##### 



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 July 31, 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




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##### 



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




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##### 



PART I  FINANCIAL INFORMATION
 Item 1. Financial Statements.
 MARTEK BIOSCIENCES CORPORATION
  July 31,2006In thousands, except share and per share data
    

(restated,
    
    
    October 31,unaudited)
    
    
    2005AssetsCurrent assetsCash and cash equivalents
    
    $
    12,727
    
    
    $
    11,047Short-term investments and marketable securities
    
    
    11,250
    
    
    
    22,300Accounts receivable, net
    
    
    30,482
    
    
    
    27,603Inventories, net
    
    
    100,560
    
    
    
    91,535Other current assets
    
    
    10,893
    
    
    
    5,929Total current assets
    
    
    165,912
    
    
    
    158,414Property, plant and equipment, net
    
    
    283,403
    
    
    
    290,733Deferred tax asset
    
    
    39,883
    
    
    
    48,201Goodwill
    
    
    48,596
    
    
    
    48,490Other intangible assets, net
    
    
    34,024
    
    
    
    31,129Other assets, net
    
    
    2,870
    
    
    
    1,518Total assets
    
    $
    574,688
    
    
    $
    578,485Liabilities and stockholders equityCurrent liabilitiesAccounts payable
    
    $
    10,749
    
    
    $
    16,661Accrued liabilities
    
    
    16,007
    
    
    
    13,692Current portion of notes payable and other long-term obligations
    
    
    1,199
    
    
    
    3,113Current portion of deferred revenue
    
    
    3,585
    
    
    
    740Total current liabilities
    
    
    31,540
    
    
    
    34,206Long-term debt under revolving credit facility
    
    
    33,000
    
    
    
    55,000Notes payable and other long-term obligations
    
    
    10,678
    
    
    
    11,115Long-term portion of deferred revenue
    
    
    9,027
    
    
    
    8,959Total liabilities
    
    
    84,245
    
    
    
    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; 32,153,382 and 32,026,595 shares
issued and
outstanding, respectively
    
    
    3,215
    
    
    
    3,203Additional paid-in capital
    
    
    521,208
    
    
    
    515,237Accumulated other comprehensive income
    
    
    420
    
    
    
    1Accumulated deficit
    
    
    (34,400
    )
    
    
    (49,236
    )Total stockholders equity
    
    
    490,443
    
    
    
    469,205Total liabilities and stockholders equity
    
    $
    574,688
    
    
    $
    578,485
 See accompanying notes.
 1




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##### 



MARTEK BIOSCIENCES CORPORATION
  Three months ended July 31,
    
    
    Nine months ended July 31,Unaudited - In thousands, except share and per share data
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(restated)
    
    
    
    
    
    
    (restated)Revenues:Product sales
    
    $
    66,322
    
    
    $
    35,926
    
    
    $
    192,029
    
    
    $
    151,871Contract manufacturing sales
    
    
    4,036
    
    
    
    3,563
    
    
    
    11,439
    
    
    
    9,938Total revenues
    
    
    70,358
    
    
    
    39,489
    
    
    
    203,468
    
    
    
    161,809Cost of revenues:Cost of
product sales, including idle capacity costs
    
    
    41,009
    
    
    
    22,429
    
    
    
    117,975
    
    
    
    91,323Cost of contract manufacturing sales
    
    
    3,943
    
    
    
    3,261
    
    
    
    10,759
    
    
    
    8,650Total cost of revenues
    
    
    44,952
    
    
    
    25,690
    
    
    
    128,734
    
    
    
    99,973Gross margin
    
    
    25,406
    
    
    
    13,799
    
    
    
    74,734
    
    
    
    61,836Operating expenses:Research and development (1)
    
    
    6,231
    
    
    
    5,309
    
    
    
    17,969
    
    
    
    15,446Selling, general and administrative (1)
    
    
    11,328
    
    
    
    7,834
    
    
    
    31,465
    
    
    
    24,086Other operating expenses
    
    
    207
    
    
    
    1,243
    
    
    
    683
    
    
    
    6,803Total operating expenses
    
    
    17,766
    
    
    
    14,386
    
    
    
    50,117
    
    
    
    46,335Income (loss) from operations
    
    
    7,640
    
    
    
    (587
    )
    
    
    24,617
    
    
    
    15,501Interest and other income, net
    
    
    363
    
    
    
    415
    
    
    
    1,163
    
    
    
