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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM
10-K/A
Amendment
No. 1
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005
 OR
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    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER: 0-22354
 MARTEK BIOSCIENCES CORPORATION
  DELAWARE
    
    52-1399362(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
    
    (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
 6480 DOBBIN ROAD, COLUMBIA, MARYLAND 21045
 REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: (410) 740-0081
 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 TITLE OF EACH CLASS:
    
    NAME OF EACH EXCHANGE ON WHICH REGISTERED:NONE
    
    NONE
 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
 COMMON STOCK, $.10 PAR VALUE
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   DOCUMENTS INCORPORATED BY REFERENCE




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Explanatory Note:




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PART IItem 1.
    
    Business
    
    1Item 1A.
    
    Risk Factors
    
    19Item 1B.
    
    Unresolved Staff Comments
    
    27Item 2.
    
    Properties
    
    27Item 3.
    
    Legal Proceedings
    
    28Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    30PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    31Item 6.
    
    Selected Financial Data
    
    32Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    33Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    42Item 8.
    
    Financial Statements and Supplementary Data
    
    43Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    65Item 9A.
    
    Controls and Procedures
    
    65Item 9B.
    
    Other Information
    
    65PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    66Item 11.
    
    Executive Compensation
    
    66Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    66Item 13.
    
    Certain Relationships and Related Transactions
    
    66Item 14.
    
    Principal Accountant Fees and Services
    
    66PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    67Signatures
    
    69




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PART I
  ITEM 1. BUSINESS.
 OVERVIEW
  NUTRITIONAL PRODUCTS
 ® ®
   ® ® ® ® ® ® ® ®
   1




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CONTRACT MANUFACTURING
  FLUORESCENT DETECTION PRODUCTS
  PRODUCTS AND PRODUCT CANDIDATES
 NUTRITIONAL OILS
 Infant Formula Applications
   The Journal of Pediatrics
  
    
    A study conducted by Dr. S. Hart and others published in 2005 in the Journal of
Pediatric Psychologyrevealed a positive correlation between DHA levels in breast milk and
newborn neurobehavioral function. The study analyzed the DHA content of breast milk
collected from 20 breastfeeding mothers nine days after delivery. At the same time, their
infants were tested for neurobehavioral functioning using the Brazelton Neonatal Behavioral
Assessment Scale (NBAS), a commonly used behavioral test. Analysis revealed a positive
correlation between DHA levels in the mothers breast milk and the childs NBAS score.
 2




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
    
    A study conducted by Dr. E. Birch and others published in 2005 in the American Journal
of Clinical Nutritionfound that DHA and ARA supplementation of term infant formula during
the first year of life resulted in improved visual function in 12-month old infants
compared to those without supplementation.
    
    A summary of four randomized control trials conducted by Dr. S. Morale and others
published in 2005 in Early Human Developmentshowed a continued benefit to visual
development as the result of DHA and ARA supplementation in formula-fed infants throughout
the first year of life.
    
    A study conducted by Dr. D. Hoffman and others published in the June 2003 issue of The
Journal of Pediatricsreported that infants who were breast-fed from birth to between four
and six months of age and then weaned onto formula supplemented with DHA and ARA
experienced significantly improved visual development at one year of age compared to
infants who were breast-fed and then weaned onto formula without DHA and ARA.
    
    In November 2001, results were presented from a multi-center European study that showed
sustained advantages for infants fed formula supplemented with DHA and ARA. At six years of
age, children who had received a DHA and ARA supplemented formula for the first four months
of life had significantly lower diastolic blood pressure, were significantly faster at
making correct choices, and showed more efficient information processing than
unsupplemented children. Some of the results of this study as conducted by Dr. J. S.
Forsyth and others were published in 2003 in the British Medical Journal.
    
    A study conducted by Dr. E. Birch and others published in 2002 in the American Journal
of Clinical Nutritionfound that infants who were breast-fed for six weeks and then weaned
to DHA and ARA supplemented infant formula had significantly better visual acuity at 17, 26
and 52 weeks of age and significantly better stereoacuity at 17 weeks of age than infants
who were weaned to non-supplemented formula.
    
    Research conducted by Dr. E. Birch and others published in 2000 in Developmental
Medicine & Child Neurologynoted the results of a National Institutes of Health
(NIH)-sponsored study that showed a significant improvement in mental development in term
infants given a commercially available infant formula supplemented with Martek DHA and ARA
compared to infants fed the same formula, but without DHA and ARA. In the double-blind
study, infants fed the diet supplemented with our oils showed, at 18 months of age, a mean
increase of 7 points on the Mental Development Index (MDI) of the Bayley Scales of Infant
Development II. Researchers reported that these data support a long-term cognitive
advantage of infant dietary DHA supply during the first 4 months of life. The significant
correlations...support the hypothesis that early dietary supply of DHA was a significant
determinant of improved performance on the MDI.
   Applications for Pregnant and Nursing Women
   
    
    A study conducted by Dr. C. Jensen and others published in 2005 in the American Journal
of Clinical Nutritionnoted that infants of mothers who supplemented with Martek DHA while
breastfeeding had improved psychomotor skills at 2 1/2 years of age. The study involved 227
breastfeeding mothers who were given a 200 mg capsule of Martek DHA or placebo daily for 4
months beginning 5 days after delivery and revealed that children of DHA-supplemented
mothers scored significantly higher on the Bayley Psychomotor Development Index (PDI), when
compared to the children of the non-supplemented breastfeeding mothers. The study also
confirmed that DHA supplementation while breastfeeding effectively increases DHA levels in
the mothers milk as it noted that the mothers supplemented
 3




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with DHA had 75% more DHA in their breast milk than the control group and their infants had
35% higher DHA blood levels than the control group infants. This study was partially funded
by Martek.
    
    A statistical analysis of many previously reported studies was conducted by Dr. J. Cohen
and others. This analysis, published in 2005 in the American Journal of Preventive
Medicine, described a risk/benefit associated with the prenatal intake of DHA on infant
cognitive development. The analysis showed that an increase to maternal DHA intake yielded
modest improvement in child IQ.
    
    A study conducted by Dr. I. Helland and others published in 2003 in Pediatricsfound
that mothers who supplemented their diet with fatty acids rich in DHA during pregnancy and
nursing gave birth to children who scored higher on standardized intelligence and
achievement tests at four years of age than those whose mothers supplemented with fatty
acids that do not contain DHA. According to the study, data demonstrated that children born
to mothers who had taken cod liver oil, which is rich in DHA and other omega-3 fatty acids,
during pregnancy and nursing scored significantly higher (approximately 4.1 points) on the
Mental Processing Composite of the K-ABC test as compared to children whose mothers had
received corn oil.
    
    A study conducted by Dr. C. Smuts and others published in 2003 in Obstetrics and
Gynecologyfound that expectant mothers at risk for pre-term birth, who increased their
dietary intake of DHA during the last trimester of pregnancy through DHA enriched eggs,
increased their length of gestation by six days compared to mothers who received regular
eggs during late pregnancy. These researchers also published in the July/August 2004 issue
of Child Developmenttheir study results showing that infants whose mothers had high DHA
levels at birth had improved attention skills at 18 months of age.
  ® ® ®
 Cognitive Function, Cardiovascular Health and Other Human Applications
  DHA and cognitive function
 
    
    Three recently published reports further support the potential neurological benefits of
DHA.
 o
    
    A scientific review on DHA performed by Dr. J. Marszalek and Dr. H.
Lodish published in 2005 in Annual Review of Cell and Developmental Biologysuggests
the significant role that DHA plays in the maintenance of normal neurological
function.o
    
    The results of an in vitro study conducted by Dr. W. Lukiw and others
published in 2005 in the Journal of Clinical Investigationsuggest that DHA intake
could benefit people with Alzheimers disease by lowering the accumulation of
amyloid-B peptides, which are associated with brain aging and Alzheimers.o
    
    The results of an in vitro study conducted by Dr. S. Florent and others
published in 2005 in the Journal of Neurochemistrynotes that DHA enrichment likely
induces changes in neuronal membrane properties that may assist in the prevention of
Alzheimers disease and other neurodegenerative diseases.
 
    
    In 2004, the results of an animal study conducted by the Dr. F. Calon and others and the
UCLA School of Medicine and published in the journal Neuronnoted the effects of Marteks
DHA on the advancement of Alzheimers disease in laboratory mice. The study found that a
diet rich in DHA significantly lessened the memory loss and cell damage associated with
Alzheimers disease in laboratory mice. This laboratory has extended these findings during
2005 with additional data. In vitro research conducted by Dr. N. Bazan and published in
2005 in Molecular Neurobiologyhas detected a metabolite of DHA that appears to have a
protective role in neural cell survival and Alzheimers disease.
    
    In 2003, results from a study by Dr. E. J. Schaefer and others on a subset of subjects
from the Framingham Study were published, suggesting that increasing DHA levels in the
blood by eating more than two servings of fish per week was associated with up to a 48
percent reduction in the risk of dementia in elderly men and women. The reduction in the
risk of dementia was not correlated with EPA consumption. The study conducted over a ten
year period included 899 men and women with a mean age of 75.
 4




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
    
    In 2003, the results of a study conducted by Dr. M.C. Morris and others published in the
Archives of Neurologyindicated that weekly consumption of fish and dietary intake of DHA,
but not other omega-3 fatty acids, are associated with a reduced risk of Alzheimers
disease by up to 60 percent. The study examined whether fish consumption and the associated
intakes of omega-3 fatty acids would afford a protective effect against Alzheimers
disease. A total of 815 subjects, aged 65 to 94, who were initially unaffected by
Alzheimers disease, participated in the study and were followed for an average of 3.9
years for the development of Alzheimers disease. The study showed that in those
individuals consuming the highest amounts of dietary DHA, the risk of developing
Alzheimers disease was reduced by up to 60 percent. The risk of developing Alzheimers
disease was not correlated with EPA consumption. Additional research is needed to evaluate
the role, if any, of DHA in reducing the risk of developing these diseases.
  DHA and cardiovascular health
 
    
    The results of a study conducted by Dr. K. Maki and others and published in the Journal
of the American College of Nutritionin 2005 demonstrated that Martek DHA lowered
triglycerides. These subjects consumed 1.5 grams DHA per day or a placebo for six weeks.
This study was sponsored by Martek.
    
    In 2004, the findings of a study conducted by Dr. M. Engler and others were published in
the International Journal of Clinical Pharmacology and Therapeuticsrelating to the effects
of Marteks DHA oil on endothelial function in children with high cholesterol
(hyperlipidemia). Hyperlipidemia in children is a risk factor for early coronary heart
disease. Clinical data demonstrated that when patients received a specialized diet
supplemented with DHA, they showed improved endothelial function as compared to the
specialized diet alone. Researchers found that when patients received DHA, they experienced
significant improvements in their arterial flow, indicating that their arteries had become
more flexible. These investigators also reported that DHA supplementation in these same
children resulted in a favorable shift from small, dense LDL particles, known to be highly
correlated with coronary heart disease, to large LDL particles. DHA supplementation also
resulted in a significant favorable increase in HDL particle size. Martek provided
supplements for this study at no cost and performed the fatty acid analysis.
    
    In 2004, the AHRQ reported that overall... consumption of omega-3 fatty acids from fish
or from supplements of fish oil reduces all-cause mortality and various CVD [cardiovascular
disease] events. We believe that Martek DHA is an appropriate omega-3 fatty acid
supplement.
    
    Dr. K. Stark and Dr. B. Holub reported in 2004 in the American Journal of Clinical
Nutritionthat DHA supplementation of 32 postmenopausal women with 2.8 grams DHA from
Marteks DHA oil per day for 1 month resulted in a 20% reduction in triglycerides, a 6-10%
increase in HDL cholesterol (good cholesterol) and a 7% reduction in heart rate relative
to placebo, suggesting that DHA may favorably influence selected cardiovascular risk
factors in postmenopausal women.
    
