<PAGE> 1
                       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, 1997      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]

      State the aggregate market value of the voting stock held by
non-affiliates of the registrant: approximately $303,241,685 as of December
26, 1997.

      Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:  As of December
29, 1997, 16,216,338 shares of Common Stock, par value $.01, were
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE
      The following documents are incorporated by reference into the indicated
Part of this Report:
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            Document                                  Part of Form 10-K
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<S>                                                   <C>
Proxy Statement for the 1998
      Annual Meeting of Shareholders                        III
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                                     PART I

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

            This Annual Report on Form 10-K for the year ended September 30,
1997 and the documents incorporated by reference herein contain
forward-looking statements which are inherently subject to risks and
uncertainties.  Cautionary statements made herein should be read as being
applicable to all related forward-looking statements wherever they appear
herein or in the documents incorporated by reference herein.  The Company's
actual results could differ materially from those anticipated due to a number
of factors, including, without limitation, the following: the Company's
ability to manage rapid growth, increase its carbon fibers production
capacity on a timely and profitable basis, manufacture low-cost carbon fibers
and profitably market them at decreasing price points, successfully operate
and integrate Zoltek Rt. and penetrate existing, identified and emerging
future markets for carbon fibers, as well as other factors discussed herein
and the documents incorporated by reference herein.

GENERAL

            Zoltek Companies, Inc. (the "Company" or "Zoltek") is a leader in
the rapidly developing carbon fibers market, manufacturing products for a
diverse range of applications based upon carbon fibers' distinctive
combination of physical and chemical properties, principally high-strength,
low-weight and stiffness.  Zoltek believes it produces carbon fibers at costs
substantially lower than those generally prevailing in the industry and,
accordingly, can supply carbon fibers for applications which are not
economically viable for most higher cost competitors.  With the December 1995
acquisition of Zoltek Rt. (formerly known as Magyar Viscosa Rt.), a Hungarian
manufacturer of acrylic fiber and nylon products, the Company secured access
to the technology underlying the production of the acrylic fiber raw material
utilized in the manufacture of carbon fibers.  The Company's strategy is to
grow its business by continually lowering its cost to manufacture carbon
fibers, marketing its carbon fibers at price points substantially lower than
those generally prevailing in the industry and working with current and
prospective customers to develop new carbon fiber applications.  In order to
alleviate its capacity constraints and to meet indicated and forecasted
demand for carbon fiber products, the Company has substantially expanded its
manufacturing capacity and is pursuing plans for additional capacity
increases.

            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 fibers with resins or other matrix materials to
form a substance with high strength, light weight, conductivity or other
exceptional properties not found in either component alone. Carbon fibers
most often are manufactured from acrylic fiber raw material ("precursor"),
which is desirable due to the linear orientation of its molecular structure
and high carbon content (approximately 60%).  While most other producers of
carbon fibers utilize internally produced custom-made acrylic raw material,
the Company utilizes less costly textile-type acrylic fiber.

            The Company is a Missouri corporation founded in 1975. Until it
entered the carbon fibers business in 1987, the Company's business consisted
of the sale of various industrial equipment and the provision of related
services.  The Company sold its equipment and services business unit toward
the end of fiscal 1995.  In November 1992, the Company completed its initial
public offering. The Company completed follow-on equity offerings in November
1995 and September 1996.

INDUSTRY OVERVIEW

            Worldwide carbon fibers capacity (excluding the former Soviet
Union and China) was estimated to be approximately 30 million pounds per year
in calendar year 1996.  Carbon fiber composites are an attractive material
for a diverse range of applications, based on their distinctive
characteristics, including high strength, low weight, stiffness, toughness,
resistance to corrosion, resistance to fatigue,

                                    - 2 -
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capacity to dissipate heat and electrical conductivity.  Until the early
1980s, the high cost of carbon fibers precluded all but the most demanding
applications, limiting carbon fibers use primarily to the aerospace industry.
During the past decade, as additional capacity outpaced demand from aerospace
applications, manufacturers sold excess production at significantly reduced
prices.  As a result, the distinctive characteristics of carbon fibers and
the techniques for fabricating carbon fiber composites became more broadly
understood and a number of diverse applications developed.

            A number of specialty applications are commercially viable only at
carbon fiber prices lower than those prevailing for primary aerospace
applications.  In sporting goods manufacturing, the strength-to-weight ratio,
stiffness, rapid damping and fatigue resistance characteristics of carbon
fibers have made them a desirable material for a wide range of products such
as golf club shafts, tennis racquets and bicycle frames.  In current
industrial uses, carbon fibers' non-structural properties are often most
important.  Chemical inertness is useful in corrosive applications for heat
exchanger tubing and pump cavities and in gas turbine blades; high
temperature resistance is useful in specialty metallurgical mold
applications; and combined rigidity and damping are useful in audio equipment
applications.  New developing, commercial applications identified by the
Company include vehicle drive shafts, compressed natural gas (CNG) tanks,
civil engineering uses, wood laminates, automotive body and structural
members, cargo shipping containers mass transit vehicle components, high
strength piping, marine uses and alternative energy systems.  Currently
served specialty niche markets which the Company believes offer growth
prospects include aircraft brakes, conductive plastics, fire-retardant
coatings and specialty friction products.

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

COMPANY STRATEGY

            Zoltek's goal is to be the premier provider of low-cost carbon
fibers.  Key elements of the Company's business strategy are as follows:

            Low-Cost Producer -- The Company believes it currently manufactures
carbon fibers at costs substantially lower than those generally prevailing in
the industry.  The Company intends to continue to reduce its total production
costs primarily by utilizing the acrylic fiber precursor manufactured by its
Zoltek Rt. operations beginning in fiscal 1998.  Longer term, the Company
believes that the precursor manufacturing technology acquired in the Zoltek
Rt. acquisition will enhance its ability to procure from third party sources
precursor with specifications which currently are not generally available
from merchant suppliers.  Acrylic fiber precursor comprises more than 50% of
the Company's total carbon fiber product costs.

            Currently, only one textile-type acrylic fiber manufacturer,
Courtaulds Fibres, Ltd. ("Courtaulds"), produces such fiber in a form
suitable for precursor use (i.e., without additives).  While this
textile-type acrylic fiber is substantially less costly than internally
produced custom-made acrylic fiber precursor utilized by most of the
Company's competitors, Courtaulds takes advantage of its sole merchant
supplier position to charge a premium price for its fibers sold as precursor.

            Zoltek believes Zoltek Rt.'s operations afford a strategic
advantage by providing access to the technology underlying the production of
precursor.  Conversion of Zoltek Rt.'s acrylic fiber capacity to produce
precursor grade material provides the opportunity to control a reliable
source of precursor on favorable terms and to optimize the carbon fibers
production chain.  During 1998, Zoltek Rt. is expected to be able to supply
the Company's carbon fiber operations with production quantities of
precursor.  The Company expects that in the future this technology will be
transferable to other potential suppliers to assure sufficient supply of raw
material to support the Company's carbon fiber growth strategy.

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            Price Leadership -- Zoltek has identified various price points lower
than those generally prevailing in the industry, at which it believes
customers will incorporate carbon fibers into their products to achieve
enhanced properties and performance.  Targeted commercial market applications
include shipping containers, vehicle drive shafts, wrapping and reinforcement
for concrete structures, pressurized tanks, wood laminates, specialty piping
and a number of non-friction automotive uses.  The Company believes that
these applications alone represent potential long-term market demand
requiring substantial increases in current carbon fibers industry capacity.
The ultimate goal of the Company's pricing strategy is to market carbon
fibers for use as a base reinforcement material in composites at price levels
resulting in composite costs per unit of strength which compete favorably
with alternative base construction materials such as steel and aluminum.  The
Company believes that achievement of this pricing goal would result in
significant new product applications for carbon fibers.

            New Commercial Market Applications Development -- The Company will
continue to identify, evaluate and develop new commercial market applications
for carbon fibers.  Potential opportunities include:  (i) applications for
which carbon fiber composites have been demonstrated to be well-suited, but
which only recently have begun to be commercialized (e.g., vehicle drive
shafts and CNG tanks); (ii) applications which have been established in
principle or in small scale projects, but for which additional engineering
and fabrication developments are required (e.g., earthquake-proofing of
bridge columns, aircraft seating and offshore spoolable piping); and (iii)
applications in which carbon fibers may permit totally new technologies
(e.g., flywheel-based alternative energy systems and light trains).

            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.  For example, studies performed by a research
consortium, including the Company, sponsored by the U.S. Advanced Research
Project Agency ("ARPA") demonstrated that columns wrapped with carbon fiber
composite materials made from the Company's carbon fibers significantly
improved the ability of bridges and other structures to withstand
earthquakes.  Successful partnerships with commercial customers include
long-term supply relationships with BF Goodrich Aerospace ("BFG") and TRW
Vehicle Safety Systems, Inc. ("TRW").

            The Company also plans to accelerate the development of new
commercial applications by enhancing its application engineering capability.
The Company's applications engineers will assist prospective users of carbon
fibers in properly evaluating the utility of carbon fibers for new
applications and will consult with customers regarding modifications of their
manufacturing processes to facilitate the full use of carbon fibers.

          Carbon Fibers Manufacturing Capacity and Expansion Plans -- In order
to assure availability of carbon fibers as new applications develop, the
Company has developed an aggressive capacity expansion program.  The present
rated capacity of the Company's carbon fiber manufacturing operations is
approximately 8.5 million pounds per year.  During fiscal 1997, the Company
was producing carbon fibers at its full operational capacity and, toward the
end of the fiscal year, expanded its rated capacity by 5 million pounds to
meet indicated and forecasted demand for carbon fiber products.  During
fiscal 1997, three continuous carbonization lines were constructed at the
Company's new manufacturing site in Abilene, Texas and two lines were
constructed at its Zoltek Rt. facility.  In order to further increase its
production capacity, the Company plans to construct up to 11 additional
continuous carbonization lines by the end of fiscal 1998. The Company will
use the net proceeds of the secondary offering of its common stock completed
in September 1996, together with internally generated funds and (if
necessary) borrowings under credit facilities, to fund capital expenditures
related to these continuous carbonization lines.  Each continuous
carbonization line has a rated capacity of approximately 1.0 million pounds
of carbon fibers per year.

            In the process of expanding capacity, the Company has developed a
standardized continuous carbonization line design in order to optimize
technical process capabilities, reduce equipment

                                    - 4 -
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cost and shorten lead time between the decision to add lines and the time
when the lines become operational.

CUSTOMERS AND BACKLOG

            During the fiscal year ended September 30, 1997, the Company did
not have any customer to whom sales represented greater than 10% of the
Company's total consolidated revenues.

            As of September 30, 1997 and 1996, the Company had backlogs of
orders believed to be firm aggregating approximately $20 million (including
estimated releases under long-term supply arrangements during the succeeding
12 months). Purchase orders from the Company's customers are subject to
amendment or cancellation.

CURRENT AND DEVELOPING PRODUCT APPLICATIONS

            Zoltek is focusing on ten primary application categories which
are delivered to offer potential for substantial development over coming
years. These application categories are as follows:

            Sporting Goods

            Sporting goods represent a stepping stone in the progression of
carbon fiber from an "advanced" material, limited to high-priced applications,
to a price-sensitive, mass-market material. Zoltek anticipates substantial
growth in future demand as graphite golf clubs, skis, racquets, etc. become
less expensive, therefore, less of a novelty item and more of a staple.
With the new capacity in place, the Company plans to make a major initiative
in these markets as they enter a new stage of development based upon lower
prices.

            Transportation

            At today's lower carbon fiber price points transportation
companies, such as shipping, rail, pipelines and buses, are now focusing
on the huge lifecycle cost savings that are possible through the combination
of light weight and great strength and durability provided by carbon fibers.
For example, several companies are experimenting with carbon fiber reinforced
composite components for light-weight all composite refrigerated containers and
railcars.

            Automotive

            The Company has identified automotive as a category of its own
(beyond transportation) because of the perceived potential in this market.
Government-mandated fuel standards dictate a continuation in the trend toward
lighter vehicles. In the development of new generations of cars capable of
going a hundred miles or more on a single gallon of gasoline, structural
requirements dictate substantial use of carbon fibers in creating molded,
light-weight structures of great strength and stiffness.

            Small amounts of Zoltek carbon fibers are already present in many
cars as an additive in the propellant mix used in pyrotechnic airbags.

            Sales of carbon fibers used in automotive airbags account for a
significant part of Zoltek's total sales of carbon fibers. Carbon fiber
material is used as an additive in the airbag propellant mix in the
pyrotechnic type of automotive airbag produced by TRW. The carbon fiber
material is used to improve performance in the inflation process.

            Since 1994, Zoltek has been the exclusive supplier to TRW of
carbon fibers for use in producing its pyrotechnic type of airbags. The
automotive industry continues to conduct research and product development
with respect to airbag technology. Accordingly, the Company believes that
the volume of sales for this application will depend upon the relative
utilization of the pyrotechnic type of airbag in automobiles and trucks
in future years.

            The use of carbon fibers allows a two-piece vehicle drive shaft
to be replaced with a one-piece design, reducing its average weight by
approximately 60%. The inherent dumping characteristics of composites also
reduce the noise and vibration to the passenger compartment. New designs
with hybrid carbon fiber composites and alternative processing methods
continue to be developed to increase the cost-competitiveness of the
composite design. Zoltek has established relationships with the leaders
in the composite drive shaft field and is a current supplier for this
application.

