ZOLTEK COMPANIES INC, 424B4, 1996-09-19

ZOLTEK COMPANIES INC
424B4, 1996-09-19
ELECTRICAL INDUSTRIAL APPARATUS

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<PAGE> 1

Filed Pursuant to Rule 424(b)(4)
Registration No. 333-07547

PROSPECTUS
- ----------

ZOLTEK
2,000,000 SHARES
ZOLTEK COMPANIES, INC.
COMMON STOCK

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

All of the shares of common stock, $.01 par value per share (``Common
Stock''), offered hereby are being issued and sold by Zoltek Companies, Inc., a
Missouri corporation (the ``Company'' or ``Zoltek''). The Common Stock is
traded on the Nasdaq National Market under the symbol ``ZOLT.'' On September 18,
1996, the last sale price of the Common Stock as reported on the Nasdaq
National Market was $35 per share. See ``Price Range of Common Stock and
Dividend Policy.''

SEE ``RISK FACTORS'' ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
=================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT<F1> COMPANY<F2>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Per Share........................................... $32.00 $1.88 $30.12
- -----------------------------------------------------------------------------------------------------------------
Total<F3>........................................... $64,000,000 $3,760,000 $60,240,000
=================================================================================================================
<FN>

<F1> The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
``Underwriting.''

<F2> Before deducting expenses payable by the Company estimated at $400,000.

<F3> The Company has granted the several Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an additional 300,000
shares of Common Stock to cover over-allotments, if any. If all such
shares are purchased, the total Price to Public, Underwriting Discount,
and Proceeds to Company will be $73,600,000, $4,324,000, and $69,276,000,
respectively. See ``Underwriting.''
</TABLE>

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

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to the
approval of certain legal matters by counsel for the Underwriters and to
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that the delivery of the shares of Common Stock will be made in New
York, New York on or about September 24, 1996.

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

MERRILL LYNCH & CO. STIFEL, NICOLAUS & COMPANY
INCORPORATED

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

The date of this Prospectus is September 18, 1996.

<PAGE> 2
AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the ``Exchange Act''), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the ``Commission''). Reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549; Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center,
New York, New York 10048. Copies of such material can also be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates.

The Company has filed a Registration Statement (the ``Registration
Statement'') with the Commission under the Securities Act, with respect to the
securities covered by this Prospectus. This Prospectus does not contain all of
the information set forth in the Registration Statement. The Registration
Statement may be inspected without charge at the office of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549 or obtained from such office upon
payment of the fees prescribed by the Commission.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

Upon either written or oral request, any person receiving a copy of this
Prospectus may obtain from the Company, without charge, a copy of any of the
documents incorporated by reference herein, except for the exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
the information that this Prospectus incorporates). Written requests should be
directed to: Investor Relations, Zoltek Companies, Inc., 3101 McKelvey Road,
St. Louis, Missouri 63044 (telephone number (314) 291-5110).

The following documents filed with the Commission pursuant to applicable
statutes are incorporated herein by reference:

(1) The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995;

(2) The Company's Current Report on Form 8-K, dated December 8, 1995;

(3) The Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995;

(4) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996;

(5) The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996; and

(6) The description of the Company's Common Stock set forth in the
Company's Registration Statement on Form S-1, dated November 6, 1992 (File
No. 33-51142), which description was incorporated by reference into the
Company's Registration Statement on Form 8-A, dated November 6, 1992 (File
No. 0-20600), including any amendment or report filed for the purpose of
updating such descriptions.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior termination of the offering made hereby shall be deemed incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document that also is or
is deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any statement contained in this Prospectus shall be deemed to be
modified or superseded to the extent that a statement contained in a
subsequently filed document which is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

<PAGE> 3
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
included elsewhere or incorporated by reference in this Prospectus. Unless
otherwise indicated, the information in this Prospectus assumes the
Underwriters' over-allotment option is not exercised, and has been adjusted to
reflect a two-for-one stock split (in the form of a stock dividend), which
occurred on June 17, 1996. See ``Underwriting.'' References herein to fiscal
years refer to the 12-month period ended September 30 of the year indicated.

THE COMPANY

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 Magyar Viscosa, Rt.
(``Viscosa''), 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 (known as ``precursor'') 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 current capacity
constraints and to meet indicated and forecasted demand for carbon fiber
products, the Company is expanding its manufacturing capacity.

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, a number of applications have
developed which are commercially viable only at carbon fiber prices lower than
those prevailing for primary aerospace applications. New developing, commercial
applications identified by the Company include cargo shipping containers,
vehicle drive shafts, civil engineering uses, wood laminates, automotive body
and structural members, mass transit vehicle components, high-strength piping
and tanks, 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.

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 intends to continue to reduce its total
production costs, primarily by utilizing the acrylic fiber precursor
manufactured by its Viscosa operations after a transition period ending
approximately 18 months from the date hereof. Longer term, the Company
believes that the precursor manufacturing technology acquired in the
Viscosa 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 production costs.

3
<PAGE> 4
New Commercial Market Applications Development--The Company will
continue to identify, evaluate and develop new commercial applications for
carbon fibers. As part of its efforts to expand its current range of market
applications, the Company engages in various strategic partnerships to
study the viability of the use of carbon fibers in new composite materials
and structural enhancement environments. Successful partnerships with
commercial customers include long-term supply relationships with BF
Goodrich Aerospace (aircraft brakes) and TRW Vehicle Safety Systems, Inc.
(automotive airbags). The Company also recently established relationships
with American President Lines, Ltd. and Stoughton Composites, Inc.
(shipping containers), Compounding Technology, Inc. (computer printer
components for Hewlett-Packard Company products) and Thiokol Corp.
(compressed natural gas tanks).

The Company currently is producing carbon fibers at its full operational
capacity and needs to expand its capacity to meet indicated and forecasted
demand for carbon fiber products. In order to increase its production capacity,
the Company plans to construct up to 16 additional continuous carbonization
lines by the end of fiscal 1998. In the United States, the Company plans to
initially construct a new line in the St. Louis, Missouri area, which is
expected to be operational by the third quarter of fiscal 1997, and is in the
process of selecting a site at which it intends initially to construct two new
lines planned to be operational by the end of fiscal 1997. In Hungary, the
Company is constructing a building at its Viscosa facility which initially will
house two lines which the Company expects to be operational by the third
quarter of fiscal 1997. In the process of expanding capacity, the Company is
developing a standardized continuous carbonization line design in order to
optimize technical process capabilities, reduce equipment cost and shorten lead
time between the decision to add lines and the time when the lines become
operational.

<TABLE>
THE OFFERING
<S> <C>

Common Stock offered hereby......................... 2,000,000 shares

Common Stock to be outstanding after the offering... 15,910,338 shares<F1>

Use of proceeds..................................... For capital expenditures
to expand carbon fibers
manufacturing capacity
and for related corporate
purposes. See ``Use of
Proceeds.''

Nasdaq National Market symbol....................... ZOLT

<FN>
- --------

<F1> Does not include: (i) 650,780 shares of Common Stock reserved for future
issuance pursuant to the Company's Long Term Incentive Plan; (ii) 85,500
shares of Common Stock reserved for issuance pursuant to outstanding
options granted under the Company's Directors Stock Option Plan; and (iii)
300,000 shares of Common Stock subject to the Underwriters' over-allotment
option. See ``Underwriting.''
</TABLE>

<PAGE> 5

<TABLE>
SUMMARY FINANCIAL DATA
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
-------------------------- -----------------
1993 1994 1995 1995 1996<F1>
---- ---- ---- ---- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................... $5,141 $7,920 $12,698 $8,675 $47,213
Gross profit............................................ 2,199 3,418 4,982 3,557 12,146
Operating income from continuing operations............. 843 1,794 3,137 2,224 5,588

Income from continuing operations before discontinued
operations and minority interest...................... 136 799 1,577 1,049 3,782
Income from discontinued operations, net of income
taxes................................................. 431 208 456 210 39
Minority interest....................................... -- -- -- -- (28)
------ ------ ------- ------ -------
Net income.............................................. $ 567 $1,007 $ 2,033 $1,259 $ 3,792
====== ====== ======= ====== =======

Income per share from continuing operations............. $ .02 $ .09 $ .16 $ .11 $ .29
Income per share from discontinued operations........... .04 .02 .05 .02 .00
------ ------ ------- ------ -------
Net income per share.................................... $ .06 $ .11 $ .21 $ .13 $ .29
====== ====== ======= ====== =======
Weighted average common shares outstanding.............. 9,025 9,314 9,583 9,568 13,068

<CAPTION>
JUNE 30, 1996
----------------------------
ACTUAL AS ADJUSTED<F2>
------ ---------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.............................................. $14,302 $ 74,142
Total assets................................................. 68,398 128,238
Long-term debt, less current maturities...................... 5,396 5,396
Shareholders' equity......................................... 39,512 99,352

<FN>
- ---------

<F1> The Company acquired Viscosa on December 8, 1995. The acquisition was
accounted for under the purchase method and Viscosa's results are included
in the Company's consolidated financial statements from such date. See
``Pro Forma Condensed Combined Financial Information'' and ``Management's
Discussion and Analysis of Financial Condition and Results of
Operations.''

<F2> As adjusted to reflect the sale of 2,000,000 shares of Common Stock
offered hereby. See ``Use of Proceeds.''
</TABLE>

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

Zoltek Companies, Inc. is a holding company carrying out its operations
through operating subsidiaries. Unless the context indicates otherwise,
references herein to the ``Company'' or ``Zoltek'' refer to Zoltek Companies,
Inc. and its subsidiaries. The Company's headquarters are located at 3101
McKelvey Road, St. Louis, Missouri 63044, and its headquarters telephone number
is (314) 291-5110.

<PAGE> 6
RISK FACTORS

Prospective purchasers of the Common Stock offered hereby should consider
carefully the risk factors set forth below, as well as the other information
set forth and incorporated by reference in this Prospectus, in determining
whether to purchase the Company's Common Stock. This Prospectus 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 in this Prospectus or the documents
incorporated by reference herein. The Company's actual results could differ
materially from those currently 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 Viscosa and
penetrate existing, identified and emerging future markets for carbon fibers,
as well as the other factors discussed in this Prospectus and the documents
incorporated by reference herein.

MANAGEMENT OF GROWTH

The growth in the Company's business has placed, and is expected to
continue to place, a significant strain on the Company's management and
operations. The Company's recent growth has been constrained by capacity
limitations in its carbon fibers manufacturing operations. In order to
effectively manage its anticipated growth, the Company must add to its carbon
fibers manufacturing capacity, have access to adequate financial resources to
fund significant capital expenditures, maintain gross profit margins while
pursuing a growth strategy based upon achieving declining selling prices,
continue to strengthen its operations, financial and management information
systems, expand, train and manage its employee workforce and successfully
integrate Viscosa's operations, which are substantially larger than the
Company's. There can be no assurance that the Company will be able to do so
effectively or on a timely basis. Failure to do so effectively and on a timely
basis could have a material adverse effect upon the Company's business,
operating results and financial condition. See ``Management's Discussion and
Analysis of Financial Condition and Results of Operations,'' ``Business'' and
``Management.''

RISKS OF OPERATION AND INTEGRATION OF VISCOSA

Successful execution of the Company's strategy of controlling the quality
and cost of its raw materials for its carbon fiber operations will depend in
large measure upon its ability to successfully manage and integrate Viscosa's
operations, which are located near Budapest, Hungary. The December 1995
acquisition of Viscosa, which represents the largest acquisition by the Company
to date and its first international acquisition, will continue to require
substantial management time and attention. There can be no assurance that the
Company will be able to operate Viscosa's acrylic fiber manufacturing processes
to produce raw material acceptable for the Company's carbon fiber manufacturing
operations within the timeframe estimated by the Company or at all. There also
can be no assurance that the Company otherwise will manage Viscosa's operations
successfully.

Viscosa's operations generate various hazardous wastes and, from time to
time, Viscosa has been cited and fined for environmental violations. In
addition, the legislative and regulatory environment in Hungary continues to
evolve. There can be no assurance that the application of Hungarian laws,
regulations or enforcement policies will not have a material adverse effect on
the Company's business, results of operations or financial condition.

Viscosa, a manufacturer of acrylic and nylon fibers and industrial
materials, operated as a state-owned company until 1993. As a consequence of
the beginning of privatization and the discontinuance of financial support for
industrial companies, the Hungarian government caused the government-owned
company to declare bankruptcy in November 1992, which proceedings were
completed by a composition with creditors in March 1993. During and subsequent
to those proceedings, Viscosa's operations were adversely affected by a lack of
working capital and Viscosa suffered recurring losses from operations prior to
being acquired by the Company. Accordingly, the report of Viscosa's independent
accountants on Viscosa's financial statements for the period immediately prior
to the acquisition of Viscosa by the Company, expressed substantial doubt about
Viscosa's ability to continue as a going concern due to recurring losses from
operations and its inability to meet certain principal and interest
obligations. Although Viscosa has reported modest income from operations in the
period since the acquisition, there can be no assurance that it will continue
to operate profitably or that Viscosa will not require financial support
greatly in excess of that

<PAGE> 7
anticipated by the Company. See ``Pro Forma Condensed Combined Financial
Information,'' ``Management's Discussion and Analysis of Financial Condition
and Results of Operations'' and ``Business.''

RISKS OF INTERNATIONAL OPERATIONS AND MARKETS

The Company's international operations and sales are subject to risks
associated with foreign operations and markets generally, including foreign
currency fluctuations, unexpected changes in regulatory, economic or political
conditions, tariffs and other trade barriers, longer accounts receivable
payment cycles, potentially adverse tax consequences, restrictions on
repatriation of earnings and the burdens of complying with a wide variety of
foreign laws. In addition, a substantial portion of Viscosa's sales are to
former Communist countries, the economies of which are experiencing severe
stress. There can be no assurance that such factors will not have a material
adverse effect upon the Company's future revenues and business, results of
operations and financial condition. See ``Business.''

DEPENDENCE UPON SENIOR MANAGEMENT AND TECHNICAL PERSONNEL

The Company's future operating results will depend upon the continued
service of its senior management, including Zsolt Rumy, its Chief Executive
Officer and Chairman of the Board, and its technical personnel, none of whom is
bound by an employment agreement. The Company's future success also will depend
upon its continuing ability to attract and retain highly qualified managerial
and technical personnel. Competition for such personnel is intense, and there
can be no assurance that the Company will retain its key managerial and
technical employees or that it will be successful in attracting, assimilating
or retaining other highly qualified personnel in the future. See
``Management.''

