##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM
10-Q/A
 Amendment
No. 1
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended April 30, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period From  to
 COMMISSION
FILE NUMBER 0-22354
 MARTEK BIOSCIENCES CORPORATION
  Delaware
    
    52-1399362(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification Number)
 6480 Dobbin Road, Columbia, Maryland 21045
 (410) 740-0081
 
 
 þ o
  þ o o
 o þ




---



##### 



EXPLANATORY
NOTE
    Part I
Item 2  Managements Discussion and Analysis of Financial
Condition and Results of Operations
 Part I
Item 4  Controls and Procedures




---



##### 



PART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    
    1Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 4.
    
    Controls and Procedures
    
    
    24PART II
    
    OTHER INFORMATIONItem 6.
    
    Exhibits
    
    
    25Signatures
    
    
    26




---



##### 



PART I  FINANCIAL INFORMATION  Item 1. Financial Statements.
 MARTEK BIOSCIENCES CORPORATION
  April 30,2006(restated,
    
    
    October 31,In thousands, except share and per share data
    

unaudited)
    
    
    2005AssetsCurrent assetsCash and cash equivalents
    
    $
    14,320
    
    
    $
    11,047Short-term investments and marketable securities
    
    
    11,250
    
    
    
    22,300Accounts receivable, net
    
    
    31,564
    
    
    
    27,603Inventories, net
    
    
    102,628
    
    
    
    91,535Other current assets
    
    
    11,366
    
    
    
    5,929Total current assets
    
    
    171,128
    
    
    
    158,414Property, plant and equipment, net
    
    
    286,101
    
    
    
    290,733Deferred tax asset
    
    
    42,381
    
    
    
    48,201Goodwill
    
    
    48,575
    
    
    
    48,490Other intangible assets, net
    
    
    32,825
    
    
    
    31,129Other assets, net
    
    
    3,156
    
    
    
    1,518Total assets
    
    $
    584,166
    
    
    $
    578,485Liabilities and stockholders equityCurrent liabilitiesAccounts payable
    
    $
    20,259
    
    
    $
    16,661Accrued liabilities
    
    
    13,399
    
    
    
    13,692Current portion of notes payable and other long-term obligations
    
    
    1,141
    
    
    
    3,113Current portion of unearned revenue
    
    
    1,783
    
    
    
    740Total current liabilities
    
    
    36,582
    
    
    
    34,206Long-term debt under revolving credit facility
    
    
    43,000
    
    
    
    55,000Notes payable and other long-term obligations
    
    
    10,738
    
    
    
    11,115Long-term portion of unearned revenue
    
    
    8,822
    
    
    
    8,959Total liabilities
    
    
    99,142
    
    
    
    109,280CommitmentsStockholders equityPreferred stock, $.01 par value, 4,700,000 shares authorized; none issued or outstanding
    
    
    
    
    
    
    Series A junior participating preferred stock, $.01 par value; 300,000 shares authorized; none issued or outstanding
    
    
    
    
    
    
    Series B junior participating preferred stock, $.01 par value; 300,000 shares authorized; none issued or outstanding
    
    
    
    
    
    
    Common stock, $.10 par value; 100,000,000 shares authorized; 32,132,832 and 32,026,595 shares issued and
outstanding, respectively
    
    
    3,213
    
    
    
    3,203Additional paid-in capital
    
    
    519,986
    
    
    
    515,237Accumulated other comprehensive income
    
    
    840
    
    
    
    1Accumulated deficit
    
    
    (39,015
    )
    
    
    (49,236
    )Total stockholders equity
    
    
    485,024
    
    
    
    469,205Total liabilities and stockholders equity
    
    $
    584,166
    
    
    $
    578,485
 See accompanying notes.
 1




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##### 



MARTEK BIOSCIENCES CORPORATION
  Three months ended April 30,
    
    
    Six months ended April 30,Unaudited - In thousands, except share and per share data
    

2006
    
    

2005
    
    

2006
    
    

2005(restated)
    
    


