10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From              to             .

Commission file number: 001-14003

OMEGA PROTEIN CORPORATION

(Exact name of Registrant as specified in its charter)

State of Nevada	76-0562134
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2105 City West Blvd., Suite 500 Houston, Texas	77042-2838
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (713) 623-0060

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  Yes  ¨    No  x.

Number of shares outstanding of the Registrant’s Common Stock, par value $0.01 per share, on May 3, 2010: 18,819,278.

OMEGA PROTEIN CORPORATION

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheet as of March 31, 2010 and December 31, 2009	3
Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income for the three months ended March 31, 2010 and 2009	4
Unaudited Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2010 and 2009	5
Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3. Quantitative and Qualitative Disclosures About Market Risk	29
Item 4. Controls and Procedures	29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	30
Item 1A. Risk Factors	30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3. Defaults Upon Senior Securities	31
Item 4. Removed and Reserved	31
Item 5. Other Information	31
Item 6. Exhibits	32
Signatures	33

2

OMEGA PROTEIN CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

(Dollars in thousands, except per share amounts)

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements and Notes

	March 31, 2010			December 31, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	6,034		$	2,177
Receivables, net		12,879			11,614
Inventories		59,154			63,826
Deferred tax asset, net		3,654			3,426
Prepaid expenses and other current assets		2,628			2,846
Total current assets		84,349			83,889
Other assets, net		3,648			3,301
Energy swap asset, net of current portion		392			229
Property, plant and equipment, net		110,793			110,625
Total assets	$	199,182		$	198,044
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	2,409		$	2,380
Current portion of capital lease obligation		387			369
Accounts payable		2,523			2,392
Accrued liabilities		17,515			16,952
Total current liabilities		22,834			22,093
Long-term debt, net of current maturities		22,680			23,540
Capital lease obligation, net of current portion		1,164			1,265
Interest rate swap liability, net of current portion		365			395
Deferred tax liability, net		5,148			4,540
Pension liabilities, net		8,452			9,185
Total liabilities		60,643			61,018
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value; 10,000,000 authorized shares; none issued		—			—
Common Stock, $0.01 par value; 80,000,000 authorized shares; 18,809,278 and 18,727,466 shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively		188			187
Capital in excess of par value		115,442			114,772
Retained earnings		30,792			29,813
Accumulated other comprehensive loss		(7,883	)		(7,746	)
Total stockholders’ equity		138,539			137,026
Total liabilities and stockholders’ equity	$	199,182		$	198,044

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

3

OMEGA PROTEIN CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

(Dollars in thousands, except per share amounts)

	Three Months Ended
	March 31,
	2010			2009
Revenues	$	32,272		$	30,153
Cost of sales		26,302			24,332
Gross profit		5,970			5,821
Selling, general, and administrative expense		3,267			3,406
Research and development expense		435			357
(Other proceeds) loss resulting from natural disaster, net – 2008 storms		(117	)		407
(Other proceeds) relating to natural disasters, net – 2005 storms		—			(2,656	)
Loss (gain) on disposal of assets		116			(18	)
Operating income		2,269			4,325
Interest income		2			83
Interest expense		(646	)		(899	)
Other expense, net		(89	)		(94	)
Income before income taxes		1,536			3,415
Provision for income taxes		557			1,316
Net income		979			2,099
Other comprehensive income (loss):
Energy swap adjustment, net of tax benefit of $168 and $122, respectively		(327	)		(240	)
Interest rate swap adjustment, net of tax expense of $0 and $41, respectively		—			80
Pension benefits adjustment, net of tax expense of $97 and $104, respectively		190			203
Comprehensive income	$	842		$	2,142
Basic earnings per share	$	0.05		$	0.11
Weighted average common shares outstanding		18,739			18,712
Diluted earnings per share	$	0.05		$	0.11
Weighted average common shares and potential common share equivalents outstanding		18,773			18,732

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

4

OMEGA PROTEIN CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollars in thousands, except per share amounts)

	Three Months Ended March  31,
	2010			2009
Cash flow provided by (used in) operating activities:
Net income	$	979		$	2,099
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,429			3,257
(Other proceeds) loss resulting from natural disaster, net – 2008 storms		(117	)		287
(Other proceeds) relating to natural disasters, net – 2005 storms		—			(2,656	)
Loss (gain) on disposal of assets		116			(18	)
Provisions for losses on receivables		12			12
Share based compensation		352			150
Deferred income taxes		549			1,390
Changes in assets and liabilities:
Receivables		(1,277	)		9,541
Inventories		4,672			7,243
Prepaid expenses and other current assets		(440	)		339
Other assets		(680	)		(15	)
Accounts payable		131			144
Accrued liabilities		533			(5,189	)
Pension liability, net		(543	)		312
Total adjustments		6,737			14,797
Net cash provided by operating activities		7,716			16,896
Cash flow (used in) provided by investing activities:
Proceeds from insurance companies and grants, hurricanes		117			10,156
Proceeds from disposition of assets		16			18
Capital expenditures		(3,396	)		(6,344	)
Net cash (used in) provided by investing activities		(3,263	)		3,830
Cash flow (used in) provided by financing activities:
Principal payments of long-term debt		(831	)		(1,950	)
Principal payments of capital lease obligation		(83	)		(67	)
Proceeds from stock options exercised		285			—
Tax effect of stock options exercised		33			—
Net cash used in financing activities		(596	)		(2,017	)
Net increase in cash and cash equivalents		3,857			18,709
Cash and cash equivalents at beginning of year		2,177			13,995
Cash and cash equivalents at end of period	$	6,034		$	32,704

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

5

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Significant Accounting Policies

Summary Of Operations And Basis Of Presentation

Business Description

Omega Protein Corporation (“Omega” or the “Company”) produces and markets a variety of products produced from menhaden (a herring-like species of fish found in commercial quantities in the U.S. coastal waters of the Atlantic Ocean and Gulf of Mexico), including regular grade and value-added specialty fish meals, crude and refined fish oils and fish solubles. The Company’s fish meal products are primarily used as a protein ingredient in animal feed for swine, cattle, aquaculture and household pets. Fish oil is utilized for animal and aquaculture feeds, industrial applications, as well as for additives to human food products and dietary supplements. The Company’s fish solubles are sold primarily to livestock feed manufacturers, aquaculture feed manufacturers and for use as an organic fertilizer.

Basis of Presentation

These interim financial statements of Omega have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, the instructions to Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally provided have been omitted. The interim financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2009. The year end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the Company’s consolidated financial position as of March 31, 2010, and the results of its operations for the three months ended March 31, 2010 and 2009, and its cash flows for the three month periods ended March 31, 2010 and 2009. Operating results are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.

Consolidation

The consolidated financial statements include the accounts of Omega and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Financial Statement Preparation

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Company’s financial statements and the accompanying notes and the reported amounts of revenues and expenses during the reporting period. Actual amounts, when available, could differ from those estimates and those differences could have a material affect on the financial statements.

6

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Hurricane Losses, Insurance Recoveries and Other Proceeds

2008 Hurricane Activity

On February 4, 2010, the Company received a grant of $0.1 million from the State of Louisiana Hurricane Gustav and Ike Fisheries Recovery Program which was recognized as “(Other proceeds) loss resulting from natural disaster, net – 2008 storms” in the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income for the three months ended March 31, 2010. The grant provides assistance for commercial fishing owners impacted by Hurricanes Gustav and Ike in 2008. This amount represents approximately 50% of the total grant expected to be received in 2010.

2005 Hurricane Activity

During the first quarter 2009, the Company received a grant of $2.7 million, net of fees and expenses, from the State of Mississippi. The grant provided assistance for commercial fishing owners impacted by Hurricane Katrina in 2005. The Mississippi grant was recognized as “(Other proceeds) relating to natural disasters, net – 2005 storms” in the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income for the three months ended March 31, 2009.

On August 31, 2007, the Company filed a lawsuit in the District Court of Harris, Texas 295th Judicial District, against its prior insurance broker, Aon Risk Services of Texas, who procured the Company’s property insurance policies for the 2005/2006 policy year, which were the subject of prior litigation as a result of claims relating to Hurricanes Rita and Katrina. The Company’s lawsuit against Aon alleges negligent procurement, negligent misrepresentation, breach of contract and violations of Texas insurance and consumer protection laws. Trial has been deferred for this matter until October 2010.

Insurance

There have been no material insurance policy changes from those previously disclosed in the Company’s Form 10-K for the fiscal year ended December 31, 2009 except as follows.

Prior to the 2010 fishing season, the Company had maintained business interruption insurance in immaterial amounts. The Company’s insurance coverage for 2010 does not include business interruption insurance.

Interest Rate Swap Agreements

The Company does not enter into financial instruments for trading or speculative purposes. The Company entered into interest rate swap agreements to manage its cash flow exposure to interest rate changes with notional amounts as indicated below that are scheduled to mature in March 2012. As originally established, the swaps effectively converted all the Company’s variable rate debt under the Term Loan to a fixed rate, without exchanging the notional principal amounts. Prior to September 30, 2009, these agreements were designated as a cash flow hedge and reflected at fair value in the Company’s Unaudited Condensed Consolidated Balance Sheet as a component of total liabilities, and the related gains or losses were deferred in stockholders’ equity as a component of accumulated other comprehensive loss.

