##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended July 31, 2005
 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 þ




---



##### 



PART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    
    1Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4.
    
    Controls and Procedures
    
    
    22PART II
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    23Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 3.
    
    Defaults Upon Senior Securities
    
    
    24Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    25Item 5.
    
    Other Information
    
    
    25Item 6.
    
    Exhibits
    
    
    25Signatures
    
    
    26




---



##### 



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 MARTEK BIOSCIENCES CORPORATION
  July 31,
    
    
    October 31,2005
    
    
    2004In thousands, except share and per share data
    
    (unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    17,177
    
    
    $
    29,445Short-term investments and marketable securities
    
    
    35,550
    
    
    
    13,205Accounts receivable, net
    
    
    21,681
    
    
    
    37,292Inventories, net
    
    
    72,725
    
    
    
    30,379Other current assets
    
    
    3,951
    
    
    
    6,793Total current assets
    
    
    151,084
    
    
    
    117,114Property, plant and equipment, net
    
    
    289,101
    
    
    
    255,430Deferred tax asset
    
    
    48,035
    
    
    
    49,378Goodwill
    
    
    48,450
    
    
    
    48,175Other intangible assets, net
    
    
    31,263
    
    
    
    29,994Other assets, net
    
    
    1,259
    
    
    
    1,307Total assets
    
    $
    569,192
    
    
    $
    501,398Liabilities and stockholders equityCurrent liabilitiesAccounts payable
    
    $
    20,600
    
    
    $
    31,264Accrued liabilities
    
    
    9,641
    
    
    
    10,678Current portion of notes payable and other long-term obligations
    
    
    3,098
    
    
    
    4,946Current portion of unearned revenue
    
    
    764
    
    
    
    2,031Total current liabilities
    
    
    34,103
    
    
    
    48,919Long-term debt under revolving credit facility
    
    
    59,500
    
    
    
    85,000Notes payable and other long-term obligations
    
    
    11,329
    
    
    
    12,175Long-term portion of unearned revenue
    
    
    8,865
    
    
    
    9,140Total liabilities
    
    
    113,797
    
    
    
    155,234CommitmentsStockholders 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
    
    
    
    
    
    
    Common stock, $.10 par value; 100,000,000 shares authorized; 31,704,999 and 29,491,127 shares issued and
outstanding, respectively
    
    
    3,170
    
    
    
    2,949Additional paid-in capital
    
    
    506,372
    
    
    
    407,667Accumulated other comprehensive income (loss)
    
    
    (23
    )
    
    
    68Accumulated deficit
    
    
    (54,124
    )
    
    
    (64,520
    )Total stockholders equity
    
    
    455,395
    
    
    
    346,164Total liabilities and stockholders equity
    
    $
    569,192
    
    
    $
    501,398
 See accompanying notes.
 1




---



##### 



MARTEK BIOSCIENCES CORPORATION
  Three months ended July 31,
    
    
    Nine months ended July 31,Unaudited - In thousands, except share and per share data
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004RevenuesProduct sales
    
    $
    35,926
    
    
    $
    44,064
    
    
    $
    151,871
    
    
    $
    114,482Contract manufacturing sales
    
    
    3,563
    
    
    
    3,273
    
    
    
    9,938
    
    
    
    10,350Total revenues
    
    
    39,489
    
    
    
    47,337
    
    
    
    161,809
    
    
    
    124,832Costs and expensesCost of product sales
    
    
    22,429
    
    
    
    26,264
    
    
    
    91,323
    
    
    
    70,042Cost of contract manufacturing sales
    
    
    3,261
    
    
    
    2,912
    
    
    
    8,650
    
    
    
    8,549Research and development
    
    
    5,309
    
    
    
    4,932
    
    
    
    15,446
    
    
    
    13,660Selling, general and administrative
    
    
    7,834
    
    
    
    6,872
    
    
    
    24,086
    
    
    
    18,780Other operating expenses
    
    
    1,243
    
    
    
    1,587
    
    
    
    6,803
    
    
    
    2,691Total costs and expenses
    
    
    40,076
    
    
    
    42,567
    
    
    
    146,308
    
    
    
    113,722Income (loss) from operations
    
    
    (587
    )
    
    
    4,770
    
    
    
    15,501
    
    
    
    11,110Other income, net:Interest and other income
    
    
    415
    
    
    
    242
    
    
    
    1,051
    
    
    
    654Interest expense
    
    
    
    
    
    
    (1
    )
    
    
    (180
    )
    
    
    (3
    )Total other income, net
    
    
    415
    
    
    