    
    

(restated)RevenuesProduct sales
    
    $
    65,210
    
    
    $
    52,834
    
    
    $
    125,707
    
    
    $
    115,945Contract manufacturing sales
    
    
    5,008
    
    
    
    2,997
    
    
    
    7,403
    
    
    
    6,375Total revenues
    
    
    70,218
    
    
    
    55,831
    
    
    
    133,110
    
    
    
    122,320Cost of revenues:Cost of
product sales, including idle capacity costs
    
    
    39,516
    
    
    
    32,792
    
    
    
    76,966
    
    
    
    68,894Cost of contract manufacturing sales
    
    
    4,777
    
    
    
    2,585
    
    
    
    6,816
    
    
    
    5,389Total cost of revenues
    
    
    44,293
    
    
    
    35,377
    
    
    
    83,782
    
    
    
    74,283Gross margin
    
    
    25,925
    
    
    
    20,454
    
    
    
    49,328
    
    
    
    48,037Operating expenses:Research and development (1)
    
    
    6,258
    
    
    
    5,321
    
    
    
    11,738
    
    
    
    10,137Selling, general and administrative (1)
    
    
    10,270
    
    
    
    8,107
    
    
    
    20,137
    
    
    
    16,252Other operating expenses
    
    
    435
    
    
    
    2,075
    
    
    
    476
    
    
    
    5,560Total operating expenses
    
    
    16,963
    
    
    
    15,503
    
    
    
    32,351
    
    
    
    31,949Income from operations
    
    
    8,962
    
    
    
    4,951
    
    
    
    16,977
    
    
    
    16,088Interest and other income, net
    
    
    437
    
    
    
    456
    
    
    
    800
    
    
    
    636Interest expense
    
    
    (817
    )
    
    
    
    
    
    
    (1,681
    )
    
    
    (180
    )Income before income tax provision
    
    
    8,582
    
    
    
    5,407
    
    
    
    16,096
    
    
    
    16,544Income tax provision(1)
    
    
    3,131
    
    
    
    1,974
    
    
    
    5,875
    
    
    
    6,039Net income
    
    $
    5,451
    
    
    $
    3,433
    
    
    $
    10,221
    
    
    $
    10,505Net income per shareBasic
    
    $
    0.17
    
    
    $
    0.11
    
    
    $
    0.32
    
    
    $
    0.34Diluted
    
    $
    0.17
    
    
    $
    0.11
    
    
    $
    0.31
    
    
    $
    0.33Weighted average common shares outstandingBasic
    
    
    32,099,288
    
    
    
    31,497,317
    
    
    
    32,077,250
    
    
    
    30,540,473Diluted
    
    
    32,605,494
    
    
    
    32,649,141
    
    
    
    32,481,844
    
    
    
    31,595,277(1) 
Includes the following amounts related to
equity-based compensation expense:Research and development

    
    308
    
    
    
    
    
    
    
    660
    
    
    
    Selling, general and administrative

    
    646
    
    
    
    
    
    
    
    1,282
    
    
    
    Income tax provision

    
    (348
    )
    
    
    
    
    
    
    (709
    )
    
    
    
 See accompanying notes.
 2




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##### 



MARTEK BIOSCIENCES CORPORATION
  AccumulatedAdditional
    
    
    OtherCommon Stock
    
    
    Paid-in
    
    
    Comprehensive
    
    
    AccumulatedUnaudited - In thousands, except share data
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Income
    
    
    Deficit
    
    
    TotalBalance at October 31, 2005
    
    
    32,026,595
    
    
    $
    3,203
    
    
    $
    515,237
    
    
    $
    1
    
    
    $
    (49,236
    )
    
    $
    469,205Exercise of stock options and warrants
    
    
    106,237
    
    
    
    10
    
    
    
    2,503
    
    
    
    
    
    
    
    
    
    
    
    2,513Equity-based compensation
    
    
    
    
    
    
    
    
    
    
    2,246
    
    
    
    
    
    
    
    
    
