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EXHIBIT 99.1 CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 We desire to take advantage of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Many of the following important
factors discussed below have been discussed in our prior SEC filings. You should be cautioned that the following important factors have affected, and
in the future could affect, our actual results. There may also be additional
factors not discussed in this report that could also affect future results.
These factors could cause our future financial results to differ materially
from those expressed in any forward-looking statements made by us.
Forward-looking statements may relate to such matters as:  
    
    our ability to generate future revenues;
    
    the commercialization of our products;
    
    the expansion of our production facilities;
    
    the optimization of production costs; and
    
    our ability to enter into future business collaborations and marketing partnerships. Forward-looking statements may include words such as will, should, could,
anticipate, believe, plan, estimate, expect, intend, and other
similar expressions. This list does not constitute all factors which you should
consider prior to making an investment decision in our securities. You should
also not assume that the information contained herein is complete or accurate
in all respects after the date of this filing. We disclaim any duty to update
the statements contained herein.  If we are unable to successfully expand and scale-up our production capacity
or enter into favorable agreements with third parties to produce our oils or
if our suppliers fail to produce and supply us with adequate amounts of oil,
our customers may not be able to obtain a sufficient supply of DHA and ARA
from us, and our future revenues from these products may be limited. To meet our customers projected demand for our nutritional oils that are
used to supplement infant formulas, we have developed a process for the
large-scale production of our oils at our Winchester, Kentucky and Kingstree,
South Carolina manufacturing plants. We estimate the worldwide infant formula
market to be approximately $8.5 billion to $9.5 billion. If our licensees were
to penetrate 100% of this market with DHA and ARA supplemented formulas, we
estimate that we would receive greater than $400 million in revenues annually
from these sales. To date, we believe our licensees products containing our
oils have penetrated approximately 25% to 35% of the worldwide infant formula
market. Our sales into the non-infant nutritional supplement and food and
animal feed markets to date have been less then $10 million annually. Although
we have produced significantly more nutritional oils than our customers
initial projections, accelerated market demand and a shortage of ARA from DSM
that began in the first quarter of fiscal 2004, have caused a production
shortfall. Previously, we requested from our customers that they provide us
with longer lead-times to fill their orders. Even with the longer lead-times
and an increase in production each quarter, we continue to limit the orders we
accept. To the extent that demand continues to exceed our current production
capabilities, we may be unable to provide the required quantities of oil
cost-effectively and may experience backlogs or our customers may seek
alternative sources of supply. Although some of our licensees have a right to
manufacture DHA and ARA, we are not aware of any of our licensees doing so or
preparing to do so. Currently, our annualized production capacity, together
with DSMs production capacity at its Capua, Italy facility, is approximately
$190 million in annualized sales. We are in the process of expanding production
capacity at our newly acquired plant in Kingstree, SC and DSM is expanding its
capacity in Belvidere, NJ. In May 2004, DSMs Belvidere, NJ facility
experienced a fire in an outside dust collection unit, which caused a temporary
shutdown of the ARA production line at the Belvidere facility. In June 2004,
DSM restarted the production line at the Belvidere facility and since that
time, Belvidere has continued to increase its monthly output of ARA. We
anticipate annualized production capacity equaling approximately $260 million
to $270 million of annualized sales by the end of fiscal




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2004 and $500 million of annualized sales by the second half of fiscal 2005.
Our ability to maintain commercial production at these higher levels has not
been successfully tested. As we increase our production at our Kingstree plant,
we may encounter many risks associated with our commercial manufacturing such
as:  
    
    the construction phase of our fermentation expansion at our Kingstree
plant may not be completed in the timeframe that we have planned or at
the projected cost;
    
    problems processing, handling and shipping the higher quantities of oil produced from our expanded facilities;
    
    the costs of expanding, operating and maintaining our production facilities exceeding our expectations;
    
    product defects;
    
    higher than anticipated product losses;
    
