UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


                                    FORM 10-Q

         [ X ]             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the Quarterly Period Ended July 31, 1998

                                       or

         [     ]          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
             (Exact name of registrant as specified in its charter)



                              Delaware 52-1399362
           (State of Incorporation) (IRS Employer Identification No.)

                   6480 Dobbin Road, Columbia, Maryland 21045
                    (Address of principal executive offices)

        Registrant's telephone number including area code: (410)740-0081

                                      None
   (Former name, former address and former fiscal year, if changed since last
                                    report)




     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. X Yes No


      Common stock, par value $.10 per share: 14,879,434 shares outstanding
                             as of September 8, 1998



                                  Page 1 of 13
<PAGE>
                               PART I - FINANCIAL
                                 INFORMATION

Item 1. Financial Statements.

MARTEK BIOSCIENCES CORPORATION
Balance Sheets
($ in thousands)

--------------------------------------------------------------------------------
                                                 July 31,         October 31,
                                                   1998              1997
--------------------------------------------------------------------------------
                                               (Unaudited)
Assets:
Current assets:
     Cash and cash equivalents                     $3,524            $1,977
     Short-term investments and
        marketable securities                      18,694            18,698
     Accounts receivable                              746             1,181
     Inventories  (Note 3)                          4,137             2,906
     Other current assets                             455               591
                                              ----------------------------------
Total current assets                               27,556            25,353
Property, plant and equipment, net                 16,227            15,989
                                              ----------------------------------
                                                  $43,783           $41,342
                                              ==================================

Liabilities and stockholders' equity:
Current liabilities:
     Accounts payable                             $   614            $1,008
     Accrued liabilities                            1,143             1,041
     Current portion of notes payable               1,328             1,314
                                              ----------------------------------
Total current liabilities                           3,085             3,363
Long-term portion of notes payable                  2,298             3,292
Commitments and contingencies (Note 2)
Stockholders' equity:
     Preferred 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.      ---               ---
     Common stock, $.10 par value; 30,000,000 
        shares authorized; 14,873,384 
        and 13,673,659 shares issued and 
        outstanding at July 31, 1998
        and October 31, 1997, respectively.         1,487             1,367
     Additional paid-in capital                    92,796            78,908
     Accumulated deficit                          (55,883)          (45,588)
                                              ----------------------------------
Total stockholders' equity                         38,400            34,687
                                              ----------------------------------

                                                  $43,783           $41,342
                                              ==================================

See accompanying notes.





                                  Page 2 of 13
<PAGE>

MARTEK BIOSCIENCES CORPORATION
Statements of Operations
(Unaudited - $ in thousands, except per share data)

                                        Three months            Nine months
                                       ended July 31,          ended July 31,   
--------------------------------------------------------------------------------
                                      1998       1997         1998       1997
--------------------------------------------------------------------------------

Revenues:
     Product Sales:
        Nutritional product sales     $619       $539       $1,927      $1,192
        Other product sales            491        436        1,595       1,229
                                  --------------------    ----------------------
     Total Product Sales             1,110        975        3,522       2,421
     License fees and related 
       revenues                       ---         ---        1,143         293
     Royalties                         67           7          187          16
     Research and development  
       contracts and grants           140         101          326         375
     Third party contract 
       revenue                        ---         ---           22         ---
                                  --------------------    ----------------------
Total revenues                      1,317       1,083        5,200       3,105
Costs and expenses:
     Cost of product sales            887         773        2,825       1,925
     Research and development       2,575       2,716        7,475       8,397
     Selling, general and 
       administrative               1,551       1,730        5,705       5,532
                                  --------------------    ----------------------
Total costs and expenses            5,013       5,219       16,005      15,854
                                  --------------------    ----------------------
Loss from operations               (3,696)     (4,136)     (10,805)    (12,749)
Other income (expense):
     Miscellaneous income              25          18           67          45
     Interest income                  341         400          801       1,354
     Interest expense                (170)       (111)        (358)       (323)
                                  --------------------    ----------------------
Total other income                    196         307          510       1,076
                                  --------------------    ----------------------

Net loss                          ($3,500)    ($3,829)    ($10,295)   ($11,673)
--------------------------------------------------------------------------------

Net loss per share (Note 5)        ($0.24)     ($0.28)      ($0.73)     ($0.86)
--------------------------------------------------------------------------------

Weighted average common
shares outstanding             14,833,397  13,609,781   14,145,134  13,530,766
--------------------------------------------------------------------------------


See accompanying notes.












