<PAGE>

                                UNITED STATES
                     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, 2004     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  X . No    .
                                                  ---     ---

         State the aggregate market value of the voting stock held by
non-affiliates of the registrant as of March 31, 2004: approximately
$98,007,500.

         Indicate the number of shares outstanding of each of the
registrant's classes of common stock as of: December 28, 2004: 16,453,481
shares of Common Stock, par value $.01 per share.


                                     1

                     DOCUMENTS INCORPORATED BY REFERENCE

         The following document is incorporated by reference into the
indicated Part of this Report:

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

Proxy Statement for the 2005
  Annual Meeting of Shareholders                         III






                                     2

                                   PART I

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

         This Annual Report on Form 10-K for the fiscal year ended September
30, 2004 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 are to lead the commercialization of carbon fibers as a price
competitive high performance reinforcement for composites used as the
primary building material in everyday commercial products.

         Zoltek believes based on its business strategy described below,
that 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 high-strength, high-stiffness, low-weight and
corrosion and fatigue resistance. Zoltek's strategy and business model for
commercialization of carbon fibers consist of offering low, but sustainable
pricing, achieving low production costs, having rapidly scalable capacity
and offering various value-added product and process enhancements. The
Company sells its carbon fibers under the PANEX(R) trade name.

         Although Zoltek has pursued its commercialization strategy for
several years, during fiscal 2004, the benefits of the strategy have begun
to materialize. From time to time in the past the incumbent aerospace carbon
fiber manufacturers sold their products into the commercial markets at
prices below their total costs, which undercut Zoltek's ability to execute
its commercialization strategy. During fiscal 2004 it became clear that the
world capacity for carbon fibers cannot support the growing demand,
resulting in a divergence of the aerospace and commercial markets. It is the
Company's belief that this divergence will persist over a long period and
validates Zoltek's commercialization strategy. The Company has received
significant supply contracts and orders from customers to utilize its carbon
fibers in wind energy, sporting goods and other applications. As a result,
the Company is undergoing a transformation from primarily a development
business to an operational business.

         In view of the substantial increases in demand for carbon fibers,
supported by several long-term supply relationships, the Company is pursuing
a three-phase capacity expansion program, the first phase of which is the
re-start of production of the five installed continuous carbonization lines
at its Abilene, Texas plant and expansion of precursor production at its
Hungarian plant scheduled for completion in the first half of fiscal 2005.
The second phase calls for addition of two continuous carbonization lines in
Hungary during the second half fiscal 2005. Finally, the Company plans to
double the precursor and carbon fiber capacity in place at the end of the
second phase, by the end of fiscal 2006.

         The delay in the anticipated growth in commercialization of carbon
fibers has had a material adverse effect on the Company's financial
performance over the past several years due to its substantial investments
in manufacturing assets and market and application development expenses
incurred to position the Company to capitalize on the upturn in demand which
the Company had forecasted for several years. Consequently, the Company
temporarily idled its Abilene, Texas production facility and has reported
net losses for the past five fiscal years. During and after fiscal 2004, the
Company completed various financing transactions to rationalize its balance
sheet and access capital to support its expansion program. Additional
external financing will be required to fund planned capacity increases.

         The most significant historical application for the Company has
been for aircraft brakes that incorporate the Company's technical fibers as
base materials for the carbon/carbon composite brake systems used in most
newly designed aircraft (both for new and replacement brakes). However,
recently wind energy, sporting goods and other commercial composite
reinforcement applications have emerged with far greater near-term potential
to become the Company's next leading applications as demand has outstripped
available supply in the market.

          The Company believes that, in addition to 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 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.

                                     3


         The Company is a Missouri corporation founded in 1975. Zoltek
entered the carbon fibers business in fiscal 1989 and 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 commercialization strategy it is now pursuing. In 1992,
the Company completed its initial public offering. The Company acquired its
Hungarian subsidiary in 1995 to secure access to the technology underlying
the production of acrylic "precursor," the principal raw material used in
making carbon fibers and oxidized tow. Since that time, the Company has
added carbon fiber and technical fiber manufacturing capacity in Hungary and
converted a substantial portion of its legacy textile acrylic production to
the manufacture of precursor. During fiscal 2004, the Company undertook a
plan to exit the historical textile and other non-core businesses in
Hungary.

COMPANY OPERATIONS

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

         Acrylic fiber precursor comprises more than 50% of the total cost
of producing carbon fibers. During 1999, the Company converted the textile
Mavilon (acrylic) production line at its Hungarian facility 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 currently operates two carbon fiber production lines in
Hungary and is in various stages of re-starting five installed lines at its
Abilene plant. These lines, as well as increased precursor production and
two new carbon fiber lines planned to be added in Hungary, are expected to
be operational during fiscal 2005. Each carbon fiber production line has a
rated annual production capacity of approximately one million pounds. The
Company sells carbon fibers under the PANEX(R) trade name and its flame and
heat resistant fibers under the PYRON trade name.

         A primary element of Zoltek's strategy is to offer customers
value-added processing of the fibers it produces. The Company performs
certain downstream processing, such as weaving, needling, blending with
other fibers, chopping and milling, and preparation of pre-form, pre-cut
stacks of fabric. At its facility in Salt Lake City, the Company also
produces resin pre-impregnated carbon fibers (prepregs). In addition, the
Company's Salt Lake City-based Entec Composite Machines subsidiary designs
and builds composite manufacturing equipment and markets the equipment along
with manufacturing technology and materials.

         The Company's longer-term 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 Company reported research and development
expenses of $3.1 million, $3.5 million and $3.8 million in fiscal 2004,
fiscal 2003 and fiscal 2002, respectively.

                                     4


         In the fourth quarter of fiscal 2004, the Company formally adopted
a plan to discontinue and exit two divisions of its Zoltek Rt. operations
which manufacture acrylic and nylon fibers and yarns. These divisions were
deemed not to be part of the long-term strategy of the Company and not
expected to be profitable in the foreseeable future due to the continued
pricing pressure from competitive manufacturers. In the fourth quarter of
fiscal 2004, the Company recorded an impairment loss on discontinued
operations of $0.2 million associated with severance payments. The net loss
from operations related to those divisions was $5.2 million. The Company
also recorded a loss of $0.5 million related to a legal judgment involving
the Company's former Hardcore subsidiary. The Company is vigorously
appealing this matter and has filed 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.
Manufacturing of textile acrylic fibers and nylon products at Zoltek Rt. has
been curtailed.

         Zoltek Rt. currently produces plastic netting and CMC (carboxyl
methyl cellulose), which businesses the Company is seeking to sell. These
business units are not included in discontinued operations and are
marginally profitable.

         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
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.

         Until recently, the high cost of carbon fibers precluded all but
the most demanding applications, limiting carbon fibers use primarily to the
aerospace industry. While the basic technology to manufacture commercial and
aerospace carbon fibers is the same and fiber- to-fiber properties are
equivalent, demands for specific fabrication methods, level of quality
documentation and certification costs make the aerospace fibers
significantly more costly to produce than carbon fiber suitable for
commercial applications.

         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. 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. Until Zoltek introduced its strategy to
commercialize carbon fibers, there was no significant differentiation in
sources of supply to the two markets.

         Over the past year the Airbus A-380 airplane entered production
phase and 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 has eliminated the excess capacity in
aerospace fibers and triggered the divergence of the aerospace and
commercial markets for carbon fibers. Zoltek believes this development has
validated its commercialization strategy and 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.

         Extensive commercially viable applications are only possible at
carbon fiber prices significantly lower than those historically prevailing
for aerospace applications. To support the long-term growth in commercial
carbon fiber markets, the Company believes it is most important to maintain
attractive and predictable pricing and bring capacity on line fast enough to
support application development.

         Commercial applications categories 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.

                                     5


BUSINESS STRATEGY

         Zoltek's business strategy and its relevance to current market
conditions can be summarized as follows:

         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 seeks to reduce its total production costs
         through various means, including enhancement of its acrylic fiber
         precursor manufacturing capability and upgrades to its carbon fiber
         production equipment and process designed to achieve increased
         efficiencies. Although from time to time in the past, certain
         aerospace producers have sold carbon fibers for commercial
         applications at prices below their total production costs, their
         current production now is allocated to large commercial aviation
         programs and the Company does not expect they will compete in the
         commercial markets for the foreseeable future.

         o    Sustainable Price Leadership -- Zoltek believes that it is
         beginning to achieve success in its ultimate objective--selling
         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 predictable
         composite costs per unit of strength or stiffness which compete
         favorably with alternative base construction materials such as
         glass fiber composites, steel and aluminum. In the past there have
         been cycles of carbon fiber shortages accompanied by price
         increases that stifled the development of new applications. With
         its targeted cost structure Zoltek believes that it can maintain
         sustainable but competitive pricing.

         o    Leverage Capacity Leadership -- The Company believes that its
         decision to build and maintain significant available capacity has
         directly resulted in long-term supply arrangements with high volume
         customers. Zoltek's installed capacity has enabled it to attain
         relationships to supply users of carbon fibers who need assurances
         of stable sources of carbon fiber. From fiscal 1997 through early
         fiscal 1999 the Company pursued an aggressive capacity expansion
         program and believes it currently has the largest rated capacity
         for carbon fibers production in the world. Zoltek has developed,
         and is continually seeking to improve, a standardized continuous
         carbonization line design in order to increase efficiency and
         shorten lead time from the decision to add lines to the time when
         the lines become operational. Demonstrated ability to increase
         capacity at a level that matches the growth of the commercial
         markets is essential to encourage development of large volume
         applications. The Company believes it is uniquely positioned to
         expand capacity rapidly enough to keep pace with commercial market
         demand.

         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, including significant
         partnerships with potential users of carbon fibers to act as
         catalysts in the development of new low-cost, high volume products.
         The Company believes that its supply relationships with customers
         for wind energy and automotive applications are the direct result
         of these development efforts.

TARGETED DEVELOPING APPLICATIONS

         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 believed to offer the highest potential for substantial sales
over coming years. These application categories are as follows:

         o    Wind energy is one of the fastest growing industries globally.
              The desire by consumers and government support for renewable
              energy has been growing in the past decade. Of all the current
              technologies, wind generated electricity is the most
              competitive and technically viable renewable energy source.
              The wind turbine's ability to generate electricity is
              increased by the square of its blade length. With 55-60 meter
              (approximately 175-200 feet) long blades, a wind turbine can
              generate 3 MW of electricity at costs competitive with fossil
              fuels. All the major wind turbine manufacturers have announced
              plans to introduce such large turbines. The length of these
              blades requires the use of carbon fibers. The Company has put
              forth a significant effort to qualify and certify our
              PANEX(R)-35 fibers for this application.

              The Company recently announced a long-term exclusive supply
              agreement with the largest manufacturer of wind turbines. The
              Company expects that this supply agreement will generate $80
              to $100 million of sales over the next three years. Also, the
              Company's Entec subsidiary is completing fabrication of
              machinery to make the blades for wind turbines with an
              automated process, to be used by another leading producer of
              wind turbines, which the Company believes will lead to
              meaningful carbon fiber sales to that customer beginning in
              fiscal 2005.

                                     6


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

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

              The first regulations in place relate to the mattress products
              in the State of California. The Company, in cooperation with a
              major supplier to the mattress industry, has developed a
              solution for the regulations put in place by the State of
              California. It is expected that consumer product safety
              standards that regulate flame-retardant bedding and furniture
              will begin to be enforced by the State of California starting
              in 2005. So far the mattress industry is vigorously opposing
              the California regulations and is seeking to defer offering
              compliant products until the U.S. federal regulations are
              imposed. The American Home Fire Safety Act, which is expected
              to be the basis for the federal regulations, has been passed
              by the Senate and introduced in the House.

              In view of recent legal developments regarding implementation
              of these laws and rules at this time, it is not clear when the
              industry will implement the introduction of the
              flame-resistant mattresses. However, it is the Company's
              belief that the potential exposure to product liability
              eventually will force the industry to comply with the
              standards, and to do so across the United States.

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

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 and technical fibers. Successful
partnerships with commercial customers include the long-term supply
relationship with Goodrich and Messier Bugatti. The Company will continue to
seek 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, 2004 and 2003, the Company
reported sales of $7.1 million and $8.0 million, respectively, to Goodrich,
a major aircraft brake manufacturer, which was the only customer that
represented greater than 10% of the Company's total consolidated revenues.

         As of September 30, 2004 and 2003, the Company had a backlog of
orders believed to be firm aggregating more than $18.5 million and $16.0
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.

                                     7


INTERNATIONAL

         The Company conducts its carbon fiber products operations primarily
in the United States and Europe. The Company sells its carbon fibers
globally.

         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 11 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, which 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 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 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.

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. A preliminary court ruling has been favorable for the Company, but
the Company cannot predict the timing or the outcome of this litigation or
the impact on the Company's financial condition 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 and
fibers products competes across all of its product lines and applications.
The Company also believes its business plan distinguishes it from other
carbon fiber manufacturers in supporting the long-term growth of the
commercial carbon fiber market.