VOLATILITY OF STOCK PRICE

Since the beginning of 1996, the market price of the Company's Common Stock
has increased substantially and, from time to time, has fluctuated
significantly. The Company believes that the volatility of the market price of
the Common Stock may have been exacerbated by reports regarding the Company
appearing in investment newsletters, without the cooperation or endorsement of
the Company, and in certain articles appearing in the financial press and
postings on electronic ``bulletin board'' services.

In June 1996, the Commission staff requested certain financial information
regarding the Company's first two quarters of fiscal 1996 in connection with an
informal inquiry directed to the Company. The Company believes that the
Commission determined to review certain volatile Nasdaq stocks which were the
subject of coverage by certain investment newsletters and electronic bulletin
board postings. However, the Commission, as a matter of policy, will not
comment on these types of inquiries and, therefore, the Company cannot be
certain that the informal inquiry directed to it is related to a broader review
of market volatility by the Commission. The Company has cooperated fully with
the Commission staff and furnished all information requested. Although there
can be no assurance in this regard, based upon its discussions with the
Commission staff and its review of the information submitted, the Company does
not believe that the inquiry will result in any material adverse effect on the
Company, its financial condition or its results of operations.

Future announcements concerning the Company or its competitors or
customers, quarterly variations in operating results, announcements of
technological innovations, the introduction of new products or changes in
product pricing policies by the Company or its competitors, developments
regarding proprietary rights, changes in earnings estimates by analysts or
reports regarding the Company or its industry in the financial press or
investment advisory publications, among other factors, could cause the market
price of the Common Stock to fluctuate substantially. In addition, stock prices
for many technology companies fluctuate widely for reasons which may be
unrelated to operating results. These fluctuations, as well as general
economic, political and market conditions, such as recessions, military
conflicts or market or market-sector declines, may materially and adversely
affect the market price of the Common Stock. In addition, the Company believes
that electronic bulletin board postings regarding the Company could in the
future contribute to volatility in the market price of the Common Stock. Any
information concerning the Company, including projections of future operating
results, appearing in investment advisory publications or on-line bulletin
boards, or otherwise emanating from a source other than the Company, should not
be relied upon as having been supplied or endorsed by the Company. See ``Price
Range of Common Stock and Dividend Policy.''

<PAGE> 8
FLUCTUATIONS IN OPERATING RESULTS

The Company's quarterly results of operations may fluctuate as a result of
a number of factors, including the timing of purchase orders for, and shipments
of, the Company's products. Therefore, quarter-to-quarter comparisons of
results of operations have been and will be impacted by the timing of such
orders and shipments. In addition, the Company's operating results could be
adversely affected by such factors, among others, as variations in the mix of
product sales, price changes in response to competitive factors, increases in
raw material costs and interruptions in plant operations. The Company's results
in the short-term could be adversely affected by the acquisition of Viscosa,
including the possible need to supply Viscosa with unanticipated levels of
working capital and expenses associated with the integration of Viscosa's
operations. See ``Pro Forma Condensed Combined Financial Information'' and
``Management's Discussion and Analysis of Financial Condition and Results of
Operations.''

DEPENDENCE ON EXPANSION INTO NEW MARKETS

The Company has grown rapidly since its present carbon fibers manufacturing
facility achieved full production capability in fiscal 1992. Its future growth
and profitability will depend, in large measure, upon the Company's ability to
penetrate new markets, which in turn, will be dependent upon development of
applications for products which currently do not use carbon fiber materials.
The Company's future growth and profitability also will depend upon the further
expansion of sales of carbon fibers for existing applications. Substantially
all of the proceeds of the offering made hereby are to be used to expand the
Company's carbon fibers manufacturing capacity in anticipation of such
penetration, development and expansion. There can be no assurance that the
Company will be successful in its efforts to develop new applications and
penetrate new markets, or that existing markets for the Company's carbon fiber
products will continue to expand and develop. See ``Business.''

DEPENDENCE UPON SOLE SUPPLIER

The Company's carbon fiber operations presently obtain their principal raw
material, acrylic fiber precursor, from the sole current merchant supplier in
the world pursuant to a supply agreement, the initial term of which expires in
June 1999. For established aircraft applications, industry approval procedures
make it impractical to qualify additional or substitute suppliers. The
Company's carbon fibers business would be adversely affected if it were unable
to continue to receive precursor at prices and on terms presently made
available to it by its sole supplier. There can be no assurance that the
Company will be able to continue to obtain desired quantities of raw material
on a timely basis at prices and on terms deemed reasonable by the Company. The
Company presently is in the process of diversifying its source of precursor
supply through the conversion of a substantial portion of Viscosa's
manufacturing capacity and the integration of its operations; however, there
can be no assurance it will be successful in such efforts. See
``Business--Sources of Supply.''

DEPENDENCE ON SIGNIFICANT CUSTOMERS

During fiscal 1995, net sales to each of two of the Company's customers
constituted more than 10% of consolidated net sales. The loss of either of such
principal customers would have a material adverse effect on the Company's
business. See ``Business--Current Product Applications.''

COMPETITION

The Company competes with various other participants in the advanced
materials and textile fibers markets. Many of these entities have substantially
greater research and development, manufacturing, marketing, financial and
managerial resources than the Company. In addition, existing carbon fibers
producers may refocus their activities to compete more directly with the
Company. There can be no assurance that developments by existing or future
competitors will not render the Company's products or technologies
noncompetitive or that the Company will be able to keep pace with new
technological developments. In addition, the Company's customers could decide
to vertically integrate their operations and perform some or all of the
functions performed by the Company. See ``Business--Competition.''

<PAGE> 9
TECHNOLOGICAL CHANGE

The Company is engaged in an industry which will be affected by future
technological developments. The introduction of products or processes utilizing
new technologies could render existing products or processes obsolete or
unmarketable. The Company's continued success will depend upon its ability to
develop and introduce on a timely and cost-effective basis new products,
processes and applications that keep pace with technological developments and
address increasingly sophisticated customer requirements. There can be no
assurance that the Company will be successful in identifying, developing and
marketing new products, applications and processes and product or process
enhancements, that the Company will not experience difficulties that could
delay or prevent the successful development, introduction and marketing of
product or process enhancements or new products, applications or processes, or
that its products, applications or processes will adequately meet the
requirements of the marketplace and achieve market acceptance. The Company's
business, operating results and financial condition could be materially and
adversely affected if the Company were to incur delays in developing new
products, applications or processes or product or process enhancements or if
they were to not gain market acceptance. See ``Business.''

PROPRIETARY RIGHTS

The Company depends upon its proprietary technology. The Company relies
principally upon trade secret and copyright law to protect its proprietary
technology and owns no patents which are material to its business. The Company
regularly enters into confidentiality agreements with its key employees,
customers and potential customers and limits access to and distribution of its
trade secrets and other proprietary information. There can be no assurance that
these measures will be adequate to prevent misappropriation of its technology
or that the Company's competitors will not independently develop technologies
that are substantially equivalent or superior to the Company's technology. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as the laws of the United States. The
Company also is subject to the risk of adverse claims and litigation alleging
infringement of intellectual property rights. See ``Business--Intellectual
Property.''

OPERATIONAL RISKS

The Company's carbon fiber operations utilize high temperature processes,
substantial electrical current and industrial gases which potentially can be
subject to volatile chemical reactions. The Company believes that its current
plant design and operating procedures minimize operational risks associated
with these factors. However, as a result of mechanical or human failure or
unforeseen conditions or events related to the Company's manufacturing and
engineering processes or otherwise, the Company's manufacturing capacity could
be materially limited or temporarily interrupted. See ``Business.''

CONTROL OF THE COMPANY

Subsequent to this offering, Zsolt Rumy, the founder and principal
shareholder of the Company, will own approximately 35% of the then outstanding
shares of the Company's Common Stock. As a result, he has effective voting
control of the Company, including with respect to election of the Company's
directors, and will be able to prevent an affirmative vote which would be
necessary for a merger, sale of assets or similar transaction involving the
Company, irrespective of whether other shareholders believe such a transaction
to be in their best interests. The Company's Articles of Incorporation and
By-laws do not provide for cumulative voting in the election of directors. See
``Principal Shareholders and Security Ownership of Management'' and
``Description of Capital Stock--BFG Arrangement.''

AUTHORIZATION OF PREFERRED STOCK

The Company's Articles of Incorporation authorize the issuance of ``blank
check'' Preferred Stock with such designations, rights and preferences as may
be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without shareholder approval, to issue
Preferred Stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
the Company's Common Stock. Holders of the Company's Common Stock will have no
preemptive rights to subscribe for a pro rata portion of any capital stock
which may be issued by the Company. In the event of issuance, the Preferred
Stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or

<PAGE> 10
preventing a change in control of the Company. The possible impact on takeover
attempts could adversely affect the price of the Common Stock. Although the
Company has no present intention to issue any shares of its Preferred Stock,
the Company may do so in the future. See ``Description of Capital Stock.''

CLASSIFIED BOARD OF DIRECTORS

The Company's Articles of Incorporation divide the Board of Directors into
three classes, with three-year staggered terms. The classified board provision
could increase the likelihood that, in the event an outside party acquired a
controlling block of the Company's stock, incumbent directors nevertheless
would retain their positions for a substantial period, which may have the
effect of discouraging, delaying or preventing a change in control of the
Company. The possible impact on takeover attempts could adversely affect the
price of the Common Stock. See ``Description of Capital Stock.''

SHARES ELIGIBLE FOR FUTURE SALE

No prediction can be made as to the effect, if any, that future sales of
shares or the availability of shares for sale will have on the market price of
the Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock, or the perception that such sales might occur, could adversely
affect prevailing market prices of the Common Stock. See ``Description of
Capital Stock--Shares Eligible for Future Sale.''

<PAGE> 11
USE OF PROCEEDS

The net proceeds to the Company (after deducting the underwriting discount
and estimated offering expenses) from the sale of the 2,000,000 shares of
Common Stock sold in this offering are approximately $59.8 million. The
Company will use the net proceeds, together with internally generated funds and
borrowings under credit facilities, for capital expenditures to expand its
carbon fibers manufacturing capacity and for related corporate purposes. In
order to increase its production capacity, the Company plans to construct up to
16 additional continuous carbonization lines by the end of fiscal 1998. In the
United States, the Company plans to initially construct a new line in the St.
Louis, Missouri area, which is expected to be operational by the third quarter
of fiscal 1997, and is in the process of selecting a site at which it intends
initially to construct two new lines planned to be operational by the end of
fiscal 1997. In Hungary, the Company is constructing a building at its Viscosa
facility which initially will house two lines which the Company expects to be
operational by the third quarter of fiscal 1997. See ``Management's Discussion
and Analysis of Financial Condition and Results of Operations'' and
``Business--Carbon Fibers Manufacturing Capacity and Expansion Plans.'' Pending
such uses, the Company may temporarily invest available funds in short-term
securities or bank accounts.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock is currently traded in the over-the-counter
market and is quoted on the Nasdaq National Market under the symbol ``ZOLT.''
The following table sets forth, for the periods indicated, the high and low
sale prices of the Common Stock as reported on the Nasdaq National Market.

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 30, 1994
First Quarter................................................. $ 2.67 $ 1.92
Second Quarter................................................ 2.75 1.63
Third Quarter................................................. 2.96 2.08
Fourth Quarter................................................ 4.83 2.83

FISCAL YEAR ENDED SEPTEMBER 30, 1995
First Quarter................................................. $ 4.42 $ 3.33
Second Quarter................................................ 5.17 3.42
Third Quarter................................................. 9.21 4.83
Fourth Quarter................................................ 12.92 6.33

FISCAL YEAR ENDING SEPTEMBER 30, 1996
First Quarter................................................. $ 9.00 $ 6.50
Second Quarter................................................ 23.75 7.88
Third Quarter................................................. 47.25 21.13
Fourth Quarter (through September 18, 1996)................... 36.75 21.00
</TABLE>

On September 18, 1996, the closing price reported for the Company's Common
Stock on the Nasdaq National Market was $35.00 per share.

As of September 18, 1996, the Company had approximately 500 shareholders of
record.

The Company has not previously paid cash dividends on its Common Stock. The
Company intends to retain any earnings for use in its business and, therefore,
does not anticipate paying any cash dividends in the foreseeable future.
Generally, the payment of dividends is within the discretion of the Board of
Directors, who will consider the Company's financing agreements, earnings,
financial condition, capital requirements and other relevant factors in making
determinations regarding future dividends, if any. At present, the Company is
prohibited from paying cash dividends without the consent of certain lenders.

<PAGE> 12
CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company and its subsidiaries at June 30, 1996, and as adjusted to reflect the
sale by the Company of 2,000,000 shares of Common Stock offered hereby.
See ``Use of Proceeds.'' The table set forth below should be read in conjunction
with the consolidated financial statements, related notes and other financial
information included elsewhere or incorporated by reference in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------
ACTUAL AS ADJUSTED<F1>
------ ---------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Short-term debt:
Short-term notes payable..................................... $ 3,509 $ 3,509
Current maturities of long-term debt......................... 886 886
------- --------
Total short-term debt.................................... $ 4,395 $ 4,395
======= ========
Long-term debt, less current maturities.......................... $ 5,396 $ 5,396
Other long-term liabilities...................................... 2,447 2,447
Minority interest................................................ 142 142
Shareholders' equity:
Preferred Stock, $.01 par value, 1,000,000 shares authorized;
no shares issued or outstanding............................ -- --
Common Stock, $.01 par value, 20,000,000 shares authorized;
13,910,338 shares issued and outstanding actual, 15,910,338
shares issued and outstanding as adjusted<F2>.............. 139 159
Additional paid-in capital................................... 30,557 90,377
Cummulative translation adjustment........................... (169) (169)
Retained earnings............................................ 8,985 8,985
------- --------
Total shareholders' equity............................... 39,512 99,352
------- --------
Total capitalization................................. $47,497 $107,337
======= ========

<FN>
- --------

<F1> As adjusted to reflect the sale by the Company of 2,000,000 shares of
Common Stock in this offering. See ``Use of Proceeds.''

<F2> Does not include: (i) 650,780 shares of Common Stock reserved for future
issuance pursuant to the Company's Long Term Incentive Plan; (ii) 85,500
shares of Common Stock reserved for issuance pursuant to outstanding
options granted under the Company's Directors Stock Option Plan; and (iii)
300,000 shares of Common Stock subject to the Underwriters' over-allotment
option. See ``Underwriting.''
</TABLE>

<PAGE> 13
SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected consolidated financial data for the
Company and its subsidiaries as of and for the three fiscal years ended
September 30, 1995 and as of and for the nine months ended June 30, 1995 and
1996. The data as of and for the fiscal years ended September 30, 1993, 1994
and 1995 have been derived from the consolidated financial statements of the
Company included herein which have been audited by Price Waterhouse LLP,
independent accountants. The data as of and for the nine months ended June 30,
1995 and 1996 have not been audited by independent accountants, but in the
opinion of management of the Company, reflect all adjustments (consisting only
of normal recurring adjustments) necessary to present fairly the financial
condition and results of operations as of such dates and for such interim
periods. The results of operations for the nine months ended June 30, 1996 are
not necessarily indicative of the results to be expected for the entire fiscal
year.