    241
    
    
    
    871
    
    
    
    651Income (loss) before income taxes
    
    
    (172
    )
    
    
    5,011
    
    
    
    16,372
    
    
    
    11,761Income tax provision (benefit)
    
    
    (63
    )
    
    
    
    
    
    
    5,976
    
    
    
    Net income (loss)
    
    $
    (109
    )
    
    $
    5,011
    
    
    $
    10,396
    
    
    $
    11,761Net income (loss) per shareBasic
    
    $
    (0.00
    )
    
    $
    0.17
    
    
    $
    0.34
    
    
    $
    0.41Diluted
    
    $
    (0.00
    )
    
    $
    0.16
    
    
    $
    0.33
    
    
    $
    0.38Weighted average common shares outstandingBasic
    
    
    31,681,496
    
    
    
    29,270,301
    
    
    
    30,924,994
    
    
    
    28,936,660Diluted
    
    
    31,681,496
    
    
    
    31,168,113
    
    
    
    31,867,590
    
    
    
    31,105,821
 See accompanying notes.
 2




---



##### 



MARTEK BIOSCIENCES CORPORATION
  AccumulatedAdditional
    
    
    OtherCommon Stock
    
    
    Paid-in
    
    
    Comprehensive
    
    
    AccumulatedUnaudited - In thousands, except share data
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Income (Loss)
    
    
    Deficit
    
    
    TotalBalance at October 31, 2004
    
    
    29,491,127
    
    
    $
    2,949
    
    
    $
    407,667
    
    
    $
    68
    
    
    $
    (64,520
    )
    
    $
    346,164Issuance of common stock, net of issuance costs
    
    
    1,756,614
    
    
    
    176
    
    
    
    81,268
    
    
    
    
    
    
    
    
    
    
    
    81,444Exercise of stock options
    
    
    457,258
    
    
    
    45
    
    
    
    12,721
    
    
    
    
    
    
    
    
    
    
    
    12,766Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    26Tax benefit of exercise of non-qualified stock options
    
    
    
    
    
    
    
    
    
    
    4,690
    
    
    
    
    
    
    
    
    
    
    
    4,690Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,396
    
    
    
    10,396Other comprehensive income:Unrealized loss on exchange rate forward
contract, net of tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (91
    )
    
    
    
    
    
    
    (91
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,305Balance at July 31, 2005
    
    
    31,704,999
    
    
    $
    3,170
    
    
    $
    506,372
    
    
    $
    (23
    )
    
    $
    (54,124
    )
    
    $
    455,395
 See accompanying notes.
 3




---



##### 



MARTEK BIOSCIENCES CORPORATION
  Nine months ended July 31,Unaudited  In thousands
    
    2005
    
    
    2004Operating activitiesNet income
    
    $
    10,396
    
    
    $
    11,761Adjustments to reconcile net income to net cash used in operating activities:Depreciation and amortization
    
    
    12,195
    
    
    
    5,761Deferred tax provision
    
    
    5,976
    
    
    
    Other
    
    
    184
    
    
    
    147Changes in operating assets and liabilities:Accounts receivable
    
    
    15,611
    
    
    
    (9,939
    )Inventories
    
    
    (42,346
    )
    
    
    (10,554
    )Other assets
    
    
    3,614
    
    
    
    (1,486
    )Accounts payable
    
    
    (6,716
    )
    
    
    3,478Accrued liabilities
    
    
    (1,142
    )
    
    
    (552
    )Unearned revenue and other liabilities
    
    
    (1,510
    )
    
    
    (601
    )Net cash used in operating activities
    
    
    (3,738
    )
    
    
    (1,985
    )Investing activities(Purchase) sale of short-term investments and marketable securities, net
    
    
    (22,345
    )
    
    
    47,488Expenditures for property, plant and equipment
    
    
    (51,746
    )
    
    
    (153,093
    )Proceeds from sale-leaseback transaction and other
    
    
    4,272
    
    
    
    Capitalization of intangible and other assets
    
    
    (3,298
    )
    
    
    (7,199
    )Net cash used in investing activities
    
    
    (73,117
    )
    
    
    (112,804
    )Financing activitiesRepayments of notes payable and other long-term obligations
    
    
    (4,623
    )
    
    
    (2,474
    )Proceeds from the issuance of common stock and exercise of stock options, net
    
    
    94,210
    
    
    
    28,503(Repayments) borrowings under revolving credit facility, net
    
    
    (25,500
    )
    
    
    77,000Other
    
    
    500
    
    
    
    Net cash provided by financing activities
    
    
    64,587
    
    
    