         The carbon fibers business segment's direct carbon fiber
competitors include SGL Carbon in the United States and Europe, inasmuch as
it uses 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 United States and Japan. These
carbon fibers producers tend to market higher cost products than the
Company's products, with a principal focus on aerospace

                                     8


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 has observed
a significant shift in this situation as the aerospace fiber demand has been
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 segment are sustainable
price, quality, development of new applications and ability to reliably meet
the customer's volume requirements and qualifications for particular
programs.

ENVIRONMENTAL

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

EMPLOYEES

         As of September 30, 2004, the Company employed approximately 210
persons in its U.S. operations and approximately 680 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-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 re-activate its formerly idle manufacturing facilities
on a

                                     9

timely and cost-effective basis, to meet current order levels for carbon
fibers; (2) the Company's ability to successfully add new capacity for the
production of carbon fiber and precursor raw material; (3) the Company's
ability to execute plans to exit its specialty products business and reduce
costs; (4) the Company's ability to achieve profitable operations; (5) the
Company's ability to raise new capital and increase its borrowing at
acceptable costs; (6) the Company's ability to manage changes in customers'
forecasted requirements for the Company's products; (7) the Company's
ability to continue investing in application and market development; (8) the
Company's ability to manufacture low-cost carbon fibers and profitably
market them; and (9) the Company's ability to penetrate existing, identified
and emerging markets.

         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.

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                  --------                                    ---                        ----------------
         <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 fiber precursor    1,600,000
                                                  and 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 $0.3 million for breaches by the Company of its obligations under
the guaranty and the settlement agreement and, in addition, demands $0.5
million in damages from Hardcore and the Company, jointly and severally,
under the terms of the settlement agreement. During the third quarter of
fiscal 2004, Hardcore filed a petition under Chapter 11 of the U.S.
Bankruptcy Code. In October 2004, the Court of Common Pleas for Cuyahoga
County, Ohio ruled in favor of the former owner of Hardcore Composites in
the amount of $1.1 million. The Company recorded an additional accrual of
$0.5 million, which was recorded in discontinued operations to fully accrue
the liability under the judgment. The Company is vigorously defending this
matter, has filed counterclaims and filed an appeal. Management believes
that the ultimate resolution of this litigation will not have further
material adverse effect on the Company's results of operations or financial
condition. For additional information, see Notes 3 and 8 to the Company's
Consolidated Financial Statements.

         In September 2004, the Company was named a defendant in a civil
action filed by a former investment banker that was retained by the Company
to obtain equity investors, alleging breach by the Company of its
obligations under the agreement signed by the parties. The investment banker
alleges it is owed commission from equity investment obtained by the Company
from a different source. The Company has asserted various

                                     10

defenses, including that the investment banker breached the agreement by not
performing reasonable efforts to obtain financing for the Company and,
therefore, the agreement was terminated by the Company prior to obtaining
new financing. The litigation is in early stages and 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.

         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. A recent court ruling has been favorable for the Company, but the
Company cannot predict the timing or the outcome of this litigation or the
impact on the Company's financial condition and results of operations.

         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, 2004.

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

         The name, age, position and principal occupation of each of the
executive officers of the Company is set forth below:

         Zsolt Rumy, age 62, is the founder of the Company and has served as
its Chairman, Chief Executive Officer and President and as a Director since
1975. 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.

         Kevin Schott, age 38, has served as the Chief Financial Officer of
the Company since April 2004. As an independent consultant since 2001, Mr.
Schott served a variety of publicly and privately owned companies, including
Zoltek, in different facets of financial planning and management. In years
prior, Mr. Schott worked for two years with Ernst & Young in St. Louis from
1988 to 1990, and then joined Bridge Information Systems, where he worked
for ten years from 1990 to 2000, including five as vice president and
corporate controller. Mr. Schott received a B.S. degree in Business
Administration from Washington University in 1988.

         The Company currently is in the process of recruiting one or more
senior executive officers.


                                     11

                                   PART II

Item 5. Market for Registrant's Common Equity, Related Shareholder Matters
------  ------------------------------------------------------------------
and Issuer Purchases of Equity Securities
-----------------------------------------

         The Company's Common Stock (symbol: "ZOLT") is traded in the Nasdaq
National Market. The number of beneficial holders of the Company's stock is
approximately 11,500, including shareholders whose shares are held in
"nominee" or "street" names. The Company has never paid dividends.

         Set forth below are the high and low bid quotations as reported by
the Nasdaq National Market 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, 2004                  September 30, 2003
                                                    ------------------                  ------------------
                                                  High               Low             High                Low
                                                  ----               ---             ----                ---
         <S>                                   <C>                <C>              <C>                <C>
         First Quarter........................ $    6.99          $   2.43         $   3.49           $   1.25
         Second Quarter.......................     11.21              5.05             3.07               1.48
         Third Quarter........................     10.67              6.75             4.15               2.41
         Fourth Quarter.......................      9.22              6.59             3.00               2.09
</TABLE>

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

         In March 2004, the Company issued and sold convertible debentures
in the aggregate principal amount of $5.75 million to institutional private
equity investors and Mr. Dill ($750,000) who is member of the Company's
board of directors. The convertible debentures have a stated maturity of 30
months and bear interest at 6% per annum and are convertible presently into
895,908 shares of common stock at a conversion price of $6.25 per share for
each investor other than Mr. Dill and $7.82 per share for Mr. Dill. The
Company also issued to the investors five-year warrants to purchase an
aggregate of 223,997 shares of common stock of the Company at an exercise
price of $7.50 per share for each investor other than Mr. Dill whose
warrants have an exercise price of $7.82 per share. The fair value of the
debt discount associated with the warrants and beneficial conversion
feature, at the time of issuance, of $4.0 million and is being amortized as
non-cash interest expense over the term of the convertible debentures.
Proceeds from the issuance of these convertible debentures are being used
for working capital and capital expenditures.

         In January 2004, the Company issued and sold convertible debentures
in the aggregate principal amount of $7.0 million to institutional private
equity and other investors (including $250,000 to each of Mr. Rumy and Mr.
McDonnell who are members of the Company's Board of Directors). The
convertible debentures have a stated maturity of 30 months and bear interest
at 6% per annum and are convertible presently into 1,295,954 shares of
common stock at a conversion price of $5.40 per share for each investor
other than Messrs. Rumy and McDonnell and $5.42 per share for each of
Messrs. Rumy and McDonnell. The Company also issued to the investors
five-year warrants to purchase an aggregate of 323,994 shares of common
stock of the Company at an exercise price of $5.40 per share for each
investor other than Messrs. Rumy and McDonnell and $5.42 per share for each
of Messrs. Rumy and McDonnell. The fair value of the debt discount
associated with the warrants and beneficial conversion feature, at the time
of issuance, of $2.0 million and is being amortized as non-cash interest
expense over the term of the convertible debentures. Proceeds from the
issuance of these convertible debentures are being used for working capital
purposes.

         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.

                                     12

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


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

<CAPTION>
Statement of Operations Data: (2)                                           Year Ended September 30,
----------------------------------------------------------------------------------------------------------------------------
                                                            2004          2003        2002         2001          2000
                                                          --------     ---------    ---------    ---------    ---------
<S>                                                       <C>          <C>          <C>          <C>          <C>
Net sales.................................................$ 45,273     $  39,405    $  41,787    $  47,797    $  51,892

Cost of sales, excluding available unused capacity costs..  38,878        33,181       33,508       48,745       42,616

Available unused capacity costs...........................   4,466         5,716        6,039        6,803        4,658

Selling, general and administrative expenses (1)..........   8,414         9,951       10,319       12,839       10,759

Operating loss from continuing operations.................  (5,485)       (9,443)      (8,079)     (20,590)      (6,141)

Other income (expense) and income tax expense benefit.....  (4,610)       (2,270)       1,730         (649)       1,544

Net loss from continuing operations....................... (10,909)      (11,929)      (6,517)     (21,239)      (4,597)

Loss on discontinued operations, net of income taxes......  (5,828)       (3,673)      (1,314)     (10,332)      (4,088)

Net loss..................................................$(16,737)    $ (15,602)   $  (7,831)   $ (31,571)   $  (8,685)

Net loss per share:

  Basic and diluted loss per share:
     Continuing operations................................$  (0.67)    $   (0.73)   $   (0.40)   $   (1.29)   $   (0.25)
     Discontinued operations..............................   (0.35)        (0.23)       (0.08)       (0.62)       (0.22)
                                                          --------     ---------    ---------    ---------    ---------

     Net loss.............................................$  (1.02)    $   (0.96)   $   (0.48)   $   (1.91)   $   (0.47)
                                                          ========     =========    =========    =========    =========

Weighted average common shares outstanding................  16,372        16,307       16,289       16,515       18,360



<CAPTION>
Balance Sheet Data:                                                                  September 30,
----------------------------------------------------------------------------------------------------------------------------
                                                            2004          2003         2002         2001         2000
                                                          --------     ---------    ---------    ---------    ---------
<S>                                                       <C>          <C>          <C>          <C>          <C>
Working capital...........................................$ 17,002     $  18,790    $   9,872    $  22,891    $  27,041

Total assets.............................................. 122,799       119,455      121,422      121,492      207,701

Short-term debt...........................................   2,194           933       14,014        2,073       47,126

Long-term debt, less current maturities...................  42,094        33,541       13,699       22,036        8,697

Shareholders' equity......................................  56,579        64,516       75,904       79,596      122,811

<FN>
------------------
(1) Includes application and development costs of $3,070, $3,453, $3,750,
$3,533 and $2,479 for fiscal years 2004, 2003, 2002, 2001 and 2000,
respectively.

(2) Prior year amounts have been reclassified for discontinued operations as
discussed in Note 3.
</TABLE>

                                                             13

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 Company has
developed and is implementing a strategy to manufacture and sell carbon
fibers into commercial applications at costs competitive with other
materials. In addition, through its technical fibers segment the Company is
the leading supplier of carbon fibers to the aircraft brake industry, and
manufactures and markets oxidized acrylic fibers, an intermediate product of
the carbon fiber manufacturing process, for fire and heat resistance
applications.

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

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

         The recent increase in the demand for carbon fibers relates to
several different applications including aerospace. During fiscal 2004, the
Company experienced growth in customer demand in the carbon and technical
fiber business units, as sales (excluding inter-segment sales) increased
$5.2 million and $0.7 million, respectively, over fiscal 2003. The improved
sales in the carbon fibers and technical fibers business units resulted in a
reduction in the overall operating loss from continuing operations reported
by the Company from a loss of $9.4 million in 2003 to a loss of $5.5 million
in 2004.

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

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

         In order to meet demand for carbon fibers for wind energy and other
commercial carbon fiber applications, Zoltek has undertaken a three-phase
capacity expansion program. First, Zoltek has initiated the

                                     14

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

         Outside of the carbon fiber business, the Company sells acrylic and
nylon fibers into textile markets and manufactures other specialty products
in its Hungary facility. During the fourth quarter of fiscal 2004, the
Company discontinued the nylon fiber operation and the acrylic textile
business. These divisions were deemed not to be part of the long-term
strategy of the Company and not expected to be profitable in the foreseeable
future due to the continued pricing pressure from competitive manufacturers.
The Company will utilize a portion of the acrylic fiber capacity to supply
precursor for its growing carbon fiber manufacturing operations. The Company
recorded a one-time charge to earnings of $0.2 million related to severance.
The results from operations of these two divisions has been reclassified to
discontinued operations for fiscal 2004, 2003 and 2002.

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

FISCAL YEAR ENDED SEPTEMBER 30, 2004 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 2003

         The Company's sales increased by 15%, or $5.9 million, to $45.3
million in fiscal 2004 from $39.4 million in fiscal 2003, due to increases
in carbon fiber sales (excluding intersegment) and technical fiber sales
(excluding intersegment). Carbon fiber sales (excluding intersegment)
increased 40%, or $5.2 million, to $18.4 million in fiscal 2004 from $13.2
million in fiscal 2003. The increase in carbon fiber sales in fiscal 2004
was achieved despite a decrease of $5.9 million from 2003 related to the
Company's decision to relocate its prepreg operations from California to
Utah to reduce costs by combining its operations with another of the
Company's facilities. Other carbon fibers sales increased by $11.1 million
in fiscal 2004 from fiscal 2003 as production and sales of sporting goods
and wind energy orders continued during the third and fourth quarters of
fiscal 2004 and the Company experienced a strong increase in the overall
demand for carbon fiber over prior years. Technical fiber sales (excluding
intersegment) increased 5%, or $0.7 million, to $14.8 million in fiscal 2004
from $14.1 million in fiscal 2003. Technical fiber sales increased as demand
improved not only in the aircraft brake customers but also for the
flame-retardant market. Sales of the specialty products business segment
decreased 1%, or $0.1 million, to $12.0 million in fiscal 2004 from $12.1
million in fiscal 2003. During the fourth quarter of fiscal 2004, the
Company discontinued the nylon fiber operation and the acrylic textile
business. The Company will utilize a limited portion of the acrylic fiber
capacity to supply precursor for its growing carbon fiber manufacturing
operations. The results from operations of these two divisions have been
reclassified to discontinued operations for fiscal 2004, 2003 and 2002. The
remaining specialty products division sales have remained flat from fiscal
2004 to 2003, however, the divisions remained profitable at these levels.