The data set forth below should be read in conjunction with the
consolidated financial statements and related notes, ``Pro Forma Condensed
Combined Financial Information'' and ``Management's Discussion and Analysis of
Financial Condition and Results of Operations'' included elsewhere or
incorporated by reference herein.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
-------------------------- -----------------
1993 1994 1995 1995 1996<F1>
---- ---- ---- ---- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales........................................................ $ 5,141 $ 7,920 $ 12,698 $ 8,675 $ 47,213
Cost of sales.................................................... 2,942 4,502 7,716 5,118 35,067
Gross profit..................................................... 2,199 3,418 4,982 3,557 12,146
Selling, general and administrative expenses..................... 1,356 1,624 1,845 1,333 6,558
Operating income from continuing operations...................... 843 1,794 3,137 2,224 5,588
Interest expense, net............................................ 579 617 708 550 309
Income from continuing operations before discontinued operations
and minority interest.......................................... 136 799 1,577 1,049 3,782
Income from discontinued operations, net of income taxes......... 431 208 456 210 39
Minority interest................................................ -- -- -- -- (28)
--------- --------- --------- --------- ---------
Net income....................................................... $ 567 $ 1,007 $ 2,033 $ 1,259 $ 3,792
========= ========= ========= ========= =========
Income per share from continuing operations...................... $ .02 $ .09 $ .16 $ .11 $ .29
Income per share from discontinued operations.................... .04 .02 .05 .02 .00
--------- --------- --------- --------- ---------
Net income per share............................................. $ .06 $ .11 $ .21 $ .13 $ .29
========= ========= ========= ========= =========
Weighted average common shares outstanding....................... 9,025 9,314 9,583 9,568 13,068

<CAPTION>
SEPTEMBER 30,
-------------------------- JUNE 30,
1993 1994 1995 1996
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................. $ 467 $ 3,866 $ 6,322 $ 14,302
Total assets..................................................... 15,371 17,373 18,390 68,398
Short-term debt.................................................. 3,040 1,662 745 4,395
Long-term debt, less current maturities.......................... 4,394 6,562 6,191 5,396
Shareholders' equity............................................. 5,936 7,100 9,519 39,512

<FN>
- --------

<PAGE> 14
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Set forth below are: (i) the historical consolidated condensed statements
of operations of Zoltek for the nine months ended June 30, 1996 (which include
the results of Viscosa's operations from December 8, 1995, the date of its
acquisition by Zoltek) and of Viscosa for the period October 1, 1995 through
December 7, 1995; (ii) the pro forma condensed combined statement of operations
of Zoltek and Viscosa for the nine months ended June 30, 1996 as if the
acquisition of Viscosa had been completed as of October 1, 1995; (iii) the
historical consolidated condensed statements of operations of each of Zoltek and
Viscosa for the fiscal year ended September 30, 1995; and (iv) the pro forma
condensed combined statement of operations of Zoltek and Viscosa for the fiscal
year ended September 30, 1995 as if the acquisition of Viscosa had been
completed as of October 1, 1994. The presentation reflects the cash purchase of
approximately 95% of Viscosa's capital stock by Zoltek. Zoltek has entered into
agreements to acquire substantially all of the remaining capital stock, which is
owned by existing Viscosa employees. Due to immateriality, the minority interest
is not separately disclosed in the pro forma condensed combined statements of
operations.

The pro forma condensed combined financial information should be read in
conjunction with the historical consolidated financial statements of Zoltek
included elsewhere herein and the historical financial statements of Viscosa
incorporated by reference herein. The pro forma condensed combined statements
of operations reflect: (i) adjustments to restate depreciation and interest
expense due to revaluation of assets and elimination of debt upon purchase;
(ii) elimination of foreign exchange losses due to payment of a long-term
capital lease at purchase; and (iii) issuance of additional shares of Common
Stock, substantially all the proceeds of which were utilized to effect the
acquisition and provide working capital for Viscosa.

Viscosa's historical consolidated statements of operations were translated
from Hungarian Forints to U.S. Dollars using the average exchange rates in
effect during the periods. Viscosa's historical consolidated statements of
operations include extraordinary items related to the sale of certain assets
and the forgiveness of certain debt in December 1994. These two transactions
are not presented in the pro forma condensed combined statements of operations.

The pro forma condensed 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 Viscosa been completed as of October 1, 1994 or 1995. Further,
the pro forma condensed combined statements of operations for the nine months
ended June 30, 1996 should not necessarily be taken as indicative of earnings
for a full fiscal year.

<PAGE> 15

<TABLE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED JUNE 30, 1996

<CAPTION>
VISCOSA PRO FORMA
HISTORICAL HISTORICAL PRO FORMA PRO FORMA ZOLTEK/VISCOSA
ZOLTEK VISCOSA ADJUSTMENTS VISCOSA COMBINED
---------- ---------- ----------- --------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales............................... $ 47,213 $ 11,366 $ 11,366 $ 58,579
Cost of sales........................... 35,067 9,885 $ (190)<F1> 9,695 44,762
--------- -------- ------ -------- --------
Gross profit........................ 12,146 1,481 190 1,671 13,817
Selling, general and administrative
expenses.............................. 6,558 1,567 1,567 8,125
--------- -------- ------ -------- --------
Operating income from continuing
operations........................ 5,588 (86) 190 104 5,692
Other income (expense):
Interest income..................... 387 28 28 415
Interest expense.................... (696) (574) 494 <F2> (80) (776)
Other income (expense), net......... (57) (421) 79 <F3> (342) (399)
Foreign exchange gain (loss), net... (658) 732 <F4> 74 74
--------- -------- ------ -------- --------
Income (loss) from continuing operations
before income taxes, discontinued
operations and minority interest...... 5,222 (1,711) 1,495 (216) 5,006
Provision for income taxes.............. 1,440 1,440
--------- -------- ------ -------- --------
Income (loss) from continuing operations
before discontinued operations and
minority interest..................... $ 3,782 $ (1,711) $1,495 $ (216) $ 3,566
========= ======== ====== ======== ========
Income per share from continuing
operations............................ $ 0.29 $ 0.26
Weighted average common shares
outstanding........................... 13,068 13,722

<FN>
NOTES TO PRO FORMA
CONDENSED COMBINED STATEMENT OF OPERATIONS

<F1> To adjust cost of sales for reduced depreciation expense due to revaluation of fixed assets
under purchase price allocation and the elimination of the capital lease amortization........... $190

<F2> To adjust interest expense as a result of elimination of all Viscosa's long-term indebtedness... 494

<F3> To adjust for costs which would not have been incurred under a long-term management contract
which was terminated in connection with the acquisition of Viscosa.............................. 79

<F4> To adjust foreign exchange loss related to lease due to the elimination of the lease
liability....................................................................................... 732
</TABLE>

<PAGE> 16
<TABLE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995

<CAPTION>
VISCOSA PRO FORMA
HISTORICAL HISTORICAL PRO FORMA PRO FORMA ZOLTEK/VISCOSA
ZOLTEK VISCOSA ADJUSTMENTS VISCOSA COMBINED
---------- ---------- ----------- --------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales............................... $ 12,698 $ 50,785 $ 50,785 $ 63,483
Cost of sales........................... 7,716 45,022 $(1,134)<F1> 43,888 51,604
--------- -------- ------- -------- --------
Gross profit........................ 4,982 5,763 1,134 6,897 11,879
Selling, general and administrative
expenses.............................. 1,845 7,611 7,611 9,456
--------- -------- ------- -------- --------
Operating income from continuing
operations........................ 3,137 (1,848) 1,134 (714) 2,423
Other income (expense):
Interest income..................... 32 189 189 221
Interest expense.................... (740) (1,357) 1,357 <F2> (740)
Other income (expense), net......... 3 (587) 419 <F3> (168) (165)
Foreign exchange gain (loss), net... (6,521) 5,444 <F4> (1,077) (1,077)
--------- -------- ------- -------- --------
Income (loss) from continuing operations
before income taxes, discontinued
operations and minority interest...... 2,432 (10,124) 8,354 (1,770) 662
Provision for income taxes.............. 855 348 348 1,203
--------- -------- ------- -------- --------
Income (loss) from continuing operations
before discontinued operations and
minority interest..................... $ 1,577 $(10,472) $ 8,354 $ (2,118) $ (541)
========= ======== ======= ======== ========
Income (loss) per share from continuing
operations............................ $ 0.16 $ (0.04)
Weighted average common shares
outstanding........................... 9,583 13,283

<FN>
NOTES TO PRO FORMA
CONDENSED COMBINED STATEMENT OF OPERATIONS

<F1> To adjust cost of sales for reduced depreciation expense due to revaluation of fixed assets
under purchase price allocation and the elimination of the capital lease amortization........... $ 1,134

<F2> To adjust interest expense as a result of elimination of all Viscosa's indebtedness............. 1,357

<F3> To adjust for costs which would not have been incurred under a long-term management contract
which was terminated in connection with the acquisition of Viscosa.............................. 419

<F4> To adjust foreign exchange loss related to lease due to the elimination of the lease
liability....................................................................................... 5,444
</TABLE>

<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion of the Company's historical results of operations
and of its liquidity and capital resources should be read in conjunction with
the consolidated financial statements and notes thereto and the ``Pro Forma
Condensed Combined Financial Information'' included elsewhere and incorporated
by reference in this Prospectus.

OVERVIEW

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
manufacture and fabrication of various industrial products, provision of
in-house and field repair services, and distribution of various industrial
products manufactured by others. The Company entered the carbon fibers business
in 1987 with a line of carbon fiber products for niche and specialty markets.
In fiscal 1991, the Company closed its carbon fibers production facility in
Lowell, Massachusetts and moved to its new production facility in St. Charles,
Missouri. This production facility achieved full production capability in July
1992. 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. In order to properly focus its
efforts on emerging opportunities in the carbon fibers market, the Company sold
substantially all of the assets relating to the Company's former equipment and
services business unit in August 1995. The results of the unit's operations
have been reclassified to identify them as discontinued operations.

In November 1992, the Company completed its initial public offering. 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. Pursuant to
the Company's strategy to secure access to the technology underlying the
production of the acrylic fiber raw material used in the manufacture of carbon
fibers, the Company used the proceeds of the secondary offering to acquire
Viscosa for $17.8 million in December 1995. In connection with the acquisition
of Viscosa, Zoltek Corporation, a wholly owned subsidiary of the Company,
acquired approximately 95% of the equity ownership and substantially all of the
debt of Viscosa. Subsequently, the Company agreed to acquire substantially all
the minority interest of Viscosa's other shareholders. The Viscosa acquisition
is reported under the purchase method of accounting and is included in the
Company's consolidated financial statements from the date of acquisition. See
``Pro Forma Condensed Combined Financial Information.''

Zoltek's business recently has grown significantly, resulting in increases
in net sales, operating income from continuing operations and income from
continuing operations during each of the last three fiscal years. The increase
in net sales from $5.1 million in fiscal 1993 to $12.7 million in fiscal 1995
was largely driven by long-term supply relationships with strategic partners
and the development of new applications and markets for selected carbon fiber
products. Operating income from continuing operations increased from $843,000
in fiscal 1993 to $3.1 million in fiscal 1995. As a percentage of net sales,
operating income from continuing operations increased from 16.4% to 24.7%
during this period. This increase was primarily a result of the reduction in
selling, general and administrative expenses as a percentage of net sales,
which declined from 26.4% in fiscal 1993 to 14.5% in fiscal 1995, partially
offset by a decrease in gross margins. Net income increased from $567,000 in
fiscal 1993 to $2.0 million in fiscal 1995, representing a compound annual
growth rate of 88%.

During the nine months ended June 30, 1996, the Company achieved
significant sales growth in its carbon fibers business by continuing to execute
its strategy to expand the market for its low-cost carbon fibers. However, such
growth was constrained by the capacity limitations of its current carbon fibers
manufacturing facilities. Currently, the Company is constructing a facility to
house initially two continuous carbonization lines in Hungary, and is seeking a
suitable site for an additional carbon fibers production facility in the United
States. See ``Business--Carbon Fibers Manufacturing Capacity and Expansion
Plans.''

RESULTS OF OPERATIONS

Nine Months Ended June 30, 1996 Compared to Nine Months Ended June 30, 1995

Net sales for the Company increased 444% to $47.2 million for the first
nine months of fiscal 1996. The higher net sales resulted from the
consolidation of Viscosa's activities since its acquisition on December 8,
1995, and an increase

<PAGE> 18
in Zoltek's carbon fibers business. For the period from December 8, 1995 to
June 30, 1996, Viscosa reported net sales of $33.0 million. Net sales from
Zoltek's carbon fibers business totaled $14.2 million in the first nine months
of fiscal 1996, an increase of 64% compared to the first nine months of fiscal
1995. Higher sales revenues were recorded across carbon fiber product
catagories. Growth in sales was constrained by production capacity. Although
actual carbon fibers capacity varies with production mix, during the recent
fiscal year-to-date period, the Company's sales represented manufacturing
levels at substantially full operational capacity utilization.

Gross profit increased 242% to $12.1 million for the first nine months of
fiscal 1996. Increased gross profit resulted from the operation of Viscosa
after its acquisition by the Company and a 60% increase in gross profit from
Zoltek's carbon fibers business to $5.7 million compared to $3.6 million in the
corresponding period in the prior year. As a percentage of net sales, the
Company's gross profit decreased to 26% for the nine months ended June 30, 1996
from 41% for the nine months ended June 30, 1995 due to the consolidation of
Viscosa. Excluding Viscosa, Zoltek's gross margin from the carbon fibers
business was 40% for the first nine months of fiscal 1996 compared to 41% for
the corresponding period of fiscal 1995. This decrease was attributable to a
change in product mix and reduced selling prices as the Company pursued its
low-cost carbon fibers strategy of broadening applications for carbon
composites through enhanced affordability.

Selling, general and administrative expenses were $6.6 million in the first
nine months of the current fiscal year. Excluding the effects of the Viscosa
acquisition, selling, general and administrative expenses increased to $1.8
million from $1.3 million in the first nine months of fiscal 1995. This
increase was due to the addition of engineering, development and administrative
staff during the nine months ended June 30, 1996, as well as costs related to
the increased sales level. However, as a percentage of net sales, selling,
general and administrative expenses for the carbon fibers business improved to
13% in the first nine months of fiscal 1996 from 15% in the corresponding
period of the previous fiscal year.

