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EXHIBIT 99.1

CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

We desire to take advantage of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Many of the following important
factors discussed below have been discussed in our prior SEC filings.

You should be cautioned that the following important factors have affected, and
in the future could affect, our actual results. There may also be additional
factors not discussed in this report that could also affect future results.
These factors could cause our future financial results to differ materially
from those expressed in any forward-looking statements made by us.
Forward-looking statements may relate to such matters as:



| |  |  | our ability to generate future revenues;                                            
| | - |  | ------------------------------------------------------------------------------------
|
| |  |  | the commercialization of our products;                                              
|
| |  |  | the expansion of our production facilities;                                         
|
| |  |  | the optimization of production costs; and                                           
|
| |  |  | our ability to enter into future business collaborations and marketing partnerships.

Forward-looking statements may include words such as will, should, could,
anticipate, believe, plan, estimate, expect, intend, and other
similar expressions. This list does not constitute all factors which you should
consider prior to making an investment decision in our securities. You should
also not assume that the information contained herein is complete or accurate
in all respects after the date of this filing. We disclaim any duty to update
the statements contained herein.

IF WE ARE UNABLE TO SUCCESSFULLY 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 formulas, we have developed a process for the large-scale
production of our oils at our Winchester, Kentucky and Kingstree, South
Carolina manufacturing plants. We estimate the worldwide infant formula market
to be approximately $8.5 billion to $9.5 billion. If our licensees were to
penetrate 100% of this market with DHA and ARA supplemented formulas, we
estimate that we would receive greater than $400 million in revenues annually
from these sales. To date, we believe our licensees products containing our
oils have penetrated approximately 20% to 25% of the worldwide infant formula
market. Our sales into the non-infant nutritional supplement and food and
animal feed markets to date have been less then $10 million annually. Although
we produced significantly more nutritional oils than our customers initial
projections, accelerated market demand has caused a production shortfall.
Earlier in the year we requested from our customers that they provide us with
longer lead-times to fill their orders. Even with the longer lead-times and an
increase in production each quarter, we have begun to see a backlog for orders.
To the extent that demand continues to exceed our current production
capabilities, we may be unable to provide the required quantities of oil
cost-effectively and may experience greater 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. At the end of fiscal 2003 we believe our annualized production
capacity, together with DSMs production capacity, is approximately $140
million. We are in the process of expanding production capacity at our newly
acquired plant in Kingstree, SC and DSM is expanding its capacity in Belvidere,
NJ. As a result, we anticipate annualized production capacity of about the
equivalent of $300 million of annualized sales by the end of 2004 and $500
million of annualized sales by mid 2005. Our ability to maintain commercial
production at these higher levels has not been successfully tested. As we
increase our production at our Kingstree plant, we may encounter many risks
associated with our commercial manufacturing such as:



| |  |  | the construction phase of our fermentation expansion at our Kingstree
plant may not be completed in the timeframe that we have planned;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | we may experience problems processing, handling and shipping the higher quantities of oil produced from our expanded facilities;       
|
| |  |  | the costs of expanding, operating and maintaining our production facilities 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                                                          
|
| |  |  | additional regulatory issues relating to the scale-up of our production process.                                                       

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.





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If we are: (a) unable to cost effectively manufacture our DHA-containing oil at
our Winchester plant; (b) unable to successfully expand our production at our
Kingstree facility; (c) unable to enter into other satisfactory third-party
manufacturing agreements; or (d) our licensees are unable to find alternative
sources for our DHA-containing oil, then our licensees may not be able to meet
future product demand and our future revenues from
sales of DHA-containing oils may be limited.

Although we are able to produce ARA-containing oil at our Winchester and
Kingstree plants, we have entered into an agreement with a third-party
manufacturer, DSM Gist B.V. (DSM, formerly Royal Gist-Brocades B.V.) to
supply our ARA-containing oil at a plant in Capua, Italy. DSM recently
completed an expansion of this facility and is in the process of converting an
existing facility in Belvidere, NJ to the production of ARA. If DSM fails to
supply us with required amounts of ARA under our agreement with it, we would
not be able to meet our customers demands unless we were able to utilize
alternative sources of supply. In this regard, we would have to either
manufacture the ARA-containing oil at one or both of our plants, which would be
more costly and would also 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 or Kingstree plants, our
licensees may not be able to meet future product demand and our future revenues
from sales of ARA-containing oils may be limited.

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 80% of our nutritional product sales during
fiscal 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 current levels. If demand
by any of these customers for our nutritional products declines, we may
experience a material decline in our revenues.