         The Company's cost of sales (excluding available unused capacity
costs) increased by 14.1%, or $4.7 million, to $37.9 million in fiscal 2004
from $33.2 million in fiscal 2003. Carbon and technical fiber cost of sales
(excluding intersegment) increased by 17% or $4.1 million to $28.1 million
in fiscal 2004 from $24.0 million in fiscal 2003 as sales of carbon and
technical fiber (excluding intersegment) increased 21% for the year. The
increase of 16% compared to an increase of 21% in sales results from the
Company's ability to absorb its fixed cost as manufacturing activities
increased. The cost of sales of the Company's specialty products business
segment increased 7% compared to the 1% decrease in sales, reflecting sales
mix factors.

         The Company continued to incur costs related to the underutilized
productive capacity for carbon fibers at the Abilene, Texas facility,
including depreciation and other overhead associated with the unused
capacity. These costs, which were separately identified on the statement of
operations, were approximately $4.5 million during fiscal 2004 and $5.7
million in fiscal 2003. The decrease in 2004 was due to the start-up of the
carbon fiber lines in Abilene during the fourth quarter of 2004. The Company
believes it has been necessary to maintain available capacity to encourage
development of significant new large-scale applications. With the increased
orders in fiscal 2005, unused capacity costs are expected to continue to
decrease significantly during that period and to be fully absorbed in
ongoing operations by the end of fiscal 2005 as all installed production
lines began operating. See additional discussion of the Abilene facility
under "--Liquidity and Capital Resources."

                                     15

         Application and market development costs were $3.1 million in
fiscal 2004 and $3.5 million in fiscal 2003 as the Company continued cost
containment measures implemented in 2003 related to personnel involved in
research and development. These costs included product and market
development efforts, product trials and sales and product development
personnel and related travel. Targeted emerging applications include
automobile components, fire/heat barrier and alternate energy technologies.

         Selling, general and administrative expenses were $5.3 million in
fiscal 2004 compared to $6.5 million in fiscal 2003. Although sales for the
year increased 15% and carbon fiber sales increased 40% the Company has
continued cost containment measures related to personnel in non-operations
departments implemented during fiscal 2003.

         Operating loss from continuing operations was $5.5 million in
fiscal 2004 compared to a loss of $9.4 million in fiscal 2003, an
improvement of $4.1 million. Carbon fiber operating loss improved from a
loss of $8.6 million in fiscal 2003 to a loss of $6.8 million in fiscal
2004. The operating income in technical fibers increased from income of $0.1
million in fiscal 2003 to $1.2 million in fiscal 2004. Corporate
headquarters operating loss decreased with a loss of $1.4 million in fiscal
2004 compared to a loss of $2.5 million in fiscal 2003. Specialty product
operating loss decreased from a loss of $1.6 million in fiscal 2003 to a
loss of $1.5 million in fiscal 2004. The decrease in the Company's total
operating loss was a result of the significant improvement in the carbon
fibers and technical fibers business units as sales and production have
increased to absorb fixed manufacturing cost and the continued reduction of
operating expenses due to the cost containment measures implemented during
2003.

         Interest expense was approximately $3.4 million in fiscal 2004
compared to $1.9 million in fiscal 2003. The increase in interest resulted
from higher debt levels after the Company's refinancing transactions (see
"--Liquidity and Capital Resources"). The company experienced little
fluctuation attributed to changes in interest rates as a substantial portion
of the debt portfolio consists of fixed rate.

         Amortization of debt discount from warrants, deferred financing and
beneficial conversion feature costs, which are non-cash expenses, was $1.8
million in fiscal 2004 compared to $0.1 million in fiscal 2003. The increase
in amortization resulted from the Company's refinancing transactions (see
"--Liquidity and Capital Resources").

         Other income/expense, net, was immaterial in fiscal 2004 and fiscal
2003.

         Income tax expense was $0.4 million for fiscal 2004 compared to an
income tax expense of $0.5 million for fiscal 2003. A valuation allowance
was recorded against the income tax benefit resulting from the pre-tax loss
in both fiscal 2004 and 2003 due to uncertainties in the Company's ability
to utilize tax losses in the future.

         The foregoing resulted in a net loss from continuing operations of
$10.9 million for fiscal 2004 compared to a net loss of $11.9 million for
fiscal 2003. Similarly, the Company reported a net loss per share from
continuing operations of $0.67 and $0.73 on a basic and diluted basis for
fiscal 2004 and 2003, respectively. The weighted average common shares
outstanding were 16.4 million for fiscal 2004 and 16.3 million for fiscal
2003.

         In the fourth quarter of fiscal 2004, the Company formally adopted
a plan to discontinue and exit two divisions of its Zoltek Rt. operations
which manufacture acrylic and nylon fibers and yarns. These divisions are
not part of the long-term strategy of the Company and will not be profitable
in the foreseeable future due to the continued pricing pressure from
competitive manufacturers. In the fourth quarter of fiscal 2004, the Company
recorded an impairment loss on discontinued operations of $0.2 million
compared to zero in 2003. The operating loss related to those divisions were
$5.2 million for the fiscal year compared to $3.7 million in fiscal 2003.
The increase in the operating loss was due to sales decreasing by $7.8
million, or 32%, from $24.1 million in fiscal 2003 to $16.3 million in
fiscal 2004 while cost of sales only decreased $6.6 million, or 27%, from
$24.4 million in fiscal 2003 to $17.8 million in fiscal 2004, as the Company
did not decrease its fixed cost component of cost of sales at a rate equal
to its drop in sales. The Company also recorded a loss of $0.5 million
related to a legal judgment involving the Company's former Hardcore
subsidiary. The Company is vigorously defending this matter and has filed
counterclaims and an appeal. 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.

                                     16

COMPARISON OF RESULTS FOR FISCAL YEARS ENDED SEPTEMBER 30, 2003 AND 2002

         The Company's sales decreased 6%, or $2.4 million, to $39.4 million
in fiscal 2003 from $41.8 million in fiscal 2002. Technical fiber sales
decreased 29%, or $5.7 million, to $14.1 million in fiscal 2003 from $19.8
million in fiscal 2002. Carbon fiber sales (excluding intersegment)
increased 23%, or $2.5 million, to $13.2 million during fiscal 2003 from
$10.7 million in fiscal 2002. Carbon fiber sales increased both in Hungary
and the U.S. as the demand for carbon fiber increased in the second half of
the year as excess capacity in the industry started to decrease. During
fiscal 2003, technical fibers decreased due to excess technical fiber
capacity that weakened economic conditions globally specifically in the
aerospace business. Sales of other products produced at Zoltek Rt. increased
$0.8 million, or 7%, to $12.1 million in fiscal 2003 from $11.3 million in
fiscal 2002 as sales of the Mavibond division increased due to higher demand
from Eastern European customers.

         The Company's cost of sales (excluding available unused capacity
costs) decreased by 1%, or $0.3 million, to $33.2 million in fiscal 2003
from $33.5 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 the technical fiber
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 certain carbon fiber
inventories of which it was deemed to have excess amounts in fiscal 2003.

         In 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 decrease relates to the continued cost
containment measures related to personnel implemented during fiscal 2003.

         Application and market development costs were $3.5 million in
fiscal 2003 compared to $3.7 million in fiscal 2002, representing a $0.2
million decrease. This decrease was due to cost containment measures. The
costs incurred in fiscal 2003 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 $0.1
million, or 2%, from $6.6 million in fiscal 2002 to $6.5 million in fiscal
2003. The decrease in expense was from both business segments and the
corporate headquarters, due to cost cutting measures, including lower
payroll.

         Interest expense was approximately $1.9 million in fiscal 2003
compared to $1.6 million in fiscal 2002. The increase resulted from higher
debt levels after the Company's refinancing transactions (see "--Liquidity
and Capital Resources"). The company experienced little fluctuation
attributed to changes in interest rates as a substantial portion of the debt
portfolio consists of fixed rate.

         Other income/expense, net, increased $0.4 million to $0.1 million
expense for fiscal 2003 from $0.3 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. A valuation allowance was recorded against the
income tax benefit resulting from the pre-tax loss for fiscal 2003 and 2002
due to uncertainties in the Company's ability to utilize tax losses in the
future. During fiscal 2002, the tax laws changed allowing the Company
additional carryback of net operating loss to prior years resulting in a tax
benefit in the statement of operations.

         The loss from discontinued operations related to the acrylic fiber
operations increased from a loss of $2.2 million in fiscal 2002 to a loss of
$3.7 million in fiscal 2003. The increase in the loss in fiscal 2003 was due
to the decrease in sales related to continuing pricing pressures from
competitors without a corresponding reduction in manufacturing cost. The
loss in 2002 was offset by a gain of $0.9 million related to the sale of the
Company's former Hardcore subsidiary.

                                     17

         The foregoing resulted in a net loss from continuing operations of
$11.9 million for fiscal 2003 compared to a net loss of $6.5 million for
fiscal 2002. Similarly, the Company reported net loss from continuing
operations per share of $(0.73) and $(0.40) 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.

LIQUIDITY AND CAPITAL RESOURCES

         Management will seek to fund its near-term operations from
continued sale of excess inventories and continued aggressive management of
the Company's working capital, as well as sources that may include
additional borrowings and/or private equity. However, management can make no
assurance that these objectives will be sufficient to fund near-term
liquidity needs and has obtained additional financing to meet operating
requirements, as discussed under "--2005 Refinancing" below. As the demand
for carbon fiber continues to increase, the Company will need additional
financing to expand the capacity and execute its capacity expansion program.

         Due to the timing of development of markets for carbon fiber
products, the Company's operating activities have used cash in each of the
past three fiscal years. As a result, the Company has executed refinancing
arrangements and incurred 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.

2005 Refinancing
----------------

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

         In December 2004, the Company's U.S. bank extended the expiration
and waived the financial covenants of the Company's revolving credit loan,
term loan and mortgage on an existing property from January 1, 2005 to
January 1, 2006. The Company's U.S. bank also increased the amount available
under the revolving credit loan by $0.5 million to $5.5 million and
increased the term loan by $0.1 million to $0.8 million. The principal on
the term loan will be repaid on a quarterly basis of $0.1 million with the
remainder of the principal due on expiration. The mortgage will be repaid on
a monthly basis of $15,344 of principal and interest with the remainder of
the principal due on expiration.

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

         In January 2004, the Company issued and sold convertible debentures
in the aggregate principal amount of $7.0 million to institutional private
equity and other investors (including $250,000 to each of Mr. Rumy and Mr.
McDonnell who are members of the Company's Board of Directors). The
convertible debentures have a stated maturity of 30 months and bear interest
at 6% per annum and are convertible presently into 1,295,954 shares of
common stock at a conversion price of $5.40 per share for each investor
other than Messrs. Rumy and McDonnell and $5.42 per share for each of
Messrs. Rumy and McDonnell. The Company also issued to the


                                     18

investors five-year warrants to purchase an aggregate of 323,994 shares of
common stock of the Company at an exercise price of $5.40 per share for each
investor other than Messrs. Rumy and McDonnell and $5.42 per share for each
of Messrs. Rumy and McDonnell. The fair value of the debt discount
associated with the warrants and beneficial conversion feature, at the time
of issuance, was estimated to be $2.0 million and is being amortized as
non-cash interest expense over the term of the convertible debentures.
Proceeds from the issuance of these convertible debentures were used for
working capital purposes.

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

         Also in January 2004, the Company entered into a mortgage note with
a bank in the aggregate principal amount of $6.0 million. The note has a
stated maturity of three years and bears interest at a rate of LIBOR plus
11% (13.5% per annum as of September 30, 2004) with a LIBOR floor of 2%. The
Company will pay interest only on a monthly basis with principal balance due
at time of maturity. The loan is collateralized by a security interest in
the Company's headquarters facility and its two U.S. manufacturing
facilities that produce carbon and technical fibers. The proceeds of this
transaction were used to pay down debt of $6.0 million with its U.S. bank.
Of such proceeds, $0.5 million was held in an escrow account to be released
when the Company completed certain post-closing requirements. The Company
completed these requirements during the third quarter of 2004 and the $0.5
million was released from escrow.

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

         In March 2004, the Company issued and sold convertible debentures
in the aggregate principal amount of $5.75 million to institutional private
equity investors and Mr. Dill ($750,000) who is member of the Company's
board of directors. The convertible debentures have a stated maturity of 30
months and bear interest at 6% per annum and are convertible presently into
895,908 shares of common stock at a conversion price of $6.25 per share for
each investor other than Mr. Dill and $7.82 per share for Mr. Dill. The
Company also issued to the investors five-year warrants to purchase an
aggregate of 223,997 shares of common stock of the Company at an exercise
price of $7.50 per share for each investor other than Mr. Dill whose
warrants have an exercise price of $7.82 per share. The fair value of the
debt discount associated with the warrants and beneficial conversion
feature, at the time of issuance, estimated to be $4.0 million and is being
amortized as non-cash interest expense over the term of the convertible
debentures. Proceeds from the issuance of these convertible debentures are
being used for working capital and capital expenditures.