    
    
    2,246Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,221
    
    
    
    10,221Other comprehensive income:Unrealized gain on exchange rate forward
contract, net of tax of $413
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    839
    
    
    
    
    
    
    
    839Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,060Balance at April 30, 2006 (restated)
    
    
    32,132,832
    
    
    $
    3,213
    
    
    $
    519,986
    
    
    $
    840
    
    
    $
    (39,015
    )
    
    $
    485,024
 See accompanying notes.
 3




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##### 



MARTEK BIOSCIENCES CORPORATION
  Six months ended April 30,Unaudited
- In thousands
    

2006
    
    

2005(restated)Operating activitiesNet income
    
    $
    10,221
    
    
    $
    10,505Adjustments to reconcile net income to net cash used in operating activities:Depreciation and amortization
    
    
    10,589
    
    
    
    7,895Deferred tax provision
    
    
    5,875
    
    
    
    6,039Equity-based compensation expense
    
    
    1,942
    
    
    
    Other
    
    
    
    
    
    
    1,117Changes in operating assets and liabilities:Accounts receivable
    
    
    (3,961
    )
    
    
    559Inventories
    
    
    (10,789
    )
    
    
    (19,129
    )Other assets
    
    
    (6,176
    )
    
    
    1,738Accounts payable
    
    
    3,598
    
    
    
    (10,613
    )Accrued liabilities
    
    
    (365
    )
    
    
    568Unearned revenue and other liabilities
    
    
    947
    
    
    
    (1,424
    )Net cash provided by (used in) operating activities
    
    
    11,881
    
    
    
    (2,745
    )Investing activitiesSale (purchase) of short-term investments and marketable securities, net
    
    
    11,050
    
    
    
    (32,395
    )Expenditures for property, plant and equipment
    
    
    (4,631
    )
    
    
    (45,546
    )Proceeds from sale-leaseback transaction
    
    
    
    
    
    
    4,128Capitalization of intangible assets
    
    
    (3,035
    )
    
    
    (1,186
    )Net cash provided by (used in) investing activities
    
    
    3,384
    
    
    
    (74,999
    )Financing activitiesRepayments of notes payable and other long-term obligations
    
    
    (2,505
    )
    
    
    (4,310
    )Repayments under revolving credit facility, net
    
    
    (12,000
    )
    
    
    (30,000
    )Proceeds from the issuance of common stock and exercise of stock options and warrants, net
    
    
    2,513
    
    
    
    93,581Other
    
    
    
    
    
    
    500Net cash (used in) provided by financing activities
    
    
    (11,992
    )
    
    
    59,771Net increase (decrease) in cash and cash equivalents
    
    
    3,273
    
    
    
    (17,973
    )Cash and cash equivalents, beginning of period
    
    
    11,047
    
    
    
    29,445Cash and cash equivalents, end of period
    
    $
    14,320
    
    
    $
    11,472Supplemental cash flow disclosures:Interest paid
    
    $
    2,066
    
    
    $
    1,775Income taxes paid
    
    $
    55
    
    
    $
    
 See accompanying notes.
 4




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##### 



1. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
    As
    
    
    
    
    
    
    AsReported
    
    
    Adjustment
    
    
    RestatedProperty, plant and equipment, net
    
    $
    288,699
    
    
    $
    (2,598
    )
    
    $
    286,101Deferred tax asset
    
    
    41,433
    
    
    
    948
    
    
    
    42,381Total assets
    
    
    585,816
    
    
    
    (1,650
    )
    
    
    584,166Accumulated deficit
    
    
    (37,365
    )
    
    
    (1,650
    )
    
    
    (39,015
    )Total stockholders equity
    
    
    486,674
    
    
    
    (1,650
    )
    
    
    485,024Total liabilities and stockholders equity
    
    
    585,816
    
    
    
    (1,650
    )
    
    
    584,166
   As
    
    
    
    
    