Operating income from continuing operations totaled $5.6 million for the
first nine months of fiscal 1996, an increase of 151% compared to the first
nine months of fiscal 1995. Operating income from continuing operations (after
deducting general corporate expenses) from Zoltek's carbon fibers business
increased 74%, to $3.9 million for the first nine months of fiscal 1996 from
the first nine months of fiscal 1995. For the period from December 8, 1995 to
June 30, 1996, Viscosa reported income from operations of $1.7 million.
Subsequent to its acquisition, Viscosa's operations benefited from Zoltek's
involvement by improved raw material procurement (through better costs and more
consistent availability), elimination of debt and lease obligations, and higher
production rates. The impact of Viscosa's results on the Company's results of
operations for the interim period of fiscal 1996 is not necessarily indicative
of future financial performance.

Interest expense was $696,000 for the nine months ended June 30, 1996.
Interest income for the period was $387,000. Net interest expense declined 44%
for the first nine months of fiscal 1996 compared to the first nine months of
fiscal 1995 largely due to interest generated on increased cash balances in the
current year.

During the first nine months of fiscal 1996, the Company reported income
tax expense of $1.4 million compared to $627,000 for the first nine months of
fiscal 1995. The effective tax rate remained relatively constant between years,
excluding the effects of the Viscosa acquisition. The statutory tax rate for
the Viscosa operation in Hungary is 18%. At present, Viscosa has net operating
loss carryforwards arising from losses incurred prior to the Company's
acquisition. These net operating loss carryforwards result in a reduced income
tax liability. Due to the substantial uncertainty of the availability of these
net operating loss carryforwards to reduce Viscosa's future income tax
liability, the Company has recognized a full valuation allowance against these
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 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, on June 30, 1996 in
consideration of a note receivable for $206,000, which approximated the net
book value of such assets.

As a result of the foregoing, net income increased 201% to $3.8 million in
the first nine months of fiscal 1996 from $1.3 million reported for the first
nine months of fiscal 1995. Similarly, the Company reported net income per
share of $.29 in the first nine months of fiscal 1996 compared to net income
per share of $.13 in last year's corresponding period. Weighted average common
shares increased to 13.1 million from 9.6 million due primarily to the
secondary offering in November 1995.

<PAGE> 19
Fiscal Year Ended September 30, 1995 Compared to Fiscal Year Ended September
30, 1994

Net sales increased 60% to $12.7 million in fiscal 1995 from $7.9 million
in fiscal 1994. The improvement resulted principally from growth in sales of
carbon fibers for aircraft brake, automotive airbag and conductive plastics
applications.

Gross profit increased 46% to $5.0 million in fiscal 1995 from $3.4 million
in fiscal 1994. As a percentage of net sales, gross profit was 39.2% in fiscal
1995, compared to 43.2% in fiscal 1994. The decrease was attributable primarily
to increases in raw material costs, variations in the mix of products sold and
the cost associated with quantities of carbon fibers provided to potential
customers for evaluation purposes, the effect of which was partially offset by
economies realized from the increase in the level of net sales.

Selling, general and administrative expenses were $1.8 million in fiscal
1995 compared to $1.6 million in fiscal 1994. Expenses associated with the
expanded level of net sales and a $106,000 increase in research and development
expenses were offset by a decrease of $275,000 in training and start-up
expenses for manufacturing capacity added in fiscal 1994. As a percentage of
net sales, selling, general and administrative expenses were 14.5% in fiscal
1995 versus 20.5% in fiscal 1994, reflecting improved leveraging of fixed
costs.

Interest expense increased to $740,000 from $617,000 in the prior fiscal
year due primarily to the increase in outstanding long-term debt related to the
refinancing of the Company's primary real estate properties, as well as an
increase in interest rates.

During fiscal 1995, the Company reported income tax expense of $855,000
compared to income tax expense of $382,000 in fiscal 1994, as a result of the
increase in the reported level of income before income taxes. The effective tax
rate increased to 35.1% from 32.3% in the prior fiscal year due to recognition
in fiscal 1994 of refunds from amending prior years returns to claim research
and development tax credits.

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 unit reported net sales of $5.8
million in fiscal 1995 and $6.7 million in fiscal 1994. The unit reported
income from operations, net of income taxes, of $456,000 (including an
after-tax gain of approximately $230,000) in fiscal 1995 versus $208,000
reported in fiscal 1994.

As a result of the foregoing, net income was $2.0 million in fiscal 1995
compared to net income of $1.0 million reported for fiscal 1994. Similarly, the
Company reported net income per share of $.21 in fiscal 1995 and net income per
share of $.11 in fiscal 1994.

Fiscal Year Ended September 30, 1994 Compared to Fiscal Year Ended September
30, 1993

Net sales increased 54% to $7.9 million in fiscal 1994 from $5.1 million in
fiscal 1993. This increase reflected the continued growth of sales into the
Company's existing primary markets for carbon fibers: aircraft brake,
automotive airbag and conductive plastics applications. During fiscal 1994 the
Company also added two new applications to its primary markets, fire-retardant
coatings and low-cost friction applications.

Gross profit increased 56% to $3.4 million in fiscal 1994 from $2.2 million
in fiscal 1993. Gross profit margin increased to 43.2% from 42.8% principally
due to improved process efficiencies in carbon fibers manufacturing.

Selling, general and administrative expenses increased to $1.6 million in
fiscal 1994 from $1.4 million in fiscal 1993 due primarily to $275,000 of
training and start-up expenses related to the new manufacturing capacity added
in fiscal 1994 and an increase of $203,000 from the prior fiscal year in
research and development expenditures. As a percentage of sales, the selling,
general and administrative expenses were 20.5% in fiscal 1994 versus 26.4% in
fiscal 1993. Operating income from continuing operations increased 112.9% to
$1.8 million in fiscal 1994 compared to the prior year.

Interest expense increased to $617,000 in fiscal 1994 from $579,000 in
fiscal 1993 due primarily to an increase in the outstanding debt related to
permanent financing for a portion of the Company's real estate properties,
offset by a decrease in the outstanding borrowings under the revolving credit
agreement, and an increase in the prime lending rate.

The Company's effective income tax rate on income from continuing
operations decreased to 32.3% in fiscal 1994 from 41.3% in fiscal 1993 due to
recognition of refunds from amending prior years' returns to claim research and

<PAGE> 20
development tax credits. Effective October 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, ``Accounting for Income
Taxes,'' which did not have a material impact on the Company's consolidated
financial statements.

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 unit's revenues for fiscal 1994
and fiscal 1993 were $6.7 million and $7.2 million, respectively. The unit
reported income from operations, net of income taxes, of $208,000 and $431,000
in fiscal 1994 and fiscal 1993, respectively.

As a result of the foregoing, the Company reported an increase in net
income to $1.0 million, or $.11 per share, for the year ended September 30,
1994 from $567,000, or $.06 per share, for the year ended September 30, 1993.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity have historically been and
continue to be cash flow from operating activities and available borrowing
capacity under credit facilities. These funding sources have been supplemented
with the net proceeds from two equity offerings, long-term debt financing
utilizing the equity in the Company's real estate properties and the sale of
substantially all of the assets of the Company's equipment and services
business unit.

At June 30, 1996, the Company reported working capital of $14.3 million
compared to working capital of $6.3 million at September 30, 1995. The increase
in working capital was due primarily to receipt of the net proceeds of the
secondary stock offering raised in excess of amounts used to finance the
acquisition of Viscosa, as well as increased inventory levels associated with
the acquisition and the repayment of long-term liabilities. Other receivables
of $2.1 million consisted primarily of VAT and import tax refunds due to
Viscosa from the Hungarian taxing authorities. Other short-term liabilities of
$1.5 million consisted primarily of taxes owed by Viscosa which relate to
payroll taxes, VAT and advances from customers. Other long-term liabilities
were related to various supply agreements between Viscosa and its vendors.

Historically, cash used in investing activities has been expended for
equipment and other capital to support research and development of carbon
fibers applications, the expansion of the Company's carbon fibers production
capacity and the acquisition of Viscosa. In fiscal 1995, the Company's capital
expenditures were $1.0 million, including installation of an enhanced research
and development facility. The Company invested $1.1 million in manufacturing
equipment, primarily for two additional batch carbon fiber furnaces and the
completion of a continuous carbonization line during fiscal 1994. Capital
expenditures of $1.8 million in fiscal 1993 related primarily to the
installation of the Company's new continuous carbonization line. During the
first nine months of fiscal 1996, the Company incurred capital expenditures of
$3.1 million for various projects, primarily increasing capacity and improving
infrastructure. These expenditures were financed principally with cash
generated from operations.

The Company currently is producing carbon fibers at its full operational
capacity and needs to expand its capacity to meet indicated and forecasted
demand for carbon fiber products. The Company is adding to its carbon fibers
batch process capacity at its St. Charles, Missouri, plant. The Company expects
to fund the capital expenditures associated with this project with available
cash and borrowings. In order to increase its production capacity, the Company
plans to construct up to 16 additional continuous carbonization lines by the
end of fiscal 1998. In the United States, the Company plans to initially
construct a new line in the St. Louis, Missouri area, which is expected to be
operational by the third quarter of fiscal 1997, and is in the process of
selecting a site at which it intends initially to construct two new lines
planned to be operational by the end of fiscal 1997. In Hungary, the Company is
constructing a building at its Viscosa facility which initially will house two
lines which the Company expects to be operational by the third quarter of
fiscal 1997. The construction of these continuous carbonization line facilities
will be funded with the proceeds of the offering made hereby, together with
internally generated funds and borrowings under credit facilities. See ``Use of
Proceeds.''

The Company's Revolving Credit Agreement has a maximum borrowing capacity
of $3.5 million. At June 30, 1996, there were no outstanding borrowings under
this line of credit. The Company also has $1.0 million of unused borrowing
ability under a working capital credit facility. The Company has received a
commitment from its bank for a $5 million secured equipment loan to finance
planned U.S. capital expenditures. The Company currently has outstanding a term
loan with a principal balance of $2.0 million which matures in 1999. The
Company is currently reviewing financing options, including funding from the
International Finance Corporation and the European Bank

<PAGE> 21
of Reconstruction and Development for non-recourse financing, for the addition
of carbon fiber manufacturing lines at Viscosa's facilities.

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.

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 $18 million to fund the
purchase of Viscosa. During fiscal 1996, the Company has made available a total
of $5 million to fund Viscosa's working capital requirements and an additional
$1 million to fund capital expenditures associated with new continuous
carbonization lines which the Company plans to install at Viscosa. The
remaining proceeds will be used for working capital needs of Viscosa and
general corporate purposes, including capital expenditures. Beginning in the
second quarter of fiscal 1996, Viscosa obtained short-term financing
consisting of working capital loans and commercial letters of credit, of
which $3.5 million was outstanding as of June 30, 1996.

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, $581,000 of debt assumption and a
note receivable for $200,000). 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.

The Company believes that identified and forecasted customer demand for
carbon fibers likely will require substantial increases in capacity. The
Company's current plans call for capital expenditures of approximately $70
million through fiscal 1998 for this expansion. The Company will use the
proceeds of this offering, together with internally generated funds and
borrowings under credit facilities, to fund such capital expenditures. See
``Use of Proceeds'' and ``Business--Carbon Fibers Manufacturing Capacity and
Expansion Plans.''

NEW ACCOUNTING STANDARDS

The following recently issued accounting standards will be applicable to
the Company for its fiscal year ending September 30, 1997:

SFAS 121, ``Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of,'' effective for the Company for its fiscal
year ending September 30, 1997, establishes standards for the impairment of
long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used and those to be disposed of. SFAS 121 is not
expected to have a material impact on the Company's financial condition or
results of operations.

SFAS 123, ``Accounting for Stock-based Compensation,'' defines the fair
value based method of accounting for stock option, purchase and award plans.
SFAS 123 allows companies to use the fair value method defined therein or to
continue use of the intrinsic value method as outlined in Accounting Principles
Board Opinion No. 25, ``Accounting for Stock Issued to Employees'' (APB 25).
SFAS 123 is not expected to have a material impact on the Company's financial
position or results of operations.

<PAGE> 22
BUSINESS

GENERAL

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 Viscosa, a 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 current
capacity constraints and to meet indicated and forecasted demand for carbon
fiber products, the Company is expanding its manufacturing capacity.

INDUSTRY OVERVIEW

Worldwide carbon fibers capacity (excluding the former Soviet Union and
China) was estimated to be approximately 27 million pounds per year in calendar
year 1994. 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, 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 cargo shipping containers, vehicle drive
shafts, compressed natural gas (CNG) tanks, civil engineering uses, wood
laminates, automotive body and structural members, 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. Switching between market segments is relatively difficult and capital
intensive.

BUSINESS 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 Viscosa operations after a transition period ending
approximately 18 months from the date hereof. Longer term, the Company
believes that the precursor manufacturing technology acquired in the
Viscosa acquisition will enhance its ability to procure from third party
sources precursor with specifications which currently are not generally
available from merchant

<PAGE> 23
suppliers. Acrylic fiber precursor comprises more than 50% of the
Company's total carbon fiber production 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. See ``--Sources of
Supply.''

Zoltek believes Viscosa's operations afford a strategic advantage by
providing access to the technology underlying the production of precursor.
A conversion of Viscosa'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.
After a transition period ending approximately 18 months from the date
hereof, Viscosa is expected to be able to supply the Company's carbon fiber
operations with quantities of precursor which would be sufficient to
produce more than 30 million pounds annually of carbon fibers.

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.,
cargo shipping containers, 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 off-shore 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 partnerships 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 recently
established relationships with American President Lines, Ltd. and Stoughton
Composites, Inc. (shipping containers), Compounding Technology, Inc.
(computer printer components for Hewlett-Packard Company products) and
Thiokol Corp. (CNG tanks). Zoltek believes that as new techniques are
perfected and new composites are developed, manufacturers will help develop
new commercial applications for such composites, thereby creating further
demand for the Company's products.

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.

