with carbon fibers impregnated with resin for
ready processing. Zoltek has begun to generate significant sales in this
market the Company's PANEX-35 fibers. Based on the acceptance of Zoltek's
PANEX-35 products, the Company expects this application can continue its
growth into new products and, in fiscal 2004, to be a significant part of
the Company's overall carbon fiber sales. With the knowledge gained in this
market, the Company was able to develop its Chinese and Taiwanese customers
and recently received three contracts for 1.8 million pounds of PANEX-35 in
these markets, which the Company expects to be shipped over 12 to 18 months.

      o  THERMOPLASTICS/ELECTRONICS: Electric conductivity - office machines,
         computers; Reinforcement - applications requiring higher performance
         than fiberglass

         Carbon fiber acts to dissipate both static electricity and heat.
Those two properties, combined with light-weight, have made it an
increasingly important material in the manufacture of computers, printers,
copiers and other electronic devices. Growth in computers and electronics
has resulted in rising demand for carbon fibers


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used in conductive plastics to dissipate static electricity or to act as a
shield against electromagnetic interference ("EMI") in laptop computers,
disk drives and similar devices. Carbon fibers also have been used in making
plastic carrying trays for a manufacturing environment where contamination
is an issue.

         In the longer term, structural reinforcement of plastics will be a
much more significant application than the niche electrical applications
that exist today. The strength and stiffness of carbon fibers and the ease
of compounding with thermoplastics opens new significant applications in
automotive and other large thermoplastic molding applications for which
improved physical properties are required.

         Zoltek has developed and introduced a new carbon fiber product
format that reduces cost and produces a much better quality product for high
volume manufacturing. The Company believes that eventually it will be able
to garner a significant part of this market with the new product format. In
addition, Zoltek may utilize its thermoplastic compounding capabilities in
its Hungarian operations to introduce carbon fiber filled compounds.

      o  OIL/OFF-SHORE DRILLING: Buoyancy for steel tethers and pipes,
         composite tethers, riser pipes, drill pipes, spoolable pipes; Fire
         retardant paints and decking

         The Company is actively involved in programs to use carbon fiber
composites in offshore oil exploration and drilling due to their combination
of light-weight, strength, stiffness and resistance to corrosion. As
offshore drilling activity goes to deeper fields, driven by the high cost of
oil and depletion of easier-to-reach reserves, carbon fiber reinforced
composites again become the enabling material of construction.

         Zoltek has supplied carbon fibers used in buoyancy devices for
offshore drilling equipment. The Company also has participated for the past
three years in trials of drill pipe capable of extending the reach of
existing offshore oil platforms. Zoltek also has been selected as a supplier
of carbon fibers for composite rods to manufacture tethers for offshore
platforms to the ocean floor at greater depth. Development efforts led by
one joint venture of major suppliers to the energy sector estimate potential
long-term requirements of approximately 7 million pounds of carbon fiber for
composite tethers and risers for each deep-water drill platform.

         Through Zoltek's Salt Lake City composite equipment operations,
Zoltek recently received contracts to design and install a high pressure
oilfield pipe manufacturing facilities in Russia. This system will be
designed for carbon fiber use. Zoltek expects to supply these customers with
their carbon fiber requirements in the future.

      o  INFRASTRUCTURE/CONSTRUCTION: Pre-cast concrete reinforcement grids,
         rebar, bridge decking, cables and tendons; Repair and strengthening
         materials - concrete column wrapping, seismic retro-fit, pipe
         repair

         Carbon fiber can be used as a substitute for steel in reinforcing
concrete in many infrastructure projects, providing greater strength and
stiffness while eliminating the problem of corrosion. This is true both in
new construction projects and in addressing a growing need for maintenance
or repair work. There is growing federal and state interest in alternatives
to conventional steel and concrete construction and repair systems. Carbon
fiber-reinforced composite systems often permit retrofit and repair to be
done without stopping or diverting traffic for extended periods.

         Zoltek is a development partner with Old Castle and several
significant pre-cast concrete companies in a consortium to develop a series
of products incorporating recent technology developments for pre-cast
concrete material fortified with carbon fibers. Zoltek is also working with
Washington University of St. Louis to develop a range of repair kits and
technical documentation to further penetrate this market. A family of
pre-cast concrete products have recently been introduced by a consortium of
companies led by Old Castle and Zoltek expect to receive significant
contracts beginning 2004. In addition, Zoltek has been supplying carbon
fiber fabrics for repair of Olympic stadiums in Greece and infrastructure in
Turkey.

      o  INDUSTRIAL: EQUIPMENT: - rollers, shafts, components; Storage and
         transport of liquids and gases - tanks, pipes

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         Zoltek has identified a number of potential high volume industrial
applications for carbon fiber reinforced composites that capitalize on
carbon fibers' light weight, stiffness and resistance to corrosion. Carbon
fiber can be used to strengthen and improve many kinds of rollers and
shafts. In paper mills, for instance, there is growing interest in
development of fast-rotating composite drums. The Company also has
identified potential markets in industrial tanks and pipes leveraging carbon
fibers' properties.

      o  TRANSPORTATION/MARINE: Aircraft interior - decking, luggage
         compartment, seat backs; Light rail - interior components, molded
         interior components; Truck trailers - flooring, beams, wheels,
         bumpers, Ships - hulls and structures, riggings, decks

         At today's lower carbon fiber price points, transportation
companies, such as trucking, rail, pipelines and buses, are now focusing on
the lifecycle cost savings that are possible through the combination of
light weight, strength and durability provided by carbon fibers. There are a
multiplicity of potential applications in the marine environment
capitalizing not just on carbon fibers' comparative advantages in light
weight and strength, but also (to cite two properties that are lacking in
fiberglass) on their stiffness and resistance to aqueous corrosion.
Fiberglass, carbon fibers' predecessor, revolutionized boat building. A
great deal of further progress is possible through the additional use of
composites reinforced with carbon fibers or in combination with fiberglass.

         Carbon fiber materials are currently used in truck trailer wheels
in Europe and aircraft seat back components. The use of carbon fiber can
reduce the weight by as much as 30% compared to fiberglass.

CUSTOMERS AND BACKLOG

         As part of its efforts to expand its current range of market
applications, the Company engages in various strategic relationships to
study the viability of the use of carbon fibers in new composite materials
and structural enhancement environments. These relationships are designed to
build on existing expertise and industry knowledge by exploring new
potential uses for carbon fibers. Successful partnerships with commercial
customers include the long-term supply relationship with Goodrich. The
Company intends to consider additional strategic application development and
composite manufacturing partnerships and joint ventures with other
participants in the composite value chain.

         In the fiscal years ended September 30, 2003 and 2002, the Company
reported sales of $8.0 million and $9.8 million, respectively, to Goodrich
which was the only customer that represented greater than 10% of the
Company's total consolidated revenues.

         As of September 30, 2003 and 2002, the Company had a backlog of
orders believed to be firm aggregating more than $16.0 million and $20.0
million (including estimated releases under long-term supply arrangements
during the succeeding 12 months), respectively. Purchase orders from the
Company's customers are subject to amendment or cancellation.

INTERNATIONAL

         The Company conducts its operations and sells its carbon fiber
products primarily in the United States and Europe. The Company initiated
sales distribution in Asia in fiscal 2002 and successfully gained new sales
from this region during fiscal 2003. The specialty products business segment
derives essentially all of its revenues from Europe and the Middle East.

         There are additional risks attendant to the Company's foreign
operations, such as currency fluctuations. For additional information
regarding the Company's international operations, see Note 10 of the
accompanying Notes to Consolidated Financial Statements.

SOURCES OF SUPPLY

         As part of its growth strategy, the Company has developed its own
precursor acrylic fibers and all of its carbon fibers, excluding most of the
aircraft brake products, are now manufactured from this precursor. The

                                     10

<PAGE>
<PAGE>

primary source of raw material for the precursor is ACN (acrylonitrile),
which is a commodity product with multiple sources.

         The Company currently obtains most of its acrylic fiber precursor
to supply its carbon fiber operations for the aircraft brake applications
from Acordis, the only supplier that currently produces precursor approved
for use in aircraft brake applications. Under an agreement with the Company,
Acordis has agreed to supply the Company with up to 18.0 million pounds per
year of precursor. Either party on January 1, 2005, or any anniversary
thereof may terminate this supply agreement, by providing at least two
years' prior notice. The Company believes Acordis is a reliable source of
supply at the Company's current operating levels. However, the Company has
initiated trials at its aircraft brake manufacturer with its own
precursor-based products, which might protect its business if there were an
interruption in supply from Acordis.

         The major materials used by the specialty products business segment
include acrylonitrile and other basic commodity products, which are widely
available from a variety of sources.

INTELLECTUAL PROPERTY

         The Company believes that it has developed and utilizes valuable
technology and innovations, including various aspects of its manufacturing
process, which are trade secrets in which it has a proprietary interest. The
Company seeks to protect its proprietary information by, among other things,
requiring key employees to execute non-disclosure agreements. The Company
holds certain patents, but they are not material to its current business.

         The Company is 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. Recently, a court decision 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 and results of operations.

COMPETITION

         The Company's carbon fibers and technical fibers business segments
compete with various other producers of carbon fibers, many of which have
substantially greater research and development, marketing, financial and
managerial resources than the Company and represent significant competition
for the Company.

         The Company believes that no single manufacturer of carbon fiber
products competes across all of its product lines and applications. The
carbon fibers business segment's direct carbon fiber competitors include
Fortafil Fibers, Inc. in the United States and SGL Carbon in the United
States and Europe, inasmuch as they use similar textile-type precursor as
the Company. SGL currently is Zoltek's only primary competitor in the
oxidized fiber market. To varying degrees, depending on market conditions
and supply, the Company also competes with aerospace grade carbon fiber
producers, such as Hexcel Corporation in the United States and Toray
Industries, Inc., Toho Rayon and Mitsubishi Rayon Co., Ltd. in Japan. These
carbon fibers producers tend to market higher cost products than the
Company's products, with a principal focus on aerospace structural
applications. These manufacturers, while unable to sustain low pricing, tend
to enter into direct competition with the Company primarily when they engage
in significant discounting due to protection of their market share, excess
capacity or product surpluses. Management believes that there has been a
significant shift in this situation as the aerospace fiber demand will be
significantly affected with the introduction of Airbus A-380 and Boeing 7E7
airplanes.

         The Company believes that the principal areas of competition for
its carbon fibers and technical fibers business segments are sustainable
price, quality, development of new applications and ability to reliably meet
the customer's volume requirements and qualifications for particular
programs.

         Competitors of the specialty products business segment in the
textile fibers market include MonteFibre, Sp.A., A.G. Bayer and Acordis.
However, the historic ties with and geographic proximity to customers in
Eastern and Central Europe provide competitive advantages for the specialty
products business segment in these markets compared to the larger
manufacturers. Zoltek believes this advantage will decrease over time and,
accordingly, the specialty products business segment has pursued a strategy
to increase sales to Western


                                     11

<PAGE>
<PAGE>

European markets and seeking a product mix with more favorable competitive
characteristics, such as advanced materials (e.g., carbon fiber precursor).
The non-textile market for the specialty products business segment's
products is sufficiently fragmented that no significant single direct
competitor exists. The specialty products business segment's sales of its
industrial products are heavily concentrated in the Central and Eastern
European markets.

ENVIRONMENTAL

         The operations of the Company's carbon fibers and technical fibers
business segments in Abilene, Texas and St. Charles, Missouri and Hungary
utilize thermal oxidation of various by-product streams designed to comply
with applicable laws and regulations. The plants produce air emissions that
are regulated and permitted by various environmental authorities. The plants
are required to verify by performance tests that certain emission rates are
not exceeded. Management believes that the plants are currently operating in
compliance with their permits and the conditions set forth therein. The
Company does not believe that compliance by its carbon fibers and technical
fibers operations with applicable environmental regulations will have a
material adverse effect upon the Company's future capital expenditure
requirements, results of operations or competitive position. There can be no
assurance, however, as to the effect of interpretation of current laws or
future changes in federal, state or international environmental laws or
regulations on the business segment's results of operations or financial
condition.

         The Company's operations generate various hazardous wastes,
including gaseous, liquid and solid materials. Zoltek believes the 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.

EMPLOYEES

         As of September 30, 2003, the Company employed 149 persons in its
U.S. operations and 846 in its Hungarian operations. The Company's U.S.
employees are not represented by any collective bargaining organizations. By
law, most employees in Hungary are represented by at least one labor union.
At Zoltek Rt. there are two active unions: Union Viscosa with approximately
340 members and Viscosa 1990 with approximately 225 members (some Zoltek Rt.
employees belong to both unions). The Company believes that relations with
both unions are good. Management meets with union representatives on a
regular basis. There have not been any problems or major disagreements with
either union in the past five years. The Company believes that overall its
employee relations are good.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         This Form 10-K, the Company's Annual Report to Shareholders and
certain information provided periodically in writing and orally by the
Company's designated officers and agents contain certain statements which
constitute "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. The terms "Zoltek," "Company," "we," "our"
and "us" refer to Zoltek Companies, Inc. The words "expect," "believe,"
"goal," "plan," "intend," "estimate," and similar expressions and variations
thereof are intended to specifically identify forward-looking statements.
Those statements appear in this Form 10-K, the Annual Report and the
documents incorporated herein by reference, particularly "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
and include statements regarding the intent, belief or current expectations
of the Company, its directors and officers with respect to, among other
things: (1) the Company's financial prospects; (2) the Company's growth
strategy and operating strategy including the focus on facilitating
acceleration of the introduction and development of mass market applications
for carbon fibers; (3) the Company's current and expected future revenue;
and (4) the Company's ability to complete financing arrangements that are
adequate to fund current operations and the Company's long-term strategy.

         You are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in the
forward-


                                     12

<PAGE>
<PAGE>

looking statements as a result of various factors. The factors that
might cause such differences include, among others, the following: (1) the
Company's ability to return to operating on a profitable basis; (2) the
Company's ability to comply with obligations under its credit agreements;
(3) the Company's ability to manage its excess carbon fiber production
capacity and inventory levels; (4) the Company's ability to continue
investing in application and market development; (5) the Company's ability
to manufacture low-cost carbon fibers and profitably market them at
decreasing price-points and penetrate existing, identified and emerging
markets; and (6) the Company's ability to complete financing arrangements
that are adequate to fund current operations and the Company's long-term
strategy.

         Except as otherwise required by law, the Company undertakes no
obligation to publicly update or revise forward-looking statements to
reflect events or circumstances after the date of this Annual Report on Form
10-K and the Company's Annual Report to Shareholders or to reflect the
occurrence of unanticipated events.

Item 2.  Properties
------   ----------

         The Company's facilities are listed below and are considered to be
suitable and adequate for its operations. Except as noted below, all the
Company's properties are owned, subject to various mortgage loans.

