##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-Q

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

For the Quarterly Period Ended April 30, 2003

or

|     |  |                                                  
|---- |  | -------------------------------------------------
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
|     |  | OF THE SECURITIES EXCHANGE ACT OF 1934           

For the Transition Period From      to



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COMMISSION FILE NUMBER 0-22354


MARTEK BIOSCIENCES CORPORATION

(Exact name of registrant as specified in its charter)


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

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

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

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



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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [  ]  Yes  [X]  No

Common stock, par value $.10 per share: 26,872,880 shares outstanding
as of June 11, 2003





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PART I - FINANCIAL INFORMATION

Item 1. Financial StatementsMARTEK BIOSCIENCES CORPORATION

Consolidated Balance Sheets
($ in thousands, except share and per share data)

|                                           |                                                                                                                                                                               |   |             |          |             |   |         |          |  
|------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | -------- | ----------- | - | ------- | -------- | -
|                                           |                                                                                                                                                                               |   | April 30,   |          | October 31,
|                                           |                                                                                                                                                                               |   | 2003        |          | 2002       
|                                           |                                                                                                                                                                               |   |             |          |            
|                                           |                                                                                                                                                                               |   | (unaudited) |          |             |   |        
|Assets                                     |                                                                                                                                                                               |   |             |          |             |   |         |         
|Current assets                             |                                                                                                                                                                               |   |             |          |             |   |         |         
|                                           | Cash and cash equivalents                                                                                                                                                     |   | $           | 95,630   |             |   | $       | 20,419   |  
|                                           | Short-term investments and marketable securities                                                                                                                              |   |             | 7,800    |             |   |         | 2,000    |  
|                                           | Accounts receivable, net                                                                                                                                                      |   |             | 15,128   |             |   |         | 9,597    |  
|                                           | Inventories, net                                                                                                                                                              |   |             | 8,004    |             |   |         | 9,718    |  
|                                           | Other current assets                                                                                                                                                          |   |             | 1,943    |             |   |         | 1,312    |  
|                                           |                                                                                                                                                                               |   |             |          |             |   |         |         
|Total current assets                       |                                                                                                                                                                               |   | 128,505     |          |             |   | 43,046  |         
|Property, plant and equipment, net         |                                                                                                                                                                               |   | 48,492      |          |             |   | 36,506  |         
|Goodwill                                   |                                                                                                                                                                               |   | 24,531      |          |             |   | 25,568  |         
|Intangible asset-current products, net     |                                                                                                                                                                               |   | 9,939       |          |             |   | 10,295  |         
|Other intangible assets, net               |                                                                                                                                                                               |   | 8,043       |          |             |   | 8,202   |         
|Other assets                               |                                                                                                                                                                               |   | 447         |          |             |   | 695     |         
|                                           |                                                                                                                                                                               |   |             |          |             |   |         |         
|Total assets                               |                                                                                                                                                                               | $ | 219,957     |          |             | $ | 124,312 |         
|                                           |                                                                                                                                                                               |   |             |          |             |   |         |         
|Liabilities and stockholders equity       |                                                                                                                                                                               |   |             |          |             |   |         |         
|Current liabilities                        |                                                                                                                                                                               |   |             |          |             |   |         |         
|                                           | Accounts payable                                                                                                                                                              |   | $           | 3,878    |             |   | $       | 3,854    |  
|                                           | Accrued liabilities                                                                                                                                                           |   |             | 7,657    |             |   |         | 6,687    |  
|                                           | Obligations under capital leases                                                                                                                                              |   |             | 19       |             |   |         | 111      |  
|                                           | Notes payable                                                                                                                                                                 |   |             | 3,121    |             |   |         |         |  
|                                           | Current portion of unearned revenue                                                                                                                                           |   |             | 1,683    |             |   |         | 1,937    |  
|                                           |                                                                                                                                                                               |   |             |          |             |   |         |         
|Total current liabilities                  |                                                                                                                                                                               |   | 16,358      |          |             |   | 12,589  |         
|Long-term portion of unearned revenue      |                                                                                                                                                                               |   | 2,351       |          |             |   | 2,246   |         
|Commitments                                |                                                                                                                                                                               |   |            |          |             |   | 3,500   |         
|Stockholders equity                       |                                                                                                                                                                               |   |             |          |             |   |         |         
|                                           | Preferred stock, $.01 par value, 4,700,000
shares authorized; none issued or outstanding                                                                                      |   |             |         |             |   |         |         |  
|                                           | Series A junior participating preferred stock, $.01 par value,
300,000 shares authorized; none issued or outstanding                                                          |   |             |         |             |   |         |         |  
|                                           | Common stock, $.10 par value; 100,000,000 shares
authorized; 26,753,475 and 23,331,091 shares issued and
and outstanding at April 30, 2003 and October 31, 2002,
respectively |   |             | 2,675    |             |   |         | 2,333    |  
|                                           | Additional paid-in capital                                                                                                                                                    |   |             | 320,981  |             |   |         | 231,224  |  
|                                           | Deferred compensation                                                                                                                                                         |   |             |         |             |   |         | (20      | )
|                                           | Accumulated deficit                                                                                                                                                           |   |             | (122,408 | )           |   |         | (127,560 | )
|                                           |                                                                                                                                                                               |   |             |          |             |   |         |         
|Total stockholders equity                 |                                                                                                                                                                               |   | 201,248     |          |             |   | 105,977 |         
|                                           |                                                                                                                                                                               |   |             |          |             |   |         |         
|Total liabilities and stockholders equity |                                                                                                                                                                               | $ | 219,957     |          |             | $ | 124,312 |         
|                                           |                                                                                                                                                                               |   |             |          |             |   |         |         

See accompanying notes.

2



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MARTEK BIOSCIENCES CORPORATION

Consolidated Statements of Operations
(Unaudited - $ in thousands, except share and per share data)

|                                           |                                              |                                     |        |                              |        |                            |         |            |        |      |        |            |        |    |         |            |        | 
|------------------------------------------ | -------------------------------------------- | ----------------------------------- | ------ | ---------------------------- | ------ | -------------------------- | ------- | ---------- | ------ | ---- | ------ | ---------- | ------ | -- | ------- | ---------- | ------ | 
|                                           |                                              |                                     |        | Three months ended April 30, |        | Six months ended April 30,
|                                           |                                              |                                     |        |                              |        |                           
|                                           |                                              |                                     |        | 2003                         |        | 2002                       |         | 2003       |        | 2002
|                                           |                                              |                                     |        |                              |        |                            |         |            |        |     
|Revenues:                                  |                                              |                                     |        |                              |        |                            |         |            |        |      |        |            |        |    |         |           
|                                           | Product sales:                               |                                     |        |                              |        |                            |         |            |        |      |        |            |        |    |         |            |       
|                                           |                                              | Nutritional product sales           |        | $                            | 26,226 |                            |         | $          | 11,222 |      |        | $          | 46,435 |    |         | $          | 16,956 | 
|                                           |                                              | Fluorescent detection product sales |        |                              | 173    |                            |         |            | 174    |      |        |            | 462    |    |         |            | 383    | 
|                                           |                                              |                                     |        |                              |        |                            |         |            |        |      |        |            |        |    |         |           
|                                           | Total product sales                          |                                     |        | 26,399                       |        |                            |         | 11,396     |        |      |        | 46,897     |        |    |         | 17,339     |       
|                                           | Other revenue                                |                                     |        | 48                           |        |                            |         | 27         |        |      |        | 95         |        |    |         | 54         |       
|                                           |                                              |                                     |        |                              |        |                            |         |            |        |      |        |            |        |    |         |           
|Total revenues                             |                                              |                                     | 26,447 |                              |        |                            | 11,423  |            |        |      | 46,992 |            |        |    | 17,393  |           
|Costs and expenses:                        |                                              |                                     |        |                              |        |                            |         |            |        |      |        |            |        |    |         |           
|                                           | Cost of product sales                        |                                     |        | 15,642                       |        |                            |         | 8,285      |        |      |        | 27,984     |        |    |         | 12,469     |       
|                                           | Research and development                     |                                     |        | 2,657                        |        |                            |         | 3,322      |        |      |        | 5,444      |        |    |         | 6,233      |       
|                                           | Acquired in-process research and development |                                     |        |                             |        |                            |         | 15,788     |        |      |        |           |        |    |         | 15,788     |       
|                                           | Restructuring                                |                                     |        |                             |        |                            |         |           |        |      |        | (250       | )      |    |         |           |       
|                                           | Selling, general and administrative          |                                     |        | 4,161                        |        |                            |         | 2,195      |        |      |        | 7,903      |        |    |         | 4,191      |       
|                                           | Other operating expenses                     |                                     |        | 1,066                        |        |                            |         | 11         |        |      |        | 1,066      |        |    |         | 96         |       
|                                           |                                              |                                     |        |                              |        |                            |         |            |        |      |        |            |        |    |         |           
|Total costs and expenses                   |                                              |                                     | 23,526 |                              |        |                            | 29,601  |            |        |      | 42,147 |            |        |    | 38,777  |           
|                                           |                                              |                                     |        |                              |        |                            |         |            |        |      |        |            |        |    |         |           
|Income/(loss) from operations              |                                              |                                     | 2,921  |                              |        |                            | (18,178 | )          |        |      | 4,845  |            |        |    | (21,384 | )         
|Other income:                              |                                              |                                     |        |                              |        |                            |         |            |        |      |        |            |        |    |         |           
|                                           | Interest income, net                         |                                     |        | 81                           |        |                            |         | 173        |        |      |        | 129        |        |    |         | 337        |       
|                                           | Other income                                 |                                     |        | 89                           |        |                            |         | 88         |        |      |        | 178        |        |    |         | 183        |       
|                                           |                                              |                                     |        |                              |        |                            |         |            |        |      |        |            |        |    |         |           
|Total other income                         |                                              |                                     | 170    |                              |        |                            | 261     |            |        |      | 307    |            |        |    | 520     |           
|                                           |                                              |                                     |        |                              |        |                            |         |            |        |      |        |            |        |    |         |           
|Net income/(loss)                          |                                              | $                                   | 3,091  |                              |        | ($                         | 17,917  | )          |        | $    | 5,152  |            |        | ($ | 20,864  | )         
|                                           |                                              |                                     |        |                              |        |                            |         |            |        |      |        |            |        |    |         |           
|Net income/(loss) per share                |                                              |                                     |        |                              |        |                            |         |            |        |      |        |            |        |    |         |           
|                                           | Basic                                        |                                     | $      | 0.13                         |        |                            | ($      | 0.84       | )      |      | $      | 0.22       |        |    | ($      | 1.01       | )     
|                                           |                                              |                                     |        |                              |        |                            |         |            |        |      |        |            |        |    |         |           
|                                           | Diluted                                      |                                     | $      | 0.12                         |        |                            | ($      | 0.84       | )      |      | $      | 0.21       |        |    | ($      | 1.01       | )     
|                                           |                                              |                                     |        |                              |        |                            |         |            |        |      |        |            |        |    |         |           
|Weighted average common shares outstanding |                                              |                                     |        |                              |        |                            |         |            |        |      |        |            |        |    |         |           
|                                           | Basic                                        |                                     |        | 23,933,147                   |        |                            |         | 21,248,538 |        |      |        | 23,646,025 |        |    |         | 20,707,898 |       
|                                           | Diluted                                      |                                     |        | 25,413,286                   |        |                            |         | 21,248,538 |        |      |        | 25,018,607 |        |    |         | 20,707,898 |       

See accompanying notes.