    
    AsReported
    
    
    Adjustment
    
    
    RestatedCost of
product sales, including idle capacity costs
    
    $
    38,198
    
    
    $
    1,318
    
    
    $
    39,516Total cost of revenues
    
    
    42,975
    
    
    
    1,318
    
    
    
    44,293Gross margin
    
    
    27,243
    
    
    
    (1,318
    )
    
    
    25,925Income from operations
    
    
    10,280
    
    
    
    (1,318
    )
    
    
    8,962Income before income tax provision
    
    
    9,900
    
    
    
    (1,318
    )
    
    
    8,582Income tax provision
    
    
    3,612
    
    
    
    (481
    )
    
    
    3,131Net income
    
    
    6,288
    
    
    
    (837
    )
    
    
    5,451Net income per share:Basic
    
    $
    0.20
    
    
    $
    (0.03
    )
    
    $
    0.17Diluted
    
    $
    0.19
    
    
    $
    (0.02
    )
    
    $
    0.17
   As
    
    
    
    
    
    
    AsReported
    
    
    Adjustment
    
    
    RestatedCost of
product sales, including idle capacity costs
    
    $
    74,368
    
    
    $
    2,598
    
    
    $
    76,966Total cost of revenues
    
    
    81,184
    
    
    
    2,598
    
    
    
    83,782Gross margin
    
    
    51,926
    
    
    
    (2,598
    )
    
    
    49,328Income from operations
    
    
    19,575
    
    
    
    (2,598
    )
    
    
    16,977Income before income tax provision
    
    
    18,694
    
    
    
    (2,598
    )
    
    
    16,096Income tax provision
    
    
    6,823
    
    
    
    (948
    )
    
    
    5,875Net income
    
    
    11,871
    
    
    
    (1,650
    )
    
    
    10,221Net income per share:Basic
    
    $
    0.37
    
    
    $
    (0.05
    )
    
    $
    0.32Diluted
    
    $
    0.37
    
    
    $
    (0.06
    )
    
    $
    0.31
 5




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##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
 Consolidation
 Use of Estimates
 Segment Information
 Revenue Recognition
  Shipping Income and Costs
 Foreign Currency Transactions and Hedging Activities
  6




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##### 



Research and Development
 Other Operating Expenses
 Deferred Income Taxes
  Equity-Based Compensation
 Net Income Per Share
 Comprehensive Income
 Cash and Cash Equivalents
 Short-Term Investments and Marketable Securities
   7




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##### 



Fair Value of Financial Instruments
 Trade Receivables
 Inventories
 Property, Plant and Equipment
 Asset Description
    
    Useful Life (years)Building
    
    
    15 - 30Fermentation equipment
    
    
    10 - 20Oil processing equipment
    
    
    10 - 20Other machinery and equipment
    
    
    5 - 10Furniture and fixtures
    
    
    5 -   7Computer hardware and software
    
    
    3 -   7
  Goodwill and Other Intangible Assets
 Impairment of Long-Lived Assets
 3. DSM SUPPLY AND LICENSE AGREEMENT
  8




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##### 



4. SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
  5. INVENTORIES
  April 30,
    
    
    October 31,2006
    
    
    2005Finished goods
    
    $
    53,444
    
    
    $
    34,328Work in process
    
    
    47,417
    
    
    
    55,073Raw materials
    
    
    3,467
    
    
    
    3,634Total inventory
    
    
    104,328
    
    
    
    93,035Less: inventory reserve
    
    
    (1,700
    )
    
    
    (1,500
    )Inventories, net
    
    $
    102,628
    
    
    $
    91,535
 6. PROPERTY, PLANT AND EQUIPMENT
  April 30,
    
    

October
31,2006
    
    
    2005(restated)Land
    
    $
    2,320
    
    
    $
    2,318Building and improvements
    
    
    59,622
    
    
    
    45,515Machinery and equipment
    
    
    233,321
    
    
    
    187,922Furniture and fixtures
    
    
    3,349
    
    
    
    3,161Computer hardware and software
    
    
    11,541
    
    
    
    8,085310,153
    
    
    