Date of Contract	Original Notional Amount		Contracted Interest Rate		Notional Amount as of March 31, 2010		Total Asset (Liability)  as of March 31, 2010
April 4, 2007	$	19,950,000	5.16	%	$	13,466,000	$	(835,900	)
February 7, 2008		10,237,500	3.36	%		7,088,000		(250,400	)
March 19, 2008		4,436,250	2.96	%		3,071,000		(90,300	)
					$	23,625,000	$	(1,176,600	)

7

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

On September 24, 2009, the Company paid $16.6 million of the borrowing outstanding under the Term Loan using the Company’s existing cash balances. Additionally, on October 21, 2009, the Company entered into a Loan Agreement with Wells Fargo Bank N.A. which replaced the Senior Credit Facility. The details are described more fully in Note 6 to the consolidated financial statements of the Company’s Form 10-K for the fiscal year ended December 31, 2009. As a consequence of the debt prepayment and refinancing, the Company determined that the forecasted interest payments associated with the interest rate swaps would not occur. As a result, hedge accounting relating to the interest rate swaps was discontinued and all amounts previously recognized in accumulated other comprehensive loss were reclassified to earnings during 2009. The total interest expense associated with the interest rate swap transactions for the three months ended March 31, 2010 and 2009 was $185,000 and $220,000, respectively. The interest rate swap agreements remained outstanding as of March 31, 2010.

As of March 31, 2010 and December 31, 2009, the Company has recorded a long-term liability of $364,500 and $394,600, respectively, net of the current portion included in accrued liabilities of $812,100 and $856,100, respectively, to recognize the fair value of interest rate derivatives. Prior to the quarter ended September 30, 2009, the changes in fair value of the agreements were recorded in “accumulated other comprehensive loss” in the Company’s consolidated financial statements.

The following table illustrates the changes recorded, net of tax, in accumulated other comprehensive loss resulting from the interest rate swap agreements.

	Three Months Ended March  31,
	2010		2009
	(in thousands)
Balance at January 1,	$	—	$	(1,226	)
Net gain (loss), net of tax, reclassified into earnings		—		(145	)
Net change associated with current period swap transactions, net of tax		—		225
Balance at March 31,	$	—	$	(1,146	)

Energy Swap Agreements

The Company does not enter into financial instruments for trading or speculative purposes. The Company has entered into energy swap agreements to manage its cash flow exposure related to the volatility of natural gas, diesel and Bunker C energy prices. The swaps effectively fix pricing for the quantities listed below during the consumption periods.

Energy Swap	Consumption Period	Quantity	Price Per Unit		Energy Swap Asset  (Liability) as of March 31, 2010			Deferred Tax (Asset)  Liability as of March 31, 2010
Diesel - NYMEX Heating Oil Swap	April - October, 2010	1,362,000 Gallons	$	1.86	$	539,400		$	183,400
Natural Gas - NYMEX Natural Gas Swap	April - October, 2010	336,000 MMBTUs	$	6.29		(737,500	)		(250,700	)
Bunker C - Platts Calendar Avg NY Swap	June - November, 2010	1,281,000 Gallons	$	1.52		475,500			161,700
Diesel - NYMEX Heating Oil Swap	April - October, 2011	1,079,000 Gallons	$	2.01		351,600			119,500
Natural Gas - NYMEX Natural Gas Swap	April - October, 2011	134,000 MMBTUs	$	6.18		(126,800	)		(43,100	)
Bunker C - Platts Calendar Avg NY Swap	June - November, 2011	672,000 Gallons	$	1.77		168,000			57,100
					$	670,200		$	227,900

8

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

As of March 31, 2010 and December 31, 2009, the Company has recorded a long-term asset of $392,000 and $228,800, respectively, net of the current portion included in prepaid expenses and other current assets of $278,200 and $936,900, respectively, to recognize the fair value of energy swap derivatives, and has also recorded a deferred tax liability of $227,900 and $396,300, respectively, associated therewith. The effective portion of the change in fair value from inception to March 31, 2010 is recorded in “accumulated other comprehensive loss” in the Company’s consolidated financial statements. The following table illustrates the changes recorded, net of tax, in accumulated other comprehensive loss resulting from the energy swap agreements.

	Three Months Ended March  31,
	2010			2009
	(in thousands)
Balance at January 1,	$	769		$	—
Net change associated with current period swap transactions, net of tax		(327	)		(240	)
Balance at March 31,	$	442		$	(240	)

The $442,300 reported in accumulated other comprehensive loss as of March 31, 2010 will be reclassified to unallocated inventory cost pool in the period when the energy consumption takes place. The amount to be reclassified, net of taxes, during the next 12 months is expected to be approximately $183,100.

If, at any time, the swaps are determined to be ineffective, in whole or in part, due to changes in the Company’s energy usage or underlying hedge agreements, the fair value of the portion of the energy swaps determined to be ineffective will be recognized as gain or loss in “cost of sales” in the consolidated statement of operations for the applicable period. See Note 13 – Fair Value Disclosures for additional information.

Accumulated Comprehensive Loss

The components of accumulated other comprehensive loss included in shareholder’s equity are as follows:

	March 31,			December 31,
	2010			2009
	(in thousands)
Fair Value of Energy Swaps, net of tax expense of $228 as of March 31, 2010 and $396 as of December 31, 2009	$	442		$	769
Pension Benefits Adjustments, net of tax benefit of $4,290 as of March 31, 2010 and $4,387 as of December 31, 2009		(8,325	)		(8,515	)
Accumulated Other Comprehensive Loss	$	(7,883	)	$	(7,746	)

Recently Issued Accounting Standards

In June 2009, the FASB issued FASB ASC 860-10, “Transfers and Servicing”. The standard will require additional information about transfers of financial assets, including securitization transactions, and enhanced disclosures when companies have continuing exposure to the risks related to transferred financial assets. In addition, it eliminates the concept of a qualifying special-purpose entity. This statement is effective as of the beginning of the first annual reporting period that begins after November 15, 2009, which corresponds to the Company’s fiscal year beginning January 1, 2010. The Company’s adoption of FASB ASC 860-10 effective January 1, 2010 did not have an impact on the Company’s consolidated results of operations, financial position and related disclosures.

9

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

In June 2009, the FASB issued guidance to FASB ASC 810, “Consolidation”. This guidance amends the consolidation guidance for variable interest entities. Also, it will require additional disclosures about involvement with variable interest entities and any significant changes in risk exposure due to that involvement. This guidance is effective as of the beginning of the first annual reporting period that begins after November 15, 2009, which corresponds to the Company’s fiscal year beginning January 1, 2010. The Company’s adoption of FASB ASC 810 effective January 1, 2010 did not have a material impact on the Company’s consolidated results of operations, financial position and related disclosures.

In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, which requires additional fair value disclosures. This guidance requires reporting entities to disclose transfers in and out of Levels 1 and 2 and requires gross presentation of purchases, sales, issuances and settlements in the Level 3 reconciliation of the three-tier fair value hierarchy. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements related to Level 3 activity. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The Company’s adoption of FASB ASU No. 2010-06 effective January 1, 2010 did not have an impact on the Company’s consolidated results of operations, financial position and related disclosures.

In February 2010, the FASB issued ASU No. 2010-09 regarding subsequent events disclosure. This guidance clarifies that an entity that is a Securities and Exchange Commission filer is not required to disclose the date through which subsequent events have been evaluated. This guidance was effective upon issuance, and the Company adopted the provisions effective with the preparation of its audited consolidated financial statements for the year ended December 31, 2009.

Stock-Based Compensation

The Company has a stock-based compensation plan, which is described in more detail in Note 11 to the consolidated financial statements of the Company’s Form 10-K for the fiscal year ended December 31, 2009. Net income for the three months ended March 31, 2010 and 2009 includes $0.4 million and $0.1 million ($0.2 million and $0.1 million after-tax), respectively, of share-based compensation costs which are included in selling, general and administrative expenses in the condensed consolidated statement of operations and comprehensive income. As of March 31, 2010, there was $3.2 million ($2.1 million after-tax) of total unrecognized compensation costs related to nonvested share-based compensation that is expected to be recognized over a weighted-average period of 2.5 years, of which $1.0 million ($0.7 million after-tax) of total share-based compensation is expected to be recognized during the remainder of fiscal year 2010.

Note 2. Receivables, net

Receivables as of March 31, 2010 and December 31, 2009 are summarized as follows:

	March 31,			December 31,
	2010			2009
	(in thousands)
Trade	$	11,531		$	10,202
Insurance		126			34
Employee		2			2
Income tax		1,000			1,013
Other		394			542
Total receivables		13,053			11,793
Less: allowance for doubtful accounts		(174	)		(179	)
Receivables, net	$	12,879		$	11,614

10

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Note 3. Inventory

The major classes of inventory as of March 31, 2010 and December 31, 2009 are summarized as follows:

	March 31,		December 31,
	2010		2009
	(in thousands)
Fish meal	$	10,214	$	27,851
Fish oil		10,447		16,753
Fish solubles		1,290		2,617
Unallocated inventory cost pool (including off-season costs)		27,877		7,362
Other materials & supplies		9,326		9,243
Total inventory	$	59,154	$	63,826

Inventory at March 31, 2010 and December 31, 2009 is stated at the lower of cost or market. The elements of unallocated inventory cost pool include plant and vessel related labor, utilities, rent, repairs and depreciation, to be allocated to inventories produced through the remainder of the 2010 fishing season.

As a result of Hurricane Ike in 2008, the Company sustained additional previously unrecognized damage to its Cameron, Louisiana materials and supplies inventory. The Company recognized a $33,000 material and supply write-off for the three months ended March 31, 2009. See Note 12 – Hurricane Losses, Insurance Recoveries and Other Proceeds.