FAILURE TO EFFECTIVELY MANAGE OUR GROWTH COULD DISRUPT OUR OPERATIONS AND
PREVENT US FROM GENERATING THE REVENUES AND GROSS PROFIT MARGINS WE EXPECT.

In response to customer orders during 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 successfully we must implement, constantly improve and effectively
utilize our operational and financial systems while expanding our production
capacity and workforce. We must also maintain and strengthen the breadth and
depth of our current strategic relationships while developing new
relationships. Our existing or planned operational and financial systems may
not be sufficient to support our growth; we may not successfully control
production costs and maintain current and anticipated gross profit levels; and
our management may not be able to effectively identify, manage and exploit
existing and emerging market opportunities. If we do not adequately manage our
growth, our business and future revenues will suffer.

OUR OILS ARE VERY SENSITIVE TO OXIDATION AND ARE NOT VERY COMPATIBLE WITH MOST
LIQUID OR DRY FOODS THAT ARE CURRENTLY ON THE MARKET. IF ECONOMICAL METHODS ARE
NOT DEVELOPED TO SUCCESSFULLY INCORPORATE OUR OILS INTO VARIOUS FOOD AND
BEVERAGE APPLICATIONS, WE MAY NEVER BE ABLE TO GAIN LARGE SCALE ENTRY INTO THE
FOOD AND BEVERAGE MARKET.

Although we believe that the food and beverage market could be a large market
for DHA fortification with our DHA-S oil, the potential in this market could be
limited if methods are not developed that allow good compatibility of our DHA-S
oil with various foods and beverages. The flavor, texture and stability of 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,
are dependent not only on market demand, but also on manufacturing issues over
which we have no control.

SINCE INFANT FORMULA PRICING IS VERY COMPETITIVE, THE PREMIUM THAT OUR OILS
ADDS TO THE COST OF THE FORMULA MAY NEVER ALLOW IT TO BE PRICED AT LEVELS THAT
WILL ALLOW 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 certain of our license agreements allow our
licensees to manufacture our products themselves or purchase nutritional oils
from other sources.





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##### 



IF MARKET DEMAND FOR OUR PRODUCTS CONTINUES TO GROW, WE WILL NEED SIGNIFICANT
ADDITIONAL CAPITAL TO EXPAND OUR PRODUCTION CAPABILITY. WE MAY ALSO NEED
ADDITIONAL CAPITAL IN THE FUTURE TO CONTINUE OUR RESEARCH AND DEVELOPMENT
EFFORTS, TO CONDUCT PRODUCT TESTING, INCLUDING PRECLINICAL AND CLINICAL TRIALS,
AND TO MARKET OUR PRODUCTS.

Our nutritional oil sales are increasing and meeting demand will require
expanding our production capability for our nutritional oils. We are now in
the process of expanding at our Kingstree facility. Further enhancements to
improve production and capacity at the Winchester facility are continuing. At
October 31, 2003, we had approximately $97.0 million in cash, cash equivalents
and short-term investments available to meet future capital
requirements. As of October 31, 2003 we believe that up to
approximately $120-140 million may be needed over the ensuing 12-18 months to fund
additional expansion of our production capacity (at our
Winchester and Kingstree 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. In January 2004, we
established a three-year secured revolving line of credit of $85 million. This
debt financing arrangement will 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.

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 October 31,
2003, our common stock traded between $15.40 and $58.55 per share. During the
fifty-two week period ending October 31, 2002, our common stock traded between
$12.50 and $34.25 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 adverse developments;                                                             
|
| |  |  | quarterly fluctuations in our results of operations;                                                                                    
|
| |  |  | failure to scale-up our commercial
manufacturing or failure of our third party manufacturers to scale up
their commercial manufacturing;
|
| |  |  | failure to scale-up our commercial manufacturing and 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 October 31, 2003,
we had 28,041,323 shares of common stock outstanding. The average daily trading
volume in our common stock during the fifty-two week period ending October 31,
2003 was 453,265 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.





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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 October 31, 2003, we had 28,041,323 shares of common stock outstanding,
stock options outstanding to purchase an aggregate of 4.2 million shares of
common stock all of which are exercisable at below current market prices, and
warrants outstanding to purchase up to 64,566 shares of common stock at an
exercise price of $19.05 per share. Of these options and warrants 2.6 million
were exercisable at October 31, 2003. 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 1,931,853 additional
shares, subject to certain adjustments, to former OmegaTech stockholders and
option holders pursuant to our Agreement and Plan of Merger with OmegaTech, if
certain regulatory and financial milestones are achieved before 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.