    In 2002, in the publication Circulation,the American Heart Association (AHA) issued a
Scientific Statement entitled Fish Consumption, Fish Oil, Omega-3 Fatty Acids, and
Cardiovascular Disease. The Scientific Statement outlines the findings of a comprehensive
report that examined the cardiovascular health benefit of omega-3 fatty acids, specifically
DHA and EPA, from fish sources. The report concluded that consumption of such omega-3
fatty acids, either through diet or supplements, reduces the incidence of cardiovascular
disease. The statement refers to studies that have indicated the following to be associated
with the intake of omega-3 fatty acids:
 
    
    decreased risk of sudden death and arrhythmia;
    
    decreased thrombosis (blood clot);
    
    decreased triglyceride levels;
    
    decreased growth of atherosclerotic plaque;
    
    improved arterial health; and
    
    lower blood pressure.
 The Scientific Statement concluded that omega-3 fatty acids have been shown in
epidemiological and clinical trials to reduce the incidence of heart disease and recommends
that healthy individuals eat a variety of fish (preferably oily) at least twice a week. The
statement cautioned, however, that fish intake must be balanced with concerns about
environmental pollutants because some species of fish may contain significant levels of
methylmercury, polychlorinated biphenyls (PCBs), dioxins, and other contaminants. Both the
FDA and the Environmental Protection Agency have advised children, pregnant women, women who
may become pregnant and nursing mothers to limit their intake of certain fish. In
consideration of the health risks posed by such contaminants, the authors of the statement
conclude by stating,
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The availability of high-quality omega-3 fatty acid supplements, free of contaminants, is an
important prerequisite to their extensive use. Marteks DHA oil is derived from a vegetarian
source and is free of contaminants that may be found in fish oil.
 
    
    In 2002, The New England Journal of Medicinepublished the results of a study directed
by a team of researchers at The Johns Hopkins University. This study weighed the
cardiovascular benefit of DHA derived from fish consumption, as compared to the
cardiovascular health risk posed by the mercury content in certain fish. Researchers found
that while high DHA levels were directly correlated with a lower risk for cardiovascular
disease, high mercury levels were directly correlated with the risk of heart attack. Based
on these findings, researchers concluded that, High mercury content may diminish the
cardioprotective effect of fish intake.
  Hypertension American Journal of Clinical Nutrition Diabetes Care European Journal of Clinical Nutrition
 
    
    reduces triglycerides and raises the HDL or good cholesterol;
    
    reduces blood pressure;
    
    reduces heart rate; and
    
    increases LDL and HDL cholesterol particle size.
 ® ®
   CONTRACT MANUFACTURING
     6




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MARTEK DETECTION PRODUCTS
  TECHNOLOGY
  
    
    microalgae are a genetically diverse kingdom of organisms that have a range of
physiological and biochemical characteristics; thus, they naturally produce many different
and unusual fats, sugars, proteins and bioactive compounds that may have commercial
applications, such as the fatty acids that are the principal ingredients in our oils, and
highly sensitive fluorescent diagnostic products;
    
    microalgae comprise a large, substantially unexplored group of organisms, and thus,
provide a virtually untapped genetic resource that can be screened for a variety of new
products, including pharmaceuticals; and
    
    many microalgae can be successfully cultivated using conventional large-scale
fermentation techniques and equipment, enabling economical production of commercial
quantities of these valuable products.
   Identification of Appropriate Microalgae.
 Optimization of Microalgae and Growth Conditions.
 Scale-up and Commercial Production.
  7




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COLLABORATIVE AND LICENSING AGREEMENTS
         8




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PRODUCTION
       SOURCES OF SUPPLY
   9




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RESEARCH AND DEVELOPMENT
  SALES AND MARKETING
 ® ® ®
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    10




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COMPETITION
        
    
    our oils do not have the odor, stability, taste characteristics, or impurities that
may limit the usefulness of DHA derived from unencapsulated fish oil;
    
    our oils can be blended in a variety of mixtures in precise ratios for specific
applications, whereas the composition of fish oils may vary;
    
    each of our oils used in infant formula is comprised of a fatty acid blend that does not
contain certain other fatty acids in significant quantities such as eicosapentaenoic acid
(EPA), which may not be appropriate for consumption by infants.
    
    our oils do not contain substances found in certain fish oils such as methylmercury,
polychlorinated biphenyls (PCBs), dioxins and other toxic contaminants;
    
    our oils have a higher oxidative stability and longer shelf life than fish oil and are,
therefore, more amenable to the spray drying process required for powdered formula;
    
    our oils are not produced from animal sources and, therefore, may be more desirable for
use in food and beverage products requiring vegetable-sourced DHA;
    
    our oils are produced from renewable, sustainable natural resources, unlike fish oil;
    
    our DHA and ARA-enriched oils are in an easily digestible triglyceride form similar to
that found in breast milk, but different from the phospholipid form found in egg yolk
lipids; and
    
    our oils can be produced in large quantities under controlled conditions satisfying
strict regulatory scrutiny.
 11




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PATENTS, LICENSES AND PROPRIETARY TECHNOLOGY
    12




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
    
    any patent applications filed by, assigned to or licensed to us will be granted;
    
    we will develop additional products that are patentable;
    
    any patents issued to or licensed by us will provide us with any competitive advantages or adequate protection for inventions;
    
    any patents issued to or licensed by us will not be challenged, invalidated or circumvented by others; or
    
    issued patents, or patents that may be issued, will provide protection against
competitive products or otherwise be commercially valuable.
       GOVERNMENT REGULATION AND PRODUCT TESTING
    13




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® ® ® ® ® ® ® ®
          14




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EMPLOYEES
  15




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DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  Name
    
    Age
    
    PositionJames R. Beery(2)(3)
    
    
    64
    
    
    DirectorRobert J. Flanagan (1)(3)
    
    
    49
    
    
    DirectorPolly
B. Kawalek
    
    
    51
    
    
    DirectorJerome C. Keller
    
    
    63
    
    
    DirectorHenry Linsert, Jr.
    
    
    64
    
    
    Chairman, Chief Executive Officer and DirectorGordon S. Macklin
    
    
    77
    
    
    DirectorDouglas J. MacMaster, Jr.(1)(3)
    
    
    75
    
    
    DirectorJohn H. Mahar(1)
    
    
    71
    
    
    DirectorSandra Panem, Ph.D.(2)
    
    
    59
    
    
    DirectorRichard J. Radmer, Ph.D.
    
    
    63
    
    
    DirectorEugene H. Rotberg(2)(3)
    
    
    75
    
    
    DirectorDavid M. Abramson
    
    
    52
    
    
    Senior Vice President, Corporate DevelopmentGeorge P. Barker
    
    
    66
    
    
    Senior Vice President, General Counsel and SecretaryPeter L. Buzy
    
    
    46
    
    
    Chief Financial Officer and TreasurerSteve Dubin
    
    
    52
    
    
    PresidentBarney B. Easterling
    
    
    60
    
    
    Senior Vice President, ManufacturingJames H. Flatt, Ph.D.
    
    
    46
    
    
    Senior Vice President, ResearchPeter A. Nitze
    
    
    47
    
    
    Chief Operating Officer
 
 (1)
    
    Member of Compensation Committee(2)
    
    Member of Audit Committee(3)
    
    Member of Nominating and Corporate Governance Committee Directors:
      16




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Executive Officers (in addition to Mr. Linsert):
     17




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COMPANY
 http://www.martekbio.com
  18




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ITEM 1A. RISK FACTORS.
 Investing in our securities involves a high degree of risk. Before making an investment decision,
you should carefully consider the risk factors set forth herein, as well as other information we
include in this report and the additional information in the other reports we file with the
Securities and Exchange Commission (the SEC or the Commission). If any of the following risks
actually occur, our business could be harmed. In such case, the trading price of our securities
could decline and you could lose all or part of your investment.
  
    
    our ability to generate future revenues;
    
    the commercialization of our products;
    
    the expansion and ongoing operation of facilities producing our products;
    
    our ability to produce adequate amounts of our products ourselves or through third-party manufacturers;
    
    the optimization of production costs; and
    
    our ability to enter into future business collaborations and marketing partnerships.
  A substantial portion of our nutritional oil products sales is made to four of our existing
customers under agreements with no minimum purchase requirements. If demand by these customers
for our nutritional oil products declines, our revenues may materially decline.
  We are aware of several products that are currently available, and products under development,
that may present a serious competitive threat to our products.
   
    
    the Ross Products Division of Abbott Laboratories, a significant Martek licensee and
customer, filed a generally recognized as safe notification on January 2, 2002 seeking Food
and Drug Administration (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;
    
    Reliant Pharmaceuticals launched Omacor, a DHA/ EPA ethyl ester, in the second half of
2005 for treatment of hyperlipidemia. Omacor is a lipid-regulating agent which includes
both EPA and DHA from fish oil. We expect additional studies to expand the approved
indications for Omacor. Other pharmaceutical applications using omega-3 fatty acids may be
expected.
    
    Suntory Limited, Cargill Inc., through a joint venture with a company in China, and
other independent Chinese manufacturers are producing and distributing a fungal source of
ARA. In addition, we are aware that there may be manufacturers in China attempting to
produce an algal source of DHA, but we are uncertain of the overall status and commercial
potential of these development efforts;
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
    
    some infant formulas now on the market outside the United States use DHA derived from
other sources, such as fish oil or eggs;
    
    Nutrinova Nutrition Specialties & Food Ingredients GmbH, a wholly-owned subsidiary of
Celanese Corporation, has been actively marketing a DHA-rich microalgal oil to the food and
beverage and dietary supplement markets in the United States, China and Europe. We have
filed a patent infringement suit against Nutrinova in both the United States and Germany.
These lawsuits are further described in Item 3 of Part I of this Form 10-K, Legal
Proceedings. In December 2005, it was announced that Nutrinovas DHA business has been
sold to Lonza Group LTD, a Swiss chemical and biotechnology group; and
    
    other companies, several with greater financial resources than ours, are developing
plant-based DHA and other companies are developing chemically synthesized DHA.
  If clinical trials do not continue to yield positive results on the benefits of DHA on cognitive
function, cardiovascular health or other health applications, our future revenues may be limited
in the food and beverage market and the dietary supplement market.
  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.
  
    
    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 (EPO) 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 EPO, setting aside the prior decision to revoke this patent. The patent
was returned to the Opposition Division for a determination as to whether it has met the
legal requirement of inventive step. A hearing in August 2005 resulted in a ruling by the
Opposition Division that this requirement had been met and the validity of the patent was
upheld. Aventis has appealed the decision to the Appeal Board of the EPO. The appeal
process is not expected to be completed before 2007. Claim 1 of this patent is the basis of
the patent infringement suit against Nutrinova in Germany, discussed below.
    
    With respect to our ARA patent issued by the EPO, BASF AG, Friesland Brands B.V., and
Suntory Limited filed their grounds for opposing this patent with the Opposition Division
of the EPO. At a hearing at the Opposition Division in April 2005, the Opposition Division
of the EPO upheld the patent in a form containing modified claims that are narrower than
the claims originally granted. In an effort to broaden the claims of the patent, we
appealed the decision. Suntory and BASF have also appealed. The patent in the form
containing the claims that were originally granted will remain in full force and effect
throughout the appeal process. The appeal process is not expected to be completed until
late 2006 or 2007.
    
    With respect to our blended oil (blend of DHA and ARA oils for use in various
applications, including infant formula) patent issued by the EPO, BASF AG and Suntory
Limited filed their grounds for opposing this patent with the Opposition Division of the
EPO. In November 2004, the Opposition Division of the EPO revoked Marteks European blended
oil patent as a result of these challenges. We immediately filed an appeal of this
decision; as a consequence, the blended oil patent has been reinstated and will remain in
full force and effect during the appeal. Suntory has responded to our appeal and BASF has
until February 2006 to respond. The appeal process is not expected to be completed until
2007.
    