Note 4. Other Assets

Other assets as of March 31, 2010 and December 31, 2009 are summarized as follows:

	March 31,		December 31,
	2010		2009
	(in thousands)
Fish nets, net of accumulated amortization of $1,332 and $1,059	$	1,179	$	1,292
Insurance receivable, net of allowance for doubtful accounts		1,715		1,292
Title XI loan origination fee		339		285
Other debt issuance costs(1)		349		383
Deposits and other		66		49
Total other assets, net	$	3,648	$	3,301

⁽¹⁾ On October 21, 2009, the Company entered into a Loan Agreement with Wells Fargo Bank N.A., and the remaining outstanding balance under the prior Senior Credit Facility was paid in full. See Note 6 to the consolidated financial statements of the Company’s Form 10-K for the fiscal year ended December 31, 2009 for more detail. Consequently, the unamortized balance of “Other debt issuance costs” incurred in conjunction with the prior Senior Credit Facility on March 26, 2007 was recorded as “Loss resulting from debt refinancing” in the Consolidated Statement of Operations for the year ending December 31, 2009. The deferred debt issuance costs incurred relating to the Loan Agreement with Wells Fargo Bank N.A. was $0.4 million and will be amortized over the term of the agreement.

Amortization expense for fishing nets amounted to approximately $290,100 and $277,000 for the three months ended March 31, 2010 and 2009, respectively.

As of March 31, 2010 and December 31, 2009 the allowance for doubtful insurance receivable accounts was $0.2 million.

11

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Note 5. Property and Equipment

Property and equipment at March 31, 2010 and December 31, 2009 are summarized as follows:

	March 31,			December 31,
	2010			2009
	(in thousands)
Land	$	7,690		$	7,690
Plant assets		111,859			111,401
Fishing vessels		100,003			102,125
Furniture and fixtures		5,791			5,755
Construction in progress		15,115			13,012
Total property and equipment		240,458			239,983
Less: accumulated depreciation		(129,665	)		(129,358	)
Property, plant and equipment, net	$	110,793		$	110,625

Depreciation expense for the three months ended March 31, 2010 and 2009 was $3.1 million and $2.9 million, respectively.

The Company capitalizes interest as part of the acquisition cost of a qualifying asset. Interest is capitalized only during the period of time required to complete and prepare the asset for its intended use. For the three month periods ended March 31, 2010 and 2009, the Company capitalized interest of approximately $58,000 and $159,000, respectively.

As a result of Hurricane Ike in 2008, the Company sustained additional previously unrecognized damage to its property and equipment at its Abbeville and Cameron, Louisiana fish processing facilities. The Company recognized a $287,000 loss on the involuntary conversion of damaged property and equipment related to plant assets in the three months ended March 31, 2009. See Note 12 – Hurricane Losses, Insurance Recovery and Other Proceeds.

Note 6. Notes Payable and Long-Term Debt

At March 31, 2010 and December 31, 2009, the Company’s long-term debt consisted of the following:

	March 31,			December 31,
	2010			2009
	(in thousands)
U.S. government guaranteed obligations (Title XI loans) collateralized by a first lien on certain vessels and certain plant assets:
Amounts due in installments through 2022, interest from 6.49% to 7.60%	$	24,905		$	25,725
Amounts due in installments through 2014, interest at Eurodollar rates plus 0.45% (0.70% and 0.73% at March 31, 2010 and December 31, 2009, respectively)		184			195
Total debt		25,089			25,920
Less current maturities		(2,409	)		(2,380	)
Long-term debt	$	22,680		$	23,540

As of March 31, 2010 and December 31, 2009, the Company had no amounts outstanding under the $35 million revolving credit facility with Wells Fargo Bank, N.A. and approximately $3.0 million in letters of credit issued primarily in support of worker’s compensation insurance programs. The Company has no off-balance sheet arrangements other than normal operating leases and standby letters of credit. Additionally, as of March 31, 2010 the Company was in compliance with all covenants under the Loan Agreement.

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OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Note 7. Capital Lease Obligation

On May 29, 2008 and July 10, 2008, the Company entered into capital lease agreements to lease barges for a period of 5 years. Following is a summary of future minimum payments under the capitalized lease agreements (in thousands):

Remainder of 2010	$	557
2011		587
2012		615
2013		137
Total minimum lease payments		1,896
Less amount representing interest		(345	)
Present value of minimum payments		1,551
Less current portion of capital lease obligation		(387	)
Long-term capital lease obligation	$	1,164

As of March 31, 2010 and December 31, 2009, assets recorded under capital lease obligations are included in Property, Plant and Equipment, net as follows (in thousands):

	March 31,			December 31,
	2010			2009
Fishing vessels and marine equipment, at cost	$	2,076		$	2,076
Less accumulated depreciation		(744	)		(640	)
Property, plant and equipment, net	$	1,332		$	1,436

Note 8. Accrued Liabilities

Accrued liabilities as of March 31, 2010 and December 31, 2009 are summarized as follows:

	March 31,		December 31,
	2010		2009
	(in thousands)
Salary and benefits	$	2,297	$	3,791
Insurance		8,294		7,726
Taxes, other than income tax		469		76
Trade creditors		4,731		3,099
Fair market value of interest rate swap, current portion		812		856
Deferred revenue		649		985
Accrued interest		71		227
Other		192		192
Total accrued liabilities	$	17,515	$	16,952

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OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Note 9. Commitments and Contingencies

Contract Commitments

As of March 31, 2010, the Company has entered into purchase commitments of approximately $0.2 million related to natural gas basis contracts that will be delivered in quantities expected to be used in the normal course of business during the 2010 fishing season.

	Volume	Contract Price		Total Commitment
Natural gas (per MMBTU)	672,836	$	0.37	$	248,949

Note 10. Reconciliation of Basic and Diluted Per Share Data (in thousands except per share data)

	Earnings		Shares	Per Share
	(Numerator)		(Denominator)	Data
Three Months Ended March 31, 2010
Net earnings	$	979	—
Basic earnings per common share:
Earnings available to common shareholders	$	979	18,739	$	0.05
Effect of dilutive securities:
Stock options assumed exercised		—	34
Diluted earnings per common share:
Earnings available to common shareholders plus stock options assumed exercised	$	979	18,773	$	0.05
	Earnings		Shares	Per Share
	(Numerator)		(Denominator)	Data
Three Months Ended March 31, 2009
Net earnings	$	2,099	—
Basic earnings per common share:
Earnings available to common shareholders	$	2,099	18,712	$	0.11
Effect of dilutive securities:
Stock options assumed exercised		—	20
Diluted earnings per common share:
Earnings available to common shareholders plus stock options assumed exercised	$	2,099	18,732	$	0.11

Options to purchase 2,001,400 shares of common stock at exercise prices ranging from $4.00 to $15.88 per share were outstanding during the three months ended March 31, 2010, but were not included in the computation of diluted earnings per share because the adjusted exercise prices of the options based upon the assumed proceeds were greater than the average market price of the shares during that period.

Options to purchase 1,183,600 shares of common stock at exercise prices ranging from $4.02 to $15.88 per share were outstanding during the three months ended March 31, 2009, but were not included in the computation of diluted earnings per share because the adjusted exercise prices of the options based upon the assumed proceeds were greater than the average market price of the shares during that period.

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OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Note 11. Components of Net Periodic Benefit Cost

	Three Months Ended March  31,
	2010			2009
Service cost	$	—		$	—
Interest cost		340			363
Expected return on plan assets		(285	)		(253	)
Amortization of prior service cost		—			—
Amortization of net loss		287			306
Net periodic pension cost	$	342		$	416

For the three months ended March 31, 2010 and 2009, the Company made approximately $0.8 million and $0.0 million, respectively, in contributions to the Company’s pension plan. The Company expects to make additional contributions of $1.0 million to the pension plan during the remainder of 2010.

Note 12. Hurricane Losses, Insurance Recoveries and Other Proceeds

2008 Hurricane

On September 13, 2008, the Company’s Abbeville and Cameron, Louisiana fish processing facilities were damaged by Hurricane Ike. For the three month period ending March 31, 2009, the following amounts were recognized in the Company’s statement of operations (in thousands):

Write-off of other materials and supplies	$	33
Involuntary conversion of property and equipment		287
Clean-up costs incurred		87
Loss resulting from natural disaster, net – 2008 storms	$	407

Not included in the amounts listed in the above table are the replacement capital costs of property and equipment, which did not have any book basis and were destroyed in the hurricane.

See Note 12 in the Company’s Form 10-K for the fiscal year ended December 31, 2009 for additional information.

On February 4, 2010, the Company received a grant of $0.1 million from the State of Louisiana Hurricane Gustav and Ike Fisheries Recovery Program which was recognized as “(Other proceeds) loss resulting from natural disaster, net – 2008 storms” in the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income for the three months ended March 31, 2010. The grant provides assistance for commercial fishing owners impacted by Hurricanes Gustav and Ike in 2008. This amount represents approximately 50% of the total grant expected to be received in 2010.

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OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

2005 Hurricanes

On August 29, 2005, the Company’s Moss Point, Mississippi fish processing facility and adjacent shipyard were severely damaged by Hurricane Katrina. On September 24, 2005, the Company’s Cameron, Louisiana and the Abbeville, Louisiana fish processing facilities were also severely damaged by Hurricane Rita. For the three month periods ended March 31, 2009, the following amount was recognized in the Company’s statement of operations:

(Other proceeds) relating to natural disasters, net – 2005 storms $ (2,656 ) 

Note 13. Fair Value Disclosures

The following disclosures of the estimated fair value of financial instruments are made in accordance with the requirements of FASB ASC 825-10-50, Disclosure About Fair Value of Financial Instruments. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies and are described in the following paragraphs.