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
OUR FUTURE

European and United States patent authorities have not adopted a consistent
policy regarding the breadth of claims allowed for health and bioscience
patents. Our issued patents, or patents that we may obtain in the future, may
not afford adequate protection against competitors with competing technology
because governmental agencies may revoke our patents or may limit the scope of
our patents. If this happens, companies may be able to produce products using
our previously patented technology. A number of our competitors have challenged
our patents, particularly in Europe:



| |  |  | Aventis S.A. and Nagase & Co. Ltd. are challenging our European
patent covering our DHA-containing oils. At a hearing in October 2000,
the Opposition Division of the European Patent Office revoked our patent
on the grounds that it was not novel. We immediately appealed this
ruling, and in July 2002 we received a positive ruling from an Appeal
Board of the European Patent Office (EPO), setting aside the prior
decision to revoke this patent. Consistent with our request, the patent
has been returned to the Opposition Division for a determination as
to whether it has met the legal requirement of inventive step. During
this process the patent will remain in full force and effect. The appeal
process may not be completed until sometime in 2006.                                                                                                                                                                                                                                                                            
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | BASF A.G., F. Hoffman-LaRoche A.G., Friesland Brands B.V., and
Suntory Limited have filed in the European Patent Office their grounds
for opposing our ARA patent issued by the EPO. The validity of the
patent is unaffected by these filings. A hearing at the Opposition
Division is scheduled for July 2004. The opposition process is not
expected to be completed until sometime in 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  |  | With respect to our blended-oil (blend of DHA and ARA oils for use in
various applications, including infant formula) patent issued by the
EPO, BASF AG, F. Hoffman  LaRoche AG, Friesland Brands B.V., and
Suntory Limited have filed their grounds for opposing this patent with
the Opposition Division of the EPO. The validity of the patent is
unaffected by these filings. An initial hearing at the Opposition
Division is now scheduled to be held in November 2004. The opposition
process is not expected to be completed until sometime in 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  |  | Aventis Research and Technologies GmbH & Co. KG and Nagase Limited
have filed in the EPO their grounds for opposing our patent covering the
DHA-containing oils that we assumed in the OmegaTech purchase. At a
hearing in December 2000, the Opposition Division of the EPO upheld some
of the claims and revoked other claims. OmegaTech immediately appealed
this ruling, as did Aventis. During the appeal process, the patent will
remain in full force and effect. The appeal process may not be completed
until sometime in 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  |  | On September 23, 2003, we filed a patent infringement lawsuit in the
U.S. District Court in Delaware against Nutrinova Inc., Nutrinova
Nutrition Specialties & Food Ingredients GmbH, Celanese Ventures GmbH,
and Celanese AG alleging infringement of two of our U.S. patents. The
lawsuit alleges that Nutrinova and Celanese have been making, using,
offering to sell, selling and/or importing into the United States DHA
marketed under the brand name DHActive that is made by a process and
employs compositions that infringe the patents. On October 24, 2003,
Nutrinova and Celanese filed counterclaims alleging inequitable conduct
and invalidity, unenforceability and/or noninfringement of all of our
U.S. patents and rights. We filed a second patent infringement suit
involving Nutrinova in Germany on January 16, 2004. Named as defendants
were Nutrinova Nutrition Specialties and Food Ingredients GmbH and
Celanese Ventures GmbH. The complaint alleges infringement of our
European patent relating to DHA-containing oils.

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 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 protecting and defending our patents and cannot be sure that we will be able to successfully defend our patents or that our competitors will not be able to design around our intellectual property.





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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 and Celanese A.G., is actively marketing a DHA-rich microalgal oil to the food and
beverage and dietary supplement markets in the United States and Europe.
We have filed patent infringement suits against Nutrinova and Celanese in the United
States and Germany; 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 AND THE NUTRITIONAL SUPPLEMENT MARKET.

Ultimately our success in the infant formula industry depends on growing
acceptance of our nutritional oils as necessary or beneficial additives to
infant formulas. Notwithstanding existing clinical results that have
demonstrated the beneficial effects of adding our nutritional oils to infant
formula, some experts in the field of infant nutrition do not believe that our
nutritional oils are necessary or that they provide any long-term beneficial
effects. There have also been clinical studies where no beneficial effects have
been found, possibly due to dose, duration or other factors. Experts generally
recommend that mothers breastfeed rather than use infant formulas whether or
not they contain our nutritional oils. Some experts also believe that infant
formula without our oils contains sufficient precursor fats that infants can
convert into DHA and ARA as needed. In addition, some physicians are
unimpressed by 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 October 31, 2003, our
products have been in the U.S. infant formula market for approximately 20
months and we believe that these products have penetrated approximately 40% to
45% 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 2-4 years. We estimate that our
products have penetrated approximately 20% to 25% of the world-wide infant
formula market. Combined, these markets brought us revenues of approximately
$107.3 million in 2003.