    247,001Less: accumulated depreciation and amortization
    
    
    (42,404
    )
    
    
    (33,143
    )267,749
    
    
    
    213,858Construction in progress
    
    
    18,352
    
    
    
    76,875Property, plant and equipment, net
    
    $
    286,101
    
    
    $
    290,733
   9




---



##### 



7. GOODWILL AND OTHER INTANGIBLE ASSETS
  April 30, 2006
    
    
    October 31, 2005Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedIntangible Asset
    
    Gross
    
    
    Amortization
    
    
    Net
    
    
    Gross
    
    
    Amortization
    
    
    NetTrademarks
    
    $
    2,041
    
    
    $
    (467
    )
    
    $
    1,574
    
    
    $
    2,026
    
    
    $
    (401
    )
    
    $
    1,625Patents
    
    
    13,776
    
    
    
    (1,234
    )
    
    
    12,542
    
    
    
    11,741
    
    
    
    (1,734
    )
    
    
    10,007Core technology
    
    
    1,708
    
    
    
    (399
    )
    
    
    1,309
    
    
    
    1,708
    
    
    
    (342
    )
    
    
    1,366Current products
    
    
    10,676
    
    
    
    (2,872
    )
    
    
    7,804
    
    
    
    10,676
    
    
    
    (2,516
    )
    
    
    8,160Licenses
    
    
    11,091
    
    
    
    (1,495
    )
    
    
    9,596
    
    
    
    11,091
    
    
    
    (1,120
    )
    
    
    9,971Goodwill
    
    
    48,575
    
    
    
    
    
    
    
    48,575
    
    
    
    48,490
    
    
    
    
    
    
    
    48,490$
    87,867
    
    
    $
    (6,467
    )
    
    $
    81,400
    
    
    $
    85,732
    
    
    $
    (6,113
    )
    
    $
    79,619
 8. NOTES PAYABLE AND LONG-TERM DEBT
    9. COMMITMENTS AND CONTINGENCIES
 Purchase Commitments
  Scientific Research Collaborations
 10




---



##### 



OmegaTech Contingent Purchase Price
 Class Action Lawsuits
 Other
 10. STOCKHOLDERS EQUITY
 Equity-Based Compensation
    11




---



##### 



Three months ended April 30,
    
    
    Six months ended April 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(restated)
    
    


    
    

(restated)Net income, as reported
    
    $
    5,451
    
    
    $
    3,433
    
    
    $
    10,221
    
    
    $
    10,505Deduct: Total equity-based employee compensation expense
determined under fair value-based methods for all awards
    
    
    
    
    
    
    (8,176
    )
    
    
    
    
    
    
    (43,970
    )Pro forma net income (loss)
    
    $
    5,451
    
    
    $
    (4,743
    )
    
    $
    10,221
    
    
    $
    (33,465
    )Net income (loss) per share:Basic  as reported
    
    $
    0.17
    
    
    $
    0.11
    
    
    $
    0.32
    
    
    $
    0.34Basic  pro forma
    
    $
    0.17
    
    
    $
    (0.15
    )
    
    $
    0.32
    
    
    $
    (1.10
    )Diluted  as reported
    
    $
    0.17
    
    
    $
    0.11
    
    
    $
    0.31
    
    
    $
    0.33Diluted  pro forma
    
    $
    0.17
    
    
    $
    (0.15
    )
    
    $
    0.31
    
    
    $
    (1.10
    )
   Three months ended
    
    Six months endedApril 30, 2006
    
    April 30, 2006Expected volatility
    
    
    60.8
    %
    
    
    61.1
    %Risk-free interest rate
    
    
    4.6
    %
    
    
    4.5
    %Expected life of options
    
    5
    years

    5
yearsExpected dividend yield
    
    
    0
    %
    
    
    0
    %Forfeiture rate
    
    
    0
    %
    
    
    1
    %
 Expected Volatility
 Risk-Free Interest Rate
 Expected Life of Options
 Expected Dividend Yield
 Forfeiture Rate
 12