<TABLE>
<CAPTION>
                                                                                         APPROXIMATE AREA
                  LOCATION                                    USE                        (IN SQUARE FEET)
                  --------                                    ---                        ----------------

<S>                                               <C>                                       <C>
         St. Louis, Missouri...................   Administrative, marketing and                40,000
                                                  central engineering offices

         St. Charles, Missouri (1).............   Technical fibers manufacturing              107,000

         Abilene, Texas........................   Carbon fibers manufacturing                 278,000

         Salt Lake City, Utah I................   Composite fabrication equipment              65,000
                                                  design and manufacturing

         Salt Lake City, Utah II (2)...........   Carbon fiber prepreg manufacturing           35,000

         Nyergesujfalu, Hungary................   Carbon fibers, acrylic fibers and         1,600,000
                                                  other products manufacturing

<FN>
--------
(1) Properties subject to ground lease.
(2) Properties subject to lease.
</TABLE>

Item 3.  Legal Proceedings
------   -----------------

         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 $300,000 for breaches and, in addition, demands $450,000 in
damages from Hardcore and the Company, jointly and severally, under the
terms of the settlement agreement. The Company intends to vigorously defend
this matter and will assert appropriate counterclaims. Management believes
that the ultimate resolution of this litigation will not have a material
adverse effect on the Company's results of operations or financial
condition. For additional information, see Note 2 to the Company's
Consolidated Financial Statements.

         Except as described above, the Company is not a party to any legal
proceedings other than ordinary routine litigation incidental to its
business, which the Company does not believe will result in any material
adverse effect on future consolidated results of operations or financial
condition.

Item 4.  Submission of Matters to a Vote of Security Holders
------   ---------------------------------------------------

         The Company did not submit any matters to a vote of its security
holders during the quarter ended September 30, 2003.

                                     13

<PAGE>
<PAGE>

Item 4A.  Executive Officers of the Registrant
-------   ------------------------------------

         The name, age and position with respect to each of the executive
officers of the Company are set forth below:

         Zsolt Rumy, age 61, is the founder of the Company and has served as
its Chairman, Chief Executive Officer and President and as a Director since
1975. Mr. Rumy has served as interim chief financial officer of the Company
since March 2003. Prior to founding the Company, Mr. Rumy served as
Industrial Marketing Manager and Process Engineer for Monsanto Company,
Accounts Manager for General Electric Company and Technical Sales
Representative for W.R. Grace Company. Mr. Rumy received a B.S. degree in
Chemical Engineering from the University of Minnesota in 1966. Mr. Rumy
speaks fluent Hungarian.

         The Company currently is in the process of recruiting one or more
senior executive officers, including a permanent chief financial officer.

                                   PART II

Item 5.  Market for Registrant's Common Equity and Related Shareholder Matters
------   ---------------------------------------------------------------------

         The Company's Common Stock (symbol: "ZOLT") is traded in the Nasdaq
National Market System. The number of beneficial holders of the Company's
stock is approximately 11,300. The Company has never paid dividends.

         Set forth below are the high and low bid quotations as reported by
Nasdaq for the periods indicated. Such prices reflect interdealer prices,
without retail mark-up, mark-down or commission:

<TABLE>
<CAPTION>
                                                  Fiscal year ended        Fiscal year ended
                                                 September 30, 2003        September 30, 2002
                                                 ------------------        ------------------

                                                 High         Low           High         Low
                                                 ----         ---           ----         ---
<S>                                              <C>          <C>          <C>          <C>
         First Quarter......................     $3.35        $1.25        $3.28        $1.95

         Second Quarter.....................      2.95         1.46         3.05         1.25

         Third Quarter......................      4.02         2.41         5.74         1.86

         Fourth Quarter.....................      2.97         2.08         3.00         1.60
</TABLE>

         In February 2003, the Company issued and sold to 14 investors,
including certain directors of the Company, subordinated convertible
debentures in the aggregate principal amount of $8.1 million. The
subordinated convertible debentures are convertible into an aggregate of
2,314,286 shares of the Common Stock of the Company at a conversion price of
$3.50 per share. The Company also issued to the investors five-year warrants
to purchase an aggregate of 405,000 shares of Common Stock of the Common
Stock of the Company at an exercise price of $5.00 per share. The Company
issued the foregoing securities without registration under the Securities
Act of 1933, as amended, in reliance upon the exemption therefrom set forth
in Section 4(2) of such Act relating to sales by an issuer not involving a
public offering.

                                     14

<PAGE>
<PAGE>

Item 6.  Selected Financial Data
------   -----------------------

<TABLE>
                                                   ZOLTEK COMPANIES, INC.
                                            SELECTED CONSOLIDATED FINANCIAL DATA
                                            (In thousands, except per share data)

<CAPTION>
Statement of Operations Data:                                                     Year Ended September 30,
----------------------------------------------------------------------------------------------------------------------------
                                                                 2003          2002         2001         2000         1999
                                                               --------      --------     --------     --------      -------

<S>                                                            <C>           <C>          <C>          <C>           <C>
Net sales....................................................  $ 63,539      $ 68,436     $ 76,478     $ 78,204      $68,525
Cost of sales, excluding available unused capacity costs.....    57,628        58,920       74,333       64,520       53,375
Available unused capacity costs..............................     5,716         6,039        6,803        4,658        3,953
Selling, general and administrative expenses (1).............    12,869        13,605       15,870       14,422       14,525
Operating loss from continuing operations....................   (12,674)      (10,128)     (20,528)      (5,396)      (3,328)
Other income (expense) and income tax expense benefit........    (2,928)        1,433         (746)       1,336          686
Net loss from continuing operations..........................   (15,602)       (8,695)     (21,274)      (4,004)      (2,642)
Gain (loss) on discontinued operations, net of income taxes..         -           864      (10,297)      (4,681)           -
Net loss.....................................................  $(15,602)     $ (7,831)    $(31,571)    $ (8,685)     $(2,642)
Net loss per share:
  Basic and diluted loss per share:
     Continuing operations...................................  $  (0.96)     $  (0.53)    $  (1.29)    $  (0.22)     $ (0.16)
     Discontinued operations.................................         -          0.05        (0.62)       (0.25)           -
                                                               --------      --------     --------     --------      -------
     Net income (loss).......................................  $  (0.96)     $  (0.48)    $  (1.91)    $  (0.47)     $ (0.16)
                                                               ========      ========     ========     ========      =======
Weighted average common shares outstanding...................    16,307        16,289       16,515       18,360       16,209


<CAPTION>
Balance Sheet Data:                                                                  September 30,
----------------------------------------------------------------------------------------------------------------------------
                                                                 2003          2002         2001         2000         1999
                                                               --------      --------     --------     --------      -------

<S>                                                            <C>           <C>          <C>          <C>          <C>
Working capital..............................................  $ 18,790      $  9,872     $ 22,891     $ 27,041     $ 43,946
Total assets.................................................   119,455       121,422      121,492      207,701      136,756
Short-term debt..............................................       933        14,014        2,073       47,126          630
Long-term debt, less current maturities......................    33,541        13,699       22,036        8,697        5,423
Shareholders' equity.........................................    64,516        75,904       79,596      122,811      114,634

<FN>
--------
(1) Includes application and development costs of $3,453, $3,750 and $3,533
    for fiscal years 2003, 2002 and 2001, respectively.
</TABLE>


Item 7.  Management's Discussion and Analysis of Financial Condition and
------   ---------------------------------------------------------------
         Results of Operations
         ---------------------

GENERAL
-------

         The Company's mission is to commercialize the use of carbon fibers
as a low-cost but high performance reinforcement for composites used as the
primary building material in everyday commercial products. The performance
benefits of carbon fibers - light weight, high strength and stiffness - have
been demonstrated in aerospace applications for many years. Eventually
carbon fibers were introduced in high performance sporting goods, but carbon
fiber's high price and lack of availability prevented it from general
introduction into higher volume commercial applications. The Company has
developed and is implementing a strategy to manufacture and sell carbon
fibers into commercial applications competitive with other materials.

                                     15

<PAGE>
<PAGE>

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

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

         The Company introduced its carbon fibers strategic plan in 1995 to
develop a low-cost process to produce carbon fibers and build significant
capacity while encouraging growth of new applications. As part of its
strategy to establish availability of carbon fibers on a scale sufficient to
encourage growth of large-scale applications, the Company completed a major
carbon fiber production capacity expansion in fiscal 1998 at its Abilene,
Texas facility. While the Company succeeded in developing its infrastructure
to become the low-cost producer, the large volume applications have been
slower to develop than initially anticipated. The disappointing rate of
market development caused the Company to reassess its strategy. The Company
reconfirmed the validity of the strategy, however, as a result of that
reassessment, the Company has specifically targeted three significant and
emerging applications: flame retardant bedding and home furnishings, wind
energy and automotive. Although the Company has not yet achieved the sales
volume it had expected, development of the use of carbon fibers is
continuing in each of the Company's current targeted market segments.

      o  Flame-retardant bedding and furniture will begin to be mandated by
         various state governments starting in 2004. The first regulations
         in place relate to the mattress products. The Company, in
         cooperation with a major supplier to the mattress industry, has
         developed a solution for the regulations put in place by the State
         of California. The Company believes its PYRON products will offer
         the best and most economical solution for this application. The
         California law became effective beginning January 1, 2004, and the
         U.S. federal regulations are expected to be substantially similar
         to California and are scheduled to be in place January 1, 2005. In
         view of recent legal developments regarding implementation of these
         laws and rules at this time it is not clear when the industry will
         implement the introduction of the flame resistant mattresses.
         However, it is the Company's belief that the potential exposure to
         product liability eventually will force the industry to comply and
         do so across the United States. The Company is already selling its
         products to institutional mattress manufacturers and expects sales
         to begin in consumer markets in fiscal 2004.

      o  Wind energy is one of the fastest growing industries globally. The
         desire by consumers and the government support for renewable energy
         has been growing in the past decade. Of all the possible
         technologies, wind generated electricity is the most competitive
         and technically viable renewable energy source. The wind turbine's
         ability to generate electricity is increased by the square of its
         blade length. With 55-60 meter (approximately 175-200 feet) long
         blades, a wind turbine can generate 3 MW of electricity at costs
         competitive with fossil fuels. All the major wind turbine
         manufacturers have announced plans to introduce such large turbines
         in 2004. The length of these blades requires the use of carbon
         fibers. The largest supplier of wind turbines has approved the
         Company as a one of two sources of carbon fiber for the production
         of blades and we expect significant carbon fiber orders from this
         application in fiscal 2004. Also, the Company's ENTEC division has
         signed an agreement with the second largest supplier of wind
         turbines to build machinery to make the blades for the wind
         turbines, which the Company believes will lead to meaningful carbon
         fiber sales in the latter part of 2004.

                                     16

<PAGE>
<PAGE>

      o  The Company believes that use of carbon fibers in automobiles will
         become the most significant application within 10 years. The
         performance properties of carbon fiber reinforced composites can
         reduce the weight of a car by 60% over steel and 35% over aluminum.
         This allows either a significant improvement in the car's
         performance and/or fuel consumption. Both are significant
         attributes for the automobile industry. The Company has been
         working with BMW exclusively to efficiently and reliably produce
         structural parts for automobiles. The results from this development
         work have been favorable. As a result, the Company believes that
         the introduction of carbon fibers in series production cars is
         imminent. The Company anticipates that significant orders will be
         forthcoming from BMW and other automobile manufacturers to support
         the introduction of products in 2005 model year and accelerate from
         that point forward.

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

         During the last quarter of calendar 2003 the market and pricing for
carbon fiber sales began to stabilize due to a decrease in over-capacity as
new aerospace projects are materializing. The Company believes this is the
first significant sign of the beginning of a clear divergence between the
markets for low cost commercial grade carbon fibers and aerospace grade
carbon fibers that are considerably more expensive. An increase in demand in
the aerospace market coupled with the emergence of significant commercial
markets could quickly reduce the excess carbon fiber capacity that has
existed for several years. Based on the demand for aerospace carbon fibers
for the Airbus A-380 and Boeing 7E7 aircraft and the emergence of the wind
energy market, coupled with the recent new contracts for the Company's
carbon fibers, management currently believes it will have to start
production in the second half of calendar year 2004 at its Abilene
manufacturing facility.

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

FISCAL YEAR ENDED SEPTEMBER 30, 2003 COMPARED TO FISCAL YEAR ENDED
SEPTEMBER 30, 2002

         The Company's sales decreased 7.2%, or $4.9 million, to $63.5
million in fiscal 2003 from $68.4 million in fiscal 2002. Technical fiber
sales decreased 28.8%, or $5.7 million, to $14.1 million in fiscal 2003 from
$19.8 million in fiscal 2002. Technical fiber sales decreased due to
depressed demand from aircraft brake customers, reflecting the worldwide
decline in the airline industry activity. Carbon fiber sales increased 25%,
or $3.8 million, to $18.9 million in fiscal 2003 from $15.1 million in
fiscal 2002. Carbon fiber sales increased both in Hungary and U.S. as the
demand for carbon fibers increased in the second half of the year as excess
capacity in the industry started to decrease. Sales of the specialty
products business segment decreased 4.5%, or $1.7 million, to $36.3 million
in fiscal 2003 from $38.0 million in fiscal 2002. The reduced revenue was
the result of curtailment of acrylic fiber production to limit sales at
unfavorable profit levels. The Company expects these depressed conditions
impacting the carbon fiber and acrylic markets to continue into fiscal 2004.

         The Company's cost of sales (excluding available unused capacity
costs) decreased by 2.2%, or $1.3 million, to $57.6 million in fiscal 2003
from $58.4 million in fiscal 2002. The decrease in cost of sales (excluding
available unused capacity costs) was consistent with the decrease in sales,
however, not to the degree of the sales decline due to both the technical
fiber and specialty fiber products having been impacted from industry-wide
excess capacity that resulted in distressed pricing across most existing
markets and lower sales volume that have not supported the level of the
Company's fixed manufacturing cost. The Company also recorded a reserve of
$1.0 million for carbon fiber inventories of which it was deemed to have
excess amounts in the fourth quarter of fiscal 2003 of fiscal 2003.

         The Company continued to incur costs related to the underutilized
productive capacity for carbon fibers at the Abilene, Texas facilities.
These costs included depreciation and other overhead associated with the
unused capacity. These costs, which were separately identified on the income
statement, were approximately $5.7 million during fiscal 2003 and $6.0
million in fiscal 2002. The Company believes it is necessary to maintain

                                     17

<PAGE>
<PAGE>

available capacity to encourage development of significant new large-scale
applications. With the increased orders expected in fiscal 2004, the
Company expects that its unused capacity costs will be eliminated by the
end of fiscal 2005.

         Application and development costs were $3.5 million in fiscal 2003
and $3.8 million in fiscal 2002. These costs included product and market
development efforts, product trials and sales and product development
personnel and related travel. Targeted emerging applications include
automobile components, fire/heat barrier, alternate energy technologies and
deep sea oil drilling.

         Selling, general and administrative expenses were $9.4 million in
fiscal 2003 compared to $9.8 million in fiscal 2002. The decrease in expense
was primarily due to cost cutting measures, partially offset by the adverse
effect of the exchange rate of the Hungarian currency.

         Interest expense was approximately $2.0 million in fiscal 2003
compared to $1.6 million in fiscal year 2002. The increase in interest
expense resulted from increased borrowings under the Company's credit
facility and the increased interest rate related to the Company's amended
credit facility and the issuance of convertible subordinated debentures in
February 2003.

         Other expenses, net, increased $0.7 million to $0.5 million expense
for fiscal 2003 from $0.2 million income for fiscal 2002 due to an increase
in the foreign currency transactional losses on the Company's debt at its
Hungarian subsidiary which is denominated in U.S. dollars or Euros.

         Income tax expense increased $3.4 million to $0.5 million for
fiscal 2003 from an income tax benefit of $2.9 million for the corresponding
period in the prior year. As a result of the U.S. federal income tax
regulations, the Company received an income tax refund of $2.7 million in
the third quarter of fiscal 2002. A valuation allowance was recorded against
the income tax benefit resulting from the pre-tax loss for fiscal 2003.

