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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED OCTOBER 31, 2007
 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:Common Stock, $.10 Par Value
    
    The NASDAQ Stock Market
 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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DOCUMENTS INCORPORATED BY REFERENCE




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PART IItem 1.
    
    Business
    
    
    1Item 1A.
    
    Risk Factors
    
    
    19Item 1B.
    
    Unresolved Staff Comments
    
    
    27Item 2.
    
    Properties
    
    
    28Item 3.
    
    Legal Proceedings
    
    
    29Item 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
    
    
    33Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    35Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    45Item 8.
    
    Financial Statements and Supplementary Data
    
    
    46Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    69Item 9A.
    
    Controls and Procedures
    
    
    69Item 9B.
    
    Other Information
    
    
    69PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    70Item 11.
    
    Executive Compensation
    
    
    70Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    70Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    70Item 14.
    
    Principal Accountant Fees and Services
    
    
    70PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    71Signatures
    
    
    73




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PART I
  ITEM 1. BUSINESS.
 OVERVIEW
 lifesDHA lifesARA
 NUTRITIONAL PRODUCTS
 lifesDHA ® ® ® and lifesARA
   ® ® ® ® ® ® ® ® ®
  1




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lifesDHA
 CONTRACT MANUFACTURING
  PRODUCTS AND PRODUCT CANDIDATES
 NUTRITIONAL OILS
 Infant Formula Applications
   The Journal of Pediatrics
  
    
    An independent study conducted by Dr. E. Birch and others and published online in
January 2007 in Early Human Developmentreported the results of a comparison between
children who were breastfed as infants to both children who as infants used DHA and ARA
supplemented formula and children who as infants did not use DHA and ARA supplemented
formula. The results indicated that children who received the supplemented formula had
visual and verbal IQ scores that did not differ significantly from children who had been
breastfed and such scores were better than children who did not receive supplemented
formula. Marteks oils were used in the study. This was a follow up to a study by Dr. E.
Birch and others published in 2000 in Developmental Medicine & Child Neurology, which noted
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
 2




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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.
 
    
    A study conducted by Dr. N. Pastor and others published in November 2006 in Clinical
Pediatricsfound that infants fed a formula containing 17 mg DHA and 34 mg ARA per 100 kcal
had fewer episodes of bronchiolitis and bronchitis at ages 5, 7, and 9 months compared to
infants receiving control formula not containing these added long-chain polyunsaturated
fatty acids. This study used Marteks oils.
    
    A study conducted by Dr. C. Agostoni and others published in March 2006 in Developmental
Medicine & Child Neurologyfound that in children with the rare genetic disorder
phenylketonuria (PKU), the addition of DHA in formula was associated with improved visual
scores. This study used Marteks oils.
    
    A study conducted by Dr. S. Hart and others published in August 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.
    
    A study conducted by Dr. E. Birch and others published in April 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. This study used Marteks oils.
    
    A summary of four randomized control trials conducted by Dr. S. Morale and others
published in February 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. This study
used Marteks oils.
    
    A study conducted by Dr. E. Birch and others published in March 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. This study used Marteks oils.
  
    
    Global Standard for the Composition of Infant Formula: Recommendations of an ESPGHAN
Coordinated International Expert Group, authored by Dr. B. Koletzko and others published in
Journal of Pediatric Gastroenterology and Nutritionin November 2005, in which the
International Expert Group, in view of beneficial effects, supported the optional addition
of LCPUFA to infant formula. Their guidelines specify that the optional addition of DHA
should not exceed 0.5% of total fat; ARA contents should be at least the same concentration
as DHA; and the EPA content should not exceed that of DHA.
    
    Feeding Preterm Infants After Hospital Discharge: A Commentary by the ESPGHAN Committee
on Nutrition, authored by Dr. P. Aggett and others published in Journal of Pediatric
Gastroenterology and Nutritionin May 2006. The ESPGHAN Committee on Nutrition reviewed
available evidence and established recommendations for feeding preterm infants after
hospital discharge. The Committee recommends that formula-fed infants born prematurely
should receive infant formula which provides long-chain polyunsaturated fatty acids for
optimal growth and development. Martek DHA and ARA are long-chain polyunsaturated fatty acids added to
preterm and term infant formula in the U.S. and worldwide.
  Applications for Pregnant and Nursing Women
  3




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British Journal of Nutrition
 Journal of the American Dietetic Association
  
    
    A study conducted by Dr. C. Jensen and others published in July 2005 in the American
Journal of Clinical Nutritionnoted that infants of mothers who supplemented with
lifesDHA 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 lifesDHA 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 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 study published by Dr. J. Cohen and others in November 2005 in the American Journal of
Preventive Medicineprovided a statistical analysis of many studies which had examined
maternal fatty acid intake and effect on infant development. The results of the analysis
showed that increases in maternal DHA intake are associated with modest improvements in
child IQ.
    
    A study conducted by Dr. I. Helland and others published in January 2003 in Pediatrics
found 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 March 2003 in Obstetrics and
Gynecologyfound that expectant mothers at risk for preterm birth, who increased their
dietary intake of DHA during the last trimester of pregnancy through DHA enriched eggs
from chickens whose feed contained Martek DHA,
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.
  lifesDHA
 
    
    Mead Johnson Nutritionals ExpectaLIPIL®
    
    Life Fitness Lifes DHA Prenatal Multivitamin and DHA (exclusively at CVS/pharmacy and
online at CVS.com)
    
    British Biologicals Pro-PL Protein Supplement
    
    Everett Laboratories prescription prenatal supplement Vitafol® -OB+DHA
    
    Sciele Pharma, Inc.s prescription prenatal supplement OptiNate;
    
    Mission Pharmacals prescription prenatal supplement Citracal® Prenatal + DHA and
Citracal® Prenatal 90 + DHA
    
    Vincent Foods, LLCs Oh Mama! nutrition bars
    
    NutraBellas Bellybar nutrition bars
 Cognitive Function, Cardiovascular Health and Other Human Applications
  DHA and cognitive function
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
    
    An independent study by Dr. R. McNamara and others published in the Society of
Biological Psychiatryin July 2007 found a deficit in the total fatty acid composition of
the orbitofrontal cortex and found a selective deficit in the level of DHA compared with
controls in brain examinations of postmortem patients who had been diagnosed with major
depression compared with controls. These findings add to the growing body of evidence
showing a correlation between low tissue levels of DHA in neuropsychiatric diseases such as
depression.
    
    A study published by Dr. K. Green and others in The Journal of Neurosciencein April
2007 used a transgenic mouse model of Alzheimers disease to show that supplementation with
DHA reduced the accumulation of both amyloid-beta and tau, two indicators of the disease in
humans. This study used Marteks DHA oils and funding for the study was provided by
Martek.
    
    A study published by Dr. E. Schaefer and others in the Archives of Neurologyin November
2006 investigated the relationship of blood DHA levels and the development of dementia in
a prospective follow-up study of the participants in the Framingham Heart Study. The
results of the study noted that subjects with the highest levels of plasma DHA (top 20%)
had a significant reduction in the risk of developing dementia from all causes. The study
was partially funded by Martek.
    
    A scientific review on DHA performed by Dr. J. Marszalek and Dr. H. Lodish published in
June 2005 in Annual Review of Cell and Developmental Biologysuggests the significant role
that DHA plays in the maintenance of normal neurological function.
    
    The results of an in vitro study conducted by Dr. W. Lukiw and others published in
October 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.
    
    The results of an in vitro study conducted by Dr. S. Florent and others published in
November 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.
    
    The Agency for Healthcare Research and Quality (AHRQ) of the United States Department
of Health and Human Services issued in February 2005 a report on the effects of omega-3
fatty acids on cognitive function with respect to persons experiencing aging, dementia and
neurological diseases. They stated: Total omega3 FA [omega-3 fatty acid] consumption and
consumption of DHA (but not ALA or EPA) were associated with a significant reduction in the
incidence of Alzheimers.
    
    In September 2004, the results of an animal study conducted by 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 extended these findings during
2005 with additional data. In vitro research conducted by Dr. N. Bazan and published in
2005 in Molecular Neurobiologydetected a metabolite of DHA that appears to have a
protective role in neural cell survival and Alzheimers disease.
    
    In July 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.
  DHA and cardiovascular health
 
    
    A study published by Dr. D. Kelley and others in the American Journal of Clinical
Nutritionin August 2007 found that DHA is effective in reducing the level of
triglycerides in male hypertriglyceridemic patients. In this study, DHA alone was effective
without EPA, the other omega-3 commonly found in fish oil, in reducing triglycerides.
Hypertriglyceridemia (high triglyceride levels) in men is associated with an increased risk
of cardiovascular disease and metabolic syndrome. Martek contributed the DHA supplements
and funding for this study.
    
    An independent study by Dr. H. Theobald and others published in The Journal of Nutrition
in April 2007 assessed the effects of low-dose DHA on blood pressure in healthy men and
women from the United Kingdom. Compared with placebo, supplementation with Marteks
lifesDHA(0.7 g/day for 3 months) significantly reduced diastolic blood pressure by 3.3
mm Hg.
    
    The results of a study by Dr. L. Keilson and others, which were presented in March 2007
at the American College of Cardiology 56th Annual Scientific Session, showed that
supplementation with 2g of Martek DHA daily for six weeks reduced triglycerides by nearly
20%, reduced pulse rate by 5 beats per minute and reduced diastolic blood pressure by 4 mm
Hg. The DHA-supplemented group also showed an 8% reduction in total
cholesterol and a 5% increase in HDL (good) cholesterol level at six weeks. The study was conducted in men and women with hypertriglyceridemia who were already
taking statin medications for the reduction of cholesterol. This study used Martek oils
and funding for this study was provided by Martek.
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
    
    An independent study by Dr. L. Schwellenbach and others published in the Journal of the
American College of Nutritionin December 2006 compared Marteks lifesDHA(algal oil) to
DHA plus EPA (fish oil) for their ability to lower triglycerides in subjects with coronary
artery disease and elevated triglycerides, most of whom were undergoing statin therapy.
Both supplements significantly lowered triglycerides, but only lifesDHAincreased high
density (good) cholesterol. The authors concluded that there was no added benefit provided
by EPA for lowering triglycerides at this level. The authors of the study also indicated
that lifesDHAwas better tolerated by the study participants than fish oil, noting that a
greater proportion of subjects in the fish oil group reported fishy taste as a problem with
their treatment.
    
    A study published by Dr. A. Erkkilä and others in the Journal of Lipid Researchin
September 2006 noted an important relationship between plasma DHA levels and the reduced
progression of cardiac disease. Specifically, women whose DHA levels were above the median
at enrollment had slower progression of coronary artery stenosis over a three-year period.
This effect was not seen with the other omega-3 fatty acids, ALA or EPA.
    