<PAGE> 24
CARBON FIBERS MANUFACTURING CAPACITY AND EXPANSION PLANS

The present rated capacity of the Company's carbon fiber manufacturing
operations is approximately 3.5 million pounds per year. The Company currently
is producing carbon fibers at its full operational capacity and needs to expand
its capacity to meet indicated and forecasted demand for carbon fiber products.
The Company is adding to its carbon fibers batch process capacity at its St.
Charles, Missouri plant. The Company expects to fund the capital expenditures
associated with this project with available cash and borrowings. In order to
increase its production capacity, the Company plans to construct up to 16
additional continuous carbonization lines by the end of fiscal 1998. In the
United States, the Company plans to initially construct a new line in the St.
Louis, Missouri area, which is expected to be operational by the third quarter
of fiscal 1997, and is in the process of selecting a site at which it intends
initially to construct two new lines planned to be operational by the end of
fiscal 1997. In Hungary, the Company is constructing a building at its Viscosa
facility which initially will house two lines which the Company expects to be
operational by the third quarter of fiscal 1997. The Company will use the net
proceeds of this offering, together with internally generated funds and
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.
See ``Use of Proceeds'' and ``Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources.''

In the process of expanding capacity, the Company is developing a
standardized continuous carbonization line design in order to optimize
technical process capabilities, reduce equipment cost and shorten lead time
between the decision to add lines and the time when the lines become
operational.

CURRENT PRODUCT APPLICATIONS

The Company's current primary carbon fiber product applications are as
follows:

Aircraft Brakes

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 1994. The Company anticipates aggregate sales of more than $80 million
over the term of this agreement. The BFG Supply Agreement does not restrict the
Company from supplying carbon fibers to other aircraft brake manufacturers. See
``Description of Capital Stock--BFG Arrangement.''

Automotive 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.

<PAGE> 25
Conductive Plastics

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 application 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.

Shipping Containers

Composite shipping containers utilizing carbon fibers, for rail, sea and
road transportation, offer the shipping industry significant weight savings,
reducing operating costs and increasing efficiency. The new Refrigerated
International ISO Container built by Stoughton Composites is one of the first
composite shipping containers being commercialized. Its design is only made
possible through the use of carbon fibers in the corner posts and I-beams,
where the majority of the loads are concentrated. This container weighs
approximately 5,000 pounds, compared to a typical steel container which weighs
approximately 8,600 pounds. Zoltek has partnered with Stoughton Composites,
Inc. and American President Lines, Ltd. to develop composite shipping
containers using low-cost carbon fibers.

Vehicle Drive Shafts

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 damping 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.

Compressed Natural Gas Tanks

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.

Fire-Retardant Coatings

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.

Specialty Friction Products

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, including pursuant to
its joint product development agreement with BFG.

<PAGE> 26
Other Company products include the following:

Textile Fiber Products

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

The other principal fiber product line currently manufactured and marketed
by Viscosa consists of nylon-6 fibers and granules. Due to the long-term
decline in the domestic Hungarian market for nylon-6 fibers, Viscosa 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

Viscosa 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 Viscosa. This organization will seek to find customers for the carbon fiber
products currently manufactured at the Company's plant in St. Charles,
Missouri, as well as for those products produced at the carbon fibers
facilities which Zoltek is constructing at Viscosa and planning to construct in
the United States.

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

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 R.K. Carbon
in Europe, inasmuch as they use the same textile-type precursor as the Company.
To varying degrees, dependent 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 chiefly
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.

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.

<PAGE> 27
Competitors in the textile fibers market include MonteFibre, Sp.A., A.G.
Bayer and Courtaulds. However, Viscosa's historic ties with and geographic
proximity to customers in the former socialist countries provide competitive
advantages for Viscosa in these markets compared to the larger manufacturers.
Zoltek believes this advantage will decrease over time and, accordingly,
Viscosa is pursuing a strategy of seeking a product mix with more favorable
competitive characteristics, such as advanced materials (e.g., carbon fibers
precursor).

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

SOURCES OF SUPPLY

The Company currently obtains 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 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 Viscosa, and expects that it
ultimately will obtain most of its precursor from Viscosa. In the near term,
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 Viscosa facility are acrylonitrile and
other basic commodity chemical products which are widely available from a
variety of sources.

ENVIRONMENTAL

The carbon fibers operations at the Company's St. Charles, Missouri plant
utilize incineration and scrubbing of various exhaust streams, designed to
comply with applicable laws and regulations. The plant produces air emissions
which are regulated and permitted by the State of Missouri, Department of
Natural Resources. The plant is required by a condition of its permit to verify
by performance tests that certain emission rates are not exceeded. Management
believes that the plant is currently in compliance with its permit 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.

Viscosa's operations generate various hazardous wastes, including gaseous,
liquid and solid materials. From time to time, Viscosa has been cited and fined
for environmental violations by regulatory authorities. The SPA 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 Viscosa's operations will 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 Viscosa'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 Viscosa's business, results
of operations or financial condition.

EMPLOYEES

As of June 30, 1996, the Company employed approximately 110 persons in its
U.S. operations and approximately 1,600 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 Viscosa there are two active unions, Union Viscosa with
approximately 1,000 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.

<PAGE> 28
In June 1993, Viscosa 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 $1.9 million
translated at the exchange rate in effect at June 30, 1996) grant to Viscosa to
finance salary payments to Viscosa's employees during the period April through
December 1993. The grant is not repayable by Viscosa if Viscosa and its
subsidiaries maintain 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. Presently, Viscosa's active workforce is below the
level specified by the grant and Zoltek intends to effect reductions in
staffing of operational activities as appropriate. Viscosa believes, however,
that if all employees (including non-active employees, such as those on
national service or maternity leave) and employees of non-core operations which
may be spun-off into independent companies are considered, Viscosa would not be
obligated to repay the grant. Viscosa is undertaking to clarify the application
of the calculation and to amend the agreement to confirm Viscosa'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.

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
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> Viscosa 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>

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 no material
patents.

LEGAL PROCEEDINGS

In September 1995, Kenny Securities Corp. (``Kenny'') filed a lawsuit in
the Circuit Court of St. Louis County against the Company and Zsolt Rumy
alleging that the Company breached a verbal agreement with Kenny that Kenny
would be selected as a co-manager for the Company's November 1995 secondary
Common Stock offering and that the defendants did not intend to honor the
alleged agreement when made. The Company denies liability, believes it has
defenses to the claims, which defenses are well-grounded in fact and law, and
has counterclaimed against Kenny and John J. Kenny, an officer of Kenny, for
damages and a declaratory judgment. In August 1996, the Court granted the
Company's motion to compel arbitration of these claims under the rules of the
National Association of Securities Dealers, Inc. The Company does not believe
that the ultimate resolution of these proceedings will have a material adverse
effect on its financial condition or results of operations.

Except for the foregoing, the Company is not a defendant in any material
legal proceedings other than ordinary routine litigation incidental to its
business.

<PAGE> 29
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company and Viscosa, and their
respective ages and positions with the Company and Viscosa, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Zsolt Rumy................ 53 Chairman of the Board, Chief Executive Officer and President
Orel R. Kiphart........... 58 Vice President of the Company and President of Zoltek Corporation (carbon fibers
manufacturing operations)
William P. Downey......... 39 Chief Financial Officer and Secretary
Gyorgy Paszty............. 54 Vice President of the Company and President of Viscosa
Linn H. Bealke............ 51 Director
James W. Betts............ 58 Director
Charles A. Dill........... 56 Director
James Dorr................ 61 Director
John L. Kardos............ 57 Director
</TABLE>

Zsolt Rumy 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 BS in Chemical Engineering from the University of Minnesota in 1966.
Mr. Rumy speaks fluent Hungarian.

Orel R. Kiphart has served as President of Zoltek Corporation and Vice
President of the Company since June 1996. For more than five years prior to
joining the Company, he served as Director of Carbon Products for BF Goodrich
Aerospace, responsible for all that company's high-temperature composite
manufacturing, product development and sales and marketing of carbon products
to industrial markets. Mr. Kiphart received a BS in Business and Engineering
from California State Polytechnic University in 1966 and an MS in Systems
Management from Florida Institute of Technology in 1969.

William P. Downey has served as Chief Financial Officer and Secretary of
the Company since March 1996. For more than five years prior to joining the
Company he served in various staff and management positions with MEMC
Electronic Materials, Inc., most recently serving as Vice President, Finance
and Product Development of a joint venture between MEMC and IBM Corporation
which manufactured silicon-on-insulator wafers for the global semiconductor
market. Mr. Downey received a BS in Business Administration from the University
of Michigan in 1980 and an MBA from Washington University in 1992.

Gyorgy Paszty has served as Vice President of the Company since February
1996 and as Managing Director of Viscosa since 1990. Prior to that time, he
served in various technical and management positions in the Hungarian chemical
industry. Mr. Paszty received a BS 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.

Linn H. Bealke has served as a Director of the Company since August 1992.
For more than the past five years he has been President and Director of
Mississippi Valley Bancshares, Inc. (a bank holding company) and Vice Chairman
of Southwest Bank of St. Louis.

James W. Betts has served as a Director of the Company since August 1992.
For more than the past five years, he has been Vice President Raw Materials of
Great Lakes Carbon Corp. (a producer of carbon products).

Charles A. Dill has served as a Director of the Company since August 1992.
Since October 1995, he has been a managing general partner of Gateway Venture
Partners, a venture capital firm. He served as President of Bridge

<PAGE> 30
Information Systems, Inc. (a provider of databases and systems to institutional
investors) from 1991 to October 1992 and as Chief Executive Officer from
October 1992 to April 1995. From February 1988 to September 1990, he was
President and a Director of AVX Corporation (a ceramic electronic devices
manufacturer). From May 1982 to February 1988, he was Senior Vice President and
a member of the Office of the Chief Executive and an Advisory Director of
Emerson Electric Company (a diversified manufacturer of electrical and other
products), where he was the corporate officer responsible for that
corporation's power transmission, electrical and electronic divisions. Mr. Dill
serves as a director of Stifel Financial Corp., the parent of Stifel, Nicolaus
& Company, Incorporated, a securities brokerage, investment management and
investment banking firm.

James Dorr has served as a Director of the Company since August 1992. Since
June 1995, he has been engaged in business as a consultant. For more than five
years prior to June 1995 when he retired, he served as Director--Advanced
Materials and Structures of McDonnell Douglas Corporation (an aircraft
manufacturer).

John L. Kardos has served as a Director of the Company since August 1992.
For more than the past five years he has been Professor of Chemical Engineering
of Washington University, St. Louis, Missouri, where he has been Chairman of
the Department of Chemical Engineering since July 1991. From June 1971 to July
1991, he was Chairman of the Graduate Program in Materials Science and
Engineering and Director of the Materials Research Laboratory of Washington
University.

Each director of the Company holds office until his successor has been duly
elected and qualified. Officers of the Company are elected by the Board of
Directors of the Company at each annual meeting of the Board of Directors and
serve at its discretion. The Company's Board of Directors is divided into three
classes, with three-year staggered terms. Messrs. Kardos and Bealke are Class I
directors, Messrs. Betts and Dorr are Class II directors and Messrs. Rumy and
Dill are Class III directors. The terms of the Class I, Class II and Class III
directors expire in 1997, 1998 and 1999, respectively.

The officers of the Company are elected at the annual meeting of the Board
of Directors of the Company and serve at its discretion.

COMMITTEES OF THE BOARD

The Board of Directors has a standing Audit Committee and Compensation
Committee.

The members of the Audit Committee are Messrs. Bealke and Dorr. The Audit
Committee reviews the scope of the Company's engagement of its independent
public accountant and their reports. The Audit Committee also meets with the
financial staff of the Company to review accounting procedures and reports.

The Compensation Committee is composed of Messrs. Betts and Dill. The
Compensation Committee is authorized to review and make recommendations to the
Board of Directors regarding the salaries and bonuses to be paid executive
officers and to administer the Company's Long Term Incentive Plan.

<PAGE> 31
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of July 31, 1996 and as
adjusted to reflect the sale of shares of Common Stock offered hereby for each
director and executive officer of the Company, individually, and all directors
and executive officers of the Company as a group. Except as provided under
applicable community property laws or as otherwise indicated, each shareholder
identified in the table possesses sole voting and investment power with respect
to his shares. The Company is issuing and selling all of the Common Stock
offered hereby.

<TABLE>
<CAPTION>
PERCENT<F1>
---------------------------------
NAME OF BENEFICIAL OWNER NUMBER BEFORE OFFERING AFTER OFFERING
------------------------ ------ --------------- --------------
<S> <C> <C> <C>
Zsolt Rumy<F2>.................................... 5,600,000 40.3% 35.2%
Orel R. Kiphart................................... -- <F*> <F*>
William P. Downey................................. -- <F*> <F*>
Gyorgy Paszty..................................... -- <F*> <F*>
Linn H. Bealke.................................... 7,500<F4> <F*> <F*>
James W. Betts.................................... 39,000<F3> <F*> <F*>
Charles A. Dill................................... 21,400<F3> <F*> <F*>
James Dorr........................................ 21,000<F5> <F*> <F*>
John L. Kardos.................................... 21,000<F3> <F*> <F*>
All directors and executive officers as a group (9
persons)........................................ 5,709,900<F6> 40.8% 35.7%

<FN>
- --------

<F*>
Less than one percent.

<F1> Based upon 13,910,338 shares of the Company's Common Stock issued and
outstanding as of July 31, 1996 and for each director or executive officer
or the group, the number of shares subject to options that may be acquired
by such director or executive officer within 60 days upon exercise of the
option.

<F2> Mr. Rumy's address is 3101 McKelvey Road, St. Louis, Missouri 63044. See
``Description of Capital Stock--BFG Arrangement.''

<F3> Includes 21,000 shares subject to presently exercisable stock options.

<F4> Includes 7,500 shares subject to presently exercisable stock options.

<F5> Includes 15,000 shares subject to presently exercisable stock options.

<F6> Includes 85,500 shares subject to presently exercisable stock options.
</TABLE>

DESCRIPTION OF CAPITAL STOCK

GENERAL

The Company is authorized to issue 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, which may be issued in one or more series. As of July 31, 1996,
13,910,338 shares of Common Stock were outstanding and no shares of Preferred
Stock were outstanding.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by shareholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voting for the election of directors can
elect all of the directors then standing for election. The Company's Articles
of Incorporation provide for a classified Board of Directors with three classes
serving staggered three-year terms so that a maximum of one-third of the
directors can be elected at any annual meeting. This provision could have the
effect of delaying, deferring or preventing a change in control of the Company.
The holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of legally available funds. In the event
of liquidation, dissolution or winding up of the Company, the holders of Common
Stock would share ratably in all remaining assets which are available for
distribution to them

<PAGE> 32
after payment of liabilities and after provision has been made for each class
of stock, if any, having preference over the Common Stock. Holders of shares
of Common Stock, as such, have no conversion, preemptive or other subscription
rights, and there are no redemption provisions applicable to the Common Stock.
All of the outstanding shares of Common Stock are and the shares of Common
Stock offered hereby will be, when issued for the consideration set forth in
this Prospectus, fully paid and nonassessable.