3



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MARTEK BIOSCIENCES CORPORATION

Consolidated Statements of Cash Flows
(Unaudited - $ in thousands)

|                      |                                                                                                    |                                                                        |                     |         |                            |        |      |         |        |        |  
|--------------------- | -------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ------------------- | ------- | -------------------------- | ------ | ---- | ------- | ------ | ------ | -
|                      |                                                                                                    |                                                                        |                     |         | Six Months Ended April 30,
|                      |                                                                                                    |                                                                        |                     |         |                           
|                      |                                                                                                    |                                                                        |                     |         | 2003                       |        | 2002
|                      |                                                                                                    |                                                                        |                     |         |                            |        |     
|Operating activities: |                                                                                                    |                                                                        |                     |         |                            |        |      |        
|                      | Net income/(loss)                                                                                  |                                                                        | $                   | 5,152   |                            |        | ($   | 20,864  | )     
|                      | Adjustments to reconcile net income/(loss) to net cash
provided by/(used in) operating activities: |                                                                        |                     |         |                            |        |      |         |       
|                      |                                                                                                    | Depreciation                                                           |                     |         | 1,505                      |        |      |         | 896    |       
|                      |                                                                                                    | Amortization                                                           |                     |         | 845                        |        |      |         | 74     |       
|                      |                                                                                                    | Amortization of deferred compensation                                  |                     |         | 20                         |        |      |         | 159    |       
|                      |                                                                                                    | Acquired in-process research and development                           |                     |         |                           |        |      |         | 15,788 |       
|                      |                                                                                                    | Changes in operating assets and liabilities:                           |                     |         |                            |        |      |         |        |       
|                      |                                                                                                    |                                                                        | Accounts receivable |         |                            | (5,531 | )    |         |        | (1,042 | )
|                      |                                                                                                    |                                                                        | Inventories         |         |                            | 1,714  |      |         |        | (1,106 | )
|                      |                                                                                                    |                                                                        | Other assets        |         |                            | (452   | )    |         |        | (802   | )
|                      |                                                                                                    |                                                                        | Accounts payable    |         |                            | 24     |      |         |        | 336    |  
|                      |                                                                                                    |                                                                        | Accrued liabilities |         |                            | 851    |      |         |        | (196   | )
|                      |                                                                                                    |                                                                        | Unearned revenue    |         |                            | (149   | )    |         |        | (107   | )
|                      |                                                                                                    |                                                                        |                     |         |                            |        |      |        
|                      | Net cash provided by/(used in) operating activities                                                |                                                                        |                     | 3,979   |                            |        |      | (6,864  | )     
|Investing activities: |                                                                                                    |                                                                        |                     |         |                            |        |      |        
|                      |                                                                                                    | Purchase of short-term investments and marketable securities           |                     |         | (7,800                     | )      |      |         | (9,990 | )     
|                      |                                                                                                    | Proceeds from sale of short-term investments and
marketable securities |                     |         | 2,000                      |        |      |         | 4,000  |       
|                      |                                                                                                    | Capitalization of patent costs                                         |                     |         | (260                       | )      |      |         | (320   | )     
|                      |                                                                                                    | Purchase of property, plant and equipment                              |                     |         | (13,491                    | )      |      |         | (6,984 | )     
|                      |                                                                                                    | Cash impact of purchase transaction                                    |                     |         | 776                        |        |      |         | 211    |       
|                      |                                                                                                    |                                                                        |                     |         |                            |        |      |        
|                      | Net cash used in investing activities                                                              |                                                                        |                     | (18,775 | )                          |        |      | (13,083 | )     
|Financing activities: |                                                                                                    |                                                                        |                     |         |                            |        |      |        
|                      |                                                                                                    | Principal payments on capital leases                                   |                     |         | (92                        | )      |      |         |       |       
|                      |                                                                                                    | Proceeds from the exercise of warrants and options                     |                     |         | 6,368                      |        |      |         | 7,517  |       
|                      |                                                                                                    | Proceeds from the issuance of common stock,
net of issuance costs      |                     |         | 83,731                     |        |      |         | 21,289 |       
|                      |                                                                                                    |                                                                        |                     |         |                            |        |      |        
|                      | Net cash provided by financing activities                                                          |                                                                        |                     | 90,007  |                            |        |      | 28,806  |       
|                      |                                                                                                    |                                                                        |                     |         |                            |        |      |        
|                      | Net increase in cash and cash equivalents                                                          |                                                                        |                     | 75,211  |                            |        |      | 8,859   |       
|                      | Cash and cash equivalents at beginning of period                                                   |                                                                        |                     | 20,419  |                            |        |      | 20,645  |       
|                      |                                                                                                    |                                                                        |                     |         |                            |        |      |        
|                      | Cash and cash equivalents at end of period                                                         |                                                                        | $                   | 95,630  |                            |        | $    | 29,504  |       
|                      |                                                                                                    |                                                                        |                     |         |                            |        |      |        

See accompanying notes.

4



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MARTEK BIOSCIENCES CORPORATION

Consolidated Statements of Stockholders Equity
(Unaudited - $ in thousands)

|                            |                                                 |  |              |           |            |   |          |     |              |   |         |        |       |   |     |    |  |   |          |       |  |   |         |        | 
|--------------------------- | ----------------------------------------------- |  | ------------ | --------- | ---------- | - | -------- | --- | ------------ | - | ------- | ------ | ----- | - | --- | -- |  | - | -------- | ----- |  | - | ------- | ------ | 
|                            |                                                 |  | Common Stock |           | Additional |   |          |     |              |   |         |        |      
|                            |                                                 |  |              |           | Paid-in    |   | Deferred |     | Accumulated  |   |         |        |      
|                            |                                                 |  | Shares       |           | Amount     |   | Capital  |     | Compensation |   | Deficit |        | Total
|                            |                                                 |  |              |           |            |   |          |     |              |   |         |        |      
|Balance at October 31, 2002 |                                                 |  | 23,331,091   |           |            | $ | 2,333    |     |              | $ | 231,224 |        |       | $ | (20 | )  |  | $ | (127,560 | )     |  | $ | 105,977 |       
|                            | Issuance of common stock,
net of issuance costs |  |              | 2,922,250 |            |   |          | 292 |              |   |         | 83,439 |       |   |     |   |  |   |          |      |  |   |         | 83,731 | 
|                            | Exercise of stock options
and warrants          |  |              | 500,134   |            |   |          | 50  |              |   |         | 6,318  |       |   |     |   |  |   |          |      |  |   |         | 6,368  | 
|                            | Amortization of
deferred compensation           |  |              |          |            |   |          |    |              |   |         |       |       |   |     | 20 |  |   |          |      |  |   |         | 20     | 
|                            | Net income                                      |  |              |          |            |   |          |    |              |   |         |       |       |   |     |   |  |   |          | 5,152 |  |   |         | 5,152  | 
|                            |                                                 |  |              |           |            |   |          |     |              |   |         |        |       |   |     |    |  |   |          |       |  |   |         |       
|Balance at April 30, 2003   |                                                 |  | 26,753,475   |           |            | $ | 2,675    |     |              | $ | 320,981 |        |       | $ |    |    |  | $ | (122,408 | )     |  | $ | 201,248 |       
|                            |                                                 |  |              |           |            |   |          |     |              |   |         |        |       |   |     |    |  |   |          |       |  |   |         |       

See accompanying notes.

5



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MARTEK BIOSCIENCES CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

1. Basis of Presentation and Significant Accounting Policies

Basis of PresentationThe accompanying unaudited consolidated financial
statements of Martek Biosciences Corporation and its wholly owned subsidiary
(the Company) have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the quarter ended April
30, 2003 are not necessarily indicative of the results that may be expected for
the year ending October 31, 2003. For further information, refer to the
consolidated financial statements and footnotes thereto included in Martek
Biosciences Corporations Annual Report on Form 10-K for the year ended October
31, 2002.

ConsolidationThe consolidated financial statements include the accounts of
Martek Biosciences Corporation and its wholly owned subsidiary, Martek
Biosciences Boulder Corporation (Martek Boulder), after elimination of all
significant intercompany balances and transactions.

Use of EstimatesThe preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Revenue RecognitionThe Company recognizes revenue when persuasive evidence
of an arrangement exists, delivery has occurred, the fee is fixed or
determinable, and collectibility is probable. Revenue is recognized on product
sales when goods are shipped. Cash received as a payment on future purchases
is deferred and recognized as revenue as the related shipments are made.
Royalty revenue is recognized when product is sold to the end users. Cash
received as a prepayment on future royalties is deferred and recognized as
product is sold to the end users. Revenue from product licenses is deferred
and recognized on a straight-line basis over the term of the agreement.
Revenues on cost reimbursement and fixed price contracts are recognized on the
percentage of completion method of accounting as costs are incurred. Revenue
recognized is not subject to repayment. Cash received that is related to
future performance under such contracts is deferred and recognized as revenue
when earned. At April 30, 2003, the Company had approximately $1.7 million in
short-term and $2.4 million in long-term unearned revenue relating to
third-party license agreements and prepayments on product purchases.

Stock-Based CompensationThe Company accounts for its employee stock option
plans using the intrisic value method under the provisions of APB No. 25,
Accounting for Stock Issued to Employees, and related Interpretations. No
stock-based employee compensation cost is reflected in net income, as all
options granted under the plans had an exercise price equal to the market value
of the underlying common stock on the date of grant. Stock-based compensation
for non-employees is accounted for using the fair value method in accordance
with SFAS No. 123. The Company has adopted the disclosure SFAS No. 123,
Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure an Amendment of FASB
Statement No. 123.