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            Major auto companies and their suppliers are actively exploring
the development a wide variety of carbon fiber-reinforced parts and assemblies,
including steering columns, frames, and heavy-duty clutches and brakes (see
also friction products).

            Auto companies are also looking to composites for another critical
advantage, and that is bringing about a huge reduction in the number of parts
require to build different sub-assemblies and components. In applying lean
production techniques, auto companies and their suppliers are concentrating on
reducing the cost of assembly by eliminating the need for assembly. One- or
two-part composite structures can replace complex metal assemblies made up of
more than 100 different parts.

            Infrastructure

            Carbon fiber can be used as a substitute for steel in reinforcing
concrete in many infrastructure projects -- providing greater strength and
stiffness while eliminating the problem of corrosion. This is true both in new
construction products and in addressing a growing need for maintenance or repair
work.

            There is growing state and federal interest in alternatives to
conventional steel and concrete construction and repair systems. Carbon
fiber-reinforced composite systems are often permit retrofit and repair to be
done without stopping or diverting traffic for extended periods.

            Applications include concrete column wrapping, bridge decking,
composite re-bar, cables and tendons. One of the most publicized applications
underway involves strengthening the ability of bridge columns to withstand
major earthquakes. An estimated 25,000 freeway bridge columns in California
alone have required seismic retrofitting, half of which have already been
repaired with conventional welded steel jacketing. The California Department
of Transportation is in the process now of evaluating and qualifying
fiber-reinforced composite systems for column retrofit. Zoltek is involved
in that program and other similar programs in other states.

            Construction

            Carbon fibers can be used to create earthquake-resistant bridges
and overpasses, it can also be used to wrap concrete columns in the
construction of earthquake-resistant buildings.

            Carbon fiber can be used as a substitute for steel in reinforcing
concrete in many infrastructure projects by providing greater strength and
stiffness while eliminating the problem of corrosion.  Other applications
include concrete column wrapping, bridge decking, cables and tendons.
Industrial tanks, pipes, rollers and shafts have been produced with carbon
fiber.  Additionally, carbon fiber has been used to reinforce wood for
residential and commercial construction.  Carbon fiber may provide a
practical means of obtaining the same strength and stiffness from younger,
newly cut timber that is currently available only in aged timber.  Zoltek
supplies material to several customers involved in these applications.

                                    - 6 -

<PAGE> 7

            Marine

            There are a multiplicity of potential applications in the marine
environment capitalizing not just on carbon fibers' comparative advantages
in light weight and strength, but also (to cite two properties that are
lacking in fiberglass) on their stiffness and resistance to aqueous
corrosion.

            There is considerable work being done on the development of
lightweight, corrosion-resistant off-shore drilling platforms, rods and
pipes, mostly as a replacement for steel, and of all-composite piers as a
replacement for wood.

            Fiberglass -- carbon fibers' predecessor -- revolutionized boat
building. A great deal of further progress is still possible through the
additional use of composites reinforced with carbon fiber or the combination
with fiberglass. For instance, the use of carbon fiber can reduce the weight
of hulls and other structural components in boats by as much as 30% compared
to fiberglass.

            Friction

            This is a category that cuts across several other categories,
including automotive and industrial. It capitalizes on a unique property of
carbon fibers.

            While other materials soften under rising temperatures, carbon/
carbon grows stronger. Zoltek continues to be the world's largest supplier of
carbon fiber to the carbon/carbon aircraft braking industry.

            Carbon-carbon (carbon fibers fused in a carbon matrix) is used in
aircraft brakes because its utility is enhanced by heat.  Where other
materials soften under rising temperatures, carbon-carbon grows stronger.
Developed originally as a lightweight heat shield for spacecraft,
carbon-carbon has become a key material in advanced braking systems used in
fighter aircraft, military aircraft, newer model commercial airliners and
newer model business aircraft.

            There is a growing replacement market for composite brakes with
the retirement of older aircraft and their replacement by newer model
aircraft which utilize carbon-carbon brakes.  Brake pads wear out and must be
replaced at regular intervals, typically at intervals of 750 to 2,000
landings depending upon aircraft type, size and use.  As the relative
proportion of newer aircraft to older aircraft increases, the demand for
carbon-carbon brakes increases proportionately.  Zoltek's carbon fibers are
approved as the single source, or one of only two approved fibers, for many
high production new models of commercial aircraft, and for selected civil and
military aircraft.

            The Company is the exclusive supplier to BFG of carbon fibers for
aircraft brakes pursuant to a ten-year agreement (the "BFG Supply Agreement")
entered into in June 1994.  The Company anticipates aggregate sales of more
than $80 million over the term of this agreement, increasing from
approximately $5 million of expected sales in the initial years to
approximately $15 million to $18 million per year during the later years of
the contract.  The BFG Supply Agreement does not restrict the Company from
supplying carbon fibers to other aircraft brake manufacturers.

            The technology used in advanced aircraft brakes is now being
used as brakes and clutches in race cars, and is adaptable for high speed
trains, over-the-road trucks, cars and industrial rotating equipment -- to
cite two potential high volume application areas that are now under active
study and investigation.

            Specialty friction product applications are a natural extension
of existing aircraft brake applications. For instance, following the lead
of aircraft makers, virtually all grand prix racing cars now use
carbon-carbon brakes and clutches because of their superior performance
and long life in high-temperature and high-friction environments. Other
friction products utilizing carbon fibers are emerging as carbon fiber
prices are reduced. As the price of carbon fibers is lowered, the drive
for better performance and weight reduction makes possible their use
in a range of automotive applications. Zoltek is pursuing a number of
initiatives in this area.

            Industrial

            The list of potential industrial applications for carbon-fiber
reinforced composites is long. In paper mills, for instance, there is growing
interest in development of fast-rotating composite drums -- capitalizing on
carbon fibers' light-weight, stiffness and resistance to corrosion. Carbon
fiber can be used to strengthen and improve many kinds of rollers and
shafts. There is also a growing market for industrial apparel utilizing
oxidized fiber to protect workers in high temperature environments.

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

                                    - 7 -
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            The Company also has identified substantial potential markets
in industrial tanks and pipes utilizing carbon fiber's high strength, light
weight and corrosion resistance.

            Electronics

            Carbon fiber acts to dissipate both static electricity and heat.
Those two properties, combined with light weight, have made it an increasingly
important material in the manufacture of computers, printers, copiers and
other electronic devices. This market -- already one of the largest existing
commercial applications -- is growing at 12-to-15% annual rate with excellent
long-term prospects.

            Growth in computers and electronics has resulted in rising demand
for carbon fibers used in conductive plastics to dissipate static electricity
or to act as a shield against electromagnetic interference. Used in making
plastic carrying trays for a manufacturing environment that cannot tolerate
contamination, Zoltek's carbon fibers help to safeguard the electrical
integrity of new and more powerful computer chips. In the past three years,
Zoltek has experienced increasing levels of sales of specialty carbon fiber
fillers for conductive plastic trays used in clean room environments. The
Company believes that this paplication offers significant potential for
future sales growth. Zoltek also supplies products used in carbon
fiber-impregnated injection-molded plastic boxes to offer effective shielding
from electromagnetic interference.

            Carbon fiber reinforced composites also provide the opportunity to
reduce weight and to provide EMI shielding for portable electronic equipment all
at the same time. There are many current projects concentrating on these
applications.

            Alternative Energy

            While there are an abundance of competing ideas in the field of
alternative energy sources, all known roads lead to carbon fiber.

            That is so primarily because carbon fiber offers an unbeatable
combination of light weight and great strength in the design of complex
machinery involving many moving parts. Of the total heat developed by the
combustion of fuel in today's automotive engines, only 20% to 30% is
converted into useful work. Flywheels could result in far greater fuel
efficiency by capturing and utilizing heat energy that is lost every time a
motorist puts a foot on the brake. Flywheels acted alternately as generators
and as motors. With its combination of strength, stiffness and light weight,
carbon fiber can be important to the success of this application.

            Due to the superior performance, both in terms of physical
characteristics and chemical/UV resistance, carbon fibers have emerged as a
desirable material for CNG tank reinforcement. Carbon fiber-reinforced CNG
tanks are primarily sold into the bus and other vehicle fleet market, as the
reduction of weight directly translates to increased payload capability.  In
addition, the Company believes that governmental pressure to design and
manufacture a sedan with significantly improved fuel efficiency could
continue to cause automotive manufacturers to pursue CNG technologies.
Zoltek supplies carbon fibers to several customers for use in carbon
fiber-reinforced CNG tanks.

            For a variety of reasons, it is also emerging as the best material
for other alternative energy applications such as batteries and windmills.

            The foregoing list is not intended to be all-inclusive in
setting out emerging new applications. In the medical field, for instance,
there is great interest in the use of composites for high-strength, low-weight
prosthetics and for a variety of other applications. The list above reflects
Zoltek's view of broad areas of application that are likely to demonstrate
significant development between now and the year 2000.

            In addition to the carbon fibers products marketed by the Company,
Zoltek Rt. continues to market its traditional products. These products include
the following:

                                    - 8 -

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            Textile Fiber Products

            Acrylic fibers currently represent Zoltek Rt.'s primary product
line (approximately two-thirds of Zoltek Rt.'s sales) and are used in
producing a variety of end products, including clothing and carpet.  Zoltek
Rt.'s acrylic fibers are sold in regional markets, principally to textile
mills in Europe and, to a limited extent, Taiwan and the United States.
Zoltek Rt.'s primary markets for acrylic fibers are currently in Hungary and
Poland.

            The other principal fiber product line currently manufactured and
marketed by Zoltek Rt. consists of nylon-6 fibers and granules.  Due to the
long-term decline in the domestic Hungarian market for nylon-6 fibers, Zoltek
Rt. has targeted export markets, the largest of which is Italy, and also has
sold significant amounts in the United Kingdom and Central and Eastern
Europe.  Granular nylon-6 is used as a thermoplastic molding material and
combined in certain applications with glass or carbon fibers.

            Other

            Zoltek Rt. also currently manufactures:  carboxyl-methyl cellulose
which is used as a film former, absorber or viscosity modifier for applications
in soap additives, drilling mud additives, paper manufacturing and adhesive
manufacturing; plastic netting and grids which are produced from continuously
extruded polyethylene and polypropylene net or screen with varying
specifications and used for soil stabilization and packaging; and filtration
membrane products for use in filtration media utilized in food and wine
processing and water purification.  The Company is in the process of evaluating
the ultimate potential of these products and technologies.

INTERNATIONAL

            To date, the Company's carbon fiber operations have focused
primarily on meeting the needs of U.S. customers.  The Company has, however,
shipped limited amounts of carbon fiber products to customers in Europe and
Asia, primarily for use in conductive plastics applications.  Most of these
sales have been made to foreign operations of domestic corporations, or to
foreign parent companies of domestic operating units.

            Zoltek believes that significant opportunities exist to develop
international markets, particularly in Europe and Asia, as commercial market
applications of carbon fiber products develop. The Company expects to pursue
opportunities in Europe through the marketing organization currently in place
at

                                    - 9 -
<PAGE> 10
Zoltek Rt.  This organization will seek to find customers for the carbon
fiber products currently manufactured at the Company's plants in the United
States, as well as for those products produced at the carbon fibers
facilities at Zoltek Rt.

            The Company has conducted preliminary discussions with prospective
strategic partners in Asia and expects that it, in the future, will pursue
opportunities in that market either with a strategic partner or through a
direct sales office located in Asia.

SOURCES OF SUPPLY

            The Company currently obtains substantially all of its
textile-type acrylic fibers to supply its carbon fiber operations from
Courtaulds, which is currently the sole merchant supplier of such raw
materials in the world. Courtaulds is also the only supplier that currently
produces precursor approved for use in aircraft brake applications such as
those supplied under the BFG Supply Agreement.  Pursuant to an agreement with
the Company, Courtaulds has agreed to supply the Company with up to 4.0
million pounds per year of precursor.  This supply agreement may be
terminated by either party on June 30, 1999, or any anniversary thereof, by
providing two years' prior notice.  The Company is currently negotiating a
proposed agreement with Courtaulds, pursuant to which Courtalds would supply
the Company with up to 18.0 million pounds per year of precurser to
complement the supply available from Zoltek Rt.

            The Company believes Courtaulds is a reliable source of supply at
the Company's current operating levels.  However, as part of its growth
strategy, the Company is developing alternative sources of precursor supply,
including Zoltek Rt.  In the near term, although not expected, any
interruption of precursor supply from Courtaulds would have a material
adverse effect on the Company's carbon fibers business.

            The major materials used in the Zoltek Rt. facility are
acrylonitrile and other basic commodity chemical products which are widely
available from a variety of sources.

INTELLECTUAL PROPERTY

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

COMPETITION

            The Company competes with various other producers of carbon
fibers, acrylic fibers and other textile fiber products, many of which have
substantially greater research and development, marketing, financial and
managerial resources than the Company and represent significant competition
for the Company.