         The foregoing resulted in a net loss from continuing operations of
$15.6 million for fiscal 2003 compared to a net loss of $8.7 million fiscal
2002. Similarly, the Company reported net loss from continuing operations
per share of $0.96 and $0.53 on a basic and diluted basis for fiscal 2003
and fiscal 2002, respectively. The weighted average common shares
outstanding were 16.3 million for fiscal 2003 and fiscal 2002.

         The net gain from discontinued operations for fiscal 2002 included
a $1.0 million loss from the results of operations and a $1.9 million gain
from the disposal of Hardcore Composites. The foregoing resulted in a net
gain from discontinued operations of $0.9 million in fiscal 2002, or $0.05
per share on a basic and diluted basis.

COMPARISON OF RESULTS FOR FISCAL YEARS ENDED SEPTEMBER 30, 2002 AND 2001

         The Company's sales decreased 10.5%, or $8.1 million, to $68.4
million in fiscal 2002 from $76.5 million in fiscal 2001. Technical fiber
sales decreased 4.3%, or $.9 million, to $19.8 million in fiscal 2002 from
$20.7 million in fiscal 2001. Carbon fiber sales decreased 35%, or $8.2
million, to $15.1 million during fiscal 2002 from $23.3 million in fiscal
2001. During fiscal 2002, technical fibers and carbon fiber sales decreased
due to excess carbon fiber capacity that resulted in distressed pricing
across most existing markets and by weakened economic conditions globally.
In particular, sales declined in the compounding, automotive and buoyancy
markets due to price competition, and in the sporting goods category which
was impacted by lower volume in the prepreg markets, modestly offset by
increased growth in the friction market. Sales of acrylic and other products
produced at Zoltek Rt. decreased $1.2 million, or 3.1%, to $38.0 million in
fiscal 2002 from $39.2 million in fiscal 2001. Sales in this segment
declined due to the decreased demand for textile materials in response to
weakened global economic conditions.

         The Company's cost of sales (excluding available unused capacity
costs) decreased by 20.7%, or $15.4 million, to $58.9 million in fiscal 2003
from $74.3 in fiscal 2002. The results for fiscal 2001 included an inventory
value reduction of $8.6 million, to reflect a lower of cost or market
adjustment. The inventory valuation reduction was established due to the
intensified overcapacity which significantly affected the Company's sales
beginning in the second quarter of fiscal 2001. Without the inventory
reduction, cost of sales (excluding available unused capacity costs) would
have decreased 9.1%, or $6.8 million, which was consistent with the decline
in sales.

         During fiscal 2002 and 2001, the Company was not operating its
continuous carbonization lines at the Abilene, Texas facility at full
capacity, resulting in available unused capacity charges of approximately
$6.0 million and $6.8 million, respectively. These costs included
depreciation and other overhead charges. The


                                     18

<PAGE>
<PAGE>

Company believes it is necessary to maintain available capacity to encourage
development of significant new large-scale applications.

         Application and development costs were $3.7 million in fiscal 2002
compared to $3.5 million in fiscal 2001, representing a $0.2 million
increase. This increase was due to increased costs related to the carbon
fiber operations for product and market development efforts for product
trials, and for additional sales and product development personnel and
travel. Targeted emerging applications included automobile manufacturing,
alternate energy technologies, deep sea oil drilling, filament winding and
buoyancy.

         Selling, general, and administrative expenses decreased $2.4
million, or 19.5%, from $12.3 million in fiscal 2001 to $9.9 million in
fiscal 2002. The decrease in expense was from both business segments and the
corporate headquarters, due to cost cutting measures, including lower
payroll and administrative costs.

         Interest expense was approximately $1.6 million in fiscal 2002
compared to $2.1 million in fiscal 2001. The decrease in interest expense
resulted from lower borrowings related to the reduced level of capital
expenditures and improved working capital management. Interest income
decreased to a nominal amount for fiscal 2002 from $1.0 million for fiscal
2001 due to lower balances invested.

         In fiscal 2001, the Company recorded a valuation allowance against
substantially all of its deferred tax assets due to the uncertainty of
generating positive income in the near foreseeable future. During fiscal
2002, the tax laws changed allowing the Company additional carryback of net
operating losses to prior years. As such, the Company reported an income tax
benefit of $2.9 million in fiscal 2002 compared to an income tax benefit of
$0.5 million in fiscal 2001. The Company received the income tax refund of
$2.7 million in the third quarter of fiscal 2002. The Company recognizes
income taxes in the United States and Hungary based on the income before
income taxes. Included in the provision for income taxes are gross receipts
taxes charged by the Hungarian local taxing authorities, as well as the
statutory income taxes (18% Hungarian rate), which were $0.1 million in
fiscal 2002 compared to $0.3 million for fiscal 2001.

         The foregoing resulted in a net loss from continuing operations of
$8.7 million for fiscal 2002 compared to a net loss of $21.3 million for
fiscal 2001. Similarly, the Company reported a net loss from continuing
operations per share of $0.53 and $1.29 on a basic and diluted basis for
fiscal 2002 and fiscal 2001, respectively. The weighted average common
shares outstanding decreased to 16.3 million for fiscal 2002 compared to
16.5 million for fiscal year 2001.

         The net gain from discontinued operations for fiscal 2002 included
a $1.0 million loss from the results of operations and a $1.9 million gain
from the disposition of Hardcore Composites. The net loss from discontinued
operations in fiscal 2001 included a $8.5 million loss from the results of
operations of Hardcore Composites and a $1.8 million loss from the
disposition of SP Systems. The foregoing resulted in a net gain from
discontinued operations of $0.9 million in fiscal 2002, or $0.05 per share
on a basic and diluted basis, and a net loss of $10.3 million in fiscal
2001, or $0.62 per share on a basic and diluted basis.

         The net loss for fiscal 2002 was $7.8 million, or $0.48 per share
on a basic and diluted basis compared to a net loss of $31.6 million, or
$1.91 per share in fiscal 2001.

LIQUIDITY AND CAPITAL RESOURCES

         The Company intends for the primary source of liquidity to be cash
flow from operating activities. However, the Company has realized a cash use
from operating activities in each of the last three fiscal years. As a
result, the Company has executed refinancing arrangements and made
borrowings under credit facilities, supplemented 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.

         Management will seek to fund its near-term continuing operations
from continued sale of excess inventory and to continue to aggressively
manage the Company's working capital, as well as possible additional bank
borrowings, private equity and debt financing. However, management can make
no assurances that these objectives will be sufficient to fund near-term
liquidity needs.

                                     19

<PAGE>
<PAGE>

         As of September 30, 2003 and December 31, 2003, the Company was not
in compliance with essentially all financial covenants requirements included
in the credit facility with its bank. The subordinated convertible
debentures contain certain cross-default provisions related to the Company's
other debt agreements. The covenant non-compliances under the Company's
senior U.S. credit facility at September 30, 2003 and December 31, 2003
resulted in the possibility of a default event being declared by the
subordinated convertible debenture holders, which would result in that debt
being immediately due and payable. As a result of the 2004 refinancing
transactions described below, the Company obtained waivers of the covenant
non-compliance with the covenants in the loan agreement, as currently in
effect. Additionally, the Company obtained financial covenant waivers for
all periods through March 31, 2005.

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). The convertible debentures have a stated maturity of 30 months
and bear interest at 6% per annum and are convertible into common stock
shares at $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.
Proceeds from the issuance of these convertible debentures will be used for
working capital purposes.

         As part of the Company's 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 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, 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 Company expects that the loan to Mr. Rumy
will be repaid to him, and the letter of credit would be released, as a
result of the Company completing the refinancing transactions making
available the cash to settle the intercompany accounts. The loan by Mr. Rumy
bears 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 of the mortgage financing discussed below.

         The Company also entered into a mortgage note with a bank in the
aggregate principal amount of $6.0 million. The note has a stated maturity
of three years and bears interest at a rate of LIBOR plus 11% with a LIBOR
floor of 2%. The Company will pay interest only on a monthly basis with
principal balance due at time of maturity. The loan is secured by security
interest in the Company's headquarters facility and its two U.S. carbon
fiber manufacturing facilities. The proceeds of this transaction were used
to pay down debt of $6.0 million with its U.S. bank. Of such proceeds, $1.0
million is currently held in an escrow account to be released when the
Company completes certain post-closing requirements with respect to the
loan. The Company expects the conditions will be completed in January 2004.

         Due to the refinancing received subsequent to the Company's fiscal
year end, the Company received waivers from the U.S. bank for these
financial covenant violations as of September 30, 2003, and waived all
financial covenants through February 13, 2005. Accordingly, the holders of
the subordinated debentures have no right to accelerate maturity. The
refinancing allows the Company to execute its 2004 business plan, which was
uncertain until the refinancing occurred. The Company may require further
refinancing in fiscal 2005 and beyond if sufficient cash flows from
operations are not generated. However, the Company can give no assurance
that it will be successful in its attempt to obtain new financing and if the
Company is unsuccessful, it would have a material adverse effect on its
future financial condition and its ability to continue to pursue its current
business plan.

                                     20

<PAGE>
<PAGE>

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

         The Company executed an amended credit facility agreement, dated as
of February 13, 2003, with the U.S. bank. The amended credit facility
agreement is structured as a term loan in the amount of $3.5 million (due
February 13, 2005) and a revolving credit loan in the amount of $5.0 million
(due January 31, 2004). The Company repaid $5.0 million of this loan from
the proceeds of the sale of subordinated convertible debentures as discussed
below. Borrowings under the amended facility are based on a formula of
eligible accounts receivable and inventories of the Company's U.S.-based
subsidiaries. The outstanding loans under the agreement bear interest at the
prime interest rate plus 2% per annum. The loan agreement contains quarterly
financial covenants related to borrowings, working capital, debt coverage,
current ratio and capital expenditures. Total borrowings under the revolving
credit agreement were $4.6 million and the available credit under this
agreement was $0.4 million at September 30, 2003.

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

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

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

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

         Hungarian Operations - In May 2001, the Company's Hungarian
subsidiary entered into a credit facility with a Hungarian bank. The
facility consists of a $6.0 million bank guarantee and factoring facility, a
$4.0 million capital investment facility and a $2.0 million working capital
facility. All of the Hungarian bank debt is due on December 31, 2004.

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

         Total borrowings of the Hungarian subsidiary were $12.6 million at
September 30, 2003. Borrowings under the Hungarian bank credit facilities
cannot be used in Zoltek's U.S. operations.

                                     21

<PAGE>
<PAGE>

Inventories
-----------

Inventories consist of the following (amounts in thousands):

<TABLE>
<CAPTION>
                                                                SEPTEMBER 30,  SEPTEMBER 30,
                                                                    2003           2002
                                                                -------------  -------------

<S>                                                               <C>             <C>
         Raw materials.........................................   $ 4,859         $ 4,893
         Work-in-process.......................................     1,132           1,913
         Finished goods........................................    19,057          18,897
         Supplies, spares and other............................     1,930           1,378
                                                                  -------         -------
                                                                  $26,978         $27,081
                                                                  =======         =======
</TABLE>

         The Company has undertaken aggressive steps to sell carbon fiber
inventories to improve its cash flow. Actual carbon fibers inventory
decreased by $0.2 million in fiscal 2003, but this decrease was partially
offset by the significant increase in the value of the Hungarian currency
against the U.S. Dollar, which has increased the value of the Hungarian
inventory.

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. Management believes it will be necessary to return
this facility to full operations within the next year given identified
future market demand for carbon fiber products. However, the idling of this
facility constituted an impairment indicator as defined by generally
accepted accounting principles and as a result management is required to
periodically determine if the carrying value of the Abilene facility is
impaired as long as the indicators exist. In light of the expected
resumption of manufacturing at this time, the Company does not believe that
any impairment exists based on an analysis of expected future net cash flow
to be generated from this facility over the expected remaining useful life
as of September 30, 2003. However, if the forecasted levels of demand do not
materialize, the Company may be required to recognize an impairment charge
with respect to the manufacturing assets if the fair value is determined to
be less than the carrying value. During the years ended September 30, 2003,
2002 and 2001, the Company was not operating these continuous carbonization
lines at full capacity, resulting in available unused capacity charges of
$5.7 million, $6.0 million and $6.8 million, respectively. These costs
include depreciation and other overhead expenses associated with unused
capacity.

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

         Net cash used by operating activities was $4.4 million for fiscal
2003. The cash flows used by operating activities during fiscal 2003 were
primarily due to the net loss of $15.6 million offset by non-cash items
including depreciation and amortization of $6.2 million and unrealized
foreign exchange gain of $0.8 million plus a decrease in net operating
assets of $1.7 million. The decrease in net operating assets consisted of a
decrease of $1.8 million in inventories due primarily to a concerted effort
to reduce inventories, a decrease of $2.4 million in accounts receivables, a
decrease of $0.4 million in prepaid and other assets and a $1.9 million
increase in accrued expenses and other liabilities, offset by a $1.7 million
decrease in trade payables and a $0.7 million decrease in long-term
liabilities.

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

         Net cash used for investing activities for fiscal 2003 was $0.8
million which included capital expenditures of $1.6 million primarily at the
Hungarian subsidiary, offset by the sale of an investment held by the
Hungarian subsidiary for $0.7 million.

         Historically, cash used in investing activities has been expended
for equipment additions and the expansion of the Company's carbon fibers
production capacity. In fiscal 2003, the Company made capital expenditures
of $1.6 million for various projects compared to $2.0 million during fiscal
2002. The Company expects capital expenditures to total less than $1.5
million for fiscal 2004 unless near-term demand increases significantly.

                                     22

<PAGE>
<PAGE>

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

         Net cash provided by financing activities was $5.4 million for
fiscal 2003. Net cash provided for the period included borrowings under the
amended credit agreement, issuance of $8.1 million in subordinated
debentures and an additional credit facility of $2.2 million at the
Hungarian subsidiary, offset by pay down of the former credit facility and
payments made under the existing credit agreements and mortgages.

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

         A summary of significant contractual obligations is shown below.
See Note 5 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>
Long-term debt, including current maturities........   $34,474    $  933    $22,421     $10,523      $597
Operating leases....................................     2,940     1,537        472         116       130
                                                       -------    ------    -------     -------      ----
     Total debt and operating leases................   $37,414    $2,470    $22,893     $10,639      $727
                                                       =======    ======    =======     =======      ====
</TABLE>

         As of September 30, 2003, the Company had a balloon mortgage
payment of $1.3 million on its operating facility in Salt Lake City due to a
U.S. bank with a maturity date of November 2004.

Guarantees
----------

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

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

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

REVENUE RECOGNITION

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

INVENTORIES

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

         In recent years, carbon fiber sales have been depressed by excess
capacity across the industry, distressed pricing across most existing
markets and weakening economic conditions globally. These factors combined
with the high level of inventories maintained by the Company, have resulted
in the Company reducing the cost of certain carbon fiber inventories to
their lower estimated market values. If these industry conditions do not
improve in a


                                     23

<PAGE>
<PAGE>

reasonable period of time, or further deteriorate, it is possible that the
market value of certain of the Company's carbon fiber inventories may
further decrease resulting in additional charges to cost of sales (excluding
available unused capacity costs).