The following table illustrates the effect on net income and earnings per share
if the company had applied the fair value recognition provisions of SFAS No.
123, as amended by SFAS No. 148,to stock-based employee compensation.

|                                                                                                          |  |      |                 |      |                 |      |         |      |  |   |        |   |  |   |         |   | 
|--------------------------------------------------------------------------------------------------------- |  | ---- | --------------- | ---- | --------------- | ---- | ------- | ---- |  | - | ------ | - |  | - | ------- | - | 
|                                                                                                          |  |      | Three months    |      | Six months     
|                                                                                                          |  |      | ended April 30, |      | ended April 30,
|                                                                                                          |  |      |                 |      |                
|In thousands, except per share amounts                                                                    |  | 2003 |                 | 2002 |                 | 2003 |         | 2002
|                                                                                                          |  |      |                 |      |                 |      |         |     
|Net income/(loss) as reported                                                                             |  | $    | 3,091           |      |                 | $    | (17,917 | )    |  | $ | 5,152  |   |  | $ | (20,864 | )
|Deduct: Total stock-based employee
compensation expense determined
under fair value method for all awards |  |      | (3,584          | )    |                 |      | (3,178  | )    |  |   | (7,106 | ) |  |   | (5,012  | )
|                                                                                                          |  |      |                 |      |                 |      |         |      |  |   |        |   |  |   |         |  
|Pro forma net loss                                                                                        |  | $    | (493            | )    |                 | $    | (21,095 | )    |  | $ | (1,954 | ) |  | $ | (25,876 | )
|                                                                                                          |  |      |                 |      |                 |      |         |      |  |   |        |   |  |   |         |  

6



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##### 



|                                       |                       |      |                 |       |                 |      |   |       |   |  |   |       |   |  |   |       |  
|-------------------------------------- | --------------------- | ---- | --------------- | ----- | --------------- | ---- | - | ----- | - |  | - | ----- | - |  | - | ----- | -
|                                       |                       |      | Three months    |       | Six months     
|                                       |                       |      | ended April 30, |       | ended April 30,
|                                       |                       |      |                 |       |                
|In thousands, except per share amounts |                       | 2003 |                 | 2002  |                 | 2003 |   | 2002 
|                                       |                       |      |                 |       |                 |      |   |      
|Earnings/(loss) per share:             |                       |      |                 |       |                 |      |   |       |   |  |   |       |   |  |   |      
|                                       | Basic - as reported   |      | $               | 0.13  |                 |      | $ | (0.84 | ) |  | $ | 0.22  |   |  | $ | (1.01 | )
|                                       |                       |      |                 |       |                 |      |   |       |   |  |   |       |   |  |   |      
|                                       | Basic - pro forma     |      | $               | (0.02 | )               |      | $ | (0.99 | ) |  | $ | (0.08 | ) |  | $ | (1.25 | )
|                                       |                       |      |                 |       |                 |      |   |       |   |  |   |       |   |  |   |      
|                                       | Diluted - as reported |      | $               | 0.12  |                 |      | $ | (0.84 | ) |  | $ | 0.21  |   |  | $ | (1.01 | )
|                                       |                       |      |                 |       |                 |      |   |       |   |  |   |       |   |  |   |      
|                                       | Diluted - pro forma   |      | $               | (0.02 | )               |      | $ | (0.99 | ) |  | $ | (0.08 | ) |  | $ | (1.25 | )
|                                       |                       |      |                 |       |                 |      |   |       |   |  |   |       |   |  |   |      

The effect of applying SFAS No. 123 on pro forma net income/(loss) and per
share calculations for the three and six months ended April 30, 2003, as stated
above, is not necessarily representative of the effect on reported net income
and earnings per share for future years due to such things as the vesting
period of the stock options and the potential for issuance of additional stock
options in future years.

The weighted average fair value of the options granted under the various stock
option plans for the three and six months ended April, 30, 2003 is
$19.93 and $18.24 per share, respectively, for options whose exercise price equals fair
market value on the date of the grant, using the Black-Scholes option-pricing
model with the following assumptions:

|                                 |  |                 |      |                 |  |         |      |         |  |  |      |   |  |  |      |  
|-------------------------------- |  | --------------- | ---- | --------------- |  | ------- | ---- | ------- |  |  | ---- | - |  |  | ---- | -
|                                 |  | Three months    |      | Six months     
|                                 |  | ended April 30, |      | Ended April 30,
|                                 |  |                 |      |                
|                                 |  | 2003            |      | 2002            |  | 2003    |      | 2002   
|                                 |  |                 |      |                 |  |         |      |        
|Expected volatility              |  |                 | 74.5 | %               |  |         | 68.2 | %       |  |  | 74.5 | % |  |  | 68.2 | %
|Risk-free interest rate          |  |                 | 3.4  | %               |  |         | 4.5  | %       |  |  | 3.5  | % |  |  | 4.5  | %
|Expected average life of options |  | 7 years         |      | 7 years         |  | 7 years |      | 7 years
|Expected dividend yield          |  |                 | 0.0  | %               |  |         | 0.0  | %       |  |  | 0.0  | % |  |  | 0.0  | %

Net Income/Loss Per ShareBasic net income/loss per share is computed using the
weighted-average number of common shares outstanding during the period. Diluted
net income per share is computed using the weighted-average number of common
shares and dilutive potential common shares outstanding during the period.
Diluted net loss per share is computed using the weighted-average number of
common shares and excludes dilutive potential common shares outstanding, as
their effect is antidilutive. Dilutive potential common shares consist of stock
options and warrants.

ReclassificationCertain amounts in the prior periods financial statements
have been reclassified to conform to the current period presentation.

Recent Accounting PronouncementsIn November 2002, the Emerging Issues Task
Force (EITF) reached a consensus on Issue No. 00-21, Revenue Arrangements
with Multiple Deliverables. EITF Issue No. 00-21 provides guidance on how to
account for arrangements that involve the delivery or performance of multiple
products, services and/or rights to use assets. The provisions of EITF Issue
No. 00-21 will apply to
revenue arrangements entered into in fiscal periods beginning after June 15,
2003. The Company believes that the adoption of EITF 00-21 will have no
material impact on its financial statements.

2. Short-term Investments and Marketable Securities

Available-for-sale securities consisted of short-term obligations of the U.S.
government, U.S. government agencies, municipalities and corporations and
totaled $7.8 million at April 30, 2003 and $2.0 million at October 31, 2002.
The amount of unrealized holding gain (loss) on these available-for-sale
securities was $0 at April 30, 2003 and $(14) at October 31, 2002 and is
reported as accumulated other comprehensive income (loss), which is a separate
component of stockholders equity. There were no realized gains or losses
recorded for the three and six months ended April 30, 2003. At April 30, 2003
and October 31, 2002 the estimated fair value of these securities approximated
cost.

3. Inventories

Inventories consist of the following:

7



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##### 



|                       |                 |      |           |       |             |   |       |       | 
|---------------------- | --------------- | ---- | --------- | ----- | ----------- | - | ----- | ----- | 
|                       |                 |      | April 30, |       | October 31,
|In thousands           |                 | 2003 |           | 2002 
|                       |                 |      |           |      
|Finished products      |                 | $    | 5,642     |       |             | $ | 3,443 |      
|Work in process        |                 |      | 2,178     |       |             |   | 6,078 |      
|Raw materials          |                 |      | 484       |       |             |   | 397   |      
|                       |                 |      |           |       |             |   |       |      
|                       | Total inventory |      |           | 8,304 |             |   |       | 9,918 | 
|Less inventory reserve |                 |      | (300      | )     |             |   | (200  | )    
|                       |                 |      |           |       |             |   |       |      
|                       | Net inventory   |      | $         | 8,004 |             |   | $     | 9,718 | 
|                       |                 |      |           |       |             |   |       |      

4. Property, Plant and Equipment

Property, plant and equipment consist of the following:

|                              |                                   |      |           |        |             |   |         |        | 
|----------------------------- | --------------------------------- | ---- | --------- | ------ | ----------- | - | ------- | ------ | 
|                              |                                   |      | April 30, |        | October 31,
|In thousands                  |                                   | 2003 |           | 2002  
|                              |                                   |      |           |       
|Land                          |                                   | $    | 150       |        |             | $ | 150     |       
|Buildings and improvements    |                                   |      | 4,563     |        |             |   | 1,871   |       
|Machinery and equipment       |                                   |      | 45,807    |        |             |   | 23,906  |       
|Furniture and fixtures        |                                   |      | 1,803     |        |             |   | 1,598   |       
|Leasehold improvements        |                                   |      | 556       |        |             |   | 556     |       
|Construction-in-progress      |                                   |      | 8,653     |        |             |   | 19,960  |       
|                              |                                   |      |           |        |             |   |         |       
|                              | Property, plant and equipment     |      |           | 61,532 |             |   |         | 48,041 | 
|Less accumulated depreciation |                                   |      | (13,040   | )      |             |   | (11,535 | )     
|                              |                                   |      |           |        |             |   |         |       
|                              | Net property, plant and equipment |      | $         | 48,492 |             |   | $       | 36,506 | 
|                              |                                   |      |           |        |             |   |         |       

5. Goodwill and Intangible Assets

Intangible assets and related accumulated amortization consist of the following:

|                 |  |                      |        |                        |  |             |        |       |  |              |        |     |  |   |        |             |  |   |      |   |  |   |        | 
|---------------- |  | -------------------- | ------ | ---------------------- |  | ----------- | ------ | ----- |  | ------------ | ------ | --- |  | - | ------ | ----------- |  | - | ---- | - |  | - | ------ | 
|                 |  | As of April 30, 2003 |        | As of October 31, 2002
|                 |  |                      |        |                       
|                 |  |                      |        |                        |  | Accumulated |        |       |  |              |        |     |  |   |        | Accumulated |  |   |      |  
|In thousands     |  | Gross                |        | Amortization           |  | Net         |        | Gross |  | Amortization |        | Net
|                 |  |                      |        |                        |  |             |        |       |  |              |        |    
|Trademarks       |  | $                    | 1,819  |                        |  | $           | (120   | )     |  | $            | 1,699  |     |  | $ | 1,809  |             |  | $ |     |   |  | $ | 1,809  | 
|Patents          |  |                      | 5,537  |                        |  |             | (787   | )     |  |              | 4,750  |     |  |   | 5,287  |             |  |   | (602 | ) |  |   | 4,685  | 
|Core technology  |  |                      | 1,708  |                        |  |             | (114   | )     |  |              | 1,594  |     |  |   | 1,708  |             |  |   |     |   |  |   | 1,708  | 
|Current products |  |                      | 10,676 |                        |  |             | (737   | )     |  |              | 9,939  |     |  |   | 10,676 |             |  |   | (381 | ) |  |   | 10,295 | 
|Goodwill         |  |                      | 24,531 |                        |  |             |       |       |  |              | 24,531 |     |  |   | 25,568 |             |  |   |     |   |  |   | 25,568 | 
|                 |  |                      |        |                        |  |             |        |       |  |              |        |     |  |   |        |             |  |   |      |   |  |   |        | 
|Total            |  | $                    | 44,271 |                        |  | $           | (1,758 | )     |  | $            | 42,513 |     |  | $ | 45,048 |             |  | $ | (983 | ) |  | $ | 44,065 | 
|                 |  |                      |        |                        |  |             |        |       |  |              |        |     |  |   |        |             |  |   |      |   |  |   |        | 

The Company recorded amortization expense of approximately $431,000 during the
three months ended April 30, 2003, compared to approximately $38,000 during the
three months ended April 30, 2002.