            The Company believes that no single manufacturer of carbon fiber
products competes across all of its applications.  The Company's direct
carbon fibers competitors include Fortafil Fibers, Inc. in the United States
and SGL Carbon in Europe, inasmuch as they use the same textile-type
precursor as the Company.  To varying degrees, depending on market conditions
and supply, the Company also competes with larger producers, such as Hexcel
Corporation and Amoco Corporation in the United States; and Toray Industries,
Inc., Toho Rayon and Mitsubishi Rayon Co., Ltd. in Japan.  Large
international carbon fibers producers tend to market higher cost products
than the Company's products, with a principal focus on aerospace structural
applications.  These large manufacturers tend to enter into direct
competition with the Company primarily when they engage in significant
discounting due to excess capacity and product surpluses; however, such
competition historically has not had a material adverse effect on the
Company's business.

                                    - 10 -
<PAGE> 11

            The Company believes that the principal areas of competition for
its carbon fibers operations are price, quality, skill in developing new
applications, ability to reliably meet the customer's volume requirements and
qualifications for particular programs.

            Competitors of Zoltek Rt. in the textile fibers market include
MonteFibre, Sp.A., A.G. Bayer and Courtaulds.  However, Zoltek Rt.'s historic
ties with and geographic proximity to customers in the former socialist
countries provide competitive advantages for Zoltek Rt. in these markets
compared to the larger manufacturers.  Zoltek believes this advantage will
decrease over time and, accordingly, Zoltek Rt. is pursuing a strategy of
sales to Western European markets and seeking a product mix with more
favorable competitive characteristics, such as advanced materials (e.g.,
carbon fibers precursor).

            The non-textile market for Zoltek Rt.'s products is sufficiently
fragmented that no significant single direct competitor exists.  Zoltek Rt.'s
sales of its industrial products are heavily concentrated in the Central and
Eastern European markets.

ENVIRONMENTAL

            The carbon fibers operations at the Company's Abilene, Texas and
St. Charles, Missouri plants utilize incineration and scrubbing of various
exhaust streams, designed to comply with applicable laws and regulations.
The plants produce air emissions which 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 in compliance with their permits and the conditions
set forth therein.  The Company does not believe that compliance by its
carbon fibers operations with applicable environmental regulations will have
a material 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 implementation of current laws or future changes
in federal or state environmental laws or regulations on the Company's
results of operations or financial condition.

            Zoltek Rt.'s operations generate various hazardous wastes,
including gaseous, liquid and solid materials. The Hungarian State Property
Agency, which formerly owned Zoltek Rt., commissioned an environmental audit
by an independent consulting firm, which in its June 1995 report recommended
expenditures aggregating approximately HUF 20.1 million (which then
approximated $160,000) to correct certain identified environmental
deficiencies and Zoltek expects that Zoltek Rt.'s operations may require
additional funds for enhancement of other environmental compliance systems.
Zoltek expects that compliance with current environmental regulation will not
have a material adverse effect on Zoltek Rt.'s business, results of operations
or financial condition.  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 Zoltek Rt.'s
business, results of operations or financial condition.

EMPLOYEES

            As of September 30, 1997, the Company employed approximately 210
persons in its U.S. operations and approximately 1,500 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 and at Zoltek Rt. there are two
active unions, Union Viscosa with approximately 944 members, and Viscosa 1990
with approximately 600 members.  The Company believes that relations with
both unions are good.  Management meets with union representatives on a
bi-weekly basis.  There have not been any problems or major disagreements
with either union in the past five years.  The Company believes that its
employee relations are good.

                                    - 11 -
<PAGE> 12

            In June 1993, Zoltek Rt. entered into an agreement with the Labor
Office (the "Labor Office") of the county in which the plant is located,
pursuant to which the Labor Office made a HUF 285 million (approximately $1.5
million translated at the exchange rate in effect at September 30, 1996)
grant to Zoltek Rt. to finance salary payments to Zoltek Rt.'s employees
during the period April through December 1993.  The grant is not repayable by
Zoltek Rt. if Zoltek Rt. and its subsidiaries maintained an employee level of
at least 1,850 through 1997, subject to certain exceptions, such as
reductions in force due to normal retirement and terminations for cause.
Zoltek Rt.'s active workforce was below the level specified by the grant.
Zoltek Rt. believes, however, that if all employees (including non-active
employees, such as those on national service or maternity leave) are
considered Zoltek Rt. would not be obligated to repay the grant.  Zoltek Rt.
is undertaking to clarify the application of the calculation and to amend the
agreement to confirm Zoltek Rt.'s understanding.  Although there can be no
assurance that a mutually acceptable arrangement will be achieved, Zoltek
believes that the ultimate resolution of the grant will not have a material
adverse effect on its consolidated financial condition or results of
operations.


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

            The Company's facilities are listed below and are considered to be
suitable and adequate for its operations.  All the Company's properties are
owned or leased subject to various mortgage loans.
<TABLE>
<CAPTION>
                                                                                                APPROXIMATE AREA
               LOCATION                                    USE                                  (IN SQUARE FEET)
               --------                                    ---                                  ----------------
<S>                                         <C>                                                 <C>
      St. Louis, Missouri                   Administrative offices, marketing
                                            and engineering                                           40,000

      St. Charles, Missouri<F1>             Carbon fibers manufacturing                              107,000

      Abilene, Texas                        Carbon fibers manufacturing                              100,000

      Nyergesujfalu, Hungary<F2>            Acrylic fiber, nylon, other
                                            manufacturing                                          1,600,000

<FN>
---------------
<F1>  Subject to ground lease which expires in 2065, subject to a 24-year
      renewal option thereafter.

<F2>  Zoltek Rt. is located on a 150-acre site in the town of Nyergesujfalu,
      approximately 30 miles from Budapest.  The facility is located on a
      main highway between Budapest and Vienna on the shore of the Danube
      River and on a major rail line.
</TABLE>

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

            The Company is not a defendant in any legal proceedings other than
ordinary routine litigation incidental to its business.

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, 1997.

                                    - 12 -
<PAGE> 13

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

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

            Zsolt Rumy, age 55, is the founder of the Company and has served
as its Chairman, President and Chief Executive Officer 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.  Since May 1996, Mr. Rumy has served as a director of
Southwest Bank of St. Louis, with which the Company maintains its primary
banking relationships.  Mr. Rumy received a B.S. degree in Chemical
Engineering from the University of Minnesota in 1966.  Mr. Rumy speaks fluent
Hungarian.

            Daniel Greenwell, age 35, has served as Chief Financial Officer
and Secretary of the Company since December 1996.  Prior to joining the
Company, from November 1992 to December 1996 Mr. Greenwell served as
Corporate Director of Financial Analysis and Reporting of Sigma-Aldrich
Corporation (a publicly held specialty chemical manufacturer) and Controller
of Sigma Chemical Company (a subsidiary of Sigma-Aldrich Corporation).  From
August 1985 to November 1992, Mr. Greenwell was a certified public accountant
for KPMG Peat Marwick (an international accounting and auditing firm) holding
various positions, including Senior Manager.  Mr. Greenwell received a B.S.
degree in Accounting from Truman State University in 1985.

            Gyorgy Paszty, age 55, has served as Executive Vice President of
the Company since February 1997 and as President of Zoltek Rt. since December
1995. From 1990 until December 1995, he was a Managing Director of Zoltek Rt.
Prior to that time, he served in various technical and management positions in
the Hungarian chemical industry.  Mr. Paszty received a B.S. degree in Chemical
Engineering from the Technical University, Budapest, Hungary, in 1966.  Mr.
Paszty currently serves as President of the Hungarian Chemical Association and
as Executive Vice President of the Federation of Hungarian Industrialists.  Mr.
Paszty speaks fluent English.


                                    PART II

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

            The Company's Common Stock (symbol: "ZOLT") is traded in the
Nasdaq National Market System.  The number of beneficial holders of the
Company's stock is approximately 20,000.

            Set forth below are the high and low bid quotations as reported by
Nasdaq for the periods indicated.  Such prices reflect interdealer prices,
without retail mark-up, mark-down or commission and have been adjusted to
reflect the 2-for-1 stock split effective June 17, 1996:

<TABLE>
<CAPTION>
                                 Fiscal year ended                  Fiscal year ended
                                 September 30, 1997                 September 30, 1996
                                 ------------------                 ------------------

                                HIGH            LOW                HIGH             LOW
                                ----            ---                ----             ---
<S>                            <C>            <C>                 <C>             <C>
First Quarter                  $44.50         $26.00              $ 8.50          $ 6.50

Second Quarter                  39.75          21.88               23.63            7.88

Third Quarter                   39.00          21.88               46.63           21.13

Fourth Quarter                  65.75          34.25               39.00           21.00
</TABLE>

                                    - 13 -
<PAGE> 14

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

<TABLE>
                                                 ZOLTEK COMPANIES, INC.
                                          SELECTED CONSOLIDATED FINANCIAL DATA
                                         (In thousands, except per share data)
<CAPTION>
STATEMENT OF INCOME DATA:                                                 YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------------------------------------------------
                                                      1997           1996           1995           1994          1993
                                                    --------       --------        -------        -------       -------
<S>                                                 <C>            <C>             <C>            <C>           <C>
Net sales                                           $ 90,628       $ 68,957        $12,698        $ 7,920       $ 5,141

Cost of sales                                         64,214         49,772          7,716          4,502         2,942

Gross profit                                          26,414         19,185          4,982          3,418         2,199

Selling, general and administrative expenses          13,172          9,510          1,845          1,624         1,356

Operating income from continuing operations           13,242          9,675          3,137          1,794           843

Interest expense                                         820          1,013            740            617           579


Net income from continuing operations                 12,828          6,172          1,577            799           136

Net income from discontinued operations, net
 of income taxes                                          --             38            456            208           431
                                                    --------       --------        -------        -------       -------

Net income                                          $ 12,828       $  6,210        $ 2,033        $ 1,007       $   567
                                                    ========       ========        =======        =======       =======

Net income per common and common equivalent
 share from continuing operations                   $    .78       $    .45        $   .16        $   .09       $   .02

Net income per common and common equivalent
 share from discontinued operations                       --             --            .05            .02           .04
                                                    --------       --------        -------        -------       -------

Net income per common and common equivalent share   $    .78       $    .45        $   .21        $   .11       $   .06
                                                    ========       ========        =======        =======       =======

Weighted average common and common equivalent
 shares outstanding                                   16,547         13,737          9,583          9,314         9,025


<CAPTION>
BALANCE SHEET DATA                                                              SEPTEMBER 30,
-----------------------------------------------------------------------------------------------------------------------
                                                      1997           1996           1995           1994          1993
                                                    --------       --------        -------        -------       -------
<S>                                                 <C>            <C>             <C>            <C>           <C>
Working capital                                     $ 69,556       $ 83,224        $ 6,322        $ 3,866       $   467

Total assets                                         139,962        134,660         18,390         17,373        15,371

Short-term debt                                        2,760          4,578            745          1,662         3,040

Long-term debt, less current maturities                4,295          5,207          6,191          6,562         4,394

Shareholders' equity                                 115,836        108,778          9,519          7,100         5,936
</TABLE>

                                    - 14 -
<PAGE> 15

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

OVERVIEW


            This report contains forward-looking statements which are
inherently subject to risks and uncertainties. Cautionary statements made
herein should be read as being applicable to all related forward-looking
statements wherever they appear herein or in the documents incorporated by
reference herein.  The Company's actual results could differ materially from
those anticipated due to a number of factors, including, without limitation,
the following:  the Company's ability to manage rapid growth, increase its
carbon fibers production capacity on a timely and profitable basis,
manufacture low-cost carbon fibers and profitably market them at decreasing
price points, successfully operate and integrate Zoltek Rt. and penetrate
existing, identified and emerging future markets for carbon fibers, as well
as other factors discussed herein and the comments incorporated by reference
herein.

            The Company is a Missouri corporation founded in 1975.  Until it
entered the carbon fibers business in fiscal 1988, the Company's business
consisted of engineering, sales and installation of various process equipment,
provision of in-house and field repair services, and distribution of various
industrial products manufactured by others.

            The Company entered the carbon fiber business in fiscal 1988 through
the acquisition of a Lowell, Massachusetts company that produced a line of
carbon fiber products for niche and specialty markets.  In fiscal 1991, the
Company closed its carbon fiber production facility in Lowell, and moved to a
newly constructed production facility in St. Charles, Missouri. This
production facility achieved full production capability in July 1992. In
November 1992, the Company completed its initial public offering to finance
the new facilities and to fund future growth and product development.

            In 1994, the Company began producing low-cost, high-strength carbon
fiber products utilizing a proprietary continuous carbonization process to
complement its specialty carbon fibers product line. During the same year,
the Company negotiated two significant multi-year supply arrangements with
BFGoodrich Aerospace for fibers used in carbon/carbon aircraft brakes and
with TRW Vehicle Safety Systems for use in enhancing the performance of its
airbag propellant.  These two supply relationships have provided a
substantial sales base to support Zoltek's expansion.

            In order to focus its efforts on emerging opportunities in the
carbon fibers market, the Company sold all of the assets of its former equipment
and services business unit during fiscal 1995 and 1996.  The results of the
unit's operations have been reclassified to identify them as discontinued
operations.