---



##### 



Weighted AverageWeighted
    
    
    
    
    
    
    RemainingNumber of
    
    
    Average
    
    
    Aggregate
    
    
    ContractualShares
    
    
    Price/Share
    
    
    Intrinsic Value
    
    
    Term (years)Options outstanding at October 31, 2005
    
    
    3,924
    
    
    $
    38.39Options exercisable at October 31, 2005
    
    
    3,438
    
    
    $
    40.14Granted
    
    
    59
    
    
    $
    31.71Exercised
    
    
    (75
    )
    
    $
    26.87Canceled
    
    
    (108
    )
    
    $
    39.37Options outstanding at April 30, 2006
    
    
    3,800
    
    
    $
    38.49
    
    
    $
    13,710
    
    
    
    6.9Options exercisable at April 30, 2006
    
    
    3,466
    
    
    $
    39.58
    
    
    $
    11,885
    
    
    
    6.9
   Stockholder Rights Plan
    13




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##### 



11. NET INCOME PER SHARE
   Three months ended April 30,
    
    
    Six months ended April 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(restated)
    
    


    
    

(restated)Net income
    
    $
    5,451
    
    
    $
    3,433
    
    
    $
    10,221
    
    
    $
    10,505Weighted average shares outstanding, basic
    
    
    32,099
    
    
    
    31,497
    
    
    
    32,077
    
    
    
    30,540Effect of dilutive potential common shares:Stock options
    
    
    506
    
    
    
    1,131
    
    
    
    404
    
    
    
    1,035Warrants
    
    
    
    
    
    
    21
    
    
    
    1
    
    
    
    20Total dilutive potential common shares
    
    
    506
    
    
    
    1,152
    
    
    
    405
    
    
    
    1,055Weighted average shares outstanding, diluted
    
    
    32,605
    
    
    
    32,649
    
    
    
    32,482
    
    
    
    31,595Net income per share, basic
    
    $
    0.17
    
    
    $
    0.11
    
    
    $
    0.32
    
    
    $
    0.34Net income per share, diluted
    
    $
    0.17
    
    
    $
    0.11
    
    
    $
    0.31
    
    
    $
    0.33
  12. COMPREHENSIVE INCOME
  Three months ended April 30,
    
    
    Six months ended April 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(restated)
    
    


    
    

(restated)Net income, as reported
    
    $
    5,451
    
    
    $
    3,433
    
    
    $
    10,221
    
    
    $
    10,505Other comprehensive income (loss):Unrealized gain (loss) on exchange rate forward contract,
net of income tax provision
(benefit) of $254, $92, $413
and $(62), respectively
    
    
    575
    
    
    
    154
    
    
    
    839
    
    
    
    (170
    )Comprehensive income
    
    $
    6,026
    
    
    $
    3,587
    
    
    $
    11,060
    
    
    $
    10,335
 14




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##### 



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
 This Managements Discussion and Analysis of Financial Condition and Results of Operations contains
forward-looking statements concerning our business and operations, including, among other things,
statements concerning the following:
 
    
    expectations regarding future revenue growth, product introductions, growth in
nutritional product sales, margin and productivity improvements and potential
collaborations and acquisitions;
    
    expectations regarding sales to and by our infant formula licensees;
    
    expectations regarding marketing of our oils by our infant formula licensees;
    
    expectations regarding future efficiencies in manufacturing processes and the cost of production of our nutritional oils;
    
    expectations regarding future purchases of third-party manufactured oils;
    
    expectations regarding the amount of production capacity and our ability to meet future demands for our nutritional oils;
    
    expectations regarding the amount of inventory held by us or our customers;
    
    expectations regarding the effects of excess production capacity;
    
    expectations regarding future research and development costs;
    
    expectations regarding additional capital expenditures needed in relation to our fermentation and oil processing activities;
    
    expectations regarding possibly significant expenses to defend putative securities
class action lawsuits alleging false and material misstatements and omissions of
material facts concerning our business and prospects; and
    