6. Note Payable and Other Short-term Borrowings

In connection with the purchase of OmegaTech, Inc., the Company assumed an
obligation to pay a minimum of $7.0 million over the next eight years
associated with an agreement with a third party relating to human and animal
applications for OmegaTechs DHA. On December 20, 2002 the Company signed an
amendment to this agreement under which the Company paid $500,000 and signed a
non-interest bearing promissory note for $3.25 million in exchange for the
discharge of all future obligations under the agreement. The first payment
under the note of $1.0 million is payable in August of 2003 with the remainder
due in December of 2003. The Company imputed interest on the note at 4.5%, or
approximately $129,000, the balance of which is classified as accrued
liabilities on the consolidated balance sheets.

On February 25, 2003, the Company established a one-year, $10 million secured
working capital line of credit facility with Allfirst Bank at a rate that
approximates the prime rate. The credit facility is secured primarily by the
Companys accounts receivable and inventories. The Company incurred a $20,000
commitment fee that is being amortized over the life of the agreement. At April
30, 2003 the Company had no borrowings under this line of credit facility.

8



---



##### 



7. Restructuring Charge

On July 29, 2002, the Company announced a restructuring of the food and
beverage sales and marketing efforts in Boulder, Colorado, which included the
termination of eight employees and five consultants. Costs estimated at the
time of the restructuring included employee separation benefits, such as
severance, medical, and other benefits and other costs such as consultant
terminations costs, idle office space and professional fees. The following
table summarizes the activity related to the liability for restructuring costs
as of April 30, 2003:

|                                                   |  |            |      |         |  |       |      |   |  |   |       |  
|-------------------------------------------------- |  | ---------- | ---- | ------- |  | ----- | ---- | - |  | - | ----- | -
|                                                   |  | Employee   |      |         |  |       |      |   |  |  
|                                                   |  | Separation |      | Other   |  |       |      |  
|In thousands                                       |  | Benefits   |      | Charges |  | Total
|                                                   |  |            |      |         |  |      
|Initial charge in the
third quarter of fiscal
2002 |  | $          | 766  |         |  | $     | 500  |   |  | $ | 1,266 |  
|Cash payments                                      |  |            | (242 | )       |  |       | (187 | ) |  |   | (429  | )
|                                                   |  |            |      |         |  |       |      |   |  |   |       |  
|Balance at October 31, 2002                        |  |            | 524  |         |  |       | 313  |   |  |   | 837   |  
|Cash payments                                      |  |            | (34  | )       |  |       | (25  | ) |  |   | (59   | )
|Adjustments (1)                                    |  |            | (264 | )       |  |       | 14   |   |  |   | (250  | )
|                                                   |  |            |      |         |  |       |      |   |  |   |       |  
|Balance at January 31, 2003                        |  | $          | 226  |         |  | $     | 302  |   |  | $ | 528   |  
|Cash payments                                      |  |            | (226 | )       |  |       | (109 | ) |  |   | (335  | )
|                                                   |  |            |      |         |  |       |      |   |  |   |       |  
|Balance at April 30, 2003                          |  | $          |     |         |  | $     | 193  |   |  | $ | 193   |  



| |  |  | Note 1: Due to changes in previous estimates, the Company reduced its
liability for employee separation benefits related to severance costs.
Additionally, the Company increased the restructuring liability related to
other charges such as consultant termination fees and costs related to idle
space. The net result of the related adjustments to the restructuring
liability was a reversal of $250,000 in the quarter ended January 31, 2003.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8. Commitments

As a result of the acquisition of OmegaTech, Inc., the Company is subject to a
prior commitment to purchase a minimum quantity of DHA biomass on favorable
terms from a third party manufacturer. The three-year commitment expires on
December 31, 2004 and totals approximately $2.4 million per year. As of April
30, 2003, the Companys commitment for calendar year 2003 was $2.4 million.

9. Public Offering of Common Stock

On April 22, 2003 the Company completed a follow-on public offering of its
common stock in which 2,922,250 shares were issued at a price of $30.25 per
share. Net proceeds to the Company, after deducting underwriters fees and
estimated expenses, amounted to approximately $83.4 million.

10. Net Income/(loss) per Share

The following table presents the calculation of basic and diluted net
income/(loss) per share.

|                                              |                        |      |                              |       |                            |      |         |      |  |   |        |       |  |   |         |   | 
|--------------------------------------------- | ---------------------- | ---- | ---------------------------- | ----- | -------------------------- | ---- | ------- | ---- |  | - | ------ | ----- |  | - | ------- | - | 
|                                              |                        |      | Three months ended April 30, |       | Six months ended April 30,
|                                              |                        |      |                              |       |                           
|In thousands, except per share amounts        |                        | 2003 |                              | 2002  |                            | 2003 |         | 2002
|                                              |                        |      |                              |       |                            |      |         |     
|Net income/(loss)                             |                        | $    | 3,091                        |       |                            | $    | (17,917 | )    |  | $ | 5,152  |       |  | $ | (20,864 | )
|Weighted average shares outstanding - basic   |                        |      | 23,933                       |       |                            |      | 21,249  |      |  |   | 23,646 |       |  |   | 20,708  |  
|Effect of dilutive potential common shares:   |                        |      |                              |       |                            |      |         |      |  |   |        |       |  |   |         |  
|                                              | Employee stock options |      |                              | 1,412 |                            |      |         |     |  |   |        | 1,296 |  |   |         |  | 
|                                              | Warrants               |      |                              | 68    |                            |      |         |     |  |   |        | 77    |  |   |         |  | 
|                                              |                        |      |                              |       |                            |      |         |      |  |   |        |       |  |   |         |  
|Total dilutive potential common shares        |                        |      | 1,480                        |       |                            |      |        |      |  |   | 1,373  |       |  |   |        |  
|                                              |                        |      |                              |       |                            |      |         |      |  |   |        |       |  |   |         |  
|Weighted average shares outstanding - diluted |                        |      | 25,413                       |       |                            |      | 21,249  |      |  |   | 25,019 |       |  |   | 20,708  |  
|                                              |                        |      |                              |       |                            |      |         |      |  |   |        |       |  |   |         |  
|Net income/(loss) per share - basic           |                        | $    | 0.13                         |       |                            | $    | (0.84   | )    |  | $ | 0.22   |       |  | $ | (1.01   | )
|                                              |                        |      |                              |       |                            |      |         |      |  |   |        |       |  |   |         |  
|Net income/(loss) per share - diluted         |                        | $    | 0.12                         |       |                            | $    | (0.84   | )    |  | $ | 0.21   |       |  | $ | (1.01   | )
|                                              |                        |      |                              |       |                            |      |         |      |  |   |        |       |  |   |         |  

9



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##### 



Employee stock options to purchase approximately 1.7 million shares in the
second quarter of fiscal 2003 were outstanding, but were not included in the
computation of diluted net income per share because the exercise price of the
stock options was greater than the average share price of the Companys stock
for the quarter, and therefore, the effect would have been antidilutive. None
of the approximately 4.5 million employee stock options and 491,000 warrants
outstanding in the second quarter of fiscal 2002 were included in the
computation of diluted net loss per share because the effect on net loss would
have been antidilutive.

11. Subsequent Events

One June 13, 2003, Nestec Ltd. (Nestle) and the Company
entered into a worldwide license agreement relating to the Companys technology pertaining to the use
of
docosahexaenoic acid (DHA) and
arachidonic acid (ARA) as an ingredient in infant formulas. The agreement provides for up-front
non-refundable cash consideration of $8 million, consisting of a $7 million license fee and a
$1 million prepayment on inventory purchases, as well as ongoing royalties
based on Nestles sales of infant formula containing the Companys oils. Five
million dollars of the cash consideration is due within five days of the execution of the agreement
with the remaining $3 million due
no later than January 31, 2004. There are no future funding commitments on the Companys part or on the part of
Nestle.
The term of the agreement is 25 years from the
date that the first licensed product is sold commercially by Nestle and may be terminated by Nestle upon proper notification.

The OmegaTech, Inc. merger agreement provides for additional stock
consideration of up to $40 million if certain milestones are met. One of these
milestones relates to the granting of Novel Food approval in Europe for the
DHA oil obtained in the OmegaTech purchase. On June 2003, the Commision of the European Communities
granted approval of the use of this oil in foods in Europe, triggering the
operation of this milestone. The total Martek common stock that will be issued
relating to this additional consideration is up to approximately 350,000 shares. The payment of this additional
consideration will be recorded as goodwill.

10



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##### 



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

This Managements Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements

concerning our business and operations, including, among other things, statements concerning the following:


|  |  |                                                                                                                                                                                                                                  
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|- |  | expectations regarding future revenue growth, product introductions, growth in nutritional product sales,
production expansion, margin and productivity improvements, applications and potential
collaborations and acquisitions;
|- |  | expectations regarding sales and royalties by and from 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 and purchase of third-party manufactured oils, including the impact of
currency exchange rates;         
|- |  | expectations regarding production capacity and our ability to meet future demands for our DHA and ARA oils;                                                                                                                      
|- |  | expectations regarding future research and development costs;                                                                                                                                                                    
|- |  | expectations regarding our expansion at our Winchester, KY facility;                                                                                                                                                             
|- |  | expectations regarding additional capital expenditures needed in relation to our fermentation and oil
processing activities;                                                                                                     
|- |  | expectations regarding production from the FermPro Manufacturing, LP (FermPro) facility; and                                                                                                                                   
|- |  | expectations regarding costs that may be incurred relating to the incident at the waste water
treatment plant in Winchester, KY                                                                                                  

Forward-looking statements include those statements containing words such as:

|  |  |                                         
|- |  | ----------------------------------------
|- |  | 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 this
Managements Discussion and Analysis to this Form 10-Q under the caption Risk
Factors, 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

Martek was founded in 1985. We are a leader in the development and
commercialization of products derived from microalgae. Our leading products are
nutritional oils used as ingredients in infant formula and foods, and as
ingredients in, and encapsulated for use as, dietary supplements. Our
nutritional oils are comprised of fatty acid components, primarily
docosahexaenoic acid, commonly known as DHA, and arachidonic acid, commonly
known as ARA. Many researchers believe that these fatty acids may enhance
mental and visual development in infants and play a pivotal role in brain
function throughout life. Low levels of DHA in adults have also been linked
with a variety of health risks. Research is underway to assess what impact, if
any, supplementation with our DHA will have on these health risks. Additional
applications of our patented technology based upon microalgae include our algal
genomics technology and our currently marketed fluorescent detection products
and technologies that can be used by researchers as an aid in drug discovery
and diagnostics.