APPLICATION AND DEVELOPMENT EXPENSES

         The Company is actively pursuing the development of a number of
applications for the use of its carbon fiber and related products. The
Company is currently party to several developmental agreements with various
prospective users of these products for the purpose of accelerating the
development of various carbon fiber applications. Additionally, the Company
is executing several internal development strategies to further the use of
carbon fiber and consumer and industrial products made from carbon fiber. As
a result, the Company incurs certain costs for research, development and
engineering of products and manufacturing processes. These costs are
expensed as incurred and totaled approximately $3.5 million and $3.8 million
in fiscal 2003 and 2002, respectively. Application and development expenses
are presented as an operating item on the Company's consolidated statement
of operations. Given the Company's position and strategy within the carbon
fiber industry, it is expected that similar or greater levels of application
and development expenses could be incurred in future periods.

UNUSED CAPACITY COSTS

         The Company is currently not operating its continuous carbonization
lines located at the Abilene, Texas facility at full capacity. As a result,
the Company has elected to categorize certain costs related to these idle
assets as unused capacity costs. Such costs totaled $5.7 million and $6.0
million for fiscal 2003 and 2002, respectively, and include depreciation and
other overhead expenses associated with unused capacity. The unused capacity
costs are presented as an operating item on the Company's consolidated
statement of operations. As discussed above, management currently intends to
return certain unused portions of the Abilene, Texas facility to service in
fiscal 2004. However, until the facility is operating at certain production
levels, these unused capacity costs will continue to be incurred.

VALUATION OF LONG-LIVED ASSETS

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

RECENT ACCOUNTING PRONOUNCEMENTS

         See Note 1 in the Company's financial statements.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
-------   ----------------------------------------------------------

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

                                     24

<PAGE>
<PAGE>

         The Company views as long-term its investment in Zoltek Rt., which
has a functional currency other than the U.S. dollar. As a result, the
Company does not hedge this net investment. In terms of foreign currency
translation risk, the Company is exposed to Zoltek Rt.'s functional
currency, which is the Hungarian Forint. The Company's net foreign currency
investment in Zoltek Rt. translated into U.S. dollars using period-end
exchange rates was $30.0 million and $18.7 million at September 30, 2003 and
2002, respectively. The potential loss in value of the Company's net foreign
currency investment in Zoltek Rt. resulting from a hypothetical 10% adverse
change in quoted foreign currency exchange rate of the Hungarian Forint at
September 30, 2003 and 2002 amounted to $2.7 million and $3.0 million,
respectively. In addition, Zoltek Rt. routinely sells its products to
customers located primarily throughout Europe in sales transactions that are
denominated in foreign currencies other than the Hungarian Forint. Also,
Zoltek Rt. has debt that is denominated in foreign currencies other than the
Hungarian Forint. As a result, Zoltek Rt. is exposed to foreign currency
risks related to these transactions. The Company does not currently employ a
foreign currency hedging strategy related to the sales of Zoltek Rt.

                                    * * *

         The forward-looking statements contained in this report are
inherently subject to risks and uncertainties. The Company's actual results
could differ materially from those in the forward-looking statements.
Potential risks and uncertainties consist of a number of factors, including
the Company's ability to return to operating on a profitable basis, comply
with its debt coverage covenants and otherwise comply with its obligations
under its credit agreements, refinance those agreements at their maturity
dates, manage its excess carbon fiber production capacity and inventory
levels, continue investing in application and market development,
manufacture low-cost carbon fibers and profitably market them at decreasing
price points and penetrate existing, identified and emerging markets, as
well as other matters discussed herein.

Item 8.  Financial Statements and Supplementary Data
------   -------------------------------------------

                           ZOLTEK COMPANIES, INC.
                            REPORT OF MANAGEMENT

         Management of Zoltek Companies, Inc. is responsible for the
preparation and integrity of the Company's financial statements. These
statements have been prepared in accordance with generally accepted
accounting principles and in the opinion of management fairly present the
Company's financial position, results of operations, and cash flow.

         The Company maintains accounting and internal control systems that
it believes are adequate to provide reasonable assurance that assets are
safeguarded against loss from unauthorized use or disposition and that the
financial records are reliable for preparing financial statements. The
selection and training of qualified personnel and the establishment and
communication of accounting and administrative policies and procedures are
important elements of these control systems.

         The Board of Directors, through its Audit Committee consisting
solely of non-management directors, meets periodically with management and
the independent accountants to discuss audit and financial reporting
matters. To ensure independence, PricewaterhouseCoopers LLP has direct
access to the Audit Committee.

         The Report of PricewaterhouseCoopers LLP, independent auditors, on
their audits of the accompanying financial statements follows. This report
states that their audits were performed in accordance with generally
accepted auditing standards. These standards include an evaluation of
internal control for the purpose of establishing a basis for reliance
thereon relative to the scope of their audits of the financial statements.

/s/ Zsolt Rumy
----------------
Zsolt Rumy
January 12, 2004

                                     25

<PAGE>
<PAGE>

                           ZOLTEK COMPANIES, INC.

                       REPORT OF INDEPENDENT AUDITORS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF ZOLTEK COMPANIES, INC.
-----------------------------------------------------------------------------

         In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of changes in shareholders'
equity, and of cash flows present fairly, in all material respects, the
financial position of Zoltek Companies, Inc. and its subsidiaries at
September 30, 2003 and 2002, and the results of their operations and their
cash flows for each of the three years in the period ended September 30,
2003 in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

/s/PricewaterhouseCoopers LLP
-----------------------------
PricewaterhouseCoopers LLP
St. Louis, Missouri
December 19, 2003, except for Note 2, which is as of January 13, 2004

                                     26

<PAGE>
<PAGE>

<TABLE>
                                                   ZOLTEK COMPANIES, INC.
                                                 CONSOLIDATED BALANCE SHEET
                                  (Amounts in thousands, except share and per share data)

<CAPTION>
ASSETS                                                                                                   September 30,
---------------------------------------------------------------------------------------------------------------------------
                                                                                                     2003            2002
                                                                                                   --------        --------
<S>                                                                                                <C>             <C>
Current assets:
     Cash and cash equivalents.................................................................    $    838        $    685
     Accounts receivable, less allowance for doubtful accounts of $931 and $742, respectively..      10,380          11,749
     Inventories...............................................................................      26,978          27,081
     Other current assets......................................................................       1,483           1,424
                                                                                                   --------        --------
          Total current assets.................................................................      39,679          40,939
Property and equipment, net....................................................................      77,373          78,415
Other assets...................................................................................       2,403           2,068
                                                                                                   --------        --------
          Total assets.........................................................................    $119,455        $121,422
                                                                                                   ========        ========

LIABILITIES AND SHAREHOLDERS' EQUITY
---------------------------------------------------------------------------------------------------------------------------
Current liabilities:
     Actual current maturities of long-term debt...............................................    $    933        $ 14,014
     Trade accounts payable....................................................................      11,892          12,535
     Notes payable.............................................................................       2,916               -
     Accrued expenses and other liabilities....................................................       5,148           4,518
                                                                                                   --------        --------
          Total current liabilities............................................................      20,889          31,067
Other long-term liabilities....................................................................         509             752
Long-term debt, less current maturities........................................................      33,541          13,699
                                                                                                   --------        --------
          Total liabilities....................................................................      54,939          45,518
                                                                                                   --------        --------

Shareholders' equity:
     Preferred stock, $.01 par value, 1,000,000 shares authorized,
       no shares issued and outstanding........................................................           -               -
     Common stock, $.01 par value, 50,000,000 shares authorized,
       16,307,338 and 16,297,338 shares issued and outstanding, respectively...................         163             163
     Additional paid-in capital................................................................     109,290         108,897
     Retained deficit .........................................................................     (32,505)        (16,903)
     Accumulated other comprehensive loss......................................................     (12,432)        (16,253)
                                                                                                   --------        --------
          Total shareholders' equity...........................................................      64,516          75,904
                                                                                                   --------        --------
          Total liabilities and shareholders' equity...........................................    $119,455        $121,422
                                                                                                   ========        ========

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

                                     27

<PAGE>
<PAGE>


<TABLE>
                                                   ZOLTEK COMPANIES, INC.
                                           CONSOLIDATED STATEMENT OF OPERATIONS
                                       (Amounts in thousands, except per share data)

<CAPTION>
                                                                                       Year Ended September 30,
-----------------------------------------------------------------------------------------------------------------------
                                                                                  2003           2002           2001
                                                                                --------       --------       --------


<S>                                                                             <C>            <C>            <C>
Net sales...................................................................    $ 63,539       $ 68,436       $ 76,478
Cost of sales, excluding available unused capacity costs....................      57,628         58,920         74,333
Available unused capacity costs.............................................       5,716          6,039          6,803
Application and development costs...........................................       3,453          3,750          3,533
Selling, general and administrative expenses................................       9,416          9,855         12,337
                                                                                --------       --------       --------
     Operating loss from continuing operations..............................     (12,674)       (10,128)       (20,528)
Other income (expense):
     Interest expense.......................................................      (1,959)        (1,632)        (2,136)
     Interest income........................................................          57             25            974
     Other, net.............................................................        (491)           180            (89)
                                                                                --------       --------       --------
         Loss from continuing operations before income taxes................     (15,067)       (11,555)       (21,779)
Income tax expense (benefit)................................................         535         (2,860)          (505)
                                                                                --------       --------       --------
     Net loss from continuing operations....................................     (15,602)        (8,695)       (21,274)
                                                                                --------       --------       --------
Discontinued operations:
     Operating loss, net of taxes...........................................           -         (1,030)        (5,175)
     Gain (loss) on disposal of discontinued operations.....................           -          1,894         (5,122)
                                                                                --------       --------       --------
         Net gain (loss) on discontinued operations, net of taxes...........           -            864        (10,297)
                                                                                --------       --------       --------
Net loss....................................................................    $(15,602)      $ (7,831)      $(31,571)
                                                                                ========       ========       ========
Net loss per share:
     Basic and diluted loss per share:
          Continuing operations.............................................    $  (0.96)      $  (0.53)      $  (1.29)
          Discontinued operations...........................................           -           0.05          (0.62)
                                                                                --------       --------       --------
               Total........................................................    $  (0.96)      $  (0.48)      $  (1.91)
                                                                                ========       ========       ========
Weighted average common shares outstanding..................................      16,307         16,289         16,515


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

                                     28

<PAGE>
<PAGE>

<TABLE>
                                                       ZOLTEK COMPANIES, INC.
                                    CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                                                       (Amounts in thousands)

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

<S>                                  <C>           <C>        <C>            <C>           <C>         <C>           <C>
Balance, September 30, 2000........  $122,811      $187       $127,690       $(27,488)     $   (118)   $ 22,500
Net loss...........................   (31,571)        -              -              -             -     (31,571)     $(31,571)
Foreign currency translation
  adjustment.......................     6,928         -              -          6,928             -           -         6,928
Unrealized losses on securities
  sold.............................       156         -              -            156             -           -           156
                                                                                                                     --------
         Comprehensive loss........                                                                                  $(24,487)
                                                                                                                     ========
Treasury shares purchased..........   (19,063)        -              -              -       (19,063)
Warrants issued with bank debt.....        48         -             48              -             -           -
Exercise of stock options..........       287         1            286
                                     --------      ----       --------       --------      --------    --------
Balance, September 30, 2001........    79,595       188        128,024        (20,364)      (19,181)     (9,072)
Net loss...........................    (7,831)        -              -              -             -      (7,831)     $ (7,831)
Foreign currency translation
  adjustment.......................     4,111         -              -          4,111             -           -         4,111
                                                                                                                     --------
         Comprehensive loss........                                                                                  $ (3,720)
                                                                                                                     ========
Treasury shares retired............         -       (25)       (19,156)             -        19,181           -
Exercise of stock options..........        29         -             29              -             -           -
                                     --------      ----       --------       --------      --------    --------
Balance, September 30, 2002........    75,904       163        108,897        (16,253)            -     (16,903)
Net loss...........................   (15,602)                                                          (15,602)     $(15,602)
Foreign currency translation
  adjustment.......................     3,821                                   3,821                                   3,821
                                                                                                                     --------
         Comprehensive loss........                                                                                  $(11,481)
                                                                                                                     ========
Warrants issued with sub-debt......       372                      372
Exercise of stock options..........        21                       21
                                     --------      ----       --------       --------      --------    --------
Balance, September 30, 2003........  $ 64,516      $163       $109,290       $(12,432)     $      -    $(32,505)
                                     ========      ====       ========       ========      ========    ========


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

                                     29

<PAGE>
<PAGE>


<TABLE>
                                                   ZOLTEK COMPANIES, INC.
                                            CONSOLIDATED STATEMENT OF CASH FLOWS
                                                   (Amounts in thousands)

<CAPTION>
                                                                                      Year Ended September 30,
----------------------------------------------------------------------------------------------------------------------
                                                                                  2003          2002            2001
                                                                                --------       -------        --------
<S>                                                                             <C>            <C>            <C>
Cash flows from operating activities:
     Net loss..............................................................     $(15,602)      $(7,831)       $(31,571)
     Adjustments to reconcile net loss to net cash
       used by operating activities:
          (Gain) loss from discontinued operations.........................            -          (864)         10,297
          Depreciation and amortization....................................        6,230         6,336           6,604
          Foreign currency transaction gains (losses)......................          787          (240)           (250)
          Other, net.......................................................          (36)          (17)            136
          Changes in assets and liabilities:
              (Increase) decrease in accounts receivable...................        2,437         2,587             128
              (Increase) decrease in inventories...........................        1,758          (133)          6,055
              (Increase) decrease in prepaid expenses and other assets.....          404        (1,137)            356
              Increase (decrease) in trade accounts payable................       (1,690)          504           2,317
              Increase (decrease) in accrued expenses and other liabilities        1,942          (195)           (367)
              Increase (decrease) in other long-term liabilities...........         (675)          190              78
                                                                                --------       -------        --------
                  Total adjustments........................................       11,157         7,031          25,354
                                                                                --------       -------        --------
     Net cash used by continuing operations................................       (4,445)         (800)         (6,217)
     Net cash used by discontinued operations..............................            -          (262)         (2,973)
                                                                                --------       -------        --------
Net cash used by operating activities......................................       (4,445)       (1,062)         (9,190)
                                                                                --------       -------        --------
Cash flows from investing activities:
     Proceeds from sale of long-term investment............................          641             -               -
     Payments for purchase of property and equipment.......................       (1,577)       (1,981)         (5,339)
     Proceeds from sale of property and equipment..........................          119            59             772
     Decrease in notes receivable..........................................            -             -           5,066
     Proceeds from other...................................................            2            15               -
     Sale of marketable securities.........................................            -             -           1,483
                                                                                --------       -------        --------
   Net cash provided (used) by continuing operations.......................         (815)       (1,907)          1,982
   Net cash provided by discontinued operations............................            -             -          37,823
                                                                                --------       -------        --------
Net cash provided (used) by investing activities...........................         (815)       (1,907)         39,805
                                                                                --------       -------        --------
Cash flows from financing activities:
     Proceeds from exercise of common stock options........................           21            29             287
     Proceeds from issuance of notes payable...............................       16,240         7,335          13,162
     Repayment of notes payable............................................      (10,880)       (4,381)         (9,853)
                                                                                --------       -------        --------
   Net cash provided by continuing operations..............................        5,381         2,983           3,596
   Net cash used by discontinued operations................................            -             -         (35,375)
                                                                                --------       -------        --------
Net cash provided (used) by financing activities...........................        5,381         2,983         (31,779)
                                                                                --------       -------        --------
Effect of exchange rate changes on cash....................................           32             5              (6)
                                                                                --------       -------        --------
Net increase (decrease) in cash............................................          153            18          (1,170)
Cash and cash equivalents at beginning of period...........................          685           667           1,837
                                                                                --------       -------        --------
Cash and cash equivalents at end of period.................................     $    838       $   685        $    667
                                                                                ========       =======        ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Net cash paid (refunded) during the year for:

     Interest..............................................................     $  1,875       $ 2,425        $  2,708
     Income taxes..........................................................            -        (2,844)           (979)


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

                                     30

<PAGE>
<PAGE>

                           ZOLTEK COMPANIES, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------------------------------------------

PRINCIPLES OF CONSOLIDATION

         Zoltek Companies, Inc. (the "Company") is a holding company, which
operates through wholly owned subsidiaries, Zoltek Corporation, Zoltek
Properties Inc., Zoltek Rt., Zoltek Materials Group, Inc., and Engineering
Technology Corporation ("Entec Composite Machines"). Zoltek Corporation
("Zoltek") develops, manufactures and markets carbon fibers used in aircraft
brakes and other composite materials. Zoltek Materials Group, Inc.
manufactures "carbon fiber prepreg" (carbon fiber impregnated with resin)
composite materials used in the production of composite products requiring
unidirectional strength and stiffness, such as golf club shafts and other
sporting goods. Entec Composite Machines manufactures and sells filament
winding and pultrusion equipment used in the production of large volume
composite parts. Zoltek Rt. manufactures and markets acrylic and nylon
fibers and yarns for the textile industry, and carbon fiber. Other Zoltek
Rt. products include nylon granules, plastic grids and nets, and
carboxymethyl cellulose. From April 2000 to March 2002, the Company owned a
45% interest in Hardcore Composites Operations, LLC ("Hardcore"), which
designs and manufactures composite structures for the civil infrastructure
market including bridges, bridge decks, marine pilings, fender panels, piers
and stay-in-place form work. (See Note 3 for further discussion.) From
November 1999 to November 2000, the Company owned Structural Polymer
(Holdings) Limited ("SP Systems") which develops, markets and manufactures
prepreg (glass and carbon fiber pre-impregnated with resin) materials,
special bonding and laminating resins, reinforcement fabrics and consumable
materials for composite manufacturing and engineering of composite
structures. (See Note 3 for further discussion.) These financial statements
have been prepared in accordance with U.S. generally accepted accounting
principles. All significant inter-company transactions and balances have
been eliminated upon consolidation.

FOREIGN CURRENCY TRANSLATION

         The consolidated balance sheet of the Company's current and former
international subsidiaries, Zoltek Rt. and SP Systems, were translated from
Hungarian Forints and British Pounds, respectively, to U.S. Dollars at the
exchange rate in effect at the applicable balance sheet date, while their
consolidated statements of operations were translated using the average
exchange rates in effect for the periods presented. The related translation
adjustments are reported as other comprehensive income (loss) within
shareholders' equity. Gains and losses from foreign currency transactions of
Zoltek Rt. and SP Systems are included in the results of operations.

USE OF ESTIMATES

         The preparation of financial statements in conformity with
generally accepted accounting principles requires that management make
estimates and assumptions that affect amounts reported in the financial
statements and accompanying notes. Actual results may differ from those
estimates and assumptions.

REVENUE RECOGNITION

         The Company recognizes sales on the date title to the sold product
transfers to the customer, which approximates the shipping date. Revenues
generated by Entec Composite Machines are recognized on a percentage of
completion basis. During 2003, 2002 and 2001, approximately $8.0 million,
$9.8 million and $10.3 million, respectively, of sales was earned from one
customer.

CONCENTRATION OF CREDIT RISK

         Zoltek's carbon fiber products are primarily sold to customers in
the aerospace and composite industries. Zoltek Rt.'s acrylic products are
mainly sold to customers in the textile industry. Zoltek


                                     31

<PAGE>
<PAGE>

Materials Group products are primarily sold to the sporting goods industry.
Entec Composite Machine's products are primarily sold in the composite
industry. While the markets for the Company's products are geographically
unlimited, most of Zoltek's and Zoltek Materials Group's business is with
customers located in North America and most of Zoltek Rt.'s sales are to
customers in Europe and Asia, while Entec Composite Machine's sales are
worldwide. The Company performs ongoing credit evaluations and generally
requires collateral for significant export sales to new customers. The
Company maintains reserves for potential credit losses and such losses have
been within management's expectations. As of September 30, 2003, the Company
had no significant concentrations of credit risk.

CASH AND CASH EQUIVALENTS

         All highly liquid investments purchased with a maturity of three
months or less are considered to be cash equivalents.

MARKETABLE SECURITIES

         Marketable securities consisted of preferred stock equities
(classified as available-for-sale) that were valued at fair market value.
Unrealized gains and losses were reflected as other comprehensive loss
within shareholders' equity until the marketable securities were sold in
fiscal 2001.

INVENTORIES

         Inventories are valued at the lower of cost, determined on the
first-in, first-out method, or market. Cost includes material, labor and
overhead.

PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost. Cost includes
expenditures necessary to make the property and equipment ready for its
intended use. Expenditures, which improve the asset or extend the useful
life, are capitalized, including interest on funds borrowed to finance the
acquisition or construction of major capital additions. No interest was
capitalized for the years ended September 30, 2003, 2002 and 2001.
Maintenance and repairs are expensed as incurred. When property is retired
or otherwise disposed of, the related cost and accumulated depreciation are
removed from the accounts and any profit or loss on disposition is credited
or charged to income.

         The Company provides for depreciation by charging amounts
sufficient to amortize the cost of properties placed in service over their
estimated useful lives using straight-line methods. The range of estimated
useful lives used in computing depreciation is as follows:

              Buildings and improvements.................10 to 20 years
              Machinery and equipment....................3 to 20 years
              Furniture and fixtures.....................7 to 10 years

         The Company primarily uses accelerated depreciation methods for
income tax purposes.

         Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected future undiscounted cash flows is
less than the carrying amount of the asset, a loss is recognized for the
difference between the fair value and the carrying value of the asset.
Management believes that no impaired assets exist at September 30, 2003.

                                     32

<PAGE>
<PAGE>

FINANCIAL INSTRUMENTS

         The Company does not hold any financial instruments for trading
purposes. The carrying value of cash, accounts receivable and accounts
payable approximated their fair value at September 30, 2003 and 2002.
Substantially all of long-term debt bears current market rates of interest.

APPLICATION AND DEVELOPMENT EXPENSES

         Expenditures for research, development and engineering of products
and manufacturing processes are expensed as incurred. Such costs were
approximately $3.5 million, $3.8 million and $3.5 million in fiscal 2003,
2002 and 2001, respectively.

INCOME TAXES

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

STOCK-BASED COMPENSATION

         SFAS No. 123 "Accounting for Stock-Based Compensation," encourages,
but does not require companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." APB No. 25 requires no recognition of
compensation expense for the stock-based compensation arrangements provided
by the Company where the exercise price is equal to the market price at the
date of the grant.

         Had the fair value of granted stock options been amortized to expense
over the options' vesting periods, the pro forma impact on earnings of the
stock-based compensation for the options would have been as follows (amounts
in thousands, except for earnings per share information):

<TABLE>
<CAPTION>
                                                               2003        2002        2001
                                                             --------    -------     --------
<S>                                                          <C>         <C>         <C>
         Net loss:
             As reported................................     $(15,602)   $(7,831)    $(31,571)
             Compensation expense.......................          (71)      (205)        (456)
                                                             --------    -------     --------
             Pro forma..................................      (15,673)    (8,036)     (32,027)

             Basic and diluted loss per share:
             As reported................................         (.96)     (0.48)       (1.91)
             Pro forma..................................         (.96)     (0.49)       (1.94)

</TABLE>

                                     33

<PAGE>
<PAGE>

NET INCOME (LOSS) PER SHARE

         Basic net income (loss) per share includes no dilution and is
calculated by dividing net income (loss) by the weighted average number of
common shares outstanding for each period, while diluted net income (loss)
per share reflects the potential dilutive effects of stock options. Because
2003, 2002 and 2001 results reflected a net loss, both basic and diluted
earnings per share were calculated based on the same weighted average number
of shares for the year.

RECENT ACCOUNTING PRONOUNCEMENTS

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

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

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

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

                                     34

<PAGE>
<PAGE>

FINANCIAL PRESENTATION CHANGES

         Certain prior year amounts have been reclassified to conform to the
current year presentation.

2.       FINANCING
------------------------------------------------------------------------------

         As of September 30, 2003 and December 31, 2003, the Company was not
in compliance with essentially all financial covenants requirements included
in the credit facility with its bank. The subordinated convertible
debentures contain certain cross-default provisions related to the Company's
other debt agreements. The covenant non-compliances under the Company's
senior U.S. credit facility at September 30, 2003 and December 31, 2003
resulted in the possibility of a default event being declared by the
subordinated convertible debenture holders, which would result in that debt
being immediately due and payable. As a result of the 2004 refinancing
transactions described below, the Company obtained waivers of the covenant
non-compliance with the covenants in the loan agreement, as currently in
effect. Additionally, the Company obtained financial covenant waivers for
all periods through March 31, 2005.

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). The convertible debentures have a stated maturity of 30 months
and bear interest at 6% per annum and are convertible into common stock
shares at $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.
Proceeds from the issuance of these convertible debentures will be used for
working capital purposes.

         As part of the Company's 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 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, 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 Company expects that the loan to Mr. Rumy
will be repaid to him, and the letter of credit would be released, as a
result of the Company completing the refinancing transactions making
available the cash to settle the intercompany accounts. The loan by Mr. Rumy
bears 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 of the mortgage financing discussed below.

         The Company also entered into a mortgage note with a bank in the
aggregate principal amount of $6.0 million. The note has a stated maturity
of three years and bears interest at a rate of LIBOR plus 11% with a LIBOR
floor of 2%. The Company will pay interest only on a monthly basis with
principal balance due at time of maturity. The loan is secured by security
interest in the Company's headquarters facility and its two U.S. carbon
fiber manufacturing facilities. The proceeds of this transaction were used
to pay down debt of $6.0 million with its U.S. bank. Of such proceeds,
$1.0 million is currently held in


                                     35

<PAGE>
<PAGE>

an escrow account to be released when the Company completes certain
post-closing requirements with respect to the loan. The Company expects the
conditions will be completed in January 2004.

         Due to the refinancing received subsequent to the Company's fiscal
year end, the Company received waivers from the U.S. bank for these
financial covenant violations as of September 30, 2003, and waived all
financial covenants through February 13, 2005. Accordingly, the holders of
the subordinated debentures have no right to accelerate maturity. The
refinancing allows the Company to execute its 2004 business plan, which was
uncertain until the refinancing occurred. The Company may require further
refinancing in fiscal 2005 and beyond if sufficient cash flows from
operations are not generated. However, the Company can give no assurance
that it will be successful in its attempt to obtain new financing and if the
Company is unsuccessful, it would have a material adverse effect on its
future financial condition and its ability to continue to pursue its current
business plan.

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

         The Company executed an amended credit facility agreement, dated as
of February 13, 2003, with the U.S. bank. The amended credit facility
agreement is structured as a term loan in the amount of $3.5 million (due
February 13, 2005) and a revolving credit loan in the amount of $5.0 million
(due January 31, 2004). The Company repaid $5.0 million of this loan from
the proceeds of the sale of subordinated convertible debentures as discussed
below. Borrowings under the amended facility are based on a formula of
eligible accounts receivable and inventories of the Company's U.S.-based
subsidiaries. The outstanding loans under the agreement bear interest at the
prime interest rate plus 2% per annum. The loan agreement contains quarterly
financial covenants related to borrowings, working capital, debt coverage,
current ratio and capital expenditures. Total borrowings under the revolving
credit agreement were $4.6 million and the available credit under this
agreement was $0.4 million at September 30, 2003.

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

3.       DISCONTINUED OPERATIONS
------------------------------------------------------------------------------

         In the fourth quarter of fiscal 2001, the Company formally adopted
a plan to dispose of its 45% interest in Hardcore Composites, which designs
and manufactures composite structures for the civil infrastructure market.
The Company acquired its interest in Hardcore Composites in the third
quarter of fiscal 2000. From the date of acquisition until disposition, the
financial statements of Hardcore Composites were consolidated with the
Company due to the ability to directly control the operations. In the fourth
quarter of fiscal 2001, the Company recorded an impairment loss on
discontinued operations of $5.1 million to reduce the carrying value of
Hardcore Composites' long-lived assets to their estimated fair value less
estimated selling costs. Hardcore was included in the Carbon Fibers segment
(see Note 11).

         On March 1, 2002, the Company completed the sale of its interest in
Hardcore Composites to the 55% majority owner. At that date, Hardcore
Composites had net liabilities of approximately $1,319,000


                                     36

<PAGE>
<PAGE>

which were 100% consolidated by the Company. As part of the sale, Hardcore
Composites assumed these net liabilities, which resulted in the Company
recognizing a $1,319,000 gain on the sale of discontinued operations in the
quarter ended March 31, 2002. Additionally, in consideration for this sale,
Hardcore Composites issued a series of unsecured promissory notes to the
Company. In light of then existing financial condition of Hardcore
Composites, the Company recorded a full valuation allowance against the
promissory notes in its accounting for the sale transaction.

         In fiscal 2002, as a part of the sale of the Company's interest in
Hardcore Composites, Hardcore Composites and the Company also settled a
$1,000,000 note and certain other obligations payable to the former owner,
with the Company making a $475,000 payment and Hardcore Composites
contributing an additional amount. This note comprised part of the purchase
price of the acquisition in the third quarter of fiscal 2000 and was
guaranteed by the Company. However, the Company continues to guaranty
Hardcore Composite's lease obligations of approximately $30,000 per month to
the former owner. The obligation relates to a lease of the Hardcore
Composites manufacturing facility, which expires March 31, 2008. In fiscal
2002, the Company reversed the $525,000 remaining accrual for the note
payable to the former owner, as its obligation has been satisfied.

         Certain information with respect to the discontinued operations of
Hardcore for the years ended September 30, 2002 and 2001 is summarized as
follows (amounts in thousands):

<TABLE>
<CAPTION>
                                                                        2002            2001
                                                                       -------        --------
<S>                                                                    <C>            <C>
         Net sales...................................................  $   408        $  3,910
         Cost of sales...............................................      886           5,030
                                                                       -------        --------
         Gross profit................................................     (478)         (1,120)
         Selling, general and administrative expenses................      535           2,194
         Goodwill amortization.......................................        -             103
                                                                       -------        --------
         Income (loss) from operations...............................   (1,013)         (3,417)
         Other expenses..............................................      (17)         (2,470)
         Income tax expense..........................................        -            (117)
         Minority interest...........................................        -             829
                                                                       -------        --------
         Net loss from operations....................................   (1,030)         (5,175)
         Gain (loss) on disposal of discontinued operations..........    1,894          (5,122)
                                                                       -------        --------
         Gain (loss) on discontinued operations, net of taxes........  $   864        $(10,297)
                                                                       =======        ========
</TABLE>

4.       INVENTORIES
---------------------------------------------------------------------
Inventories consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
                                                                            September 30,
                                                                        2003            2002
                                                                       -------         -------
<S>                                                                    <C>             <C>
         Raw materials...............................................  $ 4,859         $ 4,893
         Work-in-process.............................................    1,132           1,913
         Finished goods..............................................   19,057          18,897
         Supplies, spares and other..................................    1,930           1,378
                                                                       -------         -------
                                                                       $26,978         $27,081
                                                                       =======         =======
</TABLE>

         The Company recorded inventory valuation reserves of $1.0 million
in the fourth quarter of fiscal 2003 and $8.6 million during the year
ended September 30, 2001 to reduce the carrying value of inventories to a
net realizable value. The reserves were established primarily due to the
intensified overcapacity in carbon fiber markets, which caused distressed
pricing across most existing markets. At September 30, 2003 and 2002, the
inventory valuation reserve was $6.3 million and $6.1 million, respectively.