                                     19

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 its U.S. bank, which have been waived
through February 13, 2006, the latest maturity date of these borrowings.

         US Operations - The Company's current credit facility with its U.S.
bank is described above under "--2005 Refinancing" and "--2003 Refinancing."
Total borrowings under the U.S. credit facility, including the revolving
line of credit and term loan, were $5.7 million at September 30, 2004.

         Hungarian Operations - The Company's Hungarian subsidiary has a
credit facility with a Hungarian bank. Total borrowings under this credit
facility were $11.4 million at September 30, 2004. Due to the fiscal 2005
refinancing (see -"Refinancing" in Note 2), the credit facility has been
reduced to a $3.0 million term loan with interest only payments over the
next three years and a balloon payment at the end of the term.

         In March 2003, the Company's Hungarian subsidiary entered into a
credit agreement with another Hungarian bank for $2.2 million of which $2.2
million was outstanding as of September 30, 2004. This facility was paid off
as part of the 2005 refinancing.

         Total borrowings of the Hungarian subsidiary were $13.6 million at
September 30, 2004, of which $13.6 million has been classified as long-term
debt due to the 2005 refinancing in which $12.0 million was repaid.
Borrowings under the Hungarian bank credit facilities cannot be used in
Zoltek's U.S. operations.

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

         In the third quarter of fiscal 2001, the Company elected to
temporarily idle a significant part of the operations located at the
Abilene, Texas facility. The Company resumed manufacturing at this facility
during fiscal 2004. Given that these assets were previously idled and did
not generate significant cash flow in 2004, the Company performed an
impairment test. The Company determined that no impairment of its carrying
value exists at September 30, 2004 based on an analysis of expected future
net cash flow to be generated from this facility over the expected remaining
useful life.

                                     20

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

         Net cash used by continuing operating activities was $6.9 million
for fiscal 2004. The cash flows used by continuing operating activities
during fiscal 2004 were primarily due to the net loss of $10.9 million plus
an increase in net operating assets of $3.4 million, offset by non-cash
items, including depreciation and amortization of $7.4 million. The increase
in net operating assets consisted of an increase in receivables and other
assets of $4.1 million as carbon fiber sales increased during the year and
the Company's Entec subsidiary finished a $2.0 million project related to
building a machine for a wind turbine provider to make carbon fiber
composite blades for wind turbines with an automated process close to its
fiscal year-end; the related account receivable had not been collected by
September 30, 2004. In addition, accrued expenses and other liabilities and
trade payables increased $0.8 million with an increase in inventories of
$0.2 million.

         The Company is exploring other alternative markets to sell certain
carbon fiber inventories to improve its cash flow. The Company has decreased
the carbon fiber and specialty unit actual inventory by $0.9 million which
was offset by an increased inventory in the Entec operation.

         Net cash used by continuing operating activities was $2.0 million
for fiscal 2003. The cash flows used by continuing operating activities
during fiscal 2003 were primarily due to the net loss of $11.9 million
offset by non-cash items including depreciation and amortization of $5.9
million and unrealized foreign exchange gain of $0.8 million plus a decrease
in net operating assets of $3.2 million. The decrease in net operating
assets consisted of a decrease of $0.8 million in inventories due primarily
to a concerted effort to reduce inventories, a decrease of $1.1 million in
accounts receivables, a decrease of $0.3 million in prepaid and other assets
and a $2.9 million increase in accrued expenses and other liabilities,
offset by a $1.2 million decrease in trade payables and a $0.7 million
decrease in long-term liabilities.

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

         Net cash used by discontinued operating activities was $0.2 million
for fiscal 2004. The cash flow used by discontinued operating activities
during 2004 was primarily related to the net loss of $5.8 million plus
decreases in net operating assets of $5.6 million. The decrease in net
operating assets consisted of a decrease in receivables and inventory of
$3.5 million and $3.2 million, respectively, offset by decreases in payables
of $1.1 million. The decrease in receivables and inventory related to the
discontinuation of the textile acrylic division as the sales and inventory
purchases decreased significantly from the prior year.

         Net cash used by discontinued operating activities was $2.5 million
for fiscal 2003. The cash flow used by discontinued operating activities
during 2003 was primarily related to the net loss of $3.7 million plus
decreases in net operating assets of $1.2 million. The decrease in net
operating assets consisted of a decrease in receivables and inventory of
$1.3 million and $1.0 million, respectively, offset by decreases in payables
of $1.1 million. The decrease in receivables and inventory related to the
discontinuation of the textile acrylic division as the sales and inventory
purchases decreased significantly from the prior year.

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

Inventories consist of the following (amounts in thousands):

<TABLE>
<CAPTION>
                                                                                SEPTEMBER 30,  SEPTEMBER 30,
                                                                                    2004           2003
                                                                                -------------  -------------
         <S>                                                                     <C>             <C>
         Raw materials...........................................................$   5,462       $   4,859
         Work-in-process.........................................................    1,177           1,132
         Finished goods..........................................................   18,317          19,057
         Supplies, spares and other..............................................      946           1,930
                                                                                 ---------       ---------
                                                                                 $  25,902       $  26,978
                                                                                 =========       =========
</TABLE>

                                     21

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

         Net cash used for continuing investing activities for fiscal 2004
was $6.0 million which consisted of capital expenditures. The primary
capital expenditures consisted of the $1.7 million purchase of the Company's
Abilene nitrogen plant which was previously leased in an arrangement
accounted for as an operating lease and the expenditures related to the
expansion of the Company's precursor facility and carbon fiber operations to
meet the additional demand for carbon fiber products.

         Net cash used for investing activities for fiscal 2003 was $0.7
million which included capital expenditures of $1.5 million primarily at the
Hungarian subsidiary related to expansion of its precursor facility, 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. The Company expects capital expenditures to increase in
connection with the restart of the Abilene carbon fiber lines, the expansion
of its precursor facility in Hungary and the installation of additional
carbon fiber lines to meet the increase demand for carbon fiber. The Company
will have to seek additional financing to fund its continuing capacity
expansion program.

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

         Net cash provided by financing activities was $12.6 million for
fiscal 2004 and $5.4 million for fiscal 2003. The various financing
transactions for 2004 and 2003 are described above.

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

         A summary of significant contractual obligations is shown below.
See Notes 5 and 8 to the consolidated financial statements for discussion of
the Company's debt agreements and lease obligations, respectively.

<TABLE>
<CAPTION>
                                                                             LESS THAN                    4-5        MORE THAN
                                                                  TOTAL       1 YEAR      1-3 YEARS      YEARS        5 YEARS
                                                                ---------    ---------    ---------     --------     ---------
<S>                                                             <C>          <C>          <C>           <C>          <C>
Notes payable...................................................$   2,441    $   2,441
Convertible debentures..........................................   20,850            -    $  20,850
Long-term debt, including current maturities....................   28,468          570       14,405     $ 13,493     $       -
                                                                ---------    ---------    ---------     --------     ---------
     Total debt.................................................   51,759        3,011       35,255       13,493             -
Operating leases................................................      348           58          174          116             -
                                                                ---------    ---------    ---------     --------     ---------
     Total debt and operating leases............................   52,107        3,069       35,429       13,609             -
Purchase obligations............................................    1,403        1,403            -            -             -
                                                                ---------    ---------    ---------     --------     ---------
     Total contractual obligations..............................$  53,510    $   4,472    $  35,429     $ 13,609     $       -
                                                                =========    =========    =========     ========     =========
</TABLE>

         The future contractual obligation and debt would be reduced by
$30.1 million in exchange for $6.2 million shares of common stock if all the
convertible debt including the 2005 financing that refinanced $10 million of
the existing Hungarian debt was converted.

<TABLE>
<CAPTION>
                                                  CONVERSION               LESS THAN                    4-5        MORE THAN
                                                 PRICE TOTAL     TOTAL      1 YEAR      1-3 YEARS      YEARS        5 YEARS
                                                 -----------    -------    ---------    ---------      ------      ---------
<S>                                              <C>            <C>          <C>          <C>         <C>            <C>
Total Contractual Olibation.....................                 53,510      4,472        35,424       13,609            -

Feb. 2003 Issuance..............................     3.25        (8,100)                  (8,100)
Jan. 2004 Issuance..............................     5.40        (7,000)                  (7,000)
March 2004 Issuance.............................     6.25        (5,750)                  (5,750)
October 2004 Issuance...........................    12.00       (10,000)                              (10,000)
                                                                -------      -----        ------      -------        -----

Total Pro Forma Contractual Obligation..........                 22,660      4,472        14,579        3,609            -
                                                                =======      =====        ======      =======        =====
</TABLE>

         In October 2003, the Company was named as a defendant in a civil
action filed in the Court of Common Pleas for Cuyahoga County, Ohio by the
former owner of Hardcore Composites Operations, LLC ("Hardcore") alleging
breach by Hardcore and the Company of their respective obligations under a
sublease, the Company's guaranty of the sublease, and prior settlement
agreement among the parties. The former owner's action claims damages in the
amount of $0.3 million for breaches by the Company of its obligations under
the guaranty and the settlement agreement and, in addition, demands $0.5
million in damages from Hardcore and the Company, jointly and severally,
under the terms of the settlement agreement. During the third quarter of
fiscal 2004, Hardcore filed a petition under Chapter 11 of the U.S.
Bankruptcy Code. In October 2004, the Court of Common Pleas for Cuyahoga
County, Ohio ruled in favor of the former owner of Hardcore Composites in
the amount of $1.1 million. The Company recorded an additional accrual of
$0.5 million, which was recorded in discontinued operations to fully accrue
the liability under the judgment. The Company is vigorously defending this
matter, has filed counterclaims and filed an appeal. Management believes
that the ultimate resolution of this litigation will not have further
material adverse effect on the Company's results of operations or financial
condition. For additional information, see Notes 3 and 8 to the Company's
Consolidated Financial Statements.

                                     22

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 is the shipping date. Revenues generated by
its Entec Composite Machines subsidiary are recognized on a percentage of
completion basis based on the percentage of total project cost incurred to
date. The Company reviews its accounts receivable on a monthly basis to
identify any specific customers for collectability issues. If the Company
deems that an amount due from a customer is uncollectible, the amount is
recorded in the statement of operations.

         During fiscal 2004, 2003 and 2002, approximately $7.2 million, $8.0
million and $9.8 million, respectively, of sales was earned from one
customer in the technical fiber segment.

SHIPPING AND HANDLING

         All amounts billed to a customer in a transaction related to
shipping and handling are recorded as revenue and the subsequent cost to the
Company is recognized as expense in cost of sales, excluding unused
capacity.

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 demand for products held in
inventory does not improve in a reasonable period of time, or further
deteriorate, it is possible that the market value of these 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 developmental strategies to further the use of
carbon fiber and consumer and industrial products made from carbon fiber. As
a result, the Company incurs certain costs for research, development and
engineering of products and manufacturing processes. These costs are
expensed as incurred and totaled approximately $3.1 million in fiscal 2004,
$3.5 million in fiscal 2003 and $3.8 million in fiscal 2002. 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.


                                     23

UNUSED CAPACITY COSTS

         During 2004, the Company was not operating its Abilene, Texas
facility at full capacity. As a result, the Company has elected to
categorize certain costs related to these idle assets as unused capacity
costs. Such costs totaled $4.5 million, $5.7 million and $6.0 million for
fiscal 2004, 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, the Company has resumed certain levels of
manufacturing at this facility during fiscal 2004. With the reactivation of
the Abilene plant, unused capacity costs are expected to diminish and,
ultimately, be fully absorbed in ongoing production once all the carbon
fiber lines start operating in fiscal 2005.

VALUATION OF LONG-LIVED ASSETS

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

INCOME TAXES

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

RECENT ACCOUNTING PRONOUNCEMENTS

         See Note 1 in the Company's Consolidated 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. The Company does not believe such risk is material because a
significant amount of the Company's current debt is at fixed rates. At
September 30, 2004, the Company did not have any interest rate swap
agreements outstanding. However, a one percent increase in the weighted
average interest rate of the Company's debt would result in a $0.5 million
increase in interest expense based on the debt levels at September 30, 2004.

         The Company views as long-term its investment in Zoltek Rt., which
has a functional currency other than the U.S. dollar. As a result, the
Company does not hedge this net investment. In terms of foreign currency
translation risk, the Company is exposed to Zoltek Rt.'s functional
currency, which is the Hungarian Forint. The Company's net foreign currency
investment in Zoltek Rt. translated into U.S. dollars using period-end
exchange rates was $35.3 million and $30.0 million at September 30, 2004 and
2003, respectively. The potential loss in value of the Company's net foreign
currency investment in Zoltek Rt. resulting from a hypothetical 10% adverse

                                     24

change in quoted foreign currency exchange rate of the Hungarian Forint at
September 30, 2004 and 2003 amounted to $3.5 million and $2.7 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.