In 1992, we realized our first revenues from license fees related to our
nutritional oils containing DHA and ARA and sales of sample quantities of these
oils. In 1995, we recognized our first product and royalty revenues from sales
of infant formula containing these oils, and in 1996, we began to realize
revenues from the sale of Neuromins®, a DHA dietary supplement. In 1998, we
first realized revenues from the sale of our fluorescent detection products. We
currently have license agreements with thirteen infant formula manufacturers,
including Mead Johnson Nutritionals, Wyeth, Abbott Laboratories, Nestle,
Nutricia, Novartis, Maarbarot, Heinz-Watties, Laboratorios Ordesa and four
companies whose identity we have agreed not to disclose at this time. Collectively,
these companies represent more than two-thirds of the estimated $8.5 to $9.5
billion worldwide wholesale market for infant formula and 100% of the estimated
$3.0 to $3.5 billion U.S. wholesale market for infant formula
including the wholesale value of W.I.C rebates. The market size is
higher than our previous estimates of $7.5 to $8.0 billion due to new market
data, which is more encompassing of all infant formula producers and of regions of the world where formulas are marketed,
as well as all segments of the infant formula markets, including toddler milk. Mead Johnson Nutritionals, Wyeth, Abbott Laboratories, Nutricia,
Novartis and Maarbarot are now marketing term infant formula products
containing our oils in over 30 countries and pre-term infant

11



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##### 



formula products containing our oils in over 60 countries around the world. The
seven licensees that are not currently marketing term infant formula products
containing our oils represent approximately one-third of the estimated
worldwide wholesale market for infant formula and approximately 10%-15% of the
U.S. worldwide wholesale market for infant formula. Supplemented term infant
formulas manufactured by Mead Johnson Nutritionals, Abbott Laboratories and
Wyeth are currently being marketed in the United States.

In April 2002, we purchased OmegaTech, Inc. (OmegaTech or Martek Boulder) a
low-cost algal DHA producer located in Boulder, Colorado. OmegaTech had been in
the fermentable DHA business since 1987, and had accumulated over 100 issued
and pending patents protecting its DHA technology. Its revenues mainly
consisted of sales of DHA into the dietary supplement, food, beverage, and
animal feed markets. We acquired OmegaTech to obtain its low-cost DHA oil and
related intellectual property for use in the food and beverage and adult
supplement markets. We refer to this DHA oil, which comes from a different
strain of algae than the strain that we use for the production of DHA for
inclusion in infant formulas, as DHA-S.

In June 2003, the Commission of the European Communities authorized the use of
our DHA-S oil for human consumption. The commission declared that our DHA-S may
be marketed in the European Community as a Novel Food ingredient. This Novel
Food designation authorizes the use of our DHA-S as an ingredient in certain foods such
as certain dairy products, including cheese and yogurt, (but not milk-based
drinks), spreads and dressings, breakfast cereals, food supplements and medical
foods in the European Community. Our DHA oil that is included in certain infant
formulas has been available in Europe since 1994, pre-dating the European
Communities requirement for Novel Food approval.

We have incurred losses in each year since our inception. At April 30, 2003,
our accumulated deficit was approximately $122.4 million. Although we
anticipate significant growth in sales of our nutritional oils, and we achieved
an operating profit for the last three consecutive fiscal quarters, we may
continue to experience quarter-to-quarter and year-to-year fluctuations in our
future operating results, some of which may be significant. The timing and
extent of such fluctuations will depend, in part, on the timing and receipt of
oils-related revenues. The extent and timing of future oils-related revenues
are largely dependent upon the following factors:



| |  |  | the production of adequate levels of our nutritional oils by ourselves and our third party manufacturers;                    
| | - |  | -----------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the timing of infant formula market introductions by our licensees;                                                          
|
| |  |  | the timing and extent of introductions of DHA into various child and/or adult applications;                                  
|
| |  |  | the timing and extent of acceptance of products containing our oils under state-sponsored reimbursement programs in the U.S.;
|
| |  |  | the acceptance of these products by consumers;                                                                               
|
| |  |  | competition from alternative sources of DHA and ARA; and/or                                                                  
|
| |  |  | agreements with other future third-party collaborators to market our products or develop new products.                       

Because of this, the likelihood, timing and extent of future profitability are
largely dependent on factors such as those mentioned above, as well as others,
over which we have limited or no control.

Critical Accounting Policies and the Use of Estimates

The preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the U.S. requires management to
make estimates and assumptions that affect the amounts reported in our
consolidated financial statements and accompanying notes. On an on-going basis,
we evaluate our estimates and judgments, which are based on historical and
anticipated results and trends and on various other assumptions that we believe
are reasonable under the circumstances, including assumptions as to future
events. By their nature, estimates are subject to an inherent degree of
uncertainty and, as such, actual results may differ from our estimates. We
discuss accounting policies and assumptions that involve a higher degree of
judgment and complexity than others in our Managements Discussion and Analysis
in our annual report to shareholders on Form 10-K for the year ended October
31, 2002.

Management Outlook

We believe that the outlook for future revenue growth remains positive,
although quarterly results may show fluctuations. Specifically, we believe that
for fiscal 2003 as a whole, term infant formulas containing our oils will be
introduced in additional countries and sales of our nutritional oils will
continue to grow in countries where our oils are currently sold. To date, six
of our infant formula licensees have obtained the regulatory approval, where
required, to sell term infant formula products containing our oils in over 30
countries and pre-term infant formula products containing our oils in over 60
countries around the world. Supplemented term infant formulas manufactured by
three of our licensees are currently being marketed in the United States and we
expect these sales to increase in fiscal 2003.

12



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In June 2003, Nestec Ltd. (Nestle) and Martek entered into a
worldwide license agreement relating to
our technology pertaining to the use of DHA and ARA as an ingredient in infant formulas. The agreement
provides for up-front non-refundable cash consideration of $8 million, consisting of a $7
million license fee and a $1 million prepayment on inventory purchases, as well as ongoing
royalties based on Nestles sales of infant formula containing our oils. Five
million dollars of the cash consideration is due within five days of the
execution of the agreement with the remaining $3 million due no later than
January 31, 2004. There are no future funding commitments on our part or on the part of Nestle.
The term of the agreement is 25 years from the date that the
first licensed product is sold commercially by Nestle and may be terminated by Nestle upon proper notification.

In the second quarter of 2003, over 95% of our revenues related to the sales of
our oils for use in infant formula products. We anticipate increased future sales of
our oils for other products such as products developed for pregnant and
nursing mothers, cardiovascular health, and the food and beverage market. We expect that the
majority of these sales will come through partnering relationships with larger
companies in the nutritional and food and beverage markets. We anticipate that
over the next few years these sales will expand and represent a much larger
potential market than infant formula.

Production

The demand for our nutritional oils for use in infant formula products exceeded
our customers initial forecasts in the first half of 2003, resulting in
customer orders in excess of our planned production. As a result, we have
requested from our customers that they provide us with longer lead-times to
fill their orders.

The DHA oil that we produce for inclusion in infant formula is currently
produced in our plant in Winchester, KY and at FermPro Manufacturing L.P.
(FermPro), a contract fermentation company in South Carolina. We have been
actively working to accelerate our production build-out plans to meet this
increased demand. Our expanded facilities in Winchester, KY are currently in
the start-up phase and not yet producing at maximum capacity. We expect to be
producing at maximum capacity within the next few months, which should allow us
to meet all projected orders for our nutritional oils, based on current demand.
To meet anticipated demand in 2004 and beyond, we are accelerating plans for
further expansion of our production facilities and are evaluating future
expansion in one or more of the following ways:



| |  |  | constructing a second manufacturing plant;                                          
| | - |  | ------------------------------------------------------------------------------------
|
| |  |  | funding, or partially funding, expansion of third-party manufacturing facilities; or
|
| |  |  | acquiring existing manufacturing facilities.                                        

Our ARA oil is currently produced by DSM Gist B.V. (DSM) at its plant in
Italy. DSM is in the process of improving its production capability for
ARA and estimates completion in the next few months.

Once these improvements are complete, we should have the production capacity to
generate nutritional oil sales of approximately $140 to $160 million per year.
If the start-up phase of our production expansion does not proceed as planned,
if DSM is not able to achieve the production improvements that they project, or
if market demand increases faster than currently anticipated, our sales could
be limited due to our inability to meet demand for our products.

Our cost of ARA is experiencing upward pressure due to the decline of the U.S.
Dollar against the Euro. To date, cost savings from production efficiencies
have offset declining exchange rates. We expect continued decreases in the cost
of ARA production from DSM; however a portion, or all, of the production savings
may be offset by further weakness in the U.S. Dollar against the Euro. We are
reviewing several options to reduce the cost of ARA and limit our foreign
currency exposure, including production of ARA in the U.S.

Our DHA-S oil, which is used in the food and beverage and adult supplement
markets, is currently produced by third-party contract manufacturers including
C.P. Kelco U.S. Inc. (CP Kelco). We have a three-year purchase commitment
with CP Kelco that expires on December 31, 2004 and totals approximately $2.4
million per year.

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. We are in the process
of evaluating the state fire marshals report. Although n-hexane was found at
the site of the incident, there may have been other contributing factors,
including the presence of other flammable substances that were not discharged
from our plant. Production at our facility has not been negatively impacted by
these events. We have entered into discussions with the Winchester Municipal
Utilities and its insurer as to our financial responsibility, if any, for property
damage sustained by the public wastewater treatment works in Winchester, KY as
a result of the explosion. We have requested, and are awaiting the receipt of further information from the utility
and its insurer regarding the details of the incident. We accrued $400,000 in the quarter ended April 30,
2003 to account for an estimate of costs that we may incur as a result of this
incident.