    1,051Interest expense
    
    
    (735
    )
    
    
    
    
    
    
    (2,416
    )
    
    
    (180
    )Income (loss) before income tax provision
    
    
    7,268
    
    
    
    (172
    )
    
    
    23,364
    
    
    
    16,372Income tax provision (benefit) (1)
    
    
    2,653
    
    
    
    (63
    )
    
    
    8,528
    
    
    
    5,976Net income (loss)
    
    $
    4,615
    
    
    $
    (109
    )
    
    $
    14,836
    
    
    $
    10,396Net income (loss) per shareBasic
    
    $
    0.14
    
    
    $
    (0.00
    )
    
    $
    0.46
    
    
    $
    0.34Diluted
    
    $
    0.14
    
    
    $
    (0.00
    )
    
    $
    0.46
    
    
    $
    0.33Weighted average common shares outstandingBasic
    
    
    32,143,695
    
    
    
    31,681,496
    
    
    
    32,099,641
    
    
    
    30,924,994Diluted
    
    
    32,473,578
    
    
    
    31,681,496
    
    
    
    32,471,120
    
    
    
    31,867,590(1) Includes the following amounts related to
equity-based compensation expense:Research and development
    
    
    247
    
    
    
    
    
    
    
    907
    
    
    
    Selling, general
and administrative
    
    
    470
    
    
    
    
    
    
    
    1,752
    
    
    
    Income tax
provision (benefit)
    
    
    (262
    )
    
    
    
    
    
    
    (971
    )
    
    
    
 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
    
    
    126,787
    
    
    
    12
    
    
    
    2,889
    
    
    
    
    
    
    
    
    
    
    
    2,901Equity-based compensation
    
    
    
    
    
    
    
    
    
    
    3,082
    
    
    
    
    
    
    
    
    
    
    
    3,082Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,836
    
    
    
    14,836Other comprehensive income:Unrealized gain on exchange rate forward
contract, net of tax of $251
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    419
    
    
    
    
    
    
    
    419Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,255Balance
at July 31, 2006 (restated)
    
    
    32,153,382
    
    
    $
    3,215
    
    
    $
    521,208
    
    
    $
    420
    
    
    $
    (34,400
    )
    
    $
    490,443
 See accompanying notes.
 3




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##### 



MARTEK BIOSCIENCES CORPORATION
  Nine months ended July 31,2006
    
    
    2005Unaudited  In thousands
    

(restated)Operating activitiesNet income
    
    $
    14,836
    
    
    $
    10,396Adjustments to reconcile net income to net cash used in operating activities:Depreciation and amortization
    
    
    16,114
    
    
    
    12,195Deferred tax provision
    
    
    8,528
    
    
    
    5,976Equity-based compensation expense
    
    
    2,659
    
    
    
    Other
    
    
    
    
    
    
    184Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,879
    )
    
    
    15,611Inventories
    
    
    (8,602
    )
    
    
    (42,346
    )Other assets
    
    
    (5,726
    )
    
    
    3,614Accounts payable
    
    
    (5,912
    )
    
    
    (6,716
    )Accrued liabilities
    
    
    1,200
    
    
    
    (1,142
    )Deferred revenue and other liabilities
    
    
    2,938
    
    
    
    (1,510
    )Net cash provided by (used in) operating activities
    
    
    23,156
    
    
    
    (3,738
    )Investing activitiesSale (purchase) of short-term investments and marketable securities, net
    
    
    11,050
    
    
    
    (22,345
    )Expenditures for property, plant and equipment
    
    
    (6,743
    )
    
    
    (51,746
    )Proceeds from sale-leaseback transaction and other
    
    
    
    
    
    
    4,272Capitalization of intangible assets
    
    
    (3,928
    )
    
    
    (3,298
    )Net cash provided by (used in) investing activities
    
    
    379
    
    
    
    (73,117
    )Financing activitiesRepayments of notes payable and other long-term obligations
    
    
    (2,756
    )
    
    
    (4,623
    )Repayments under revolving credit facility, net
    
    
    (22,000
    )
    
    
    (25,500
    )Proceeds from the issuance of common stock and exercise of stock options and warrants, net
    
    
    2,901
    
    
    
    94,210Other
    
    
    
    
    
    
    500Net cash (used in) provided by financing activities
    
    
    (21,855
    )
    
    
    64,587Net increase (decrease) in cash and cash equivalents
    
    
    1,680
    
    
    