                                Page 3 of 13
<PAGE>

MARTEK BIOSCIENCES CORPORATION
Statements of Cash Flows
(Unaudited - $ in thousands)

                                                     Nine Months ended July 31,
--------------------------------------------------------------------------------
                                                       1998            1997
--------------------------------------------------------------------------------

Operating activities:
  Net loss                                          ($10,295)       ($11,673)
  Adjustments to reconcile net loss to net cash
     used in operating activities:
     Depreciation and amortization                     1,001             861
     Changes in assets and liabilities:
        Accounts receivable                              435            (221)
        Inventories                                   (1,231)           (844)
        Other current assets                             136            (146)
        Accounts payable                                (394)            (25)
        Accrued liabilities                              102            (279)
                                                 -------------------------------
  Net cash used in operating activities              (10,246)        (12,327)

Investing activities:
     Change in short-term investments
       and marketable securities                           4           8,579    
     Purchase of property, plant and equipment        (1,239)         (1,411)
                                                 -------------------------------
  Net cash provided by (used in) 
       investing activities                           (1,235)          7,168

Financing activities:
     Proceeds from issuance of common stock
       in private placement                           10,010             ---
     Proceeds from the exercise of warrants 
       and options                                     3,998             514
     Borrowings on notes payable                         ---           4,000
     Repayment of notes payable                         (980)         (4,652)
                                                 -------------------------------
  Net cash provided by (used in)
     financing activities                             13,028            (138)
                                                 -------------------------------

  Net increase (decrease) in cash and
     cash equivalents                                  1,547          (5,297)
  Cash and cash equivalents at beginning of year       1,977           8,633
                                                 -------------------------------

  Cash and cash equivalents at end of period          $3,524          $3,336
                                                 ===============================





See accompanying notes.












                               Page 4 of 13
<PAGE>

MARTEK BIOSCIENCES CORPORATION
Statement of Stockholders' Equity
(Unaudited - $ in thousands)


                                                Additional
                                                Paid-In     Accumulated
                                Common Stock    Capital       Deficit    Total
                  --------------------------------------------------------------
                             Shares    Amounts

Balance at
October 31, 1997          13,673,659   $1,367    $78,908    ($45,588)  $34,687
--------------------------------------------------------------------------------

Issuance of common stock
in private placement         655,563       66      9,944        ---     10,010
                                                              

Exercise of stock options
and warrants                 544,162       54      3,944        ---      3,998
                                                                                

Net loss                        ---       ---       ---      (10,295)  (10,295)
--------------------------------------------------------------------------------


Balance at
July 31, 1998             14,873,384    $1,487   $92,796    ($55,883)  $38,400
--------------------------------------------------------------------------------


See accompanying notes.






























                                  Page 5 of 13
<PAGE>

Notes to Financial Statements (Unaudited)

1.  Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting  principles for interim financial information
and  with the  instructions  to Form  10-Q and  Article  10 of  Regulation  S-X.
Accordingly,  they do not include all of the information and footnotes  required
by generally accepted accounting  principles for complete financial  statements.
In the opinion of management,  all adjustments  (consisting of normal  recurring
accruals)  considered  necessary  for a fair  presentation  have been  included.
Operating  results for the  quarter and nine months  ended July 31, 1998 are not
necessarily  indicative  of the results  that may be expected for the year ended
October 31, 1998. For further information, refer to the financial statements and
footnotes thereto included in Martek Biosciences  Corporation's annual report on
Form 10-K for the year ended October 31, 1997.

2.  Commitment and Contingencies

The Company had commitments at July 31, 1998 to fund up to $1.5 million of Phase
III Small Business  Innovation  Research ("SBIR")  technology  commercialization
expenses,  provided the  technology  under  existing Phase II SBIR grants yields
commercial opportunities favorable to the Company.