Acquisitions

13



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The OmegaTech, Inc. purchase agreement provides for additional stock
consideration of up to $40 million if certain milestones are met. One of these
milestones relates to the granting of Novel Foods approval in Europe for the
OmegaTech DHA oil. In June 2003, the Commision of the European Communities
granted approval of the use of this oil in foods in Europe, meeting the
conditions of this milestone. The total Martek common stock that will be issued
relating to this additional consideration is up to approximately 350,000 shares. The payment of this additional
consideration will be recorded as goodwill.

Results of Operations

RevenuesNutritional product sales increased by $15.0 million or 134% in the
quarter ended April 30, 2003 as compared to the quarter ended April 30, 2002
and increased by $29.5 million or 174% in the six months ended April 30, 2003
as compared to the six months ended April 30, 2002. These increases are
primarily due to increased sales of our oils to our infant formula licensees.
Over 95% of our nutritional product sales in the quarter and the six months
ended April 30, 2003 relate to the sale of our oils for use in infant formulas.
Although we do not have definitive information into what countries the infant formula
containing our oils are ultimately sold into, we believe that approximately 60%
of the increase in sales to infant formula licensees for the second quarter and
first half of the year as compared to the same periods in the prior year
relates to U.S. sales. The first infant formulas containing our oils were
introduced in the U.S. in the first quarter of 2002. Approximately $535,000 of
the increase for the second quarter, and $1.1 million of the increase for the
first half of the year, as compared to the same periods in the prior year, are
from revenue related to the ongoing operations of Martek Boulder.

Over 97% of our nutritional product sales in the quarter and the six months
ended April 30, 2003 was generated by sales of DHA and ARA to three companies.
Approximately two-thirds of these sales were to Mead Johnson and approximately
one-third were to Wyeth and Abbott. Collectively, these three companies are currently
manufacturing infant formulas supplemented with our oils for sale in the U.S.,
and in over 30 countries around the world. We anticipate sales of nutritional
products will continue to grow as new infant formulas containing our oils are
introduced by new licensees and by current licensees in additional countries.
We also anticipate that sales of our nutritional oils will continue to grow in
countries where our oils are currently sold.

Sales of fluorescent detection products remained flat in the quarter ended
April 30, 2003, as compared to the quarter ended April 30, 2002, and increased
$79,000 or 21% in the six months ended April 30, 2003 as compared to the same
period last year.

Other revenue, which consists primarily of revenues from research and
development contracts, grants and third party license agreements increased
$21,000 or 78% in the quarter ended April 30, 2003, as compared to the quarter
ended April 30, 2002, and increased $41,000 or 76% in the six months ended April
30, 2003, as compared to the same period last year.

As a result of the above, total revenues increased by $15.0 million or 132% in
the quarter ended April 30, 2003, as compared to the quarter ended April 30,
2002, and increased $29.6 million or 170% in the six months ended April 30, 2003,
as compared to the same period last year.

Cost of Product Sales and RoyaltiesOur cost of product sales decreased as a
percentage of product sales to 59% in the quarter ended April 30, 2003 as
compared to 73% in the quarter ended April 30, 2002 and decreased to 60% in the
six months ended April 30, 2003 as compared to 72% in the same period last
year. This decrease was primarily due to lower costs from DSM, our third-party
supplier of ARA. Seventy-eight percent of the decrease in our cost of ARA from
DSM was a result of increased purchase volumes, while 22% of the decrease was
as a result of the complete amortization of the start-up costs of DSM
(previously included in the cost of ARA). These decreases were net of the
impact of decreases in the exchange ratio between the Euro and the U.S.
Dollar, which offset decreases in the cost of product sales by approximately 3%
in the three and six month periods ended April 30, 2003 as compared to the same
periods in the prior year. We expect continued decreases in the future costs of
ARA from DSM as our sales volume increases; however future volume savings could
be offset by continued decreases in the exchange ratio between the Euro and the
U.S. Dollar. We also anticipate reductions in DHA oil production costs because of the following factors: (1)
economies of scale are realized from increased output from the fermentation
expansion which is currently in the start-up phase of production at our
Winchester, KY production plant, and (2) yield improvements from our research
and development efforts are realized.

Research and DevelopmentOur research and development costs decreased $665,000
or 20% in the quarter ended April 30, 2003 and decreased $789,000 or 13% in the
six months ended April 30, 2003 as compared to the same periods last year. Our
research and development expenses in the second quarter of 2003 have decreased
as many of the large-scale development projects occurring in 2002 at the
Companys Winchester plant have been completed. This decrease was partially
offset by the ongoing costs of Martek Boulder, which was acquired in April
2002, and added $493,000 in research and development costs in the
quarter ended April 30, 2003, and added $1.1 million in the six
months ended April 30, 2003, that we had not incurred in the same periods in
the prior year.

RestructuringWe had no restructuring charges or adjustments for the three
months ended April 30, 2003 or during the same period in 2002. For the six
months ended April 30, 2003, we reversed approximately $250,000 of expense
related to the restructuring of our food and beverage sales efforts due to
changes in previous estimates. We reduced the liability for employee separation
benefits related

14



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to severance costs by approximately $264,000 and increased the restructuring
reserve for net increases in other charges by approximately $14,000. The other
costs that were adjusted include consultant termination fees, costs related to
idle space and professional fees. As of April 30, 2003, the remaining liability
related to the restructuring totals approximately $193,000 and is included in
accrued liabilities.

Selling, General and AdministrativeOur selling, general and administrative
costs increased by $2.0 million or 85% in the quarter ended April 30, 2003 and
increased $3.7 million or 89% in the six months ended April 30, 2003 as
compared to the same period last year. $977,000 of this increase for the
quarter and $2.0 million of the increase for the first half of 2003 relates to
operating costs associated with the ongoing operations at Martek Boulder that
were not present in the same periods last year. The remainder of the increase
primarily relates to increases in personnel, insurance costs and other overhead
costs related to our overall corporate growth. We anticipate modest increases
in these costs for the remainder of fiscal 2003.

Other Operating ExpensesOther operating expenses in the quarter ended April
30, 2003 total $1.1 million and included $400,000 for an estimate of costs that
we may incur as a result of the incident at the waste water treatment plant in
Winchester, KY and $666,000 for start-up costs relating to the expansion in
Winchester, KY. Start-up costs include costs related to unsuccessful
fermentation runs in connection with the scale-up and validation of new
equipment into our production process. We incurred other operating expenses of
$11,000 in the quarter ended April 30, 2003 and $96,000 in the six months ended
April 30, 2003 associated with evaluating and obtaining additional capacity for
the production of our DHA and ARA oils, including costs associated with testing
and validating the fermentation technology at FermPro. We anticipate the we
will continue to incur these types of expenses for the remainder or 2003.

Other IncomeOur other income decreased by approximately $91,000 or 35% in the
quarter ended April 30, 2003 and decreased $213,000 in the six months ended
April 30, 2003 as compared to the same period last year. The primary reason for
this decrease was that interest income decreased as short-term interest rates
have continued to fall over the past year.

Net Income/(loss)As a result of the foregoing, we recognized approximately
$3.1 million of net income in the quarter ended April 30, 2003 as compared to a
net loss of ($17.9) million in the same period last year and net income of $5.2
million in the six months ended April 30, 2003 as compared to a net loss of
($20.9) million in the same period last year. The net loss in the three and six
months ended April 30, 2002 included a charge for in-process research and
development related to the purchase of OmegaTech of approximately $15.8
million.

Provision for Income TaxesWe did not record a provision for income taxes in
2003 as we have net operating loss carryforwards for federal income tax
purposes of $168.6 million at October 31, 2002, which will expire, if unused,
in the year 2003 through the year 2022.

Liquidity and Capital Resources

At April 30, 2003, our primary source of liquidity was our cash, cash
equivalents and short-term investments totaling $103.4 million. Cash, cash
equivalents and short-term investments increased approximately $81.0 million
since October 31, 2002. This increase was primarily attributable to
approximately $83.7 million raised in a public offering of our common stock in
April 2003. Operating activities provided approximately $4.0 million and the
exercise of options and warrants provided approximately $6.4 million in the six months ended April 30, 2003. These
cash inflows were offset by capital expenditures of $13.5 million during the
period. Capital expenditures consisted primarily of expenditures for the
further expansion of and improvements made to our production facility in
Winchester, KY.

The table below sets forth our contractual obligations at April 30, 2003.

In thousands

|                                   |  |       |       |        |  |             |       |             |  |         |       |  |  |   |   |       |  |   |   | 
|---------------------------------- |  | ----- | ----- | ------ |  | ----------- | ----- | ----------- |  | ------- | ----- |  |  | - | - | ----- |  | - | - | 
|                                   |  |       |       |        |  | Less than   |       |             |  |         |       |  |  |   |   | After
|Contractual Obligation             |  | Total |       | 1 Year |  | 1 - 3 Years |       | 3 - 5 Years |  | 5 Years
|                                   |  |       |       |        |  |             |       |             |  |        
|Long-term debt                     |  | $     |      |        |  | $           |      |             |  | $       |      |  |  | $ |  |       |  | $ |  | 
|Capital lease obligations          |  |       | 19    |        |  |             | 19    |             |  |         |      |  |  |   |  |       |  |   |  | 
|Operating lease obligations        |  |       | 1,702 |        |  |             | 722   |             |  |         | 979   |  |  |   | 1 |       |  |   |  | 
|Unconditional purchase obligation  |  |       | 4,800 |        |  |             | 2,400 |             |  |         | 2,400 |  |  |   |  |       |  |   |  | 
|Other long-term obligation         |  |       | 3,250 |        |  |             | 3,250 |             |  |         |      |  |  |   |  |       |  |   |  | 
|                                   |  |       |       |        |  |             |       |             |  |         |       |  |  |   |   |       |  |   |   | 
|Total contractual cash obligations |  | $     | 9,771 |        |  | $           | 6,391 |             |  | $       | 3,379 |  |  | $ | 1 |       |  | $ |  | 
|                                   |  |       |       |        |  |             |       |             |  |         |       |  |  |   |   |       |  |   |   | 

The expansion, development and optimization of our production facilities
continue to be the largest factors relating to our liquidity and capital
resources. Since October 31, 2002, we have spent approximately $12.0 million on
facilities and capital equipment relating to the expansion of our fermentation
facility, offices, warehouse and packaging facilities. We are accelerating
plans for further expansion of our facilities to meet anticipated
future demand for our nutritional oils in 2004 and beyond and are considering
expanding in one or more of the following ways:

15



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| |  |  | constructing a second manufacturing plant;                                          
| | - |  | ------------------------------------------------------------------------------------
|
| |  |  | funding, or partially funding, expansion of third-party manufacturing facilities; or
|
| |  |  | acquiring existing manufacturing facilities.                                        

Based on preliminary estimates, we plan to spend between $25 to $35 million
over the next twelve months and at least $40 to $50 million over the next two
years for additional expansion and other capital projects including those to
improve the production yields of our nutritional oils.