Fair value estimates are subject to certain inherent limitations. Estimates of fair value are made at a specific point in time, based on relevant market information and information about the financial instrument. The estimated fair values of financial instruments presented below are not necessarily indicative of amounts the Company might realize in actual market transactions. Estimates of fair value are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The carrying amounts of cash and cash equivalents, accounts receivables, accounts payable, and accrued expenses approximate fair value because of the short maturity of these items. The carrying amounts of notes payable outstanding under the Company’s loan agreement approximate fair value because the interest rates on these instruments change with market interest rates. At March 31, 2010 and December 31, 2009, the Company had no borrowings under its bank credit facility except for $3.0 million in letters of credit support obligations.

The carrying values and respective fair market values of the Company’s long-term debt are presented below (in thousands). The fair value of the Company’s long-term debt is estimated based on the quoted market prices available to the Company for issuance of similar debt with similar terms at March 31, 2010.

	March 31,		December 31,
	2010		2009
Long-term Debt:
Carrying Value	$	25,089	$	25,920
Estimated Fair Market Value	$	25,870	$	26,755

The following tables set forth by level within the fair value hierarchy the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of March 31, 2010 and December 31, 2009. As required by FASB ASC 820-10, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

	March 31, 2010
	Fair Value Measurements Using							Assets (Liabilities) at Fair Value
	Level 1		Level 2		Level 3
Assets (Liabilities) (in thousands)
Energy swap asset	$	—	$	670	$	—		$	670
Interest rate swap liability	$	—	$	—	$	(1,177	)	$	(1,177	)
Total Assets (Liabilities)	$	—	$	670	$	(1,177	)	$	(507	)

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OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

	December 31, 2009
	Fair Value Measurements Using							Assets (Liabilities)  at Fair Value
	Level 1		Level 2		Level 3
Assets (Liabilities) (in thousands)
Energy swap asset	$	—	$	1,166	$	—		$	1,166
Interest rate swap liability	$	—	$	—	$	(1,251	)	$	(1,251	)
Total Assets (Liabilities)	$	—	$	1,166	$	(1,251	)	$	(85	)

The determination of the fair values above incorporates various factors required under FASB ASC 820-10. These factors include not only the credit standing of the counterparties involved and the impact of credit enhancements (such as cash deposits, letters of credit and priority interests), but also the impact of the Company’s nonperformance risk on its liabilities.

The fair value of the interest rate swap liability is determined using an income valuation model based on the present value of expected future cash flows as determined by comparing the Company’s rate to the Euro-dollar futures curve. This model includes inputs or significant value drivers which might not be observable in or corroborated by the market. When such inputs have a significant impact on the measurement of fair value, the instrument is categorized in Level 3.

The fair value of the diesel, Bunker C, and natural gas energy swaps is derived from the underlying market price of similar instruments at a specific valuation date. The underlying market price for the diesel and natural gas swaps is based upon the NYMEX Futures Curve. The underlying market price for the Bunker C swap is based upon the Platts Forward Curve HP 0.3%. These methods rely upon quoted prices for similar instruments in active markets. When such inputs have a significant impact on the measurement of fair value, the instrument is categorized in Level 2.

The following table provides a reconciliation of all assets and liabilities measured at fair value on a recurring basis which use Level 3, or significant unobservable inputs or significant value drivers for the three months ended March 31, 2010 and 2009 (in thousands):

	Fair  value Measurements Using  Significant Unobservable Inputs (Level 3 Inputs)
	2010			2009
Balance at January 1,	$	(1,251	)	$	(1,858	)
Net loss reclassified into interest expense related to interest rate swap transactions		(185	)		(220	)
Net change associated with current period interest rate swap transactions		259			340
Balance at March 31,	$	(1,177	)	$	(1,738	)

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OMEGA PROTEIN CORPORATION

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Company’s MD&A and Risk Factors contained in the Form 10-K for the fiscal year ended December 31, 2009 (the “2009 Form 10-K”), and in conjunction with the consolidated financial statements included in this report and in the 2009 Form 10-K.

Forward-looking statements in this Form 10-Q, future filings by the Company with the Securities and Exchange Commission (the “Commission”), the Company’s press releases and oral statements by authorized officers of the Company are intended to be subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward-looking statements involve risks and uncertainty. The Company believes that forward-looking statements made by it are based on reasonable expectations; however, no assurances can be given that actual results will not differ materially from those contained in such forward-looking statements. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include the words “estimate,” “project,” “anticipate,” “expect,” “predict,” “assume,” “believe,” “could,” “would,” “hope,” “may,” and similar expressions.

General

Omega Protein Corporation is the largest processor, marketer and distributor of fish meal and fish oil products in the United States. As used herein, the term “Omega” or the “Company” refers to Omega Protein Corporation or to Omega Protein Corporation and its consolidated subsidiaries, as applicable. The Company’s principal executive offices are located at 2105 City West Boulevard, Suite 500, Houston, Texas 77042-2838 (Telephone: (713) 623-0060).

The Company produces and sells a variety of protein and oil products derived from menhaden, a species of wild herring-like fish found along the Gulf of Mexico and Atlantic coasts. The fish are not genetically modified or enhanced. The Company processes several grades of fish meal, as well as fish oil and fish solubles. The Company’s fish meal products are primarily used as a protein ingredient in animal feed for swine, cattle, aquaculture and household pets. Fish oil is utilized for animal and aquaculture feeds, industrial applications, additives to human food products and as dietary supplements. The Company’s fish solubles are sold primarily to livestock feed manufacturers, aquaculture feed manufacturers and for use as an organic fertilizer.

All of the Company’s products contain healthy long-chain Omega-3 fatty acids. Omega-3 fatty acids are commonly referred to as “essential fatty acids” because human and animal bodies do not produce them. Instead, essential fatty acids must be obtained from outside sources, such as food or special supplements. Long-chain Omega-3s are also commonly referred to as a “good fat” for their health benefits, as opposed to “bad fats” that create or aggravate health conditions through long-term consumption. Scientific research suggests that long-chain Omega-3s as part of a balanced diet may provide significant benefits for health issues such as cardiovascular disease, inflammatory conditions and other ailments.

Under its production process, the Company produces OmegaPure^®, a taste-free, odorless refined fish oil which is the only marine source of long-chain Omega-3s directly affirmed (as opposed to self affirmed) by the U.S. Food and Drug Administration (“FDA”) as a food ingredient that is Generally Recognized as Safe (“GRAS”).

The Company operates four menhaden processing plants: two in Louisiana, one in Mississippi and one in Virginia. The Company also operates a Health and Science Center in Reedville, Virginia, which provides 100-metric tons per day fish oil processing capacity for the Company’s food, industrial and feed grade oils. The Company’s technical center in Houston, Texas, the OmegaPure Technology and Innovation Center, has food science application labs as well as analytical, sensory, lipids research and pilot plant capabilities.

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OMEGA PROTEIN CORPORATION

The Company operates through two primary subsidiaries: Omega Protein, Inc. and Omega Shipyard, Inc. Omega Protein, Inc. is the Company’s principal operating subsidiary for its menhaden processing business and is the successor to a business conducted since 1913. Omega Shipyard, Inc. owns a drydock facility in Moss Point, Mississippi, which is used to provide shoreside maintenance for the Company’s fishing fleet and, subject to outside demand and excess capacity, occasionally for third-party vessels. Revenues from shipyard work for third-party vessels for the three months ended March 31, 2010 and 2009 were not material. The Company also has a number of other immaterial direct and indirect subsidiaries.

Company Overview

2010 Fishing Information. At March 31, 2010, the Company owned a fleet of 50 fishing vessels and 34 spotter aircraft for use in its fishing operations and also leased additional aircraft where necessary to facilitate operations. During the 2010 fishing season in the Gulf of Mexico, which runs from mid-April through October, the Company plans to operate 31 fishing and carry vessels and 28 spotter aircraft. The fishing area in the Gulf is generally located along the Gulf Coast, with a concentration off the Louisiana and Mississippi coasts. The fishing season along the Atlantic coast begins in early May and usually extends into December. During the 2010 season, the Company plans to operate 10 fishing vessels and 8 spotter aircraft along the Mid-Atlantic coast, concentrated primarily in and around Virginia and North Carolina. The remaining fleet of fishing vessels and spotter aircraft are not routinely operated during the fishing season and are back-up to the active fleet, used for other transportation purposes, inactive or in the process of refurbishment in the Company’s shipyard.

Gulf of Mexico Oil Spill. In response to the oil spill caused by the Deepwater Horizon oil rig explosion in the Gulf of Mexico on April 20, 2010 and the subsequent temporary closure of the commercial and recreational fishing grounds east of the Mississippi River Delta by the Louisiana Department of Fisheries and Wildlife and the National Oceanic and Atmospheric Administration (“NOAA”), the Company has relocated its nine Moss Point, Mississippi fishing vessels and three carry vessels to fishing grounds on the west side of the Mississippi River Delta in an attempt to minimize vessel downtime and business interruptions. The docking and re-supply areas for the Moss Point fleet have been relocated from the Company’s Moss Point facility to the Company’s Morgan City, Louisiana facility. The Company’s Abbeville, Louisiana facility is also available to provide support as needed. The relocation is expected to last up to four weeks, but may change depending on future developments and the termination of the Louisiana and NOAA restrictions.