PREFERRED STOCK

The Company is authorized to issue Preferred Stock with such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without further
shareholder approval, to issue Preferred Stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting
power or other rights of the holders of the Company's Common Stock. In the
event of issuance, the Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. The Company has no present intention to issue any
shares of its Preferred Stock.

DIVIDENDS

The Company presently intends to retain future earnings in order to provide
funds for the operation and expansion of its business. Furthermore, the
declaration and payment of cash dividends is prohibited without the consent of
certain of the Company's lenders. Future dividends, if any, also will depend,
in the discretion of the Board of Directors, on the Company's earnings,
financial condition, capital requirements and other relevant factors. See
``Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.''

SHAREHOLDER NOMINATIONS AND PROPOSALS

The Company's By-laws provide for advance notice requirements for
shareholders' nominations and proposals at annual meetings of the Company. At
annual meetings, generally shareholders may submit nominations for directors or
other proposals only upon written notice to the Company not less than 30 nor
more than 60 days prior to the anniversary date of the previous year's annual
meeting. Notwithstanding the foregoing, in the event that less than 40 days'
advance notice of an annual shareholders meeting is given, a shareholder
nomination or proposal (as the case may be) must be made within ten days of the
date of such notice.

TRANSFER AGENT

Boatmen's Trust Company, St. Louis, Missouri, is the Transfer Agent and the
Registrar of the Common Stock.

MISSOURI TAKEOVER STATUTES

Under Missouri law, a person (or persons acting as a group) who acquires
20% or more of the outstanding stock of an ``issuing public corporation'' will
not have voting rights, unless: (i) such acquiring person satisfies certain
statutory disclosure requirements, and (ii) the restoration of voting rights to
such acquiring person is approved by the issuing public corporation's
shareholders. Additional shareholder approval is required to restore voting
rights when an acquiring person has acquired one-third and a majority,
respectively, of the outstanding stock of the issuing public corporation.

Missouri law also regulates a broad range of ``business combinations''
between a ``resident domestic corporation'' and an ``interested shareholder.''
``Business combination'' is defined to include, among other things, mergers,
consolidations, share exchanges, asset sales, issuances of stock or rights to
purchase stock and certain related party transactions. ``Interested
shareholder'' is defined as a person who: (i) beneficially owns, directly or
indirectly, 20% or more of the outstanding voting stock of a resident domestic
corporation or (ii) is an affiliate of a resident domestic corporation and at
any time within the last five years has beneficially owned 20% or more of the
voting stock of such corporation. Missouri law prohibits a resident domestic
corporation from engaging in a business combination with an interested
shareholder for a period of five years following the date on which the person
became an interested shareholder, unless the Board of Directors approved the
business combination before the person became an interested shareholder.
Business combinations after the five-year period following the stock
acquisition date are
32

<PAGE> 33
permitted only if: (i) the Board of Directors approved the acquisition of the
stock prior to the acquisition date, (ii) the business combination is approved
by the holders of a majority of the outstanding voting stock (other than the
interested shareholder), and (iii) the consideration to be received by
shareholders meets certain statutory requirements with respect to form and
amount.

The Company believes that it is both an ``issuing public corporation'' and
a ``resident domestic corporation'' subject to the Missouri takeover statutes
described above. Missouri law defines each type of entity as including a
Missouri corporation having: (i) one hundred or more shareholders; (ii) its
principal place of business, principal office or substantial assets in
Missouri; and (iii) certain prescribed percentages of stock ownership by
Missouri residents. While the Company believes it would be subject to such
takeover statutes, there can be no assurance that a court of competent
jurisdiction ultimately would so hold.

BFG ARRANGEMENT

The BFG Supply Agreement provides that in the event the Company's Board of
Directors determines to seek a sale of, or significant investment in, the
Company, it first would negotiate such proposed transaction exclusively with
BFG for specified time periods. Mr. Rumy also has agreed, subject to certain
exceptions, to negotiate exclusively with BFG for a specified period if he
determines to sell a significant amount of shares of the Company's Common
Stock. The foregoing obligations are expressly subject to applicable fiduciary
duties of the Company's directors and Mr. Rumy, as principal shareholder.

BFG's rights to exclusive negotiations with the Company or Mr. Rumy, as the
case may be, in the event of a proposed sale or investment terminate on the
first to occur of: (i) a material breach by BFG in performing its obligations
under the BFG Supply Agreement; (ii) such time as sales to BFG account for less
than 15% of carbon fibers sales in any trailing four quarters; or (iii)
termination of the BFG Supply Agreement.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding
15,910,338 shares of Common Stock and presently exercisable options to purchase
an additional 85,500 shares. All of such shares of Common Stock held by
nonaffiliates of the Company are freely tradeable and the remainder of such
shares are eligible for sale under Rule 144 under the Securities Act of 1933,
as amended (the ``Securities Act'').

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned his or her shares for
at least two years, including the holding period of any prior owner except an
affiliate, is entitled to sell, within a three-month period, that number of
shares that does not exceed the greater of 1% of the then outstanding shares of
Common Stock or the average weekly trading volume of the Common Stock on Nasdaq
during the four calendar weeks immediately preceding such sale. Sales under
Rule 144 are also subject to certain requirements as to the manner of sale,
notice and availability of current public information regarding the Company.
Any person (or persons whose shares are aggregated) who has not been an
affiliate of the Company at any time during the three months preceding a sale,
and who is deemed to have beneficially owned shares for at least three years,
is entitled to sell such shares under Rule 144 without regard to the volume
limitations, manner of sale provisions or notice or current public information
requirements. Affiliates, however, continue to be subject to such volume
limitations and other requirements. As defined in Rule 144, an ``affiliate'' of
an issuer is a person who directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with, the
issuer, and generally includes members of the Board of Directors and senior
management.

The Company has registered all of the shares of Common Stock issued or
reserved for future issuance under its Long Term Incentive Plan and Directors
Stock Option Plan. As of the date hereof, there were a total of 605,000 shares
of Common Stock subject to outstanding options under the Long Term Incentive
Plan, which could be so sold upon the exercise of such options (subject to
applicable vesting requirements). As of the date hereof, there were a total of
85,500 shares of Common Stock subject to outstanding options (which are
presently exercisable) under the Directors Stock Option Plan. Each director and
executive officer of the Company has agreed not to sell or otherwise dispose of
any shares of Common Stock for a period ending 180 days after the date of this
Prospectus, without the consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.

<PAGE> 34
No prediction can be made as to the effect, if any, that market sales of
shares of Common Stock or the availability of such shares for sale to the
public will have on the market price prevailing from time to time. Sales of
substantial amounts of Common Stock following the offering made hereby could
adversely affect the market price of the Common Stock.

UNDERWRITING

Subject to the terms and conditions set forth in a purchase agreement (the
``Purchase Agreement''), the Company has agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated (``Merrill Lynch'') and Stifel, Nicolaus &
Company, Incorporated are acting as representatives (the ``Representatives''),
has severally agreed to purchase from the Company, the respective number of
shares of Common Stock set forth opposite its name below at the public offering
price less the underwriting discount set forth on the cover page of this
Prospectus. In the Purchase Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
shares of Common Stock offered hereby if any of such shares are purchased. In
the event of default by an Underwriter, the Purchase Agreement provides that,
in certain circumstances, the purchase commitments of the nondefaulting
Underwriters may be increased or the Purchase Agreement may be terminated.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................................ 600,000
Stifel, Nicolaus & Company, Incorporated............................................... 600,000
Dean Witter Reynolds Inc. ............................................................. 50,000
A.G. Edwards & Sons, Inc. ............................................................. 50,000
Lehman Brothers Inc. .................................................................. 50,000
PaineWebber Incorporated............................................................... 50,000
Pauli & Company Incorporated........................................................... 50,000
Prudential Securities Incorporated..................................................... 50,000
Salomon Brothers Inc .................................................................. 50,000
Smith Barney Inc. ..................................................................... 50,000
Advest, Inc. .......................................................................... 25,000
William Blair & Company, L.L.C. ....................................................... 25,000
Dain Bosworth Incorporated............................................................. 25,000
Fahnestock & Co. Inc. ................................................................. 25,000
First Albany Corporation............................................................... 25,000
Furman Selz LLC........................................................................ 25,000
Gruntal & Co., Incorporated............................................................ 25,000
Huntleigh Securities Corporation....................................................... 25,000
Pacific Crest Securities............................................................... 25,000
Paulson Investment Company, Inc. ...................................................... 25,000
Piper Jaffray Inc. .................................................................... 25,000
Ragen MacKenzie Incorporated........................................................... 25,000
Smith, Moore & Co. .................................................................... 25,000
Sutro & Co. Incorporated............................................................... 25,000
Tucker Anthony Incorporated............................................................ 25,000
Van Kasper & Company................................................................... 25,000
---------
Total....................................................................... 2,000,000
=========

</TABLE>

<PAGE> 35

The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public at the offering
price set forth on the cover page of this Prospectus, and to certain dealers at
such price less a concession not in excess of $1.00 per share. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $.10 per
share to certain other dealers. After the offering contemplated hereby, the
offering price and other selling terms may be changed by the Representatives.

The Company has granted to the Underwriters an option, exercisable for 30
days after the date of this Prospectus, to purchase up to an additional 300,000
shares of Common Stock at the public offering price set forth on the cover page
hereof, less the underwriting discount. The Underwriters may exercise such
option only to cover over-allotments, if any, made in connection with the sale
of Common Stock offered hereby. To the extent that the Underwriters exercise
this option, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the above table
is of the 2,000,000 shares of Common Stock initially offered hereby. If
purchased, the Underwriters will offer such additional shares on the same terms
as those on which the 2,000,000 shares are being offered.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act of
1933, as amended.

The Company and each of the directors and executive officers of the Company
have agreed that they will not sell or otherwise dispose of any Common Stock
without the prior written consent of Merrill Lynch for a period of 180 days
from the date of this Prospectus, except that the Company may, without such
consent, issue shares upon the exercise of options granted, or grant options to
purchase Common Stock, pursuant to Company employee benefit, non-employee
director stock or dividend reinvestment plans.

Charles A. Dill, a director of the Company, serves as a director of Stifel
Financial Corp., the parent of Stifel, Nicolaus & Company, Incorporated, one of
the Representatives.

LEGAL MATTERS

The legality of the shares of Common Stock offered hereby is being passed
upon for the Company by Thompson Coburn, St. Louis, Missouri. Mayer, Brown &
Platt, Chicago, Illinois, is acting as counsel for the Underwriters in
connection with certain legal matters relating to the sale of the shares of
Common Stock offered hereby.

EXPERTS

The consolidated financial statements of the Company and its subsidiaries
as of September 30, 1994 and 1995, and for each of the three fiscal years in
the period ended September 30, 1995, have been included herein or incorporated
by reference in reliance upon the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.

The consolidated financial statements of Viscosa for the six months ended
December 31, 1993, the year ended December 31, 1994 and the six months ended
June 30, 1995, have been incorporated by reference herein in reliance upon the
report (which contains an explanatory paragraph relating to Viscosa's ability
to continue as a going concern as described in Note 1 to Viscosa's consolidated
financial statements) of Price Waterhouse (Budapest), independent accountants,
given on the authority of said firm as experts in auditing and accounting.

<PAGE> 36

<TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Accountants..................................................... F-2

Consolidated Balance Sheet as of September 30, 1994 and 1995
and June 30, 1996 (unaudited)....................................................... F-3

Consolidated Statement of Income for the years ended
September 30, 1993, 1994 and 1995 and for the nine months
ended June 30, 1995 and 1996 (unaudited)............................................ F-4

Consolidated Statement of Changes in Shareholders' Equity for
the years ended September 30, 1993, 1994 and 1995 and for
the nine months ended June 30, 1996 (unaudited)..................................... F-5

Consolidated Statement of Cash Flows for the years ended
September 30, 1993, 1994 and 1995 and for the nine months
ended June 30, 1995 and 1996 (unaudited)............................................ F-6

Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1

<PAGE> 37
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, 1995 and 1994,
and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1995, 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.

As discussed in Note 1, effective October 1, 1993, the Company changed its
method of accounting for income taxes.

Price Waterhouse LLP
St. Louis, Missouri

October 13, 1995, except as to Note 11, which
is as of November 22, 1995, and as to Note 2
which is as of December 8, 1995

F-2

<PAGE> 38
<TABLE>
ZOLTEK COMPANIES, INC.

CONSOLIDATED BALANCE SHEET

<CAPTION>
SEPTEMBER 30,
------------------- JUNE 30,
1994 1995 1996
---- ---- --------
(UNAUDITED)
<S> <C> <C> <C>

ASSETS
- ------
Current assets:
Cash and cash equivalents......................................................... $ 156,496 $ 1,677,400 $ 8,492,458
Accounts receivable, less allowance for doubtful accounts of $20,000, $28,038 and
$158,297, respectively.......................................................... 2,934,882 3,066,427 9,823,646
Inventories....................................................................... 3,657,924 3,127,339 14,158,787
Prepaid expenses.................................................................. 45,810 27,144 78,272
Refundable income taxes........................................................... 200,820 -- --
Other receivables................................................................. -- -- 2,128,102
Assets held for sale.............................................................. -- 581,472 --
----------- ----------- -----------
Total current assets.......................................................... 6,995,932 8,479,782 34,681,265
Property and equipment, net........................................................... 10,312,366 9,355,773 32,887,238
Notes receivable...................................................................... -- 200,000 628,276
Loan origination and deferred costs................................................... 63,927 354,175 65,902
Intangible assets, net................................................................ -- -- 121,829
Other assets.......................................................................... 500 500 13,914
----------- ----------- -----------
Total assets.................................................................. $17,372,725 $18,390,230 $68,398,424
=========== =========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Revolving credit agreement........................................................ $ 1,027,969 $ -- $ --
Short-term notes payable.......................................................... -- -- 3,508,501
Current maturities of long-term debt.............................................. 633,702 744,542 885,761
Trade accounts payable............................................................ 1,105,659 861,578 10,256,052
Accrued expenses.................................................................. 289,027 290,060 --
Other short-term liabilities...................................................... -- -- 1,505,478
Reserve for reorganization of acquired operations................................. -- -- 3,566,198
Income taxes payable.............................................................. 73,461 262,052 657,286
----------- ----------- -----------
Total current liabilities..................................................... 3,129,818 2,158,232 20,379,276
Other long-term liabilities........................................................... -- -- 2,447,370
Minority interest..................................................................... -- -- 142,146
Long-term debt, less current maturities............................................... 6,562,446 6,191,157 5,395,910
Deferred income taxes................................................................. 580,000 522,000 522,000

Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares issued and
outstanding..................................................................... -- -- --
Common stock, $.01 par value, 8,000,000, 8,000,000 and 20,000,000 shares
authorized, respectively, and 3,128,570, 4,813,203 and 13,910,338 shares issued
and outstanding, respectively................................................... 31,285 48,132 139,103
Additional paid-in capital........................................................ 3,823,342 4,208,336 30,557,008
Cumulative translation adjustment................................................. -- -- (169,389)
Retained earnings................................................................. 3,245,834 5,262,373 8,985,000
----------- ----------- -----------
7,100,461 9,518,841 39,511,722
----------- ----------- -----------
Total liabilities and shareholders' equity.................................... $17,372,725 $18,390,230 $68,398,424
=========== =========== ===========

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

F-3

<PAGE> 39
<TABLE>
ZOLTEK COMPANIES, INC.