Costs under U.S.  Government  contracts are subject to audit by the  appropriate
U.S. Government agency.  Management  believes that cost  disallowances,  if any,
arising from such audits of costs charged to government  contracts  through July
31, 1998, would not have a material effect on the financial statements.

The Company has licensed certain technologies and recognized license fee revenue
under  various  agreements.  License fees are not recorded as revenue  until the
earnings process is complete and amounts are not subject to refund.  In January,
1998,  a  license  fee  of  $1,125,000  associated  with  a  pre-1998  licensing
arrangement was recognized.

The  Company  has  entered  into  various  collaborative  research  and  license
agreements. Under the agreements, the Company is required to fund research or to
collaborate  on  the  development  of  potential  products.   Certain  of  these
agreements  also  commit the Company to pay  royalties  upon the sale of certain
products resulting from such collaborations.

3.  Inventories

Inventories consist of the following:

                                                 July 31,        October 31,
                                                   1998             1997  
                                                ----------       ----------
                      Finished products         $2,160,896       $1,661,439
                      Work in process            1,689,516          909,932
                      Raw materials                286,909          334,081
                                                ----------       ----------
                                                $4,137,321       $2,905,452
                                                ==========       ==========

Inventories include products and materials held for sale as well as products and
materials  that  could  alternatively  be used  in the  Company's  research  and
development activities.




                                  Page 6 of 13
<PAGE>

4.  Income Taxes

At  July  31,  1998,  the  Company  had  net  operating  loss  carryforwards  of
approximately  $68,942,000  for income tax  purposes  that  expire in years 2000
through 2012.

Section 382 of the Internal Revenue Code limits the utilization of net operating
losses when ownership changes,  as defined by that section,  are greater than 50
percent.  The  Company  has  had  significant  ownership  changes  in the  past,
including an initial public  offering of its common stock in December 1993 and a
follow-on  public  offering of its common stock in October 1995,  which may have
caused these limitations to apply.

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the  Company's  deferred tax assets as of July 31, 1998 and October 31, 1997 are
as follows:

                                                      July 31,     October 31,
                                                        1998          1997
                                                    ------------   -----------
         Deferred tax assets:
            Write-off of patent                     $   403,000    $   328,000
            Other                                        44,000         44,000
            Net operating loss carryforwards         27,577,000     23,459,000
                                                    ------------   -----------
               Total deferred tax assets            $28,024,000    $23,831,000
                                                    ============   ===========
                 Valuation allowance for net
                  deferred tax assets              ($28,024,000)  ($23,831,000)
                                                    ============  ============
            Net deferred tax assets                 $       ---    $       ---
                                                    ============  ============


5.  Net loss per share

In 1997, the Financial  Accounting  Standards  Board (FASB) issued  Statement of
Financial  Accounting Standards (SFAS) No. 128, Earnings Per Share. SFAS No. 128
replaced the previously  reported  primary and fully diluted  earnings per share
with basic and diluted  earnings per share.  Unlike primary  earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants, and
convertible  securities.  Diluted  earnings  per  share is very  similar  to the
previously  reported fully diluted  earnings per share.  The Company's per share
amounts for all periods presented conform to SFAS No. 128 requirements.

6.  Private Placement of Common Stock

On April 27, 1998,  655,563 shares of the Company's common stock and warrants to
purchase  196,670  shares of common  stock  were  issued in a private  placement
resulting  in net  proceeds to the Company of  approximately  $10  million.  The
warrants are  exercisable for a period of three years from date of issuance at a
price of $18.76. The investors have also agreed to a two-year funding commitment
to provide up to an additional $10.25 million in financing in the form of common
stock and  warrants,  at the  discretion  of the  Company,  subject  to  certain
conditions,  which  include the stock price being within  twenty  percent of the
initial  issuance price of $15.63.  In consideration  for the additional  $10.25
million  two-year  funding  commitment,  the Company is  obligated  to issue the
investors additional warrants to purchase up to 51,250 shares of common stock at
the end of each of year one and year two if the  Company  does not  utilize  the
additional funding by such dates.




                                  Page 7 of 13
<PAGE>

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations.