    environmental and safety problems resulting from our production process; and
    
    additional regulatory issues relating to the scale up of our production process may arise. If we were to experience any one or more of these problems, there could be
a material adverse effect on our business, financial condition, and/ or results
of operations. If we are: (a) unable to cost effectively manufacture our DHA-containing
oil at our Winchester and Kingstree plants; (b) unable to successfully expand
our production at our Kingstree facility; (c) unable to enter into other
satisfactory third-party manufacturing agreements; or (d) our licensees are
unable to find alternative sources for our DHA, our future revenues from sales
of DHA may be limited. We have entered into an agreement with a third-party manufacturer, DSM to
exclusively supply (except for limited rights Martek retains) our ARA out of
its plants in Capua, Italy and Belvidere, NJ. If DSM fails to supply us with
required amounts of ARA under our agreement with it, we would not be able to
meet our customers demands unless we were able to utilize alternative sources
of supply. In this regard, we would have to either manufacture the ARA at one
or both of our plants, which may be more costly and would also reduce our DHA
oil production capacity, or enter into other third-party manufacturer supply
agreements. If we are unable to find alternative supply sources or are unable
to cost effectively manufacture the ARA in our Winchester or Kingstree plants,
our future revenues from sales of our oils may be limited.  A substantial portion of our nutritional oil products sales are made to four
of our existing customers, and if demand by these customers for our
nutritional oil products declines, our revenues may materially decline. We rely on a substantial portion of our sales of nutritional products to
four of our existing customers. Over 90% of our nutritional product sales
during the first nine months of fiscal 2004 were generated by sales of DHA
and ARA to four customers. Approximately 60% of these sales were to Mead
Johnson and the remaining 40% were to Abbott Laboratories, Wyeth and Nestle
combined. We cannot guarantee that these customers will continue to demand our
nutritional products at current levels. If demand by any of these customers for
our nutritional products declines, we may experience a material decline in our
revenues.  Failure to effectively manage our growth could disrupt our operations and
prevent us from generating the revenues and gross profit margins we expect. In response to current and projected levels of demand for our nutritional
oils, we have been actively working to accelerate our production build-out
plans. To manage our growth successfully we must implement, constantly improve
and effectively utilize our operational and financial systems while expanding
our production capacity and workforce. We must also maintain and strengthen the
breadth and depth of our current strategic relationships while developing new
relationships. Our existing or planned operational and financial systems may
not be sufficient to support our growth; we may not successfully control
production costs and maintain current and anticipated gross profit levels; and
our management may not be able to effectively identify, manage and exploit
existing and emerging market opportunities. If we do not adequately manage our
growth, our business and future revenues will suffer.