    (12,268
    )Cash and cash equivalents, beginning of period
    
    
    11,047
    
    
    
    29,445Cash and cash equivalents, end of period
    
    $
    12,727
    
    
    $
    17,177Supplemental cash flow disclosures:Interest paid
    
    $
    2,895
    
    
    $
    2,576Notes payable issued in acquisition of land
    
    $
    
    
    
    $
    800Income taxes paid
    
    $
    210
    
    
    $
    
 See accompanying notes.
 4




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##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 1. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
    As
    
    
    
    
    
    AsReported
    
    Adjustment
    
    RestatedProperty, plant and equipment, net
    
    $
    287,078
    
    
    $
    (3,675
    )
    
    $
    283,403Deferred tax asset
    
    
    38,542
    
    
    
    1,341
    
    
    
    39,883Total assets
    
    
    577,022
    
    
    
    (2,334
    )
    
    
    574,688Accumulated deficit
    
    
    (32,066
    )
    
    
    (2,334
    )
    
    
    (34,400
    )Total stockholders equity
    
    
    492,777
    
    
    
    (2,334
    )
    
    
    490,443Total liabilities and stockholders equity
    
    
    577,022
    
    
    
    (2,334
    )
    
    
    574,688
  As
    
    
    
    
    
    AsReported
    
    Adjustment
    
    RestatedCost of
product sales, including idle capacity costs
    
    $
    39,932
    
    
    $
    1,077
    
    
    $
    41,009Total cost of revenues
    
    
    43,875
    
    
    
    1,077
    
    
    
    44,952Gross margin
    
    
    26,483
    
    
    
    (1,077
    )
    
    
    25,406Income from operations
    
    
    8,717
    
    
    
    (1,077
    )
    
    
    7,640Income before income tax provision
    
    
    8,345
    
    
    
    (1,077
    )
    
    
    7,268Income tax provision
    
    
    3,046
    
    
    
    (393
    )
    
    
    2,653Net income
    
    
    5,299
    
    
    
    (684
    )
    
    
    4,615Net income per share:Basic
    
    $
    0.16
    
    
    $
    (0.02
    )
    
    $
    0.14Diluted
    
    $
    0.16
    
    
    $
    (0.02
    )
    
    $
    0.14
  As
    
    
    
    
    
    AsReported
    
    Adjustment
    
    RestatedCost of product sales, including idle capacity costs
    
    $
    114,300
    
    
    $
    3,675
    
    
    $
    117,975Total cost of revenues
    
    
    125,059
    
    
    
    3,675
    
    
    
    128,734Gross margin
    
    
    78,409
    
    
    
    (3,675
    )
    
    
    74,734Income from operations
    
    
    28,292
    
    
    
    (3,675
    )
    
    
    24,617Income before income tax provision
    
    
    27,039
    
    
    
    (3,675
    )
    
    
    23,364Income tax provision
    
    
    9,869
    
    
    
    (1,341
    )
    
    
    8,528Net income
    
    
    17,170
    
    
    
    (2,334
    )
    
    
    14,836Net income per share:Basic
    
    $
    0.53
    
    
    $
    (0.07
    )
    
    $
    0.46Diluted
    
    $
    0.53
    
    
    $
    (0.07
    )
    
    $
    0.46
 5




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##### 



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 (Loss) Per Share
 Comprehensive Income (Loss)
 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
 Recently Issued Accounting Pronouncements
 8




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##### 



3. DSM SUPPLY AND LICENSE AGREEMENT
   4. SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
  5. INVENTORIES
  July 31,
    
    
    October 31,2006
    
    
    2005Finished goods
    
    $
    50,288
    
    
    $
    34,328Work in process
    
    
    48,759
    
    
    
    55,073Raw materials
    
    
    3,513
    
    
    
    3,634Total inventory
    
    
    102,560
    
    
    
    93,035Less: inventory reserve
    
    
    (2,000
    )
    
    
    (1,500
    )Inventories, net
    
    $
    100,560
    
    
    $
    91,535
 9




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##### 



6. PROPERTY, PLANT AND EQUIPMENT
  July 31,
    
    
    October 31,2006
    
    
    2005(restated)Land
    
    $
    2,320
    
    
    $
    2,318Building and improvements
    
    
    60,690
    
    
    
    45,515Machinery and equipment
    
    
    239,003
    
    
    
    187,922Furniture and fixtures
    
    
    3,369
    
    
    