General

This Management's  Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements concerning the Company's business
and operations,  including  statements  concerning:  (1) expectations  regarding
future product introductions,  distribution,  sales,  applications and potential
marketing  partnerships;  (2) expectations  regarding sales and royalties by and
from formula  licensees;  (3)  expectations  regarding  future  efficiencies  in
manufacturing  processes and the cost of production of the Company's nutritional
oils; (4) future research and development costs and; (5) expectations  regarding
additional  capital  expenditures  needed in  relation to  fermentation  and oil
processing activities.  Forward-looking statements may relate to such matters as
the   Company's   ability  to  generate   future   revenues  and  the  potential
commercialization  of the Company's products including  production  efficiencies
and include those statements containing words such as "will," "should," "could,"
"anticipate,"  "believe,"  "plan,"  estimate,"  "expect,"  "intend,"  and  other
similar expressions.  Such statements involve risks and uncertainties and actual
results may differ materially due to a variety of risk factors including without
limitation  those factors set forth in Exhibit 99.1 to this report and from time
to time in the Company's filings with the Securities and Exchange Commission.

Martek, founded in 1985, is a leader in the development and commercialization of
high value products derived from  microalgae,  including  nutritional  products,
pharmaceutical research and development tools and diagnostics.  Martek develops,
manufactures and sells products from microalgae. The Company's products include:
(1) specialty,  nutritional oils for infant formula, nutritional supplements and
food  ingredients  which play a central role in the  development of the eyes and
central  nervous  system;  (2)  high  value  reagents  to  visualize   molecular
interactions  for  drug  discovery  and  development;  and (3) new and  powerful
fluorescent markers for diagnostics,  rapid miniaturized  screening and gene and
protein  detection.  In 1989, Martek began to realize revenues from sales of its
reagent  products.  In 1992,  Martek began to realize revenues from license fees
related to its  nutritional  oils  containing  docosahexaenoic  acid ("DHA") and
arachidonic acid ("ARA") and sales of sample  quantities of these oils. In 1995,
Martek  recognized  its first product and royalty  revenues from sales of infant
formula  containing  these oils, and in 1996,  Martek began to realize  revenues
from the sale of Neuromins(TM),  a DHA dietary supplement. In 1998, Martek first
realized revenues from the sale of its new fluorescent pigments.

Martek has incurred  losses in each year since its inception.  At July 31, 1998,
the  Company's  accumulated  deficit was  $55,883,000.  The  Company  expects to
continue to expand its research and development effort,  optimize oil production
and increase its product  marketing  activities.  As a result,  Martek's  losses
could increase for at least the next six months,  or until  significant sales of
its  nutritional  oils and Neuromins (TM) DHA products occur and/or  significant
royalties  from  sales  of  infant  formula  products  containing  its  oils are
recognized.  In addition,  the Company expects to experience  quarter-to-quarter
and year-to-year  fluctuations in revenues,  expenses and losses,  some of which
may be significant.  The timing and extent of such  fluctuations will depend, in
part, on the timing and receipt of oils-related revenues.

Management  believes  that while  quarterly  results  may show  fluctuations  in
product  sales,  the outlook for future  revenue  growth remains strong and that
sales for  fiscal  1998 and 1999 are  expected  to surpass  prior  year  levels.
Specifically,  management  believes  that for the balance of the fiscal year and
1999:  (1)  Infant  formula  containing  Martek's  oils  will be  introduced  in
additional countries;  (2) sales and royalties from the Company's infant formula
licensees will continue to grow;  (3)  distribution  of the Company's  Neuromins
capsule  products  will expand;  (4) sales of new high value  products  from the
Company's  stable isotope group will increase and; (5) diagnostic  products will
contribute to product sales.

Management   believes  that  humans   throughout  life  will  benefit  from  DHA
supplementation.  This  could  represent  a far  larger  market for DHA than the
market for infants.  To realize this market, the Company is pursuing a long-term
marketing partnership with a large nutritional products and/or pharmaceutical


                                  Page 8 of 13
<PAGE>

company to promote Martek's non-infant formula nutritional oil products. Because
of this objective, shorter-term marketing arrangements of lesser scope have been
avoided, thus sacrificing some short-term product sales.