    expectations regarding our ability to protect our intellectual property.
 Forward-looking statements include those statements containing words such as the following:
 
    
    will,
    
    should,
    
    could,
    
    anticipate,
    
    believe,
    
    plan,
    
    estimate,
    
    expect,
    
    intend, and other similar expressions.
 All of these forward-looking statements involve risks and uncertainties. They and other
forward-looking statements in this Form 10-Q/A are all made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. We wish to caution you that our actual
results may differ significantly from the results we discuss in our forward-looking statements. We
discuss some of the risks that could cause such differences in
Item 1A. Risk Factors in the original report
on Form 10-Q and in our various other filings with the Securities and Exchange Commission. Our
forward-looking statements speak only as of the date of this document, and we do not intend to
update these statements to reflect events or circumstances that occur after that date.
 GENERAL
   15




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##### 




    
    the timing of infant formula market introductions by our licensees both domestically and
internationally;
    
    the timing and extent of stocking and destocking of inventory by our licensees,
including the potential that licensees will move to just in time inventory purchasing now
that we have reached a base finished goods inventory level;
 
    
    the timing and extent of our customers plant maintenance shutdowns;
    
    the timing and extent of introductions of DHA into various child and/or adult applications;
    
    the continued acceptance of products containing our oils under state-administered reimbursement programs in the U.S.;
    
    the continued acceptance of these products by consumers and continued demand by our customers;
    
    the ability by us, DSM and other third-party manufacturers to produce adequate levels of our nutritional oils on a consistent basis;
    
    our ability to protect against competitive products through our patents;
    
    competition from alternative sources of DHA and ARA; and
    
    agreements with other future third-party collaborators to market our products or develop new products.
  RECENT HIGHLIGHTS
   Mortierella Alpina
  ® ®
  16




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##### 




    
    A letter published by world-renowned scientist Dr. B. Ames and associate J. McCann in
April 2006 in the American Journal of Clinical Nutritionurges the American Academy of
Pediatrics (AAP) to strengthen its position on the addition of DHA to infant formula.
    
    Research conducted by Dr. E. Kawakita and others published in March 2006 in
Neurosciencedemonstrated that DHA both in cell culture and animals stimulated new nerve
cell growth. This supports the important role of DHA in the developing brain.
    
    Research conducted by Alan Grossfield and others published in March 2006 in the
Proceedings of the National Academy of Sciencesdemonstrated the important role of DHA in
the function of rhodopsin, the light receptor protein in the retina that converts photons
to electrons for processing in the brain.
    
    A study conducted by Dr. C. Agostoni and others published in March 2006 in
Developmental Medicine & Child Neurologyfound that in children with the rare genetic
disorder phenylketonuria (PKU), addition of DHA in formula was associated with improved
visual scores.
    
    A study published by Dr. D. Hoffman and others in March 2006 in Journal of Pediatric
Gastroenterology and Nutritiondemonstrated that increasing levels of alpha linolenic
acid in formula was not adequate to improve DHA levels in infants receiving formula. They
concluded that healthy formula fed infants appear to require preformed DHA in an amount
closer to that of average worldwide human milk in order to approximate the DHA levels
seen in breastfed infants.
 MANAGEMENT OUTLOOK
   PRODUCTION
   17




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##### 



CRITICAL ACCOUNTING POLICIES AND
THE USE OF ESTIMATES
  18




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##### 



RESULTS OF OPERATIONS
 Revenues
  Three months ended April 30,
    
    
    Six months ended April 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Product sales
    
    $
    65,210
    
    
    $
    52,834
    
    
    $
    125,707
    
    
    $
    115,945Contract manufacturing sales
    
    
    5,008
    
    
    
    2,997
    
    
    
    7,403
    
    
    
    6,375Total revenues
    
    $
    70,218
    
    
    $
    55,831
    
    
    $
    133,110
    
    
    $
    122,320
     Cost of Revenues
  Three months ended April 30,
    
    
    Six months ended April 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(restated)
    