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Our oils are very sensitive to oxidation and are not very compatible with
most liquid or dry foods that are currently on the market. If economical
methods are not developed to successfully incorporate our oils into various
food and beverage applications, we may never be able to gain large scale
entry into the food and beverage market. Although we believe that the food and beverage market could be a large
market for DHA fortification with our DHA-S oil, the potential in this market
could be limited if methods are not developed that allow good compatibility of
our DHA-S oil with various foods and beverages. The flavor, texture and
stability of finished products, such as cereals, milk and nutritional bars
enriched with our oils have not yet been successfully established. Even if we
can successfully incorporate our oils into foods and beverages, manufacturers
of these products will have to develop methods to demonstrate feasibility in
their production process. The timing and extent of our sales into the food and
beverage market, therefore, are dependent not only on market demand, but also
on manufacturing issues over which we have no control.  Since infant formula pricing is very competitive, the premium that our oils
adds to the cost of the formula may never allow it to be priced at levels
that will allow worldwide acceptance by consumers. Infant formula pricing is very competitive and the market is very
sensitive to product price changes. Because the inclusion of our oils into
infant formula may add 10% to 20% to the retail cost of standard infant
formula, there is the risk that our licensees may not be able to sell
supplemented products at prices that will allow them to gain worldwide market
acceptance while, at the same time, remaining profitable. This may lead to
price pressure on us. If we have to reduce our prices, we may not be able to
sell products at a price that would enable us to be profitable. We are
prohibited from granting a license to any party for the inclusion of our
nutritional oils in infant formula with payment terms or royalty rates that are
more favorable than those provided to the licensees under the terms of several
of our current license agreements without either the written consent of those
current licensees or prospectively offering such new more favorable terms to
those current licensees. None of our license agreements requires our licensees
to purchase any minimum amount of products from us now or in the future, and
certain of our license agreements allow our licensees to manufacture our
products themselves or purchase nutritional oils from other sources.  If market demand for our products continues to grow, we will need significant
additional capital to expand our production capability. We may also need
additional capital in the future to continue our research and development
efforts, to conduct product testing, including preclinical and clinical
trials, and to market our products. Our nutritional oil sales are increasing, and meeting projected demand
will require expanding our production capability for our nutritional oils. We
are now in the process of expanding at our Kingstree facility. Further
enhancements to improve production and capacity at the Winchester facility are
also continuing. As of July 31, 2004, we had approximately $37.7 million in
cash, cash equivalents and short-term investments as well as the $27.0 million
unused portion of our revolving credit facility available to meet future
capital requirements. As of July 31, 2004, we believe that up to approximately
$40-50 million may be needed over the ensuing 12 months to complete the
expansion and production improvements as well as for other company-wide capital
needs. We also may require additional capital to fund our research and
development, product testing, and marketing activities. The timing and extent
of our additional cash needs will primarily depend on: (a) the timing and
extent of future launches of infant formula products containing our oils by our
licensees; (b) the timing and extent of introductions of DHA into foods and/or
nutritional supplements for children and adults; (c) whether or not we enter
into collaborations with third parties to produce our nutritional oils; and (d)
our ability to generate profits from the sales of our nutritional products. To continue to fund our growth, we may pursue various sources of funding,
which may include debt financing, equity issuances, asset based borrowing,
lease financing, and collaborative arrangements with partners. In January 2004,
we established a three-year secured revolving credit facility of $85 million.
In May 2004, we amended and expanded this credit facility to $100 million. This
debt financing arrangement will require us to comply with financial covenants,
which we may not be able to meet if demand for our product were to drop, there
was a significant change in our financial position or if our cash needs are
greater than we currently anticipate. Additionally, funding from other sources
may not be available, or may not be available on terms that would be
commercially acceptable or permit us to continue the planned commercialization
of our products or expansion of our production capacity. In August 2004, our
shelf registration statement was declared effective by the SEC. The shelf
registration enables us to issue debt securities, preferred stock, common stock
and warrants in the aggregate amount of $200 million. Future equity issuances
may be dilutive to our existing shareholders. If we obtain funds through
collaborative or strategic partners, these partners may require us to give them
technology or product rights, including patent rights that could ultimately
diminish our value. If we cannot secure adequate funding, we may need to scale
back our research, development, manufacturing, and commercialization programs,
which may have a material adverse affect on our future business.




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The market price of our common stock may experience a high level of
volatility due to factors such as its relative illiquidity, the volatility in
the market for biotechnology stocks generally, and the effect of short-term
events like product launches and license announcements. We are a public growth company in the biosciences sector. As frequently
occurs among these companies, the market price for our common stock may
experience a high level of volatility. During the fifty-two week period ending
July 31, 2004, our common stock traded between $70.99 and $44.68 per share.
During the fifty-two week period ending July 31, 2003, our common stock traded
between $49.76 and $12.63 per share. The following are examples of items that
may significantly impact the market price for our common stock:  
    
    announcements of technical innovations, new commercial products and product launches by us or our competitors;
    
    arrangements or strategic partnerships by us or our competitors;
    
    announcements of license agreements, acquisitions or strategic alliances;
    
    patent or other intellectual property achievements or adverse developments;
    
    quarterly fluctuations in our results of operations;
    
    failure or delay in expansion and scale-up of our commercial
manufacturing or failure or delay of our third party manufacturers in
expansion and scale up of their commercial manufacturing;
    
    failure to enter into favorable third-party manufacturing agreements;
    
    regulatory decisions (approvals or disapprovals) or changes concerning our products and our competitors products;
    
    announcements related to threatened, new or existing litigation;
    