            In November 1995, the Company completed a secondary public offering
of 4.2 million shares of Common Stock and received net proceeds of $26.3
million.  The Company used much of the proceeds of the offering to acquire
substantially all of the shares of Zoltek Rt. for $17.8 million in December
1995 and to provide working capital to enhance Zoltek Rt.'s operations.
Zoltek Rt. manufactures textile-type acrylic fibers, which is the raw
material for the manufacturing of carbon fibers, as well as nylon and other
industrial materials.  This acquisition enabled the Company to secure access
to the technology underlying the production of the acrylic fiber raw
material.  The Company recently began start-up operations of two new
continuous carbonization lines at Zoltek Rt. and also expects Zoltek Rt. will
supply production quantities of acrylic fiber used as carbon fiber precursor
during 1998.  The Zoltek Rt. acquisition is reported under the purchase
method of accounting and is included in the Company's consolidated financial
statements from the date of acquisition.

            Zoltek has achieved substantial sales growth in its carbon fibers
business.  From fiscal 1992 to fiscal 1997, net sales of carbon fibers grew
from $3.0 million to $23.2 million.  Although much of the sales increase came
from specialty applications, the Company believes that its greatest
opportunities are presented by the market for its low-cost carbon fibers for
much broader applications.

                                    - 15 -
<PAGE> 16
During 1997 the Company produced carbon fibers at its full operational capacity
and expanded its rated capacity by 5 million pounds to meet the indicated and
forecasted demand for carbon fiber products.

            To support the Company's growth strategy, it completed a secondary
stock offering in September 1996.  The Company sold 2.3 million shares of Common
Stock and received net proceeds of $68.9 million.  The Company is utilizing
the net proceeds, together with internally generated funds, to expand its
carbon fibers manufacturing capacity, from approximately 3.5 million pounds
to 8.5 million pounds by the end of 1997 to approximately 40 million pounds
in the United States and Hungary over the next four to five years.  In
addition to securing a future raw material source, the Company has developed
a standardized continuous carbonization line design to optimize the technical
process capabilities, reduce equipment cost and shorten lead time for future
expansion between the decision to add capacity and when lines become
operational.

COMPARISON OF RESULTS FOR FISCAL YEARS ENDED SEPTEMBER 30, 1997 AND 1996

            The Company's net sales increased 31% to $90.6 million in 1997
from $69.0 million in 1996. The increase resulted from an increase in both
Zoltek's carbon fibers business and Zoltek Rt.'s acrylic fibers and other
products business. Net sales from Zoltek's carbon fibers business totaled
$23.2 million in fiscal 1997, which represented an increase of 16% compared to
fiscal 1996. Higher sales volumes were recorded across carbon fiber product
categories. Growth in carbon fiber sales continued to be constrained by
production capacity. The acrylic and other products, produced at Zoltek Rt.,
accounted for net sales of $67.4 million in 1997 compared to $48.9 million for
the period December 8, 1995 (date of acquisition) to September 30, 1996, an
increase of 38%.  Zoltek Rt. sales of acrylic and other products were into
the markets Zoltek Rt. had historically served prior to the acquisition.

            Gross profit increased 38% to $26.4 million in fiscal 1997.
Increased gross profit resulted from a 14% increase in gross profit from
Zoltek's carbon fiber business and a 55% increase in gross profit from acrylic
and other products sold by Zoltek Rt. Zoltek's gross margin from the carbon
fibers business was approximately 39% and 40% of sales for both fiscal 1997
and 1996, respectively.  The Company's overall gross profit remained
relatively constant at 29% of sales for 1997 compared to 28% in the prior
year. Zoltek Rt.'s historical product lines generate lower gross margins than
the carbon fibers business, however, Zoltek Rt.'s gross margin increased to
26% of sales in the current year compared to 23% in the prior year due to
productivity and sales improvements.

            Selling, general and administrative expenses were $13.2 million in
1997 compared to $9.5 million during the prior year.  This increase was due to
the inclusion of Zoltek Rt.'s operations for the full year in 1997 compared to
the period December 8, 1995 to September 30, 1996 and to the addition of
marketing, engineering, product development and administrative staff to
support the carbon fibers manufacturing expansion.  The Company expects
significant operating leverage from these additional costs as its capacity
increases come on line during 1998.

            Interest expense was $0.8 million for fiscal 1997 compared to
$1.0 million in 1996 due mainly to the elimination of bank debt at Zoltek Rt.
Interest income for the year was $4.0 million compared to $0.5 million in
1996.  Interest income increased due to the interest generated on the
increased cash, cash equivalents and marketable securities balances held as
temporary investments in the current year, which were derived from the
Company's secondary offerings.

            During fiscal 1997, the Company reported income tax expense of $3.6
million compared to $2.5 million in 1996.  The effective tax rate remained
relatively constant between years, excluding the effects of the Zoltek Rt.
acquisition. The increase in income tax expense was primarily attributable to
the increased interest income and net profits from the U.S. carbon fiber
operations.  The statutory rate for the Zoltek Rt. operation in Hungary is
18%.  During 1997 Zoltek Rt. was able to utilize net operating loss
carryforwards arising from losses incurred prior to the Company's
acquisition.  These net operating loss carryforwards resulted in a reduced
income tax liability.  However, due to the uncertainty of the availability of
these operating loss carryforwards to reduce Zoltek Rt.'s future income tax
liability, the

                                    - 16 -
<PAGE> 17
Company recognized a full valuation allowance against these net operating
loss carryforwards at the date of acquisition.  During 1997 and 1996, Zoltek
Rt. reduced its income tax liability by $1.5 million and $0.6 million,
respectively, as a result of utilizing net operating loss carryforwards.
Additionally, valuation allowance adjustments of $1.5 million and $0.3
million were recognized as a reduction to income tax expense during 1997 and
1996, respectively.  At September 30, 1997, the Company continues to
recognize a valuation allowance against the available net operating loss
carryforwards.

            In connection with the Company's determination, in August 1995,
to dispose of its equipment and services business unit, the Company sold the
unit's remaining product line, flexible graphite products, in June 1996 in
consideration of a note receivable for $0.2 million, which approximated the
net book value of such assets.

            As a result of the foregoing, net income increased 107% to $12.8
million for fiscal 1997 from $6.2 million in 1996.  Similarly, the Company
reported net income per share of $0.78 for 1997 compared to net income per share
of $0.45 in 1996. The weighted average common shares increased to 16.5 million
from 13.7 million primarily due to the issuance of 2.3 million shares in
September 1996.

COMPARISON OF RESULTS FOR FISCAL YEARS ENDED SEPTEMBER 30, 1996 AND 1995

            Net sales increased by 443% to $69.0 million in 1996 from $12.7
million in 1995.  The increase resulted from an increase in Zoltek's carbon
fiber business and the inclusion of Zoltek Rt.'s revenues since its acquisition
on December 8, 1995.  Net sales from Zoltek's carbon fiber business totaled
$20.0 million in 1996, reflecting an increase of 57% compared to 1995.
Higher sales revenues were recorded across carbon fiber product categories.
Growth in carbon fiber sales was constrained by production capacity.  For the
period from December 8, 1995 to September 30, 1996, Zoltek Rt.'s reported net
sales of $48.9 million.  All of Zoltek Rt.'s sales were from markets Zoltek
Rt. had historically served prior to acquisition.

            Gross profit increased 285% to $19.2 million in 1996 from $5.0
million in 1995. Increased gross profit resulted from a 61% increase in gross
profit from Zoltek's carbon fiber business and from the operation of Zoltek Rt.
after acquisition by the Company.  Excluding Zoltek Rt., Zoltek's gross
margin from the carbon fibers business was 40% for 1996.  The Company's
overall gross profit decreased to 28% for the year from 39% in the prior year
due to the acquisition of Zoltek Rt. which generates significantly lower
gross margins than the carbon fibers business.  Although Zoltek Rt.'s margins
are generally lower, its productivity and margins were significantly improved
compared to its operations prior to the acquisition.

            Selling, general and administrative expenses were $9.5 million in
1996 compared to $1.8 million in the prior year.  Substantially all of the
increase resulted from the consolidation of the Zoltek Rt. operation.  To a
lesser extent, these expenses increased due to the addition of engineering,
development and administrative staff during the year ended September 30,
1996, as well as costs related to the increased sales level.

            Interest expense was $1.0 million for 1996 compared to $.7 million
for the prior year due mainly to the acquisition of Zoltek Rt. which had
short-term bank debt.  Interest income for the year was $.5 million compared
to a minor amount in 1995 due to interest generated on increased cash and
short-term investment balances in the current year.

            During 1996, the Company reported income tax expense of $2.6 million
compared to $1.2 million in 1995.  The effective tax rate remained relatively
constant between the two years, excluding the effects of the Zoltek Rt.
acquisition.  The statutory rate for the Zoltek Rt. operations in Hungary is
18%.  During 1996, Zoltek Rt. utilized operating loss carryforwards to reduce
the income tax liability by $0.6 million.  Additionally, a valuation
allowance adjustment of $0.3 million was recognized as a reduction to income
tax expense.  At September 30, 1996, the Company continued to recognize a
valuation allowance against the available net operating loss carryforwards.

                                    - 17 -
<PAGE> 18

            In connection with the Company's determination in August 1995 to
dispose of its equipment and services business unit, the Company put the unit's
business and related assets up for sale. The valves, pumps, and repair and
fluid sealing product lines were sold in August 1995.  The Company sold the
unit's remaining product line, flexible graphite products, in June 1996 in
consideration of a note receivable for $0.2 million, which approximated the
net book value of such assets.

            As a result of the foregoing, net income increased 206% to $6.2
million for 1996 from $2.0 million in 1995.  Similarly, the Company reported net
income per share of $0.45 for 1996 compared to net income per share of $0.21
in 1995.  Weighted average common shares increased to 13.7 million from 9.6
million primarily due to the secondary offerings in November 1995 and
September 1996.

LIQUIDITY AND CAPITAL RESOURCES

            The Company's primary sources of liquidity historically have been
and continue to be cash flow from operating activities and borrowing under
credit facilities, supplemented with the net proceeds from three equity
offerings, and long-term debt financing utilizing the equity in the Company's
real estate properties.

            The Company's financial position remains strong and sufficient to
continue to execute its strategic expansion plans.  At September 30, 1997,
the Company reported working capital of $69.6 million compared to working
capital of $83.2 million at September 30, 1996.  The decrease in working
capital from September 30, 1996 to September 30, 1997 was due primarily to
$26.6 million in capital expenditures offset by $13.1 million of net cash
from operations.

            Marketable securities at September 30, 1997 amounted to $18.3
million. The marketable securities primarily include U.S. Treasury Notes with
maturities longer than three months but less than twelve months and preferred
stock.  The marketable securities and a substantial majority of the Company's
cash and cash equivalent balances are earmarked to fund the Company's
capacity expansion and growth plans.

            Other receivables of $1.6 million consisted primarily of VAT and
import refunds due Zoltek Rt. from the Hungarian taxing authorities.  Other
long-term liabilities were related to various supply agreements between
Zoltek Rt. and its vendors.

            Historically, cash used in investing activities has been expended
for equipment additions and to support research and development of carbon
fibers applications, the expansion of the Company's carbon fibers production
capacity and the acquisition of Zoltek Rt.  In 1997, the Company incurred
capital expenditures of $ 26.6 million.  Of these expenditures approximately
$25.3 million was used for the new continuous carbonization lines and  $1.3
million was used in the Zoltek Rt. operations for modernization and
modifications to produce acrylic fiber to be used as the precursor for carbon
fiber production.  These expenditures were financed principally with cash
from the secondary offering in September 1996 and from cash generated from
operations.  In fiscal 1996, capital expenditures were $5.1 million.

            The Company believes that identified and forecasted customer demand
for carbon fiber products will require additional substantial increases in
capacity.  In June 1997, the Company acquired a 100,000 square foot newly
constructed building and 11 acres in Abilene, Texas for its planned capacity
expansion.  The Company plans on acquiring an additional 39 acres in fiscal
1998 at the Abilene facility. The Company completed construction (in both the
U.S. and Hungary) of five continuous carbonization lines in the fourth
quarter of 1997 and currently plans to construct eleven additional lines by
the end of fiscal 1998.  The additional continuous carbonization lines
planned for construction in fiscal 1998 are currently anticipated to require
capital expenditures of approximately $50 million and will be funded with
cash and cash equivalents and marketable securities on hand, together with
internally generated funds and, possibly, borrowings.

                                    - 18 -
<PAGE> 19

            The Company continues to maintain an excellent relationship with its
lead bank, Southwest Bank of St. Louis.  The Company maintains several credit
commitments with the bank that would allow the Company to borrow up to
approximately $10 million. The Company has no plans to draw on these commitments
in the foreseeable future.

            The Company currently has a term loan outstanding with a principal
balance of $1.2 million that matures in 1999.  The Company expects to repay
this loan during fiscal 1998 to reduce its interest expense.

            In connection with the purchase of the Abilene facility, the Company
obtained a $1.8 million short term non-interest bearing loan through the City
of Abilene that matures in December 1997. The Company plans to refinance this
short-term loan with a non-interest bearing term loan due in approximately 10
years.