                                     37

<PAGE>
<PAGE>

5.       PROPERTY AND EQUIPMENT
-----------------------------------------------------------------------------

Property and equipment consists of the following (amounts in thousands):
<TABLE>
<CAPTION>
                                                          September 30,
                                                      2003            2002
                                                    --------       ---------
<S>                                                 <C>            <C>
Land...........................................     $  1,665       $   1,630
Buildings and improvements.....................       30,061          28,562
Machinery and equipment........................       77,999          74,289
Furniture and fixtures.........................        5,477           5,181
Construction in progress.......................        4,014           3,189
                                                    --------       ---------
                                                     119,216         112,851
Less:  accumulated depreciation................      (41,843)        (34,436)
                                                    --------       ---------
                                                    $ 77,373       $  78,415
                                                    ========       =========
</TABLE>

         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. Management believes it will be necessary to return
this facility to full operations within the next year given identified
future market demand for carbon fiber products. However, the idling of this
facility constituted an impairment indicator as defined by generally
accepted accounting principles and as a result management is required to
periodically determine if the carrying value of the Abilene facility is
impaired as long as the indicators exist. In light of the expected
resumption of manufacturing at this time, the Company does not believe that
any impairment exists based on an analysis of expected future net cash flow
to be generated from this facility over the expected remaining useful life
as of September 30, 2003. However, if the forecasted levels of demand do not
materialize, the Company may be required to recognize an impairment charge
with respect to the manufacturing assets if the fair value is determined to
be less than the carrying value. During the years ended September 30, 2003,
2002 and 2001, the Company was not operating these continuous carbonization
lines at full capacity, resulting in available unused capacity charges of
$5.7 million, $6.0 million and $6.8 million, respectively. These costs
include depreciation and other overhead expenses associated with unused
capacity.

6.       INCOME TAXES
------------------------------------------------------------------------------

         The components of the benefit for income tax expense (benefit) for
the years ended September 30, are as follows (amounts in thousands):

<TABLE>
<CAPTION>
                                                          2003       2002          2001
                                                          ----      -------       -------
<S>                                                       <C>       <C>           <C>
From continuing operations:
     Current:
         Federal.....................................     $  -      $(2,731)      $   622
         State.......................................        -         (113)            -
         Non-U.S. local..............................      171          358           394
                                                          ----      -------       -------
                                                           171       (2,486)        1,016
                                                          ----      -------       -------
     Deferred:
         Federal.....................................      203            9        (1,551)
         State.......................................       17           (9)          352
         Non-U.S.....................................      144         (374)         (322)
                                                          ----      -------       -------
                                                           364         (374)       (1,521)
                                                          ----      -------       -------
              Total continuing operations............     $535      $(2,860)      $  (505)
                                                          ====      =======       =======
From discontinued operations:
     Deferred:
         Federal.....................................     $  -      $     -       $   108
         State.......................................        -            -             9
                                                          ----      -------       -------
            Total discontinued operations............        -            -           117
                                                          ----      -------       -------
     Total ..........................................     $535      $(2,860)      $  (388)
                                                          ====      =======       =======
</TABLE>

                                     38

<PAGE>
<PAGE>

         Deferred income taxes reflect the tax impact of carryforwards and
temporary differences between the amount of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws and
regulations. Cumulative carryforwards and temporary differences giving rise
to the net deferred income tax asset at September 30 are as follows (amounts
in thousands):

<TABLE>
<CAPTION>
                                                                                    2003            2002
                                                                                  --------        --------
<S>                                                                               <C>             <C>
     Tax effect of regular net operating losses (expiring 2020-2022).........     $(14,082)       $(10,274)
     Valuation allowance on net operating losses.............................       10,690           6,796
     Tax effect of capital loss..............................................         (582)           (582)
     Valuation allowance on capital loss.....................................          582             582
     Depreciation............................................................        4,048           3,512
     Employee related costs..................................................          (85)            (87)
     Inventory reserve.......................................................         (464)            (38)
     Bad debt accrual........................................................          (65)            (49)
     Deferred state income taxes.............................................            -             (16)
     Other...................................................................          (42)            (63)
     Non-U.S. operations deferred tax, net...................................            -            (144)
                                                                                  --------        --------
              Total net deferred tax asset...................................     $      -        $   (363)
                                                                                  ========        ========
</TABLE>

         The benefit for income taxes at September 30 differs from the
amount using the statutory federal income tax rate (34%) as follows (amounts
in thousands):

<TABLE>
<CAPTION>
                                                                       2003       2002        2001
                                                                      -------    -------     -------
<S>                                                                   <C>        <C>         <C>
At statutory rate:
         Income taxes on loss from continuing operations..........    $(5,131)   $(3,929)    $(7,405)
Increases (decreases):
         Lower effective tax rate on non-U.S. operations..........        768        333           4
         Change in valuation allowance on net operating loss......      4,759       (433)      5,216
         Change in valuation allowance on capital loss............          -          -         582
         Reduction of NOL due to 5 year carry back................          -     (1,871)          -
         Refund related to 5 year carry back of NOL...............          -      2,731           -
         Local taxes, non-U.S.....................................        171        358         394
         State taxes, net of federal benefit......................         16         (9)        352
         Refund write-off.........................................          -          -         622
         Other....................................................        (48)       (40)       (270)
                                                                      -------    -------     -------
                                                                      $   535    $(2,860)    $  (505)
                                                                      =======    =======     =======
</TABLE>

         The consolidated loss from continuing operations before income
taxes by domestic and foreign sources for the years ended September 30,
2003, 2002 and 2001 was as follows (amounts in thousands):

<TABLE>
<CAPTION>
                                                              2003        2002         2001
                                                            --------    --------     --------
<S>                                                         <C>         <C>          <C>
Domestic................................................    $(10,267)   $ (9,475)    $(21,764)
Foreign.................................................      (4,800)     (2,080)         (15)
                                                            --------    --------     --------
Loss from continuing operations before income taxes.....    $(15,067)   $(11,555)    $(21,779)
                                                            ========    ========     ========
</TABLE>

         Undistributed earnings of Zoltek Rt. of $3,568,000, $8,368,000 and
$10,448,000 at September 30, 2003, 2002 and 2001, respectively, are
considered to be permanently reinvested and, accordingly, no provision for
income taxes has been recorded. The undistributed earnings creates a
deferred tax liability as of September 30, 2003 of $505,661.

                                     39

<PAGE>
<PAGE>

7.       DEBT
------------------------------------------------------------------------------

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

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

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

         Hungarian Operations - In May 2001, the Company's Hungarian
subsidiary entered into a credit facility with a Hungarian bank. The
facility consists of a $6.0 million bank guarantee and factoring facility, a
$4.0 million capital investment facility and a $2.0 million working capital
facility. All of the Hungarian bank debt is due on December 31, 2004.

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

         Total borrowings of the Hungarian subsidiary were $12.6 million at
September 30, 2003. Borrowings under the Hungarian bank credit facilities
cannot be used in Zoltek's U.S. operations.

         See Note 2 for additional information related to debt transactions
for fiscal 2003.

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

<TABLE>
<CAPTION>
                                                                                                  September 30,
                                                                                                2003         2002
                                                                                               -------     --------

<S>                                                                                            <C>         <C>
     Note payable with interest at 9%, payable in monthly installments of
         principal and interest of $15,392 to maturity in November 2004......................  $ 1,507     $  1,659

     Note payable with interest at 9.95%, payable in monthly installments of
         principal and interest of $19,288 to maturity in September 2009.....................    1,042        1,164

     Note payable with interest at 9.5%, payable in monthly installments of
         principal and interest of $27,672 to maturity in December 2009 .....................    1,558        1,730

     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 ................     1,706        1,648

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

     Revolving credit agreement, maturing in March 2004, bearing interest at prime plus 2.0%
         in fiscal 2002 (prime rate at September 30, 2003 was 4.00%) ........................    4,670        8,508

     Term loan, $0.4 million payable in February 2004, balance payable in 2005, bearing
         interest at prime plus 2.0% (prime rate at September 30, 2003 was 4.00%)............    3,300        3,500

     Factoring facilities with Hungarian banks (expiring December 2004) (average interest
         rate of 5.5%).......................................................................    8,290        5,631

     Working capital facility with a Hungarian bank (expiring December 2004) (average
         interest rate of 10.6%).............................................................    2,299        2,393

     Capital investment facility with a Hungarian bank (expiring December 2004) (average
         interest rate of 5.6%)..............................................................    1,977        1,480
                                                                                               -------     --------
         Total debt..........................................................................   34,474       27,713

            Less:  amounts payable within one year...........................................     (933)     (14,014)
                                                                                               -------     --------
     Total long-term debt ...................................................................  $33,541     $ 13,699
                                                                                               =======     ========
</TABLE>

                                     40

<PAGE>
<PAGE>

         Following is a schedule of required principal payments of long-term
debt (amounts in thousands):

<TABLE>
<CAPTION>
                 Year ending
                September 30,                                    Total
                -------------                                    -----
<S>                                                            <C>
                   2004......................................   $   933
                   2005......................................    20,553
                   2006......................................     1,868
                   2007......................................       523
                   2008......................................    10,000
                   Thereafter................................       597
                                                                -------
                                                                $34,474
                                                                =======
</TABLE>

8.       COMMITMENTS AND CONTINGENCIES
------------------------------------------------------------------------------

LEASES

         Land at the carbon fibers manufacturing facility in Missouri is
leased under an operating lease that expires in December 2065, with a renewal
option for 24 years expiring in December 2089. The lease requires annual
rental payments of $57,991 through October 2010. Rental expense related to
this lease was $57,991 for the years ended September 30, 2003, 2002 and
2001.

         The Company entered into a sale/leaseback arrangement with Southwest
Bank for a nitrogen plant located at the Abilene facility, in January 1999.
The Company received $5,000,000 in cash for the nitrogen plant and did not
recognize a gain or loss. The Company renegotiated the lease in February
2003 reducing the term to two years from February 2003. At expiration of the
lease, the Company may repurchase the plant for market value. The lease is
accounted for as an operating lease. Rental expense related to this lease was
$1,036,000, $962,000 and $962,000 for the years ended September 30, 2003,
2002 and 2001, respectfully.

LEGAL

         In October 2003, the Company was named as a defendant in a civil
action filed in the Court of Common Pleas for Cuyahoga County, Ohio by the
former owner of Hardcore Composites Operations, LLC ("Hardcore") alleging
breach by Hardcore and the Company of their respective obligations under a
sublease, the Company's guaranty of the sublease, and prior settlement
agreement among the parties. The former owner's action claims damages from
the Company in the amount of $300,000 for breaches by


                                     41

<PAGE>
<PAGE>

the Company of its obligations under the guaranty and the settlement
agreement and, in addition, demands $450,000 in damages from the Company and
Hardcore, jointly and severally, under the terms of the settlement
agreement. The Company intends to vigorously defend this matter and assert
any counterclaims as appropriate. Management believes that the ultimate
resolution of this litigation will not have a material adverse effect on the
Company's results of operations or financial condition.

         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.

SOURCES OF SUPPLY

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

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

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

9.       PROFIT SHARING PLAN
------------------------------------------------------------------------------

         The Company maintains a 401(k) Profit Sharing Plan for the benefit
of employees who have completed six months of service and attained 21 years
of age. No contributions were made by the Company for the years ended
September 30, 2003, 2002, and 2001.

10.      STOCK OPTIONS
------------------------------------------------------------------------------

         In 1992, the Company adopted a Long-term Incentive Plan that
authorizes the Compensation Committee of the Board of Directors (the
"Committee") to grant key employees and officers of the Company incentive or
nonqualified stock options, stock appreciation rights, performance shares,
restricted shares and performance units. The Committee determines the prices
and terms at which awards may be granted along with the duration of the
restriction periods and performance targets. Currently, 1,500,000 shares of
common stock may be issued pursuant to awards under the plan. Outstanding
stock options expire 10 years from the date of grant or upon termination of
employment. Options granted in 1998 and prior vest 100% five years from date
of grant. Options granted in 1999 and thereafter primarily vest 100% three
years from date of grant. All options were issued at an option price equal
to the market price on the date of grant.

                                     42

<PAGE>
<PAGE>

         In 1992, the Company adopted a Directors Stock Option Plan under
which options to purchase 7,500 shares of common stock at the then fair
market value are currently issued to each non-employee director annually. In
addition, newly elected non-employee directors receive options to purchase
7,500 shares of common stock, at the then fair market value. The options
expire from 2003 through 2013, respectively.

         The pro forma information required by SFAS 123 regarding net income
and earnings per share has been presented below as if the Company had
accounted for its stock option plans under the fair value method. 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
assumptions:

<TABLE>
<CAPTION>
         Assumptions:                                   2003             2002           2001
         -----------                                   -------         -------        -------

<S>                                                    <C>             <C>            <C>
         Expected life of options..............        6 years         6 years        6 years
         Risk-free interest rate...............          4.25%           6.15%          7.15%
         Volatility of stock...................            96%             98%            79%
         Expected dividend yield...............             --              --             --
</TABLE>

         The fair value of the options granted during 2003, 2002 and 2001
was $119,513, $349,000 and $379,000, respectively.