    3,161Computer hardware and software
    
    
    11,733
    
    
    
    8,085317,115
    
    
    
    247,001Less: accumulated depreciation and amortization
    
    
    (47,196
    )
    
    
    (33,143
    )269,919
    
    
    
    213,858Construction in progress
    
    
    13,484
    
    
    
    76,875Property, plant and equipment, net
    
    $
    283,403
    
    
    $
    290,733
   7. GOODWILL AND OTHER INTANGIBLE ASSETS
  July 31, 2006
    
    
    October 31, 2005Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedIntangible Asset
    
    Gross
    
    
    Amortization
    
    
    Net
    
    
    Gross
    
    
    Amortization
    
    
    NetTrademarks
    
    $
    2,043
    
    
    $
    (506
    )
    
    $
    1,537
    
    
    $
    2,026
    
    
    $
    (401
    )
    
    $
    1,625Patents
    
    
    15,692
    
    
    
    (1,521
    )
    
    
    14,171
    
    
    
    11,741
    
    
    
    (1,734
    )
    
    
    10,007Core technology
    
    
    1,708
    
    
    
    (427
    )
    
    
    1,281
    
    
    
    1,708
    
    
    
    (342
    )
    
    
    1,366Current products
    
    
    10,676
    
    
    
    (3,050
    )
    
    
    7,626
    
    
    
    10,676
    
    
    
    (2,516
    )
    
    
    8,160Licenses
    
    
    11,091
    
    
    
    (1,682
    )
    
    
    9,409
    
    
    
    11,091
    
    
    
    (1,120
    )
    
    
    9,971Goodwill
    
    
    48,596
    
    
    
    
    
    
    
    48,596
    
    
    
    48,490
    
    
    
    
    
    
    
    48,490$
    89,806
    
    
    $
    (7,186
    )
    
    $
    82,620
    
    
    $
    85,732
    
    
    $
    (6,113
    )
    
    $
    79,619
 8. NOTES PAYABLE AND LONG-TERM DEBT
  10




---



##### 



9. COMMITMENTS AND CONTINGENCIES
 Purchase Commitments
 Scientific Research Collaborations
 OmegaTech Contingent Purchase Price
 Class Action Lawsuits
 Other
 10. STOCKHOLDERS EQUITY
 Equity-Based Compensation
   11




---



##### 



Three months ended July 31,
    
    
    Nine months ended July 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(restated)
    
    
    
    
    
    

(restated)Net income (loss), as reported
    
    $
    4,615
    
    
    $
    (109
    )
    
    $
    14,836
    
    
    $
    10,396Deduct: Total equity-based employee compensation expense
determined under fair value-based methods for all awards
    
    
    
    
    
    
    (10,927
    )
    
    
    
    
    
    
    (54,897
    )Pro forma net income (loss)
    
    $
    4,615
    
    
    $
    (11,036
    )
    
    $
    14,836
    
    
    $
    (44,501
    )Net income (loss) per share:Basic  as reported
    
    $
    0.14
    
    
    $
    (0.00
    )
    
    $
    0.46
    
    
    $
    0.34Basic  pro forma
    
    $
    0.14
    
    
    $
    (0.35
    )
    
    $
    0.46
    
    
    $
    (1.44
    )Diluted  as reported
    
    $
    0.14
    
    
    $
    (0.00
    )
    
    $
    0.46
    
    
    $
    0.33Diluted  pro forma
    
    $
    0.14
    
    
    $
    (0.35
    )
    
    $
    0.46
    
    
    $
    (1.44
    )
   Nine months endedJuly 31, 2006Expected volatility
    
    
    61.1
    %Risk-free interest rate
    
    
    4.7
    %Expected life of options
    
    5 yearsExpected dividend yield
    
    
    0
    %Forfeiture rate
    
    
    1
    %
 Expected Volatility
 Risk-Free Interest Rate
 12




---



##### 



Expected Life of Options
 Expected Dividend Yield
 Forfeiture Rate
    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
    
    
    (95
    )
    
    $
    25.14Cancelled
    
    
    (145
    )
    
    $
    40.86Options outstanding at July 31, 2006
    
    
    3,743
    
    
    $
    38.53
    
    
    $
    10,643
    
    
    
    6.7Options exercisable at July 31, 2006
    
    
    3,447
    
    
    $
    39.49
    
    
    $
    9,363
    
    
    