Four of the Company's  licensees have  introduced  term infant formula  products
containing Martek's oils in Spain,  Israel,  Australia and New Zealand and three
of the Company's  licensees have  introduced  preterm  infant  formula  products
containing Martek's DHA and ARA in 35 countries.  Management believes that broad
introductions of infant formula  containing  Martek's  nutritional oils and/or a
strategic alliance with a large scale nutritional products and/or pharmaceutical
company will occur in the future. However,  significantly higher revenue related
to infant formula sales prior to fiscal 1999 will not be achieved and management
is  unable  to  predict   accurately   when  such  events   will   occur.   That
notwithstanding, management anticipates that product sales, including sales from
infant formula related  products,  will overall increase in both fiscal 1998 and
fiscal 1999.

Results of  Operations -  Comparison  of Quarters and Nine Months Ended July 31,
1998 and 1997

Revenues  for the quarter  ended July 31, 1998 were  $1,317,000,  a 22% increase
from  revenues  of  $1,083,000  for the same  period in 1997,  primarily  due to
increased  product  sales and royalty  revenues  from  licensee  sales of infant
formula containing  Martek's oils. Revenues for the nine-month period ended July
31, 1998 were $5,200,000, an increase of $2,095,000 or 67%, from the same period
in 1997 also due to increased  product  sales and royalty  revenues,  as well as
increased  license  fees.  Total product sales during the third quarter and nine
months  ending July 31, 1998,  increased by $135,000 and  $1,101,000  or 14% and
45%, respectively,  from the same periods in 1997. Sales of nutritional products
including Neuromins(TM) capsules, increased nearly 15% for the third quarter and
almost 62% for the first nine months of 1998,  when compared to the same periods
in 1997,  primarily due to increased  sales of Martek's  oils to infant  formula
manufacturers.  Sales of products for drug discovery and  diagnostics  increased
13% for the third  quarter  and 30% for the  first  nine  months  of 1998,  when
compared to the same periods in 1997.

Royalty revenues increased nearly ten-fold in the third quarter of 1998 compared
to the third quarter of 1997 and almost twelve-fold for the first nine months of
1998 compared to the first nine months of 1997,  primarily due to the additional
revenue  generated  from  introductions  of pre-term  and term  infant  formulas
containing  Martek's  oils by the  Company's  licensees in 1998.  Revenues  from
research  and  development  contracts  and grants  increased by 39% in the third
quarter of 1998  compared to the third quarter of 1997 and decreased 13% for the
nine months ended July 31, 1998 from the same period in 1997.

Cost of product sales  increased  slightly to 80% of revenues from product sales
for the third quarter of 1998 compared to 79% for the third quarter of 1997. For
the nine-month period ended July 31, 1998, cost of product sales remained at 80%
of revenues from product sales, consistent with the same period in 1997. Cost of
sales will  continue to fluctuate  based on the mix of product  sales,  which in
1998 includes a higher level of low margin sales to infant formula manufacturers
and a lower mix of higer margin Neuromins(TM) capsule sales compared to the same
periods in 1997.  Sales to infant formula  manufacturers  will remain low margin
because infant formula royalties, which are almost equal to the sales price, are
not included in product sales and therefore  understate  the true sales price by
almost 50%. There is an approximately nine month delay after the initial sale of
oil until these  royalties are received and  recognized  as revenue,  creating a
significantly  higher cost of goods sold as a percentage  of revenues than would
be the case if royalties were incorporated into the product price and recognized
at the same time as the product sale. In addition,  oil production  costs remain
high due to the current  low volume of  production  and  because the  production
process  requires  further   optimization.   As  sales  volume  increases,   and
manufacturing efficiencies and optimization occurs, Management believes that the
cost of production of the nutritional oils products will decrease.