    Prior to our purchase of OmegaTech, Aventis Research and Technologies GmbH & Co. KG, and
Nagase Limited challenged OmegaTechs European patent covering its DHAcontaining oils. 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. At an
appeal hearing in May 2005, we received a favorable decision from the Appeal Board of the
EPO, which overturned the decision of the Opposition Division and returned the case to the
Opposition Division for review on the merits of the patent claims. Any decision made by the
Opposition Division can be
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appealed. Assuming an appeal, the review process is expected to take approximately three to
four years to complete, during which time the patent will remain in full force and effect.
    
    An EPO Opposition Division hearing was held on November 15, 2005, with respect to a
European DHA patent acquired by Martek as part of the OmegaTech purchase. The patent was
upheld in modified form. This patent is directed to processes for fermenting
Thraustochytriumand Schizochytriumunder low chloride conditions and the resulting
products. Nutrinova Nutrition Specialities & Food Ingredients GmbH is the only opponent,
and we expect it to appeal. The appeal process is not expected to be completed before 2007.
    
    In September 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.
Celanese Ventures GmbH and Celanese AG have been dropped from the lawsuit. We have added an
additional three patents to the suit, bringing the total number that Nutrinova is accused
of infringing to five patents. The lawsuit alleges that Nutrinova has been making, using,
offering to sell, selling and/or importing into the United States DHA that infringes the
patents. In October 2003, Nutrinova filed counterclaims alleging inequitable conduct and
invalidity, unenforceability and/or noninfringement of 19 of our U.S. patents. The case has
now been limited to the five patents which Martek has sued Nutrinova for infringement. A
scheduling hearing in the case was held in January 2005, and the trial is scheduled for
October 2006. In July 2005, the court granted Marteks motion to add as a defendant in the
case a company that is a U.S. customer for Nutrinovas DHA, and
in January 2006, Martek settled its dispute with this defendant on
terms favorable to Martek. A hearing before the court on
the meaning and scope of the patent claims in dispute was held in late November 2005, and
the judge issued his decision in December 2005. We also filed a patent infringement suit
involving Nutrinova Nutrition Specialties & Food Ingredients GmbH and Celanese Ventures
GmbH in Germany in January 2004. The complaint alleges infringement of our European patent
relating to DHA-containing oils. A hearing in this case was held in a district court in
Dusseldorf in April 2005 and the court delayed its decision pending input from a
court-appointed technical expert. The courts decision is expected at some point in the
second half of 2006.
    
    Suntory has opposed our blended oil patent in Japan, where we believe there currently
are no sales of infant formula containing our blended oils. The patent was revoked by the
Japanese Patent Office and the revocation upheld by the Tokyo High Court in September 2004.
We appealed this decision to the Japanese Supreme Court and, as expected, that court has
declined to hear the matter. Thus, the revocation of this patent has become final. With
respect to our Japanese ARA patent, the same result has been reached.
    
    With respect to our ARA patent in South Korea, where we believe there are limited sales
of infant formula containing our ARA oil, Suntory has also filed an opposition. A hearing
on the matter has been scheduled for late January 2006. If the
decision is in Marteks favor, Suntory cannot appeal, but if the decision is against Martek, Martek can appeal. Suntory has also initiated an invalidation case against our blended oil patent in
South Korea. Our response to Suntory was filed in February 2005. No hearing date has been
set, and is not expected before late 2006.
   We have a single third-party supplier of our ARA with whom we have a contractual relationship.
If this supplier of our ARA is unable to supply us with our required amounts of ARA or if an
over-capacity situation by our supplier leads to higher cost ARA, our results of operations
and/or financial position may be adversely affected.
  If we are unable to successfully expand, continuously utilize and adequately manage our
production capacity or enter into favorable agreements with third parties to produce our oils or
if our suppliers fail to produce and supply us with adequate amounts of oil, our customers may
not be able to obtain a sufficient supply of DHA and ARA from us and our future revenues from
these products may be limited.
  21




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##### 



As we and our major suppliers increase production of our nutritional oils, we may experience
certain risks associated with the start-up/ ramp-up of commercial manufacturing that could have
a material adverse effect on our business, financial condition, and/ or results of operations.
   
    
    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;
    
    lower than anticipated fermentation success rates may result;
    
    lower downstream processing yields may result;
    
    environmental and safety problems may result from our production process; and
    
    regulatory issues relating to the scale-up and operation regarding our production process may arise.
  We have significantly increased our manufacturing capacity and have incurred substantial costs
in doing so. If we are unable to increase our revenues from our nutritional oils produced at
these facilities, we may experience excess production capacity and we may be unable to recover
these plant expansion costs.
  Failure to effectively manage our growth could disrupt our operations and prevent us from
generating the revenues and gross profit margins we expect.
  22




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##### 



Experts differ in their opinions on the importance of DHA and/or ARA in infant formula and the
levels of DHA and/or ARA required to achieve health benefits for babies. 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 worldwide. If clinical trials do
not continue to yield positive results and certain favorable regulatory guidelines are not
enacted, our future revenues in the infant formula market may be limited.
   Our oils are very sensitive to oxidation and may not be very compatible with many 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.
  If it is determined that large amounts of eicosapentaenoic acid (EPA) must be added to DHA in
order to achieve optimal health benefits, we may never be able to gain large- scale entry into
the food and beverage market.
  Because infant formula pricing is very competitive, the premium that our oils adds to the cost
of the formula may never allow it to be priced at levels that will allow worldwide acceptance by
consumers.
  If market demand for our products continues to grow, we may 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.
  23




---



##### 



The market price of our common stock may experience a high level of volatility due to factors
such as the volatility in the market for biotechnology stocks generally, and the short-term
effect of a number of possible events.
  
    
    announcements of technical innovations, new commercial products and product launches by us or our competitors;
    
    arrangements or strategic partnerships by us or our competitors;
    
    announcements of license agreements, acquisitions or strategic alliances;
    
    announcements of sales by us or our competitors;
    
    patent or other intellectual property achievements or adverse developments;
    
    quarterly fluctuations in our revenues and results of operations;
    
    failure or delay in expansion and continuous operation regarding our commercial
manufacturing or failure or delay of our third-party manufacturers in expansion and
continuous operation regarding their commercial manufacturing;
    
    failure to enter into favorable third-party manufacturing agreements;
    
    regulatory decisions (approvals or disapprovals) or changes concerning our products and our competitors products;
    
    announcements related to threatened, new or existing litigation;
    
    changes in our estimates of financial performance or changes in recommendations by securities analysts; and
    
    general market conditions for growth companies and bioscience companies.
   If significant shares eligible for future sales are sold, the result may depress our stock price
by increasing the supply of our shares in the market at a time when demand may be limited.
  24




---



##### 



Our business would be harmed if we fail to comply with applicable good manufacturing practices
as required by the FDA.
  Our corporate compliance program cannot guarantee that we are in compliance with all potentially
applicable federal and state regulations.
  Our business exposes us to potential product liability claims and recalls, and our insurance may
not provide adequate coverage.
  Our opportunity in the U.S. infant formula market may be limited by the renewal rate of
supplemented formulas into the Women, Infants and Children program.
  25




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##### 



Our manufacturing process involves the handling of hazardous materials and the mishandling of
these hazardous materials could result in substantial costs and harm to our business.
   Our adoption of the Financial Accounting Standards Boards SFAS No. 123 (revised 2004),
Share-Based Payment, or alternative incentive compensation plans that we could adopt, could
result in our recognition of significant additional compensation expense.
  Changes in foreign currency exchange rates or interest rates could result in losses.
  We are a defendant in putative class action lawsuits which, if determined adversely, could have
a material adverse affect on us.
   26




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##### 



ITEM 1B. UNRESOLVED STAFF COMMENTS.
  ITEM 2. PROPERTIES.
     27




---



##### 



ITEM 3. LEGAL PROCEEDINGS
     Thraustochytrium Schizochytrium
     28




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##### 



Reed Black v. Martek
Biosciences Corporation, et al.  Brocco v. Martek Biosciences
Corp., et. al. Sowattanangkul v. Martek Biosciences Corp., et. al. Wright v. Martek Biosciences Corp., et. al. Epstein v.
Martek Biosciences Corp., et. al., Fujitake v. Martek Biosciences Corp.,
et. al. Peterson v. Martek Biosciences Corporation, et. al., In re Martek Biosciences Corp. Securities Litigation
  29




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##### 



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  30




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##### 



PART II
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
  Sales Price Range of Common Stock
 Fiscal 2004
    
    High
    
    LowNovember 1, 2003 - January 31, 2004
    
    $
    69.10
    
    
    $
    46.46February 1, 2004 - April 30, 2004
    
    $
    73.36
    
    
    $
    55.80May 1, 2004 - July 31, 2004
    
    $
    72.69
    
    
    $
    44.51August 1, 2004 - October 31, 2004
    
    $
    58.95
    
    
    $
    43.89
 Fiscal 2005
    
    High
    
    LowNovember 1, 2004- January 31, 2005
    
    $
    53.85
    
    
    $
    38.50February 1, 2005  April 30, 2005
    
    $
    70.50
    
    
    $
    32.00May 1, 2005 - July 31, 2005
    
    $
    46.23
    
    
    $
    33.57August 1, 2005 - October 31, 2005
    
    $
    52.48
    
    
    $
    28.20
  31




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##### 



ITEM 6. SELECTED FINANCIAL DATA.
   Year ended October 31,In thousands, except per share data
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Consolidated Statements of Operations DataRevenuesProduct sales
    
    $
    203,765
    
    
    $
    170,565
    
    
    $
    112,298
    
    
    $
    46,055
    
    
    $
    18,824Contract manufacturing sales
    
    
    14,087
    
    
    
    13,928
    
    
    
    2,439
    
    
    
    
    
    
    
    Total revenues
    
    
    217,852
    
    
    
    184,493
    
    
    
    114,737
    
    
    
    46,055
    
    
    
    18,824Costs and expensesCost of product sales
    
    
    120,865
    
    
    
    103,423
    
    
    
    66,347
    
    
    
    29,794
    
    
    
    12,554Cost of contract manufacturing sales
    
    
    12,516
    
    
    
    11,570
    
    
    
    2,192
    
    
    
    
    
    
    
    Research and development
    
    
    20,468
    
    
    
    18,596
    
    
    
    13,154
    
    
    
    12,188
    
    
    
    12,705Selling, general and administrative
    
    
    33,404
    
    
    
    25,804
    
    
    
    16,275
    
    
    
    11,804
    
    
    
    7,969Other operating expenses
    
    
    7,654
    
    
    
    4,000
    
    
    
    1,943
    
    
    
    406
    
    
    
    565Restructuring charge
    
    
    
    
    
    
    
    
    
    
    (250
    )
    
    
    1,266
    
    
    
    Acquired in-process research and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,788
    
    
    
    Total costs and expenses
    
    
    194,907
    
    
    
    163,393
    
    
    
    99,661
    
    
    
    71,246
    
    
    
    33,793Income (loss) from operations
    
    
    22,945
    
    
    
    21,100
    
    
    
    15,076
    
    
    
    (25,191
    )
    
    
    (14,969
    )Other income, net
    
    
    1,125
    
    
    
    772
    
    
    
    916
    
    
    
    958
    
    
    
    1,267Income (loss) before income tax provision (benefit)
    
    
    24,070
    
    
    
    21,872
    
    
    
    15,992
    
    
    
    (24,233
    )
    
    
    (13,702
    )Income tax provision (benefit)
    
    
    8,786
    
    
    
    (25,176
    )
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    15,284
    
    
    $
    47,048
    
    
    $
    15,992
    
    
    $
    (24,233
    )
    
    $
    (13,702
    )Net income (loss) per share, basic
    
    $
    0.49
    
    
    $
    1.62
    
    
    $
    0.63
    
    
    $
    (1.10
    )
    
    $
    (0.73
    )Net income (loss) per share, diluted
    
    $
    0.48
    
    
    $
    1.55
    
    
    $
    0.58
    
    
    $
    (1.10
    )
    