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 Registered Public Accounting Firm 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 Registered
Public Accounting Firm, on their audits of the accompanying financial
statements follows. This report states that their audits were performed in
accordance with the Standards of the Public Company Accounting Oversight
Board (United States). These standards include consideration of internal
control over financial reporting controls for the purpose of determining the
nature, timing, and extent of auditing procedures necessary for expressing
our opinion on the financial statements.

/s/ Zsolt Rumy
------------------------------------
Zsolt Rumy
December 29, 2004


                                     25

                           ZOLTEK COMPANIES, INC.


         REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTING FIRM


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

         In our opinion, the accompanying consolidated balance sheets 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, 2004 and 2003, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 2004 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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards
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 29, 2004


                                     26

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

<CAPTION>
ASSETS                                                                                                   September 30,
---------------------------------------------------------------------------------------------------------------------------
                                                                                                    2004             2003
                                                                                                  ---------        --------
<S>                                                                                               <C>              <C>
Current assets:
     Cash and cash equivalents.................................................................   $     267        $    838
     Accounts receivable, less allowance for doubtful accounts of $781 and $931, respectively..      11,811          10,380
     Inventories...............................................................................      25,902          26,978
     Other current assets......................................................................       1,167           1,483
                                                                                                  ---------        --------
          Total current assets.................................................................      39,147          39,679
Property and equipment, net....................................................................      80,538          77,373
Other assets...................................................................................       3,114           2,403
                                                                                                  ---------        --------
          Total assets.........................................................................   $ 122,799        $119,455
                                                                                                  =========        ========

<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                               <C>              <C>
Current liabilities:
     Current maturities of long-term debt......................................................   $     570        $    933
     Trade accounts payable....................................................................      13,257          11,892
     Notes payable.............................................................................       2,441           2,916
     Accrued expenses and other liabilities....................................................       5,877           5,148
                                                                                                  ---------        --------
          Total current liabilities............................................................      22,145          20,889
Other long-term liabilities....................................................................         357             509
Long-term debt, less current maturities........................................................      43,718          33,541
                                                                                                  ---------        --------
          Total liabilities....................................................................      66,220          54,939
                                                                                                  ---------        --------
Commitments and contingencies (see Note 8)
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................................................................     115,803         109,290
     Accumulated deficit ......................................................................     (49,242)        (32,505)
     Accumulated other comprehensive loss......................................................     (10,145)        (12,432)
                                                                                                  ---------        --------
          Total shareholders' equity...........................................................      56,579          64,516
                                                                                                  ---------        --------
          Total liabilities and shareholders' equity...........................................   $ 122,799        $119,455
                                                                                                  =========        ========






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


                                     27

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

<CAPTION>
                                                                                        Year Ended September 30,
---------------------------------------------------------------------------------------------------------------------------
                                                                                   2004            2003              2002
                                                                                ----------       ---------         --------

<S>                                                                             <C>              <C>               <C>
Net sales...................................................................    $   45,273       $  39,405         $ 41,787
Cost of sales, excluding available unused capacity costs....................        37,878          33,181           33,508
Available unused capacity costs.............................................         4,466           5,716            6,039
Application and development costs...........................................         3,070           3,453            3,750
Selling, general and administrative expenses................................         5,344           6,498            6,569
                                                                                ----------       ---------         --------
     Operating loss from continuing operations..............................        (5,485)         (9,443)          (8,079)
Other income (expense):
     Interest expense, excluding amortization of financing fees, debt
        discount and beneficial conversion feature..........................        (3,429)         (1,875)          (1,632)
     Amortization of financing fees, debt discount and beneficial
        conversion feature                                                          (1,771)            (84)               -
     Interest income.........................................................           21              57               25
     Other, net..............................................................          189             (49)             309
                                                                                ----------       ---------         --------
          Loss from continuing operations before income taxes................      (10,475)        (11,394)          (9,377)
Income tax expense (benefit).................................................          434             535           (2,860)
                                                                                ----------       ---------         --------
     Net loss from continuing operations.....................................      (10,909)        (11,929)          (6,517)
                                                                                ----------       ---------         --------
Discontinued operations:
     Operating loss, net of taxes............................................       (5,169)         (3,673)          (3,208)
     Gain (loss) on disposal of discontinued operations......................         (659)              -            1,894
                                                                                ----------       ---------         --------
          Net loss on discontinued operations, net of taxes .................       (5,828)         (3,673)          (1,314)
                                                                                ----------       ---------         --------
Net loss.....................................................................   $  (16,737)      $ (15,602)        $ (7,831)
                                                                                ==========       =========         ========
Net loss per share:
     Basic and diluted loss per share:
          Continuing operations.............................................    $    (0.67)      $   (0.73)        $  (0.40)
          Discontinued operations............................................        (0.35)          (0.23)           (0.08)
                                                                                ----------       ---------         --------
               Total.........................................................   $    (1.02)      $   (0.96)        $  (0.48)
                                                                                ==========       =========         ========

Weighted average common shares outstanding...................................       16,372          16,307           16,289





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


                                     28

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

<CAPTION>
                                     Total Share-              Add'l     Accumulated Other
                                       holders'    Common     Paid-In     Comprehensive    Treasury   Accumulated  Comprehensive
                                       Equity      Stock      Capital     Income (Loss)      Stock     (Deficit)   Income (Loss)
--------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>           <C>       <C>            <C>            <C>         <C>           <C>
Balance, September 30, 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)
Net loss...........................     (16,737)                                                        (16,737)     $ (16,737)
Foreign currency translation
  adjustment.......................       2,287                                 2,287                                    2,287
                                                                                                                     ---------
         Comprehensive loss........                                                                                  $ (14,450)
                                                                                                                     =========
Warrants issued with sub-debt......       6,258                  6,258
Exercise of stock options
  and warrants.....................         255        -           255
                                     ----------    -----     ---------      ---------       -------    --------
Balance, September 30, 2004........  $   56,579    $ 163     $ 115,803      $ (10,145)      $     -    $(49,242)
                                     ==========    =====     =========      =========       =======    ========








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

                                     29

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

<CAPTION>
                                                                                           Year Ended September 30,
---------------------------------------------------------------------------------------------------------------------------
                                                                                   2004             2003             2002
                                                                                ----------       ---------        ---------
<S>                                                                             <C>              <C>              <C>
Cash flows from operating activities:
     Net loss..............................................................     $  (16,737)      $ (15,602)       $  (7,831)
     Adjustments to reconcile net loss to net cash
      used by operating activities:
          Loss from discontinued operations................................          5,828           3,673            1,314
          Depreciation and amortization....................................          5,614           5,889            6,046
          Amortization of financing and warrants...........................          1,772              84                -
          Foreign currency transaction (gains) losses......................            128             787             (240)
          Other, net.......................................................            (38)            (36)             (17)
          Changes in assets and liabilities:
              (Increase) decrease in accounts receivable...................         (4,295)          1,109            1,511
              (Increase) decrease in inventories...........................           (176)            783           (1,577)
              (Increase) decrease in prepaid expenses and other assets.....            152             339           (1,950)
              Increase (decrease) in trade accounts payable................          2,487          (1,228)             413
              Increase (decrease) in accrued expenses and other liabilities         (1,590)          2,920             (742)
              Increase (decrease) in other long-term liabilities...........             (4)           (675)             190
                                                                                ----------       ---------        ---------
                  Total adjustments........................................         10,692          13,861            5,116
                                                                                ----------       ---------        ---------
     Net cash used by continuing operations................................         (6,859)         (1,957)          (2,883)
     Net cash provided (used) by discontinued operations...................           (234)         (2,488)           1,824
                                                                                ----------       ---------        ---------
Net cash used by operating activities......................................         (7,093)         (4,445)          (1,062)
                                                                                ----------       ---------        ---------
Cash flows from investing activities:
     Proceeds from sale of long-term investment............................              -             641                -
     Payments for purchase of property and equipment.......................         (6,128)         (1,483)          (1,865)
     Proceeds from sale of property and equipment..........................            137             121               74
                                                                                ----------       ---------        ---------
   Net cash used by continuing operations..................................         (5,991)           (721)          (1,791)
   Net cash used by discontinued operations................................             (6)            (94)            (116)
                                                                                ----------       ---------        ---------
Net cash used by investing activities......................................         (5,997)           (815)          (1,907)
                                                                                ----------       ---------        ---------
Cash flows from financing activities:
     Proceeds from exercise of common stock options and warrants...........            255              21               29
     Proceeds from issuance of convertible debt and warrants...............         12,750           8,100                -
     Proceeds from issuance of notes payable...............................         12,581           8,140            7,335
     Proceeds from issuance of note payable to related party...............          1,400               -                -
     Payment of financing fees.............................................         (1,249)              -                -
     Repayment of notes payable and long-term debt.........................        (11,811)        (10,880)          (4,265)
     Repayment of note payable to related party............................         (1,400)              -                -
                                                                                ----------       ---------        ---------
   Net cash provided by continuing operations..............................         12,526           5,381            3,099
   Net cash used by discontinued operations................................              -               -             (188)
                                                                                ----------       ---------        ---------
Net cash provided by financing activities..................................         12,526           5,381            2,983
                                                                                ----------       ---------        ---------
Effect of exchange rate changes on cash....................................             (7)             32                5
                                                                                ----------       ---------        ---------
Net increase (decrease) in cash............................................           (571)            153               18
Cash and cash equivalents at beginning of period...........................            838             685              667
                                                                                ----------       ---------        ---------
Cash and cash equivalents at end of period.................................     $      267       $     838        $     685
                                                                                ==========       =========        =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Net cash paid (refunded) during the year for:
     Interest..............................................................     $    3,436       $   1,875        $   2,425
     Income taxes..........................................................              -               -           (2,844)




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

                                     30

                           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., and Engineering Technology Corporation ("Entec
Composite Machines"). Zoltek Corporation ("Zoltek") develops, manufactures
and markets carbon fibers, a low-cost but high performance reinforcement for
composites used as the primary building material in everyday commercial
products. 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. (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
international subsidiary, Zoltek Rt., was translated from Hungarian Forints
to U.S. Dollars at the exchange rate in effect at the applicable balance
sheet date, while its 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. are included in the results of operations in
other expenses.

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 is the shipping date. Revenues generated by
its Entec Composite Machines subsidiary are recognized on a percentage of
completion basis based on the percentage of total project cost incurred to
date. The Company reviews its accounts receivables on a monthly basis to
identify any specific customers for collectability issues. If the Company
deems that an amount due from a customer is uncollectible, the amount is
recorded in the statement of operations.

         During 2004, 2003 and 2002, approximately $7.2 million, $8.0
million and $9.8 million, respectively, of sales was earned from one
customer in the technical fibers segment.

                                     31

SHIPPING AND HANDLING

         All amounts billed to a customer in a transaction related to
shipping and handling are recorded as revenue and the subsequent cost to the
Company is recognized as expense in cost of sales, excluding unused
capacity.

CONCENTRATION OF CREDIT RISK

         Zoltek's carbon fiber products are primarily sold to customers in
the composite industry and its technical fibers are primarily sold to
customers in the aerospace industry. Zoltek Rt.'s acrylic products are
primarily sold to customers in the textile industry. Entec Composite
Machines' products are primarily sold in the composite industry. While the
markets for the Company's products are geographically unlimited, most of
Zoltek's business is with customers located in North America and Asia and
most of Zoltek Rt.'s sales are to customers in Europe, while Entec Composite
Machines' 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, 2004, the Company's Entec subsidiary finished a $2.0 million project
related to building a machine for a wind turbine provider to make carbon
fiber composite blades for wind turbines with an automated process close to
its fiscal year-end which had not been collected.

         In the fiscal years ended September 30, 2004 and 2003, the Company
reported sales of $7.2 million and $8.0 million, respectively, to a major
aircraft brake manufacturer which was the only customer that represented
greater than 10% of the Company's total consolidated revenues.

CASH AND CASH EQUIVALENTS

         All highly liquid investments purchased with a maturity of three
months or less are considered to be cash equivalents. As of September 30,
2004, the Company had a book overdraft of $0.7 million which was
reclassified as accounts payable. The subordinated debt agreement of 2004
and 2005 require that the Company maintain cash plus borrowing capacity
under credit facilities of at least $0.5 million, which the Company was in
conpliance with as of September 28, 2004.

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. The Company recorded an inventory valuation reserve of $1.0
million in the fourth quarter of 2003 to reduce the carrying value of
inventories to a net realizable value. No material adjustments to the
reserve were required in the current year. The reserves were established
primarily due to intensified overcapacity for certain carbon fiber products.

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, 2004, 2003 and 2002.
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:


                                     32

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

         The Company primarily uses accelerated depreciation methods for
income tax purposes. Depreciation expense was $5.6 million, $5.9 million and
$6.0 million for the fiscal years ended 2004, 2003 and 2002, respectively.