         Presented below is a summary of stock option plans activity for the
years shown:

<TABLE>
<CAPTION>
                                                   Wtd. Avg.      Wtd. Avg.        Wtd. Avg.
                                                    Options    Exercise Price    Exercisable    Exercise Price
                                                   ---------   --------------    -----------    --------------
<S>                                                <C>            <C>              <C>             <C>
         Balance, September 30, 2000                 972,500      $12.50           672,500         $13.71
             Granted.............................    287,500        4.58
             Exercised...........................    (84,000)       3.42
             Cancelled...........................   (120,000)      16.27
                                                   ---------
         Balance, September 30, 2001               1,056,000       10.75           531,000          10.81
             Granted.............................    451,000        2.10
             Exercised...........................    (12,000)       2.38
             Cancelled...........................   (408,000)      11.31
                                                   ---------
         Balance, September 30, 2002               1,087,000        7.05           561,833          10.35
             Granted.............................    112,500        2.70
             Exercised...........................    (10,000)       2.07
             Cancelled...........................   (187,500)       4.76
                                                   ---------      ------
         Balance, September 30, 2003               1,002,000        7.04           744,083           8.67
</TABLE>

         The following table summarizes information for options currently
outstanding and exercisable at September 30, 2003:

<TABLE>
<CAPTION>
                                                   Options Outstanding                 Options Exercisable
                                           ----------------------------------     -----------------------------
          Range of                            Wtd. Avg.           Wtd. Avg.                         Wtd. Avg.
           Prices           Number         Remaining Life      Exercise Price      Number        Exercise Price
        ------------       ---------       --------------      --------------      ------        --------------
        <C>                <C>                <C>                 <C>             <C>               <C>
        $  1.33-2.50         449,500          9 years             $ 2.11          196,583           $ 2.24
           3.25-5.25         122,500          4 years               4.34          117,500             4.31
           6.25-6.88         190,000          2 years               6.38          190,000             6.38
           7.69-9.25          90,000          7 years               8.59           90,000             8.59
         10.00-39.00         150,000          5 years              23.44          150,000            23.44
                           ---------                                              -------
        $ 1.33-39.00       1,002,000          6 years             $ 7.04          744,083           $ 8.67
                           =========                                              =======
</TABLE>

                                     43

<PAGE>
<PAGE>

11.      BUSINESS SEGMENT AND GEOGRAPHIC 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. Effective in the fourth quarter of
fiscal year 2003, the Company began reporting the former Carbon Fibers
segment as two reportable segments: Carbon Fibers and Technical Fibers. The
Company made this change based on the current economic characteristics of
these two operating segments. Segment information for fiscal years 2002 and
2001 have been reclassified to reflect this change. The Company's former
Composite Intermediates segment was combined with the Carbon Fibers segment
in the third quarter of fiscal 2002 to reflect that its products and
services are now strategically focused on the Company's strategy of
commercializing the use of carbon fibers as reinforcement in advanced
composite materials, including providing composite design and engineering
services for development of applications for carbon fiber reinforced
composites. Effective with the third quarter of fiscal 2002, Company
management reviewed the performance of each of these two segments, allocated
resources between these segments and reported on the overall financial and
operating performance of each to the chief executive officer of the Company.
Segment data for the comparable periods for fiscal year 2001 and 2002 has
been restated to reflect this change.

         The Carbon Fibers and Technical Fibers segments are the primary
strategic segments and manufacture low-cost carbon fibers used as
reinforcement material in composites, oxidized acrylic fibers for heat/fire
barrier applications and aircraft brakes, carbon fiber composite products
and filament winding equipment used in the composite industry. They also
facilitates development of product and process applications to increase the
demand for carbon fibers and aggressively markets carbon fibers. The Carbon
Fibers and Technical Fibers segments are located geographically in the
United States and Hungary. The Specialty Products segment manufactures and
markets acrylic and nylon products and fibers primarily to the textile
industry and is located in Hungary. With the exception of the Technical
Fibers segment, none of the segments are substantially dependent on sales
from one customer nor a small group of customers. The Technical Fibers
segment has one customer which represented 13%, 14%, and 13% of the total
sales of the Company in fiscal 2003, 2002 and 2001, respectively.

         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 fiscal years ended September 30, 2003, 2002 and
2001 (amounts in thousands):

<TABLE>
<CAPTION>
                                                                 Fiscal Year Ended September 30, 2003
                                                                 ------------------------------------
                                                                                                  Corporate
                                                Technical                       Specialty       Headquarters
                                                 Fibers       Carbon Fibers     Products      and Eliminations     Total
                                                ---------     -------------     --------      ----------------     -----
<S>                                               <C>             <C>             <C>              <C>            <C>
Net sales - external.........................     $14,098         $13,179         $36,262          $     -        $ 63,539
Net sales - intersegment.....................           -           5,675               -           (5,675)              -
                                                  -------         -------         -------          -------        --------
   Total net sales...........................      14,098          18,854          36,262           (5,675)         63,539
Cost of sales................................      12,689          17,367          33,588           (6,016)         57,628
Available unused capacity expenses...........           -           5,716               -                -           5,716
Operating income (loss)......................          93          (8,644)         (1,613)          (2,511)        (12,674)
Interest expense.............................           -               -               -            1,959           1,959
Depreciation and amortization expense........       1,004           4,013             988              227           6,232
Capital expenditures.........................         512             515             550                -           1,577
Total assets.................................      22,611          66,226          32,569           (1,951)        119,455


                                     44

<PAGE>
<PAGE>

<CAPTION>
                                                          Fiscal Year Ended September 30, 2002
                                                          ------------------------------------
                                                                                                  Corporate
                                                Technical                       Specialty       Headquarters
                                                 Fibers       Carbon Fibers     Products      and Eliminations     Total
                                                ---------     -------------     --------      ----------------     -----
<S>                                               <C>             <C>             <C>              <C>            <C>
Net sales - external.........................     $19,772         $10,676         $37,988          $     -        $ 68,436
Net sales - intersegment.....................           -           4,419               -           (4,419)              -
                                                  -------         -------         -------          --------       --------
   Total net sales...........................      19,772          15,095          37,988           (4,419)         68,436
Cost of sales, excluding available unused
  capacity costs.............................      14,070          13,971          34,737           (3,858)         58,920
Available unused capacity costs..............           -           6,039               -                -           6,039
Operating income (loss)......................       3,584          (9,526)         (1,142)          (3,044)        (10,128)
Interest expense.............................           -               -               -            1,632           1,632
Depreciation and amortization expense........       1,182           3,978             862              314           6,336
Capital expenditures.........................        (624)          2,013             561               31           1,981
Total assets.................................      25,465          74,046          25,024           (3,113)        121,422

<CAPTION>
                                                          Fiscal Year Ended September 30, 2001
                                                          ------------------------------------
                                                                                                  Corporate
                                                Technical                       Specialty       Headquarters
                                                 Fibers       Carbon Fibers     Products      and Eliminations     Total
                                                ---------     -------------     --------      ----------------     -----
<S>                                               <C>             <C>             <C>              <C>            <C>
Net sales - external.........................     $20,674         $16,595         $39,209          $     -        $ 76,478
Net sales - intersegment.....................           -           6,669               -           (6,669)              -
                                                  -------         -------         -------          -------        --------
   Total net sales...........................      20,674          23,264          39,209           (6,669)         76,478
Cost of sales, excluding available unused
  capacity costs.............................      18,569          28,604          33,999           (6,839)         74,333
Available unused capacity costs..............           -           6,803               -                -           6,803
Operating income (loss)......................         180         (17,203)            418           (3,923)        (20,528)
Interest expense.............................           -               -               -            2,136           2,136
Depreciation and amortization expense........       1,380           4,141           1,001               82           6,604
Capital expenditures.........................       1,095           2,556           1,688                -           5,339
Total assets.................................      24,729          74,187          22,129              447         121,492
</TABLE>

                                     45

<PAGE>
<PAGE>

         Sales and long-lived assets, by geographic area, consist of the
following as of and for each of the three fiscal years in the period ended
September 30, 2003, 2002 and 2001 (amounts in thousands):

<TABLE>
<CAPTION>
                                     2003                       2002                        2001
                           ------------------------    ------------------------   --------------------------
                                             Net                         Net                         Net
                                         Long-Lived                  Long-Lived                   Long-Lived
                           Net Sales(a)   Assets(b)    Net Sales(a)   Assets(b)   Net Sales(a)    Assets (b)
                           ------------   ---------    ------------   ---------   ------------    ----------
<S>                          <C>           <C>           <C>           <C>           <C>           <C>
United States............    $20,978       $45,936       $24,461       $50,366       $27,715       $54,685
Western Europe
   Italy.................      6,486                       6,810                       6,362
   France................      1,070                       2,253                       3,606
   Other.................      3,882                       3,678                       4,095
Eastern Europe
   Hungary...............     12,772        31,436        12,894        28,660        15,224        25,144
   Poland................      3,309                       3,601                       4,087
   Other.................     11,550                      10,088                       9,936
Other areas..............      3,492                       4,651                       5,453
                             -------       -------       -------       -------       -------       -------
   Total.................    $63,539       $77,373       $68,436       $79,026       $76,478       $79,829
                             =======       =======       =======       =======       =======       =======

<FN>
(a) Revenues are attributed to countries based on the location of the
    customer.
(b) Property and equipment net of accumulated depreciation and intangibles,
    net of discontinued operations, based on country location of assets.
</TABLE>

12.      SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
------------------------------------------------------------------------------

(Amounts in thousands, except per share data)

<TABLE>
<CAPTION>
Fiscal year 2003                                    1st Quarter    2nd Quarter     3rd Quarter    4th Quarter
-------------------------------------------------------------------------------------------------------------
<S>                                                   <C>            <C>             <C>            <C>
Net sales..........................................   $16,959        $15,944         $15,847        $14,789
Loss from continuing operations....................    (3,179)        (4,295)         (3,790)        (3,803)
Net loss...........................................   $(3,179)       $(4,295)        $(3,790)       $(3,803)

Net loss per share:
Basic and diluted net loss per share
  Continuing operations............................   $  (.20)       $  (.26)        $  (.23)       $  (.23)

<CAPTION>
Fiscal year 2002                                    1st Quarter    2nd Quarter     3rd Quarter    4th Quarter
-------------------------------------------------------------------------------------------------------------
<S>                                                   <C>            <C>             <C>            <C>
Net sales..........................................   $16,557        $17,448         $17,806        $16,625
Loss from continuing operations....................    (3,723)        (2,927)           (195)        (1,850)
Gain (loss) from discontinued operations...........      (648)           937               -            575
Net loss...........................................   $(4,371)       $(1,990)        $  (195)       $(1,275)

Net loss per share:
Basic and diluted net loss per share
  Continuing operations............................   $ (0.23)       $ (0.18)        $ (0.01)       $ (0.11)
  Discontinued operations..........................     (0.04)          0.06               -           0.03
                                                      -------        -------         -------        -------
         Total.....................................   $ (0.27)       $ (0.12)        $ (0.01)       $ (0.08)
                                                      =======        =======         =======        =======
</TABLE>

                                     46

<PAGE>
<PAGE>

Item 9.  Changes in and Disagreements with Accountants on Accounting and
------   ---------------------------------------------------------------
         Financial Disclosure
         --------------------

         Not Applicable.

Item 9A.  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 September 30, 2003 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 September 30,
2003 that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.

                                  PART III

Item 10.  Directors and Executive Officers of the Registrant
-------   --------------------------------------------------

         The information set forth under the captions "Election of
Directors" and "Other Matters" in the registrant's Proxy Statement for its
2004 Annual Meeting of Shareholders is incorporated herein by this
reference. See also Item 4A of Part I of this report.

Item 11.  Executive Compensation
-------   ----------------------

         The information set forth under the captions "Directors' Fees" and
"Compensation of Executive Officers" in the registrant's Proxy Statement for
its 2004 Annual Meeting of Shareholders is incorporated herein by this
reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and
-------   ------------------------------------------------------------------
          Related Stockholder Matters
          ---------------------------

         The information set forth under the captions "Voting Securities and
Principal Holders Thereof" and "Security Ownership By Management" in the
registrant's Proxy Statement for its 2004 Annual Meeting of Shareholders is
incorporated herein by this reference.

         The following table shows the total number of outstanding options
and shares available for future issuances of options under the Company's
existing stock option plans as of September 30, 2003.


                                     47

<PAGE>
<PAGE>

<TABLE>
                                       Equity Compensation Plan Information
                                       ------------------------------------
<CAPTION>
                                                                                             NUMBER OF SECURITIES
                                                                                              REMAINING AVAILABLE
                                                                                              FOR FUTURE ISSUANCE
                                                                     WEIGHTED AVERAGE            UNDER EQUITY
                                       NUMBER OF SECURITIES TO       EXERCISE PRICE OF        COMPENSATION PLANS
                                       BE ISSUED UPON EXERCISE      OUTSTANDING OPTIONS      (EXCLUDING SECURITIES
                                       OF OUTSTANDING OPTIONS          UNDER EQUITY           REFLECTED IN COLUMN
                                         WARRANTS AND RIGHTS        WARRANTS AND RIGHTS              (a))
          PLAN CATEGORY                        (#)(a)                     ($)(b)                    (#)(c)
          -------------                -----------------------      -------------------      ---------------------

<S>                                           <C>                          <C>                        <C>
Equity Compensation Plans
  Approved by Security Holders                1,002,000(1)                 $7.04                      0(1)

Equity Compensation Plans Not
  Approved by Security Holders                        0(2)                     0                      0(2)

Total                                         1,002,000                    $7.04                      0

<FN>
--------
(1) Under the Company's Directors Stock Option Plan, there is at all times
    reserved for issuance a number of shares of Common Stock equal to the
    total number of shares then issuable pursuant to all option grants which
    are then outstanding under such plan.

(2) The Company currently has no equity compensation plans that are not
    approved by securityholders.
</TABLE>

Item 13.  Certain Relationships and Related Transactions
-------   ----------------------------------------------

         The information set forth under the caption "Certain Transactions"
in the registrant's Proxy Statement for its 2004 Annual Meeting of
Shareholders is incorporated herein by this reference.

Item 14.  Principal Accountant Fees and Services
-------   ----------------------------------------------

         The information set forth under the caption "Principal Accountant
Fees and Services" in the registrant's Proxy Statement for its 2004 Annual
Meeting of Shareholders is incorporated herein by this reference.

                                   PART IV

Item 15.  Exhibits, Financial Statement Schedule and Reports on Form 8-K
-------   --------------------------------------------------------------

         (a)      (1) Financial statements: The following financial statements
are included in Item 8 of this report:

                  Report of Independent Auditors

                  Consolidated Balance Sheet as of September 30, 2003
                  and 2002

                  Consolidated Statement of Operations for the years ended
                  September 30, 2003, 2002 and 2001

                                     48

<PAGE>
<PAGE>

                  Consolidated Statement of Changes in Shareholders' Equity
                  for the years ended September 30, 2003, 2002 and 2001

                  Consolidated Statement of Cash Flows for the years ended
                  September 30, 2003, 2002 and 2001

                  Notes to Consolidated Financial Statements

                  (2) The following financial statement schedule and
independent accountant's report thereon are included in Part IV of this
report:

         Report of Independent Auditors on
         Financial Statement Schedule

         12-09 Valuation and Qualifying Accounts and Reserves

                  Schedules other than those listed above have been omitted
because they are either not required or not applicable, or because the
information is presented in the consolidated financial statements or the
notes thereto.