On February 25, 2003, we established a one-year, $10 million secured working
capital line of credit facility with Allfirst Bank. We believe that our
existing capital resources, combined with this line of credit, will provide us
with adequate capital to meet our anticipated cash requirements for at least
the next 24 months.

Off-Balance Sheet Arrangements

Martek does not engage in any off-balance sheet financing arrangements. In
particular, we do not have any interest in entities referred to as limited purpose interest
entities, which include special purpose entities and structured finance
entities.

Risk Factors



| |  | We have experienced significant operating losses each year since our inception
and have not yet generated a sustained revenue stream to be a viable business
in the long-term.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We have experienced net operating losses in each annual period since our
inception. As of April 30, 2003, we have an accumulated deficit of $122.4
million. Our balance of cash, cash equivalents and short-term investments at
April 30, 2003 was approximately $103.4 million. Although these resources,
along with our $10 million secured working capital line of credit, which
expires on February 28, 2004, should allow us to meet our current operating
needs and planned capital expenditures for at least the next 24 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.



| |  | A substantial portion of our nutritional products sales are made to three of
our existing customers, and if demand by these customers for our nutritional
products declines, our revenues may materially decline.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We rely on a substantial portion of our sales of nutritional products to three
of our existing customers. Over 97% of our nutritional product sales in the
quarter and the six months ended April 30, 2003 was generated by sales of DHA
and ARA to three companies. Approximately two-thirds of these sales were to
Mead Johnson and approximately one-third were to Wyeth and Abbott. We cannot
guarantee that these customers will continue to demand our nutritional products
at the current levels. If demand by any of these customers for our nutritional
products declines, we may experience a material decline in our revenues.



| |  | If we are unable to successfully scale-up our production capacity or enter into
favorable agreements with third parties to produce our oils, 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 formuals, we have developed a process for the large-scale
production of our oils at our Winchester, Kentucky manufacturing plant. 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 15%
to 20% 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. The demand for our nutritional oils exceeded our
customers initial forecasts in the first half of 2003, resulting in customer
orders in excess of our planned production. As a result, we have requested from
our customers that they provide us with longer lead-times to fill their orders.
To the extent that demand continues to exceed our current production
capabilities, we may be

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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. We believe
that our initial fermentation expansion at our Winchester plant, which is
currently in the start-up phase and should be up to full production in the last
half of 2003, will be able to provide for revenues totaling approximately $140
to $160 million per year. However, our ability to maintain commercial
production at these higher levels at our plant has not been tested
successfully. As we increase our production at our Winchester plant and at
other locations, we may encounter many risks associated with our commercial
manufacturing such as:



| |  |  | the start-up phase of our fermentation expansion at our plant may not be completed in the timeframe
that we have planned;
| | - |  | -------------------------------------------------------------------------------------------------------------------------
|
| |  |  | we may experience problems processing, handling and shipping the higher quantities of oil produced
from this expansion;  
|
| |  |  | the costs of expanding, operating and maintaining our production facility may exceed our expectations;                   
|
| |  |  | product defects may result;                                                                                              
|
| |  |  | product losses may be higher than we anticipate;                                                                         
|
| |  |  | environmental and safety problems may result from our production process; and                                            
|
| |  |  | the scale-up of our production process may result in regulatory issues.                                                  

If we were to experience any one or more of these problems, there could be a
material adverse effect on our business, financial condition, or results of
operations.

We also receive DHA for inclusion in infant formula from FermPro Manufacturing
L.P. (FermPro), a contract fermentation company in South Carolina, under a
5-year manufacturing agreement which was signed in March 2002. If we are: (a)
unable to cost effectively manufacture our DHA-containing oil at our Winchester
plant; (b) unable to look to FermPro as a source of DHA sufficient to meet
increased demand beyond our own capacity; (c) unable to enter into other
satisfactory third-party manufacturing agreements; or (d) our licensees are
unable to find alternative sources for our DHA-containing oil, then our
licensees may not be able to meet future product demand and our future revenues
may be limited.

Although we are able to produce ARA-containing oil at our Winchester plant, we
have entered into an agreement with a third-party manufacturer, DSM Gist B.V.
(DSM, formerly Royal Gist-Brocades B.V.), to supply all our ARA-containing
oil through 2006. DSM is currently expanding its production capacity to provide
us with sufficient quantities of ARA oil to supply approximately 30% to 40% of
the worldwide infant formula market. If DSM fails to supply us with required
amounts under the contract, 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-containing oil at our plant, which
would reduce our DHA-containing 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-containing oil in our Winchester plant, our licensees may not be able to
meet future product demand and our future revenues from sales of ARA-containing
oils may be limited.

As a result of the acquisition of OmegaTech, Inc. (OmegaTech) on April
25, 2002 we also have several contractual agreements with third-party
manufacturers to produce our DHA-containing oil for use in nutritional
supplements, foods and animal feeds, including an agreement with C.P.
Kelco U.S. Inc. Our DHA-containing oil used for these products is derived from
a strain of algae that we obtained in the purchase of OmegaTech and is refered
to as DHA-S.



| |  | 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 customer orders during the first half of fiscal year 2003
exceeding initial customer forecasts, we have been actively working to
accelerate our production buildout plans to meet increased demand for our
nutritional oils. To manage our growth we must successfully 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

17



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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.



| |  | 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, the potential in this market could be limited if methods
are not developed that allow good compatibility of our DHA oil with various
foods and beverages. The flavor, texture and stability of our oils in finished
products such as cereals, milk and nutritional bars 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, is 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 add
to the cost of the formula may never allow it to be priced at levels that will
allow widespread 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 broad 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 all 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, conduct product testing, including preclinical and clinical trials,
and market our products.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our nutritional oil sales are increasing and meeting demand will require
expanding our production capability for our nutritional oils. We have just
completed an initial fermentation expansion plan at our Winchester facility
which cost approximately $16 million, and our office, warehouse and packaging
expansion at the site cost an additional $4 million. At April 30, 2003, we had
approximately $103.4 million in cash, cash equivalents and short-term
investments available to meet future capital requirements. We believe that
approximately $40 million to $50 million may be needed over the next 24 months
to fund additional expansion of our production capacity (at our Winchester
facility and at other third-party manufacturing facilities), 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 other 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. We have recently established a one-year secured working capital
credit line of $10 million. More extensive debt financing arrangements may
require us to comply with financial covenants, which we may not be able to
meet. 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. 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.

18



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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 April 30,
2003, our common stock traded between $34.38 and $12.50 per share. During the
fifty-two week period ending April 30, 2002, our common stock traded between
$34.25 and $13.73 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;                         
| | - |  | --------------------------------------------------------------------------------------------------------------
|
| |  |  | arrangements or strategic partnerships by us or our competitors;                                              
|
| |  |  | announcements of license agreements, acquisitions or strategic alliances;                                     
|
| |  |  | patent or other intellectual property achievements or disputes;                                               
|
| |  |  | quarterly fluctuations in our results of operations;                                                          
|
| |  |  | failure to scale-up our commercial manufacturing or enter into favorable third-party manufacturing agreements;
|
| |  |  | announcements of product launches by competitors;                                                             
|
| |  |  | regulatory decisions (approvals or disapprovals) concerning our products and our competitors products;       
|
| |  |  | 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 April 30, 2003, we
had 26,753,475 shares of common stock outstanding. The average trading volume
in our common stock during the fifty-two week period ending April 30, 2003 was
308,840 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 which is satisfactory to you.



| |  | If significant shares eligible for future sale 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 April 30, 2003, we had 26,753,475 shares of common stock outstanding,
stock options outstanding to purchase an aggregate of 4,567,141 shares of
common stock, all of which are exercisable at below current market prices, and
warrants outstanding to purchase up to 251,299 shares of common stock at an
exercise price of $19.05 per share. To the extent that these options and
warrants for our common stock are exercised or we issue additional shares to
raise capital in connection with acquisitions or otherwise, 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.

We have agreed to issue and register for resale up to 2,290,533 additional
shares, subject to certain adjustments, to former OmegaTech stockholders, if
certain operational and financial milestones are achieved between now and
October 31, 2004. As a result, a substantial number of new shares may be issued
and become eligible for resale if these milestones are 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. One of these milestones relates to to the granting of

19



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##### 



Novel Foods approval in Europe for the
OmegaTech DHA oil. In June 2003, the
Commision of the European Communities granted approval of the use of this oil
in foods in Europe, meeting the conditions of this milestone. The total amount
of our common stock that will be issued relating to this additional
consideration is up to approximately 350,000. The payment of this additional consideration will be recorded
as goodwill.



| |  | 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
the validity of 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 is 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, setting aside the prior decision
to revoke this patent. Consistent with our request, the patent will
now be returned to the Opposition Division for a determination as to
whether it has met the legal requirement of inventive step. During
this process the patent will remain in full force and effect. The
appeal process may not be completed until sometime in 2004, at the
earliest.                                                                                                                                          
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | BASF A.G., F. Hoffman-LaRoche A.G., Friesland Brands B.V., Societe des
Produits Nestle S.A., and Suntory Limited have filed in the European
Patent Office their grounds for opposing our ARA patent issued by the
European Patent Office. The validity of the patent is unaffected by
these filings. The opposition process is not expected to be completed
until sometime in 2005, at the earliest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  |  | BASF A.G., F. Hoffman-LaRoche A.G., Societe des Produits Nestle S.A.,
and Suntory Limited have filed in the European Patent Office their
grounds for opposing our blended-oils (blend of DHA and ARA oils)
patent issued by the European Patent Office. The validity of the
patent is unaffected by these filings. The opposition process is not
expected to be completed until sometime in 2005, at the earliest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  |  | Aventis Research and Technologies GmbH & Co. KG and Nagase Limited
have filed in the European Patent Office 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 European Patent Office 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 may not be completed until
sometime in 2004, at the earliest.                                                                                                                                                                                                                                                                                                                                     
|
| |  |  | Suntory Limited, of Osaka, Japan, is opposing our blended oils patent
in Japan and our ARA patent in Japan and South Korea. The Japanese
Patent Office has revoked the claims of the blended oils patent, and
Martek is appealing the decision to the Tokoyo High Court. Suntory has
also contacted us and asserted that the sale of certain of our
products may infringe one or more of their patents in Japan and
Australia and that certain of our patents may be invalid. We have been
discussing with Suntory how this matter might be resolved amicably,
but we cannot provide any guarantee that such discussions will lead to
an amicable resolution of this matter. Although attempts are being
made to keep discussions open, little positive progress has been made
to date. None of our infant formula licensees currently markets
supplemented infant formula products in Japan and there are minor
sales in Australia.
|
| |  |  | Friesland Brands B.V. has filed in the European Patent Office their
grounds for opposing our patent covering the production of ARA-containing
oils that we assumed in the OmegaTech purchase. We have until September
2003 to respond to the opposition. The validity of the patent is
unaffected by this filing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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 our 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

20



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##### 



our European DHA patent, ARA patent or blended-oils patent could result in a
decrease in revenues under our license agreements.