    $
    (0.73
    )Shares used in computing basic earnings per share
    
    
    31,164
    
    
    
    29,033
    
    
    
    25,510
    
    
    
    21,982
    
    
    
    18,864Shares used in computing diluted earnings per share
    
    
    32,032
    
    
    
    30,386
    
    
    
    27,417
    
    
    
    21,982
    
    
    
    18,864
 October 31,2005
    
    2004
    
    2003
    
    2002
    
    2001Consolidated Balance Sheets and Other DataCash, cash equivalents, short-term investments and marketable securities
    
    $
    33,347
    
    
    $
    42,650
    
    
    $
    96,971
    
    
    $
    22,419
    
    
    $
    26,682Working capital
    
    
    124,208
    
    
    
    68,195
    
    
    
    106,218
    
    
    
    30,457
    
    
    
    31,501Total assets
    
    
    578,485
    
    
    
    501,398
    
    
    
    295,523
    
    
    
    124,312
    
    
    
    56,603Long-term debt, notes payable and other long-term obligations
    
    
    66,115
    
    
    
    97,175
    
    
    
    10,441
    
    
    
    
    
    
    
    Long-term portion of unearned revenue
    
    
    8,959
    
    
    
    9,140
    
    
    
    8,992
    
    
    
    2,246
    
    
    
    2,353Accumulated deficit
    
    
    (49,236
    )
    
    
    (64,520
    )
    
    
    (111,568
    )
    
    
    (127,560
    )
    
    
    (103,327
    )Total stockholders equity
    
    
    469,205
    
    
    
    346,164
    
    
    
    243,964
    
    
    
    105,977
    
    
    
    46,701Cash dividends declared  common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 32




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##### 



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 This Managements Discussion and Analysis of Financial Condition and Results of Operations contains
forward-looking statements concerning our business and operations, including, among other things,
statements concerning the following:
 
    
    expectations regarding future revenue growth, product introductions, growth in
nutritional product sales, margin and productivity improvements and potential
collaborations and acquisitions;
    
    expectations regarding sales to and by our infant formula licensees;
    
    expectations regarding marketing of our oils by our infant formula licensees;
    
    expectations regarding future efficiencies in manufacturing processes and the cost of production of our nutritional oils;
    
    expectations regarding future purchases of third-party manufactured oils;
    
    expectations regarding the amount of production capacity and our ability to meet future demands for our nutritional oils;
    
    expectations regarding the effects of excess production capacity;
    
    expectations regarding future research and development costs;
    
    expectations regarding additional capital expenditures needed in relation to our fermentation and oil processing activities;
    
    expectations regarding possibly significant expenses to defend putative securities
class action lawsuits alleging false and material misstatements and omissions of
material facts concerning our business and prospects; and
    
    expectations regarding our ability to protect our intellectual property.
 Forward-looking statements include those statements containing words such as the following:
 
    
    will,
    
    should,
    
    could,
    
    anticipate,
    
    believe,
    
    plan,
    
    estimate,
    
    expect,
    
    intend, and other similar expressions.
 All of these forward-looking statements involve risks and uncertainties. They and other
forward-looking statements in this annual report are all made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. We wish to caution you that our
actual results may differ significantly from the results we discuss in our forward-looking
statements. We discuss some of the risks that could cause such differences in Item 1A. Risk Factors
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
  ®
 33




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##### 




    
    Mead Johnson launched Expecta LIPIL®, a DHA supplement for pregnant and nursing women containing Martek DHA.
    
    PBM Products launched a beverage containing Martek DHA that is formulated for
diabetics and people with atypical glucose tolerance.
    
    GlaxoSmithKline launched a second powdered drink mix containing Martek DHA in India.
The product, Junior Horlicks, is formulated for a childs developing brain and nervous
system. GlaxoSmithKline has previously launched an adult DHA beverage.
    
    First Horizon Pharmaceutical® has recently launched OptiNate and Mission Pharmacal will
soon launch CITRACAL® Prenatal + DHA. Both of these products are prescription prenatal
supplements containing Martek DHA.
    
    Vincent Foods, LLC has begun offering Oh Mama! nutrition bars containing Martek DHA,
which also target pregnant and nursing women.
    
    Several egg producers, including Gold Circle Farms®, are now offering eggs and liquid
eggs using Martek DHA. These eggs are sold in several grocery store chains in the U.S.
and Europe.
    
    Priégola has launched Simbi + Omega-3 yogurt with Martek DHA, which is now available
in major supermarket chains throughout Spain and is being marketed to children and adults
for its brain health benefits.
   
    
    the timing of infant formula market introductions by our licensees both domestically and
internationally;
    
    the timing and extent of stocking and destocking of inventory by our licensees,
including the potential that licensees will move to just in time inventory purchasing now
that we have reached a base finished goods inventory level;
    
    the timing and extent of introductions of DHA into various child and/or adult applications;
    
    the continued acceptance of products containing our oils under state-administered reimbursement programs in the U.S.;
    
    the continued acceptance of these products by consumers and continued demand by our customers;
    
    the ability by us, DSM and other third-party manufacturers to produce adequate levels of our nutritional oils on a consistent basis;
    
    our ability to protect against competitive products through our patents;
    
    competition from alternative sources of DHA and ARA; and
    
    agreements with other future third-party collaborators to market our products or develop new products.
 
 34




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##### 



CRITICAL ACCOUNTING POLICIES AND
THE USE OF ESTIMATES
  Valuation of Long-lived Assets
 Revenue Recognition
  Deferred Income Taxes
 Inventory
 Stock-Based Compensation
 MANAGEMENT OUTLOOK
  35




---



##### 



PRODUCTION
       36




---



##### 



ACQUISITIONS AND DISPOSITIONS
    RESULTS OF OPERATIONS
 Revenues
 Year ended October 31,2005
    
    2004
    
    2003Product sales
    
    $
    203,765
    
    
    $
    170,565
    
    
    $
    112,298Contract manufacturing sales
    
    
    14,087
    
    
    
    13,928
    
    
    
    2,439Total revenues
    
    $
    217,852
    
    
    $
    184,493
    
    
    $
    114,737
   37




---



##### 



Cost and Expenses
 Year ended October 31,2005
    
    2004
    
    2003Cost of revenue:Cost of product sales
    
    $
    120,865
    
    
    $
    103,423
    
    
    $
    66,347Cost of contract manufacturing sales
    
    
    12,516
    
    
    
    11,570
    
    
    
    2,192Operating expenses:Research and development
    
    
    20,468
    
    
    
    18,596
    
    
    
    13,154Selling, general and administrative
    
    
    33,404
    
    
    
    25,804
    
    
    
    16,275Other operating expenses
    
    
    7,654
    
    
    
    4,000
    
    
    
    1,943Restructuring charge
    
    
    
    
    
    
    
    
    
    
    (250
    )Total costs and expenses
    
    $
    194,907
    
    
    $
    163,393
    
    
    $
    99,661
 Cost of Product Sales
   Cost of Contract Manufacturing Sales
 Research and Development
  Selling, General and Administrative
  38




---



##### 



Other Operating Expenses
 Other Income, Net
 Income Tax Provision (Benefit)
   Net Income
 RECENTLY ISSUED
ACCOUNTING PRONOUNCEMENTS
   39




---



##### 



LIQUIDITY AND CAPITAL RESOURCES
  
    
    cash generated from operations;
    
    proceeds from the sale of equity securities;
    
    cash received from the exercise of stock options and warrants; and
    
    debt financing.
     Less than
    
    
    1-3
    
    
    3-5
    
    
    More thanIn thousands
    
    Total
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 yearsNotes payable(1)
    
    $
    12,565
    
    
    $
    1,188
    
    
    $
    2,319
    
    
    $
    8,126
    
    
    $
    932Borrowings under revolving credit facility
    
    
    55,000
    
    
    
    
    
    
    
    
    
    
    
    55,000
    
    
    
    Operating lease obligations
    
    
    15,448
    
    
    
    3,576
    
    
    
    7,131
    
    
    
    4,181
    
    
    
    560DSM license fee and other obligations
    
    
    2,750
    
    
    
    2,333
    
    
    
    417
    
    
    
    
    
    
    
    Unconditional inventory purchase obligations
    
    
    15,417
    
    
    
    8,527
    
    
    
    6,890
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    101,180
    
    
    $
    15,624
    
    
    $
    16,757
    
    
    $
    67,307
    
    
    $
    1,492
 
 (1)
    
    Minimum payments above include interest and principal due under these notes.    40




---



##### 




    
    the cost and extent of capital expenditures at our manufacturing facilities;
    
    growth in our infant formula, food and beverage and other nutritional product sales;
    
    the extent and progress of our research and development programs;
    
    the progress of pre-clinical and clinical studies;
    
    the time and costs of obtaining and maintaining regulatory clearances for our products that are subject to such clearances;
    
    the costs involved in filing, protecting and enforcing patent claims;
    
    competing technological and market developments;
    
    the development or acquisition of new products;
    
    the cost of acquiring additional and/or operating and expanding existing manufacturing
facilities for our various products and potential products (depending on which products we
decide to manufacture and continue to manufacture ourselves);
    
    the costs associated with our internal build-up of inventory levels;
    
    the costs associated with our defense against putative securities class action lawsuits; and
    
    the costs of marketing and commercializing our products.
  OFF-BALANCE SHEET ARRANGEMENTS
    41




---



##### 



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
    42




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##### 



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
    
    PAGEManagements Report on Internal Control Over Financial Reporting
    
    
    44Report of Ernst &Young LLP, Independent Registered Public Accounting
Firm
    
    
    45Report of Ernst & Young LLP, Independent Registered Public Accounting
Firm, on Internal Control Over Financial Reporting
    
    
    46Consolidated Balance Sheets as of October 31, 2005 and 2004
    
    
    47Consolidated Statements of Income for the years ended
October 31, 2005, 2004 and 2003
    
    
    48Consolidated Statements of Stockholders Equity for the years
ended October 31, 2005, 2004 and 2003
    
    
    49Consolidated Statements of Cash Flows for the years ended
October 31, 2005, 2004 and 2003
    
    
    50Notes to Consolidated Financial Statements
    
    
    51
 43




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##### 



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  Internal
ControlIntegrated Framewor Internal ControlIntegrated Framework
  /s/ Henry Linsert, Jr.
    
    /s/ Peter L. BuzyHenry Linsert, Jr.
    