    103,029Net decrease in cash and cash equivalents
    
    
    (12,268
    )
    
    
    (11,760
    )Cash and cash equivalents, beginning of period
    
    
    29,445
    
    
    
    29,924Cash and cash equivalents, end of period
    
    $
    17,177
    
    
    $
    18,164Supplemental cash flow disclosures:Interest paid
    
    $
    2,576
    
    
    $
    1,102Notes payable issued in acquisition of land
    
    $
    800
    
    
    $
    Purchase of DSM license through long-term obligation
    
    $
    
    
    
    $
    6,000
 See accompanying notes.
 4




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
 Consolidation
 Use of Estimates
 Segment Information
 Revenue Recognition
  Foreign Currency Transactions
  Research and Development
 5




---



##### 



Other Operating Expenses
 Deferred Income Taxes
   Net Income (Loss) Per Share
 Comprehensive Income (Loss)
 Cash and Cash Equivalents
 Short-Term Investments and Marketable Securities
  Fair Value of Financial Instruments
 Trade Receivables
 6




---



##### 



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
 Stock-Based Compensation
  7




---



##### 



Three months ended July 31,
    
    
    Nine months ended July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss), as reported
    
    $
    (109
    )
    
    $
    5,011
    
    
    $
    10,396
    
    
    $
    11,761Deduct: Total stock-based employee compensation expense
determined under fair value-based methods for all awards
    
    
    (10,927
    )
    
    
    (6,673
    )
    
    
    (54,897
    )
    
    
    (14,326
    )Pro forma net loss
    
    $
    (11,036
    )
    
    $
    (1,662
    )
    
    $
    (44,501
    )
    
    $
    (2,565
    )Net income (loss) per share:Basic  as reported
    
    $
    (0.00
    )
    
    $
    0.17
    
    
    $
    0.34
    
    
    $
    0.41Basic  pro forma
    
    $
    (0.35
    )
    
    $
    (0.06
    )
    
    $
    (1.44
    )
    
    $
    (0.09
    )Diluted  as reported
    
    $
    (0.00
    )
    
    $
    0.16
    
    
    $
    0.33
    
    
    $
    0.38Diluted  pro forma
    
    $
    (0.35
    )
    
    $
    (0.06
    )
    
    $
    (1.44
    )
    
    $
    (0.09
    )
   Three months ended July 31,
    
    Nine months ended July 31,2005
    
    2004
    
    2005
    
    2004Expected volatility
    
    
    63.9
    %
    
    
    68.1
    %
    
    
    63.9
    %
    
    
    68.1
    %Risk-free interest rate
    
    
    3.8
    %
    
    
    4.3
    %
    
    
    3.7
    %
    
    
    3.6
    %Expected average life of options
    
    5 years
    
    7 years
    
    5 years
    
    7 yearsExpected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 Reclassification
 Recently Issued Accounting Pronouncements
 8




---



##### 



2. DSM SUPPLY AND LICENSE AGREEMENT
  3. SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
  9




---



##### 



4. INVENTORIES
  July 31,
    
    
    October 31,2005
    
    
    2004Finished goods
    
    $
    31,866
    
    
    $
    7,648Work in process
    
    
    39,332
    
    
    
    21,350Raw materials
    
    
    3,927
    
    
    
    2,381Total inventory
    
    
    75,125
    
    
    
    31,379Less: inventory reserve
    
    
    (2,400
    )
    
    
    (1,000
    )Inventories, net
    
    $
    72,725
    
    
    $
    30,379
 5. PROPERTY, PLANT AND EQUIPMENT
  July 31,
    
    
    October 31,2005
    
    
    2004Land
    
    $
    1,745
    
    
    $
    712Building and improvements
    
    
    45,285
    
    
    
    29,421Machinery and equipment
    
    
    184,576
    
    
    
    133,886Furniture and fixtures
    
    
    3,053
    
    
    
    2,772Computer hardware and software
    
    
    7,928
    
    
    
    5,173Construction in progress
    
    
    77,424
    
    
    
    104,053Property, plant and equipment
    
    
    320,011
    
    
    
    276,017Less: accumulated depreciation and amortization
    
    
    (30,910
    )
    
    
    (20,587
    )Property, plant and equipment, net
    
    $
    289,101
    
    
    $
    255,430
 6. GOODWILL AND OTHER INTANGIBLE ASSETS
  July 31, 2005
    
    
    October 31, 2004Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedIntangible Asset
    