    changes in estimates of our financial performance or changes in recommendations by securities analysts; and
    
    general market conditions for growth companies and bioscience companies. Because we may experience a high level of volatility in our common stock,
you should not invest in our stock unless you are prepared to handle a
significant loss of your capital. At any given time, you may not be able to
sell your shares at a price that you think is acceptable. The market liquidity for our stock is relatively low. As of July 31, 2004,
we had 29,290,701 shares of common stock outstanding. The average daily trading
volume in our common stock during the fifty-two week period ending July 31,
2004 was approximately 600,000 shares. Although a more active trading market
may develop in the future, the limited market liquidity for our stock may
affect your ability to sell at a price that is satisfactory to you.  If significant shares eligible for future sales are sold, the result may
depress our stock price by increasing the supply of our shares in the market
at a time when demand may be limited. As of July 31, 2004, we had 29,290,701 shares of common stock outstanding,
stock options outstanding to purchase an aggregate of approximately 4.0 million
shares of common stock, substantially all of which have exercise prices at
below current market prices, and warrants outstanding to purchase up to
approximately 60,000 shares of common stock at an exercise price of $19.05 per
share. Of these options and warrants, approximately 1.9 million were
exercisable at July 31, 2004. Furthermore, we have filed a universal shelf
registration statement with the SEC, which was declared effective in August
2004, pursuant to which we may issue debt securities, preferred stock, common
stock and warrants to purchase debt securities, preferred stock or common stock
in an aggregate amount of up to $200 million. To the extent that these options
and warrants for our common stock are exercised or we issue additional shares
to raise capital to increase production capacity or if our financial
requirements otherwise warrant, the increase in the number of our outstanding
shares of common stock may adversely affect the price for our common stock.
This could hurt our ability to raise capital through the sale of equity
securities. If we continue to require additional outside sources of capital to
finance, among other things, our research and development, product testing and
the manufacturing and marketing of our products, we may need to raise
additional capital through the sale of equity securities.




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We have agreed to issue and register for resale up to 1,931,853 additional
shares, to former OmegaTech stockholders and option holders pursuant to our
Agreement and Plan of Merger with OmegaTech, if certain regulatory and
financial milestones are achieved by October 31, 2004. The representative for
these interest holders has asserted that shares related to two of these
milestones should be issued, an assertion with which we do not agree. While we
have not resolved this matter, a substantial number of these additional shares
would be issued and become eligible for resale if it is determined that they
are required to be issued with respect to these two milestones or the third
pending milestone is achieved. The market price of our common stock could
decline as a result of sales of a large number of shares of our common stock in
the market or the perception that these sales could occur, which could limit
your ability to sell at a price satisfactory to you.  Our current patents may not be able to provide protection against competitive
products and we may be unable to protect our intellectual property portfolio
in the future. European and United States patent authorities have not adopted a
consistent policy regarding the breadth of claims allowed for health and
bioscience patents. Our issued patents, or patents that we may obtain in the
future, may not afford adequate protection against competitors with competing
technology because governmental agencies may revoke our patents or may limit
the scope of our patents. If this happens, companies may be able to produce
products using our previously patented technology. A number of our competitors
have challenged our patents, particularly in Europe:  
    
    Aventis S.A. and Nagase & Co. Ltd. are challenging our European
patent covering our DHA-containing oils. At a hearing in October 2000,
the Opposition Division of the European Patent Office revoked our patent
on the grounds that it was not novel. We immediately appealed this
ruling, and in July 2002 we received a positive ruling from an Appeal
Board of the European Patent Office (EPO), setting aside the prior
decision to revoke this patent. Consistent with our request, the patent
has been returned to the Opposition Division for a determination as to
whether it has met the legal requirement of inventive step. A hearing
of the Opposition Division is now scheduled for November 2004. During
this appeal process, the patent will remain in full force and effect.
The appeal process is not expected to be completed until some time in
2006.
    