                  (3) The following exhibits are filed herewith or
incorporated by reference herein, as indicated:

         3.1      Restated Articles of Incorporation of the Registrant,
                  filed as Exhibit 3.1 to Registrant's Registration
                  Statement on Form S-1 (Reg. No. 33-51142) is incorporated
                  herein by this reference

         3.2      Restated By-Laws of the Registrant, as currently in
                  effect, filed as Exhibit 3.2 to Registrant's Registration
                  Statement on Form S-1 (Reg. No. 33-51142) is incorporated
                  herein by this reference

         4.1      Form of certificate for Common Stock, filed as Exhibit 4.1
                  to Registrant's Registration Statement on Form S-1 (Reg.
                  No. 33-51142) is incorporated herein by this reference

         4.2      Form of Warrant, dated May 11, 2001, issued to Southwest
                  Bank of St. Louis with respect to 12,500 shares of
                  Registrant's Common Stock is filed herewith

         4.3      Subordinated Convertible Debenture Purchase Agreement,
                  dated as of February 13, 2003, by and among Zoltek
                  Companies, Inc. and the investors named therein, filed as
                  Exhibit 4.1 to Registrant's Current Report on Form 8-K
                  dated February 18, 2003 is incorporated herein by
                  reference

         4.4      Form of Subordinated Debenture, filed as Exhibit 4.2 to
                  Registrant's Current Report on Form 8-K dated February 18,
                  2003 is incorporated herein by reference

         4.5      Form of Warrant, filed as Exhibit 4.3 to Registrant's
                  Current Report on Form 8-K dated February 18, 2003 is
                  incorporated herein by reference

         4.6      Securities Purchase Agreement, dated as of December 19,
                  2003, by and among Zoltek Companies, Inc. and the
                  investors named therein is filed herewith

                                     49

<PAGE>
<PAGE>

         4.7      Form of 6% Convertible Debenture is filed herewith

         4.8      Form of Warrant is filed herewith

         10.1     Loan Agreement, dated December 29, 1989, by and between
                  Zoltek Corporation and Southwest Bank of St. Louis, as
                  amended by letter, dated August 13, 1992, filed as Exhibit
                  10.7 to Registrant's Registration Statement on Form S-1
                  (Reg. No. 33-51142) is incorporated herein by this
                  reference

         10.2     Zoltek Companies, Inc. Long Term Incentive Plan, filed as
                  Appendix B to Registrant's definitive proxy statement for
                  the 1997 Annual Meeting of Shareholders is incorporated
                  herein by this reference*

         10.3     Zoltek Companies, Inc. Amended and Restated Directors
                  Stock Option Plan, filed as Exhibit 10.1 to Registrant's
                  Quarterly Report on Form 10-Q dated August 13, 1999, is
                  incorporated herein by this reference*

         10.4     Promissory Note, dated September 29, 1994, by and between
                  Zoltek Properties, Inc. and Metlife Capital Corporation,
                  filed as Exhibit 10.8 to Registrant's Annual Report on
                  Form 10-K for the fiscal year ended September 30, 1994, is
                  incorporated herein by this reference

         10.5     Precursor Agreement, dated as of July 1, 1994, by and
                  between Zoltek Corporation and Courtaulds Fibres Limited,
                  filed as Exhibit 10.9 to Registrant's Annual Report on
                  Form 10-K for the fiscal year ended September 30, 1994, is
                  incorporated herein by this reference (An application for
                  confidential treatment has been made for a portion of
                  Exhibit 10.5.)

         10.6     Materials Supply Agreement, dated as of June 15, 1994, by
                  and between Zoltek Companies, Inc. and The B.F. Goodrich
                  Company, filed as Exhibit 10.10 to Registrant's Annual
                  Report on Form 10-K for the fiscal year ended September
                  30, 1994, is incorporated herein by this reference (An
                  application for confidential treatment has been made for a
                  portion of Exhibit 10.6.)

         10.7     Loan Agreement, dated November 14, 1994, by and between
                  Zoltek Properties, Inc. and The Reliable Life Insurance
                  Company, filed as Exhibit 10.11 to the Registrant's
                  Quarterly Report on Form 10-Q for the quarter ended March
                  31, 1995, is incorporated herein by this reference

         10.8     Promissory Note, dated November 14, 1994, by and between
                  Zoltek Corporation and Southwest Bank of St. Louis, filed
                  as Exhibit 10.2 to the Registrant's Quarterly Report on
                  Form 10-Q for the quarter ended March 31, 1995, is
                  incorporated herein by this reference

         10.9     Stock Purchase Agreement, dated November 19, 1999, by and
                  among Zoltek Companies, Inc. and each of the holders of
                  the outstanding share capital of Structural Polymer
                  (Holdings) Limited, filed as Exhibit 2.1 to Registrant's
                  Current Report on Form 8-K dated November 19, 1999 is
                  incorporated herein by this reference

         10.10    Credit Agreement, dated May 11, 2001, between Southwest
                  Bank of St. Louis and Zoltek Companies, Inc., Zoltek
                  Corporation, Cape Composites, Inc., Engineering Technology

                                     50

<PAGE>
<PAGE>

                  Corporation, Zoltek Properties, Inc., and Hardcore
                  Composites Operations, LLC, filed as Exhibit 10.1 to
                  Registrant's Quarterly Report on Form 10-Q for the quarter
                  ended June 30, 2001 is incorporated herein by reference

         10.11    First Amendment to Credit Agreement, dated as of February
                  13, 2003, by and among Zoltek Companies, Inc., Zoltek
                  Corporation, Cape Composites, Inc., Engineering Technology
                  Corporation, Zoltek Properties, Inc. and Southwest Bank of
                  St. Louis, filed as Exhibit 10.1 to Registrant's Current
                  Report on Form 8-K dated February 18, 2003 is incorporated
                  herein by reference

         10.12    Zoltek Companies, Inc. 2003 Long-Term Equity Incentive
                  Plan, filed as Appendix A to Registrant's definitive proxy
                  statement for the 2002 Annual Meeting of Shareholders is
                  incorporated herein by reference*

         10.13    Promissory Note, dated January 13, 2004, by and between
                  Zoltek Properties, Inc. and Beal Bank, S.S.B. is filed
                  herewith.

         10.14    Second Amendment to Credit Agreement, dated as of January
                  13, 2003, by and among Zoltek Companies, Inc., Zoltek
                  Corporation, Cape Composites, Inc., Engineering Technology
                  Corporation, Zoltek Properties, Inc. and Southwest Bank of
                  St. Louis is filed herewith.

         21       Subsidiaries of the Registrant filed as Exhibit 21 to
                  Registrant's Annual Report on Form 10-K for the fiscal
                  year ended September 30, 2000 is incorporated herein by
                  this reference

         23       Consent of PricewaterhouseCoopers LLP is filed herewith

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

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

         (b)      Reports on Form 8-K

                  On August 21, 2003, the Registrant filed a Current Report
                  on Form 8-K announcing its financial results for the
                  quarter ended June 30, 2003

<FN>
--------
* Management compensatory plan or arrangement

                                     51

<PAGE>
<PAGE>


                                 SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) 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)


                                      By /s/ Zsolt Rumy
                                         -------------------------------------
                                         Zsolt Rumy, Chairman of the Board,
                                         President and Chief Executive Officer

Date: January 9, 2004

         Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature                                 Title                                         Date
---------                                 -----                                         ----
<S>                                       <C>                                           <C>
S
/s/ Zsolt Rumy                            Chairman, Chief Executive Officer,            January 9, 2004
------------------------------------      Chief Financial Officer and Director
Zsolt Rumy

/s/ Linn Bealke                           Director                                      January 9, 2004
------------------------------------
Linn Bealke

/s/ James W. Betts                        Director                                      January 9, 2004
------------------------------------
James W. Betts

/s/ Charles A. Dill                       Director                                      January 9, 2004
------------------------------------
Charles A. Dill

/s/ John L. Kardos                        Director                                      January 9, 2004
------------------------------------
John L. Kardos

/s/ John F. McDonnell                     Director                                      January 9, 2004
------------------------------------
John F. McDonnell
</TABLE>

                                     52

<PAGE>
<PAGE>


                      REPORT OF INDEPENDENT AUDITORS ON
                        FINANCIAL STATEMENT SCHEDULE


To the Board of Directors
of Zoltek Companies, Inc.

Our audits of the consolidated financial statements referred to in our
report dated December 19, 2003, except for Note 2, which is as of January
13, 2004, appearing in the 2003 Annual Report to Shareholders of Zoltek
Companies, Inc. (which report and consolidated financial statements are
included in this Annual Report on Form 10-K) also included an audit of the
Financial Statement Schedule listed in Item 15(a)(2) of this Form 10-K. In
our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.

/s/PricewaterhouseCoopers LLP
-----------------------------
PricewaterhouseCoopers LLP
St. Louis, Missouri
December 19, 2003

                                     53

<PAGE>
<PAGE>

<TABLE>
                                      FOR THE YEAR ENDED SEPTEMBER 30, 2003

                            Rule 12-09 Valuation and Qualifying Accounts and Reserves

                                             (Amounts in thousands)

<CAPTION>
          Column A                  Column B                    Column C                 Column D       Column E
          --------                  --------         ------------------------------     ----------     ----------
                                                               Additions
                                                     ------------------------------
                                   Balance at        Charged to        Charged to                      Balance at
                                    beginning        costs and       other accounts     Deductions        end
                                    of period         expenses          describe         describe      of period
                                    ---------         --------          --------         --------      ---------

<S>                                  <C>               <C>               <C>               <C>          <C>
RESERVE FOR DOUBTFUL ACCOUNTS        $  742            $  215            $   -             $ 30(1)      $   931
                                     ======            ======            =====             ====         =======
RESERVE FOR INVENTORY VALUATION      $6,100            $1,106            $   -             $906(2)      $ 6,300
                                     ======            ======            =====             ====         =======

DEFERRED TAX VALUATION               $7,378            $3,894            $   -             $  -         $11,272
                                     ======            ======            =====             ====         =======

<CAPTION>
                                       ---------------------------------


                                      FOR THE YEAR ENDED SEPTEMBER 30, 2002

                            Rule 12-09 Valuation and Qualifying Accounts and Reserves

                                             (Amounts in thousands)

          Column A                  Column B                    Column C                 Column D       Column E
          --------                  --------         ------------------------------     ----------     ----------
                                                               Additions
                                                     ------------------------------
                                   Balance at        Charged to        Charged to                      Balance at
                                    beginning        costs and       other accounts     Deductions        end
                                    of period         expenses          describe         describe      of period
                                    ---------         --------          --------         --------      ---------

<S>                                  <C>               <C>               <C>              <C>          <C>
RESERVE FOR DOUBTFUL ACCOUNTS        $  760            $  392            $   -            $  410(1)      $  742
                                     ======            ======            =====            ======         ======
RESERVE FOR INVENTORY VALUATION      $7,972            $    -            $   -            $1,872(2)      $6,100
                                     ======            ======            =====            ======         ======

DEFERRED TAX VALUATION               $7,811            $    -            $   -            $ (433)        $7,378
                                     ======            ======            =====            ======         ======

<CAPTION>
                                       ---------------------------------


                                      FOR THE YEAR ENDED SEPTEMBER 30, 2001

                            Rule 12-09 Valuation and Qualifying Accounts and Reserves

                                             (Amounts in thousands)

          Column A                  Column B                    Column C                 Column D       Column E
          --------                  --------         ------------------------------     ----------     ----------
                                                               Additions
                                                     ------------------------------
                                   Balance at        Charged to        Charged to                      Balance at
                                    beginning        costs and       other accounts     Deductions        end
                                    of period         expenses          describe         describe      of period
                                    ---------         --------          --------         --------      ---------

<S>                                  <C>               <C>               <C>              <C>           <C>
RESERVE FOR DOUBTFUL ACCOUNTS        $  899            $  836            $   -            $  975(1)     $  760
                                     ======            ======            =====            ======        ======
RESERVE FOR INVENTORY VALUATION      $3,340            $8,644            $ 417            $4,429(2)     $7,972
                                     ======            ======            =====            ======        ======

DEFERRED TAX VALUATION               $2,013            $5,798            $   -            $    -        $7,811
                                     ======            ======            =====            ======        ======
<FN>
--------
(1) Write-off of uncollectible receivable, net of recovery.
(2) Reduction in inventory reserve for specific inventory items.
</TABLE>

                                     54

<PAGE>
<PAGE>

                                EXHIBIT INDEX
                                -------------

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

         3.1      Restated Articles of Incorporation of the Registrant*

         3.2      Restated By-Laws of the Registrant, as currently in effect*

         4.1      Form of certificate for Common Stock*

         4.2      Form of Warrant, dated May 11, 2001, issued to Southwest
                  Bank of St. Louis with respect to 12,500 shares of
                  Registrant's Common Stock*

         4.3      Subordinated Convertible Debenture Purchase Agreement,
                  dated as of February 13, 2003, by and among Zoltek
                  Companies, Inc. and the investors named therein, filed as
                  Exhibit 4.1 to Registrant's Current Report on Form 8-K
                  dated February 18, 2003*

         4.4      Form of Subordinated Debenture, filed as Exhibit 4.2 to
                  Registrant's Current Report on Form 8-K dated February 18,
                  2003*

         4.5      Form of Warrant, filed as Exhibit 4.3 to Registrant's
                  Current Report on Form 8-K dated February 18, 2003*

         4.6      Securities Purchase Agreement, dated as of December 19,
                  2003, by and among Zoltek Companies, Inc. and the
                  investors named therein

         4.7      Form of 6% Convertible Debenture

         4.8      Form of Warrant

         10.1     Loan Agreement, dated December 29, 1989, by and between
                  Zoltek Corporation and Southwest Bank of St. Louis, as
                  amended by letter, dated August 13, 1992*

         10.2     Zoltek Companies, Inc. Long-Term Incentive Plan*

         10.3     Zoltek Companies, Inc. Amended and Restated Directors
                  Stock Option Plan filed as Exhibit 10.1 to Registrant's
                  Quarterly Report on Form 10-Q dated August 13, 1999*

         10.4     Promissory Note, dated September 29, 1994, by and between
                  Zoltek Properties, Inc. and Metlife Capital Corporation*

         10.5     Precursor Agreement, dated as of July 1, 1994, by and
                  between Zoltek Corporation and Courtaulds Fibres Limited*
                  (An application for confidential treatment has been made
                  for a portion of Exhibit 10.5.)

         10.6     Materials Supply Agreement, dated as of June 15, 1994, by
                  and between Zoltek Companies, Inc. and The B.F. Goodrich
                  Company* (An application for confidential treatment has
                  been made for a portion of Exhibit 10.6.)

         10.7     Loan Agreement, dated November 14, 1994, by and between
                  Zoltek Properties, Inc. and The Reliable Life Insurance
                  Company*

         10.8     Promissory Note, dated November 14, 1994, by and between
                  Zoltek Corporation and Southwest Bank of St. Louis*


<FN>
--------
* Incorporated herein by reference

                                     55

<PAGE>
<PAGE>


                                EXHIBIT INDEX
                                -------------

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

         10.9     Stock Purchase Agreement, dated as of November 6, 2000, by
                  and among Structural Polymer Group Limited, Zoltek
                  Companies, Inc. and certain Shareholders of Zoltek
                  Companies, Inc.*

         10.10    Credit Agreement, dated as of May 11, 2001, between
                  Southwest Bank of St. Louis and Zoltek Companies, Inc.,
                  Zoltek Corporation, Cape Composites, Inc., Engineering
                  Technology Corporation, Zoltek Properties, Inc., and
                  Hardcore Composites Operations, LLC*

         10.11    First Amendment to Credit Agreement, dated as of February
                  13, 2003, by and among Zoltek Companies, Inc., Zoltek
                  Corporation, Cape Composites, Inc., Engineering Technology
                  Corporation, Zoltek Properties, Inc. and Southwest Bank of
                  St. Louis, filed as Exhibit 10.1 to Registrant's Current
                  Report on Form 8-K dated February 18, 2003*

         10.12    Zoltek Companies, Inc. 2003 Long-Term Equity Incentive
                  Plan, filed as Appendix A to Registrant's definitive proxy
                  statement for the 2002 Annual Meeting of Shareholders*

         10.13    Promissory Note, dated January 13, 2004, by and between
                  Zoltek Properties, Inc. and Beal Bank, S.S.B. is filed
                  herewith.

         10.14    Second Amendment to Credit Agreement, dated as of January
                  13, 2003, by and among Zoltek Companies, Inc., Zoltek
                  Corporation, Cape Composites, Inc., Engineering Technology
                  Corporation, Zoltek Properties, Inc. and Southwest Bank of
                  St. Louis is filed herewith.

         21       Subsidiaries of the Registrant*

         23       Consent of PricewaterhouseCoopers LLP

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

         32       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

<FN>
--------
* Incorporated herein by reference