    6.6
   Stockholder Rights Plan
   13




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##### 



11. NET INCOME (LOSS) PER SHARE
   Three months ended July 31,
    
    
    Nine months ended July 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(restated)
    
    
    
    
    
    

(restated)Net income (loss)
    
    $
    4,615
    
    
    $
    (109
    )
    
    $
    14,836
    
    
    $
    10,396Weighted average shares outstanding, basic
    
    
    32,144
    
    
    
    31,681
    
    
    
    32,100
    
    
    
    30,925Effect of dilutive potential common shares:Stock options
    
    
    330
    
    
    
    
    
    
    
    371
    
    
    
    924Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19Total dilutive potential common shares
    
    
    330
    
    
    
    
    
    
    
    371
    
    
    
    943Weighted average shares outstanding, diluted
    
    
    32,474
    
    
    
    31,681
    
    
    
    32,471
    
    
    
    31,868Net income per share, basic
    
    $
    0.14
    
    
    $
    (0.00
    )
    
    $
    0.46
    
    
    $
    0.34Net income per share, diluted
    
    $
    0.14
    
    
    $
    (0.00
    )
    
    $
    0.46
    
    
    $
    0.33
  12. COMPREHENSIVE INCOME
  Three months ended July 31,
    
    
    Nine months ended July 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(restated)
    
    
    
    
    
    

(restated)Net income (loss), as reported
    
    $
    4,615
    
    
    $
    (109
    )
    
    $
    14,836
    
    
    $
    10,396Other comprehensive income (loss):Unrealized gain (loss) on exchange rate forward contract,
net of income tax provision
(benefit) of $(162), $48,
$251 and $(14),
respectively
    
    
    (420
    )
    
    
    79
    
    
    
    419
    
    
    
    (91
    )`Comprehensive income (loss)
    
    $
    4,195
    
    
    $
    (30
    )
    
    $
    15,255
    
    
    $
    10,305
 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, gross margin and overall profitability;
    
    expectations regarding product introductions and growth in nutritional product sales;
    
    expectations regarding potential collaborations and acquisitions
    
    expectations regarding demand for products with our nutritional oils;
    
    expectations regarding sales to and by our infant formula licensees and supplemented infant formula market penetration levels;
    
    expectations regarding marketing of our oils by our infant formula licensees;
    
    expectations regarding continued interest by and agreements with food, beverage and supplement companies;
    
    expectations regarding growing consumer recognition of the key health benefits of DHA and ARA;
    
    expectations regarding future efficiencies and improvements 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 production capacity utilization and the effects of excess production capacity;
    
    expectations regarding future selling, general and administrative and research and development costs;
    
    expectations regarding future capital expenditures;
    
    expectations regarding levels of consumption through governmental programs of infant formula products containing our
nutritional oils;
    
    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 customers both domestically and internationally;
    
    the timing of our customers production and ordering patterns;
    
    the timing and extent of stocking and destocking of inventory by our customers,
including the potential that customers 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 WIC 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
 lifesDHA
 lifesDHA lifesDHA lifesDHA
   
    
    In June 2006, South Korean infant formula market leader Namyang Dairy Products Co., Ltd.
signed a license and supply agreement with Martek for rights to use Marteks DHA and ARA in
infant formula sold in South Korea.
 16




---



##### 




    
    In August 2006, The Hain Celestial Group, Inc., a leading natural and organic food and
personal care products company, entered into a license and supply agreement with the
Company whereby Martek will serve as the exclusive DHA and ARA supplier for Hain
Celestials infant formula products in the United States. Hain Celestial recently unveiled
a new infant formula as part of its Earths Best® brand. In addition, the companies
announced that they are in discussions regarding the potential expansion of their
relationship into other food and beverage products.
   
    
    A review conducted by Dr. Chenchen Wang and others published in July 2006 in The
American Journal of Clinical Nutritionstated that evidence suggests that increased
consumption of long-chain omega-3 fatty acids, but not alpha-linolenic acid, reduces all
cause mortality, cardiac and sudden death, and possibly stroke. Martek DHA is a long-chain
omega-3 fatty acid.
    
    A Scientific Statement entitled Diet and Lifestyle Recommendations Revision 2006
published by Dr. A. Lichtenstein and other members of the American Heart Association
Nutrition Committee published in July 2006 in Circulationincluded a recommendation that
people
with documented heart disease consume approximately one gram of DHA and eicosapentaenoic acid
(EPA) per week. They affirm that with appropriate medical advice, use of supplements may be
substituted for fish.
    