    BASF A.G., Friesland Brands, B.V. and Suntory Limited have filed in the EPO their grounds for
opposing our ARA patent issued by the EPO. The validity of the patent is
unaffected by these filings. An initial hearing at the Opposition
Division is scheduled for November 2004. The opposition process is not
expected to be completed until some time in 2006.
    
    With respect to our blended-oil (blend of DHA and ARA oils for use in
various applications, including infant formula) patent issued by the
EPO, BASF AG, and Suntory Limited have filed their grounds for opposing
this patent with the Opposition Division of the EPO. The validity of the
patent is unaffected by these filings. An initial hearing at the
Opposition Division is scheduled to be held in November 2004. The
opposition process is not expected to be completed until some time in
2006.
    
    Aventis Research and Technologies GmbH & Co. KG and Nagase Limited
have filed in the EPO their grounds for opposing our patent covering the
DHA-containing oils that we assumed in the OmegaTech purchase. At a
hearing in December 2000, the Opposition Division of the EPO upheld some
of the claims and revoked other claims. OmegaTech immediately appealed
this ruling, as did Aventis. During the appeal process, the patent will
remain in full force and effect. The appeal process is not expected to
be completed until some time in 2006.
    
    On September 23, 2003, we filed a patent infringement lawsuit in the
U.S. District Court in Delaware against Nutrinova Inc., Nutrinova
Nutrition Specialties & Food Ingredients GmbH, Celanese Ventures GmbH,
and Celanese AG alleging infringement of two of our U.S. patents. The
lawsuit alleges that Nutrinova and Celanese have been making, using,
offering to sell, selling and/or importing into the United States DHA
that is made by a process and employs compositions that infringe our
patents. On October 24, 2003, Nutrinova and Celanese filed counterclaims
alleging inequitable conduct and invalidity, unenforceability and/or
noninfringement of all of our U.S. patents and rights. We filed a second
patent infringement suit involving Nutrinova in Germany on January 16,
2004. Named as defendants were Nutrinova Nutrition Specialties and Food
Ingredients GmbH and Celanese Ventures GmbH. The complaint alleges
infringement of our European patent relating to DHA-containing oils. A
hearing is now scheduled to be held in December 2004. If any of the challenges described above or any other challenges to our
patents which may arise in the future are successful, our competitors may be
able to produce similar products and, as a result, we may experience decreases
in the future sales of our nutritional oils, decreases in the revenues on sales
of infant formula containing our oils and decreases in license fees related to
our oils. If our products are found to infringe on the intellectual property
rights of others, we may have to pay substantial damages. The revocation of our
European DHA patent, ARA patent or blended-oils patent could result in a
decrease in revenues under our license agreements.




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We expect that in the future, as our nutritional oils continue to be
commercialized, opposition to our intellectual property by our competitors will
continue and most likely increase. We believe that challenges to our suite of
U.S. patents may arise in the future. We may incur substantial costs in the
future protecting and defending our patents and cannot be sure that we will be
able to successfully defend our patents or that our competitors will not be
able to design around our intellectual property.  We are aware of several products that are currently available, and products
under development, that may present a serious competitive threat to our
products. Our success depends upon achieving and maintaining a superior competitive
position in infant formula and adult nutritional product markets. Many
potential competitors, which include companies such as BASF A.G., Cargill,
Suntory Limited, Celanese Ventures and Nagase & Co. Ltd., have substantially
greater research and development capabilities, marketing, financial and
managerial resources and experience in the industry. If a competitor develops a
better product or technology, our products or technologies may be rendered
obsolete. We believe that, to date, we have developed the purest forms of DHA and
ARA oils commercially available; however, we are aware that other sources of
DHA and ARA are or may be available. Specifically:  
    
    the Ross Products Division of Abbott Laboratories filed a Generally
Recognized as Safe notification on January 2, 2002 seeking FDA
concurrence that its fish oil source of DHA and its fungal source of ARA
are Generally Recognized as Safe when used as ingredients in infant
formula. At this time, the notification continues to be under
consideration by the FDA;
    