    A review conducted by Dr. C. Wang and others published in July 2006 in The American
Journal of Clinical Nutritionstated that evidence suggests that increased consumption of
long-chain omega-3 fatty acids, but not alpha-linolenic acid, reduces all cause mortality,
cardiac and sudden death, and possibly stroke. lifesDHA is a long-chain omega-3 fatty
acid.
    
    A Scientific Statement entitled Diet and Lifestyle Recommendations Revision 2006
published by Dr. A. Lichtenstein and other members of the American Heart Association
Nutrition Committee published in July 2006 in Circulationincluded a recommendation that
people with documented heart disease consume approximately one gram of DHA and
eicosapentaenoic acid (EPA) per week. They affirm that with appropriate medical advice,
use of supplements may be substituted for fish.
    
    The results of a study conducted by Dr. K. Maki and others and published in the Journal
of the American College of Nutritionin June 2005 demonstrated that lifesDHA lowered
triglycerides by approximately 21%. These subjects consumed 1.5 grams DHA per day or a
placebo for six weeks. This study was sponsored by Martek.
    
    Dr. K. Stark and Dr. B. Holub reported in May 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 May 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, 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.
  6




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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.
 DHA and other human health benefits
 
    
    An independent observational study by Dr. J.M. Norris and others published in the
Journal of the American Medical Association(September 2007) was designed to determine
whether the intake of omega-3 and omega-6 fatty acids is associated with the development of
Type 1 diabetes in children. This study was conducted with a cohort of 1,770 children
known to be at genetic risk for developing Type 1 diabetes. Results showed that the
omega-3 fatty acid levels were inversely correlated with the risk for developing diabetes
in this group of
at-risk children. These investigators are further investigating this relationship in an
ongoing clinical trial to determine whether DHA, specifically, has a role in Type 1 diabetes
prevention.
    
    A study by Dr. K. Connor and others published in Nature Medicinein July 2007 reported
that increasing consumption of long-chain omega-3 fatty acids, including DHA, reduces
destructive vascularization in the retina. In this animal study of retinopathy associated
with prematurity, the authors summarize a series of experiments demonstrating that
long-chain omega-3 fatty acids, and selected metabolites, are effective in reducing retinal
vascular disease, which is a leading cause of blindness. A portion of these studies
included Martek oils as the source of long-chain fatty acids.
 LifesDHA ® lifesDHA lifesDHA
   CONTRACT MANUFACTURING
     7




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TECHNOLOGY
  Discovery
 Process Development and Product Formulation
  Product Safety and Efficacy Evaluation
 Scale-up and Commercial Production 
  COLLABORATIVE AND LICENSING AGREEMENTS
  8




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® ®
    lifesDHA lifesDHA lifesDHA
    PRODUCTION
  9




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SOURCES OF SUPPLY
  RESEARCH AND DEVELOPMENT
 lifesDHA lifesDHA
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SALES AND MARKETING
 lifesDHA
 
    
    Mead Johnson Nutritionals ExpectaLIPIL®
    
    Life Fitness Lifes DHA Prenatal Multivitamin and DHA (exclusively at CVS/pharmacy and
online at CVS.com)
    
    British Biologicals Pro-PL Protein Supplement
    
    Everett Laboratories prescription prenatal supplement Vitafol® -OB+DHA
    
    Sciele Pharma, Inc.s prescription prenatal supplement OptiNate
    
    Mission Pharmacals prescription prenatal supplement Citracal® Prenatal + DHA and
Citracal® Prenatal 90 + DHA
    
    Vincent Foods, LLCs Oh Mama! nutrition bars
    
    NutraBellas Bellybar nutrition bars (expanded to entire product line)
 LifesDHA ® lifesDHA lifesDHA
 
    
    Gold Circle Farms®s eggs and liquid eggs (United States and Europe)
    
    Priégolas Simbi + Omega-3 yogurt (Spain)
    
    Odwalla, Inc.s and Soy Smart soymilk drinks (United States)
    
    Dynamic Confections Botticelli Choco-Omeg® line of nutritional bars (Canada)
    
    Flora, Inc.s Udos Choice® DHA Oil Blend (United States)
    
    Latteria Merano/Milchhof Merans Mente Viva
fortified drinkable yogurt (Italy)
    
    Centrale Del Latte Di Brescias Sprintissimo fortified drinkable yogurt (Italy)
    
    Life Science Nutritionals Nutri-Kids Nutrition-to-Go ready-to-drink milk product
(United States and Canada)
    
    General Mills Yoplait Kids® yogurt and Yoplait Kids yogurt drink (United States)
    
    ZenSoys Soy on the Go Soymilk (United States)
    
    FoodTech Internationals Veggie Patch All Natural California Veggie Burgers (United
States)
    
    NuGo Nutritions NuGo Organic snack bars (United States)
    
    Fuji Food Products Fujisan sushi products (United States)
    
    Parmalat Australias Vaalia brand yoghurts for infants, toddlers and adults (Australia)
    
    Danone S.A.s Danonino Petit Genio childrens drinkable yogurt (Spain)
    
    Dean Foods Company (including WhiteWave Foods) products:
 
    
    WhiteWave Foods Horizon Organic® Milk Plus DHA (United States)
    
    WhiteWave Foods Silk® Plus Omega-3 DHA Soymilk (United States and Canada)
    
    WhiteWave Foods Rachels® Wickedly Delicious Yogurt (United States)
 
    
    Central Lechera Asturianas ABC infant yogurt (Spain)
    
    National Foods Pura® Kids milk product (Australia)
    
    Stremicks Heritage Foods Organic Milk Enriched with Omega-3 DHA (United States)
    
    Breyers Yogurt Companys Breyers Smart! Yogurt (United States)
    
    Minute Maid® Pomegranate Blueberry Flavored 100% fruit juice blend (United States)
    
    Beech-Nut® DHA Plus with lifesDHA baby food and cereals (United States)
    
    British Biologicals Kids-Pro Nutrition Drink (India)
    
    Ricos® Cheese Sauce (United States)
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lifesDHA
 COMPETITION
  Mortierella alpina
      
    
    our oils do not have the impurities that may limit the usefulness of DHA derived from
unencapsulated fish oil;
    
    our oils, in general, are easier to formulate in food and beverage products;
    
    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 and 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;
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
    
    our oils are not produced from animal sources and, therefore, should be more desirable
for use in food and beverage products as the available market does not exclude consumers
who require a vegetable-sourced DHA, unlike fish oil;
    
    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.
       PATENTS, LICENSES AND PROPRIETARY TECHNOLOGY
  13




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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
  14




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® ®
  lifesDHA lifesDHA
      15




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EMPLOYEES
  16




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EXECUTIVE OFFICERS OF THE REGISTRANT
  Name
    
    Age
    
    PositionSteve Dubin
    
    
    54
    
    
    Chief Executive Officer and DirectorDavid M. Abramson
    
    
    54
    
    
    PresidentPeter L. Buzy
    
    
    48
    
    
    Chief Financial Officer, Treasurer and Executive
Vice President for Finance and AdministrationBarney B. Easterling
    
    
    62
    
    
    Senior Vice President, ManufacturingTim Fealey, Ph.D.
    
    
    63
    
    
    Senior Vice President and Chief Innovation OfficerDavid M. Feitel
    
    
    44
    
    
    Senior Vice President and General CounselPeter A. Nitze
    
    
    49
    
    
    Chief Operating Officer and Executive Vice President
       17




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COMPANY
 http://www.martek.com
  18




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ITEM 1A. RISK FACTORS.
  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 decreases, 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. If we are unable to maintain a
competitive differentiation from these products, our revenues may be adversely affected.
   
    
    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 tuna oil source of DHA and its fungal
source of ARA, as manufactured by Suntory Limited, are generally recognized as safe when
used as ingredients in infant formula. In April 2006, the FDA notified Ross Products that
it had no questions at that time regarding Ross conclusion that DHA-rich oil from tuna and
ARA-rich oil from Mortierella alpinaare safe as sources of DHA and ARA in term and
post-discharge preterm infant formulas. While Ross Products has not announced any
introduction of its oils into infant formula in the U.S. and has agreed to purchase its
total needs for DHA and ARA from us through at least 2011, and while we are not aware of
any plans by our other licensees to do so, the GRAS notification removes a significant
regulatory hurdle to the introduction of competitive products in the U.S.
    
    Reliant Pharmaceuticals, which as recently announced will be acquired by
GlaxoSmithKline, is currently selling LOVAZA, a prescription DHA/ EPA ethyl ester for
treatment of hyperlipidemia. LOVAZA is a lipid-regulating agent which includes both EPA
and DHA from fish oil. Reliant Pharmaceuticals has recently filed an application with the
FDA for an indication that will expand the use of LOVAZA. 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 and India
attempting to produce an algal source of DHA, but we are uncertain of the overall status
and commercial potential of these development efforts.
    
    Some infant formulas now on the market outside the United States, including those
marketed by certain of Marteks licensees, use DHA derived from other sources, such as fish
oil or eggs.
 19




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
    
    In December 2005, Lonza Group LTD, a Swiss chemical and biotechnology group, acquired
from Nutrinova Specialties & Food Ingredients GmbH, a wholly-owned subsidiary of Celanese
Corporation, Nutrinovas business having as its product a DHA-rich microalgal oil. Since
the acquisition, Lonza has actively marketed its DHA oil to the food, beverage and
dietary supplement market in Europe and China, and was actively marketing in the United
States. Nutrinova and Lonza are defendants in patent infringement actions involving our
DHA patents that we have brought in both the United States and Germany. One of Nutrinovas
customers is also a defendant in these actions in Germany. These lawsuits are further
described below in the risk factor regarding patent protection and in Item 3. Legal
Proceedings of Part I of this Form 10-K.
    
    Other companies, several with greater financial resources than ours, are developing
plant-based DHA and other companies may be developing chemically synthesized DHA.
    
    Several large companies, including BASF AG, DSM and Ocean Nutrition, and a number of
smaller companies, manufacture microencapsulated fish oil products. Although
microencapsulation of the oil resolves many of the odor, stability and taste issues found
with fish oil, a microencapsulated product currently is more costly than regular fish oil.
Fish oil-based products (i) are used as a DHA source by some infant formula companies, (ii)
currently dominate the adult DHA supplement market and (iii) are included in certain foods
on the market in various parts of the world. Because fish oil is generally less costly than
our DHA oil, even when microencapsulated, and continues to improve in quality and gain
general market acceptance, fish oil presents a substantial competitive threat.
 If we are unable to obtain
or maintain patent protection or if our patents
do not provide protection against competitive products, our results of operations may be
adversely affected.
     