The Company expects to offload fish from its Moss Point fleet at the Company’s Abbeville and Cameron, Louisiana locations, which are presently unaffected by the oil spill. The Company cannot predict what effect the oil spill, the Company’s response plan or the fisheries partial closure, will have on its fish catch, processing efficiency or customer perceptions about its products.

Sales Contracts. The Company sells a portion of its products on a two-to-twelve-month forward contract basis with the balance sold on a spot basis through purchase orders. During 2007, 2008 and 2009 approximately 50%, 65% and 50%, respectively, of the Company’s fish meals and crude fish oil had been sold on a forward contract basis prior to those years’ respective fishing season. Prior to the beginning of the Company’s 2010 Gulf of Mexico fishing season on April 19, 2010, approximately 86% and 32% of the Company’s 2010 forecasted fish meal and crude fish oil, respectively, had either been sold or sold forward on a contract basis. The percentage of fish meal and crude fish oil sold on a forward contract basis will fluctuate from year to year based upon perceived market availability and forward price expectations.

The Company’s annual revenues are highly dependent on pricing, annual fish catch, production yields and inventories and, in addition, inventory is generally carried over from one year to the next year. The Company determines the level of inventory to be carried over based on existing contracts, prevailing market prices of the products and anticipated customer usage and demand during the off-season. Thus, production volume does not necessarily correlate with sales volume in the same year and sales volumes will fluctuate from quarter to quarter. The Company’s fish meal products have a useable life of approximately one year from date of production. Practically, however, the Company attempts to empty its warehouses of the previous season’s products by the second or third month of the new fishing season. The Company’s crude fish oil products do not lose efficacy unless exposed to oxygen and, therefore, their storage life typically is longer than that of fish meal.

Revenues by Product. The following table sets forth the Company’s revenues by product (in millions) and the approximate percentage of total revenues represented thereby, for the indicated periods:

	Three Months Ended March 31,
	2010				2009
	Revenues		Percent		Revenues		Percent
Regular Grade	$	5.7	17.7	%	$	5.8	19.1	%
Special Select		13.8	42.7			10.4	34.5
Sea-Lac		2.4	7.4			2.6	8.6
Crude Oil		5.3	16.4			4.8	15.9
Refined Oil		3.3	10.2			5.0	16.7
Fish Solubles		1.8	5.6			1.5	4.9
Other		—	—			0.1	0.3
Total	$	32.3	100.0	%	$	30.2	100.0	%

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OMEGA PROTEIN CORPORATION

Customers and Marketing. Most of the Company’s marine protein products are sold directly to approximately 320 customers by the Company’s agriproducts sales department, while a smaller amount is sold through independent sales agents. Product inventory was $22.0 million as of March 31, 2010 versus $47.2 million as of December 31, 2009.

A number of countries in which the Company currently sells products impose various tariffs and duties, none of which have a significant impact on the Company’s foreign sales. Certain of these duties have been reduced in recent years for certain countries under the North American Free Trade Agreement and the Uruguay Round Agreement of the General Agreement on Tariffs and Trade. In all cases, the Company’s products are shipped to its customers either by FOB shipping point or CIF terms, and therefore, the customer is responsible for any tariffs, duties or other levies imposed on the Company’s products sold into these markets.

During the off season, the Company fills purchase orders from the inventory it has accumulated during the fishing season or in some cases, by re-selling meal and oil purchased from other suppliers. Prices for the Company’s products tend to be lower during the fishing season when product is more abundant than in the off season. Throughout the entire year, prices are often significantly influenced by supply and demand in world markets for competing products, primarily other global sources of fish meal and oil, and also soybean meal for its fish meal products, and vegetable oils for its fish oil products when used as an alternative.

Purchases and Sales of Third-Party Meal and Oils. The Company has from time to time purchased fish meal and fish oil from other domestic and international manufacturers. These purchase and resale transactions have to date been ancillary to the Company’s base manufacturing and sales business.

Occasionally the Company’s fish catch and resultant product inventories are reduced, primarily due to adverse weather conditions, and the Company further expands its purchase and resale of other fish meals and oils (primarily Panamanian, Peruvian and Mexican fish meal and U.S. menhaden fish meal and oil). Although operating margins from these activities are less than the margins typically generated from the Company’s base domestic production, these operations provide the Company with a source of fish meal and oil to sell into other markets, some of which, the Company has not historically had a presence. During 2007, the Company purchased fish oil totaling approximately 5,500 tons, or approximately 9.1% of fish oil sales volumes for 2007. The Company did not purchase any fish meal or fish oil during 2008. During 2009, the Company purchased approximately 11,000 tons of menhaden fish meal, or approximately 7.6% of fish meal sales volumes for 2009. During the first quarter of 2010 and 2009, the Company did not purchase any fish meal or fish oil.

Hurricane Activity and Damages.

2008 Hurricane Activity

On February 4, 2010, the Company received a grant of $0.1 million from the State of Louisiana Hurricane Gustav and Ike Fisheries Recovery Program which was recognized as “(Other proceeds) loss resulting from natural disaster, net – 2008 storms” in the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income for the three months ended March 31, 2010. The grant provides assistance for commercial fishing owners impacted by Hurricanes Gustav and Ike in 2008. This amount represents approximately 50% of the total grant expected to be received in 2010.

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OMEGA PROTEIN CORPORATION

2005 Hurricane Activity

During the first quarter 2009, the Company received a grant related to the impact of Hurricane Katrina of $2.7 million, net of fees and expenses, from the State of Mississippi. The Mississippi grant was recognized as “(Other proceeds) relating to natural disasters, net – 2005 storms” in the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income for the three months ended March 31, 2009.

On August 31, 2007, the Company filed a lawsuit in the District Court of Harris, Texas 295th Judicial District, against its prior insurance broker, Aon Risk Services of Texas, who procured the Company’s property insurance policies for the 2005/2006 policy year, which were the subject of prior litigation as a result of claims relating to Hurricanes Rita and Katrina. The Company’s lawsuit against Aon alleges negligent procurement, negligent misrepresentation, breach of contract and violations of Texas insurance and consumer protection laws. Trial has been deferred for this matter until October 2010.

Competition. The Company competes with a smaller domestic privately-owned menhaden fishing company and with international marine protein and oil producers, including Mexican sardine processors and South American anchovy and mackerel processors. In addition, but to a lesser extent, the Company’s marine protein and oil business is also subject to significant competition from producers of vegetable and other animal protein products and oil products such as Archer Daniels Midland and Cargill. Many of these competitors have significantly greater financial resources and more extensive and diversified operations than those of the Company.

Omega competes on price, quality and performance characteristics of its products, such as protein level and amino acid profile in the case of fish meal. The principal competition for the Company’s fish meal and fish solubles is from other global production of marine proteins as well as other protein sources such as soybean meal and other vegetable or animal protein products. The Company believes, however, that these other non-marine sources are not complete substitutes because fish meal offers nutritional values not contained in such other sources. Other globally produced fish oils provide the primary market competition for the Company’s fish oil, as well as soybean and rapeseed oil.

Fish meal prices have historically borne a relationship to prevailing soybean meal prices (more weakly correlated in recent years), while prices for fish oil are generally influenced by prices for vegetable oils, such as rapeseed, soybean and palm oils. Thus, the prices for the Company’s products are established by worldwide supply and demand relationships over which the Company has no control and tend to fluctuate significantly over the course of a year and from year to year. For example, during 2008, the Company experienced fish oil price increases of approximately 73.4% when compared to 2007, whereas palm oil and soy oil prices rose 35% and 43%, respectively. Beginning in the third quarter of 2008, pricing in the agricultural commodity markets began to decrease. Spot fish oil prices followed these general trends during the second half of 2008 and throughout 2009.

Price List. The Company posts its latest internally generated price list for its various products on its Company website, omegaproteininc.com. The Company expects to post updates to the price list as they become available, which may occur as frequently as weekly. The Company may elect to discontinue this disclosure at any time without prior notice. Pricing and product availability information disclosed in the price list are subject to change without prior notice, and the Company undertakes no obligation to update such information. Information on the Company’s website is not incorporated by reference into this report and does not constitute part of this report.

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OMEGA PROTEIN CORPORATION

Regulation. The Company’s operations are subject to federal, state and local laws and regulations relating to the locations and periods in which fishing may be conducted as well as environmental and safety matters. At the state and local level, certain state and local government agencies have enacted legislation or regulations which prohibit, restrict or regulate menhaden fishing within their jurisdictional waters.

The Company’s menhaden fishing operations are also subject to regulation by two interstate compact commissions created by federal law: the Atlantic States Marine Fisheries Commission (“ASMFC”) which consists of 15 states along the Atlantic Coast, and the Gulf States Marine Fisheries Commission which consists of 5 states along the Gulf of Mexico. In 2005, the ASMFC recommended precautionary restrictions on the Chesapeake Bay menhaden harvest, despite its finding that menhaden are not overfished and that overfishing is not occurring on a coast wide basis, in order to determine whether localized depletion was occurring in Chesapeake Bay.

The ASMFC conserves and manages the menhaden fishery throughout the stock’s coast-wide range. According to federal and ASMFC technical experts, the menhaden population is not over-fished and over-fishing is not occurring throughout its range. The Company supports the ASMFC’s goal of maintaining healthy populations of menhaden and the current research program designed to answer ecological questions regarding menhaden in the Chesapeake Bay and coast-wide. The Chesapeake Bay cap was established as a precautionary measure while research is conducted to address, among other things, the question whether the menhaden harvest in the Bay could cause what is being termed “localized depletion” of menhaden there. No evidence of such localized depletion has yet been produced.