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 defending our patents and cannot assure you 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, F. Hoffman-LaRoche
Ltd., 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 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;                                                                                                         
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | some infant formulas now on the market outside the United States use DHA derived from
other sources, such as fish or eggs. Only a very small percentage of supplemented infant
formulas currently marketed outside the United States contain DHA and ARA that have not
been produced by us;                                                                                                                                                                                     
|
| |  |  | 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, a division of Celanese A.G., has recently announced plans
to market a DHA-rich microalgal oil to the food and beverage and dietary supplement
markets in the United States. We are currently unable to evaluate the competitive threat
that may arise with respect to this announcement; and                                                                                                                                                       
|
| |  |  | we are aware of the development of microencapsulated fish oil products by several large
companies, including BASF and F. Hoffman-LaRoche Ltd. 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 may present 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 as well as the adult 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

21



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##### 



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 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. As of April 30, 2003, our
products have been in the U.S. infant formula market for approximately 14
months and we believe that these products have penetrated approximately 22% to
23% 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 2-3 years. We estimate that our
products have penetrated approximately 15% to 20% of the international infant
formula market. Combined, these markets brought us revenues of approximately
$44.7 million in the first half of 2003.

In addition to sales into the infant formula market, approximately 3% of our
fiscal 2003 second quarter nutritional product revenues came from sales of our
nutritional oils to the food and 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 breast cancer, 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.



| |  | If the FTC finds that our advertising claims related to our DHA and ARA
products cannot be adequately substantiated, we could be required to alter our
advertising claims or take other remedial steps.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Federal Trade Commission (FTC) regulates certain aspects of the
advertising and marketing of our products. Under the Federal Trade Commission
Act, a company must be able to substantiate both the express and implied claims
that are conveyed by an advertisement.

On May 30, 2002, we received a letter from the FTC notifying us that the FTC is
conducting a non-public inquiry into the advertising and promotional activities
relating to our DHA and ARA products. The agency has asked us to provide copies
of all advertisements and to provide copies of the literature that support
mental and visual function claims. The purpose of the inquiry is to determine
whether Martek has substantiation to support the express and implied claims
that are made for its DHA and ARA products. We intend to be fully responsive to
the FTCs inquiry. While we have no reason at this time to believe that the
inquiry will have an adverse effect on us, we could be required to alter our
advertising claims or take other remedial steps if the FTC does not find our
advertising claims to be adequately substantiated.



| |  | Our business would be harmed if we fail to comply with applicable federal and state regulatory requirements.
| |  | ------------------------------------------------------------------------------------------------------------

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 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 $150 million, and that
almost $100 million of this opportunity will come from WIC funded sales. Each
WIC state agency provides

22



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##### 



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 20 state WIC programs have adopted a brand of infant formula
supplemented with our oils. 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 rewards 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.



| |  | We may be affected by an incident involving a wastewater treatment facility near our plant in Kentucky.
| |  | -------------------------------------------------------------------------------------------------------

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. We are in the process
of evaluating the state fire marshals report. Although n-hexane was found at
the site of the incident, there may have been other contributing factors,
including the presence of other flammable substances that were not discharged
from our plant. Production at our facility has not been negatively impacted by
these events. We have entered into discussions with the Winchester Municipal
Utilities and its insurer as to our financial responsibility, if any, for property
damage sustained by the public wastewater treatment works in Winchester, KY as
a result of the explosion. We have requested, and are awaiting the receipt of further
information from the utility and its insurer regarding the details of
the incident. We accrued $400,000 in the quarter ended April 30,
2003 to account for an estimate of costs that we may incur as a result of this
incident. In addition to liabilities for property damage, this incident could
delay the issuance of certain permits required for the expansion of
our existing plant and the construction of a new
plant in Winchester, resulting in a delay in additional product capacity and
revenue potential. While the matter is still in the preliminary stages and we
cannot be certain of its ultimate outcome, we believe that it will not have a
material adverse impact on our production, financial condition or results of
operations.



| |  | We may be affected by the fact
that an employee of an underwriter sent unauthorized e-mails to potential investors in our April 2003 follow-on offering.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

Prior to the effectiveness of the registration statement covering the shares of
our common stock being sold in our April 2003 follow-on offering, an employee
of Citigroup, the lead managing underwriter in this offering, distributed
unauthorized e-mails regarding this offering to 10 institutional investors.
These e-mails contained the employees views of our market position, with which
we do not agree, as well as our historical financial results and the employees
own views about our prospects for revenue growth. We did not authorize the
distribution of these e-mails and had no knowledge of their content prior to
their distribution.

These e-mails may constitute a prospectus that does not meet the requirements
of the Securities Act of 1933. If the distribution of these e-mails by
Citigroup did constitute a violation of the Securities Act of 1933, persons who
received one of these e-mails and who purchased our common stock in this
offering may have the right, for a period of one year from the date of the
violation, to obtain recovery of the consideration paid in connection with
their purchase of our common stock or, if they had already sold their stock,
attempt to recover losses resulting from their purchase of our common stock.
Any liability would depend on the number of shares purchased by the recipients.
We do not believe that we will be subject to any material liability as a result
of the distribution of the e-mails.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Quantitative and qualitative disclosures about market risk are not required
because the underlying risk items are not material.

Item 4. Controls and Procedures



| | a) |  | Evaluation of disclosure controls and proceduresThe Chief Executive
Officer and the Chief Financial Officer have reviewed our disclosure
controls and procedures within the 90-day period prior to the filing of
this quarterly report. Based on that review, they have concluded that
these disclosure controls and procedures are, in design and operation,
effective to assure that the information required to be included in this
report has been properly collected, processed, and timely communicated to
those responsible in order that it may be included in this report.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Changes in internal controlsSubsequent to the date on which the Chief
Executive Officer and the Chief Financial Officer evaluated our disclosure
controls and procedures, there have been no significant changes, including
corrective actions, in our internal controls or in other factors that
could significantly affect the disclosure controls and procedures.                                                                                                                                                                                                               

23



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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

There have not been any material developments in legal proceedings.

Item 2. Changes in Securities.

Not applicable

Item 3. Defaults Upon Senior Securities.

Not Applicable

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

Marteks Annual Meeting of Stockholders was held on March 20, 2003. Following
are descriptions of the matters voted on and the results of such voting:

1.     Election of Directors. The following members were elected to Marteks
Board of Directors to hold office for the periods indicated below:

|                   |  |                |      |          |  |          |            |  |  |  |        | 
|------------------ |  | -------------- | ---- | -------- |  | -------- | ---------- |  |  |  | ------ | 
|                   |  | Elected Until  |      |          |  |          |            |  |  | 
|                   |  | Annual Meeting |      |          |  |          |            |  |  | 
|Nominee            |  | To Be Held     |      | In Favor |  | Withheld
|                   |  |                |      |          |  |         
|Gordon S. Macklin  |  |                | 2006 |          |  |          | 19,227,058 |  |  |  | 63,727 | 
|William D. Smart   |  |                | 2006 |          |  |          | 19,260,058 |  |  |  | 30,727 | 
|Robert J. Flanagan |  |                | 2006 |          |  |          | 19,262,660 |  |  |  | 28,125 | 
|Richard J. Radmer  |  |                | 2006 |          |  |          | 19,256,760 |  |  |  | 34,025 | 

Directors continuing in office:

Henry Linsert, Jr.
Jules Blake, Ph.D.
Ann L. Johnson, M.D.
Sandra Panem, Ph.D.
Douglas J. MacMaster, Jr.
John H. Mahar
Eugene H. Rotberg

2.     The proposal to approve an additional 300,000 shares of common stock
reserved for issuance under the Companys 2002 Stock Incentive Plan was
approved by a vote of 16,725,415 For; 1,657,578 Against; 907,792 Abstain.

Item 5. Other Information.

None

Item 6. Exhibits and Reports on Form 8-K



|(a) |  | Exhibit 10.50: License and Supply Agreement, dated June 13, 2003 between
the Company and Nestec Ltd. (filed herewith).*                                                                                     
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Exhibit 99.1: Certification of Chief Executive Officer and 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 herewith).

*Confidential treatment was requested for certain portions of this agreement.
The confidential portions were filed separately with the Commission.

24



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##### 





|(b) |  | Reports on Form 8-K:                                                                                                                                                                                               
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Form 8-K filed on
February 26, 2003 (Items 7 and 9  press release announcing
the closing of a one-year $10 million secured working capital line of credit
facility with Allfirst Bank.)                           
|   
|    |  | Form 8-K filed on
April 8, 2003 (Items 5 and 7  press release concerning
report from the Office of the Kentucky State Fire Marshal regarding the
wastewater treatment facility incident.)                         
|   
|    |  | Form 8-K/A filed on April 1, 2003 (amending the 8-K filed on May 3, 2002 to
include the Martek and OmegaTech unaudited pro forma condensed consolidated
financial information for the year ended October 31, 2002.)

25



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##### 



SIGNATURES

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

MARTEK BIOSCIENCES CORPORATION




(Registrant)


|                    |  |                                                      
|------------------- |  | -----------------------------------------------------
|Date: June 16, 2003 |  | /s/ Peter L. Buzy                                    
|                    |  |                                                      
|                    |  | Peter L. Buzy, Chief Financial and Accounting Officer

26



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##### 



CERTIFICATIONS

I, Henry Linsert, Jr., certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Martek Biosciences
Corporation;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| | a) |  | designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: June 16, 2003

/s/ Henry Linsert, Jr.

Henry Linsert, Jr.
Chief Executive Officer and Director


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##### 



I, Peter L. Buzy, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Martek Biosciences
Corporation;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: June 16, 2003

/s/ Peter L. Buzy

Peter L. Buzy
Chief Financial Officer


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