    
    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 appealed the decision to the Appeal Board of the EPO. Martek filed its
answer to Aventis grounds for appeal in July 2006. The appeal process is expected to
be completed in late 2008 or early 2009. Claim 1 of this patent is the basis of the patent infringement
suit against Nutrinova and Lonza 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 were narrower than
the claims originally granted. In an effort to broaden the claims of the patent, we
appealed the decision. Suntory and BASF also appealed. Friesland Brands B.V. withdrew from
the opposition.
In April 2007, the EPO granted another patent to Martek for ARA oil made from Marteks
microbial source for use in infant formula. The newly granted divisional patent strengthens
Marteks intellectual property position by providing commercially significant protection
through the expiration date of the original patent, January 22, 2012. In light of this newly
granted divisional patent, the Company withdrew
 20




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##### 



from the appeal it had previously filed
related to its original European ARA patent for infant formula that was upheld with narrowed
claims by the EPO in April 2005. The original patent will no longer be in force and effect.
 
    
    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 and during the
hearing before the Appeal Board of the EPO in February 2007, Martek decided to withdraw its
appeal. As a result, the patent was revoked. Martek is pursuing protection for its
blended oil technology in Europe through related pending patent applications.
    
    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. In a November 2007
hearing, the Opposition Division upheld claims that are narrower than the claims originally
granted but broader than the claims that were previously upheld in the December 2000
Opposition Division hearing. In the event of an appeal, the review process is not expected
to be completed before 2009, 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 has appealed. The appeal process is expected to be completed in
late 2008 or early 2009.
    
    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. Celanese Ventures GmbH and Celanese AG were
dropped from the lawsuit. Lonza Ltd. was added to the lawsuit. In October 2006, after an
almost two week trial in Wilmington, Delaware, the jury returned a favorable verdict to
Martek, deciding that all three of the asserted Martek DHA patents were valid and
infringed, and that one was willfully infringed. In October 2007, the judge upheld the
October 2006 jury verdict that the defendants infringed all of the asserted claims of U.S.
Patent Nos. 5,340,594 and 6,410,281 (the 281 Patent) and that these patents were not
invalid. The judge has granted a permanent injunction against the defendants with respect
to those two patents. The judge also upheld the jury verdict that the defendants had acted
willfully in their infringement of the 281 Patent. It is likely that the defendants will
appeal the decision. Regarding the third patent involved in the case, U.S. Patent No.
6,451,567, the judge reversed the jury verdict and found that the
asserted claims of this patent were invalid.
Martek has requested the judge to reconsider his ruling on the third patent.
    
    We also filed a patent infringement suit involving Nutrinova Nutrition Specialties &
Food Ingredients GmbH and Celanese Ventures GmbH in Germany in January 2004. Lonza Ltd. and
a customer of Nutrinova have also been added to this lawsuit. The complaint alleges
infringement of our European patent relating to DHA-containing oils. A hearing was held in
a district court in Dusseldorf in September 2007 and the court issued its decision in
October 2007, ruling that Marteks patent was infringed by the defendants. The defendants
have appealed, and the appeal is expected to be heard in early 2009.
    
    With respect to our ARA patent in South Korea, Suntory has filed an opposition. A
hearing on the matter was held in late January 2006 and the Korean Intellectual Property
Office Examiners ruled against Martek. Martek appealed. The appeal brief was filed in
February 2007 and Suntory responded in August 2007. The Korean Intellectual Property
Office ruled against Martek in September 2007, and we appealed to the Patent Court in
October 2007. The patent will remain in full force and effect during the pendency of the
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, Suntory responded in March 2006
and Martek filed further submissions in May 2006. A hearing was held in July 2006. A
ruling against Martek was issued in February 2007. Martek appealed in April 2007. The
patent will remain in full force and effect during the pendency of the appeal process.
    
    There are additional intellectual property oppositions pending against Martek that are
not considered material.
  21




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If our food and beverage customers do not introduce products containing our nutritional oils on
a broad scale into the marketplace and consumers do not purchase such
products, our sales to the food and beverage market will 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 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 and the dietary supplement markets.
  If our oils are unable to be used in organic food and beverage products, the opportunity for
sales of our oils into the food and beverage market will be limited to non-organic products.
   Because food and beverage pricing is very competitive, the premium that our oils adds to the
cost of the food or beverage may never allow it to be priced at levels that will allow
acceptance by consumers.
  22




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If
we are unable to gain broad regulatory approvals for the incorporation of our oils into foods and
beverages worldwide, our future revenues in the food and beverage market may be limited.
   If it is determined that large amounts of eicosapentaenoic acid (EPA) must accompany DHA in
order to achieve optimal health benefits, we may never be able to gain large- scale entry into
the food and beverage market.
   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 customer demand for our nutritional oils requires us or our major suppliers to increase
production beyond current levels, we may experience certain risks associated with the 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 operations regarding our production
processes may arise.
  23




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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 continue to experience excess production capacity and we may be unable
to recover these plant expansion costs, which could result in a write-down of certain production
assets.
  Failure to effectively manage our growth could disrupt our operations and prevent us from
generating the revenues and gross profit margins we expect.
  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. If clinical trials do not continue
to yield positive results, certain favorable regulatory guidelines are not enacted or current
favorable regulatory guidelines are amended, our future revenues in the infant formula market
may be limited.
    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 or if the eligibility
requirements for participating in the program are made more restrictive or if the amount of
infant formula offered to participants is reduced.
  24




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Our business would be harmed if we fail to comply with applicable good manufacturing practices
as required by the FDA.
  Our manufacturing process involves the handling of hazardous materials and emission of regulated
pollutants. If we fail to properly handle these hazardous materials and/ or emissions,
substantial costs and harm to our business could result.
  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, which could adversely
impact our financial condition and performance.
  We may 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. We may also need additional capital to expand our production capacity if market
demand for our products continues to grow.
   25




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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;
    
    announcements of use of competitors DHA and/or ARA products by our customers;
    
    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
    
    announcements of results of clinical trials by us or our competitors;
    
    patent or other intellectual property achievements or adverse developments;
    
    quarterly fluctuations in our revenues and results of operations;
    
    failure to enter into favorable third-party manufacturing agreements;
    
    regulatory decisions (approvals or disapprovals) or changes concerning our products and
our competitors products;
    
    events related to threatened, new or existing litigation, or the results thereof;
    
    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.
  26




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##### 



Changes
in foreign currency exchange rates or interest rates could reduce
profitability.
  We are a defendant in a putative class action lawsuit which, if determined adversely, could have
a material adverse effect on us.
   ITEM 1B. UNRESOLVED STAFF COMMENTS.
  27




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##### 



ITEM 2. PROPERTIES.
     28




---



##### 



ITEM 3. LEGAL PROCEEDINGS
     Thraustochytrium Schizochytrium
      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 2006
    
    High
    
    LowNovember 1, 2005  January 31, 2006
    
    $
    32.00
    
    
    $
    23.14February 1, 2006  April 30, 2006
    
    $
    37.22
    
    
    $
    27.56May 1, 2006  July 31, 2006
    
    $
    30.75
    
    
    $
    21.70August 1, 2006  October 31, 2006
    
    $
    30.84
    
    
    $
    20.15
 Fiscal 2007
    
    High
    
    LowNovember 1, 2006  January 31, 2007
    
    $
    26.83
    
    
    $
    22.45February 1, 2007  April 30, 2007
    
    $
    24.43
    
    
    $
    19.64May 1, 2007  July 31, 2007
    
    $
    28.10
    
    
    $
    19.76August 1, 2007  October 31, 2007
    
    $
    31.00
    
    
    $
    24.33
  31




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Performance Graph
  COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*





32



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##### 



ITEM 6. SELECTED FINANCIAL DATA.
   Year ended October 31,In thousands, except per share data
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Consolidated Statements of Operations DataRevenues:Product sales
    
    $
    292,549
    
    
    $
    255,838
    
    
    $
    203,765
    
    
    $
    170,565
    
    
    $
    112,298Contract manufacturing sales
    
    
    14,264
    
    
    
    14,816
    
    
    
    14,087
    
    
    
    13,928
    
    
    
    2,439Total revenues
    
    
    306,813
    
    
    
    270,654
    
    
    
    217,852
    
    
    
    184,493
    
    
    
    114,737Cost of revenues:Cost of product sales, including idle capacity costs
    
    
    179,367
    
    
    
    158,600
    
    
    
    120,865
    
    
    
    103,423
    
    
    
    66,347Cost of contract manufacturing sales
    
    
    13,952
    
    
    
    14,676
    
    
    
    12,516
    
    
    
    11,570
    
    
    
    2,192Total cost of revenues
    
    
    193,319
    
    
    
    173,276
    
    
    
    133,381
    
    
    
    114,993
    
    
    
    68,539Gross margin
    
    
    113,494
    
    
    
    97,378
    
    
    
    84,471
    
    
    
    69,500
    
    
    
    46,198Operating expenses:Research and development
    
    
    24,853
    
    
    
    24,044
    
    
    
    19,415
    
    
    
    17,794
    
    
    
    13,055Selling, general and administrative
    
    
    44,855
    
    
    
    39,597
    
    
    
    31,968
    
    
    
    24,739
    
    
    
    15,394Amortization of intangible assets
    
    
    6,558
    
    
    
    2,796
    
    
    
    2,489
    
    
    
    1,867
    
    
    
    980Restructuring charge
    
    
    853
    
    
    
    4,729
    
    
    
    
    
    
    
    
    
    
    
    (250
    )Other operating expenses
    
    
    1,614
    
    
    
    1,158
    
    
    
    7,654
    
    
    
    4,000
    
    
    
    1,943Total operating expenses
    
    
    78,733
    
    
    
    72,324
    
    
    
    61,526
    
    
    
    48,400
    
    
    
    31,122Income from operations
    
    
    34,761
    
    
    
    25,054
    
    
    
    22,945
    
    
    
    21,100
    
    
    
    15,076Interest and other income (expense), net
    
    
    (1,089
    )
    
    
    (1,528
    )
    
    
    1,125
    
    
    
    772
    
    
    
    916Income before income tax provision (benefit)
    
    
    33,672
    
    
    
    23,526
    
    
    
    24,070
    
    
    
    21,872
    
    
    
    15,992Income tax provision (benefit)
    
    
    1,659
    
    
    
    8,588
    
    
    
    8,786
    
    
    
    (25,176
    )
    
    
    Net income
    
    $
    32,013
    
    
    $
    14,938
    
    
    $
    15,284
    
    
    $
    47,048
    
    
    $
    15,992Net income per share, basic
    
    $
    0.99
    
    
    $
    0.47
    
    
    $
    0.49
    
    
    $
    1.62
    
    
    $
    0.63Net income per share, diluted
    
    $
    0.98
    
    
    $
    0.46
    
    
    $
    0.48
    
    
    $
    1.55
    
    
    $
    0.58Shares used in computing basic earnings per share
    
    
    32,336
    
    
    
    32,113
    
    
    
    31,164
    
    
    
    29,033
    
    
    
    25,510Shares used in computing diluted earnings per share
    
    
    32,593
    
    
    
    32,343
    
    
    
    32,032
    
    
    
    30,386
    
    
    