    Gross
    
    
    Amortization
    
    
    Net
    
    
    Gross
    
    
    Amortization
    
    
    NetTrademarks
    
    $
    2,077
    
    
    $
    (385
    )
    
    $
    1,692
    
    
    $
    2,023
    
    
    $
    (284
    )
    
    $
    1,739Patents
    
    
    11,383
    
    
    
    (1,703
    )
    
    
    9,680
    
    
    
    8,409
    
    
    
    (1,226
    )
    
    
    7,183Core technology
    
    
    1,708
    
    
    
    (313
    )
    
    
    1,395
    
    
    
    1,708
    
    
    
    (228
    )
    
    
    1,480Current products
    
    
    10,676
    
    
    
    (2,338
    )
    
    
    8,338
    
    
    
    10,676
    
    
    
    (1,805
    )
    
    
    8,871Licenses
    
    
    11,091
    
    
    
    (933
    )
    
    
    10,158
    
    
    
    11,091
    
    
    
    (370
    )
    
    
    10,721Goodwill
    
    
    48,450
    
    
    
    
    
    
    
    48,450
    
    
    
    48,175
    
    
    
    
    
    
    
    48,175$
    85,385
    
    
    $
    (5,672
    )
    
    $
    79,713
    
    
    $
    82,082
    
    
    $
    (3,913
    )
    
    $
    78,169
 10




---



##### 



7. NOTES PAYABLE AND LONG-TERM DEBT
    8. COMMITMENTS AND CONTINGENCIES
 Leases
 Purchase Commitments
  Kentucky Wastewater Matter
  Research Collaboration Milestone
 OmegaTech Contingent Purchase Price
 11




---



##### 



Class Action Lawsuits
 Other
 9. STOCKHOLDERS EQUITY
   10. NET INCOME (LOSS) PER SHARE
   Three months ended July 31,
    
    
    Nine months ended July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss)
    
    $
    (109
    )
    
    $
    5,011
    
    
    $
    10,396
    
    
    $
    11,761Weighted average shares outstanding, basic
    
    
    31,681
    
    
    
    29,270
    
    
    
    30,925
    
    
    
    28,937Effect of dilutive potential common shares:Employee stock options
    
    
    
    
    
    
    1,855
    
    
    
    924
    
    
    
    2,125Warrants
    
    
    
    
    
    
    43
    
    
    
    19
    
    
    
    44Total dilutive potential common shares
    
    
    
    
    
    
    1,898
    
    
    
    943
    
    
    
    2,169Weighted average shares outstanding, diluted
    
    
    31,681
    
    
    
    31,168
    
    
    
    31,868
    
    
    
    31,106Net income (loss) per share, basic
    
    $
    (0.00
    )
    
    $
    0.17
    
    
    $
    0.34
    
    
    $
    0.41Net income (loss) per share, diluted
    
    $
    (0.00
    )
    
    $
    0.16
    
    
    $
    0.33
    
    
    $
    0.38
  12




---



##### 



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 and expansion of third-party manufacturing facilities;
    
    expectations regarding the timing and amount of production capacity and our ability
to meet future demands for our nutritional oils;
    
    expectations regarding future research and development costs;
    
    expectations regarding our expansion at our Kingstree, South Carolina facility;
    
    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 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 the risks that could cause such differences in Exhibit 99.01
to this report incorporated by reference into this 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
   13




---



##### 




    
    the ability by us, DSM and other third-party manufacturers to produce adequate levels of our nutritional oils on a consistent basis;
    
    the timing and extent of production expansion by us and DSM;
    
    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 the Company has reached a base finished goods inventory level;
    
    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;
    
    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.
  OVERVIEW AND RECENT HIGHLIGHTS
   American Journal of Clinical Nutrition 1 2
   14




---



##### 



MANAGEMENT OUTLOOK
    PRODUCTION
    15




---



##### 



CRITICAL ACCOUNTING POLICIES AND
THE USE OF ESTIMATES
  16




---



##### 



RESULTS OF OPERATIONS
 Revenues
  Three months ended July 31,
    
    
    Nine months ended July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Product sales
    
    $
    35,926
    
    
    $
    44,064
    
    
    $
    151,871
    
    
    $
    114,482Contract manufacturing sales
    
    
    3,563
    
    
    
    3,273
    
    
    
    9,938
    
    
    
    10,350Total revenues
    
    $
    39,489
    
    
    $
    47,337
    
    
    $
    161,809
    
    
    $
    124,832
     Costs and Expenses
  Three months ended July 31,
    
    
    Nine months ended July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Cost of revenue:Cost of product sales
    