    


    
    

(restated)Cost of
product sales, including idle capacity costs
    
    $
    39,516
    
    
    $
    32,792
    
    
    $
    76,966
    
    
    $
    68,894Cost of contract manufacturing sales
    
    
    4,777
    
    
    
    2,585
    
    
    
    6,816
    
    
    
    5,389Total cost of revenues
    
    $
    44,293
    
    
    $
    35,377
    
    
    $
    83,782
    
    
    $
    74,283
   19




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##### 



Operating Expenses
  Three months ended April 30,
    
    
    Six months ended April 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Research and development
    
    $
    6,258
    
    
    $
    5,321
    
    
    $
    11,738
    
    
    $
    10,137Selling, general and administrative
    
    
    10,270
    
    
    
    8,107
    
    
    
    20,137
    
    
    
    16,252Other operating expenses
    
    
    435
    
    
    
    2,075
    
    
    
    476
    
    
    
    5,560Total operating expenses
    
    $
    16,963
    
    
    $
    15,503
    
    
    $
    32,351
    
    
    $
    31,949
 Research and Development
 Selling, General and Administrative
 Other Operating Expenses
 Interest and Other Income, Net
  Interest Expense
  Income Tax Provision
   20




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##### 



Net Income
     LIQUIDITY AND CAPITAL RESOURCES
  
    
    cash generated from operations;
    
    proceeds from the sale of equity securities;
    
    cash received from the exercise of stock options and warrants; and
    
    debt financing.
    21




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##### 



Less than
    
    
    1-3
    
    
    3-5
    
    
    More thanIn thousands
    
    Total
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 yearsNotes payable (1)
    
    $
    11,965
    
    
    $
    1,176
    
    
    $
    9,503
    
    
    $
    424
    
    
    $
    862Borrowings under revolving credit facility
    
    
    43,000
    
    
    
    
    
    
    
    
    
    
    
    43,000
    
    
    
    Operating and capital lease obligations
    
    
    14,112
    
    
    
    3,657
    
    
    
    7,236
    
    
    
    2,857
    
    
    
    362Unconditional inventory purchase obligations (2)
    
    
    42,063
    
    
    
    2,922
    
    
    
    39,141
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    111,140
    
    
    $
    7,755
    
    
    $
    55,880
    
    
    $
    46,281
    
    
    $
    1,224
 
 (1)
    
    Minimum payments above include interest and principal due under these notes.(2)
    
    Primarily includes future inventory purchases from DSM pursuant to the guarantee described
below in Off-Balance Sheet Arrangements.      
    
    the cost and extent of capital expenditures at our manufacturing facilities;
    
    growth in our infant formula, food and beverage and other nutritional product sales;
    
    the extent and progress of our research and development programs;
    
    the progress of pre-clinical and clinical studies;
    
    the time and costs of obtaining and maintaining regulatory clearances for our products that are subject to such clearances;
    
    the costs involved in filing, protecting and enforcing patent claims;
    
    competing technological and market developments;
    
    the development or acquisition of new products;
    
    the cost of acquiring additional and/or operating and expanding existing manufacturing
facilities for our various products and potential products (depending on which products we
decide to manufacture and continue to manufacture ourselves);
    
    the costs associated with our internal build-up of inventory levels;
    
    the costs associated with our defense against putative securities class action and other lawsuits; and
    
    the costs of marketing and commercializing our products.
  22




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##### 



OFF-BALANCE SHEET ARRANGEMENTS
    23




---



##### 



Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
 24




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##### 



PART II  OTHER INFORMATION
 Item 6. Exhibits.
 31.01
    
    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).*31.02
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).*32.01
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.02
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
 
 *
    
    Filed or furnished herewith. 25




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##### 



SIGNATURES
  MARTEK BIOSCIENCES CORPORATION(Registrant)Date:  May 8, 2007
    /s/ Peter L. BuzyPeter L. Buzy, Chief Financial Officer and Treasurer(Principal Financial and Accounting Officer) 26