    27,417
 33




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##### 



October 31,2007
    
    2006
    
    2005
    
    2004
    
    2003Consolidated Balance Sheets and Other DataCash, cash equivalents, short-term investments and marketable securities
    
    $
    21,648
    
    
    $
    26,828
    
    
    $
    33,347
    
    
    $
    42,650
    
    
    $
    96,971Working capital
    
    
    149,345
    
    
    
    128,488
    
    
    
    124,208
    
    
    
    68,195
    
    
    
    106,218Total assets
    
    
    596,695
    
    
    
    597,973
    
    
    
    578,485
    
    
    
    501,398
    
    
    
    295,523Long-term debt, notes payable and other long-term obligations
    
    
    9,310
    
    
    
    46,277
    
    
    
    66,115
    
    
    
    97,175
    
    
    
    10,441Long-term portion of deferred revenue
    
    
    9,517
    
    
    
    9,335
    
    
    
    8,959
    
    
    
    9,140
    
    
    
    8,992Accumulated deficit
    
    
    (2,285
    )
    
    
    (34,298
    )
    
    
    (49,236
    )
    
    
    (64,520
    )
    
    
    (111,568
    )Total stockholders equity
    
    
    531,727
    
    
    
    492,575
    
    
    
    469,205
    
    
    
    346,164
    
    
    
    243,964Cash dividends declared  common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 34




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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, gross margin, operating cash flow and
overall profitability;
    
    expectations regarding product introductions and growth in nutritional product sales;
    
    expectations regarding potential collaborations and acquisitions;
    
    expectations regarding demand for products with our nutritional oils;
    
    expectations regarding sales to and by our infant formula licensees and supplemented
infant formula market penetration levels;
    
    expectations regarding marketing of our oils by our infant formula licensees;
    
    expectations regarding future agreements with, and revenues from, companies in the
food and beverage, perinatal and nutritional supplement markets;
    
    expectations regarding growing consumer recognition of the key health benefits of DHA
and ARA;
    
    expectations regarding competitive products;
    
    expectations regarding future efficiencies and improvements in manufacturing
processes and the cost of production of our nutritional oils;
    
    expectations regarding future purchase volumes and costs of third-party manufactured
oils;
    
    expectations regarding the amount of production capacity and our ability to meet
future demands for our nutritional oils;
    
    expectations regarding the amount of inventory held by us or our customers;
    
    expectations regarding production capacity utilization and the effects of excess
production capacity;
    
    expectations regarding future selling, general and administrative and research and
development costs;
    
    expectations regarding future capital expenditures;
    
    expectations regarding levels of consumption through governmental programs of infant
formula products containing our nutritional oils;
    
    expectations regarding possibly significant expenses to defend putative securities
class action lawsuits alleging false and material misstatements and omissions of
material facts concerning our business and prospects; and
    
    expectations regarding our ability to maintain and protect our intellectual property.
 Forward-looking statements include those statements containing words such as the following:
 
    
    will,
    
    should,
    
    could,
    
    anticipate,
    
    believe,
    
    plan,
    
    estimate,
    
    expect,
    
    intend, and other similar expressions.
 All of these forward-looking statements involve risks and uncertainties. They and other
forward-looking statements in this Form 10-K are all made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. We wish to caution you that our actual
results may differ significantly from the results we discuss in our forward-looking statements. We
discuss some of the risks that could cause such differences in Item 1A. Risk Factors in this report
on Form 10-K 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
 lifesDHA lifesARA lifesDHA ® ® ® lifesARA
  35




---



##### 



®
   lifesDHA
 Food and Beverage Products
 
    
    PBM Products beverage containing lifesDHAthat is formulated for diabetics and people
with atypical glucose tolerance (United States)
    
    GlaxoSmithKlines Junior Horlicks powdered drink mix (India); GlaxoSmithKline had
previously launched an adult DHA beverage
    
    Gold Circle Farms®s eggs and liquid eggs (United States and Europe)
    
    Priégolas Simbi + Omega-3 yogurt (Spain)
    
    Odwalla, Inc.s and Soy Smart soymilk drinks (United States)
    
    Dynamic Confections Botticelli Choco-Omeg® line of nutritional bars (Canada)
    
    Flora, Inc.s Udos Choice® DHA Oil Blend (United States)
    
    Latteria Merano/Milchhof Merans Mente Viva fortified drinkable yogurt (Italy)
    
    Centrale Del Latte Di Brescias Sprintissimo fortified drinkable yogurt (Italy)
    
    Life Science Nutritionals Nutri-Kids Nutrition-to-Go ready-to-drink milk product
(United States and Canada)
    
    General Mills Yoplait Kids® yogurt and Yoplait Kids yogurt drink (United States)
    
    ZenSoys Soy on the Go Soymilk (United States)
    
    FoodTech Internationals Veggie Patch All Natural California Veggie Burgers (United
States)
    
    NuGo Nutritions NuGo Organic snack bars (United States)
    
    Fuji Food Products Fujisan sushi products (United States)
    
    Parmalat Australias Vaalia brand yoghurts for infants, toddlers and adults (Australia)
    
    Danone S.A.s Danonino Petit Genio childrens drinkable yogurt (Spain)
    
    Dean Foods Company (including WhiteWave Foods) products:
 
    
    WhiteWave Foods Horizon Organic® Milk Plus DHA (United States)
    
    WhiteWave Foods Silk® Plus Omega-3 DHA Soymilk (United States and Canada)
    
    WhiteWave Foods Rachels® Wickedly Delicious Yogurt (United States)
 
    
    Central Lechera Asturianas ABC infant yogurt (Spain)
    
    National Foods Pura® Kids milk product (Australia)
    
    Stremicks Heritage Foods Organic Milk Enriched with Omega-3 DHA(United States)
    
    Breyers Yogurt Companys Breyers Smart! Yogurt (United States)
    
    Minute Maid® Pomegranate Blueberry Flavored 100% fruit juice blend (United States)
    
    Beech-Nut® DHA Plus with lifesDHA baby food and cereals (United States)
    
    British Biologicals Kids-Pro Nutrition Drink (India)
    
    Ricos® Cheese Sauce (United States)
 36




---



##### 



Pregnancy and Nursing Products
 
    
    Mead Johnson Nutritionals Expecta LIPIL® (United States)
    
    Sciele Pharma, Inc.s prescription prenatal supplement OptiNate (United States)
    
    Mission Pharmacals prescription prenatal supplements:
 
    
    Citracal® Prenatal + DHA (United States)
    
    Citracal® Prenatal 90 + DHA (United States)
 
    
    Vincent Foods, LLCs Oh Mama! nutrition bars (United States)
    
    NutraBellas Bellybar nutrition bars (United States)
    
    Everett Laboratories prescription prenatal supplement Vitafol® -OB+DHA (United States)
    
    Life Fitness Lifes DHA Prenatal Multivitamin and DHA (United States, exclusively at
CVS/pharmacy and online at CVS.com)
    
    British Biologicals Pro-PL Protein Supplement (India)
  
    
    the timing of international infant formula market introductions by our customers;
    
    the timing of our customers ordering patterns;
    
    the timing and extent of stocking and destocking of inventory by our customers;
    
    the timing and extent of our customers production campaigns and plant maintenance
shutdowns;
    
    the timing and extent of introductions of DHA into various child and/or adult
applications and the marketplace success of such applications;
    
    the continued acceptance, and extent thereof, of products containing our oils under WIC programs in the U.S.;
    
    the continued acceptance of these products by consumers and continued demand by our
customers;
    
    the ability of our customers to incorporate our oils into various foods and beverages;
    
    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.
  MANAGEMENT OUTLOOK
  lifesDHA
    37




---



##### 



PRODUCTION
        CRITICAL ACCOUNTING POLICIES AND
THE USE OF ESTIMATES
  Valuation of Long-lived Assets
 38




---



##### 



Revenue Recognition
  Deferred Income Taxes
 Inventory
 Equity-Based Compensation Expense
  39




---



##### 



Patent Cost Capitalization
 RESULTS OF OPERATIONS
 Revenues
  Year ended October 31,2007
    
    
    2006
    
    
    2005Product sales
    
    $
    292,549
    
    
    $
    255,838
    
    
    $
    203,765Contract manufacturing sales
    
    
    14,264
    
    
    
    14,816
    
    
    
    14,087Total revenues
    
    $
    306,813
    
    
    $
    270,654
    
    
    $
    217,852
  Year ended October 31,2007
    
    
    2006
    
    
    2005Infant formula market
    
    $
    265,563
    
    
    $
    240,497
    
    
    $
    189,143Food and beverage market
    
    
    5,483
    
    
    
    1,404
    
    
    
    328Pregnancy and nursing, nutritional
supplements and animal feeds
    
    
    17,439
    
    
    
    10,121
    
    
    
    10,638Non-nutritional products
    
    
    4,064
    
    
    
    3,816
    
    
    
    3,656Total product sales
    
    $
    292,549
    
    
    $
    255,838
    
    
    $
    203,765
 lifesDHA .
     40




---



##### 



Cost of Revenues
  Year ended October 31,2007
    
    
    2006
    
    
    2005Cost of product sales, including idle capacity costs
    
    $
    179,367
    
    
    $
    158,600
    
    
    $
    120,865Cost of contract manufacturing sales
    
    
    13,952
    
    
    
    14,676
    
    
    
    12,516Total cost of revenues
    
    $
    193,319
    
    
    $
    173,276
    
    
    $
    133,381
     Operating Expenses
  Year ended October 31,2007
    
    2006
    
    2005Research and development
    
    $
    24,853
    
    
    $
    24,044
    
    
    $
    19,415Selling, general and administrative
    
    
    44,855
    
    
    
    39,597
    
    
    
    31,968Amortization of intangible assets
    
    
    6,558
    
    
    
    2,796
    
    
    
    2,489Restructuring charge
    
    
    853
    
    
    
    4,729
    
    
    
    Other operating expenses
    
    
    1,614
    
    
    
    1,158
    
    
    
    7,654Total operating expenses
    
    $
    78,733
    
    
    $
    72,324
    
    
    $
    61,526
 Research and Development lifesDHA lifesDHA
  Selling, General and Administrative
  Amortization of Intangible Assets
 41




---



##### 



Restructuring Charge
 Other Operating Expenses
 Interest and Other Income, Net
  Interest Expense
  Income Tax Provision (Benefit)
    Net Income
     42




---



##### 



RECENTLY ISSUED
ACCOUNTING PRONOUNCEMENTS
      LIQUIDITY AND CAPITAL RESOURCES
  
    
    cash generated from operations;
    
    proceeds from the sale of equity securities;
    
    cash received from the exercise of stock options and warrants; and
    
    debt financing.
   43




---



##### 



Less than
    
    
    1-3
    
    
    3-5
    
    
    More thanIn thousands
    
    Total
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 yearsNotes payable(1)
    