            Since the beginning of fiscal 1994, the Company has obtained
long-term financing utilizing its equity in its real estate properties.  The
applicable loan agreements prohibit the payment of dividends without the consent
of the lenders. These loans are non-recourse loans for the Company's
headquarters and St. Charles manufacturing facility.  Based on the interest
rates and the nature of the loans, the Company plans to retain these loans.

            Pursuant to a secondary stock offering in November 1995, the
Company sold 4.2 million shares of Common Stock and realized net proceeds
of approximately $26.3 million.  The Company utilized approximately $17.8
million to fund the purchase of Zoltek Rt.  In an additional secondary stock
offering in September 1996, the Company sold 2.3 million shares of Common
Stock and realized net proceeds of approximately $68.9 million.  The proceeds
from these stock offerings were used to finance the capital additions in the
United States of $20.0 and $3.3 million during 1997 and 1996, respectively,
and for Zoltek Rt. operations.  During 1997 and 1996, the Company made
available $4.3 and $3.0 million, respectively, to fund Zoltek Rt.'s working
capital requirements, repayment of bank debt and capital expenditures
associated with the new continuous carbonization lines which the Company
installed at Zoltek Rt.  The remaining proceeds from the secondary stock
offerings will be used principally for capital expenditures associated with
the construction of additional continuous carbonization lines at Abilene and
Zoltek Rt.  The Company's overall strategic plan calls for total capital
expenditures of approximately $50 million during fiscal 1998 to construct
substantial increases in carbon fibers production capacity.

            Beginning in the second quarter of fiscal 1996, Zoltek Rt. obtained
short-term financing consisting of working capital loans and commercial letters
of credit, of which $3.7 million was outstanding at September 30, 1996. Zoltek
Rt. repaid the borrowings during fiscal 1997.

            In August 1995, the Company sold its valves, pumps and repair and
fluid-sealing product lines for an aggregate sale price of approximately $2.5
million (consisting of $1.7 million cash, $0.6 million of debt assumption and a
note receivable for $0.2 million).  The Company sold the unit's remaining
product line, flexible graphite products, on June 30, 1996 in consideration of
a note receivable for $0.2 million.

NEW ACCOUNTING STANDARD

            The following recently issued accounting standard will be applicable
to the Company for its fiscal year ending September 30, 1998:

            SFAS 128, "Earnings per Share," establishes standards for the
computation, presentation, and disclosure requirements for earnings per
share.  SFAS 128 is not expected to have a material impact on the Company's
financial condition or results of operations.

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

            Not Applicable.

                                    - 19 -
<PAGE> 20

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

                             ZOLTEK COMPANIES, INC.
                       REPORT OF INDEPENDENT ACCOUNTANTS


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

            In our opinion, the accompanying consolidated balance sheet and
the related consolidated statements of income, 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, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended September 30,
1997, in conformity with generally accepted accounting principles.  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 generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation.  We believe that our audits provide a
reasonable basis for the opinion expressed above.



/s/ Price Waterhouse LLP

Price Waterhouse LLP
St. Louis, Missouri
November 14, 1997


                                    - 20 -
<PAGE> 21
<TABLE>
                                                 ZOLTEK COMPANIES, INC.
                                               CONSOLIDATED BALANCE SHEET
                                     (Amounts in thousands, except per share data)
<CAPTION>
ASSETS                                                                                                SEPTEMBER 30,
----------------------------------------------------------------------------------------------------------------------
                                                                                                1997            1996
                                                                                              --------        --------
<S>                                                                                           <C>             <C>
Current assets:
   Cash and cash equivalents                                                                  $ 41,148        $ 75,447
   Marketable securities                                                                        18,302              --
   Accounts receivable, less allowance for doubtful accounts of $331 and $72, respectively      14,163          12,616
   Inventories                                                                                  12,487          12,597
   Prepaid expenses                                                                                402             350
   Other receivables                                                                             1,636           1,310
                                                                                              --------        --------
       Total current assets                                                                     88,138         102,320
Property and equipment, net                                                                     51,382          31,440
Other assets                                                                                       442             900
                                                                                              --------        --------
       Total assets                                                                           $139,962        $134,660
                                                                                              ========        ========

LIABILITIES AND SHAREHOLDERS' EQUITY
----------------------------------------------------------------------------------------------------------------------
Current liabilities:
   Short-term notes payable                                                                   $  1,853        $  3,694
   Current maturities of long-term debt                                                            907             884
   Trade accounts payable                                                                       10,599           8,621
   Accrued expenses and other liabilities                                                        5,099           5,606
   Income taxes payable                                                                            124             291
                                                                                              --------        --------
       Total current liabilities                                                                18,582          19,096
Other long-term liabilities                                                                        243             973
Long-term debt, less current maturities                                                          4,295           5,207
Deferred income taxes                                                                            1,006             606
                                                                                              --------        --------
                                                                                                24,126          25,882
                                                                                              --------        --------

Shareholder's equity:
   Preferred stock, $.01 par value, 1,000 shares authorized, no shares
      issued and outstanding                                                                        --              --
   Common stock, $.01 par value, 50,000 and 20,000 shares authorized,
      16,216 and 16,210 shares issued and outstanding, respectively                                162             162
   Additional paid-in capital                                                                   99,954          99,870
   Cumulative translation adjustment                                                            (8,512)         (2,658)
   Retained earnings                                                                            24,232          11,404
                                                                                              --------        --------
                                                                                               115,836         108,778
                                                                                              --------        --------
       Total liabilities and shareholders' equity                                             $139,962        $134,660
                                                                                              ========        ========



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

                                    - 21 -
<PAGE> 22
<TABLE>
                                                 ZOLTEK COMPANIES, INC.
                                            CONSOLIDATED STATEMENT OF INCOME
                                     (Amounts in thousands, except per share data)
<CAPTION>
                                                                                      YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------------------------------------------
                                                                               1997              1996            1995
                                                                             -------           -------         -------
<S>                                                                          <C>               <C>             <C>
Net sales                                                                    $90,628           $68,957         $12,698
Cost of sales                                                                 64,214            49,772           7,716
                                                                             -------           -------         -------
    Gross profit                                                              26,414            19,185           4,982
Selling, general and administrative expenses                                  13,172             9,510           1,845
                                                                             -------           -------         -------
    Operating income from continuing operations                               13,242             9,675           3,137
Other income (expense):
    Interest expense                                                            (820)           (1,013)           (740)
    Interest income                                                            3,979               546              32
    Other, net                                                                    29              (497)              3
                                                                             -------           -------         -------
Income from continuing operations before income taxes                         16,430             8,711           2,432
Provision for income taxes                                                     3,602             2,539             855
                                                                             -------           -------         -------
    Net income from continuing operations                                     12,828             6,172           1,577
Income from discontinued operations, net of income taxes                          --                38             456
                                                                             -------           -------         -------
    Net income                                                               $12,828           $ 6,210         $ 2,033
                                                                             =======           =======         =======
Net income per common and common equivalent share:
    Income from continuing operations                                        $  0.78           $  0.45         $  0.16
    Discontinued operations                                                       --                --            0.05
                                                                             -------           -------         -------
    Net income per common and common equivalent share                        $  0.78           $  0.45         $  0.21
                                                                             =======           =======         =======
Weighted average common and common equivalent shares outstanding              16,547            13,737           9,583



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

                                    - 22 -
<PAGE> 23
<TABLE>
                                                 ZOLTEK COMPANIES, INC.
                               CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                                                 (Amounts in thousands)
<CAPTION>
                                                                                     Additional  Cumulative
                                                               Preferred     Common    Paid-in   Translation  Retained
                                                                 Stock       Stock     Capital    Adjustment  Earnings
----------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>          <C>      <C>         <C>         <C>
Balance, September 30, 1994                                      $  --        $ 31     $ 3,823     $    --     $ 3,246
Exercise of stock options                                           --           1         279          --          --
Benefit of tax deduction for stock option compensation expense      --          --         106          --          --
Common stock split (3-for-2) in September 1995                      --          16          --          --         (16)
Net income for the year ended September 30, 1995                    --          --          --          --       2,033
                                                                 -----        ----     -------     -------     -------
Balance, September 30, 1995                                         --          48       4,208          --       5,263
Secondary stock offering November 1995                              --          21      26,271          --          --
Common stock split (2-for-1) in June 1996                           --          69          --          --         (69)
Secondary stock offering September 1996                             --          23      68,853          --          --
Exercise of stock options                                           --           1          78          --          --
Benefit of tax deduction for stock option compensation expense      --          --         460          --          --
Cumulative translation adjustment                                   --          --          --      (2,658)         --
Net income for the year ended September 30, 1996                    --          --          --          --       6,210
                                                                 -----        ----     -------     -------     -------
Balance, September 30, 1996                                         --         162      99,870      (2,658)     11,404
Exercise of stock options                                           --          --          10          --          --
Benefit of tax deduction for stock option compensation expense      --          --          74          --          --
Cumulative translation adjustment                                   --          --          --      (5,854)         --
Net income for the year ended September 30, 1997                    --          --          --          --      12,828
                                                                 -----        ----     -------     -------     -------
Balance, September 30, 1997                                      $  --        $162     $99,954     $(8,512)    $24,232
                                                                 =====        ====     =======     =======     =======


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

                                    - 23 -
<PAGE> 24
<TABLE>
                                                 ZOLTEK COMPANIES, INC.
                                          CONSOLIDATED STATEMENT OF CASH FLOWS
                                                 (Amounts in thousands)
<CAPTION>
                                                                                           YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------------------------------------------
                                                                                        1997         1996        1995
                                                                                      --------     --------    -------
<S>                                                                                   <C>          <C>         <C>
Cash flows from operating activities:
   Net income                                                                         $ 12,828     $  6,210    $ 2,033
   Adjustments to reconcile net income to net cash provided by operating activities:
     Depreciation and amortization                                                       2,637        2,848      1,049
     Gain on sale of Equipment and Service Business Unit ("ESBU")                           --           --       (388)
     Unrealized foreign exchange (gain) loss                                              (159)           8          -
     Other, net                                                                             68            4        (10)
     Changes in assets and liabilities, net of effects from purchase of Zoltek Rt.:
       Increase in accounts receivable                                                  (3,562)      (5,006)      (132)
       Increase in other receivables                                                      (662)        (751)        --
       Increase in inventories                                                          (1,649)      (3,651)    (1,203)
       Increase in prepaid expenses                                                        (85)        (341)        --
       Decrease in refundable income taxes                                                  --           --        201
       Decrease in inventories held for sale                                                --          453         --
       Increase (decrease) in trade accounts payable                                     3,337       (1,322)      (244)
       Increase (decrease) in accrued expenses and other liabilities                     2,258          393        (74)
       Increase (decrease) in income taxes payable                                         (77)         (61)       188
       Increase (decrease) in deferred income taxes                                        363          192        (58)
       Decrease in other long-term liabilities                                          (2,213)      (1,097)        --
                                                                                      --------     --------    -------
         Total adjustments                                                                 256       (8,331)      (671)
                                                                                      --------     --------    -------
Net cash provided (used) by operating activities                                        13,084       (2,121)     1,362
                                                                                      --------     --------    -------
Cash flows from investing activities:
   Payments for purchase of Zoltek Rt., net of cash acquired                                --      (17,555)        --
   Payments for purchase of property and equipment                                     (26,589)      (5,134)      (951)
   Proceeds from sale of ESBU                                                               --           --      1,717
   Proceeds from sale of fixed assets                                                      107          156         --
   Purchase of marketable securities                                                   (18,302)          --         --
                                                                                      --------     --------    -------
Net cash provided (used) by investing activities                                       (44,784)     (22,533)       766
                                                                                      --------     --------    -------
Cash flows from financing activities:
   Net decrease in line of credit borrowings                                                --           --     (1,028)
   Net proceeds from sale of common stock                                                   --       95,167         --
   Net proceeds from exercise of stock options and warrants                                 84          538        385
   Proceeds from issuance of notes payable                                               5,527       13,050      5,650
   (Increase) decrease in notes receivable                                                 169         (162)        --
   Repayment of notes payable                                                           (7,864)     (10,215)    (5,328)
   (Increase) decrease in deferred costs                                                    --          286       (286)
                                                                                      --------     --------    -------
Net cash provided (used) by financing activities                                        (2,084)      98,664       (607)
                                                                                      --------     --------    -------
Effect of exchange rate changes on cash                                                   (515)        (240)        --
                                                                                      --------     --------    -------
Net increase (decrease) in cash and cash equivalents                                   (34,299)      73,770      1,521
Cash and cash equivalents at beginning of period                                        75,447        1,677        156
                                                                                      --------     --------    -------
Cash and cash equivalents at end of period                                            $ 41,148     $ 75,447    $ 1,677
                                                                                      ========     ========    =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
   Interest                                                                           $    815     $    996    $   776
   Income taxes                                                                          2,983        1,954        818



                 The accompanying notes are an integral part of the consolidated financial statements.