CONSOLIDATED STATEMENT OF INCOME

<CAPTION>
YEAR ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
-------------------------------- --------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................................ $5,140,684 $7,920,651 $12,697,558 $8,674,542 $47,213,494
Cost of sales............................................ 2,941,983 4,502,263 7,715,879 5,117,932 35,067,297
---------- ---------- ----------- ---------- -----------
Gross profit............................................. 2,198,701 3,418,388 4,981,679 3,556,610 12,146,197
Selling, general and administrative expenses............. 1,356,060 1,624,327 1,844,689 1,332,425 6,558,684
---------- ---------- ----------- ---------- -----------
Operating income from continuing
operations............................................. 842,641 1,794,061 3,136,990 2,224,185 5,587,513
Other income (expense):
Interest expense......................................... (579,292) (616,608) (739,506) (561,784) (695,942)
Interest income.......................................... -- -- 31,647 11,644 386,993
Other, net............................................... (31,960) 2,988 2,653 2,108 (56,941)
---------- ---------- ----------- ---------- -----------
Income from continuing operations before
income taxes, discontinued operations and minority
interest............................................... 231,389 1,180,441 2,431,784 1,676,153 5,221,623
Provision for income taxes............................... 95,457 381,839 854,713 626,948 1,440,073
---------- ---------- ----------- ---------- -----------
Income from continuing operations before discontinued
operations and minority interest................... 135,932 798,602 1,577,071 1,049,205 3,781,550
Income from discontinued operations, net of income
taxes.................................................. 431,414 208,006 455,512 209,713 38,584
---------- ---------- ----------- ---------- -----------
Income before minority interest...................... 567,346 1,006,608 2,032,583 1,258,918 3,820,134
Less: interest of minority shareholders in
income of consolidated subsidiary...................... -- -- -- -- 27,957
---------- ---------- ----------- ---------- -----------
Net income........................................... $ 567,346 $1,006,608 $ 2,032,583 $1,258,918 $ 3,792,177
========== ========== =========== ========== ===========
Income per share from continuing operations.............. $ 0.02 $ 0.09 $ 0.16 $ 0.11 $ 0.29
Income per share from discontinued operations............ 0.04 0.02 0.05 0.02 0.00
---------- ---------- ----------- ---------- -----------
Net income per share..................................... $ 0.06 $ 0.11 $ .21 $ 0.13 $ 0.29
========== ========== =========== ========== ===========
Weighted average common shares
outstanding............................................ 9,025,000 9,313,590 9,582,936 9,568,287 13,068,325

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

</TABLE>
F-4

<PAGE> 40
<TABLE>
ZOLTEK COMPANIES, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

<CAPTION>
ADDITIONAL CUMULATIVE
PREFERRED COMMON PAID-IN TRANSLATION RETAINED
STOCK STOCK CAPITAL ADJUSTMENT EARNINGS
--------- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1992........................ $ 0 $ 20,000 $ 0 $ -- $1,671,880
Common stock offering in November 1992............. -- 11,000 3,665,348 -- --
Net income for the year ended September 30, 1993... -- -- -- -- 567,346
-------- -------- ----------- --------- ----------
Balance, September 30, 1993........................ -- 31,000 3,665,348 -- 2,239,226
Exercise of stock options.......................... -- 285 113,994 -- --
Benefit of tax deduction for stock option
compensation expense............................. -- -- 44,000 -- --
Net income for the year ended September 30, 1994... -- -- -- -- 1,006,608
-------- -------- ----------- --------- ----------
Balance, September 30, 1994........................ 0 31,285 3,823,342 -- 3,245,834
Exercise of stock options.......................... -- 803 278,994 -- --
Benefit of tax deduction for stock option
compensation expense............................. -- -- 106,000 -- --
Common stock split (3-for-2) in September 1995..... -- 16,044 -- -- (16,044)
Net income for the year ended September 30, 1995... -- -- -- -- 2,032,583
-------- -------- ----------- --------- ----------
Balance, September 30, 1995........................ 0 48,132 4,208,336 -- 5,262,373
Secondary stock offering November 1995
(unaudited)...................................... -- 20,850 26,270,471 -- --
Common stock split (2-for-1) in June 1996
(unaudited)...................................... -- 69,550 -- -- (69,550)
Exercise of stock options (unaudited).............. -- 571 78,201 -- --
Foreign currency translation adjustment from the
date of the Viscosa acquisition through June 30,
1996 (unaudited)................................. -- -- -- (169,389) --
Net income for the nine months ended June 30, 1996
(unaudited)...................................... -- -- -- -- 3,792,177
-------- -------- ----------- --------- ----------
Balance March 31, 1996 (unaudited)................. $ 0 $139,103 $30,557,008 $(169,389) $8,985,000
======== ======== =========== ========= ==========

The accompanying notes are an integral part of these statements.

</TABLE>
F-5

<PAGE> 41
<TABLE>
ZOLTEK COMPANIES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
---------------------------------- -------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 567,346 $1,006,608 $2,032,583 $1,258,918 $ 3,792,177
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 837,297 949,978 1,049,103 790,361 1,955,935
Unrealized foreign exchange gain............. -- -- -- -- (121,881)
Minority interest............................ -- -- -- -- 27,957
Gain on sale of Equipment and Service
Business Unit (``ESBU'')................... -- -- (387,887) -- (39,612)
Changes in assets and liabilities, net of
effects from purchase of Viscosa:
(Increase) decrease in accounts
receivable............................ (490,844) (815,423) (131,545) 424,521 (1,455,087)
Increase in other receivables............ -- -- -- -- (1,332,692)
Increase in inventories.................. (342,063) (701,393) (1,203,239) (1,554,816) (4,167,317)
(Increase) decrease in prepaid
expenses.............................. (40,780) 22,770 (214) (67,397) (51,128)
(Increase) decrease in refundable income
taxes................................. (22,411) (145,509) 200,820 199,002
Decrease in inventories held for sale.... -- -- -- 452,529
Decrease in notes receivable............. -- -- -- (173,830)
Increase in intangible assets............ -- -- -- (21,925)
Increase (decrease) in trade accounts
payable............................... (472,148) (335,805) (244,081) (192,551) 858,824
Increase (decrease) in other short-term
liabilities........................... -- -- -- (42,574) 63,387
Increase (decrease) in accrued
expenses.............................. 71,653 (6,013) (73,967) -- --
Increase in income taxes payable......... 73,461 188,591 102,028 395,234
Decrease in reserve for reorganization of
acquired operations................... -- -- -- -- (383,802)
Increase (decrease) in deferred income
taxes................................. 44,000 315,038 (58,000) -- --
Decrease in other long-term
liabilities........................... -- -- -- -- (1,406,729)
Decrease in minority interest............ -- -- -- -- (228,887)
---------- ---------- ---------- ---------- -----------
Total adjustments................... (415,296) (642,896) (660,419) (341,426) (5,629,024)
---------- ---------- ---------- ---------- -----------
Net cash provided (used) by operating activities..... 152,050 363,712 1,372,164 917,492 (1,836,847)
---------- ---------- ---------- ---------- -----------
Cash flows from investing activities:
Payments for purchase of Viscosa, net of cash
acquired....................................... -- -- -- -- (17,555,091)
Payments for purchase of property and
equipment...................................... (1,850,521) (1,135,155) (951,081) (590,977) (2,961,550)
Proceeds from sale of ESBU....................... -- -- 1,716,960 -- --
---------- ---------- ---------- ---------- -----------
Net cash provided (used) by investing activities..... (1,850,521) (1,135,155) 765,879 (590,977) (20,516,641)
---------- ---------- ---------- ---------- -----------
Cash flows from financing activities:
Net decrease in line of credit borrowings........ (672,464) (1,359,567) (1,027,969) (1,027,969) --
Net proceeds from sale of common stock........... 3,676,348 -- -- -- 26,291,321
Net proceeds from exercise of stock options and
warrants....................................... -- 158,279 385,797 279,797 78,771
Proceeds from issuance of notes payable.......... -- 5,297,500 5,650,000 5,650,000 9,124,022
Repayment of notes payable....................... (1,523,773) (3,147,614) (5,329,172) (5,148,268) (6,609,341)
Increase in loan origination costs............... -- (63,927) (9,539) -- (2,483)
(Increase) decrease in deferred costs............ 208,035 (286,256) (34,921) 286,256
---------- ---------- ---------- ---------- -----------
Net cash provided (used) by financing activities..... 1,688,146 884,671 (617,139) (281,361) 29,168,546
---------- ---------- ---------- ---------- -----------
Net increase (decrease) in cash...................... (10,325) 113,228 1,520,904 45,154 6,815,058
Cash and cash equivalents at beginning of period..... 53,593 43,268 156,496 156,496 1,677,400
---------- ---------- ---------- ---------- -----------
Cash and cash equivalents at end of period........... $ 43,268 $ 156,496 $1,677,400 $ 201,650 $ 8,492,458
========== ========== ========== ========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest......................................... $ 596,869 $ 585,021 $ 775,921 $ 598,199 $ 704,495
Income taxes..................................... 343,611 276,010 817,589 458,970 1,068,000
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
The Company sold substantially all the assets of the
ESBU in August 1996. Portions of the payment
received by the Company were non-cash in nature, as
follows:
Long-term note receivable from buyer of ESBU..... $ 200,000
Debt assumed by buyer of ESBU.................... 581,277
----------
$ 781,277
==========
The Company sold the remaining assets of the ESBU in
June 1996. The payment received by the Company was
non-cash in nature, as follows:
Long-term note receivable from buyer of ESBU..... $ 206,000

The accompanying notes are an integral part of these statements.

</TABLE>
F-6

<PAGE> 42
ZOLTEK COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1996 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of consolidation

Zoltek Companies, Inc. (the ``Company'') is a holding company, having no
operations of its own. 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 Magyar
Viscosa Rt (``Viscosa'') manufactures and markets acrylic and nylon fibers and
yarns to the textile industry. Other Viscosa products include nylon granules,
plastic grids and nets, and carboxymethyl cellulose. In addition, Viscosa
provides public works services for plant use and to the town of Nyergesujfalu,
Hungary. Viscosa maintains its accounting records in accordance with Hungarian
law. These financial statements have been prepared in accordance with U.S.
generally accepted accounting principles. Viscosa's consolidated balance sheet
was translated from Hungarian Forints to U.S. Dollars at the exchange rate in
effect at the balance sheet date, while its consolidated statements of
operations were translated using the average exchange rates in effect during
the period. The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Zoltek. The accounts of Viscosa from
the date of its acquisition have been included in the Company's unaudited
financial statements at June 30, 1996 and for the nine months then ended. All
significant intercompany transactions and balances have been eliminated.

Revenue recognition

The Company recognizes sales on the date the products are shipped. During
1995, approximately $4,658,000 and $3,780,000, respectively, of total Carbon
Fibers Business Unit's sales revenue was earned from two customers. During
1994, approximately $3,756,000 and $1,734,000, respectively, of the Carbon
Fibers Business Unit's sales revenue was earned from the same two customers.
During 1993, approximately $2,583,000 of total Carbon Fibers Business Unit's
sales revenue was earned from a single customer.

Concentration of credit risk

Products of the Carbon Fibers Business Unit are primarily sold to customers
in the aerospace and automotive industries. While the market is geographically
unlimited, most of Zoltek's business is with customers located in North
America. Zoltek performs on-going credit evaluations of its customers and
generally does not require collateral. Zoltek maintains reserves for potential
credit losses and such losses have been within management's expectations. As of
September 30, 1995, Zoltek had no significant concentrations of credit risk.

Inventories

Inventories are valued at the lower of cost, determined on the first-in,
first-out method, or market.

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, 1993, 1994 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.

F-7

<PAGE> 43
ZOLTEK COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1996 IS UNAUDITED)

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 uses primarily accelerated depreciation methods for income tax
purposes.

Research and development expenses

Expenditures for research, development and engineering of products and
manufacturing processes are expensed as incurred. Such costs were approximately
$60,000, $263,000 and $370,000 in 1993, 1994 and 1995.

Income taxes

Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), ``Accounting for Income Taxes'' which
did not have a material impact on the Company's financial statements. SFAS 109
is an asset and liability approach that requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
Deferred tax expense (benefit) is the result of changes in the liability for
deferred taxes.

Interim information

The interim financial information at June 30, 1996 and for the nine-month
periods ended June 30, 1995 and 1996 is unaudited. However, in the opinion of
management, such information has been prepared on the same basis as the audited
financial statements and includes all adjustments, consisting solely of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for the periods presented. The interim
results are not necessarily indicative of results for any future period.

Net income per common share

Net income per common share is calculated based on the weighted average
number of common shares outstanding during the respective periods. All share
and per share date have been adjusted to give retroactive effect to the
recapitalizations and stock splits described in Note 9.

2. ACQUISITION

On December 8, 1995, the Company completed the acquisition of Viscosa.
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 Viscosa for approximately $18
million. Substantially all the remaining equity is owned by Viscosa's
employees. In the second quarter of fiscal 1996, the Company made $3 million
available to fund Viscosa's working capital requirements. The Company believes
that Viscosa's operations may require an additional $2 million during the
remainder of fiscal 1996 to supplement Viscosa's internally generated funds.
The Viscosa 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 preliminary 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.

F-8

<PAGE> 44
ZOLTEK COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1996 IS UNAUDITED)

The preliminary purchase price allocation reflects the recording at the
acquisition date of a liability of $3,950,000 related to the estimated cost for
reorganization of the acquired operations, including modification of facilities
layout and possible demolition of obsolete buildings, and product
rationalization, including employee severance and exit costs. The liability
also includes reserves for payment of certain liabilities that were incurred
prior to acquisition, and recognition of the liability associated with previous
employment grants.

The Company is currently working on a definitive plan to rationalize and
consolidate production lines and exit certain businesses. In accordance with
generally accepted accounting principles, any adjustment of this liability upon
the finalization of the purchase price allocation within one year of the
acquisition date will be allocated against the carrying value of property and
equipment.