    $
    10,196
    
    
    $
    1,138
    
    
    $
    8,126
    
    
    $
    280
    
    
    $
    652Borrowings under revolving credit facility
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    3,566
    
    
    
    1,054
    
    
    
    1,904
    
    
    
    307
    
    
    
    301Unconditional purchase obligations(2)
    
    
    139,773
    
    
    
    100,771
    
    
    
    39,002
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    153,535
    
    
    $
    102,963
    
    
    $
    49,032
    
    
    $
    587
    
    
    $
    953
 
 (1)
    
    Minimum payments above include interest and principal due under these notes.(2)
    
    Primarily includes future inventory purchases from DSM pursuant to minimum purchase
commitment (see Note 4 to Consolidated Financial Statements) and guarantee described below
in Off-Balance Sheet Arrangements.     
    
    our ability to operate profitably and generate positive cash flow;
    
    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 a putative securities class action and
other lawsuits;
    
    the costs of any merger and acquisition activity; and
    
    the costs of marketing and commercializing our products.
  OFF-BALANCE SHEET ARRANGEMENTS
    44




---



##### 



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
    45




---



##### 



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
    
    PAGEManagements Report on Internal Control Over Financial Reporting
    
    47Report of Ernst &Young LLP, Independent Registered Public Accounting Firm
    
    48Report of Ernst & Young LLP, Independent Registered Public Accounting Firm, on
Internal Control Over Financial Reporting
    
    49Consolidated Balance Sheets as of October 31, 2007 and 2006
    
    50Consolidated Statements of Income for the years ended
October 31, 2007, 2006 and 2005
    
    51Consolidated Statements of Stockholders Equity for the years
ended October 31, 2007, 2006 and 2005
    
    52Consolidated Statements of Cash Flows for the years ended
October 31, 2007, 2006 and 2005
    
    53Notes to Consolidated Financial Statements
    
    54
 46




---



##### 



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
   Internal ControlIntegrated Framewor Internal ControlIntegrated Framework
  /s/ Steve Dubin

Steve Dubin
    
    
    
    /s/ Peter L. Buzy

Peter L. BuzyChief Executive Officer and DirectorDecember 21, 2007
    
    
    
    Chief Financial Officer, Treasurer
and Executive Vice President for
Finance and AdministrationDecember 21, 2007
 47




---



##### 



REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     Internal
Control-Integrated Framework
  
 48




---



##### 



REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
 
 Internal ControlIntegrated Framework Managements Report on Internal Control Over Financial
Reporting
       
 49




---



##### 



MARTEK BIOSCIENCES CORPORATION
  October 31,In thousands, except share and per share data
    
    2007
    
    
    2006AssetsCurrent assetsCash and cash equivalents
    
    $
    16,973
    
    
    $
    15,578Short-term investments and marketable securities
    
    
    4,675
    
    
    
    11,250Accounts receivable, net
    
    
    41,643
    
    
    
    32,746Inventories, net
    
    
    109,409
    
    
    
    100,320Deferred tax asset
    
    
    14,549
    
    
    
    9,487Other current assets
    
    
    8,237
    
    
    
    8,893Total current assets
    
    
    195,486
    
    
    
    178,274Property, plant and equipment, net
    
    
    277,915
    
    
    
    286,922Deferred tax asset
    
    
    36,757
    
    
    
    33,313Goodwill
    
    
    51,564
    
    
    
    48,603Other intangible assets, net
    
    
    34,320
    
    
    
    36,828Other assets, net
    
    
    653
    
    
    
    14,033Total assets
    
    $
    596,695
    
    
    $
    597,973Liabilities and stockholders equityCurrent liabilitiesAccounts payable
    
    $
    18,118
    
    
    $
    21,663Accrued liabilities
    
    
    25,154
    
    
    
    24,098Current portion of notes payable and other long-term obligations
    
    
    1,012
    
    
    
    1,231Current portion of deferred revenue
    
    
    1,857
    
    
    
    2,794Total current liabilities
    
    
    46,141
    
    
    
    49,786Long-term debt under revolving credit facility
    
    
    
    
    
    
    36,000Notes payable and other long-term obligations
    
    
    9,310
    
    
    
    10,277Long-term portion of deferred revenue
    
    
    9,517
    
    
    
    9,335Total liabilities
    
    
    64,968
    
    
    
    105,398CommitmentsStockholders equityPreferred stock, $.01 par value, 4,700,000 shares authorized; none issued or outstanding
    
    
    
    
    
    
    Series B junior participating preferred stock, $.01 par value; 300,000 shares authorized; none issued or outstanding
    
    
    
    
    
    
    Common stock, $.10 par value; 100,000,000 shares authorized; 32,335,622 and 32,156,162 shares issued and
outstanding, respectively
    
    
    3,234
    
    
    
    3,216Additional paid-in capital
    
    
    530,575
    
    
    
    523,486Accumulated other comprehensive income
    
    
    203
    
    
    
    171Accumulated deficit
    
    
    (2,285
    )
    
    
    (34,298
    )Total stockholders equity
    
    
    531,727
    
    
    
    492,575Total liabilities and stockholders equity
    
    $
    596,695
    
    
    $
    597,973
 See accompanying notes.
 50




---



##### 



MARTEK BIOSCIENCES CORPORATION
  Year ended October 31,In thousands, except share and per share data
    
    2007
    
    
    2006
    
    
    2005Revenues:Product sales
    
    $
    292,549
    
    
    $
    255,838
    
    
    $
    203,765Contract manufacturing sales
    
    
    14,264
    
    
    
    14,816
    
    
    
    14,087Total revenues
    
    
    306,813
    
    
    
    270,654
    
    
    
    217,852Cost of revenues:Cost of product sales, including idle capacity costs
    
    
    179,367
    
    
    
    158,600
    
    
    
    120,865Cost of contract manufacturing sales
    
    
    13,952
    
    
    
    14,676
    
    
    
    12,516Total cost of revenues
    
    
    193,319
    
    
    
    173,276
    
    
    
    133,381Gross margin
    
    
    113,494
    
    
    
    97,378
    
    
    
    84,471Operating expenses:Research and development
    
    
    24,853
    
    
    
    24,044
    
    
    
    19,415Selling, general and administrative
    
    
    44,855
    
    
    
    39,597
    
    
    
    31,968Amortization of intangible assets
    
    
    6,558
    
    
    
    2,796
    
    
    
    2,489Restructuring charge
    
    
    853
    
    
    
    4,729
    
    
    
    Other operating expenses
    
    
    1,614
    
    
    
    1,158
    
    
    
    7,654Total operating expenses
    
    
    78,733
    
    
    
    72,324
    
    
    
    61,526Income from operations
    
    
    34,761
    
    
    
    25,054
    
    
    
    22,945Interest and other income, net
    
    
    1,144
    
    
    
    1,490
    
    
    
    1,428Interest expense
    
    
    (2,233
    )
    
    
    (3,018
    )
    
    
    (303
    )Income before income tax provision
    
    
    33,672
    
    
    
    23,526
    
    
    
    24,070Income tax provision
    
    
    1,659
    
    
    
    8,588
    
    
    
    8,786Net income
    
    $
    32,013
    
    
    $
    14,938
    
    
    $
    15,284Net income per shareBasic
    
    $
    0.99
    
    
    $
    0.47
    
    
    $
    0.49Diluted
    
    $
    0.98
    
    
    $
    0.46
    
    
    $
    0.48Weighted average common shares outstandingBasic
    
    
    32,336,314
    
    
    
    32,113,301
    
    
    
    31,164,149Diluted
    
    
    32,593,125
    
    
    
    32,343,015
    
    
    
    32,031,503
 See accompanying notes.
 51




---



##### 



MARTEK BIOSCIENCES CORPORATION
  AccumulatedAdditional
    
    
    OtherCommon Stock
    
    
    Paid-in
    
    
    Comprehensive
    
    
    AccumulatedIn thousands, except share data
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Income
    
    
    Deficit
    
    
    TotalBalance 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
    
    
    
    
    
    
    
    
    
    
    
    18,670Equity-based compensation
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    36Tax benefit of exercise of non-qualified stock options
    
    
    
    
    
    
    
    
    
    
    7,674
    
    
    
    
    
    
    
    
    
    
    
    7,674Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,284
    
    
    
    15,284Other comprehensive income:Change in unrealized gain on exchange rate
forward contract, net of tax of $0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (67
    )
    
    
    
    
    
    
    (67
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,217Balance at October 31, 2005
    
    
    32,026,595
    
    
    
    3,203
    
    
    
    515,237
    
    
    
    1
    
    
    
    (49,236
    )
    
    
    469,205Exercise of stock options and warrants
    
    
    129,567
    
    
    
    13
    
    
    
    2,909
    
    
    
    
    
    
    
    
    
    
    
    2,922Equity-based compensation
    
    
    
    
    
    
    
    
    
    
    3,753
    
    
    
    
    
    
    
    
    
    
    
    3,753Tax benefit of exercise of non-qualified stock options
    
    
    
    
    
    
    
    
    
    
    1,587
    
    
    
    
    
    
    
    
    
    
    
    1,587Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,938
    
    
    
    14,938Other comprehensive income:Change in unrealized gain on exchange rate
forward contract, net of tax of $102
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    170
    
    
    
    
    
    
    
    170Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,108Balance at October 31, 2006
    
    
    32,156,162
    
    
    
    3,216
    
    
    
    523,486
    
    
    
    171
    
    
    
    (34,298
    )
    
    
    492,575Exercise of stock options
    
    
    179,460
    
    
    
    18
    
    
    
    2,747
    
    
    
    
    
    
    
    
    
    
    
    2,765Equity-based compensation
    
    
    
    
    
    
    
    
    
    
    2,710
    
    
    
    
    
    
    
    
    
    
    
    2,710Tax benefit of exercise of non-qualified stock options
    
    
    
    
    
    
    
    
    
    
    1,632
    
    
    
    
    
    
    
    
    
    
    
    1,632Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,013
    
    
    
    32,013Other comprehensive income:Change in unrealized gain on exchange rate
forward contract, net of tax of $18
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    32Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,045Balance at October 31, 2007
    
    
    32,335,622
    
    
    $
    3,234
    
    
    $
    530,575
    
    
    $
    203
    
    
    $
    (2,285
    )
    
    $
    531,727
 See accompanying notes.
 52




---



##### 



MARTEK BIOSCIENCES CORPORATION
  Year ended October 31,In thousands
    
    2007
    
    
    2006
    
    
    2005Operating activitiesNet income
    
    $
    32,013
    
    
    $
    14,938
    
    
    $
    15,284Adjustments to reconcile net income to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    26,466
    
    
    
    21,672
    
    
    
    16,494Provision for inventory obsolescence
    
    
    900
    
    
    
    500
    
    
    
    2,000Deferred tax provision
    
    
    1,009
    
    
    
    8,588
    
    
    