    $
    22,429
    
    
    $
    26,264
    
    
    $
    91,323
    
    
    $
    70,042Cost of contract manufacturing sales
    
    
    3,261
    
    
    
    2,912
    
    
    
    8,650
    
    
    
    8,549Operating expenses:Research and development
    
    
    5,309
    
    
    
    4,932
    
    
    
    15,446
    
    
    
    13,660Selling, general and administrative
    
    
    7,834
    
    
    
    6,872
    
    
    
    24,086
    
    
    
    18,780Other operating expenses
    
    
    1,243
    
    
    
    1,587
    
    
    
    6,803
    
    
    
    2,691Total costs and expenses
    
    $
    40,076
    
    
    $
    42,567
    
    
    $
    146,308
    
    
    $
    113,722
 Cost of Product Sales
 17




---



##### 



Cost of Contract Manufacturing Sales
 Research and Development
 Selling, General and Administrative
 Other Operating Expenses
 Other Income, Net
  Income Tax Provision (Benefit)
   Net Income (Loss)
  RECENTLY ISSUED
ACCOUNTING PRONOUNCEMENTS
  18




---



##### 



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.
     Less than
    
    
    1-3
    
    
    3-5
    
    
    More thanIn thousands
    

Total
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 yearsNotes payable (1)
    
    $
    12,869
    
    
    $
    1,194
    
    
    $
    2,332
    
    
    $
    8,367
    
    
    $
    976Borrowings under revolving credit facility
    
    
    59,500
    
    
    
    
    
    
    
    59,500
    
    
    
    
    
    
    
    Operating and capital lease obligations
    
    
    16,302
    
    
    
    3,595
    
    
    
    7,114
    
    
    
    4,846
    
    
    
    747DSM license fee and other obligations
    
    
    2,833
    
    
    
    2,333
    
    
    
    500
    
    
    
    
    
    
    
    Unconditional inventory purchase obligations
    
    
    16,345
    
    
    
    7,245
    
    
    
    9,100
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    107,849
    
    
    $
    14,367
    
    
    $
    78,546
    
    
    $
    13,213
    
    
    $
    1,723
 (1)
    
    Minimum payments above include interest and principal due under these notes.
 19




---



##### 




    
    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 lawsuits; and
    
    the costs of marketing and commercializing our products.
  20




---



##### 



OFF-BALANCE SHEET ARRANGEMENTS
    21




---



##### 



Item 3. Quantitative and Qualitative Disclosures about Market Risk.
   
 Item 4. Controls and Procedures.
 a)
    
    Evaluation of Disclosure Controls and Procedures.The management of Martek Biosciences
Corporation, with the participation of our Chief Executive Officer and the Chief Financial
Officer, has evaluated the effectiveness of our disclosure controls and procedures (as
defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as
amended (the Exchange Act)), as required by paragraph (b) of Rules 13a-15 and 15d-15
under the Exchange Act, and has concluded as of the end of the period covered by this
report that the disclosure controls and procedures were effective.b)
    
    Changes in Internal Controls.There were no changes in our internal controls over
financial reporting in connection with the evaluation required by paragraph (d) of Rules
13a-15 or 15d-15 under the Exchange Act that occurred during Marteks last fiscal quarter
that materially affected or are reasonably likely to materially affect the internal
controls over financial reporting.
 22




---



##### 



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
         23




---



##### 



Reed Black v. Martek
Biosciences Corporation, et. al. Brocco v. Martek Biosciences
Corp., et. al. Sowattanangkul v. Martek Biosciences Corp., et. al. Wright v. Martek Biosciences Corp., et. al. Epstein v.
Martek Biosciences Corp., et. al., Fujitake v. Martek Biosciences Corp.,
et. al. Peterson v. Martek Biosciences Corporation, et. al.,
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  24




---



##### 



Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
 10.01
    
    Letter Agreement dated July 6, 2005 by and between Peter A. Nitze and Martek Biosciences
Corporation (filed as Exhibit 10.1 to the Companys Current Report on Form 8-K, File No. 22354,
filed on September 8, 2005 and incorporated by reference herein).+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.*99.01
    
    Cautionary Statements for purposes of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995.*
 
 *
    
    Filed or furnished herewith.+
    
    Denotes management contract or compensatory arrangement required to be filed as an exhibit to this form. 25




---



##### 



SIGNATURES
  MARTEK BIOSCIENCES
CORPORATION(Registrant)Date:
September 9, 2005
    
    /s/ Peter L. BuzyPeter L. Buzy, Chief Financial Officer and Treasurer(Principal Financial and Accounting Officer)
 26