</TABLE>

                                    - 24 -
<PAGE> 25
                             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. and Zoltek Rt.  Zoltek Corporation ("Zoltek") develops,
manufactures and markets advanced materials and industrial products for
selected niche markets.  The Carbon Fibers Business Unit of Zoltek
manufactures carbon fibers used in aircraft brakes and other composite
materials.  In August 1995, the Company's Board of Directors authorized the
disposition of the Company's former Equipment and Services Business Unit
("ESBU"), which supplied industrial process equipment, aftermarket components
and repair services.  These operations have been classified as a discontinued
operation (Note 12). Zoltek Rt. (formerly known as Zoltek Magyar Viscosa,
Rt.) manufactures and markets acrylic and nylon fibers and yarns to the
textile industry, and recently began start-up operations of two continuous
carbonization lines. Other Zoltek Rt. products include nylon granules,
plastic grids and nets, and carboxymethyl cellulose.  In addition, Zoltek Rt.
provides public works services for plant use and to the town of
Nyergesujfalu, Hungary.  These financial statements have been prepared in
accordance with U.S. generally accepted accounting principles.  All
significant intercompany transactions and balances have been eliminated upon
consolidation.

FOREIGN CURRENCY TRANSLATION

      For Zoltek Rt. which prepares its financial statements in the Hungarian
Forints, assets and liabilities are translated at year-end exchange rates and
the income statement is translated at the average exchange rate for the year.
The related translation adjustments are reported as a separate component of
shareholders' equity.  Gains and losses from foreign currency transactions of
Zoltek Rt. are included in results of operations.

USE OF ESTIMATES

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

REVENUE RECOGNITION

      The Company recognizes sales on the date the products are shipped.

CONCENTRATION OF CREDIT RISK

      Products of the Carbon Fiber Business Unit are primarily sold to
customers in the aerospace and composite industries. Zoltek Rt.'s products
are mainly sold to customers in the textile 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 most of Zoltek Rt.'s
sales are to customers in Eastern Europe, the Commonwealth of Independent
States, Europe and Asia.  The Company performs ongoing credit evaluations.
Zoltek Rt. generally requires collateral for significant export sales to new
customers; Zoltek generally does not require collateral.  The Company
maintains reserves for potential credit losses and such losses have been
within management's expectations.  As of September 30, 1997, the Company had
no significant concentrations of credit risk.

                                    - 25 -
<PAGE> 26

CASH AND CASH EQUIVALENTS

      All highly liquid investments purchased with a maturity of three months
or less are considered to be cash equivalents.  Such investments amounted to
$40,041,000 and $74,021,000 at September 30, 1997 and 1996, respectively.  At
September 30, 1997 and 1996, cash equivalents included $25,443,000 and
$69,331,000, respectively, of U.S. Treasury Bills.

MARKETABLE SECURITIES

      All marketable securities are available to support current operations.
The marketable securities consist of U.S. Treasury Notes (classified as
held-to-maturity) that are valued at amortized cost and preferred stock
equities (classified as available-for-sale) that are valued at fair market
value which equals cost.  At September 30, 1997, the Company held $16,219,000
of U.S. Treasury Notes which mature on April 15, 1998 and $2,083,000 of
preferred stock equities.

INVENTORIES

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

PROPERTY AND EQUIPMENT

      Property and equipment are stated at cost.  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,
1997, 1996 and 1995.  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 the properties over their estimated useful lives using
primarily straight-line methods.  The range of estimated useful lives used in
computing depreciation is as follows:
<TABLE>
<S>                                                   <C>
                  Buildings and improvements          10 to 31.5 years
                  Automobiles                         3 to 5 years
                  Machinery and equipment             5 to 10 years
                  Furniture and fixtures              7 to 10 years
</TABLE>

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

      Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable.
If the sum of the expected future undiscounted cash flows is less than the
carrying amount of the asset, a loss is recognized for the difference between
the fair value and the carrying value of the asset.

FINANCIAL INSTRUMENTS

      The Company does not hold any financial instruments for trading
purposes.  The carrying value of cash, marketable securities, and debt
approximated fair value at September 30, 1997 and 1996.

RESEARCH AND DEVELOPMENT EXPENSES

      Expenditures for research, development and engineering of products and
manufacturing processes are expensed as incurred.  Such costs were
approximately $712,000, $537,000, and $370,000 in 1997, 1996, and 1995,
respectively.


                                    - 26 -
<PAGE> 27

                             ZOLTEK COMPANIES, INC.

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

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------------------------

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 bases of assets and liabilities applying enacted statutory
tax rates in effect for the year in which the differences are expected to
reverse.

NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

      Net income per common and common equivalent share is calculated by
dividing net income by the sum of the weighted average number of shares of
common stock and common stock equivalents outstanding for the years ended
September 30, 1997, 1996 and 1995.  Common stock equivalents are excluded
from the computation for the year ended September 30, 1995 because their
dilutive effect was not significant.  All share and per share data have been
adjusted to give retroactive effect to the stock splits described in Note 9.

STOCK-BASED COMPENSATION

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

RECENT ACCOUNTING PRONOUNCEMENTS

      The following recently issued accounting standard will be applicable to
the Company for its fiscal year ending September 30, 1998:

SFAS 128, "Earning per Share," establishes standards for the computation,
presentation, and disclosure requirements for earnings per share.  SFAS 128
is not expected to have a material impact on the Company's consolidated
financial condition or results of operations.

FINANCIAL PRESENTATION CHANGES

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


2.    ACQUISITION
--------------------------------------------------------------------------------

      On December 8, 1995, the Company completed the acquisition of Zoltek Rt.
Pursuant to agreements with the Hungarian State Property Agency and other
shareholders and lenders, the Company acquired approximately 95% of the
equity ownership and substantially all the debt of Zoltek Rt. for
approximately $18 million.  Subsequently, the Company acquired an additional
2% of the equity ownership for $250,000.  The Zoltek Rt. acquisition is
reported under the purchase method of accounting and is included in the
Company's consolidated financial statements from the date of acquisition.
The purchase price allocation includes assets and liabilities acquired at
their estimated fair values.  The excess of the fair market value of the
assets acquired over the purchase price was allocated to reduce property and
equipment.


                                    - 27 -
<PAGE> 28
                             ZOLTEK COMPANIES, INC.

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

      At the date of acquisition a liability related to a governmental grant
received by Zoltek Rt. to finance salary payments prior to the acquisition,
but subject to repayment by the Company under certain conditions relative to
employment levels, and other additional costs related to the acquired
operations were recorded.  During fiscal 1997, a charge of approximately $0.9
million was made against the liability to maintain employment at levels
specified by the grant.  At September 30, 1997 Zoltek Rt.'s workforce was
below the level specified by the grant.  Zoltek Rt. is negotiating with the
governmental agency responsible for the grant to clarify the application of
the workforce level calculations.  The balance in the reserve after adjusting
for translation was approximately $1.8 million at September 30, 1997.

      Set forth below are unaudited pro forma combined results of operations
of Zoltek and Zoltek Rt. for the twelve months ended September 30, 1996 as if
the Zoltek Rt. acquisition had been completed as of October 1, 1995 and for
the twelve months ended September 30, 1995 as if the Zoltek Rt. acquisition
had been completed as of October 1, 1994.  The pro forma combined financial
information set forth below is not necessarily indicative of future results
of operations or results of operations that would have been reported for the
periods indicated had the acquisition of Zoltek Rt. been completed as of
October 1, 1995 or 1994 (amounts in thousands, except per share data).

<TABLE>
<CAPTION>
                                                                      TWELVE MONTHS ENDED
                                                                         SEPTEMBER 30,
                                                                     --------------------
                                                                       1996      1995<F*>
                                                                     -------     --------
<S>                                                                  <C>         <C>
      Net sales                                                      $80,323     $63,483
      Income (loss) before extraordinary items                         6,034         (85)
      Net income                                                       5,996      10,542
      Net income per share                                              0.43        0.79

<FN>
---------------
<F*>  The period ended September 30, 1995 includes extraordinary items related
      to the sale of certain of Zoltek Rt.'s assets and the forgiveness of
      certain of its debt in December 1994 for a net gain of $10.6 million,
      relating to the Zoltek Rt. operations.
</TABLE>

3.    INVENTORIES
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
      Inventories consist of the following (amounts in thousands):                     SEPTEMBER 30,
------------------------------------------------------------------------------------------------------
                                                                                     1997        1996
                                                                                   -------     -------
<S>                                                                                <C>         <C>
      Raw materials                                                                $ 5,886     $ 5,446
      Work-in-process                                                                1,008       1,566
      Finished goods                                                                 5,076       5,026
      Supplies, spares and other                                                       517         559
                                                                                   -------     -------

                                                                                   $12,487     $12,597
                                                                                   =======     =======
</TABLE>

                                    - 28 -
<PAGE> 29

                             ZOLTEK COMPANIES, INC.

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


4.    PROPERTY AND EQUIPMENT
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
      Property and equipment consists of the following (amounts in thousands)                     SEPTEMBER 30,
-------------------------------------------------------------------------------------------------------------------
                                                                                                1997        1996
                                                                                               -------     -------
<S>                                                                                            <C>         <C>
      Land                                                                                     $ 1,176     $ 1,393
      Buildings and improvements                                                                22,467      15,975
      Machinery and equipment                                                                   33,591      18,905
      Furniture and fixtures                                                                     3,315       2,134
                                                                                               -------     -------
                                                                                                60,549      38,407
      Less:  accumulated depreciation                                                           (9,167)     (6,967)
                                                                                               -------     -------
                                                                                               $51,382     $31,440
                                                                                               =======     =======
</TABLE>

5.    INCOME TAXES
--------------------------------------------------------------------------------

      The components of the provision for income taxes for the years ended
September 30, are as follows (amounts in thousands):
<TABLE>
<CAPTION>
From continuing operations:                                  1997              1996              1995
                                                            ------            ------            ------
<S>                                                         <C>               <C>               <C>
   Current:
     Federal                                                $2,721            $1,566            $  777
     State                                                     142                99                74
     Non-U.S. local                                            673               401                --
                                                            ------            ------            ------
                                                             3,536             2,066               851
   Deferred:
     Federal                                                    66               154                 4
     State                                                      --                 7                --
     Non-U.S.                                                   --               313                --
                                                            ------            ------            ------
                                                                66               474                 4
                                                            ------            ------            ------

       Total continuing operations                           3,602             2,540               855
                                                            ------            ------            ------

   From discontinued operations:
   Current:
     Federal                                                     -                24               271
     State                                                       -                 1                23
                                                            ------            ------            ------
       Total discontinued operations                             -                25               294
                                                            ------            ------            ------
                                                            $3,602            $2,565            $1,149
                                                            ======            ======            ======
</TABLE>


                                    - 29 -
<PAGE> 30
                             ZOLTEK COMPANIES, INC.

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


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

<TABLE>
<CAPTION>
                                                       1997              1996
                                                      ------            ------
<S>                                                   <C>               <C>
      Depreciation                                    $  899            $  863
      Accrued vacation pay                               (37)              (35)
      Bad debt accrual                                   (34)               --
      Deferred state income taxes                         43               (21)
      Other                                              (15)              (18)
      Non-U.S. operations deferred tax, net              224               277
                                                      ------            ------
                                                       1,080             1,066
      Less:  tax benefit of stock options                (74)             (460)
                                                      ------            ------

      Total deferred tax liability                    $1,006            $  606
                                                      ======            ======
</TABLE>

      At September 30, 1997 and 1996, the Company has deferred tax assets of
$559,000 and $2,239,000, respectively, related to net operating loss
carryforwards and tax positions subject to examination by Hungarian tax
authorities.  During 1997 and 1996, the Company recorded a reduction in the
valuation allowance of $1,471,000 and $265,000, respectively, related to
utilization of net operating loss carryforwards in 1997 and 1996.  The
Company has a valuation allowance of $559,000 and $2,239,000 against these
deferred tax assets at September 30, 1997 and 1996, respectively.

      The provision 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>
                                                                   1997              1996              1995
                                                                 -------            ------            ------
<S>                                                              <C>                <C>               <C>
At statutory rate:
      Income taxes on income from continuing operations          $ 5,586            $2,962            $  827
      Income taxes on income from discontinued operations             --                22               255
Increases (decreases):
      Lower effective tax rate on non-U.S. operations             (1,303)             (593)               --
      Valuation allowance change                                  (1,471)             (265)               --
      Local taxes, non-U.S.                                          673               401                --
      State taxes, net of federal benefit                            142                71                64
      R & D tax credits, net of federal benefit                       --                                 (15)
      Other                                                          (25)              (33)               18
                                                                 -------            ------            ------
                                                                 $ 3,602            $2,565            $1,149
                                                                 =======            ======            ======
</TABLE>

      For the years ended September 30, 1997, 1996 and 1995, the consolidated
income from continuing operations before income taxes by domestic and foreign
sources was $8,287,000 and $8,143,000, $5,006,000 and $3,706,000, and
$2,432,000 and $0, respectively.  Undistributed earnings of Zoltek Rt. are
considered to be permanently invested and, accordingly, no provision for
income taxes was made.


                                    - 30 -
<PAGE> 31
                             ZOLTEK COMPANIES, INC.

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

6.    FINANCING
--------------------------------------------------------------------------------

SHORT-TERM DEBT AND CREDIT AGREEMENTS

      The Company has short-term debt of $1,853,000 at September 30, 1997 that
is secured by the real estate of the Abilene plant.  The note is non-interest
bearing and is due and payable at maturity in December 1997.