    Cargill Inc, through a joint venture with a company in China, and a
second, independent Chinese manufacturer have announced the intent to
begin producing and distributing a fungal source of ARA;
    
    some infant formulas now on the market outside the United States use
DHA derived from other sources, such as fish or eggs;
    
    some baby food products now on the market in the United States use DHA derived from eggs;
    
    fish oil based products currently dominate the adult DHA supplement market;
    
    we are aware that Nutrinova is actively marketing a DHA-rich
microalgal oil to the food and beverage and dietary supplement markets
in the United States and Europe. We have filed a patent infringement
suit against Nutrinova in both the United States and Germany;
    
    we are aware that other companies, several with greater financial
resources than ours, are developing plant-based DHA and other companies
are developing chemically synthesized DHA; and
    
    we are aware of the development of microencapsulated fish oil
products by several large companies, including BASF and DSM. Although
microencapsulation of the oil resolves much of the odor, stability and
taste issues found with fish oil, a microencapsulated product currently
is significantly more costly than regular fish oil. Because fish oil is
significantly less costly than our DHA oil, fish oil presents a
substantial competitive threat. To date, no other sources of DHA and ARA have received clearance from the FDA
for inclusion in U.S. infant formulas.  Experts differ in their opinions on the importance of DHA and ARA in infant
formula. Some experts feel that they are not necessary ingredients for infant
development and that supplemented formulas will remain a premium product and
never gain widespread acceptance. If this occurs, or if clinical trials that
are now ongoing do not yield positive results on the benefits of DHA on
cardiovascular or other health problems, our future revenues may be limited
in the infant formula market, foods market and the nutritional supplement
market. Ultimately our success in the infant formula industry depends on growing
acceptance of our nutritional oils as necessary or beneficial additives to
infant formulas. Notwithstanding existing clinical results that have
demonstrated the beneficial effects of adding our nutritional oils to infant
formula, some experts in the field of infant nutrition do not believe that our
nutritional oils are necessary or that they provide any long-term beneficial
effects. There have also been clinical studies where no beneficial effects have
been found, possibly due to dose, duration or other factors. Experts generally
recommend that mothers breastfeed rather than use infant formulas whether or
not they contain our nutritional oils. Some experts also believe that infant
formula without our oils contains sufficient precursor fats that infants can
convert into DHA and ARA as needed. In addition, some physicians are
unimpressed by