                                Page 9 of 13
<PAGE>

Research and development costs decreased by $141,000 or 5%, in the third quarter
of 1998 as  compared to the third  quarter of 1997.  For the  nine-month  period
ended July 31, 1998,  research and development  costs decreased  $922,000 or 11%
when  compared to the same period in 1997.  These  decreases  resulted  from the
conversion of certain development efforts to production efforts. Consistent with
the Company's plans,  nutritional oils development  costs accounted for over 75%
of all research and  development  costs as a result of the  Company's  continued
development efforts to refine its production  process.  Research and development
costs may increase in the future as the Company  evaluates new  technologies and
continues efforts to optimize the efficiency of its large-scale fermentation and
oil extraction processes.

Selling,  general and  administrative  expenses  decreased by $179,000,  or 10%,
during the third  quarter of 1998 and  increased  by $173,000 or 3%, in the nine
months ended July 31, 1998 over the third quarter and nine months ended July 31,
1997,  respectively.  These costs increased for the nine-month  period primarily
due to marketing,  advertising  and public  awareness  costs  resulting from the
commercialization  of the  Company's  Neuromins(TM)  products.  Other income was
$111,000  lower  during the third  quarter of 1998 than in the third  quarter of
1997 and $566,000  lower in the first nine months of 1998 than in the first nine
months of 1997.  These  decreases are due primarily to lower amounts of interest
being  earned  on  investments  as  funds  are  being  used to  support  Company
operations.

As a  result  of the  foregoing,  net  loss for the  third  quarter  of 1998 was
$3,500,000, or $.24 per share, compared to a net loss of $3,829,000, or $.28 per
share for the third quarter of 1997. A net loss of $10,295,000 or $.73 per share
for the nine  months  ended July 31,  1998,  was a  decrease  from a net loss of
$11,673,000 or $.86 per share for the same period in 1997.

Recent Accounting Pronouncements

In 1997, the FASB issued SFAS No. 128, Earnings Per Share. SFAS No. 128 replaced
the previously  reported primary and fully diluted earnings per share with basic
and  diluted  earnings  per share.  Unlike  primary  earnings  per share,  basic
earnings  per share  excludes  any dilutive  effects of options,  warrants,  and
convertible  securities.  Diluted  earnings  per  share is very  similar  to the
previously  reported fully diluted  earnings per share.  The Company's per share
amounts for all periods presented conform to SFAS No. 128 requirements.

In June 1997, the FASB issued SFAS No. 130,  "Reporting  Comprehensive  Income,"
which requires  companies to report by major components and in total, the change
in its net assets during the period from non-owner sources. The FASB also issued
SFAS  No.  131,  "Disclosures  about  Segments  of  an  Enterprise  and  Related
Information,"  which establishes  annual and interim  reporting  standards for a
company's  operating  segments  and  related  disclosures  about  its  products,
services,  geographic areas and major  customers.  Both Statements are effective
for fiscal years beginning after December 15, 1997.  Adoption of these standards
will not impact the Company's financial position,  results of operations or cash
flows, and any effect, while not yet determined by the Company,  will be limited
to the presentation of its disclosures.

Impact of Year 2000

The Company uses a number of computer software programs and operating systems in
its internal  operations,  including  applications  used in  financial  business
systems and various  administrative  functions.  Management  has  evaluated  the
business risk associated with the Company's  information  systems as minimal and
has completed more than 50% of its "Year 2000"  compliance  implementation.  The
costs  incurred  to  date  have  not  had a  material  impact  on the  Company's
operations  and  management  does  not  anticipate  that  future  costs  will be
material.  However,  there can be no assurance  that "Year 2000" issues will not
require a significant commitment of resources to resolve potential problems.

                               Page 10 of 13
<PAGE>

Liquidity and Capital Resources

Cash,  cash  equivalents,   short-term  investments  and  marketable  securities
increased by $1,543,000  in the first nine months of 1998,  primarily due to the
funds  raised in the  private  placement  of common  stock in April 1998 and the
exercise  of  outstanding   warrants  related  to  the  Company's  1995  private
financing,  both offset by $11,481,000 of funds used in operating and investment
activity  during the nine months  ended July 31,  1998.  Funds used in operating
activities for the first nine months of 1998 included  $1,231,000 related to the
expansion of the  Company's  inventory  in  anticipation  of further  commercial
introductions of the Company's  products.  Capital  expenditures of $432,000 and
$1,239,000  were made in the third quarter and the nine month period ending July
31, 1998,  respectively,  a significant  portion of which represents upgrades to
the  Company's   fermentation  and  oil  processing  facilities  in  Winchester,
Kentucky.  As a result,  the  Company  had a cash  balance of  $3,524,000  and a
balance of $18,694,000 in short-term  investments  and marketable  securities at
July 31, 1998.  Management  expects  additional  capital  expenditures  of up to
$500,000  in 1998 as a result  of  escalating  fermentation  and oil  processing
activities at the facility.