    A commentary published by Dr. P.J. Aggett and other members of the European Society for
Pediatric Gastroenterology, Hepatology and Nutrition (ESPGHAN) in May 2006 in the Journal
of Pediatric Gastroenterology and Nutritionrecommended that preterm infants, if formula
fed, receive at hospital discharge a formula containing long-chain polyunsaturated fatty
acids (LCPUFA) until at least a post conception age of 40 weeks and possibly up to 52
weeks. Currently, Martek oils are the primary sources of LCPUFA in infant formulas.
 MANAGEMENT OUTLOOK
     17




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##### 



PRODUCTION
       CRITICAL ACCOUNTING POLICIES AND
THE USE OF ESTIMATES
  18




---



##### 



RESULTS OF OPERATIONS
 Revenues
  Three months ended July 31,
    
    
    Nine months ended July 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Product sales
    
    $
    66,322
    
    
    $
    35,926
    
    
    $
    192,029
    
    
    $
    151,871Contract manufacturing sales
    
    
    4,036
    
    
    
    3,563
    
    
    
    11,439
    
    
    
    9,938Total revenues
    
    $
    70,358
    
    
    $
    39,489
    
    
    $
    203,468
    
    
    $
    161,809
     Cost of Revenues
  Three months ended July 31,
    
    
    Nine months ended July 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(restated)
    
    
    
    
    
    

(restated)Cost of
product sales, including idle capacity costs
    
    $
    41,009
    
    
    $
    22,429
    
    
    $
    117,975
    
    
    $
    91,323Cost of contract manufacturing sales
    
    
    3,943
    
    
    
    3,261
    
    
    
    10,759
    
    
    
    8,650Total cost of revenues
    
    $
    44,952
    
    
    $
    25,690
    
    
    $
    128,734
    
    
    $
    99,973
    19




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##### 



Operating Expenses
  Three months ended July 31,
    
    
    Nine months ended July 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Research and development
    
    $
    6,231
    
    
    $
    5,309
    
    
    $
    17,969
    
    
    $
    15,446Selling, general and administrative
    
    
    11,328
    
    
    
    7,834
    
    
    
    31,465
    
    
    
    24,086Other operating expenses
    
    
    207
    
    
    
    1,243
    
    
    
    683
    
    
    
    6,803Total operating expenses
    
    $
    17,766
    
    
    $
    14,386
    
    
    $
    50,117
    
    
    $
    46,335
 Research and Development
 Selling, General and Administrative
 Other Operating Expenses
 Interest and Other Income, Net
  Interest Expense
  Income Tax Provision (Benefit)
   20




---



##### 



Net Income (Loss)
     RECENTLY ISSUED
ACCOUNTING PRONOUNCEMENTS
  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




---



##### 



Less than
    
    
    1-3
    
    
    3-5
    
    
    More thanIn thousands
    
    Total
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 yearsNotes payable (1)
    
    $
    11,665
    
    
    $
    1,169
    
    
    $
    9,272
    
    
    $
    397
    
    
    $
    827Borrowings under revolving credit facility
    
    
    33,000
    
    
    
    
    
    
    
    
    
    
    
    33,000
    
    
    
    Operating and capital lease obligations (2)
    
    
    13,378
    
    
    
    3,683
    
    
    
    7,287
    
    
    
    2,056
    
    
    
    352Unconditional purchase obligations (3)
    
    
    43,049
    
    
    
    5,477
    
    
    
    37,572
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    101,092
    
    
    $
    10,329
    
    
    $
    54,131
    
    
    $
    35,453
    
    
    $
    1,179
 
 (1)
    
    Minimum payments above include interest and principal due under these notes.(2)
    
    In August 2006, we entered into an agreement to repurchase for $10.9 million
certain production equipment at our Kingstree facility that is currently subject to an
operating lease as part of the sale-leaseback transactions in October and December 2004.
Repurchase in November 2006 is planned, and upon repurchase, future minimum lease payments of $8.0 million, currently
included herein, will be eliminated.(3)
    
    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;
 22




---



##### 




    
    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 a putative securities class action and other lawsuits;
    
    the costs of merger and acquisition activity; and
    
    the costs of marketing and commercializing our products.
  OFF-BALANCE SHEET ARRANGEMENTS
    23




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##### 



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




---



##### 



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