In addition to sales into the infant formula market, approximately 2% of our
fiscal 2003 nutritional product revenues came from sales of our nutritional
oils to the adult supplement market. Investigators at universities and at other
research centers, such as the National Institutes of Health, have observed a
relationship between low levels of DHA and a variety of health risks. We are
currently trying to establish what contribution, if any, supplementation with
our oils will make in addressing these problems. Although clinical data are not
required to market food ingredients or nutritional supplements outside of the
infant formula market, we believe that further clinical studies are needed to
validate the benefits of DHA supplementation. Accordingly, we are sponsoring
studies to further investigate the potential benefit of DHA supplementation on
cardiovascular health and we are aware of research being conducted regarding
the impact of DHA supplementation on certain visual and neurological disorders.
Unless these studies, which are more extensive than earlier pilot studies,
establish and quantify the positive impact of DHA supplementation, we may only
have a limited adult market opportunity.





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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. Pursuant to the agencys request, we have
provided 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 GOOD
MANUFACTURING PRACTICES AS REQUIRED BY THE FDA.

In connection with the manufacture of certain of our products, we are required
to adhere to applicable current good manufacturing practice (GMP)
requirements as required by the FDA. GMP regulations specify component and
product testing standards, control quality assurance requirements and records
and other documentation controls. As the manufacturer of DHA and ARA that are
marketed as dietary supplements and used as ingredients in infant formulas sold
in the United States, and may be used in food and beverages, we are subject to
GMP and various other requirements applicable to such products. There can be no
assurance that we will be able to continue to manufacture our nutritional oils
in accordance with relevant dietary supplement and infant formula requirements
for commercial use. Ongoing compliance with GMP and other applicable regulatory
requirements is monitored through periodic inspections by state and federal
agencies, including the FDA and comparable agencies in other countries. A
determination that we are in violation of such GMP and other regulations could
lead to an interruption of our production output and the imposition of civil
penalties, including fines, product recalls or product seizures, and, in the
most egregious cases, criminal sanctions.

OUR CORPORATE COMPLIANCE PROGRAM CANNOT GUARANTEE THAT WE ARE IN COMPLIANCE
WITH ALL POTENTIALLY APPLICABLE FEDERAL AND STATE REGULATIONS.

Our business is subject to extensive federal and state regulation. Current
products and products in development cannot be sold if we or our customers do
not obtain or maintain regulatory approvals. While we have developed and
instituted a corporate compliance program, we cannot assure you that we or our
employees are or will be in compliance with all potentially applicable federal
and state regulations. If we fail to comply with any of these regulations a
range of actions could result, including, but not limited to, the failure to
approve a product candidate, restrictions on our products or manufacturing
processes, including withdrawal of our products from the market, significant
fines, or other sanctions.

OUR BUSINESS EXPOSES US TO POTENTIAL PRODUCT LIABILITY CLAIMS AND RECALLS.

Our development, manufacture and marketing of products involve an inherent risk
of exposure to product liability claims, product recalls, product seizures and
related adverse publicity. In addition, as only a small amount of our oils
reside in our customers end product, a recall of our oils could impact a much
larger recall of our customers end products. Insurance coverage is expensive
and difficult to obtain, and we may be unable to obtain coverage in the future
on acceptable terms, if at all. Although we currently maintain product
liability and recall insurance for our products in the amounts we believe to be
commercially reasonable, we cannot be certain that the coverage limits of our
insurance policies or those of our strategic partners will be adequate. If we
are unable to obtain sufficient insurance at an acceptable cost, if a
successful product liability claim is made against us, or if there is a product
recall, whether fully covered by insurance or not, our business could be
harmed.

OUR OPPORTUNITY IN THE U.S. INFANT FORMULA MARKET MAY BE LIMITED BY THE
ADOPTION RATE OF SUPPLEMENTED FORMULAS INTO THE WOMEN, INFANTS AND CHILDREN
(WIC) PROGRAM.