    Peter L. BuzyChief Executive Officer and Director
    
    Chief Financial Officer and TreasurerJanuary 6, 2006
    
    January 6, 2006
 44




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##### 



REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal
Control-Integrated Framework
 /s/ Ernst & Young LLPMcLean, VirginiaJanuary 6, 2006
 45




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##### 



REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
 
 Internal ControlIntegrated Framework
      /s/ Ernst & Young LLPMcLean, VirginiaJanuary 6, 2006
 46




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##### 



MARTEK BIOSCIENCES CORPORATION
  October 31,In thousands, except share and per share data
    
    2005
    
    
    2004AssetsCurrent assetsCash and cash equivalents
    
    $
    11,047
    
    
    $
    29,445Short-term investments and marketable securities
    
    
    22,300
    
    
    
    13,205Accounts receivable, net
    
    
    27,603
    
    
    
    37,292Inventories, net
    
    
    91,535
    
    
    
    30,379Other current assets
    
    
    5,929
    
    
    
    6,793Total current assets
    
    
    158,414
    
    
    
    117,114Property, plant and equipment, net
    
    
    290,733
    
    
    
    255,430Deferred tax asset
    
    
    48,201
    
    
    
    49,378Goodwill
    
    
    48,490
    
    
    
    48,175Other intangible assets, net
    
    
    31,129
    
    
    
    29,994Other assets, net
    
    
    1,518
    
    
    
    1,307Total assets
    
    $
    578,485
    
    
    $
    501,398Liabilities and stockholders equityCurrent liabilitiesAccounts payable
    
    $
    16,661
    
    
    $
    31,264Accrued liabilities
    
    
    13,692
    
    
    
    10,678Current portion of notes payable and other long-term obligations
    
    
    3,113
    
    
    
    4,946Current portion of unearned revenue
    
    
    740
    
    
    
    2,031Total current liabilities
    
    
    34,206
    
    
    
    48,919Long-term debt under revolving credit facility
    
    
    55,000
    
    
    
    85,000Notes payable and other long-term obligations
    
    
    11,115
    
    
    
    12,175Long-term portion of unearned revenue
    
    
    8,959
    
    
    
    9,140Total liabilities
    
    
    109,280
    
    
    
    155,234CommitmentsStockholders equityPreferred stock, $.01 par value, 4,700,000 shares authorized; none issued or outstanding
    
    
    
    
    
    
    Series A junior participating preferred stock, $.01 par value; 300,000 shares authorized; none issued or outstanding
    
    
    
    
    
    
    Common stock, $.10 par value; 100,000,000 shares authorized; 32,026,595 and 29,491,127 shares issued and
outstanding, respectively
    
    
    3,203
    
    
    
    2,949Additional paid-in capital
    
    
    515,237
    
    
    
    407,667Accumulated other comprehensive income
    
    
    1
    
    
    
    68Accumulated deficit
    
    
    (49,236
    )
    
    
    (64,520
    )Total stockholders equity
    
    
    469,205
    
    
    
    346,164Total liabilities and stockholders equity
    
    $
    578,485
    
    
    $
    501,398
 See accompanying notes.
 47




---



##### 



MARTEK BIOSCIENCES CORPORATION
  Year ended October 31,In thousands, except share and per share data
    
    2005
    
    
    2004
    
    
    2003RevenuesProduct sales
    
    $
    203,765
    
    
    $
    170,565
    
    
    $
    112,298Contract manufacturing sales
    
    
    14,087
    
    
    
    13,928
    
    
    
    2,439Total revenues
    
    
    217,852
    
    
    
    184,493
    
    
    
    114,737Costs and expensesCost of product sales
    
    
    120,865
    
    
    
    103,423
    
    
    
    66,347Cost of contract manufacturing sales
    
    
    12,516
    
    
    
    11,570
    
    
    
    2,192Research and development
    
    
    20,468
    
    
    
    18,596
    
    
    
    13,154Selling, general and administrative
    
    
    33,404
    
    
    
    25,804
    
    
    
    16,275Other operating expenses
    
    
    7,654
    
    
    
    4,000
    
    
    
    1,943Restructuring charge
    
    
    
    
    
    
    
    
    
    
    (250
    )Total costs and expenses
    
    
    194,907
    
    
    
    163,393
    
    
    
    99,661Income from operations
    
    
    22,945
    
    
    
    21,100
    
    
    
    15,076Other income, netInterest and other income
    
    
    1,428
    
    
    
    777
    
    
    
    1,000Interest expense
    
    
    (303
    )
    
    
    (5
    )
    
    
    (84
    )Total other income, net
    
    
    1,125
    
    
    
    772
    
    
    
    916Income before income tax provision (benefit)
    
    
    24,070
    
    
    
    21,872
    
    
    
    15,992Income tax provision (benefit)
    
    
    8,786
    
    
    
    (25,176
    )
    
    
    Net income
    
    $
    15,284
    
    
    $
    47,048
    
    
    $
    15,992Net income per shareBasic
    
    $
    0.49
    
    
    $
    1.62
    
    
    $
    0.63Diluted
    
    $
    0.48
    
    
    $
    1.55
    
    
    $
    0.58Weighted average common shares outstandingBasic
    
    
    31,164,149
    
    
    
    29,033,241
    
    
    
    25,510,376Diluted
    
    
    32,031,503
    
    
    
    30,385,707
    
    
    
    27,416,757
 See accompanying notes.
 48




---



##### 



MARTEK BIOSCIENCES CORPORATION
  AccumulatedAdditional
    
    
    OtherCommon Stock
    
    
    Paid-in
    
    
    Comprehensive
    
    
    AccumulatedIn thousands, except share data
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Income
    
    
    Deficit
    
    
    TotalBalance at October 31, 2002
    
    
    23,331,091
    
    
    $
    2,333
    
    
    $
    231,204
    
    
    $
    
    
    
    $
    (127,560
    )
    
    $
    105,977Issuance of common stock, net of issuance costs
    
    
    2,922,250
    
    
    
    292
    
    
    
    82,903
    
    
    
    
    
    
    
    
    
    
    
    83,195Common stock issued in connection with
acquisition of OmegaTech
    
    
    358,566
    
    
    
    36
    
    
    
    14,116
    
    
    
    
    
    
    
    
    
    
    
    14,152Common stock issued in connection with
acquisition of FermPro
    
    
    124,788
    
    
    
    12
    
    
    
    5,578
    
    
    
    
    
    
    
    
    
    
    
    5,590Exercise of stock options and warrants
    
    
    1,304,628
    
    
    
    131
    
    
    
    18,907
    
    
    
    
    
    
    
    
    
    
    
    19,038Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    20Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,992
    
    
    
    15,992Other comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,992Balance at October 31, 2003
    
    
    28,041,323
    
    
    
    2,804
    
    
    
    352,728
    
    
    
    
    
    
    
    (111,568
    )
    
    
    243,964Issuance of common stock, net of issuance costs
    
    
    176,885
    
    
    
    18
    
    
    
    11,272
    
    
    
    
    
    
    
    
    
    
    
    11,290Exercise of stock options and warrants
    
    
    1,272,919
    
    
    
    127
    
    
    
    20,817
    
    
    
    
    
    
    
    
    
    
    
    20,944Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    28Tax benefit of exercise of non-qualified stock options
    
    
    
    
    
    
    
    
    
    
    22,822
    
    
    
    
    
    
    
    
    
    
    
    22,822Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,048
    
    
    
    47,048Other comprehensive income:Unrealized gain on exchange rate forward
contract
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68
    
    
    
    
    
    
    
    68Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,116Balance at October 31, 2004
    
    
    29,491,127
    
    
    
    2,949
    
    
    
    407,667
    
    
    
    68
    
    
    
    (64,520
    )
    
    
    346,164Issuance of common stock, net of issuance costs
    
    
    1,756,614
    
    
    
    176
    
    
    
    81,268
    
    
    
    
    
    
    
    
    
    
    
    81,444Exercise of stock options
    
    
    778,854
    
    
    
    78
    
    
    
    18,592
    
    
    
    
    
    
    
    
    
    
    
    18,670Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    36Tax benefit of exercise of non-qualified stock options
    
    
    
    
    
    
    
    
    
    
    7,674
    
    
    
    
    
    
    
    
    
    
    
    7,674Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,284
    
    
    
    15,284Other comprehensive income:Unrealized loss on exchange rate forward
contract
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (67
    )
    
    
    
    
    
    
    (67
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,217Balance at October 31, 2005
    
    
    32,026,595
    
    
    $
    3,203
    
    
    $
    515,237
    
    
    $
    1
    
    
    $
    (49,236
    )
    
    $
    469,205
 See accompanying notes.
 49




---



##### 



MARTEK BIOSCIENCES CORPORATION
  Year ended October 31,In thousands
    
    2005
    
    
    2004
    
    
    2003Operating activitiesNet income
    
    $
    15,284
    
    
    $
    47,048
    
    
    $
    15,992Adjustments to reconcile net income to net cash (used in) provided by operating activities:Depreciation and amortization
    
    
    16,494
    
    
    
    8,687
    
    
    
    4,480Provision for inventory obsolescence
    
    
    2,000
    
    
    
    500
    
    
    
    339Deferred tax provision (benefit)
    
    
    8,786
    
    
    
    (25,176
    )
    
    
    Loss on disposal of assets and other
    
    
    1,131
    
    
    
    169
    
    
    
    217Changes in operating assets and liabilities:Accounts receivable
    
    
    9,689
    
    
    
    (17,128
    )
    
    
    (8,214
    )Inventories
    
    
    (63,156
    )
    
    
    (15,525
    )
    
    
    (3,047
    )Other assets
    
    
    1,413
    
    
    
    1,324
    
    
    
    (3,332
    )Accounts payable
    
    
    (10,303
    )
    
    
    9,150
    
    
    
    11,822Accrued liabilities
    
    
    2,947
    
    
    
    1,552
    
    
    
    1,266Unearned revenue and other liabilities
    
    
    (1,429
    )
    
    
    (511
    )
    
    
    5,065Net cash (used in) provided by operating activities
    
    
    (17,144
    )
    
    
    10,090
    
    
    
    24,588Investing activities(Purchase) sale of short-term investments and marketable securities, net
    
    
    (9,095
    )
    
    
    53,842
    
    
    
    (65,047
    )Expenditures for property, plant and equipment
    
    
    (57,181
    )
    
    
    (180,409
    )
    
    
    (45,219
    )Proceeds from sale-leaseback transaction and other
    
    
    4,272
    
    
    
    10,895
    
    
    
    Capitalization of intangible and other assets
    
    
    (4,674
    )
    
    
    (9,028
    )
    
    
    (1,002
    )Cash impact of FermPro and OmegaTech acquisitions, net
    
    
    (315
    )
    
    
    (355
    )
    
    
    (5,038
    )Net cash used in investing activities
    
    
    (66,993
    )
    
    
    (125,055
    )
    
    
    (116,306
    )Financing activitiesRepayments of notes payable and other long-term obligations
    
    
    (4,875
    )
    
    
    (2,748
    )
    
    
    (1,010
    )Proceeds from the issuance of common stock, net of issuance costs
    
    
    81,444
    
    
    
    11,290
    
    
    
    83,195Proceeds from the exercise of stock options and warrants
    
    
    18,670
    
    
    
    20,944
    
    
    
    19,038(Repayments) borrowings under revolving credit facility, net
    
    
    (30,000
    )
    
    
    85,000
    
    
    
    Other
    
    
    500
    
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    65,739
    
    
    
    114,486
    
    
    
    101,223Net (decrease) increase in cash and cash equivalents
    
    
    (18,398
    )
    
    
    (479
    )
    
    
    9,505Cash and cash equivalents, beginning of year
    
    
    29,445
    
    
    
    29,924
    
    
    
    20,419Cash and cash equivalents, end of year
    
    $
    11,047
    
    
    $
    29,445
    
    
    $
    29,924Supplemental cash flow disclosures:Interest paid
    
    $
    3,528
    
    
    $
    2,084
    
    
    $
    80Notes payable issued in acquisition of land
    
    $
    800
    
    
    $
    
    
    
    $
    Purchase of DSM license through long-term obligation
    
    $
    
    
    
    $
    6,000
    
    
    $
    Common stock issued related to the acquisition of OmegaTech
    
    $
    
    
    
    $
    
    
    
    $
    14,152Common stock issued related to the acquisition of FermPro
    
    $
    
    
    
    $
    
    
    
    $
    5,590Income taxes paid
    
    $
    
    
    
    $
    
    
    
    $
    150
 See accompanying notes.
 50




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
     2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
 Use of Estimates
 Segment Information
 Revenue Recognition
  51




---



##### 



Foreign Currency Transactions and Hedging Activities
  Research and Development
 Other Operating Expenses
 Deferred Income Taxes
 Net Income Per Share
 Comprehensive Income
 Cash and Cash Equivalents
 Short-Term Investments and Marketable Securities
  Fair Value of Financial Instruments
 Trade Receivables
 52




---



##### 



Concentration of Credit Risk and Significant Customers
 Inventories
 Property, Plant and Equipment
 Asset Description
    
    Useful Life (years)Building
    
    15 - 30Fermentation equipment
    
    10  20Oil processing equipment
    
    10  20Other machinery and equipment
    
    5  10Furniture and fixtures
    
    5  7Computer hardware and software
    
    3  7
  Goodwill and Other Intangible Assets
 Impairment of Long-Lived Assets
 Stock-Based Compensation
  53