    8,786Equity-based compensation expense
    
    
    2,384
    
    
    
    3,272
    
    
    
    Incremental tax benefit from exercise of non-qualified stock options
    
    
    (507
    )
    
    
    (1,587
    )
    
    
    Loss from disposal and write-down of assets and other
    
    
    1,104
    
    
    
    2,845
    
    
    
    1,131Changes in operating assets and liabilities:Accounts receivable
    
    
    (9,129
    )
    
    
    (5,143
    )
    
    
    9,689Inventories
    
    
    2,336
    
    
    
    (20,804
    )
    
    
    (63,156
    )Other assets
    
    
    1,438
    
    
    
    (4,393
    )
    
    
    1,413Accounts payable
    
    
    (3,545
    )
    
    
    5,002
    
    
    
    (10,303
    )Accrued liabilities
    
    
    (7,642
    )
    
    
    8,527
    
    
    
    2,947Deferred revenue and other liabilities
    
    
    (967
    )
    
    
    2,205
    
    
    
    (1,429
    )Net cash provided by (used in) operating activities
    
    
    45,860
    
    
    
    35,622
    
    
    
    (17,144
    )Investing activitiesSale (purchase) of short-term investments and marketable securities, net
    
    
    6,575
    
    
    
    11,050
    
    
    
    (9,095
    )Expenditures for property, plant and equipment
    
    
    (8,279
    )
    
    
    (10,902
    )
    
    
    (57,181
    )Proceeds from sale of fluorescent detection products business
    
    
    900
    
    
    
    
    
    
    
    (Repurchase) proceeds from sale-leaseback transaction and other
    
    
    (3,910
    )
    
    
    (6,877
    )
    
    
    4,272Capitalization of intangible and other assets
    
    
    (6,010
    )
    
    
    (6,862
    )
    
    
    (4,989
    )Net cash used in investing activities
    
    
    (10,724
    )
    
    
    (13,591
    )
    
    
    (66,993
    )Financing activitiesRepayments of notes payable and other long-term obligations
    
    
    (1,013
    )
    
    
    (3,009
    )
    
    
    (4,875
    )Repayments under revolving credit facility, net
    
    
    (36,000
    )
    
    
    (19,000
    )
    
    
    (30,000
    )Proceeds from the issuance of common stock, net of issuance costs
    
    
    
    
    
    
    
    
    
    
    81,444Proceeds from the exercise of stock options and warrants
    
    
    2,765
    
    
    
    2,922
    
    
    
    18,670Incremental tax benefit from exercise of non-qualified stock options
    
    
    507
    
    
    
    1,587
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    500Net cash (used in) provided by financing activities
    
    
    (33,741
    )
    
    
    (17,500
    )
    
    
    65,739Net increase (decrease) in cash and cash equivalents
    
    
    1,395
    
    
    
    4,531
    
    
    
    (18,398
    )Cash and cash equivalents, beginning of year
    
    
    15,578
    
    
    
    11,047
    
    
    
    29,445Cash and cash equivalents, end of year
    
    $
    16,973
    
    
    $
    15,578
    
    
    $
    11,047Supplemental cash flow disclosures:Interest paid
    
    $
    2,478
    
    
    $
    3,625
    
    
    $
    3,528Income taxes paid
    
    $
    530
    
    
    $
    280
    
    
    $
    Notes payable issued in acquisition of land
    
    $
    
    
    
    $
    
    
    
    $
    800Accrual of
contingent purchase price to be settled in shares of Martek common stock
    
    $
    10,167
    
    
    $
    
    
    
    $
    
 See accompanying notes.
 53




---



##### 



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
  Shipping Income and Costs
 54




---



##### 



Foreign Currency Transactions and Hedging Activities
  Research and Development
 Advertising
 Other Operating Expenses
 Deferred Income Taxes
 Equity-Based Compensation
 Net Income Per Share
 Comprehensive Income
 Cash and Cash Equivalents
 Short-Term Investments and Marketable Securities
  55




---



##### 



Fair Value of Financial Instruments
 Trade Receivables
 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
  Patent Costs
 Goodwill and Other Intangible Assets
 56




---



##### 



Impairment of Long-Lived Assets
 Recently Issued Accounting Pronouncements
     Reclassification
 3. EQUITY-BASED COMPENSATION
    Year ended October 31,2007
    
    
    2006
    
    
    2005Net income, as reported
    
    $
    32,013
    
    
    $
    14,938
    
    
    $
    15,284Deduct: Total equity-based employee compensation expense
determined under fair value-based methods for all awards
    
    
    
    
    
    
    
    
    
    
    (58,349
    )Pro forma net income (loss)
    
    $
    32,013
    
    
    $
    14,938
    
    
    $
    (43,065
    )Net income (loss) per share:Basic  as reported
    
    $
    0.99
    
    
    $
    0.47
    
    
    $
    0.49Basic  pro forma
    
    $
    0.99
    
    
    $
    0.47
    
    
    $
    (1.38
    )Diluted  as reported
    
    $
    0.98
    
    
    $
    0.46
    
    
    $
    0.48Diluted  pro forma
    
    $
    0.98
    
    
    $
    0.46
    
    
    $
    (1.38
    )
 57




---



##### 



Year ended October 31,2006
    
    2005Expected volatility
    
    
    61.1
    %
    
    
    62.7
    %Risk-free interest rate
    
    
    4.7
    %
    
    
    3.9
    %Expected life of options
    
    5 years
    
    5 yearsExpected dividend yield
    
    
    0
    %
    
    
    0
    %Forfeiture rate
    
    
    1
    %
    
    
    2
    %
 Expected Volatility
 Risk-Free Interest Rate
 Expected Life of Options
 Expected Dividend Yield
 Forfeiture Rate
  Equity-Based Compensation Plans
   58




---



##### 



Restricted Stock Units
  Weighted AverageNumber of
    
    
    Grant Date FairShares
    
    
    Value /ShareRestricted stock units at October 31, 2006
    
    
    
    
    
    $
    Granted
    
    
    281
    
    
    $
    22.69Vested
    
    
    
    
    
    $
    Cancelled
    
    
    (17
    )
    
    $
    22.54Restricted stock units at October 31, 2007
    
    
    264
    
    
    $
    22.70
  Stock Options
 Weighted AverageRemainingNumber of
    
    
    Weighted Average
    
    
    Aggregate
    
    
    ContractualShares
    
    
    Price/Share
    
    
    Intrinsic Value
    
    
    Term (years)Options outstanding at October 31, 2004
    
    
    4,050
    
    
    $
    33.91Options exercisable at October 31, 2004
    
    
    2,138
    
    
    $
    26.33Granted
    
    
    700
    
    
    $
    48.69Exercised
    
    
    (779
    )
    
    $
    23.98Cancelled
    
    
    (47
    )
    
    $
    44.79Options outstanding at October 31, 2005
    
    
    3,924
    
    
    $
    38.39Options exercisable at October 31, 2005
    
    
    3,438
    
    
    $
    40.14Granted
    
    
    59
    
    
    $
    31.71Exercised
    
    
    (98
    )
    
    $
    24.92Cancelled
    
    
    (171
    )
    
    $
    40.21Options outstanding at October 31, 2006
    
    
    3,714
    
    
    $
    38.56Options exercisable at October 31, 2006
    
    
    3,466
    
    
    $
    39.32Granted
    
    
    
    
    
    $
    Exercised
    
    
    (179
    )
    
    $
    15.34Cancelled
    
    
    (458
    )
    
    $
    44.72Options outstanding at October 31, 2007
    
    
    3,077
    
    
    $
    38.99
    
    
    $
    12,060
    
    
    
    5.5Options exercisable at October 31, 2007
    
    
    3,009
    
    
    $
    39.17
    
    
    $
    11,688
    
    
    
    5.5
  59




---



##### 



4. DSM SUPPLY AND LICENSE AGREEMENT
    5. SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
  6. INVENTORIES
  October 31,2007
    
    
    2006Finished goods
    
    $
    57,852
    
    
    $
    42,328Work in process
    
    
    48,721
    
    
    
    66,968Raw materials
    
    
    2,836
    
    
    
    3,024Total inventories, net
    
    
    109,409
    
    
    
    112,320Less: long-term portion
    
    
    
    
    
    
    (12,000
    )Inventories, net
    
    $
    109,409
    
    
    $
    100,320
   60




---



##### 



7. PROPERTY, PLANT AND EQUIPMENT
  October 31,2007
    
    
    2006Land
    
    $
    2,320
    
    
    $
    2,320Building and improvements
    
    
    63,892
    
    
    
    61,855Machinery and equipment
    
    
    256,739
    
    
    
    248,107Furniture and fixtures
    
    
    3,143
    
    
    
    2,716Computer hardware and software
    
    
    13,929
    
    
    
    11,413340,023
    
    
    
    326,411Less: accumulated depreciation and amortization
    
    
    (70,459
    )
    
    
    (50,473
    )269,564
    
    
    
    275,938Construction in progress
    
    
    8,351
    
    
    
    10,984Property, plant and equipment, net
    
    $
    277,915
    
    
    $
    286,922
   8. GOODWILL AND OTHER INTANGIBLE ASSETS
  October 31, 2007
    
    
    October 31, 2006Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedIntangible Asset
    
    Gross
    
    
    Amortization
    
    
    Net
    
    
    Gross
    
    
    Amortization
    
    
    NetTrademarks
    
    $
    2,098
    
    
    $
    (691
    )
    
    $
    1,407
    
    
    $
    2,053
    
    
    $
    (545
    )
    
    $
    1,508Patents
    
    
    22,226
    
    
    
    (5,594
    )
    
    
    16,632
    
    
    
    19,233
    
    
    
    (1,835
    )
    
    
    17,398Core technology
    
    
    1,708
    
    
    
    (569
    )
    
    
    1,139
    
    
    
    1,708
    
    
    
    (455
    )
    
    
    1,253Current products
    
    
    10,676
    
    
    
    (3,940
    )
    
    
    6,736
    
    
    
    10,676
    
    
    
    (3,228
    )
    
    
    7,448Licenses
    
    
    10,996
    
    
    
    (2,590
    )
    
    
    8,406
    
    
    
    11,091
    
    
    
    (1,870
    )
    
    
    9,221Goodwill
    
    
    51,564
    
    
    
    
    
    
    
    51,564
    
    
    
    48,603
    
    
    
    
    
    
    
    48,603$
    99,268
    
    
    $
    (13,384
    )
    
    $
    85,884
    
    
    $
    93,364
    
    
    $
    (7,933
    )
    
    $
    85,431
    61




---



##### 



9. ACCRUED LIABILITIES
  October 31,2007
    
    
    2006Salaries and employee benefits
    
    $
    9,398
    
    
    $
    12,328OmegaTech contingent share issuance
    
    
    10,167
    
    
    
    Inventory receipt obligations
    
    
    
    
    