         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 the third quarter of fiscal 2001, the Company elected to
temporarily idle a significant part of the operations located at the
Abilene, Texas facility. The Company resumed manufacturing at this facility
during fiscal 2004. Given that these assets were previously idled and did
not generate significant cash flow in 2004, the Company performed an
impairment test. The Company determined that no impairment of its carrying
value exists at September 30, 2004 based on an analysis of expected future
net cash flow to be generated from this facility over the expected remaining
useful life.

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, 2004 and 2003.

APPLICATION AND DEVELOPMENT EXPENSES

         The Company is actively pursuing the development of a number of
applications for the use of its carbon fiber and related products. The
Company is currently party to several developmental agreements with various
prospective users of these products for the purpose of accelerating the
development of various carbon fiber applications. Additionally, the Company
is executing several internal developmental strategies to further the use of
carbon fiber and consumer and industrial products made from carbon fiber. As
a result, the Company incurs certain costs for research, development and
engineering of products and manufacturing processes. These costs are
expensed as incurred and totaled approximately $3.1 million in fiscal 2004
and $3.5 million in fiscal 2003 and $3.8 million in fiscal 2002. 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.

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.


                                     33

STOCK-BASED COMPENSATION

         At September 30, 2004, the Company had stock-based employee
compensation plans. The Company accounts for those plans under the
recognition and measurement principles of Accounting Principles Board
Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees, and its
related interpretations. No stock-based employee compensation costs are
reflected in net loss, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on
the date of grant. The Company granted 77,500, 112,500 and 451,000 employee
stock options with an exercise price that equaled the Company's stock price
on the applicable date of grant in fiscal 2004, 2003 and 2002, respectively.
The following table illustrates the effect on net loss and loss per share if
the Company had applied the fair value recognition provisions of Statement
of Financial Accounting Standards No. 123 ("FAS 123"), Accounting for Stock
Based Compensation, to stock-based employee compensation (in thousands,
except per share):

<TABLE>
<CAPTION>
                                                                         2004            2003             2002
                                                                      ----------      ----------        --------
         <S>                                                          <C>             <C>               <C>
         Net loss:
             As reported..........................................    $  (16,737)     $  (15,602)       $ (7,831)
             Total stock-based employee compensation
               expense determined under fair value-based
               method for all awards, net of tax effects..........          (255)            (71)           (205)
                                                                      ----------      ----------        --------
             Pro forma............................................       (16,992)        (15,673)         (8,036)

         Basic and diluted loss per share:
             As reported..........................................         (1.02)           (.96)          (0.48)
             Pro forma............................................         (1.04)           (.96)          (0.49)
</TABLE>

NET LOSS PER SHARE

         Basic net loss per share includes no dilution and is calculated by
dividing net 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 warrants. Because
2004, 2003 and 2002 results reflected a net loss, both basic and diluted
earnings per share were calculated based on the same weighted average
numbers of shares for such years. If the results of the Company reflected a
net income, an additional 4.8 million shares would be included in
calculating the diluted earnings per share. The additional shares relate to
issuance of convertible debt of 4.5 million, warrants of 1.0 million of
which 0.2 million would be dilutive using the treasury stock method and
stock options of 1.0 million of which 0.1 million would be dilutive using
the treasury stock method.

RECENT ACCOUNTING PRONOUNCEMENTS

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

         In October 2004, the government passed the "Homeland Investment
Act," which allows companies to repatriate cash balances from their
controlled foreign subsidiaries at a reduced tax rate and created a new
deduction for U.S. manufacturers related to qualified production activities
for income tax


                                     34

purposes. The Company is still considering the implications but has not
currently decided to repatriate funds from its Hungarian subsidiary.

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

FINANCIAL PRESENTATION CHANGES

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

2.       FINANCING AND LIQUIDITY
----------------------------------------------------------------------------

2005 Refinancing
----------------

         Management will seek to fund its near-term operations from
continued sale of excess inventories and continued aggressive management of
the Company's working capital, as well as sources that may include
additional borrowings and/or private equity. However, management can make no
assurance that these objectives will be sufficient to fund near-term
liquidity needs and has obtained additional financing to meet operating
requirements, as discussed in 2005 Refinancing below.As the demand for
carbon fiber continues to increase, the Company will need additional
financing to expand the capacity to meet the demand of its carbon fiber
production.

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

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

                                     35

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

         In January 2004, the Company issued and sold convertible debentures
in the aggregate principal amount of $7.0 million to institutional private
equity and other investors (including $250,000 to each of Mr. Rumy and Mr.
McDonnell who are members of the Company's Board of Directors). The
convertible debentures have a stated maturity of 30 months and bear interest
at 6% per annum and are convertible presently into 1,295,954 shares of
common stock at a conversion price of $5.40 per share for each investor
other than Messrs. Rumy and McDonnell and $5.42 per share for each of
Messrs. Rumy and McDonnell. The Company also issued to the investors
five-year warrants to purchase an aggregate of 323,994 shares of common
stock of the Company at an exercise price of $5.40 per share for each
investor other than Messrs. Rumy and McDonnell and $5.42 per share for each
of Messrs. Rumy and McDonnell. The fair value of the debt discount
associated with the warrants and beneficial conversion feature, at the time
of issuance, of $2.0 million and is being amortized as non-cash interest
expense over the term of the convertible debentures. Proceeds from the
issuance of these convertible debentures were used for working capital
purposes.

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

         Also in January 2004, the Company entered into a mortgage note with
a bank in the aggregate principal amount of $6.0 million. The note has a
stated maturity of three years and bears interest at a rate of LIBOR plus
11% (13.5% per annum as of September 30, 2004) with a LIBOR floor of 2%. The
Company will pay interest only on a monthly basis with principal balance due
at time of maturity. The loan is collateralized by a security interest in
the Company's headquarters facility and its two U.S. manufacturing
facilities that produce carbon and technical fibers. The proceeds of this
transaction were used to pay down debt of $6.0 million with its U.S. bank.
Of such proceeds, $0.5 million was held in an escrow account to be released
when the Company completed certain post-closing requirements. The Company
completed these requirements during the third quarter of 2004 and the $0.5
million was released from escrow.

         Due to the January 2004 refinancing completed subsequent to the
Company's fiscal year end, the Company's U.S. bank waived the financial
covenants through February 13, 2005, the maturity date of the term loan.
Additionally, the expiration of the Company's revolving credit loan was
extended from

                                     36

January 31, 2004 to January 31, 2005. The refinancing allowed the Company to
execute its 2004 business plan, which was uncertain prior to the
refinancing.

         In March 2004, the Company issued and sold convertible debentures
in the aggregate principal amount of $5.75 million to institutional private
equity investors and Mr. Dill ($750,000) who is member of the Company's
board of directors. The convertible debentures have a stated maturity of 30
months and bear interest at 6% per annum and are convertible presently into
895,908 shares of common stock at a conversion price of $6.25 per share for
each investor other than Mr. Dill and $7.82 per share for Mr. Dill. The
Company also issued to the investors five-year warrants to purchase an
aggregate of 223,997 shares of common stock of the Company at an exercise
price of $7.50 per share for each investor other than Mr. Dill whose
warrants have an exercise price of $7.82 per share. The fair value of the
debt discount associated with the warrants and beneficial conversion
feature, at the time of issuance, of $4.0 million is being amortized as
non-cash interest expense over the term of the convertible debentures.
Proceeds from the issuance of these convertible debentures are being used
for working capital and capital expenditures.

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 2004, the Company formally adopted
a plan to discontinue and exit two divisions of its Zoltek Rt. operations
which manufacture acrylic and nylon fibers and yarns. These divisions are
not part of the long-term strategy of the Company and were not expected to
be profitable in the foreseeable future due to the continued pricing
pressure from competitive manufacturers. In the fourth quarter of fiscal
2004, the Company recorded an impairment loss on discontinued operations of
$0.2 million related to severance. These divisions had been included in the
Specialty Products segment (see Note 11). Certain information with respect
to the discontinued operations of the acrylic and nylon fibers divisions for
the years ended September 30, 2004, 2003 and 2002 is summarized as follows
(amounts in thousands):

                                     37

<TABLE>
<CAPTION>
                                                                 2004            2003           2002
                                                              -----------    -----------     -----------
         <S>                                                  <C>            <C>             <C>
         Net sales..........................................  $    16,345    $    24,134     $    26,649
         Cost of sales......................................       17,831         24,447          25,412
                                                              -----------    -----------     -----------
              Gross profit..................................       (1,486)          (313)          1,237
         Selling, general and administrative expenses.......       (3,869)        (2,918)          3,286
                                                              -----------    -----------     -----------
              Loss from operations..........................       (5,355)        (3,231)         (2,049)
         Other income (expense).............................          186           (442)           (129)
                                                              -----------    -----------     -----------
              Net loss from operations......................       (5,169)        (3,673)         (2,178)
         Loss on disposal of discontinued operations........         (209)             -               -
                                                              -----------    -----------     -----------
         Loss on discontinued operations....................  $    (5,378)   $    (3,673)    $    (2,178)
                                                              ===========    ===========     ===========
</TABLE>

         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 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.

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

                                     38

recorded an additional accrual of $0.5 million, which was recorded in
discontinued operations to fully accrue the liability under the judgment.
The Company is vigorously defending this matter, has filed counterclaims and
filed an appeal. Management believes that the ultimate resolution of this
litigation will not have further material adverse effect on the Company's
results of operations or financial condition. For additional information,
see Notes 3 and 8 to the Company's Consolidated Financial Statements.

         Certain information with respect to the discontinued operations of
Hardcore for the years ended September 30, 2004 and 2002 is summarized as
follows (amounts in thousands):

<TABLE>
<CAPTION>
                                                                                     2004                2002
                                                                                  -----------        -----------
         <S>                                                                      <C>                <C>
         Net sales..............................................................  $         -        $       408
         Cost of sales..........................................................            -                886
                                                                                  -----------        -----------
         Gross profit...........................................................            -               (478)
         Selling, general and administrative expenses...........................            -                535
                                                                                  -----------        -----------
         Loss from operations...................................................            -             (1,013)
         Other expenses.........................................................            -                (17)
                                                                                  -----------        -----------
         Net loss from operations...............................................            -             (1,030)
         Loss on disposal of discontinued operations............................         (450)             1,894
                                                                                  -----------        -----------
         Loss on discontinued operations, net of taxes..........................  $      (450)       $       864
                                                                                  ===========        ===========
</TABLE>

4.       INVENTORIES
----------------------------------------------------------------------------

<TABLE>
<CAPTION>
Inventories consist of the following (amounts in thousands):                               September 30,
                                                                                    2004                  2003
                                                                                -------------       ---------------
         <S>                                                                    <C>                 <C>
         Raw materials.....................................................     $       5,462       $         4,859
         Work-in-process...................................................             1,177                 1,132
         Finished goods....................................................            18,317                19,057
         Supplies, spares and other........................................               946                 1,930
                                                                                -------------       ---------------
                                                                                $      25,902       $        26,978
                                                                                =============       ===============
</TABLE>

         Inventories are valued at the lower of cost, determined on the
first-in, first-out method, or market. Cost includes material, labor and
overhead. The Company recorded an inventory valuation reserve of $1.0
million in the fourth quarter of 2003 to reduce the carrying value of
inventories to a net realizable value. No material adjustments to the
reserve were required in the current year. The reserves were established
primarily due to intensified overcapacity for certain carbon fiber products.

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

<TABLE>
<CAPTION>
Property and equipment consists of the following (amounts in thousands):                   September 30,
                                                                                    2004                  2003
                                                                                -------------       ---------------
<S>                                                                             <C>                 <C>
Land.......................................................................     $       1,732       $         1,665
Buildings and improvements.................................................            32,696                30,061
Machinery and equipment....................................................            82,406                77,999
Furniture, fixtures and software...........................................             5,563                 5,477
Construction in progress...................................................             7,049                 4,014
                                                                                -------------       ---------------
                                                                                      129,446               119,216
Less:  accumulated depreciation............................................           (48,908)              (41,843)
                                                                                -------------       ---------------
                                                                                $      80,538       $        77,373
                                                                                =============       ===============
</TABLE>

                                     39

         In the third quarter of fiscal 2001, the Company elected to
temporarily idle a significant part of the operations located at the
Abilene, Texas facility. The Company resumed manufacturing at this facility
during fiscal 2004. Given that these assets were previously idled and did
not generate significant cash flow in 2004, the Company performed an
impairment test. The Company determined that no impairment of its carrying
value exists at September 30, 2004 based on an analysis of expected future
net cash flow to be generated from this facility over the expected remaining
useful life.

         During 2004, the Company was not operating its Abilene, Texas
facility at full capacity. As a result, the Company has elected to
categorize certain costs related to these idle assets as unused capacity
costs. Such costs totaled $4.7 million, $5.7 million and $6.0 million for
fiscal 2004, 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, the Company has resumed certain levels of
manufacturing at this facility during fiscal 2004. With the reactivation of
the Abilene plant, unused capacity costs are expected to diminish and,
ultimately, be fully absorbed in ongoing production once all the carbon
fiber lines start operating in fiscal 2005.