---



##### 



Year ended October 31,2005
    
    
    2004
    
    
    2003Net income, as reported
    
    $
    15,284
    
    
    $
    47,048
    
    
    $
    15,992Deduct: Total stock-based employee compensation expense
determined under fair value-based methods for all awards
    
    
    (58,349
    )
    
    
    (17,920
    )
    
    
    (15,815
    )Pro forma net income (loss)
    
    $
    (43,065
    )
    
    $
    29,128
    
    
    $
    177Net income (loss) per share:Basic  as reported
    
    $
    0.49
    
    
    $
    1.62
    
    
    $
    0.63Basic  pro forma
    
    $
    (1.38
    )
    
    $
    1.00
    
    
    $
    0.01Diluted  as reported
    
    $
    0.48
    
    
    $
    1.55
    
    
    $
    0.58Diluted  pro forma
    
    $
    (1.38
    )
    
    $
    0.96
    
    
    $
    0.01
  Reclassification
 Recently Issued Accounting Pronouncements
  54




---



##### 



3. ACQUISITION OF OMEGATECH, INC.
     4. ACQUISITION OF FERMPRO MANUFACTURING, LP
     Accounts receivable and inventory
    
    $
    5,625Property, plant and equipment
    
    
    9,477Goodwill
    
    
    11,578Other assets
    
    
    2,183Accounts payable and accrued liabilities
    
    
    (3,123
    )Deferred revenue
    
    
    (2,585
    )Notes payable
    
    
    (10,939
    )Total purchase price
    
    $
    12,216
  55




---



##### 



For the year endedOctober 31, 2003Revenues
    
    $
    124,000Net income
    
    $
    16,000Net income per share, basic
    
    $
    0.64Net income per share, diluted
    
    $
    0.59Weighted average shares outstanding, basic
    
    
    25,616Weighted average shares outstanding, diluted
    
    
    27,658
 5. DSM SUPPLY AND LICENSE AGREEMENT
  6. SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
  7. INVENTORIES
  October 31,2005
    
    
    2004Finished goods
    
    $
    34,328
    
    
    $
    7,648Work in process
    
    
    55,073
    
    
    
    21,350Raw materials
    
    
    3,634
    
    
    
    2,381Total inventory
    
    
    93,035
    
    
    
    31,379Less: inventory reserve
    
    
    (1,500
    )
    
    
    (1,000
    )Inventories, net
    
    $
    91,535
    
    
    $
    30,379
 56




---



##### 



8. PROPERTY, PLANT AND EQUIPMENT
  October 31,2005
    
    
    2004Land
    
    $
    2,318
    
    
    $
    712Building and improvements
    
    
    45,515
    
    
    
    29,421Machinery and equipment
    
    
    164,039
    
    
    
    133,886Furniture and fixtures
    
    
    3,161
    
    
    
    2,772Computer hardware and software
    
    
    8,085
    
    
    
    5,173Construction in progress
    
    
    56,840
    
    
    
    104,053Assets held for future use
    
    
    37,539
    
    
    
    Property, plant and equipment
    
    
    317,497
    
    
    
    276,017Less: accumulated depreciation and amortization
    
    
    (26,764
    )
    
    
    (20,587
    )Property, plant and equipment, net
    
    $
    290,733
    
    
    $
    255,430
   9. GOODWILL AND OTHER INTANGIBLE ASSETS
  October 31, 2005
    
    
    October 31, 2004Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedIntangible Asset
    
    Gross
    
    
    Amortization
    
    
    Net
    
    
    Gross
    
    
    Amortization
    
    
    NetTrademarks
    
    $
    2,026
    
    
    $
    (401
    )
    
    $
    1,625
    
    
    $
    2,023
    
    
    $
    (284
    )
    
    $
    1,739Patents
    
    
    11,741
    
    
    
    (1,734
    )
    
    
    10,007
    
    
    
    8,409
    
    
    
    (1,226
    )
    
    
    7,183Core technology
    
    
    1,708
    
    
    
    (342
    )
    
    
    1,366
    
    
    
    1,708
    
    
    
    (228
    )
    
    
    1,480Current products
    
    
    10,676
    
    
    
    (2,516
    )
    
    
    8,160
    
    
    
    10,676
    
    
    
    (1,805
    )
    
    
    8,871Licenses
    
    
    11,091
    
    
    
    (1,120
    )
    
    
    9,971
    
    
    
    11,091
    
    
    
    (370
    )
    
    
    10,721Goodwill
    
    
    48,490
    
    
    
    
    
    
    
    48,490
    
    
    
    48,175
    
    
    
    
    
    
    
    48,175$
    85,732
    
    
    $
    (6,113
    )
    
    $
    79,619
    
    
    $
    82,082
    
    
    $
    (3,913
    )
    
    $
    78,169
   57




---



##### 



10. ACCRUED LIABILITIES
  October 31,2005
    
    
    2004Salaries and employee benefits
    
    $
    7,214
    
    
    $
    6,105Other
    
    
    6,478
    
    
    
    4,573$
    13,692
    
    
    $
    10,678
 11. NOTES PAYABLE AND LONG-TERM DEBT
    Fiscal Year2006
    
    $
    6632007
    
    
    6782008
    
    
    6862009
    
    
    7,7772010
    
    
    55,183Subsequent to 2010
    
    
    726$
    65,713
   12. COMMITMENTS AND CONTINGENCIES
 Leases
 58




---



##### 



Fiscal Year2006
    
    $
    3,5762007
    
    
    3,6072008
    
    
    3,5242009
    
    
    3,4222010
    
    
    759After 2010
    
    
    560$
    15,448
 Scientific Research Collaborations
  Purchase Commitments
  Kentucky Wastewater Matter
  Class Action Lawsuits
 59




---



##### 



Other
 13. LICENSE AGREEMENTS
  14. NET INCOME PER SHARE
   Year ended October 31,2005
    
    
    2004
    
    
    2003Net income
    
    $
    15,284
    
    
    $
    47,048
    
    
    $
    15,992Weighted average shares outstanding, basic
    
    
    31,164
    
    
    
    29,033
    
    
    
    25,510Effect of dilutive potential common shares:Employee stock options
    
    
    849
    
    
    
    1,315
    
    
    
    1,821Warrants
    
    
    19
    
    
    
    38
    
    
    
    86Total dilutive potential common shares
    
    
    868
    
    
    
    1,353
    
    
    
    1,907Weighted average shares outstanding, diluted
    
    
    32,032
    
    
    
    30,386
    
    
    
    27,417Net income per share, basic
    
    $
    0.49
    
    
    $
    1.62
    
    
    $
    0.63Net income per share, diluted
    
    $
    0.48
    
    
    $
    1.55
    
    
    $
    0.58
  15. STOCKHOLDERS EQUITY
 Issuance of Common Stock
    Stock Option Plan
  60




---



##### 



Number of
    
    
    Weighted AverageShares
    
    
    Price/ShareOptions outstanding at October 31, 2002
    
    
    4,158
    
    
    $
    17.82Options exercisable at October 31, 2002
    
    
    2,603
    
    
    $
    15.74Granted
    
    
    1,112
    
    
    $
    33.85Exercised
    
    
    (977
    )
    
    $
    13.68Canceled
    
    
    (101
    )
    
    $
    28.34Options outstanding at October 31, 2003
    
    
    4,192
    
    
    $
    22.68Options exercisable at October 31, 2003
    
    
    2,412
    
    
    $
    18.50Granted
    
    
    1,067
    
    
    $
    59.60Exercised
    
    
    (1,188
    )
    
    $
    16.39Canceled
    
    
    (71
    )
    
    $
    36.39Options outstanding at October 31, 2004
    
    
    4,000
    
    
    $
    34.11Options exercisable at October 31, 2004
    
    
    2,088
    
    
    $
    26.53Granted
    
    
    700
    
    
    $
    48.69Exercised
    
    
    (771
    )
    
    $
    24.10Canceled
    
    
    (47
    )
    
    $
    44.79Options outstanding at October 31, 2005
    
    
    3,882
    
    
    $
    38.60Options exercisable at October 31, 2005
    
    
    3,396
    
    
    $
    40.40
    OPTIONS OUTSTANDING
    
    
    OPTIONS EXERCISABLEWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageRange of
    
    Options
    
    
    Contractual
    
    
    Exercise
    
    
    Options
    
    
    ExerciseExercise Prices
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Price(years)$6.25  $9.37
    
    
    53,560
    
    
    
    3.5
    
    
    $
    7.39
    
    
    
    53,560
    
    
    $
    7.39$9.38  $14.07
    
    
    134,679
    
    
    
    4.2
    
    
    $
    11.87
    
    
    
    134,679
    
    
    $
    11.87$14.08  $21.12
    
    
    596,859
    
    
    
    5.5
    
    
    $
    16.55
    
    
    
    446,609
    
    
    $
    16.32$21.13  $31.69
    
    
    1,203,740
    
    
    
    7.0
    
    
    $
    27.66
    
    
    
    932,070
    
    
    $
    28.01$31.70  $47.55
    
    
    189,975
    
    
    
    6.6
    
    
    $
    39.15
    
    
    
    160,965
    
    
    $
    39.65$47.56  $68.08
    
    
    1,703,103
    
    
    
    8.6
    
    
    $
    57.09
    
    
    
    1,668,103
    
    
    $
    57.193,881,916
    
    
    
    7.3
    
    
    $
    38.60
    
    
    
    3,395,986
    
    
    $
    40.40
 61




---



##### 



Directors Stock Option Plan
 Pro Forma Disclosure
 Year ended October 31,2005
    
    2004
    
    2003Expected volatility
    
    
    62.7
    %
    
    
    78.9
    %
    
    
    71.2
    %Risk-free interest rate
    
    
    3.9
    %
    
    
    3.9
    %
    
    
    3.5
    %Expected average life of options
    
    5 years
    
    5 years
    
    7 yearsExpected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 Stockholder Rights Plan
     16. INCOME TAXES
  Year ended October 31,2005
    
    
    2004
    
    
    2003Federal income tax expense
(benefit) at 35% in 2005 and 2004
and 34% in 2003
    
    $
    8,425
    
    
    $
    7,656
    
    
    $
    5,438State taxes, net of Federal benefit
    
    
    361
    
    
    
    761
    
    
    
    400Change in valuation allowance
    
    
    
    
    
    
    (33,593
    )
    
    
    (5,838
    )Total provision (benefit)
    
    $
    8,786
    
    
    $
    (25,176
    )
    
    $
    
  62




---



##### 



October 31,2005
    
    
    2004Deferred tax assets:Accruals and reserves
    
    $
    1,408
    
    
    $
    1,342Patents and trademarks
    
    
    528
    
    
    
    335Net operating loss carryforwards
    
    
    77,833
    
    
    
    75,061Deferred revenue
    
    
    3,494
    
    
    
    3,643Other
    
    
    214
    
    
    
    257Total assets
    
    
    83,477
    
    
    
    80,638Deferred tax liabilities:Property, plant and equipment
    
    
    (5,958
    )
    
    
    (3,522
    )Acquired intangibles
    
    
    (3,507
    )
    
    
    (3,933
    )Goodwill
    
    
    (559
    )
    
    
    (316
    )Total liabilities
    
    
    (10,024
    )
    
    
    (7,771
    )Total deferred tax asset
    
    
    73,453
    
    
    
    72,867Valuation allowance
    
    
    (23,832
    )
    
    
    (22,077
    )Deferred tax asset, net of valuation allowance
    
    
    49,621
    
    
    
    50,790Less: current deferred tax asset
    
    
    (1,420
    )
    
    
    (1,412
    )Long-term deferred tax asset
    
    $
    48,201
    
    
    $
    49,378
   17. EMPLOYEE 401(K) PLAN
  63




---



##### 



18. QUARTERLY FINANCIAL INFORMATION (unaudited)
  1st
    
    2nd
    
    3rd
    
    4thQuarter
    
    Quarter
    
    Quarter
    
    Quarter2005Total revenues
    
    $
    66,489
    
    
    $
    55,831
    
    
    $
    39,489
    (1)
    