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studies showing that infant formulas fortified with our oils improve infants
cognitive ability at early ages, suggesting that these results may not carry
over to improved results later in life. Due to these differences in opinion, we
are subject to the risk that the use of DHA and ARA in infant formula may never
gain widespread acceptance worldwide. As of July 31, 2004, our products have
been in the U.S. infant formula market for approximately 29 months and we
believe that these products have penetrated more than 60% of the U.S. infant
formula market. Internationally, our products have been included in term infant
formula in over 30 countries. Many of these introductions have occurred in the
last 3 to 4 years. We estimate that our products have penetrated approximately
30% to 35% of the worldwide infant formula market. Combined, these markets
brought us revenues of approximately $107.3 million in fiscal year 2003 and
$108.7 million in the first nine months of the fiscal year 2004. In addition to sales into the infant formula market, approximately 2% of
nutritional product revenues in fiscal 2003 and the first nine months of fiscal
2004 came from sales of our nutritional oils to the adult supplement market.
Investigators at universities and at other research centers, such as the
National Institutes of Health, have observed a relationship between low levels
of DHA and a variety of health risks. We are currently trying to establish what
contribution, if any, supplementation with our oils will make in addressing
these problems. Although clinical data are not required to market food
ingredients or nutritional supplements outside of the infant formula market, we
believe that further clinical studies are needed to validate the benefits of
DHA supplementation. Accordingly, we are sponsoring studies to further
investigate the potential benefit of DHA supplementation on cardiovascular
health and we are aware of research being conducted regarding the impact of DHA
supplementation on certain visual and neurological disorders. Unless these
studies, which are more extensive than earlier pilot studies, establish and
quantify the positive impact of DHA supplementation, we may only have a limited
adult market opportunity.  Our business would be harmed if we fail to comply with applicable good
manufacturing practices as required by the FDA. In connection with the manufacture of certain of our products, we are
required to adhere to applicable current good manufacturing practice (GMP)
requirements as required by the FDA. GMP regulations specify component and
product testing standards, control quality assurance requirements and records
and other documentation controls. As the manufacturer of DHA and ARA that are
marketed as dietary supplements and used as ingredients in infant formulas sold
in the United States, and may be used in food and beverages, we are subject to
GMP and various other requirements applicable to such products. There can be no
assurance that we will be able to continue to manufacture our nutritional oils
in accordance with relevant dietary supplement and infant formula requirements
for commercial use. Ongoing compliance with GMP and other applicable regulatory
requirements is monitored through periodic inspections by state and federal
agencies, including the FDA and comparable agencies in other countries. A
determination that we are in violation of such GMP and other regulations could
lead to an interruption of our production output and the imposition of civil
penalties, including fines, product recalls or product seizures, and, in the
most egregious cases, criminal sanctions.  Our corporate compliance program cannot guarantee that we are in compliance
with all potentially applicable federal and state regulations. Our business is subject to extensive federal and state regulation. Current
products and products in development cannot be sold if we or our customers do
not obtain or maintain regulatory approvals. While we have developed and
instituted a corporate compliance program, we cannot assure you that we or our
employees are or will be in compliance with all potentially applicable federal
and state regulations. If we fail to comply with any of these regulations a
range of actions could result, including, but not limited to, the failure to
approve a product candidate, restrictions on our products or manufacturing
processes, including withdrawal of our products from the market, significant
fines, or other sanctions.  Our business exposes us to potential product liability claims and recalls,
and our insurance may not provide adequate coverage. Our development, manufacture and marketing of products involve an inherent
risk of exposure to product liability claims, product recalls, product seizures
and related adverse publicity. In addition, as only a small amount of our oils
resides in our customers end product, a recall of our oils could impact a much
larger recall of our customers end products. Insurance coverage is expensive
and difficult to obtain, and we may be unable to obtain coverage in the future
on acceptable terms, if at all. Although we currently maintain product
liability and recall insurance for our products in the amounts we believe to be
commercially reasonable, we cannot be certain that the coverage limits of our
insurance policies or those of our strategic partners will be adequate. If we
are unable to obtain sufficient insurance at an acceptable cost, if a
successful product liability claim is made against us, or if there is a product
recall, whether fully covered by insurance or not, our business and future
sales could be adversely impacted.