Because the research regarding menhaden is on-going, in 2009 the ASMFC and Virginia approved an extension of the existing Chesapeake Bay cap for an additional three years (2011-2013) beyond its currently scheduled expiration date in 2010.

The Company continually monitors regulations which affect fish meal and fish oil in the United States and in those foreign jurisdictions where it sells its products. To date, such regulations have not had a material adverse effect on the Company’s business, but it is possible they may do so in the future.

Critical Accounting Policies and Estimates

The methods, estimates and judgments used in applying the Company’s critical accounting policies has a significant impact on the results reported in the Consolidated Financial Statements. The SEC has defined the critical accounting policies as the ones that are most important to the portrayal of the Company’s financial condition and operating results, and requires the Company to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are highly uncertain at the time of estimation. Based on this definition, most critical policies include: valuation of inventory (Notes 1 and 3 in the Company’s most recent Form 10-K), valuation of losses related to Jones Act and worker’s compensation insurance claims (Note 1 in the Company’s most recent Form 10-K), valuation of income and deferred taxes (Notes 1 and 9 in the Company’s most recent Form 10-K), and valuation of pension plan obligations (Notes 1 and 11 in the Company’s most recent Form 10-K).

The Company also has other key accounting policies and accounting estimates relating to allowance of doubtful accounts (Note 1 in the Company’s most recent Form 10-K), valuation of shares-based compensation (Note 11 in the Company’s most recent Form 10-K) and interest and energy swap valuations (Notes 1 and 15 in the Company’s most recent Form 10-K). The Company believes that these key accounting policies and accounting estimates either do not generally require us to make estimates and judgments that are as difficult or as subjective as its critical accounting policies, or it is less likely that they would have a material impact on our reported results of operations for a given period.

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OMEGA PROTEIN CORPORATION

For all financial statement periods presented, there have been no material modifications to the application of these critical accounting policies.

Results of Operations

The following table sets forth as a percentage of revenues, certain items of the Company’s results of operations for each of the indicated periods.

	Three Months Ended March 31,
	2010		2009
Revenues	100.0	%	100.0	%
Cost of sales	81.5		80.7
Gross profit	18.5		19.3
Selling, general and administrative expense	10.1		11.4
Research and development expense	1.3		1.2
(Other proceeds) loss resulting from natural disaster, net – 2008 storms	(0.4	)	1.3
(Other proceeds) relating to natural disasters, net – 2005 storms	—		(8.8	)
Loss (gain) on disposal of assets	0.5		(0.1	)
Operating income	7.0		14.3
Interest income	—		0.3
Interest expense	(2.0	)	(3.0	)
Other expense, net	(0.2	)	(0.3	)
Income before income taxes	4.8		11.3
Provision for income taxes	1.8		4.3
Net income	3.0	%	7.0	%

Interim Results for the First Quarters ended March 31, 2010 and March 31, 2009

Revenues. Revenues increased $2.1 million, or 7.0%, from $30.2 million for the three months ended March 31, 2009 to $32.3 million for the three months ended March 31, 2010. The increase in revenues was due to higher sales prices of 18.1% for the Company’s fish meal and higher sales volumes of 49.7% for the Company’s fish oil, which was partially offset by lower sales volumes of 1.5% for the Company’s fish meal and lower sales prices of 41.3% for the Company’s fish oil. Considering fish meal, fish oil and fish solubles sales activities in total, the Company experienced a $0.2 million decrease in revenues due to the decline in sales prices and a $2.3 million increase in revenue caused by increased sales volumes, when comparing the three months ended March 31, 2010 to the three months ended March 31, 2009. The increase in fish meal prices in the first quarter of 2010 is due to a global tightening of fish meal availability. The decrease in fish oil prices from the first quarter of 2009 results from the timing of record high 2008 sales price contracts carried over into the first quarter of 2009.

Cost of sales. Cost of sales, including depreciation and amortization, for the quarter ended March 31, 2010 was $26.3 million, a $2.0 million increase, or 8.1%, as compared to the quarter ended March 31, 2009. Cost of sales as a percentage of revenues was 81.5% for the quarter ended March 31, 2010 as compared to 80.7% for the quarter ended March 31, 2009. The increase in cost of sales as a percentage of revenue was primarily due to the decline in fish oil sales prices offset by the increase in fish meal sales prices as mentioned above, which was partially offset by a slight decrease in per unit production costs experienced in the first quarter of 2010 as compared to the first quarter of 2009.

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OMEGA PROTEIN CORPORATION

Gross profit. Gross profit increased $0.2 million, or 2.6%, from $5.8 million for the quarter ended March 31, 2009 to $6.0 million for the quarter ended March 31, 2010. Gross profit as a percentage of revenue was 18.5% for the quarter ended March 31, 2010 as compared to 19.3% for the quarter ended March 31, 2009. The decrease in gross profit as a percentage of revenue was primarily due the decline in fish oil sales prices offset by the increase in fish meal sales prices as mentioned above and a slight decrease in per unit production costs experienced in the first quarter of 2010 as compared to the first quarter of 2009, as discussed above.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased $0.1 million, or 4.1%, from $3.4 million for the quarter ended March 31, 2009 to $3.3 million for the quarter ended March 31, 2010.

Research and development expenses. Research and development expenses were $0.4 million for the three months ended March 31, 2010 and 2009.

(Other proceeds) loss resulting from natural disaster, net—2008 storms. For the three months ended March 31, 2009, the Company incurred losses of $0.4 million relating to damages incurred at its Abbeville and Cameron, Louisiana, fish processing facilities related to Hurricane Ike. The damages include clean up costs incurred and changes in estimated impairment costs of damaged fixed assets during the quarter ended March 31, 2009. For the three months ended March 31, 2010, the Company recognized a gain of $0.1 million related to a grant from the State of Louisiana Hurricane Gustav and Ike Fisheries Recovery Program. This amount represents approximately 50% of the total grant expected to be received in 2010.

(Other proceeds) relating to natural disasters, net – 2005 storms. During the quarter ended March 31, 2009, the Company received a federal hurricane assistance grant of $2.7 million administered through the State of Mississippi, net of fees, related to the impact of Hurricane Katrina on the Company. No such funds were received during the quarter ended March 31, 2010.

Loss (gain) on disposal of assets. The loss on disposal of assets was $0.1 million for the three months ended March 31, 2010. The loss primarily relates to two decommissioned fishing vessels which were sold as scrap.

Operating income. As a result of the 2009 Mississippi grant and the other factors discussed above, the Company’s operating income decreased $2.0 million from $4.3 million for the quarter ended March 31, 2009 to $2.3 million for the quarter ended March 31, 2010. As a percentage of revenues, operating income decreased from 14.3% for the quarter ended March 31, 2009 to 7.0% for the quarter ended March 31, 2010.

Interest income. Interest income decreased by $81,000 from $83,000 for the three months ended March 31, 2009 to $2,000 for the three months ended March 31, 2010. The decrease was primarily due to the decreased cash balance upon which interest is earned during the quarter ended March 31, 2010 as compared to the quarter ended March 31, 2009.

Interest expense. Interest expense decreased $0.3 million, or 28.1%, from $0.9 million for the quarter ended March 31, 2009 to $0.6 million for the quarter ended March 31, 2010. The decrease in interest expense is primarily due to the decreased debt balance associated with the Company repaying its bank term loan in September and October 2009. This decrease was partially offset by a decreased in capitalized interest, which is netted against interest expense, for the current quarter which was less than the prior year quarter due to the completion of a particular capital project.

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OMEGA PROTEIN CORPORATION

Other expense, net. Other expense, net was $0.1 million for the quarters ended March 31, 2010 and 2009.

Provision for income taxes. The Company recorded a $0.6 million provision for income taxes for the quarter ended March 31, 2010 representing an effective tax rate of 36.2% for income taxes compared to 38.5% for the quarter ended March 31, 2009. The decrease in the effective tax rate is primarily a result of the impact of certain nondeductible items and the increased level of expected book income. The Company believes that it is more probable than not that the recorded estimated deferred tax asset benefits and state operating loss carry-forwards will be realized except for the amount for which a valuation allowance has been provided. The statutory tax rate of 34% for U.S. federal taxes was in effect for the three month periods ended March 31, 2010 and 2009.

Seasonal and Quarterly Results

The Company’s menhaden harvesting and processing business is seasonal in nature. The Company generally has higher sales during the menhaden harvesting season (which includes the second and third quarter of each year) due to increased product availability, but prices during the fishing season tend to be lower than during the off-season. Additionally, due to differences in gross profit margins for the Company’s various products, any variation in the mix of product sales between quarters may result in significant variations of total gross profit margins. As a result, the Company’s quarterly operating results have fluctuated in the past and may fluctuate in the future. In addition, from time to time the Company defers sales of inventory based on worldwide prices for competing products that affect prices for the Company’s products which may affect comparable period comparisons.

Liquidity and Capital Resources

Historically, the Company’s primary sources of liquidity and capital resources have been cash flows from operations, bank credit facilities and term loans from various lenders provided pursuant to the U.S. Maritime Administration’s Fisheries Finance Program (“FFP”), which is offered through National Marine Fisheries Services (“NMFS”) under Title XI of the Marine Act of 1936 (“Title XI”). These sources of cash flows have been used for operations, capital expenditures, payment of long-term debt and the purchase and retirement of shares of the Company’s common stock in 2006.