We estimate that our total U.S. market opportunity for sales of supplemented
infant formula to be over $140 million, and that almost $70 million of this
opportunity will come from WIC-funded sales. Most WIC state agencies provide
only one brand of infant formula to its participants, depending on which
company has the rebate contract in a particular state. Since early 2002,
approximately 39 state Women, Infant and Children (WIC) programs have adopted a
brand of infant formula supplemented with our oils. WIC is a federal grant
program that is state administered for the benefit of low-income nutritionally
at risk women, infants and children. If our licensees do not attempt to gain
adoption of a supplemented brand of infant formula in other states, other state
WIC agencies do not agree to adopt a supplemented infant formula into their WIC
program, supplemented formulas are removed from WIC programs that previously
adopted them, or if any of our licensees fail to renew, in a timely fashion,
their contract 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.

OUR MANUFACTURING PROCESS INVOLVES THE HANDLING OF HAZARDOUS MATERIAL AND THE
MISHANDLING OF THESE HAZARDOUS MATERIALS COULD RESULT IN SUBSTANTIAL COSTS AND
HARM TO OUR BUSINESS.





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In connection with our research and manufacturing activities, we utilize some
hazardous materials. We are subject to federal, state and local laws and
regulations governing the use, storage, handling and management of hazardous
materials and specified waste products. The cost of compliance with these laws
and regulations could be significant. Moreover, we could be subject to loss of
our permits, government fines or penalties and/or other adverse governmental
action if such hazardous materials are used, stored, handled or otherwise
managed in violation of law or any permit. In addition, we could be subject to
liability if hazardous materials are released into the environment. A
substantial fine or penalty, the payment of significant environmental
remediation costs or the loss of a permit or other authorization to operate or
engage in our ordinary course of business could result in material,
unanticipated expenses and the possible inability to satisfy customer demand
for our nutritional oils.

On March 12, 2003, an explosion occurred at a public wastewater treatment works
in Winchester, KY, resulting in property damage. On April 8, 2003, we received
a report from the state fire marshal that concluded that the incident resulted
from the introduction of n-hexane into the local sewer system. We use n-hexane
in the production process for our DHA oil. The state fire marshal report did
not rule out other possible contributors to the incident. Although n-hexane was
found at the site of the incident, there 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. We have requested, and continue to await 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. During fiscal 2003 we incurred approximately $146,000 in legal fees
related to the incident, which were applied to the liability. In addition to
any potential liabilities for property damage, this incident resulted in the
delay of the issuance of certain permits required for the expansion of our
existing Winchester plant and was a consideration in our decision to begin
immediate expansion at our Kingstree, SC plant. While we cannot be certain of
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.

THE INTEGRATION OF FERMPROS OPERATIONS WITH MARTEKS OPERATIONS MAY BE
DIFFICULT, WHICH COULD HARM OUR RESULTS OF OPERATIONS.

On September 5, 2003, we completed the transaction to purchase certain assets
and assume certain liabilities of FermPro. Martek Biosciences Kingstree
Corporation (Martek Kingstree) was formed as a wholly-owned subsidiary
of Martek Biosciences Corporation for the purpose of holding the assets and
assumed liabilities we acquired from FermPro. We are in the process of
integrating our operations with the operations of the former FermPro business.
This integration may be more expensive than anticipated or take longer than
planned. If there are delays or unexpected costs involved with the integration,
these could have a material adverse effect on our business and financial
results. The difficulties involved in integrating the former FermPro business,
which could be substantial, include the following:



| |  |  | management and key personnel could be distracted from the day-to-day
business of managing Martek;                                       
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | implementing uniform controls, systems and procedures, especially
information and accounting systems could be costly and time-consuming;
|
| |  |  | key officers, sales and customer support personnel may not be satisfied or happy with Martek and may elect to leave; and                
|
| |  |  | expansion at the Kingstree facility may further complicate integration of operations                                                    

WE EXPERIENCED SIGNIFICANT OPERATING LOSSES EACH YEAR SINCE OUR INCEPTION
THROUGH FISCAL 2002 AND HAVE NOT YET GENERATED A SUSTAINED REVENUE STREAM TO BE
A VIABLE BUSINESS IN THE LONG-TERM.

We experienced net operating losses in each annual period since our
inception through fiscal 2002. As of October 31, 2003, we had an accumulated
deficit of $111.6 million. Our balance of cash, cash equivalents and short-term
investments at October 31, 2003 was approximately $97.0 million. Although these
resources, along with a new $85 secured revolving line of credit signed in
January 2004 and expiring in 2007, should allow us to meet our current
operating needs and planned capital expenditures for at least the
ensuing 12 to 18
months, we must achieve sustained profitability to generate the cash necessary
to be a viable business in the long term, and at this time we have not yet
generated a sustained source of revenue to achieve this.