Martek may require  substantial  additional  funds to continue  its research and
development  programs,  to  conduct  preclinical  and  clinical  studies  and to
commercialize its nutritional oils, Neuromins(TM),  and its other products under
development.  The ultimate levels of these expenditures will depend, in part, on
whether  the  Company  seeks  independently,   or  with  other  parties  through
collaborative agreements,  to develop,  manufacture and market its products. The
capital  requirements of Martek will depend,  among other things, on one or more
of the following factors: growth in the Company's infant formula and nutritional
product sales; the extent and progress of its research and development programs;
the  progress  of  preclinical  and  clinical  studies;  the time  and  costs of
obtaining  regulatory  clearances for those products subject to such clearances;
the costs involved in filing,  protecting and enforcing patent claims; competing
technological and market  developments;  the cost of capital expenditures at the
Company's  manufacturing  facilities;  the cost of acquiring  additional  and/or
operating  existing  manufacturing  facilities  for  its  various  products  and
potential  products   (depending  on  which  products  the  Company  decides  to
manufacture and continues to manufacture itself); and the costs of marketing and
commercializing   the  Company's   products.   The  continued   development  and
optimization of the Company's  production facility has had, and will continue to
have,  a  material  effect  upon  Martek's   liquidity  and  capital  resources.
Additional  plant  modifications  costing up to $500,000  are  expected in 1998.
Expenditures  beyond 1998 will depend in part on production  capacity needs, the
extent of development and implementation of process improvements and the success
of previously implemented improvements.

Management  believes its existing  capital  resources,  consisting  primarily of
cash,  short-term  investments and marketable  securities will provide  adequate
capital  for at  least  the  next  18  months.  However,  due  to the  Company's
expectations  of growth and the rapidly  changing nature of the markets in which
it competes,  no prediction can be made with certainty of the Company's need for
additional  capital or its liquidity  position  over the long term.  The Company
intends to seek additional  funding through  commercial and government  research
and   development   contracts   and  grants,   product  sales  and  license  fee
arrangements.  Should the Company need to raise addtional funds, there can be no
assurance that such funds will be available to the Company on acceptable  terms,
if at all.


Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable








                                  Page 11 of 13
<PAGE>

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

None

Item 2.  Changes in Securities and Use of Proceeds.

None

Item 3.  Defaults Upon Senior Securities.

Not Applicable

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

None.

Item 5.  Other Information.

In order to present a proposal at Martek's 1999 annual meeting of  stockholders,
a Martek  stockholder must provide written notice of the proposal to the Company
no later than December 16, 1998. The Company intends to use discretionary voting
authority  with  respect to any matter  that is brought  before the 1999  annual
meeting of stockholders of which the Company has not received  written notice by
December  16,  1998.  Notice must be sent to:  Martek  Biosciences  Corporation,
Attention Chief Financial Officer, 6480 Dobbin Road, Columbia, Maryland 21045.

Item 6.  Exhibits and Reports on Form 8-K

(a) Exhibit  99.1:  Cautionary  Statements  for  Purposes  of the "Safe  Harbor"
Provisions of the Private Securities Litigation Reform Act of 1995.

(b) Reports on Form 8-K: None



















                                  Page 12 of 13
<PAGE>

                                   SIGNATURES




Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                                            MARTEK BIOSCIENCES CORPORATION
                                                    (Registrant)







Date:  September 14, 1998                   /s/ Peter L. Buzy
       -------------------                  ------------------------------
                                            Peter L. Buzy, Chief Financial
                                            Officer(Principal Financial 
                                            and Chief Accounting Officer)































                                  Page 13 of 13