At March 31, 2010, the Company had an unrestricted cash balance of $6.0 million, an increase of $3.9 million from December 31, 2009. This increase was primarily due to revenues offset by debt payments, capital spending and spending related to the preparation for the 2010 fishing season. The Company’s annual revenues and its resulting liquidity are highly dependent on annual fish catch, production yields, selling prices for its products and inventories available for sale. The Company’s selling prices for its products increased 12.4% for the three months ended March 31, 2010 as compared to fiscal year 2009. Additionally, the Company experienced a 3.6% lower per unit cost of sales during the three months ended March 31, 2010 as compared to fiscal year 2009. The 2009 year per unit cost of sales was comprised of the 2008 and 2009 inventory costs. The three months ended March 31, 2010 per unit cost of sales was comprised of the 2009 inventory cost. Of these two inventory cost pools, 2008 experienced a below average fish catch primarily due to adverse weather conditions including hurricanes Gustav and Ike and high production costs mainly due to increased energy prices, and 2009 experienced a below average fish catch at normal production costs. It is expected that the high per unit inventory costs related to the 2009 fishing season will also negatively impact gross profit percentages during the second quarter of 2010.

The aggregate amount of the Company’s outstanding indebtedness at March 31, 2010 was approximately $25.1 million compared to approximately $25.9 million at December 31, 2009. The Company has a moderately leveraged financial structure which could limit its financial flexibility. In particular, the Company will be required to use a portion of its cash flows to pay principal and interest on its debt, which will reduce the amount of money the Company has for operations, capital expenditures, expansion, acquisitions or general corporate or other business activities. In addition, the covenants contained in the Company’s debt agreements limit its ability to borrow money in the future for acquisitions, capital expenditures or to meet the Company’s operating expenses or other general corporate obligations. See “Risk Factors - The Company has a substantial amount of indebtedness, which may adversely affect its ability to operate its business, remain in compliance with debt covenants and make payments on its debt” in the Company’s 2009 Form 10-K.

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OMEGA PROTEIN CORPORATION

Source of Capital: Operations

Net cash flow provided by operating activities decreased from approximately $16.9 million for the three month period ended March 31, 2009 to $7.7 million for the three month period ended March 31, 2010. The decrease in operating cash flow is primarily attributable to changes in inventory, receivables and accrued liabilities. Specifically, the decrease in operating cash flow related to changes in receivables is due to a large amount of export sales which were receivables as of December 31, 2008 and collected during the three months ended March 31, 2009.

Source of Capital: Debt

Net financing activities used cash of $0.6 million and $2.0 million during the three month periods ended March 31, 2010 and 2009, respectively. The three month period ended March 31, 2010 included $0.8 million in debt principal payments offset by $0.3 million related to stock options exercised. The three month period ended March 31, 2009 included $2.0 million in debt principal payments.

On December 1, 2005, pursuant to the Title XI program, the United States Department of Commerce Fisheries Finance Program (the “FFP”) approved a second financing application made by the Company in the amount of $16.4 million (the “Second Approval Letter”). In May 2006, the Company submitted a $6.3 million financing request under the Second Approval Letter. The Company closed on the $6.3 FFP loan in the first quarter of 2007. In September 2009, the Company submitted a $10.0 million financing request under the remaining Second Approval Letter which it anticipates closing in the second quarter of 2010. As of March 31, 2010, the Company had approximately $25.1 million of borrowings outstanding under Title XI and was in compliance with all of the covenants contained therein.

On March 26, 2007 the Company entered into a credit agreement with Bank of America, N.A. (as administrative agent, lender, swing line lender and letter of credit issuer), Regions Bank, Compass Bank and Farm Credit Bank of Texas which provided the Company with a $55 million senior credit facility (the “Senior Credit Facility”) consisting of (i) a 5-year revolving credit facility of up to $20 million, including a $7.5 million sub-limit for the issuance of standby letters of credit and a $2.5 million sub-limit for swing line loans and (ii) a 5-year term loan (the “Term Loan”) of $35 million.

On October 21, 2009, the Company entered into a Loan Agreement with Wells Fargo Bank N.A. (“the Loan Agreement”) which replaced the prior Senior Credit Facility. The Loan Agreement with Wells Fargo Bank provides the Company with a senior secured credit facility consisting of a 3-year revolving credit facility of up to $35 million, including a $7.5 million sub-limit for the issuance of standby letters of credit, and is secured by substantially all of the Company’s assets except for those already pledged in connection with existing federal Fisheries Finance Program loans. The Loan Agreement replaced the prior Senior Credit Facility, under which, just prior to closing, $11.4 million was outstanding under the Term Loan and $2.8 million was outstanding under letters of credit. In connection with the closing of the Loan Agreement, the Company repaid the Term Loan at closing and the letters of credit were transferred to Wells Fargo Bank. As of December 31, 2009, the Company recognized $0.4 million in deferred debt issuance costs associated with the Loan Agreement on the Consolidated Balance Sheet. Additionally, the Company recognized a $0.4 million charge in the Consolidated Statement of Operations related to unamortized deferred debt issuance costs associated with the Senior Credit Facility.

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OMEGA PROTEIN CORPORATION

As of March 31, 2010, the Company had no amounts outstanding under the Loan Agreement and approximately $3.0 million in letters of credit issued primarily in support of worker’s compensation insurance programs. The Company has no off-balance sheet arrangements other than normal operating leases and standby letters of credit.

The Loan Agreement bears interest at LIBOR plus an applicable margin. In addition, the Company is required to comply with various affirmative and negative covenants affecting its business and financial operations, as well as the following financial covenants:

• The Company is required to maintain on a consolidated basis a ratio of Total Liabilities (as defined in the Loan Agreement) excluding the non-current portion of Subordinated Liabilities (as defined in the Loan Agreement) to Tangible Net Worth (as defined in the Loan Agreement) not exceeding 1.00 to 1.00.

• The Company is required to maintain on a consolidated basis Tangible Net Worth equal to at least the sum of the following: (a) $130,000,000, plus (b) 50% of net income (if positive, with no deduction for losses) earned in each quarterly accounting period commencing after December 31, 2009, plus (c) 100% of the net proceeds from any Equity Interests (as defined in the Loan Agreement) issued after the date of the Loan Agreement, plus (d) 100% of any increase in stockholders’ equity resulting from the conversion of debt securities to equity interests after the closing date.

• The Company is required to maintain on a consolidated basis an Asset Coverage Ratio (as defined in the Loan Agreement) of at least 2.50 to 1.00.

• The Company (a) may not incur on a consolidated basis a net loss before taxes and extraordinary items in any two consecutive quarterly accounting periods, commencing with the fiscal quarter ending September 30, 2010, and (b) may not incur on a consolidated basis a net loss before taxes and extraordinary items for any annual accounting period, commencing with the fiscal year ending December 31, 2010.

As of March 31, 2010, the Company was in compliance with all covenants under the Loan Agreement and expects to be in compliance during the remainder of 2010. For a more detailed description of the Loan Agreement, see the Company’s current report on Form 8-K filed with the SEC on October 23, 2009.

Use of Capital: Operations

Net investing activities (used) provided cash of ($3.3) million and $3.8 million for the three month periods ended March 31, 2010 and 2009, respectively. The Company’s investing activities consist mainly of capital expenditures for equipment purchases, replacements, vessel refurbishments, and fish oil refining processes. The Company made capital expenditures of approximately $3.4 million and $6.3 million, for the three month periods ended March 31, 2010 and 2009, respectively. The Company anticipates making an additional $11.6 million in capital expenditures during the remainder of 2010 primarily for the refurbishment of vessels and plant assets and for the repair of certain equipment. Investing activities for the three month period ended March 31, 2010 also includes the receipt of a grant of $0.1 million from the State of Louisiana related to the impacts of Hurricanes Gustav and Ike. Investing activities for the three month period ended March 31, 2009 also includes the receipt of a grant of $2.7 million, net of fees and expenses, related to the impact of Hurricane Katrina, from the State of Mississippi, and the receipt of $7.5 million in proceeds from insurance companies relating to Hurricane Ike.

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OMEGA PROTEIN CORPORATION

Use of Capital: Acquisitions

The Company from time to time considers potential transactions including, but not limited to, enhancement of physical facilities to improve production capabilities and the acquisition of other businesses. Certain of the potential transactions reviewed by the Company would, if completed, result in its entering new lines of business (generally including certain businesses to which the Company sells its products such as pet food manufacturers, aquaculture feed manufacturers, fertilizer companies and organic foods manufacturers and distributors), although historically, reviewed opportunities have been generally related in some manner to the Company’s existing operations or which would have added new protein products to the Company’s product lines. Although the Company does not explicitly budget for acquisitions and, as of the date hereof, does not have any commitment with respect to a material acquisition, it could enter into such agreement in the future. Depending on the size of the acquisition, the Company would expect to finance the transaction using internally generated cash flows and its current credit agreements, or, if necessary, equity or debt financings. The Company cannot assure that such financings will be available on acceptable terms, if at all.