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>
                                                              2004                  2003                  2002
                                                          --------------        -------------       ---------------
<S>                                                       <C>                   <C>                 <C>
From continuing operations:
     Current:
         Federal.....................................     $           -         $           -       $        (2,731)
         State.......................................                 -                     -                  (113)
         Non-U.S. local..............................               434                   171                   358
                                                          -------------         -------------       ---------------
                                                                    434                   171                (2,486)
                                                          -------------         -------------       ---------------
     Deferred:
         Federal.....................................                 -                   203                     9
         State.......................................                 -                    17                    (9)
         Non-U.S.....................................                 -                   144                  (374)
                                                          -------------         -------------       ---------------
                                                                      -                   364                  (374)
                                                          -------------         -------------       ---------------
              Total continuing operations............     $         434         $         535       $        (2,860)
                                                          =============         =============       ===============
From discontinued operations:
     Deferred:
         Federal.....................................     $           -         $           -       $             -
         State.......................................                 -                     -                     -
                                                          -------------         -------------       ---------------
            Total discontinued operations............                 -                     -                     -
                                                          -------------         -------------       ---------------
     Total ..........................................     $         434         $         535       $        (2,860)
                                                          =============         =============       ===============
</TABLE>


                                     40

         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>
                                                                                     2004                2003
                                                                                  -----------        -----------
     <S>                                                                          <C>                <C>
     Tax effect of regular net operating losses (expiring 2020-2022).........     $   (18,085)       $   (14,082)
     Valuation allowance on net operating losses.............................          13,854             10,690
     Tax effect of capital loss..............................................            (526)              (582)
     Valuation allowance on capital loss.....................................             526                582
     Depreciation............................................................           4,407              4,048
     Employee related costs..................................................             (88)               (85)
     Inventory reserve.......................................................               -               (464)
     Bad debt accrual........................................................             (59)               (65)
     Deferred state income taxes.............................................               -                  -
     Other...................................................................             (29)               (42)
     Non-U.S. operations deferred tax, net...................................               -                  -
                                                                                  -----------        -----------
              Total net deferred tax asset...................................     $         -        $         -
                                                                                  ===========        ===========
</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>
                                                                          2004             2003            2002
                                                                      ------------    ------------     ------------
<S>                                                                   <C>             <C>              <C>
At statutory rate:
         Income taxes on loss from continuing operations..........    $     (3,561)   $     (3,874)    $     (3,188)
Increases (decreases):
         Lower effective tax rate on non-U.S. operations..........           1,054             768              333
         Change in valuation allowance on net operating loss......           2,471           3,501           (1,174)
         Change in valuation allowance on capital loss............               -               -                -
         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.....................................             434             171              358
         State taxes, net of federal benefit......................               -              16               (9)
         Refund write-off.........................................               -               -                -
         Other....................................................              37             (48)             (40)
                                                                      ------------    ------------     ------------
                                                                      $        434    $        535     $     (2,860)
                                                                      ============    ============     ============
</TABLE>

         The consolidated loss from continuing operations before income
taxes by domestic and foreign sources for the years ended September 30,
2004, 2003 and 2002 was as follows (amounts in thousands):

<TABLE>
<CAPTION>
                                                                          2004             2003            2002
                                                                      ------------    ------------     ------------
<S>                                                                   <C>             <C>              <C>
Domestic..........................................................    $     (9,748)   $    (10,267)    $     (9,475)
Foreign...........................................................            (727)         (1,127)              98
                                                                      ------------    ------------     ------------
Loss from continuing operations before income taxes...............    $    (10,475)   $    (11,394)    $     (9,377)
                                                                      ============    ============     ============
</TABLE>

         Undistributed earnings of Zoltek Rt. of $957,000, $3,568,000 and
$8,368,000 at September 30, 2004, 2003 and 2002, 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, 2004 of $836,000.

                                     41

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. No covenants exists related to the
credit facility from its U.S. bank, which matures on January 1.

         US Operations - The Company's current credit facility with its U.S.
bank is described above under "--2005 Refinancing" and "--2003 Refinancing."
Total borrowings under the U.S. credit facility, including the revolving
line of credit and term loan, were $5.7 million at September 30, 2004.

         Hungarian Operations - The Company's Hungarian subsidiary has a
credit facility with a Hungarian bank. Total borrowings under this credit
facility were $11.4 million at September 30, 2004. Due to the fiscal 2005
refinancing (see "--Refinancing" in Note 2), the credit facility has been
reduced to a $3.0 million term loan with interest payments over the next
three years and repayment of principal at the maturity date.

         In March 2003, the Company's Hungarian subsidiary entered into a
credit agreement with another Hungarian bank for $2.2 million of which $2.2
million was outstanding as of September 30, 2004. This facility was paid off
as part of the 2005 refinancing.

         Total borrowings of the Hungarian subsidiary were $13.6 million at
September 30, 2004, of which $13.6 million has been classified as long-term
debt due to the 2005 refinancing in which $12.0 million was repaid and the
remaining borrowings extended to 2008. Borrowings under the Hungarian bank
credit facilities cannot be used in Zoltek's U.S. operations.

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

<TABLE>
<CAPTION>
                                                                                                  September 30,
                                                                                               2004          2003
                                                                                             --------     ---------
     <S>                                                                                     <C>          <C>
     Note payable with interest at 9%, payable in monthly installments of
         principal and interest of $15,392  to maturity in January 2006......................$  1,419     $   1,507

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

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

     Non-interest bearing note payable (discounted at 8%) to the City of Abilene, Texas
          to be repaid from real estate and personal property tax abatements ................   1,781         1,706

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

     Revolving credit agreement, maturing in January 2006, bearing interest at prime
            plus 2.0% (prime rate at September 30, 2003 was 4.00%) ..........................   5,000         4,670

     Term loan, $0.4 million payable in 2005, balance payable in January 2006,
          bearing interest at prime plus 2.0% (prime rate at September 30, 2004
          was 4.5%)..........................................................................     700         3,300

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


                                     42

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

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

     Facilities with Hungarian banks (interest rate of 5.5% to 10.6%)........................  13,568        12,566
                                                                                             --------      --------
         Total debt..........................................................................  49,318        34,474
         Less:  Beneficial conversion feature and debt discount associated
            with warrants....................................................................  (5,030)            -
          Less:  amounts payable within one year.............................................    (570)         (933)
                                                                                             --------     ---------
     Total long-term debt ...................................................................$ 43,718     $  33,541
                                                                                             ========     =========
</TABLE>

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

                    Year ending
                   September 30,                                     Total
                   -------------                                 ------------
                       2005......................................$        570
                       2006......................................      14,405
                       2007......................................      11,825
                       2008......................................       9,656
                       2009......................................      13,493
                       Thereafter................................           -
                                                                 ------------
                                                                 $     49,318
                                                                 ============

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 no further rental
payments are required through initial term of lease. Rental expense related
to this lease was $57,991 for the years ended September 30, 2004, 2003 and
2002.

LEGAL

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

                                     43

condition. For additional information, see Notes 3 and 8 to the Company's
Consolidated Financial Statements.

         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.

         In September 2004, the Company was named a defendant in a civil
action filed by a former investment banker that was retained by the Company
to obtain equity investors, alleging breach by the Company of its
obligations under the agreement signed by the parties. The investment banker
alleges it is owed commission from equity investment obtained by the Company
from a different source. The Company has asserted various defenses,
including that the investment banker breached the agreement by not
performing reasonable efforts to obtain financing for the Company, and
therefore, the agreement was terminated by the Company prior to obtaining
new financing. The litigation is in early stages and 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.

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

ENVIRONMENTAL

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

SOURCES OF SUPPLY

         As part of its growth strategy, the Company has developed its own
precursor acrylic fibers and all of its carbon fibers and technical 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 technical fiber operations for the aircraft brake applications
from a single supplier which is the only supplier that currently produces
precursor approved for use in aircraft brake applications. The Company
believes this supplier is a reliable source of supply at the Company's
current operating levels. However, the Company has initiated trials at 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.

                                     44

         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, 2004, 2003, and 2002.

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 of which
987,500 are currently outstanding. 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.

         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 2004 through 2013, respectively.

         The pro forma information required by SFAS 123 regarding net income
and earnings per share has been presented in Note 1 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:                                                      2004            2003           2002
         -----------                                                      -------         -------        -------
         <S>                                                              <C>             <C>            <C>
         Expected life of options.................................        6 years         6 years        6 years
         Risk-free interest rate..................................          4.25%           4.25%          6.15%
         Volatility of stock......................................            77%             96%            98%
         Expected dividend yield..................................             --              --             --
</TABLE>

         The fair value of the options granted during 2004, 2003 and 2002
was $159,961, $119,513 and $349,000, 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, 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
                                                   ---------

                                     45

         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
         Granted.................................     77,500             6.36
             Exercised...........................    (63,000)            3.27
             Cancelled...........................    (29,000)            5.44
                                                 -----------    -------------
         Balance, September 30, 2004                 987,500    $        7.22         722,250       $    8.91
</TABLE>

         The following table summarizes information for options currently
outstanding and exercisable at September 30, 2004:

<TABLE>
<CAPTION>
                                                   Options Outstanding                    Options Exercisable
                                            ----------------------------------        ----------------------------
           Range of                            Wtd. Avg.           Wtd. Avg.                           Wtd. Avg.
            Prices             Number       Remaining Life      Exercise Price        Number        Exercise Price
        --------------         -------      --------------      --------------        ------        --------------
        <S>                    <C>               <C>               <C>                <C>              <C>
        $    1.33-2.50         409,500           8 years           $    2.13          184,250          $   2.21
             3.25-5.67         127,500           6 years                4.85           87,500              4.48
             6.25-6.88         188,000           1 years                6.38          188,000              6.38
             7.69-9.25         112,500           7 years                8.21          112,500              8.21
           10.00-39.00         150,000           4 years               23.44          150,000             23.44
                               -------                                                -------
        $   1.33-39.00         987,500           6 years           $    7.22          722,250          $   8.91
                               =======                                                =======
</TABLE>

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. In the fourth quarter of fiscal
2004, the Company discontinued two divisions within its specialty fibers
segment. Segment information for 2003 and 2002 has been reclassified to
reflect such change (see Note 3).

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

         Management evaluates the performance of its operating segments on
the basis of operating income (loss) contribution to the Company. The
following table presents financial information on the Company's operating
segments as of and for the fiscal years ended September 30, 2004, 2003 and
2002 (amounts in thousands):

                                     46

<TABLE>
<CAPTION>
                                                                     Year Ended September 30, 2004
                                                                     -----------------------------
                                                                                              Corporate
                                                         Carbon     Technical    Specialty   Headquarters
                                                         Fibers      Fibers      Products  and Eliminations    Total
                                                         ------      ------      --------  ----------------    -----
<S>                                                    <C>         <C>           <C>         <C>             <C>
Net sales - external.................................. $  18,431   $  14,831     $ 12,011    $      -        $  45,273
Net sales - intersegment..............................     2,479       1,642            -      (4,121)               -
                                                       ---------   ---------     --------    --------        ---------
   Total net sales....................................    20,910      16,473       12,011      (4,121)          45,273
Cost of sales, excluding available unused capacity
  expenses............................................    19,117      14,091        9,794      (5,124)          37,878
Available unused capacity expenses....................     4,466           -            -           -            4,466
Operating income (loss)...............................    (6,823)      1,192        1,529      (1,383)          (5,485)
Depreciation and amortization expense.................     3,969       1,091          463          91            5,614
Capital expenditures..................................     5,515         389          231          (8)           6,128

<CAPTION>
                                                                     Year Ended September 30, 2003
                                                                     -----------------------------
                                                                                              Corporate
                                                         Carbon     Technical    Specialty   Headquarters
                                                         Fibers      Fibers      Products  and Eliminations    Total
                                                         ------      ------      --------  ----------------    -----
<S>                                                    <C>         <C>           <C>         <C>             <C>
Net sales - external.................................. $  13,179   $  14,098     $ 12,128    $      -        $  39,405
Net sales - intersegment..............................     5,675           -            -      (5,675)               -
                                                       ---------   ---------     --------    --------        ---------
   Total net sales....................................    18,854      14,098       12,128      (5,675)          39,405
Cost of sales, excluding available unused capacity
  expenses............................................    17,367      12,689        9,141      (6,016)          33,181
Available unused capacity expenses....................     5,716           -            -           -            5,716
Operating income (loss)...............................    (8,644)         93        1,617      (2,511)          (9,443)
Depreciation and amortization expense.................     4,013       1,004          731         225            5,973
Capital expenditures..................................       515         512          456           -            1,483