    $
    56,043Cost of sales
    
    
    38,906
    
    
    
    35,377
    
    
    
    25,690
    
    
    
    33,408Income (loss) from operations
    
    
    11,137
    
    
    
    4,951
    
    
    
    (587
    )(1)
    
    
    7,444Net income (loss)
    
    
    7,072
    
    
    
    3,433
    
    
    
    (109
    )(1)
    
    
    4,888Net income (loss) per share, basic
    
    
    0.24
    
    
    
    0.11
    
    
    
    (0.00
    )
    
    
    0.49Net income (loss) per share, diluted
    
    
    0.23
    
    
    
    0.11
    
    
    
    (0.00
    )
    
    
    0.482004Total revenues
    
    $
    35,575
    
    
    $
    41,920
    
    
    $
    47,337
    
    
    $
    59,661Cost of sales
    
    
    22,234
    
    
    
    27,181
    
    
    
    29,176
    
    
    
    36,402Income from operations
    
    
    3,067
    
    
    
    3,274
    
    
    
    4,769
    
    
    
    9,990Net income
    
    
    3,351
    
    
    
    3,399
    
    
    
    5,011
    
    
    
    35,287
    (2)Net income per share, basic
    
    
    0.12
    
    
    
    0.12
    
    
    
    0.17
    
    
    
    1.20
    (2)Net income per share, diluted
    
    
    0.11
    
    
    
    0.11
    
    
    
    0.16
    
    
    
    1.16
    (2)
 
 (1)
    
    In the third quarter of fiscal 2005, revenues declined due to a build-up of inventory by
certain customers.(2)
    
    In the fourth quarter of fiscal 2004, Martek recognized a deferred tax benefit of $25.2 million
(see Note 16). 64




---



##### 



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
  ITEM 9A. CONTROLS AND PROCEDURES.
 a)
    
    Evaluation of Disclosure Controls and Procedures. The Chief Executive Officer and Chief
Financial Officer of Martek Biosciences Corporation have evaluated the effectiveness of our
disclosure controls and procedures pursuant to Exchange Act rules 13a15 (e) and 15d15 (e)
and have concluded that as of the end of the period covered by this report the disclosure
controls and procedures were effective.b)
    
    Internal Control Over Financial Reporting.The report called for by Item 308(a) of
Regulation S-K is incorporated herein by reference to
Managements Report on Internal
Control Over Financial Reporting, included in Part IIItem 8 of this Form 10-K. The
attestation report called for by Item 308(b) of Regulation S-K is incorporated herein by
reference to the attestation report of Ernst & Young LLP, our independent registered public
accounting firm, on managements assessment of internal control over financial reporting,
included in Part IIItem 8 of this Form 10-K. There was no change in our internal control
over financial reporting during our last fiscal quarter that materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
 ITEM 9B. OTHER INFORMATION.
  65




---



##### 



PART III
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
  Election
of DirectorsBoard Committees  Section 16(a) Beneficial Ownership Reporting Compliance
 http://www.martekbio.com
 ITEM 11. EXECUTIVE COMPENSATION.
  Directors Fees  Compensation
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
  Beneficial Ownership of Common Stock  Equity Compensation Plan Information
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
  Certain Relationships and Related Transactions
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
  Independent Auditors
 66




---



##### 



PART IV
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
        67




---



##### 



In thousandsBalance atBeginning of
    
    
    
    
    
    
    
    
    
    
    Balance at End ofDescription
    
    Year
    
    
    Additions
    
    
    Deductions
    
    
    YearYear ended October 31, 2005:Deferred tax
valuation allowance
    
    $
    22,077
    
    
    $
    1,755
    
    
    $
    
    
    
    $
    23,832Reserve for
inventory
obsolescence
    
    $
    1,000
    
    
    $
    2,000
    
    
    $
    (1,500
    )
    
    $
    1,500Year ended October 31, 2004:Deferred tax
valuation allowance
    
    $
    65,781
    
    
    $
    6,936
    
    
    $
    (50,640
    ) (2)
    
    $
    22,077Reserve for
inventory
obsolescence
    
    $
    500
    
    
    $
    500
    
    
    $
    
    
    
    $
    1,000
 
 (1)
    
    This schedule is omitted for the year ended October 31, 2003 since it was either not
required or the information
is otherwise included in the consolidated financial statements or the notes to consolidated
financial statements.(2)
    
    A portion of the valuation allowance was reversed due to our
determination that it is more likely than not that we will realize these
deferred tax assets. 68




---



##### 



SIGNATURES
  MARTEK BIOSCIENCES CORPORATIONBy
    
    /s/ Henry Linsert, Jr.Henry Linsert, Jr.Chief Executive Officer and Director
 POWER OF ATTORNEY
   Signatures
    
    Title
    
    Date/s/ Henry Linsert, Jr.

Henry Linsert, Jr.
    
    Chief Executive Officer and Director
(Principal Executive Officer)
    
    January 17, 2006/s/ Peter L. Buzy

Peter L. Buzy
    
    Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
    
    January 17, 2006/s/ James R. Beery

James R. Beery
    
    Director
    
    January 17, 2006/s/ Robert J. Flanagan

Robert J. Flanagan
    
    Director
    
    January 17, 2006/s/ Jerome C. Keller

Jerome C. Keller
    
    Director
    
    January 17, 2006/s/ Gordon S. Macklin

Gordon S. Macklin
    
    Director
    
    January 17, 2006
 69




---



##### 



Signatures
    
    Title
    
    Date/s/ John H. Mahar

John H. Mahar
    
    Director
    
    January 17, 2006/s/ Sandra Panem

Sandra Panem
    
    Director
    
    January 17, 2006/s/ Richard J. Radmer

Richard J. Radmer
    
    Director
    
    January 17, 2006/s/ Eugene H. Rotberg

Eugene H. Rotberg
    
    Director
    
    January 17, 2006
 70




---



##### 



EXHIBIT INDEX
 EXHIBITNUMBER#
    
    DESCRIPTION3.01
    
    Revised Restated Certificate of Incorporation.3.02
    
    Certificate of Amendment to the Restated Certificate of Incorporation (filed as Exhibit 3.1
to the Companys Registration Statement on Form S-3, File No. 33-89760, filed March 15, 1995,
and incorporated by reference herein).3.03
    
    Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred
Stock (filed as Exhibit 4 to the Companys Form 8-K, File No. 0-22354, filed January 29, 1996,
and incorporated by reference herein).3.04
    
    Certificate of Amendment to the Restated Certificate of Incorporation of the Company (filed
as exhibit 3.07 to the Companys quarterly report on Form 10-Q, File No. 22354, for the
quarter ended January 31, 2002, and incorporated by reference herein).3.05
    
    Amended By-Laws of Registrant (filed as exhibit 3.01 to the Companys quarterly report on
Form 10-Q, File No. 22354, for the quarter ended April 30, 2005, and incorporated by reference
herein).4.01
    
    Specimen Stock Certificate for Common Stock.4.02
    
    Form of Rights Agreement dated as of January 24, 1996 between the Company and Registrar and
Transfer Company, as Rights Agent (filed as Exhibit 1 to the Companys Form 8-K, File No.
0-22354, filed January 29, 1996, and incorporated by reference herein).4.03
    
    Form of First Amendment to Rights Agreement between the Company and Registrar and Transfer
Company, as Rights Agent (filed as Exhibit 99.1 to the Companys Form 8-K, File No. 0-22354,
filed November 9, 1998 and incorporated by reference herein).10.01
    
    Form Indemnification Agreement for directors.10.02
    
    1986 Stock Option Plan, as amended. +10.03
    
    Employment Agreement, dated May 4, 1990, between the Company and Henry Linsert, Jr. +10.04
    
    Form of Proprietary Information, Inventions and Non-Solicitation Agreement.10.05
    
    Collaborative Research and License Agreement, dated April 30, 1993, as amended June 11,
1993, between the Company and the Trustees of Columbia University.10.06
    
    Lease, commencement date October 15, 1992, between the Company and Aetna Life Insurance
Company, as modified on August 5, 1993.10.07
    
    License Agreement, dated September 10, 1992, between the Company and Bestuurcentrum Der
Verenigde Bedrijven Nutricia B.V.*10.07A
    
    Exhibits to September 10, 1992 License Agreement between the Company and Bestuurcentrum Der
Verenigde Bedrijven Nutricia B.V.*10.08
    
    License Agreement, dated October 28, 1992, between the Company and Mead Johnson & Company.*10.08A
    
    Exhibits to October 28, 1992 License Agreement between the Company and Mead Johnson & Company.*10.09
    
    License Agreement, dated January 28, 1993 between the Company and American Home Products
Corporation represented by the Wyeth-Ayerst Division (Domestic Version) and American Home
Products Corporation represented by its agent Wyeth-Ayerst International (International
Version).*10.09A
    
    Exhibits to January 28, 1993 License Agreements between the Company and American Home
Products Corporation represented by the Wyeth-Ayerst Division (Domestic Version) and American
Home Products Corporation represented by its agent Wyeth-Ayerst International (International
Version).*10.10
    
    Lease Modification Agreement, dated October 14, 1993 between the Company and Aetna Life Insurance Company.
 1




---



##### 



EXHIBITNUMBER#
    
    DESCRIPTION10.11
    
    Second Lease Modification Agreement, dated September 27, 1994, between the Company and Aetna
Life Insurance Company (filed as Exhibit 10.20 to the Companys 1995 Form 10-K, File No.
0-22354, and incorporated by reference herein).10.12
    
    Directors Stock Option Plan (filed as Exhibit 4.1(b) to the Companys Registration
Statement on Form S-8, File No. 33-79222, filed May 23, 1994, and incorporated by reference
herein). +10.13
    
    Martek Biosciences Corporation 1997 Stock Option Plan (filed as Exhibit 4.1(e) to the
Companys Registration Statement on Form S-8, File No. 333-27671, filed May 22, 1997, and
incorporated by reference herein). +10.14
    
    Third Amendment of Lease, dated August 1, 1997 between the Company and M.O.R Columbia
Limited Partnership (filed as Exhibit 10.25 to the Companys 1997 Form 10-K, File No.
000-22354, and incorporated by reference herein).10.15
    
    Fourth Amendment of Lease, dated August 5, 1998 between the Company and M.O.R Columbia
Limited Partnership (filed as Exhibit 10.26 to the Companys 1998 Form 10-K, File No. 22354,
and incorporated by reference herein).10.16
    
    License Agreement, dated March 31, 2000 between the Company and Abbott Laboratories (filed
as Exhibit 10.30 to the Companys quarterly report on Form 10-Q for the quarter ended April
30, 2000, and incorporated by reference herein).10.17
    
    Martek Biosciences Corporation 2001 Stock Option Plan (filed as Exhibit 10.01 to the
Companys Registration Statement on Form S-8, filed on November 16, 2001, and incorporated by
reference herein). +10.18
    
    Common Stock and Warrant Purchase Agreement, dated February 28, 2001 by and among the
Company and the Selling Stockholders (filed as Exhibit 99.2 to the Companys Form 8-K, File
No. 22354, dated March 2, 2001 and incorporated by reference herein).10.19
    
    Common Stock Purchase Agreement, dated December 17, 2001 by and among the Company and The
Gordon S. Macklin Family Trust (filed as Exhibit 10.34 to the Companys 2001 Form 10-K, File
No. 22354, and Incorporated by reference herein).10.20
    
    Form of Common Stock Purchase Agreement, dated December 17, 2001 by and among the Company
and the Selling Stockholders Trust (filed as Exhibit 10.35 to the Companys 2001 Form 10-K,
File No. 22354, and Incorporated by reference herein).10.21
    
    Martek Biosciences Corporation Amended And Restated Management Cash Bonus Incentive Plan
effective April 25, 2002 (filed as Exhibit 10.36 to the Companys quarterly report on Form
10-Q, File No. 22354, for the quarter ended April 30, 2002, and incorporated by reference
herein). +10.22
    