    
    3,094Other
    
    
    5,589
    
    
    
    8,676$
    25,154
    
    
    
    24,098
  10. NOTES PAYABLE AND LONG-TERM DEBT
    Fiscal Year2008
    
    $
    6782009
    
    
    7,7772010
    
    
    1832011
    
    
    1002012
    
    
    105Thereafter
    
    
    521$
    9,364
   62




---



##### 



11. RESTRUCTURING CHARGE
     EmployeeSeparation
    
    
    AssetCosts
    
    
    Write-down
    
    
    Other
    
    
    TotalInitial charge in the fourth quarter of fiscal 2006
    
    $
    2,032
    
    
    $
    2,568
    
    
    $
    129
    
    
    $
    4,729Cash payments
    
    
    (60
    )
    
    
    
    
    
    
    (55
    )
    
    
    (115
    )Asset write-down
    
    
    
    
    
    
    (2,568
    )
    
    
    
    
    
    
    (2,568
    )Liability for restructuring costs at October 31, 2006
    
    
    1,972
    
    
    
    
    
    
    
    74
    
    
    
    2,046Costs incurred
    
    
    
    
    
    
    
    
    
    
    853
    
    
    
    853Cash payments
    
    
    (1,946
    )
    
    
    
    
    
    
    (927
    )
    
    
    (2,873
    )Adjustments
    
    
    (26
    )
    
    
    
    
    
    
    
    
    
    
    (26
    )Liability for restructuring costs at October 31, 2007
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 12. COMMITMENTS AND CONTINGENCIES
 Leases
    Fiscal Year2008
    
    $
    1,0542009
    
    
    9512010
    
    
    9532011
    
    
    2672012
    
    
    40Thereafter
    
    
    301$
    3,566
 Scientific Research Collaborations
 63




---



##### 



Purchase Commitments
 OmegaTech Contingent Purchase Price
  Patent Infringement Litigation
   Class Action Lawsuit
  Other
 64




---



##### 



13. LICENSE AGREEMENTS
  14. NET INCOME PER SHARE
   Year ended October 31,2007
    
    
    2006
    
    
    2005Net income
    
    $
    32,013
    
    
    $
    14,938
    
    
    $
    15,284Weighted average shares outstanding, basic
    
    
    32,336
    
    
    
    32,113
    
    
    
    31,164Effect of dilutive potential common shares:Stock options
    
    
    223
    
    
    
    230
    
    
    
    849Restricted stock units
    
    
    34
    
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    
    
    
    
    19Total dilutive potential common shares
    
    
    257
    
    
    
    230
    
    
    
    868Weighted average shares outstanding, diluted
    
    
    32,593
    
    
    
    32,343
    
    
    
    32,032Net income per share, basic
    
    $
    0.99
    
    
    $
    0.47
    
    
    $
    0.49Net income per share, diluted
    
    $
    0.98
    
    
    $
    0.46
    
    
    $
    0.48
  15. STOCKHOLDERS EQUITY
 Issuance of Common Stock
  Stockholder Rights Plan
     65




---



##### 



16. INCOME TAXES
  Year ended October 31,2007
    
    
    2006
    
    
    2005Current provision:Federal
    
    $
    530
    
    
    $
    280
    
    
    $
    State
    
    
    43
    
    
    
    11
    
    
    
    8Deferred provision:Federal
    
    
    850
    
    
    
    8,098
    
    
    
    8,503State
    
    
    236
    
    
    
    199
    
    
    
    275Income tax provision
    
    $
    1,659
    
    
    $
    8,588
    
    
    $
    8,786
  Year ended October 31,2007
    
    
    2006
    
    
    2005Federal income tax expense at 35%
    
    $
    11,785
    
    
    $
    8,234
    
    
    $
    8,425State taxes, net of Federal benefit
    
    
    351
    
    
    
    210
    
    
    
    283Change in valuation allowance
    
    
    (10,841
    )
    
    
    
    
    
    
    Other
    
    
    364
    
    
    
    144
    
    
    
    78Income tax provision
    
    $
    1,659
    
    
    $
    8,588
    
    
    $
    8,786
  66




---



##### 



October 31,2007
    
    
    2006Deferred tax assets:Accruals and reserves
    
    $
    1,546
    
    
    $
    1,815Patents and trademarks
    
    
    
    
    
    
    309Net operating loss carryforwards
    
    
    61,484
    
    
    
    66,437Deferred revenue
    
    
    4,064
    
    
    
    4,271Equity-based compensation
    
    
    2,100
    
    
    
    1,306Other
    
    
    318
    
    
    
    79Total assets
    
    
    69,512
    
    
    
    74,217Deferred tax liabilities:Property, plant and equipment
    
    
    (11,476
    )
    
    
    (8,863
    )Patents and trademarks
    
    
    (1,257
    )
    
    
    Acquired intangibles
    
    
    (2,813
    )
    
    
    (3,051
    )Goodwill
    
    
    (1,096
    )
    
    
    (816
    )Other
    
    
    (14
    )
    
    
    (101
    )Total liabilities
    
    
    (16,656
    )
    
    
    (12,831
    )Total deferred tax asset
    
    
    52,856
    
    
    
    61,386Valuation allowance
    
    
    (1,550
    )
    
    
    (18,586
    )Deferred tax asset, net of valuation allowance
    
    
    51,306
    
    
    
    42,800Less: current deferred tax asset
    
    
    (14,549
    )
    
    
    (9,487
    )Long-term deferred tax asset
    
    $
    36,757
    
    
    $
    33,313
    17. EMPLOYEE 401(K) PLAN
  67




---



##### 



18. QUARTERLY FINANCIAL INFORMATION (unaudited)
  1st
    
    
    2nd
    
    
    3rd
    
    
    4thQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter2007Total revenues
    
    $
    70,261
    
    
    $
    76,686
    
    
    $
    77,846
    
    
    $
    82,020Cost of revenues
    
    
    46,392
    
    
    
    50,009
    
    
    
    47,898
    
    
    
    49,020Income from operations
    
    
    4,758
    
    
    
    8,077
    
    
    
    9,905
    
    
    
    12,021Net income
    
    
    2,750
    
    
    
    4,869
    
    
    
    6,126
    
    
    
    18,268
    (1)Net income per share, basic
    
    
    0.09
    
    
    
    0.15
    
    
    
    0.19
    
    
    
    0.56
    (1)Net income per share, diluted
    
    
    0.08
    
    
    
    0.15
    
    
    
    0.19
    
    
    
    0.55
    (1)2006Total revenues
    
    $
    62,892
    
    
    $
    70,218
    
    
    $
    70,358
    
    
    $
    67,186Cost of revenues
    
    
    39,489
    
    
    
    44,293
    
    
    
    44,952
    
    
    
    44,542Income (loss) from operations
    
    
    8,015
    
    
    
    8,962
    
    
    
    7,640
    
    
    
    437
    (2)Net income (loss)
    
    
    4,770
    
    
    
    5,451
    
    
    
    4,615
    
    
    
    102
    (2)Net income (loss) per share, basic
    
    
    0.15
    
    
    
    0.17
    
    
    
    0.14
    
    
    
    0.00Net income (loss) per share, diluted
    
    
    0.15
    
    
    
    0.17
    
    
    
    0.14
    
    
    
    0.00
 
 (1)
    
    In the fourth quarter of fiscal 2007, Martek recognized an income tax benefit of $10.8 million
related to the reversal of valuation allowance (see Note 16).(2)
    
    In the fourth quarter of fiscal 2006, Martek recognized a charge of $4.7 million related to the
restructuring of plant operations (see Note 11). 68




---



##### 



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. As of the end of the period covered
by this report, we carried out an evaluation under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures pursuant to
Exchange Act rules 13a15 (e) and 15d15 (e). Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer 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. Financial Statements and
Supplementary Data of this Annual Report on 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. Financial Statements and Supplementary Data of this Annual Report on 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.
  69




---



##### 



PART III
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
  Election of Directors
Board Committees
Section 16(a) Beneficial Ownership Reporting Compliance
 http://www.martek.com
 ITEM 11. EXECUTIVE COMPENSATION.
  Directors Compensation
Executive 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, AND DIRECTOR INDEPENDENCE.
  Transactions with Related Persons
Director Independence
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
  Independent Auditors
 70




---



##### 



PART IV
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
    Schedule II Valuation and Qualifying Accounts- Years Ended October 31, 2007 and 2006
    
    
    72
    71




---



##### 



In thousands
    
    Balance atBeginning of
    
    
    
    
    
    
    
    
    
    Balance at End ofDescription
    
    Year
    
    Additions
    
    Deductions
    
    YearYear ended October 31, 2007:Deferred tax
valuation allowance
    
    $
    18,586
    
    
    $
    
    
    
    $
    (17,036
    )
    
    $
    1,550Reserve for
inventory
obsolescence
    
    $
    1,600
    
    
    $
    900
    
    
    $
    (1,200
    )
    
    $
    1,300Year ended October 31, 2006:Deferred tax
valuation allowance
    
    $
    23,832
    
    
    $
    
    
    
    $
    (5,246
    )
    
    $
    18,586Reserve for
inventory
obsolescence
    
    $
    1,500
    
    
    $
    500
    
    
    $
    (400
    )
    
    $
    1,600
 72




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##### 



SIGNATURES
  MARTEK BIOSCIENCES CORPORATIONBy
    /s/ Steve DubinSteve DubinChief Executive Officer and Director  Signatures
    
    Title
    
    Date/s/ Steve Dubin

Steve Dubin
    
    Chief Executive Officer
and Director (Principal
Executive Officer)
    
    December 28, 2007/s/ Peter L. Buzy

Peter L. Buzy
    
    Chief Financial Officer,
Treasurer and Executive
Vice President for
Finance and Administration
(Principal Financial
Officer and Accounting
Officer)
    
    December 28, 2007/s/ James R. Beery
 James
R. Beery
    
    Director
    
    December 28, 2007/s/ Harry J. DAndrea
 Harry
J. DAndrea
    
    Director
    
    December 28, 2007/s/ Robert J. Flanagan
 Robert
J. Flanagan
    
    Director
    
    December 28, 2007/s/ Polly B. Kawalek
 Polly
B. Kawalek
    
    Director
    
    December 28, 2007/s/ Jerome C. Keller
 Jerome
C. Keller
    
    Director
    
    December 28, 2007
 73




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##### 



Signatures
    
    Title
    
    Date/s/ Douglas J. MacMaster, Jr.
 Douglas
J. MacMaster, Jr.
    