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Our opportunity in the U.S. infant formula market may be limited by the
adoption rate of supplemented formulas into the women, infants and children
(WIC) program. We estimate that our total U.S. market opportunity for sales of
supplemented infant formula to be over $140 million and that approximately $70
million of this opportunity will come from Women, Infant and Children
(WIC)-funded sales. Most WIC state agencies provide only one brand of infant
formula to its participants, depending on which company has the rebate contract
in a particular state. Since early 2002, approximately 45 state WIC programs
have adopted a brand of infant formula supplemented with our oils. WIC is a
federal grant program that is state administered for the benefit of low-income
nutritionally at risk women, infants and children. If our licensees do not
attempt to gain adoption of a supplemented brand of infant formula in other
states, other state WIC agencies do not agree to adopt a supplemented infant
formula into their WIC program, supplemented formulas are removed from WIC
programs that previously adopted them, or if any of our licensees fail to
renew, in a timely fashion, their contract awards from WIC agencies for the
adoption of a supplemental infant formula, then our future revenues from
supplemented infant formula sales in the U.S. would be limited.  Our manufacturing process involves the handling of hazardous material and the
mishandling of these hazardous materials could result in substantial costs
and harm to our business. In connection with our research and manufacturing activities, we utilize
some hazardous materials. We are subject to federal, state and local laws and
regulations governing the use, storage, handling and management of hazardous
materials and specified waste products. The cost of compliance with these laws
and regulations could be significant. Moreover, we could be subject to loss of
our permits, government fines or penalties and/or other adverse governmental
action if such hazardous materials are used, stored, handled or otherwise
managed in violation of law or any permit. In addition, we could be subject to
liability if hazardous materials are released into the environment. A
substantial fine, penalty or judgment, the payment of significant environmental
remediation costs or the loss of a permit or other authorization to operate or
engage in our ordinary course of business could result in material,
unanticipated expenses and the possible inability to satisfy customer demand
for our nutritional oils. On March 12, 2003, an explosion occurred at a public wastewater treatment
works in Winchester, KY, resulting in property damage. On April 8, 2003, we
received a report from the state fire marshal that concluded that the incident
resulted from the introduction of n-hexane into the local sewer system. We use
n-hexane in the production process for our DHA oil. The state fire marshal
report did not rule out other possible contributors to the incident. Although
n-hexane was found at the site of the incident, there are other factors which
need to be considered, including the presence of other flammable substances
that were not discharged from our plant and existing conditions at the water
treatment facility. We have entered into active discussions relating to the
cause of and determination of responsibility for the property damage with the
Winchester Municipal Utilities Commission (WMU) and its insurer. We have
received and are analyzing information from the utility and its insurer
concerning the details of the incident. We have entered into an agreement with
the City of Winchester, WMU, and WMUs insurer to extend any applicable statute
of limitations and allow the parties to continue discussing this matter. We
learned in March 2004 that the federal Environmental Protection Agency,
utilizing personnel from its Criminal Investigation Division, had asked
questions of current and former employees relating to the explosion at the
wastewater treatment plant and n-hexane. Current and former employees have
recently testified before a federal grand jury that is investigating the
matter. As of July 31, 2004, we have recorded a liability totaling
approximately $500,000 as an estimate of certain future costs that we might
incur as a result of this incident, including approximately $250,000 recorded
during the three months ended July 31, 2004. Through July 31, 2004, we have
incurred approximately $337,000 in legal fees related to the incident. In
addition to any potential liabilities for property damage, this incident
resulted in the delay of the issuance of certain permits required for the
expansion of our existing Winchester plant and was a consideration in our
decision to begin immediate expansion at our Kingstree, SC plant. While we
cannot be certain of the ultimate outcome of our discussions with WMU and its
insurer or the EPA and grand jury activity, we believe that they will not have
a material adverse impact on our production, financial condition or results of
operations.  The integration of FermPros operations with Marteks operations may be
difficult, which could harm our results of operations. On September 5, 2003, we completed the transaction to purchase certain
assets and assume certain liabilities of FermPro. Martek Biosciences Kingstree
Corporation (Martek Kingstree) was formed as a wholly-owned subsidiary of
Martek Biosciences Corporation for the purpose of holding the assets acquired
and liabilities assumed liabilities from FermPro. We are in the process of
integrating our operations with the operations of the former FermPro business.
This integration may be more expensive than anticipated or take longer than
planned. If there are delays or unexpected costs involved with the integration,
these could have a material adverse effect on our business and financial
results. The difficulties involved in integrating the former FermPro business,
which could be substantial, include the following:




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    management and key personnel could be distracted from the day-to-day
business of managing Martek;
    
    implementing uniform controls, systems and procedures, especially
information and accounting systems, could be costly and time-consuming;
    
    key officers, sales and customer support personnel may not be satisfied or happy with Martek and may elect to leave; and
    
    expansion at the Kingstree facility may further complicate integration of operations.  We have not yet generated a sustained revenue stream to be a viable business
in the long-term. We experienced net operating losses in each annual period since our
inception through fiscal 2002. As of July 31, 2004, we had an accumulated
deficit of $99.8 million. Our balance of cash, cash equivalents and short-term
investments at July 31, 2004 was $37.7 million. Although these resources, along
with a new $100 million secured revolving credit facility expiring in 2007, of
which $23 million is unused as of July 31, 2004, should allow us to meet our
current operating needs and planned capital expenditures for at least the
ensuing 12 to 18 months, we must achieve sustained profitability to generate
the cash necessary to be a viable business in the long term, and at this time
we have not yet generated a sustained source of revenue to achieve this.