<CAPTION>
                                                                     Year Ended September 30, 2002
                                                                     -----------------------------
                                                                                              Corporate
                                                         Carbon     Technical    Specialty   Headquarters
                                                         Fibers      Fibers      Products  and Eliminations    Total
                                                         ------      ------      --------  ----------------    -----
<S>                                                    <C>         <C>           <C>         <C>             <C>
Net sales - external................................... $  10,676  $  19,772     $ 11,339    $      -        $  41,787
Net sales - intersegment...............................     4,419          -            -      (4,419)               -
                                                        ---------  ---------     --------    --------        ---------
   Total net sales.....................................    15,095     19,772       11,339      (4,419)          41,787
Cost of sales, excluding available unused capacity
  costs................................................    13,971     14,070        9,325      (3,858)          33,508
Available unused capacity..............................     6,039          -            -           -            6,039
Operating income (loss)................................    (9,526)     3,584          907      (3,044)          (8,079)
Depreciation and amortization expense..................     3,978      1,182          572         314            6,046
Capital expenditures...................................     2,013       (624)         435          31            1,865

<CAPTION>
                                                                                Total Assets
                                                                                ------------
                                                                                              Corporate
                                                         Carbon     Technical    Specialty   Headquarters
                                                         Fibers      Fibers      Products  and Eliminations    Total
                                                         ------      ------      --------  ----------------    -----
<S>                                                    <C>         <C>           <C>         <C>             <C>
September 30, 2004..................................... $  63,430  $  19,901     $ 36,429    $  3,039        $ 122,799
September 30, 2003.....................................    66,226     22,611       32,569      (1,951)         119,455
September 30, 2002.....................................    74,046     25,465       25,024      (3,113)         121,422
</TABLE>


                                     47


         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, 2004, 2003 and 2002 (amounts in thousands):

<TABLE>
<CAPTION>
                                    2004                         2003                         2002
                        ---------------------------  -----------------------------  ---------------------------
                                             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............$    22,731    $   46,582    $    20,892      $   45,936    $    24,243    $   50,366
Western Europe...........     10,583             -          2,861               -          2,994             -
Eastern Europe...........      9,400        33,956         13,585          31,436         11,020        28,660
Asia.....................      2,361             -              -               -              -             -
Other areas..............        198             -          2,067               -          3,530             -
                         -----------    ----------    -----------      ----------    -----------    ----------
   Total.................$    45,273    $   80,538    $    39,405      $   77,373    $    41,787    $   79,026
                         ===========    ==========    ===========      ==========    ===========    ==========

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

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

(Amounts in thousands, except per share data)

<TABLE>
<CAPTION>
Fiscal year 2004                                      1st Quarter      2nd Quarter    3rd Quarter       4th Quarter
-------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>            <C>               <C>
Net sales..........................................   $     8,152      $    11,537    $    13,285       $    12,299
Loss from continuing operations....................        (3,246)          (2,531)        (2,375)           (2,757)
Loss from discontinued operations..................          (446)          (1,313)        (1,163)           (2,906)
Net loss...........................................   $    (3,692)     $    (3,844)   $    (3,538)      $    (5,663)

Net loss per share:
Basic and diluted net loss per share
  Continuing operations............................   $      (.20)     $      (.15)   $      (.14)      $      (.17)
  Discontinued operations..........................          (.03)            (.08)          (.08)             (.17)
                                                      -----------      -----------    -----------       -----------
       Total.......................................   $      (.23)     $      (.23)   $      (.22)      $      (.34)
                                                      ===========      ===========    ===========       ===========

<CAPTION>
Fiscal year 2003                                      1st Quarter      2nd Quarter    3rd Quarter       4th Quarter
-------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>            <C>               <C>
Net sales..........................................   $     9,440      $     9,573    $    10,338       $    10,054
Loss from continuing operations....................        (2,522)          (3,397)        (2,580)           (3,430)
Loss from discontinued operations..................          (657)            (898)        (1,210)             (908)
Net loss...........................................   $    (3,179)     $    (4,295)   $    (3,790)      $    (4,338)

Net loss per share:
Basic and diluted net loss per share
  Continuing operations............................   $      (.16)     $      (.20)   $      (.15)      $      (.21)
  Discontinued operations..........................          (.04)            (.06)          (.08)             (.06)
                                                      -----------      -----------    -----------       -----------
       Total.......................................   $      (.20)     $      (.26)   $      (.23)      $      (.27)
                                                      ===========      ===========   = ==========       ===========
</TABLE>

         In the fourth quarter of 2004 the Company recorded a $0.2 million
charge associated with discontinued operations and a $0.5 million accrual
for a legal judgement (see Note 3). In the fourth quarter of 2003 the
Company recorded a $1.0 million charge related to the valuation of
Inventory.

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

         Not Applicable.

                                     48

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, 2004 were effective to ensure that
information required to be disclosed by the registrant in reports that it
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission's rules and forms.

         There were no changes in the registrant's internal control over
financial reporting that occurred during the quarter ended September 30,
2004 that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.

Item 9B.  Other Information
-------   -----------------

         Not Applicable.



                                     49

                                  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
2005 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 2005 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 2005 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, 2004.

<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                987,500(1)                       $7.22                      0(1)

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

Total                                       987,500                          $7.22                      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>

                                     50

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

         The information set forth under the caption "Certain Transactions"
in the registrant's Proxy Statement for its 2005 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 2005 Annual
Meeting of Shareholders is incorporated herein by this reference.

                                   PART IV

Item 15.  Exhibits and Financial Statement Schedule
-------   -----------------------------------------

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

                  Report of Independent Registered Public Accounting Firm

                  Consolidated Balance Sheet as of September 30, 2004
                  and 2003

                  Consolidated Statement of Operations for the years ended
                  September 30, 2004, 2003 and 2002

                  Consolidated Statement of Changes in Shareholders' Equity
                  for the years ended September 30, 2004, 2003 and 2002

                  Consolidated Statement of Cash Flows for the years ended
                  September 30, 2004, 2003 and 2002

                  Notes to Consolidated Financial Statements

                  (2)      The following financial statement schedule and
Independent Registered Public Accounting Firm's report thereon are included
in Part IV of this report:

         Report of Independent Registered Public Accounting Firm 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:

                                     51

         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, filed as Exhibit 4.6 to
                  Registrant's Annual Report on Form 10-K for the year ended
                  September 30, 2003 is incorporated herein by reference

         4.7      Form of 6% Convertible Debenture, filed as Exhibit 4.7 to
                  Registrant's Annual Report on Form 10-K for the year ended
                  September 30, 2003 is incorporated herein by reference

         4.8      Form of Warrant, filed as Exhibit 4.8 to Registrant's
                  Annual Report on Form 10-K for the year ended September
                  30, 2003 is incorporated herein by reference

         4.9      Securities Purchase Agreement, dated as of March 11, 2004,
                  by and among Zoltek Companies, Inc. and the investors
                  named therein, filed as Exhibit 4.2 to Registrant's
                  Registration Statement on Form S-3 (Reg. No. 333-115043)
                  is incorporated herein by reference

         4.10     Form of 6% Convertible Debenture, filed as Exhibit 4.3 to
                  Registrant's Registration Statement on Form S-3 (Reg. No.
                  333-115043) is incorporated herein by reference

         4.11     Form of Warrant, filed as Exhibit 4.4 to Registrant's
                  Registration Statement on Form S-3 (Reg. No. 333-115043)
                  is incorporated herein by reference

         4.12     Loan and Warrant Agreement, dated as of October 14, 2004,
                  filed as Exhibit 4.1 to Registrant's Current Report on
                  Form 8-K dated October 19, 2004 is incorporated herein by
                  reference

                                     52

         4.13     Security Agreement, dated as of October 14, 2004, filed as
                  Exhibit 4.3 to Registrant's Current Report on Form 8-K
                  dated October 19, 2004 is incorporated herein by reference

         4.14     Mortgage Agreement, dated as of October 14, 2004, filed as
                  Exhibit 4.4 to Registrant's Current Report on Form 8-K
                  dated October 19, 2004 is incorporated herein by reference

         4.15     Form of Warrant, filed as Exhibit 4.5 to Registrant's
                  Current Report on Form 8-K dated October 19, 2004 is
                  incorporated herein by reference

         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*

         10.5     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.)

         10.8     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

         10.10    Credit Agreement, dated 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, 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

                                     53

         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
                  corporated herein by reference*

         10.13    Promissory Note, dated January 13, 2004, by and between
                  Zoltek Properties, Inc. and Beal Bank, S.S.B. filed as
                  Exhibit 10.13 to Registrant's Annual Report on Form 10-K
                  for the fiscal year ended September 30, 2003, is
                  incorporated herein by this reference

         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 filed as Exhibit 10.14 to Registrant's Annual
                  Report on Form 10-K for the fiscal year ended September
                  30, 2003, is incorporated herein by this reference

         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

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

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

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

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


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




                                     54

                                 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: December 29, 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/ Zsolt Rumy                            Chairman, President,                          December 29, 2004
------------------------------------      Chief Executive Officer and Director
Zsolt Rumy

/s/ Kevin Schott                          Chief Financial Officer                       December 29, 2004
------------------------------------
Kevin Schott

/s/ Linn H. Bealke                        Director                                      December 29, 2004
------------------------------------
Linn H. Bealke

/s/ James W. Betts                        Director                                      December 29, 2004
------------------------------------
James W. Betts

/s/ Charles A. Dill                       Director                                      December 29, 2004
------------------------------------
Charles A. Dill

/s/ John L. Kardos                        Director                                      December 29, 2004
------------------------------------
John L. Kardos

/s/ John F. McDonnell                     Director                                      December 29, 2004
------------------------------------
John F. McDonnell
</TABLE>


                                     55

         REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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 29, 2004, appearing in the 2004 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 29, 2004



                                     56


<TABLE>
                                               FOR THE YEAR ENDED SEPTEMBER 30, 2004

                                     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       $   931            $     841              $        -             $     991(1)      $     781
                                    =======            =========              ==========             =========         =========
RESERVE FOR INVENTORY VALUATION     $ 6,300            $       -              $        -             $   1,113(2)      $   5,187
                                    =======            =========              ==========             =========         =========

DEFERRED TAX VALUATION              $11,272            $   2,195              $        -             $       -         $  13,467
                                    =======            =========              ==========             =========         =========
</TABLE>

                      ---------------------------------

<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
                                    =======            =========              ==========             =========         =========
</TABLE>

                      ---------------------------------

<TABLE>
                                               FOR THE YEAR ENDED SEPTEMBER 30, 2002

                                     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       $   760            $     392              $        -             $     410(1)      $     742
                                    =======            =========              ==========             =========         =========
RESERVE FOR INVENTORY VALUATION     $ 7,972            $       -              $        -             $   1,872(2)      $   6,100
                                    =======            =========              ==========             =========         =========

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


<FN>
-----------------
(1) Write-off of uncollectible receivable, net of recovery.
(2) Reduction in inventory reserve for specific inventory items.
</TABLE>

                                     57

                                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, filed as Exhibit 4.6 to
                  Registrant's Annual Report on Form 10-K for the year ended
                  September 30, 2003 is incorporated herein by reference

         4.7      Form of 6% Convertible Debenture, filed as Exhibit 4.7 to
                  Registrant's Annual Report on Form 10-K for the year ended
                  September 30, 2003 is incorporated herein by reference

         4.8      Form of Warrant, filed as Exhibit 4.8 to Registrant's
                  Annual Report on Form 10-K for the year ended September
                  30, 2003 is incorporated herein by reference

         4.9      Securities Purchase Agreement, dated as of March 11, 2004,
                  by and among Zoltek Companies, Inc. and the investors
                  named therein, filed as Exhibit 4.2 to Registrant's
                  Registration Statement on Form S-3 (Reg. No. 333-115043)
                  is incorporated herein by reference

         4.10     Form of 6% Convertible Debenture, filed as Exhibit 4.3 to
                  Registrant's Registration Statement on Form S-3 (Reg. No.
                  333-115043) is incorporated herein by reference

         4.11     Form of Warrant, filed as Exhibit 4.4 to Registrant's
                  Registration Statement on Form S-3 (Reg. No. 333-115043)
                  is incorporated herein by reference

         4.12     Loan and Warrant Agreement, dated as of October 14, 2004,
                  filed as Exhibit 4.1 to Registrant's Current Report on
                  Form 8-K dated October 19, 2004 is incorporated herein by
                  reference

         4.13     Security Agreement, dated as of October 14, 2004, filed as
                  Exhibit 4.3 to Registrant's Current Report on Form 8-K
                  dated October 19, 2004 is incorporated herein by reference

                                     58

         4.14     Mortgage Agreement, dated as of October 14, 2004, filed as
                  Exhibit 4.4 to Registrant's Current Report on Form 8-K
                  dated October 19, 2004 is incorporated herein by reference

         4.15     Form of Warrant, filed as Exhibit 4.5 to Registrant's
                  Current Report on Form 8-K dated October 19, 2004 is
                  incorporated herein by reference

         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.)

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

                                     59

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

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

         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*

         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*

         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.*

         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*

         21       Subsidiaries of the Registrant*

         23       Consent of PricewaterhouseCoopers LLP

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

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

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

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

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

                                     60