Use of Capital: Contractual Obligations

The following tables aggregate information about the Company’s contractual cash obligations and other commercial commitments (in thousands) as of March 31, 2010:

	Payments Due by Period
Contractual Cash Obligations	Total		Less than 1 year		1 to 3 years		4 to 5 years		After 5 years
Long Term Debt	$	25,089	$	2,409	$	5,153	$	5,028	$	12,499
Capital lease obligation		1,551		387		1,029		135		—
Interest on long term debt and capital lease obligation		9,584		1,839		2,922		2,305		2,518
Operating lease obligations		9,105		2,179		3,896		2,619		411
Pension Funding		12,373		1,013		5,610		3,315		2,435
Energy Commitments (1)		248		248		—		—		—
Total Contractual Cash Obligations	$	57,950	$	8,075	$	18,610	$	13,402	$	17,863

(1) As of March 31, 2010, the Company has entered into purchase commitments of approximately $0.2 million related to natural gas basis contracts that will be delivered in quantities expected to be used in the normal course of business during the 2010 fishing season.

There have been no significant changes to the Company’s contractual cash obligations during the quarterly period ending March 31, 2010.

Available Information

The Company files annual, quarterly and current reports and other information with the SEC. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed under the Securities and Exchange Act of 1934 (“Exchange Act”), as well as Section 16 filings by officers and directors, are available free of charge at the Company’s website at www.omegaproteininc.com or at the SEC’s website at www.sec.gov and are posted as soon as reasonably practicable after they are filed with the SEC. The Company will provide a copy of these documents to stockholders upon request. Information on the Company’s website or any other website is not incorporated by reference into this report and does not constitute part of this report.

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OMEGA PROTEIN CORPORATION

In addition, the public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F. Street, NE., Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.

The Company’s Corporate Governance Guidelines, Code of Business Conduct and Ethics, Code of Ethics for Financial Professionals, as well as the Charters for the Board’s Audit Committee, Compensation Committee, Corporate Governance and Nominating Committee and Scientific Committee, are available at the Company’s website. These Guidelines, Codes and Charters are not incorporated by reference into this report and do not constitute part of this report. The Company will provide a copy of these documents to stockholders upon request.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business, the financial condition of the Company is exposed to minimal market risk associated with interest rate movements on the Company’s borrowings. In the past, to mitigate this risk, the Company has entered into interest rate swap agreements to effectively lock-in the LIBOR component of certain debt instruments. A one percent increase or decrease in the levels of interest rates on variable rate debt would not result in a material change to the Company’s results of operations. However, as a result of entering into the Loan Agreement with Wells Fargo Bank, N.A. in October 2009, the interest rate swap agreements became ineffective and the Company is again subject to interest rate fluctuations resulting from the LIBOR component for the Loan Agreement.

The Company is also exposed to market risk associated with natural gas and diesel prices. To partially mitigate this risk, the Company has forward purchased a portion of its expected natural gas, diesel and Bunker C usage for 2010 and 2011. The Company is currently exposed to market risk associated with increases in natural gas, Bunker C, and diesel prices related to the portion not covered by swaps for 2010 and 2011.

Although the Company sells products in foreign countries, all of the Company’s revenues are billed and paid for in US dollars. As a result, management does not believe that the Company is exposed to any significant foreign country currency exchange risk, and the Company does not utilize market risk sensitive instruments to manage its exposure to this risk.

There have been no significant changes to the Company’s exposure to market risk since the Company’s most recent Form 10-K.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company conducted an evaluation of the effectiveness of its “disclosure controls and procedures,” as that phrase is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. The evaluation was carried out under the supervision and with the participation of management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”).

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OMEGA PROTEIN CORPORATION

Based on and as of the date of that evaluation, the Company’s CEO and CFO have concluded that (i) the Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure, and (ii) that the Company’s disclosure controls and procedures are effective.

Notwithstanding the foregoing, there can be no assurance that the Company’s disclosure controls and procedures will detect or uncover all failures of persons within the Company and its consolidated subsidiaries to disclose material information otherwise required to be set forth in the Company’s periodic reports. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.

(b) Changes in Internal Controls

There were no changes in the Company’s internal controls over financial reporting during the three-month period ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is defending various claims and litigation arising from operations which arise in the ordinary course of the Company’s business. In the opinion of management, any losses resulting from these matters will not have a material adverse affect on the Company’s results of operations, cash flows or financial position.

On August 31, 2007, the Company filed a lawsuit in the District Court of Harris, Texas 295th Judicial District, against its prior insurance broker, Aon Risk Services of Texas, who procured the Company’s property insurance policies for the 2005/2006 policy year, which were the subject of prior litigation as a result of claims relating to Hurricanes Rita and Katrina. The Company’s lawsuit against Aon alleges negligent procurement, negligent misrepresentation, breach of contract and violations of Texas insurance and consumer protection laws. Trial has been deferred for this matter until October 2010.

In April 2010, the Company received a request for information pursuant to Section 308 of the Federal Water Pollution Control Act (Clean Water Act) from Region 3 of the United States Environmental Protection Agency (the “EPA”) concerning the Company’s wastewater practices used in its fishing operations at its Reedville, Virginia facility. The Company intends to cooperate fully in responding to the request. The Company cannot predict the outcome of the EPA’s review.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in the Company’s Form 10-K for the fiscal year ended December 31, 2009 except as follows.

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OMEGA PROTEIN CORPORATION

Risks Relating to the Company’s Business and Industry:

The Company’s operations are geographically concentrated in the Gulf of Mexico where they are susceptible to oil spills from offshore drilling, production and transportation activities. Three of the Company’s four operating plants are located in the Gulf of Mexico (two in Louisiana and one in Mississippi), a region which has historically had a high concentration of oil and gas infrastructure. If this infrastructure were to be become damaged due to natural or other disasters, then it is possible that environmental damages to the area and ecosystem could result.

For example, the Deepwater Horizon oil rig explosion in the Gulf of Mexico on April 20, 2010 caused the Company to implement an Incident Response Plan for its Moss Point, Mississippi facility to minimize the effects from that oil spill. In connection with that oil spill, the Louisiana Department of Fisheries and Wildlife and the National Oceanic and Atmospheric Administration (“NOAA”) temporarily closed the commercial and recreational fishing grounds east of the Mississippi River Delta.

The resulting oil slick temporarily has had an adverse effect on the Company’s ability to operate in the fishing grounds east of the Mississippi River Delta, near its Moss Point facility. As a result, the Company relocated its nine Moss Point fishing vessels and three carry vessels to fishing grounds on the west side of the Mississippi River Delta. The Company’s relocation of vessels is expected to last up to four weeks, but may change depending on future developments and the termination of the Louisiana and NOAA restrictions.

The Company cannot predict what effect this oil spill, its response plan or the fisheries partial closure, will have on its fish catch, processing efficiency or customer perceptions about its products. This concentration of operations in Louisiana and the reduction of three operating plants to two may temporarily make the Company more susceptible to the risk of hurricanes and other adverse weather conditions.

The Company cannot predict with any certainty: (1) the effect of the oil spill on the Company’s operations, both short-term and long-term, (2) the effect of government intervention in connection with the oil spill, including without limitation, any restrictions that may be imposed on fishing, navigation and access to the Company’s facilities, (3) the disruption and inefficiencies caused by the Company’s response plan on its operations, and (4) the effect of the oil spill, short-term and long-term, on the menhaden fishery.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Removed and Reserved

Item 5. Other Information

None

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OMEGA PROTEIN CORPORATION

Item 6. Exhibits

Exhibit No.	Description of Exhibit
31.1	Rule 13a-14(a)/15d-14(a) Certification for Chief Executive Officer.
31.2	Rule 13a-14(a)/15d-14(a) Certification for Chief Financial Officer.
32.1	Section 1350 Certification for Chief Executive Officer
32.2	Section 1350 Certification for Chief Financial Officer.

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OMEGA PROTEIN CORPORATION

SIGNATURES

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

		OMEGA PROTEIN CORPORATION
		(Registrant)
May 6, 2010	By:	/s/ ROBERT W. STOCKTON
		(Executive Vice President, Chief Financial Officer)

33

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Joseph L. von Rosenberg III, certify that:

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

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

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

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 6, 2010	By:	/s/ Joseph L. von Rosenberg
		Name: Joseph L. von Rosenberg III
		Title: President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Robert W. Stockton, certify that:

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

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

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

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 6, 2010	By:	/s/ Robert W. Stockton
		Name:	Robert W. Stockton
		Title:	Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of Form 10-Q for the Quarter ended March 31, 2010, pursuant to Section 906

of the Sarbanes-Oxley Act of 2002

The undersigned Chief Executive Officer of Omega Protein Corporation, certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

• the Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and

• the information contained in the Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 fairly presents, in all material respects, the financial condition and results of operations of Omega Protein Corporation.

This certification is being furnished solely to comply with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as a part of the Form 10-Q.

A signed original of this written statement required by Section 906 has been provided to Omega Protein Corporation and will be retained by Omega Protein Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

Dated: May 6, 2010
	/s/ JOSEPH L. VON ROSENBERG, III
	Joseph L. von Rosenberg, III
	President and Chief Executive Officer

EX-32.2

Exhibit 32.2

Certification of Form 10-Q for the Quarter ended March 31, 2010, pursuant to Section 906

of the Sarbanes-Oxley Act of 2002

The undersigned Chief Financial Officer of Omega Protein Corporation, certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

• the Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and

• the information contained in the Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 fairly presents, in all material respects, the financial condition and results of operations of Omega Protein Corporation.

This certification is being furnished solely to comply with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as a part of the Form 10-Q.

A signed original of this written statement required by Section 906 has been provided to Omega Protein Corporation and will be retained by Omega Protein Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

Dated: May 6, 2010
	/s/ ROBERT W. STOCKTON
	Robert W. Stockton
	Executive Vice President and
	Chief Financial Officer