    Director
    
    December 28, 2007/s/ Eugene H. Rotberg
 Eugene
H. Rotberg
    
    Director
    
    December 28, 2007
 74




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##### 



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 Elimination of Series A Junior Participating Preferred Stock (filed as Exhibit
3.2 to the Companys current report on Form 8-K, File No. 0-22354, filed on February 8, 2006,
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. 0-22354, for the
quarter ended January 31, 2002, and incorporated by reference herein).3.05
    
    Amended By-Laws of Registrant (filed as exhibit 3.1 to the Companys current report on Form
8-K, File No. 0-22354, filed on September 27, 2006, and incorporated by reference herein).3.06
    
    Certificate of Designation, Preferences and Rights of Series B Junior Participating Preferred
Stock (filed as Exhibit 3.1 to the Companys current report on Form 8-K, File No. 0-22354,
filed on February 8, 2006, and incorporated by reference herein).4.01
    
    Specimen Stock Certificate for Common Stock.4.02
    
    Rights Agreement, dated as of February 7, 2006, between the Company and Registrar and
Transfer Company, as Rights Agent (filed as Exhibit 4.1 to the Companys current report on
Form 8-K, File No. 0-22354, filed on February 8, 2006, and incorporated by reference herein).10.01
    
    Form Indemnification Agreement for directors.10.02
    
    1986 Stock Option Plan, as amended. +10.03
    
    Form of Proprietary Information, Inventions and Non-Solicitation Agreement.10.04
    
    Lease, commencement date October 15, 1992, between the Company and Aetna Life Insurance
Company, as modified on August 5, 1993.10.05
    
    License Agreement, dated September 10, 1992, between the Company and Bestuurcentrum Der
Verenigde Bedrijven Nutricia B.V. (filed as Exhibit 10.01 to the Companys current report on
Form 8-K, File No. 0-22354, dated December 15, 2006 and incorporated by reference herein).*10.05A
    
    Exhibits to September 10, 1992 License Agreement between the Company and Bestuurcentrum Der
Verenigde Bedrijven Nutricia B.V.*10.06
    
    License Agreement, dated October 28, 1992, between the Company and Mead Johnson & Company
(filed as Exhibit 10.02 to the Companys current report on Form 8-K, File No. 0-22354, dated
December 15, 2006 and incorporated by reference herein).*10.06A
    
    Exhibits to October 28, 1992 License Agreement between the Company and Mead Johnson &
Company.*10.07
    
    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) (filed as Exhibit 10.03 to the Companys current report on Form 8-K, File No.
0-22354, dated December 15, 2006 and incorporated by reference herein).*10.07A
    
    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).*10.08
    
    Lease Modification Agreement, dated October 14, 1993 between the Company and Aetna Life
Insurance Company.
 1




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##### 



EXHIBITNUMBER#
    
    DESCRIPTION10.09
    
    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 annual report on Form 10-K,
File No. 0-22354, for the year ended October 31,1995, and incorporated by reference herein).10.10
    
    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). +10.11
    
    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). +10.12
    
    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 annual report on Form 10-K, File
No. 0-22354, for the year ended October 31, 1997, and incorporated by reference herein).10.13
    
    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 annual report on Form 10-K, File
No. 0-22354, for the year ended October 31, 1998, and incorporated by reference herein).10.14
    
    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).10.15
    
    Martek Biosciences Corporation 2001 Stock Option Plan (filed as Exhibit 10.01 to the
Companys Registration Statement on Form S-8, File No. 333-74092, filed on November 28, 2001,
and incorporated by reference herein). +10.16
    
    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 current report on
Form 8-K, File No. 0-22354, dated March 2, 2001 and incorporated by reference herein).10.17
    
    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 annual report on Form
10-K, File No. 0-22354, for the year ended October 31, 2001, and incorporated by reference
herein).10.18
    
    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 annual report on
Form 10-K, File No. 0-22354, for the year ended October 31, 2001, and incorporated by
reference herein).10.19
    
    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.0-22354, for the quarter ended April 30, 2002, and incorporated by reference
herein). +10.20
    
    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. 0-22354, for the quarter ended April
30, 2002, and incorporated by reference herein). +10.21
    
    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. 0-22354, for the
quarter ended April 30, 2002, and incorporated by reference herein). +10.22
    
    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. 0-22354, for the
quarter ended April 30, 2002, and incorporated by reference herein).*10.23
    
    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. 0-22354, filed on May 3, 2002 and incorporated by reference herein).10.24
    
    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.
0-22354, filed on May 3, 2002 and incorporated by reference herein).
 2




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##### 



EXHIBITNUMBER#
    
    DESCRIPTION10.25
    
    Martek Biosciences Corporation 2002 Stock Incentive Plan (filed as Exhibit 1 to the
Companys Definitive Proxy, Schedule 14A, File No. 0-22354, filed on February 8, 2002 and
incorporated by reference herein). +10.26
    
    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. 0-22354, filed on
July 31, 2002 and incorporated by reference herein).10.27
    
    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. 0-22354, for the
year ended October 31, 2002, and incorporated by reference herein).10.28
    
    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. 0-22354, for the
quarter ended April 30, 2003, and incorporated by reference herein).*10.29
    
    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. 0-22354, for the quarter ended July
31, 2003, and incorporated by reference herein). +10.30
    
    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. 0-22354, for the year ended October 31, 2003, and incorporated by
reference herein).10.31
    
    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. 0-22354, for the quarter ended April 30, 2004, and incorporated by reference
herein). *10.32
    
    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. 0-22354, for
the quarter ended April 30, 2004, and incorporated by reference herein).10.33
    
    Form of Nonqualified 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. 0-22354, for the year ended October 31, 2004, and incorporated by reference
herein). +10.34
    
    Form of Nonqualified 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. 0-22354, for the year ended October 31, 2004, and incorporated by reference herein). +10.35
    
    Martek Biosciences Corporation Amended and Restated 2004 Stock Incentive Plan (filed as
Appendix A to the Companys Definitive Proxy, Schedule 14A, File No. 0-22354, filed on
February 8, 2005 and incorporated by reference herein). +10.36
    
    Form of Nonqualified Stock Option Agreement under Martek Biosciences Corporation Amended and
Restated 2004 Stock Incentive Plan (filed as Exhibit 10.03 to the Companys Registration
Statement on Form S-8, File No. 333-125802, filed June 14, 2005, and incorporated by
reference herein). +10.37
    
    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. 0-22354, filed on October 6, 2005 and incorporated by reference
herein).10.37A
    
    Form of Revolving Loan Promissory Note (filed as Exhibit 10.1A to the Companys current
report on Form 8-K, File No. 0-22354, filed on October 6, 2005 and incorporated by reference
herein).
 3




---



##### 



EXHIBITNUMBER#
    
    DESCRIPTION10.37B
    
    Form of Guaranty Agreement (filed
as Exhibit 10.1B to the Companys current report on Form 8-K,
File No. 0-22354, filed on October 6, 2005 and incorporated by reference herein).10.37C
    
    Form of Security Agreement from Guarantors (filed as Exhibit 10.1C to the Companys current
report on Form 8-K, File No. 0-22354, filed on October 6, 2005 and incorporated by reference
herein).10.37D
    
    Form of Stock Pledge Agreement (filed as Exhibit 10.1D to the Companys current report on
Form 8-K, File No. 0-22354, filed on October 6, 2005 and incorporated by reference herein).10.37E
    
    Form of Lender Assignment and
Acceptance Agreement (filed as Exhibit 10.1E to the Companys
current report on Form 8-K, File No. 0-22354, filed on October 6, 2005 and incorporated by
reference herein).10.38
    
    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. 0-22354, filed on October 6, 2005 and incorporated by reference herein).10.39
    
    First Amendment to ARA Alliance, Purchase, and Production Agreement (filed as Exhibit 10.01
to the Companys quarterly report on Form 10-Q, File No. 0-22354, for the quarter ended
January 31, 2006, and incorporated by reference herein). *10.40
    
    Supply Agreement with Mead Johnson & Company dated May 17, 2006 (filed as Exhibit 10.01 to
the Companys quarterly report on Form 10-Q, File No. 0-22354, for the quarter ended April 30,
2006, and incorporated by reference herein).*10.41
    
    Letter Agreement between the Company and Henry Pete Linsert, Jr. dated May 18, 2006 (filed
as Exhibit 10.02 to the Companys quarterly report on Form 10-Q, File No. 0-22354, for the
quarter ended April 30, 2006, and incorporated by reference herein). +10.42
    
    Form of Employment Agreement between the Company and Peter L. Buzy dated November 10, 2006
(filed as Exhibit 10.42 to the Companys annual report on Form 10-K, File No. 0-22354, for the
year ended October 31, 2006, and incorporated by reference herein). +10.43
    
    Form of Employment Agreement between the Company and Steve Dubin dated December 21, 2006.
(filed as Exhibit 10.43 to the Companys annual report on Form 10-K, File No. 0-22354, for the
year ended October 31, 2006, and incorporated by reference herein). +10.44
    
    Form of Employment Agreement between the Company and Peter A. Nitze dated November 10, 2006
(filed as Exhibit 10.44 to the Companys annual report on Form 10-K, File No. 0-22354, for the
year ended October 31, 2006, and incorporated by reference herein). +10.45
    
    Form of Employment Agreement between the Company and David Abramson dated November 10, 2006
(filed as Exhibit 10.45 to the Companys annual report on Form 10-K, File No. 0-22354, for the
year ended October 31, 2006, and incorporated by reference herein). +10.46
    
    Form of Restricted Stock Unit Agreement for executives under the Martek Bioscience
Corporation Amended and Restated 2004 Stock Incentive Plan (filed as Exhibit 10.01 to the
Companys quarterly report on Form 10-Q, File No. 0-22354, for the quarter ended January 31,
2007, and incorporated by reference herein). +10.47
    
    Form of Restricted Stock Unit Agreement for directors under the Martek Bioscience
Corporation Amended and Restated 2004 Stock Incentive Plan (filed as Exhibit 10.02 to the
Companys quarterly report on Form 10-Q, File No. 0-22354, for the quarter ended January 31,
2007, and incorporated by reference herein). +10.48
    
    Second Amendment to the ARA Alliance, Purchase, and Production Agreement by and between DSM
Food Specialties B.V. and the Company (filed as Exhibit 10.01 to the Companys quarterly
report on Form 10-Q, File No. 0-22354, for the quarter ended July 31, 2007, and incorporated
by reference herein).*10.49
    
    Supply Agreement, executed October 5, 2007 and effective January 1, 2007, by and between
Abbott Nutrition, a division of Abbott Laboratories, and the Company.** ^10.50
    
    Settlement Agreement and Release, dated October 15, 2007, by and between the Company, Robert
Zuccaro, on his own behalf and as Stockholders Representative of certain former interest
holders of OmegaTech, Inc.**
 4




---



##### 



EXHIBITNUMBER#
    
    DESCRIPTION21.01
    
    Subsidiaries of the Registrant. **23.01
    
    Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.**31.01
    
    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).**31.02
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).**32.01
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **32.02
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
 
 *
    
    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.^
    
    Confidential treatment was requested for certain portions of this agreement. The confidential
portions were filed separately with the Commission.#
    
    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