Set forth below are unaudited pro forma combined results of operations of
Zoltek and Viscosa for the nine months ended June 30, 1996 as if the Viscosa
acquisition had been completed as of October 1, 1995 and for the nine months
ended June 30, 1995 as if the Viscosa acquisition had been completed as of
October 1, 1994:

NINE MONTHS ENDED
JUNE 30,
--------------------
1995 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Net sales........................................................ $47,290,199 $58,579,383
Income (loss) before extraordinary items......................... (1,926,290) 3,605,058
Net income....................................................... 8,701,029<F*> 3,577,101
Net income per share............................................. .69 .26

<FN>
- --------

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

3. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- JUNE 30,
1994 1995 1996
---- ---- --------
(UNAUDITED)

<S> <C> <C> <C>
Raw materials.................................................... $ 358,801 $1,091,113 $ 5,563,050
Work-in-process.................................................. 198,626 106,343 1,454,508
Finished goods................................................... 3,100,497 1,929,883 7,141,229
---------- ---------- -----------
$3,657,924 $3,127,339 $14,158,787
========== ========== ===========
</TABLE>

F-9

<PAGE> 45
ZOLTEK COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1996 IS UNAUDITED)

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- JUNE 30,
1994 1995 1996
---- ---- --------
(UNAUDITED)
<S> <C> <C> <C>
Land............................................................. $ 419,009 $ 314,009 $ 1,040,904
Buildings and improvements....................................... 5,883,892 5,290,932 14,723,332
Machinery and equipment.......................................... 7,938,217 7,272,943 20,440,503
Furniture and fixtures........................................... 745,095 718,687 2,115,771
Automobiles...................................................... 103,259 -- --
Construction in progress......................................... -- -- 647,308
----------- ----------- -----------
15,089,472 13,596,571 38,967,818
Less: accumulated depreciation................................... (4,777,106) (4,240,798) (6,080,580)
----------- ----------- -----------
$10,312,366 $ 9,355,773 $32,887,238
=========== =========== ===========
</TABLE>

5. INCOME TAXES

The components of the provision (benefit) for income taxes for the years
ended September 30, are as follows:

<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
From continuing operations:
Current:
Federal...................................................... $ 39,398 $(18,178) $ 776,536
State........................................................ 12,059 40,979 74,177
-------- -------- ----------
51,457 22,801 850,713
Deferred......................................................... 44,000 359,038 4,000
-------- -------- ----------
$ 95,457 $381,839 $ 854,713
-------- -------- ----------

From discontinued operations:
Current:
Federal...................................................... 233,202 125,178 271,416
State........................................................ 36,541 11,983 22,871
-------- -------- ----------
269,743 137,161 294,287
-------- -------- ----------
$365,200 $519,000 $1,149,000
======== ======== ==========
</TABLE>

Refundable income taxes at September 30, 1994 represent refunds resulting
from amended returns filed for prior years to expense research and development
costs and recognize tax credits. The benefit of these amended returns is
reflected as a reduction of the current tax provision. Refundable income taxes
at September 30, 1993 represent estimated tax payments made in excess of the
provision for current taxes.

F-10

<PAGE> 46
ZOLTEK COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1996 IS UNAUDITED)
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:

<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Depreciation..................................................... $689,080 $708,205

Inventories...................................................... (25,142) (48,943)

Accrued vacation pay............................................. (28,659) (23,800)

State tax, net of federal tax benefit............................ 35,752 35,994

Accrued health fund.............................................. (9,930) (13,781)

Other............................................................ (37,101) (29,675)
-------- --------

624,000 628,000

Less: tax benefit of stock options........................... (44,000) (106,000)
-------- --------

Total deferred tax liability................................. $580,000 $522,000
======== ========
</TABLE>

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

<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
At statutory rate:

Income taxes on income from continuing operations.............. $ 78,673 $401,350 $ 827,000

Income taxes on income from discontinued operations............ 238,393 117,356 255,000

Increases (decreases):

State taxes, net of federal benefit............................ 30,348 44,617 64,000

R & D tax credits, net of federal benefit...................... (52,441) (15,000)

Other.......................................................... (26,514) 8,118 18,000

Effect of graduated rates...................................... 44,300
-------- -------- ----------

$365,200 $519,000 $1,149,000
======== ======== ==========
</TABLE>

The components of the deferred income tax provision are as follows for the
years ended September 30:

<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Depreciation/fixed assets........................................ $ 28,491 $386,615 $ 19,125

Inventories...................................................... 2,128 (8,491) (23,801)

Accrued vacation pay............................................. (5,160) (8,817) 4,859

Accrued health fund.............................................. (9,930) (3,851)

State tax, net of federal tax benefit............................ (3,512) 9,663 242

AMT credit carryover............................................. 67,731

Other............................................................ (45,678) (10,002) 7,426
-------- -------- ----------

$ 44,000 $359,038 $ 4,000
======== ======== ==========
</TABLE>

F-11

<PAGE> 47
ZOLTEK COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1996 IS UNAUDITED)
The Tax Reform Act of 1986 expanded the corporate alternative minimum tax
(``AMT''). Under this Act, the Company's tax liability is the greater of its
regular tax or the AMT. To the extent that the Company's AMT liability exceeds
its otherwise determined tax liability, an AMT credit is generated which may be
applied against future tax liabilities. At September 30, 1992, the Company had
AMT credits of approximately $67,731 generated during 1992 which were fully
utilized in 1993.

6. FINANCING

Credit agreements

The Company has a revolving credit agreement which bears interest at .5%
over prime (prime rate at September 30, 1995 was 8.5%) with a maximum available
of the lesser of $2,500,000 or the sum of 85% of qualified accounts receivable
plus 50% of qualified inventory. Interest is due monthly and the outstanding
principal balance is payable on June 1, 1996 if not called on demand. At
September 30, 1995, the unused portion of the line of credit amounted to
$2,500,000.

Long-term debt

Long-term debt consists of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1994 1995
---- ----
<S> <C> <C>
Equipment loans:

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..................................................................... $ 283,333 $ 243,333

Note payable with interest at 9%, payable in monthly installments of principal and interest of
$62,458 to maturity in November 1999......................................................... -- 2,366,779

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..................................................... 1,800,000 1,744,950

Note payable with interest at 9.5%, payable in monthly installments of principal and interest
of $27,672 to maturity in December 2009...................................................... -- 2,580,637

Note payable with interest at 12.2%, payable in monthly installments of principal and interest
of $5,583 to maturity in March 2005, at which time the remaining principal balance is due
(Note 12).................................................................................... 393,653 --

Note payable with interest at 4%, payable in monthly installments of principal and interest of
$1,016 to maturity in January 2024 (Note 12)................................................. 209,570 --

Working capital note payable, repaid November 1994............................................. 933,333 --

Equipment note payable, refinanced November 1994............................................... 1,303,803 --

Real estate note payable, refinanced December 1994............................................. 2,272,456 --
---------- ----------

7,196,148 6,935,699

Less: amounts payable within one year.......................................................... (633,702) (744,542)
---------- ----------

$6,562,446 $6,191,157
========== ==========
</TABLE>

F-12

<PAGE> 48
ZOLTEK COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1996 IS UNAUDITED)

Following is a schedule of required principal payments of long-term debt:

<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30, TOTAL
- ------------- -----

<S> <C>
1996.............................................. $ 744,542

1997.............................................. 976,711

1998.............................................. 907,218

1999.............................................. 685,243

2000.............................................. 222,556

Thereafter........................................ 3,399,429
----------

$6,935,699
==========
</TABLE>

The revolving credit agreement and notes payable, aggregating $2,610,112 at
September 30, 1995 are secured by accounts receivable, inventories, machinery
and equipment, and general intangibles. The remaining notes payable are secured
by real estate holdings.

Under the terms of the revolving credit agreement and certain long-term
debt, Zoltek is required to maintain a minimum level of tangible net worth and
there are restrictions on capital expenditures. The Company is in compliance
with the debt covenants at September 30, 1995.

7. COMMITMENTS AND CONTINGENCIES

Lease

Land at the carbon fibers manufacturing facility 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 $16,668, $54,552 and $57,991 for the years ended
September 30, 1993, 1994 and 1995, respectively.

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
employees who have completed one year 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 $55,000 and $75,000 were made for the years ended
September 30, 1994 and 1995, respectively. No contribution was made for the
year ended September 30, 1993.

9. RECAPITALIZATIONS AND STOCK SPLIT

In August 1992, the Company's authorized capital structure was changed to
8,000,000 shares of common stock, par value $.01 per share, and 1,000,000
shares of preferred stock, par value $.01 per share. In addition, pursuant to a
stock dividend the Company split its shares of common stock at a rate of 4,000
to 1, thereby increasing issued and outstanding shares from 1,500 to 6,000,000.
On August 31, 1995 the Company announced a three-for-two stock split
(payable in the form of a 50% stock dividend). The dividend was paid on
September 29, 1995 to shareholders of record on September 15, 1995.
F-13

<PAGE> 49
ZOLTEK COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1996 IS UNAUDITED)
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 (payable
in the form of a 100% stock dividend). The stock dividend was paid June 17,
1996 to shareholders of record on June 3, 1996.

All share and per share amounts in the accompanying financial statements
and notes have been adjusted to give retroactive effect to the stock split for
all periods presented except for on 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

Initial Public Offering

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. The
Company applied $1.4 million of the net proceeds to reduce indebtedness and
$631,000 was used to reduce accounts payable. The remaining $1.7 million was
utilized for capital expenditures. 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. These warrants were exercised during fiscal year 1995 at $1.43 per share.

F-14

<PAGE> 50
ZOLTEK COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1996 IS UNAUDITED)
Long-term Incentive Plan
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. Outstanding stock options expire 10 years from the date of
grant or not later than three months after termination of employment.
Currently, 900,000 shares of common stock may be issued pursuant to awards
under the plan. Options granted in 1993 vest ratably over a three-year period
commencing on the date of grant. Options granted in 1995 vest 100% five years
from the date of grant. The options were issued at an option price equal to the
market price on the date of grant. Information related to stock options during
the three years ended September 30, 1995 is as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION
SHARES PRICE
--------- ------

<S> <C> <C>
Shares under option at
September 30, 1992............................................. -- $ --

Granted...................................................... 445,500 1.33

Exercised.................................................... -- --

Forfeited.................................................... 45,000
------- 1.33

Shares under option
at September 30, 1993.......................................... 400,500 1.33

Granted...................................................... -- --

Exercised.................................................... 85,710 1.33

Forfeited.................................................... 61,290 1.33
-------

Shares under option
at September 30, 1994.......................................... 253,500 1.33

Granted...................................................... 390,000 3.42-6.25

80,490 1.33
Exercised....................................................

Forfeited.................................................... 69,510 1.33
-------

Shares under option
at September 30, 1995.......................................... 493,500 1.33-6.25
=======
</TABLE>

Directors Stock Option Plan
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. Pursuant to the plan, options to
purchase 12,000 shares at an exercise price of $1.33 per share, 12,000 shares
of common stock at an exercise price of $2.34 per share and 37,500 shares of
common stock at an exercise price of $4.34 per share were outstanding as of
September 30, 1995. The options expire in 2002, 2004 and 2005, respectively.
11. SECONDARY STOCK OFFERING

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 Viscosa and
plans to utilize the remaining proceeds for Viscosa's working capital needs,
and general corporate purposes, including capital expenditures.

F-15

<PAGE> 51
ZOLTEK COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1996 IS UNAUDITED)
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 $7,226,000,
$6,725,000 and $5,848,000 in fiscal 1993, 1994 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.

13. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR 1994 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
---------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales........................................................ $ 1,433,214 $ 2,147,051 $ 2,245,762 $ 2,094,624

Gross profit..................................................... 633,222 778,781 1,042,180 964,205

Income from continuing operations................................ 85,290 181,424 232,026 299,862

Income from discontinued operations.............................. 88,332 41,107 22,178 56,389

Net income....................................................... $ 173,622 $ 222,531 $ 254,204 $ 356,251

Earnings per share:

Income from continuing operations............................ $ 0.01 $ 0.02 $ 0.03 $ 0.03

Income from discontinued operations.......................... 0.01 0.00 0.00 0.01
------------ ------------ ------------ -----------

Net income................................................... $ 0.02 $ 0.02 $ 0.03 $ 0.04
============ ============ ============ ===========

FISCAL YEAR 1995 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER<F*>
---------------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>

Net sales........................................................ $ 2,401,970 $ 3,302,401 $ 2,970,171 $ 4,023,016

Gross profit..................................................... 1,079,000 1,245,957 1,231,653 1,425,069

Income from continuing operations................................ 321,635 352,034 375,536 527,866

Income from discontinued operations.............................. 47,785 89,578 72,350 245,799

Net income....................................................... $ 369,420 $ 441,612 $ 447,886 $ 773,665

Earnings per share:

Income from continuing operations............................ $ 0.03 $ 0.04 $ 0.04 $ 0.05

Income from discontinued operations.......................... 0.01 0.01 0.01 0.03
------------ ------------ ------------ -----------

Net income................................................... $ 0.04 $ 0.05 $ 0.05 $ 0.08
============ ============ ============ ===========
<FN>
Note: Quarterly earnings per share have been adjusted to reflect the
two-for-one stock split (in the form of a stock dividend) which occurred
on June 17, 1996 (Note 9).
- ----------
<F*>
In the fourth quarter of 1995, income from discontinued operations includes
the gain on sale of a portion of the ESBU of $230,000.
</TABLE>
F-16

<PAGE> 52

ZOLTEK

<PAGE> 53
================================================================================
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
--------------------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................... 2
Documents Incorporated by Reference........................ 2
Prospectus Summary......................................... 3
Risk Factors............................................... 6
Use of Proceeds............................................ 11
Price Range of Common Stock and Dividend Policy............ 11
Capitalization............................................. 12
Selected Consolidated Financial Data....................... 13
Pro Forma Condensed Combined Financial Information......... 14
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 17
Business................................................... 22
Management................................................. 29
Principal Shareholders and Security Ownership of
Management............................................... 31
Description of Capital Stock............................... 31
Underwriting............................................... 34
Legal Matters.............................................. 35
Experts.................................................... 35
Index to Consolidated Financial Statements................. F-1
</TABLE>
- --------------------------------------------------------------------------------
================================================================================

2,000,000 SHARES

ZOLTEK

ZOLTEK COMPANIES, INC.

COMMON STOCK

----------------
PROSPECTUS
----------------

MERRILL LYNCH & CO.
STIFEL, NICOLAUS & COMPANY
INCORPORATED

September 18, 1996

- --------------------------------------------------------------------------------
================================================================================