    OmegaTech, Inc. 1996 Stock Option Plan, as amended on April 26, 2001 (filed as Exhibit 10.37
to the Companys quarterly report on Form 10-Q, File No. 22354, for the quarter ended April
30, 2002, and incorporated by reference herein). +10.23
    
    Employment Agreement dated April 25, 2002 between the Company and James Flatt (filed as
Exhibit 10.39 to the Companys quarterly report on Form 10-Q, File No. 22354, for the quarter
ended April 30, 2002, and incorporated by reference herein). +10.24
    
    Settlement Terms Related to Arbitration of License Agreement Dated September 15, 1993
between Pharmacia Corporation, on behalf of Monsanto, and OmegaTech dated May 10, 2000 (filed
as Exhibit 10.41 to the Companys quarterly report on Form 10-Q, File No. 22354, for the
quarter ended April 30, 2002, and incorporated by reference herein).*10.25
    
    Manufacturing Agreement between C.P. Kelco U.S. Inc. and OmegaTech, Inc. dated October 19,
2001 (filed as Exhibit 10.42 to the Companys quarterly report on Form 10-Q, File No. 22354,
for the quarter ended April 30, 2002, and incorporated by reference herein).10.26
    
    Agreement and Plan of Merger, dated March 25, 2002, by and among the Company, OmegaTech,
Inc. and OGTAQ Corp. (filed as Exhibit 99.2 to the Companys Current Report on Form 8-K, File
No. 22354, filed on May 3, 2002 and incorporated by reference herein).10.27
    
    First Amendment to the Agreement and Plan of Merger dated as of March 25, 2002 by and among
OmegaTech, Inc., the Company, and OGTAQ Corp., dated April 24, 2002 by and among the Company,
OmegaTech, Inc., OGTAQ Corp. and Robert Zuccaro, in his capacity as the Stockholders
Representative (filed as Exhibit 99.3 to the Companys Current Report on Form 8-K, File No.
22354, filed on May 3, 2002 and incorporated by reference herein).10.28
    
    Martek Biosciences Corporation 2002 Stock Incentive Plan (filed as Exhibit 1 to the
Companys Definitive Proxy, Schedule 14A, filed on February 8, 2002 and incorporated by
reference herein). +
 2




---



##### 



EXHIBITNUMBER#
    
    DESCRIPTION10.29
    
    Second Amendment to the Agreement and Plan of Merger dated as of March 25, 2002, as amended
on April 24, 2002, by and among OmegaTech, Inc., the Company and OGTAQ Corp., entered into as
of July 27, 2002 by and among Martek, Martek Biosciences Boulder Corporation (formerly called
OmegaTech, Inc.) and Robert Zuccaro, in his capacity as the Stockholders Representative.
(filed as Exhibit 99.2 to the Companys Current Report on Form 8-K, File No. 22354, filed on
July 31, 2002 and incorporated by reference herein).10.30
    
    Amendment No. 3 to Settlement Terms Related to Arbitration of License Agreement dated as of
December 20, 2002 by and among Monsanto Company and Martek Biosciences Boulder Corporation.
(filed as Exhibit 10.48 to the Companys annual report on Form 10-K, File No. 22354, for the
year ended October 31, 2002, and incorporated by reference herein).10.31
    
    License and Supply Agreement, dated June 13, 2003 between the Company and Nestec Ltd. (filed
as exhibit 10.50 to the Companys quarterly report on Form 10-Q, File No.22354, for the
quarter ended July 31, 2003, and incorporated by reference herein).10.32
    
    Asset Sale and Purchase Agreement dated July 21, 2003 by and among FermPro Manufacturing,
LP, a Georgia limited partnership, Astral Technologies, Inc., a South Carolina corporation and
the Company (filed as Exhibit 10.51 to the Companys quarterly report on Form 10-Q, File No.
22354, for the quarter ended July 31, 2003, and
incorporated by reference herein).10.33
    
    Amendment No. 1 to Asset Sale and Purchase Agreement by and among FermPro Manufacturing, LP,
a Georgia limited partnership, Astral Technologies, Inc., a South Carolina corporation and the
Company (filed as Exhibit 10.52 to the Companys quarterly report on Form 10-Q, File No.
22354, for the quarter ended July 31, 2003, and incorporated by reference herein).10.34
    
    Amendment No. 2 to Asset Sale and Purchase Agreement by and among FermPro Manufacturing, LP,
a Georgia limited partnership, Astral Technologies, Inc., a South Carolina corporation and the
Company (filed as Exhibit 10.53 to the Companys quarterly report on Form 10-Q, File No.
22354, for the quarter ended July 31, 2003, and incorporated by reference herein).10.35
    
    Joinder Agreement by and among FermPro Manufacturing, LP, a Georgia limited partnership,
Astral Technologies, Inc., a South Carolina corporation and the Company (filed as Exhibit
10.54 to the Companys quarterly report on Form 10-Q, File No. 22354, for the quarter ended
July 31, 2003, and incorporated by reference herein).10.36
    
    Martek Biosciences Corporation 2003 New Employee Stock Option Plan (filed as Exhibit 10.55
to the Companys quarterly report on Form 10-Q, File No. 22354, for the quarter ended July 31,
2003, and incorporated by reference herein). +10.37
    
    Collaboration Agreement between the Company and SemBioSys Genetics, Inc., a Canadian
corporation, dated December 1, 2003 (filed as Exhibit 10.59 to the Companys annual report on
Form 10-K, as amended, File No. 22354, for the year ended October 31, 2003, and incorporated
by reference herein). *10.38
    
    Amendment to Manufacturing Agreement by and between C.P. Kelco U.S., Inc. and Martek
Biosciences Boulder Corporation, dated October 1, 2003 (filed as Exhibit 10.60 to the
Companys annual report on Form 10-K, as amended, File No. 22354, for the year ended October
31, 2003, and incorporated by reference herein).*10.39
    
    Promissory Note payable to the order of Genencor International, Inc., a Delaware
Corporation, dated January 26, 2004 (filed as Exhibit 10.61 to the Companys annual report on
Form 10-K, File No. 22354, for the year ended October 31, 2003, and incorporated by reference
herein).10.40
    
    ARA Alliance, Purchase and Production Agreement by and between the Company and DSM Food
Specialties B.V. (filed as Exhibit 10.63 to the Companys quarterly report on Form 10-Q, as
amended, File No. 22354, for the quarter ended April 30, 2004, and incorporated by reference
herein). *10.41
    
    Sixth Amendment of Lease, dated May 13, 2004, by and between M.O.R. CBC LLC and the Company
(filed as Exhibit 10.64 to the Companys quarterly report on Form 10-Q, File No. 22354, for
the quarter ended April 30, 2004, and incorporated by reference herein).10.42
    
    Master Equipment Lease, dated October 29, 2004, between Martek Biosciences Kingstree
Corporation and M&T Credit Services, LLC (filed as Exhibit 10.45 to the Companys annual
report on Form 10-K, File No. 22354, for the year ended October 31, 2004, and incorporated by
reference herein).
 3




---



##### 



EXHIBITNUMBER#
    
    DESCRIPTION10.43
    
    Form of Stock Option Award Agreement under Martek Biosciences Corporation 2003 New Employee
Stock Option Plan (filed as Exhibit 10.46 to the Companys annual report on Form 10-K, File
No. 22354, for the year ended October 31, 2004, and incorporated by reference herein). +10.44
    
    Form of Stock Option Award Agreement under Martek Biosciences Corporation 2004 Stock
Incentive Plan (filed as Exhibit 10.47 to the Companys annual report on Form 10-K, File No.
22354, for the year ended October 31, 2004, and incorporated by reference herein). +10.45
    
    Continuing Guaranty of the Company pursuant to Master Equipment Lease, dated October 29,
2004, between Martek Biosciences Kingstree Corporation and M&T Credit Services, LLC. (filed as
Exhibit 10.48 to the Companys annual report on Form 10-K, as amended, File No. 22354, for the
year ended October 31, 2004, and incorporated by reference herein).10.46
    
    Martek Biosciences Corporation Amended and Restated 2004 Stock Incentive Plan (filed as
Appendix A to the Companys Definitive Proxy, Schedule 14A, filed on February 8, 2005 and
incorporated by reference herein). +10.47
    
    Form of Nonqualified Stock Option Agreement under Martek Biosciences Corporation Amended and
Restated 2004 Stock Incentive Plan (filed as Exhibit 10.1 to the Companys Registration
Statement on Form S-8, File No. 333-125802, filed June 14, 2005, and incorporated by
reference herein).10.48
    
    Letter Agreement dated July 6, 2005 by and between Peter A. Nitze and the Company (filed as
Exhibit 10.1 to the Companys Current Report on Form 8-K, File No. 22354, filed on September
8, 2005 and incorporated by reference herein).+10.49
    
    Amended and Restated Loan and Security Agreement by and among the Company, as Borrower, and
the Lenders party thereto and Manufacturers and Traders Trust Company, as Administrative Agent
and Sole Book Runner, and Bank of America, NA, as Syndication Agent, and SunTrust Bank, as
Documentation Agent, dated September 30, 2005 (filed as Exhibit 10.1 to the Companys Current
Report on Form 8-K, File No. 22354, filed on October 6, 2005 and incorporated by reference
herein).10.49A
    
    Form of Revolving Loan Promissory Note ( filed as Exhibit 2.1.1 to Exhibit 10.2 to
the Companys Current Report on Form 8-K, File No. 22354, filed on October 6, 2005 and
incorporated by reference herein).10.49B
    
    Form of Guaranty Agreement ( filed as Exhibit 3.8(a) to Exhibit 10.2 to the
Companys Current Report on Form 8-K, File No. 22354, filed on October 6, 2005 and
incorporated by reference herein).10. 49C
    
    Form of Security Agreement from Guarantors ( filed as Exhibit 3.8(b) to Exhibit
10.2 to the Companys Current Report on Form 8-K, File No. 22354, filed on October 6, 2005 and
incorporated by reference herein).10.49D
    
    Form of Stock Pledge Agreement ( filed as Exhibit 3.9 to Exhibit 10.2 to the
Companys Current Report on Form 8-K, File No. 22354, filed on October 6, 2005 and
incorporated by reference herein).10.49E
    
    Form of Lender Assignment and Acceptance Agreement ( filed as Exhibit
10.1.2.(c) to Exhibit 10.2 to the Companys Current Report on Form 8-K, File No.
22354, filed on October 6, 2005 and incorporated by reference herein).10.50
    
    Second Modification Agreement effective as of September 30, 2005 by and between
Manufacturers and Traders Trust Company, as Administrative Agent, the lenders named therein,
Martek Biosciences Corporation, Martek Biosciences Boulder Corporation, and Martek Biosciences
Kingstree Corporation (filed as Exhibit 10.2 to the Companys Current Report on Form 8-K, File
No. 22354, filed on October 6, 2005 and incorporated by reference herein).21.01
    
    Subsidiaries of the Registrant. **23.01
    
    Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.**24.01
    
    Power of Attorney of the Board of Directors (included on signature page of this report).**31.01
    
    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).**31.02
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).**32.01
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
 4




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##### 



EXHIBITNUMBER#
    
    DESCRIPTION32.02
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
 
 *
    
    Confidential treatment was granted by the Securities and Exchange Commission for certain
portions of these agreements. The confidential portions were filed separately with the Commission.**
    
    Filed herewith.#
    
    Unless otherwise noted, all Exhibits are incorporated by reference as an
Exhibit to the Registrants Registration Statement on Form S-1 (No. 33-68522). The
registrant will furnish a copy of any exhibit upon receipt of a written request and the
payment of a specified reasonable fee which fee shall be limited to the registrants
reasonable expenses in furnishing such exhibit.+
    
    Denotes management contract or compensatory arrangement required to be filed as an exhibit to
this form. 5