      The Company had short-term debt totaling $3,694,000 at September 30,
1996 of which $3,034,000 was represented by bank loans partially secured by
inventory.  The interest rate on these loans is determined at the time of
borrowing based upon the London Interbank Offered Rates (LIBOR) plus 1.5
percent.  The remaining balance of the short-term debt represents borrowings
of $660,000 under a bank line of credit, secured by Zoltek Rt. real estate.

      The Company has a revolving credit agreement which bears interest at
prime (prime rate at September 30, 1997 was 8.5%) with a maximum available of
$3,500,000.  The Company also has a $1,000,000 unsecured borrowing ability
under a working capital credit facility.  Additionally, the Company has
received a commitment for a $5,000,000 secured equipment loan to finance U.S.
capital expenditures.  There were no borrowings under the revolving credit
agreement, working capital credit or secured equipment loan facilities at
September 30, 1997.

LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following (amounts in thousands):                                SEPTEMBER 30,
------------------------------------------------------------------------------------------------------------------

EQUIPMENT LOANS                                                                            1997              1996
                                                                                          ------            ------
<S>                                                                                       <C>               <C>
Note payable with interest at 5%, payable in monthly installments of
  $3,333 principal plus interest on the outstanding balance to maturity
  in November 1996, at which time the remaining principal balance is due                  $   --            $  106

Note payable with interest at 9%, payable in monthly installments of
  principal and interest of $62,458 to maturity in November 1999                           1,201             1,811

REAL ESTATE LOANS
Note payable with interest at 9.95%, payable in monthly installments of
  principal and interest of $19,288 to maturity in September 2009                          1,617             1,684

Note payable with interest at 9.5%, payable in monthly installments of
  principal and interest of $27,672 to maturity in December 2009                           2,384             2,490
                                                                                          ------            ------
                                                                                           5,202             6,091

Less:  amounts payable within one year                                                      (907)             (884)
                                                                                          ------            ------

                                                                                          $4,295            $5,207
                                                                                          ======            ======
</TABLE>

                                    - 31 -
<PAGE> 32

      Following is a schedule of required principal payments of long-term debt
(amounts in thousands):
<TABLE>
<CAPTION>
                  YEAR ENDING
                  SEPTEMBER 30,                        TOTAL
                  -------------                       ------
<S>                                                   <C>
                      1998                            $  907
                      1999                               733
                      2000                               223
                      2001                               245
                      2002                               270
                      Thereafter                       2,824
                                                      ------
                                                      $5,202
                                                      ======
</TABLE>

      The note payable, aggregating $1,201,000 at September 30, 1997, is
secured by machinery and equipment.   The remaining notes payable are secured
by real estate holdings.


7.    COMMITMENTS AND CONTINGENCIES
--------------------------------------------------------------------------------

LEASE

      Land at the carbon fibers manufacturing facility in Missouri is leased
under an operating lease which provides for 100% real estate tax abatement
and expires in December 2065, with a renewal option for 24 years expiring in
December 2089.  The lease required a prepayment of $50,000 for rental through
October 1993 and requires annual rental payments of $57,991 through October
2010.  Rental expense related to this lease was $57,991 for the years ended
September 30, 1997, 1996 and 1995.

LEGAL

      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.

8.    PROFIT SHARING PLAN
--------------------------------------------------------------------------------

      The Company maintains a 401(k) Profit Sharing Plan for the benefit of
U.S. employees who have completed six months of service and attained 21 years
of age.  The Company's contribution to the plan is determined annually by the
Board of Directors.  Contributions of $180,000, $139,000 and $75,000 were
made for the years ended September 30, 1997, 1996 and 1995, respectively.

9.    RECAPITALIZATIONS AND STOCK SPLITS
--------------------------------------------------------------------------------

      On August 31, 1995, the Company announced a three-for-two stock split
implemented by a stock dividend of one share for each two shares outstanding.
The stock dividend was paid on September 29, 1995 to shareholders of record
on September 15, 1995.

      In February 1996, the Company's authorized capital structure was changed
to 20,000,000 shares of common stock, par value $.01 per share, and 1,000,000
shares of preferred stock, par value $.01 per share.

      On May 20, 1996, the Company announced a two-for-one stock split
implemented by a stock dividend of one share for each share outstanding.  The
stock dividend was paid June 17, 1996 to shareholders of record on June 3,
1996.

                                    - 32 -
<PAGE> 33

      In February 1997, the Company's capital structure was changed to
increase to 50,000,000 shares the number of shares of Common Stock, par
value $.01 per share, authorized.

      All share and per share amounts in the accompanying financial statements
and notes have been adjusted to give retroactive effect to the stock splits
for all periods presented except for the Consolidated Statement of Changes in
Shareholders' Equity and Balance Sheet.  In these statements, shares issued
and outstanding prior to June 17, 1996 are reported on a pre-split basis.

10.   STOCK OPTIONS AND WARRANTS
--------------------------------------------------------------------------------

      In November 1992, the Company completed an initial public offering of
3,300,000 shares of common stock and received net proceeds of $3.7 million.
In conjunction with the offering, the Company sold warrants to purchase
165,000 shares of the Company's common stock at an exercise price per share
equal to the initial public offering price of $1.33 per share (increasing
annually by 7% of the initial public offering price) to the representatives
of the underwriters, for an aggregate price of $100.00.  These warrants were
exercised during fiscal year 1995 at $1.43 per share.

      In July 1992, the Company adopted a Long-term Incentive Plan that
authorizes the Compensation Committee of the Board of Directors (the
"Committee") to grant key employees and officers of the Company incentive or
nonqualified stock options, stock appreciation rights, performance shares,
restricted shares and performance units. The Committee determines the prices
and terms at which awards may be granted along with the duration of the
restriction periods and performance targets.  Currently, 1,500,000 shares of
common stock may be issued pursuant to awards under the plan.  Outstanding
stock options expire 10 years from the date of grant or upon termination of
employment.  Options granted in 1993 vested ratably from date of grant over
three years.  Options granted in 1995, 1996 and 1997 vest 100% five years
from date of grant.  The options were issued at an exercise price equal to
the market price on the date of grant.

      In July 1992, the Company adopted a Directors Stock Option Plan under
which options to purchase 3,000 shares of common stock at the then fair
market value will be issued to each non-employee director annually.  In
addition, newly elected non-employee directors receive options to purchase
3,000 shares of common stock, at the then fair market value.  The plan was
amended in February 1995 to increase the annual grants to 7,500 shares. The
options expire from 2002 through 2007, respectively.

      The pro forma information required by SFAS 123 regarding net income and
earnings per share has been presented 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                                                 1997          1996
      -----------                                                -------       -------
<S>                                                              <C>           <C>
         Expected life of options                                6 years       6 years
         Risk free interest rate                                   6.36%         6.95%
         Volatility of stock                                         65%           84%
         Expected dividend yield                                      --            --
</TABLE>

      The weighted average fair value of the options granted during 1997 and
1996 was $1,701,000 and  $1,647,000, respectively.  Had the fair value of the
options been amortized to expense over the options' vesting period, the pro
forma impact on earnings of the stock-based compensation for the options
under the provision would have been as follows (in thousands, except for
earnings per share information):
<TABLE>
<CAPTION>

      Net income:                                                 1997           1996
                                                                 -------        ------
<S>                                                              <C>            <C>
         As reported                                             $12,828        $6,210
         Pro forma                                                12,547         6,042

      Earnings per share:
         As reported                                               $0.78         $0.45
         Pro forma                                                  0.76          0.44
</TABLE>

                                    - 33 -
<PAGE> 34

10.   STOCK OPTIONS AND WARRANTS (CONTINUED)
--------------------------------------------------------------------------------

      In accordance with FAS 123, the weighted average fair value of stock
options granted is required to be based on a theoretical statistical model
using the preceding assumptions.  In actuality, the Company's stock options do
not trade on a secondary exchange, and therefore, the employees and directors
cannot derive any benefit from holding the stock options under these plans
without an increase in the market price of Company stock.  Such an increase in
stock price would benefit all shareholders commensurately.

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

<TABLE>
<CAPTION>
                                                                       Wtd. Avg.         Options           Wtd. Avg.
                                                     Options        Exercise Price     Exercisable      Exercise Price
                                                     -------        --------------     -----------      --------------
<S>                                                 <C>             <C>                <C>              <C>
      Balance, September 30, 1994                    283,500            $ 1.33
         Granted                                     447,000              4.68
         Exercised                                  (105,990)             1.33
         Cancelled                                   (69,510)             1.33
                                                    --------

      Balance, September 30, 1995                    555,000              3.98            61,500            $ 3.36
         Granted                                     332,500              9.93
         Exercised                                  (117,000)             1.33
         Cancelled                                   (80,500)             1.33
                                                    --------

      Balance, September 30, 1996                    690,000              7.40            85,500              7.83
         Granted                                     155,000             27.59
         Exercised                                    (6,000)             1.83
         Cancelled                                  (209,000)            17.92
                                                    --------
      Balance, September 30, 1997                    630,000            $10.35           117,000            $15.64
                                                    ========
</TABLE>

      The following table summarizes information for options currently
outstanding and exercisable at September 30, 1997:

<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>
      $  1.33-2.33                  12,000           6 years            $ 1.83            12,000            $ 1.83
         3.42-6.25                 330,000           7 years              4.79            30,000              4.33
        8.38-13.50                 173,000           8 years              9.49            37,500             13.50
       27.25-31.25                 115,000           9 years             28.49            37,500             31.25
                                   -------                                               -------

      $ 1.33-31.25                 630,000           8 years            $10.35           117,000            $15.64
                                   =======                              ======           =======            ======
</TABLE>

11.   SECONDARY STOCK OFFERINGS
--------------------------------------------------------------------------------

      Pursuant to a secondary public offering in November 1995, the Company
sold 4,170,000 shares of common stock and received net proceeds of $26.3
million.  The Company used approximately $18 million to fund the purchase of
Zoltek Rt. and the remaining proceeds for Zoltek Rt.'s working capital needs,
and general corporate purposes, including capital expenditures.

      On September 18, 1996, the Company completed a secondary offering of
2,300,000 shares of common stock and received net proceeds of $68.9 million.
The Company is utilizing these funds to expand its production capacity by
constructing additional continuous carbonization lines and for working
capital needs and general corporate purposes.

                                    - 34 -
<PAGE> 35

                             ZOLTEK COMPANIES, INC.

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

12.   DISCONTINUED OPERATIONS
--------------------------------------------------------------------------------

      In view of ESBU's operating performance, demands of the unit on the
Company's finite managerial resources and the perceived opportunities in the
carbon fibers operations, the Company's Board of Directors authorized in
August 1995 the disposition of the Company's equipment and services business
unit.  Revenues from the equipment and services business unit were $760,000
and $5,848,000 in fiscal 1996 and 1995, respectively.

      On August 31, 1995, the Company sold the valves, pumps and repair and
fluid-sealing product lines for aggregate consideration of approximately $2.5
million (consisting of $1.7 million cash, $581,000 of debt assumption and a
note receivable for $200,000).  The sale resulted in an after-tax gain of
approximately $230,000 for financial statement reporting purposes which was
recorded in the fourth quarter of fiscal 1995.  The Company sold the unit's
remaining product line, flexible graphite products, on June 30, 1996 in
consideration of a note receivable for $206,000, which approximated the net
book value of such assets.

<TABLE>
13.   SUMMARY OF QUARTERLY RESULTS (UNAUDITED) (amounts in thousands, except per share data)
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FISCAL YEAR 1997                                         1ST QUARTER       2ND QUARTER       3RD QUARTER     4TH QUARTER
------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>               <C>               <C>             <C>
Net sales                                                  $22,026           $22,857           $22,945         $22,800
Gross profit                                                 5,589             6,630             6,886           7,309
Net income                                                   2,528             3,130             3,253           3,917

Net income per common and common equivalent share:
    Net income                                             $  0.16           $  0.19           $  0.19         $  0.24

<CAPTION>
FISCAL YEAR 1996                                         1ST QUARTER       2ND QUARTER       3RD QUARTER     4TH QUARTER
------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>               <C>               <C>             <C>
Net sales                                                  $ 9,352           $18,863           $18,999         $21,743
Gross profit                                                 2,652             4,397             5,097           7,039
Net income                                                     951             1,240             1,601           2,418

Net income per common and common equivalent share:
    Net income                                             $  0.08           $  0.09           $  0.12         $  0.16

<FN>
---------------
Note:  Quarterly earnings have been adjusted to reflect the 2-for-1 stock
split effective June 17, 1996 (Note 9).
</TABLE>


                                    - 35 -
<PAGE> 36

                             ZOLTEK COMPANIES, INC.

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

<TABLE>
14.   SEGMENT INFORMATION  (amounts in thousands)
----------------------------------------------------------------------------------------
<CAPTION>
                                                       TWELVE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------------
                                                            1997            1996<F*>
                                                          --------          --------
<S>                                                       <C>               <C>
Net sales
      Carbon fibers                                       $ 23,209          $ 20,036
      Acrylic fibers and other products                     67,419            48,921
                                                          --------          --------
                                                          $ 90,628          $ 68,957
                                                          ========          ========

Gross margin
      Carbon fibers                                       $  9,118          $  8,005
      Acrylic fibers and other products                     17,296            11,180
                                                          --------          --------
                                                          $ 26,414          $ 19,185
                                                          ========          ========

Total assets
      Carbon fibers                                       $ 41,827          $ 18,692
      Acrylic fibers and other products                     38,145            41,416
      General corporate                                     59,990            74,552
                                                          --------          --------
                                                          $139,962          $134,660
                                                          ========          ========
Capital expenditures
      Carbon fibers                                       $ 25,292          $  3,316
      Acrylic fibers and other products                      1,297             1,818
                                                          --------          --------
                                                          $ 26,589          $  5,134
                                                          ========          ========
Depreciation and amortization expense
      Carbon fibers                                       $  1,386          $  1,133
      Acrylic fibers and other products                      1,251             1,715
                                                          --------          --------
                                                          $  2,637          $  2,848
                                                          ========          ========


<FN>
---------------
<F*> Information for Zoltek Rt.
     is from the date of acquisition,
     December 8, 1995, to September 30, 1996
</TABLE>

                                    - 36 -
<PAGE> 37


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

            Not Applicable.


                                    PART III

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

            The information set forth under the caption "Election of
Directors" in the registrant's Proxy Statement for its 1998 Annual Meeting of
Shareholders is incorporated herein by this reference.

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 1998 Annual Meeting of Shareholders is incorporated herein by this
reference.

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

            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 1998 Annual Meeting of Shareholders is
incorporated herein by this reference.

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

            The information set forth under the caption "Certain Transactions"
in the registrant's Proxy Statement for its 1998 Annual Meeting of
Shareholders is incorporated herein by this reference.


                                    PART IV

Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K
-------     ----------------------------------------------------------------

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

            Consolidated Balance Sheet as of September 30, 1997
            and 1996

            Consolidated Statement of Income for the years ended
            September 30, 1997, 1996 and 1995

            Consolidated Statement of Changes in Shareholders' Equity
            for the years ended September 30, 1997, 1996 and 1995

            Consolidated Statement of Cash Flows for the years ended
            September 30, 1997, 1996 and 1995

            Notes to Consolidated Financial Statements

            Report of Independent Accountants

                                    - 37 -
<PAGE> 38

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

<TABLE>
<CAPTION>
                                                                Page
                                                                ----
<S>                                                             <C>
Report of Independent Public Accountants on
   Financial Statement Schedule                                   40

12-09 Valuation and Qualifying Accounts and Reserves              41
</TABLE>

                    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:


       2.1  Form of Share Purchase Agreement, by and among Allami
            Privatizacios Es Vagyonkezelo Reszvenytarsasag, Magyar Viscosa
            Rt. and Zoltek Corporation, filed as Exhibit 2.1 to
            Registrant's Registration Statement on Form S-1 (Reg. No.
            33-97294) is incorporated herein by this reference

       2.2  Agreement on Sale of Lease Receivables, dated September 20, 1995,
            by and between Zoltek Corporation and Central European
            International Bank Ltd, filed as Exhibit 2.2 to Registrant's
            Registration Statement on Form S-1 (Reg. No. 33-97294) is
            incorporated herein by this reference

       2.3  Agreement on Sale of Shares, dated September 20, 1995, with
            respect to 14.132 pcs of preferred shares of Magyar Viscosa Rt.
            by and between Zoltek Corporation and CIB Hungaria Bank Rt.,
            filed as Exhibit 2.3 to Registrant's Registration Statement on
            Form S-1 (Reg. No. 33-97294) is incorporated herein by this
            reference

       2.4  Agreement on Sale of Shares, dated September 20, 1995, with
            respect to 14.934 pcs of ordinary shares and 29.534 pcs of
            preferred shares of Magyar Viscosa Rt. by and between Zoltek
            Corporation and CIB Hungaria Bank Rt., filed as Exhibit 2.4 to
            Registrant's Registration Statement on Form S-1 (Reg. No.
            33-97294) is incorporated herein by this reference

       2.5  Sales Agreement, dated September 22, 1995, by and between Zoltek
            Corporation and Bank of Hungarian Savings Cooperatives, Ltd.,
            filed as Exhibit 2.5 to Registrant's Registration Statement on
            Form S-1 (Reg. No. 33-97294) is incorporated herein by this
            reference

       2.6  Agreement on Sale of Shares, dated September 12, 1995, by and
            between Zoltek Corporation and Allami Fejlesztesi Intezet,
            filed as Exhibit 2.6 to Registrant's Registration Statement on
            Form S-1 (Reg. No. 33-97294) is incorporated herein by this
            reference

       2.7  Agreement on Sale of Shares Issued By Magyar Viscosa Rt., by and
            between Zoltek Corporation and Inter-Europa Bank Rt., filed as
            Exhibit 2.7 to Registrant's Registration Statement on Form S-1
            (Reg. No. 33-97294) is incorporated herein by this reference

       2.8  Agreement on Sale of Loan Receivables by and between Zoltek
            Corporation and Bank of Inter-Europa Bank Rt., filed as Exhibit
            2.8 to Registrant's Registration Statement on Form S-1 (Reg.
            No. 33-97294) is incorporated herein by this reference

                                    - 38 -
<PAGE> 39

       2.9  Agreement on Sale of Loan Receivables and Shares, dated as of
            September 12, 1995, by and between Zoltek Corporation and
            Creditanstalt Rt., filed as Exhibit 2.9 to Registrant's
            Registration Statement on Form S-1 (Reg. No. 33-97294) is
            incorporated herein by this reference

       2.10 Agreement for the Sale of Assets, dated as of August 17, 1995, by
            and among Zoltek Corporation, Zoltek Properties, Inc., Pioneer
            Pump and Packing, Inc., Pioneer Holdings, Inc. and Zsolt Rumy,
            filed as Exhibit 2 to Registrant's Current Report on Form 8-K
            dated August 31, 1995, is incorporated herein by this reference

       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

      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. Directors Stock Option Plan, filed as
            Appendix A to Registrant's definitive proxy statement for the
            1995 Annual Meeting of Shareholders is incorporated herein by
            this reference

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

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

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

      10.7  Underwriting Agreement, dated November 17, 1995, by and between
            the Registrant and First Albany Corporation and Stifel,
            Nicolaus & Company, Incorporated, on behalf of the several
            underwriters, filed as Exhibit 1.1 to Registrant's Registration
            Statement on Form S-1 (Reg. No. 33-97294) is incorporated
            herein by this reference

                                    - 39 -
<PAGE> 40

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

      10.9  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 Letter, dated March 6, 1995, from Southwest Bank of St. Louis to
            the Registrant regarding amendment of certain loan covenants,
            filed as Exhibit 10.13 to the Registrant's Quarterly Report of
            Form 10-Q for the quarter ended March 31, 1995, is incorporated
            herein by this reference

      10.11 Purchase Agreement, dated September 18, 1996, by and between
            Registrant and Merrill Lynch & Co. and Stifel, Nicolaus &
            Company, Incorporated, on behalf of the several underwriters,
            filed as Exhibit 1.1 to Registrant's Registration Statement on
            Form S-3 (Reg. No. 333-07547) is incorporated herein by this
            reference.

      21    Subsidiaries of the Registrant, filed as Exhibit 21 to the
            Registrant's Annual Report on Form 10-K for the year ended
            September 30, 1995, is incorporated herein by this reference.

      23    Consent of Price Waterhouse LLP is filed herewith.

      27    Financial Data Schedule is filed herewith.


                                    - 40 -
<PAGE> 41
                                   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 30, 1997

      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, Chief Executive Officer               December 30, 1997
---------------------------------   and Director
Zsolt Rumy


/s/ Daniel D. Greenwell             Chief Financial Officer                         December 30, 1997
---------------------------------   and Corporate Secretary
Daniel D. Greenwell


/s/ Linn Bealke                     Director                                        December 30, 1997
---------------------------------
Linn Bealke


/s/ James W. Betts                  Director                                        December 30, 1997
---------------------------------
James W. Betts


/s/ Charles A. Dill                 Director                                        December 30, 1997
---------------------------------
Charles A. Dill


/s/ James Dorr                      Director                                        December 30, 1997
---------------------------------
James Dorr


/s/ John L. Kardos                  Director                                        December 30, 1997
---------------------------------
John L. Kardos
</TABLE>


                                    - 41 -
<PAGE> 42

                     REPORT OF INDEPENDENT ACCOUNTANTS 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 November 14, 1997, appearing in the 1997 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 14(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/PRICE WATERHOUSE LLP

Price Waterhouse LLP
St. Louis, Missouri
November 14, 1997



                                    - 42 -
<PAGE> 43


<TABLE>
                                        FOR THE YEAR ENDED SEPTEMBER 30, 1997

                              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              $72              $259              $                $               $331
                                           ===              ====              ====             ====            ====


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


                                        FOR THE YEAR ENDED SEPTEMBER 30, 1996

                              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              $28              $ 41              $121<F1>         $118<F2>        $ 72
                                           ===              ====              ====             ====            ====

<FN>
---------------
<F1> Acquisition of Zoltek Rt.
<F2> Write-off of uncollectible receivable, net of recovery.


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


                                        FOR THE YEAR ENDED SEPTEMBER 30, 1995

                              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              $20              $ 12              $                $  4<F1>        $ 28
                                           ===              ====              ====             ====            ====
<FN>
---------------
<F1> Write-off of uncollectible receivable.
</TABLE>



                                    - 43 -
<PAGE> 44

<TABLE>
                                           EXHIBIT INDEX
                                           -------------
<CAPTION>
Exhibit No.    Description
-----------    -----------
<C>            <S>
    2.1        Form of Share Purchase Agreement, by and among Allami Privatizacios Es
               Vagyonkezelo Reszvenytarsasag, Magyar Viscosa Rt. and Zoltek Corporation<F*>

    2.2        Agreement on Sale of Lease Receivables, dated September 20, 1995, by and between
               Zoltek Corporation and Central European International Bank Ltd.<F*>

    2.3        Agreement on Sale of Shares, dated September 20, 1995, with respect to 14.132 pcs
               of preferred shares of Magyar Viscosa Rt. by and between Zoltek Corporation and
               CIB Hungaria Bank Rt.<F*>

    2.4        Agreement on Sale of Shares, dated September 20, 1995, with respect to 14.934 pcs
               of ordinary shares and 29.534 pcs of preferred shares of Magyar Viscosa Rt. by
               and between Zoltek Corporation and CIB Hungaria Bank Rt.<F*>

    2.5        Sales Agreement, dated September 22, 1995, by and between Zoltek Corporation and
               Bank of Hungarian Savings Cooperatives, Ltd.<F*>

    2.6        Agreement on Sale of Shares, dated September 12, 1995, by and between Zoltek
               Corporation and Allami Fejlesztesi Intezet<F*>

    2.7        Agreement on Sale of Shares Issued By Magyar Viscosa Rt., by and between Zoltek
               Corporation and Inter-Europa Bank Rt.<F*>

    2.8        Agreement on Sale of Loan Receivables by and between Zoltek Corporation and Bank
               of Inter-Europa Bank Rt.<F*>

    2.9        Agreement on Sale of Loan Receivables and Shares, dated as of September 12, 1995
               by and between Zoltek Corporation and Creditanstalt Rt.<F*>

    2.10       Agreement for the Sale of Assets, dated as of August 17, 1995, by and among
               Zoltek Corporation, Zoltek Properties, Inc., Pioneer Pump and Packing, Inc.,
               Pioneer Holdings, Inc. and Zsolt Rumy<F*>

    3.1        Restated Articles of Incorporation of the Registrant<F*>

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

    4.1        Form of certificate for Common Stock<F*>

    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<F*>

    10.2       Zoltek Companies, Inc. Long Term Incentive Plan<F*>

    10.3       Zoltek Companies, Inc. Directors Stock Option Plan<F*>


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

                                    - 44 -
<PAGE> 45

<CAPTION>
                                           EXHIBIT INDEX
                                           -------------

Exhibit No.    Description
-----------    -----------
<C>            <S>
    10.4       Promissory Note, dated September 29, 1994, by and between Zoltek Properties, Inc.
               and Metlife Capital Corporation<F*>

    10.5       Precursor Agreement, dated as of July 1, 1994, by and between Zoltek Corporation
               and Courtaulds Fibres Limited.<F*> (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.<F*> (An application for confidential
               treatment has been made for a portion of Exhibit 10.6.)

    10.7       Underwriting Agreement, dated November 17, 1995, by and between the Registrant
               and First Albany Corporation and Stifel, Nicolaus & Company, Incorporated, on
               behalf of the several underwriters<F*>

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

    10.9       Promissory Note, dated November 14, 1994, by and between Zoltek Corporation and
               Southwest Bank of St. Louis<F*>

    10.10      Letter, dated March 6, 1995, from Southwest Bank of St. Louis to the Registrant
               regarding amendment of certain loan covenants<F*>

    10.11      Purchase Agreement, dated September 18, 1996, by and between Registrant and
               Merrill Lynch & Co. and Stifel, Nicolaus & Company, Incorporated, on behalf of
               the several underwriters, filed as Exhibit 1.1 to Registrant's Registration
               Statement on Form S-3 (Reg. No. 333-07547) is incorporated herein by this
               reference.)<F*>

    21         Subsidiaries of the Registrant<F*>

    23         Consent of Price Waterhouse LLP

    27         Financial Data Schedule



<FN>
---------------
<F*> Incorporated herein by reference
</TABLE>


                                    - 45 -