What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-14 compared with 2021-03-08 · 630 added, 682 removed, 363 unchanged (78% of the section changed)

1 unchanged sentence

to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm – Financial Statements

Report of Independent Registered Public Accounting Firm – Internal Control over Financial Reporting

Report of Independent Registered Public Accounting Firm – Financial Statements (PCAOB ID:

Report of Independent Registered Public Accounting Firm – Internal Control over Financial Reporting (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2021 and 2020

2 unchanged sentences

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018

Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019

Notes to the Consolidated Financial Statements

4 unchanged sentences

and its subsidiaries (the Company) as of December 31, 2021

31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash

flows for each of the three years in the period ended December 31, 2020, and the related notes to the consolidated financial

statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material

respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash

flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted

in the United States of America.

have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),

the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal

Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013,

and our report dated March 8, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control

over financial reporting.

and 2020, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each

of the three years in the period ended December 31, 2021, and the related notes to the consolidated financial statements (collectively,

the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position

of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in

the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s

internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated

Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 14, 2022

expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on

the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are

required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules

and regulations of the Securities and Exchange Commission and the PCAOB.

Our responsibility is to express an opinion on the Company’s

financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent

with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities

and Exchange Commission and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits

to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error

Our audits included performing procedures to assess the risks of material misstatement of the financial statements,

whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a

test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the

accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the

financial statements.

We believe that our audits provide a reasonable basis for our opinion.

critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was

communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material

to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of

the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not,

by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts

or disclosures to which it relates.

Those standards require that we plan and perform the audits to obtain

reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,

and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts

and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates

made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a

reasonable basis for our opinion.

critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated

or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial

statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter

does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit

matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

liability claims

described in Notes 2 and 10 of the financial statements, the Company is subject to periodic lawsuits, investigations and claims,

primarily relating to potential lightning damage to its flexible gas piping products (the “Claims”).

The Company accrues

an estimated product liability reserve related to the resolution cost of the Claims for which management believes a loss is probable

of occurring, and the amount of the loss is reasonably estimable, and discloses the aggregate maximum exposure for all open Claims.

As of December 31, 2020, the Company accrued a product liability reserve of $642,000, and disclosed that the aggregate maximum

exposure for all current open claims is estimated not to exceed $6,227,000.

Due to the uncertainty of potential costs to be incurred

related to the Claims, and the uncertainty of the ultimate outcome of each Claim, management applies significant judgements and

estimates in determining the probability that a loss has been incurred and the amount to accrue for such loss.

identified the accrual and disclosure of the Claims as a critical audit matter due to the significant judgments made by management

when assessing the probability of a loss as well as the ultimate resolution costs of the Claims.

Auditing management’s estimates

and assumptions required a high degree of auditor judgment and increased audit effort due to the impact these assumptions have

on the accrued product liability reserves and disclosures.

described in Notes 2 and 10 of the financial statements, the Company is subject to periodic lawsuits, investigations and claims, primarily

relating to potential lightning damage to its flexible gas piping products (the “Claims”).

The Company accrues an estimated

product liability reserve related to the resolution cost of the Claims for which management believes a loss is probable of occurring,

and the amount of the loss is reasonably estimable, and discloses the aggregate maximum exposure for all open Claims.

As of December

31, 2021, the Company accrued a product liability reserve of $262,000, and disclosed that the aggregate maximum exposure for all current

open claims is estimated not to exceed $9,100,000.

Due to the uncertainty of potential costs to be incurred related to the Claims,

and the uncertainty of the ultimate outcome of each Claim, management applies significant judgements and estimates in determining the

probability that a loss has been incurred and the amount to accrue for such loss.

identified the accrual and disclosure of the Claims as a critical audit matter due to the significant judgments made by management when

assessing the probability of a loss as well as the ultimate resolution costs of the Claims.

Auditing management’s estimates and

assumptions required a high degree of auditor judgment and increased audit effort due to the impact these assumptions have on the accrued

product liability reserves and disclosures.

audit procedures related to the Claims included the following, among others:

obtained an understanding of the relevant controls related to management’s evaluation

of the Claims for accrual and disclosure and tested such controls for design and operating

effectiveness, including controls around management’s evaluation of the probability

obtained an understanding of the relevant controls related to management’s evaluation of the Claims for accrual and disclosure

and tested such controls for design and operating effectiveness, including controls around management’s evaluation of the probability

that a loss has been incurred and management’s estimate of the amount of the loss.

tested the accuracy and completeness of the underlying data that served as the basis

for management’s estimates of the probability that a loss has been incurred and

the amount of the loss, including payment activity, relevant insurance coverage, lawsuit

or claim status, and any settlement activity.

evaluated the methods and assumptions used by management to develop the estimate of the

probability a loss has been incurred on individual product liability claims and the amount

of such loss through consideration of historical claim and loss experience as well as

current claim status.

performed confirmation procedures with the Company’s external legal counsel to

corroborate management’s assertions regarding claim information, claim status,

the probability the Company has incurred a loss, and the estimated amount of any potential

These confirmation procedures were also used to test the completeness and accuracy

of the underlying source data that served as the basis of management’s estimates.

tested claim and settlement payment activity occurring subsequent to year end to assess

the reasonableness of management’s estimates and disclosures.

tested the accuracy and completeness of the underlying data that served as the basis for management’s estimates of the probability

that a loss has been incurred and the amount of the loss, including payment activity, relevant insurance coverage, lawsuit or claim

status, and any settlement activity.

evaluated the methods and assumptions used by management to develop the estimate of the probability a loss has been incurred on individual

product liability claims and the amount of such loss through consideration of historical claim and loss experience as well as current

claim status.

performed confirmation procedures with the Company’s external legal counsel to corroborate management’s assertions regarding

claim information, claim status, the probability the Company has incurred a loss, and the estimated amount of any potential loss.

These confirmation procedures were also used to test the completeness and accuracy of the underlying source data that served as the

basis of management’s estimates.

tested claim and settlement payment activity occurring subsequent to year end to assess the reasonableness of management’s

estimates and disclosures.

have served as the Company’s auditor since 2010.

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on the Internal Control Over Financial Reporting

have audited Omega Flex, Inc.’s (the Company) internal control over financial reporting as of December 31, 2020, based on

criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations

of the Treadway Commission in 2013.

In our opinion, the Company maintained, in all material respects, effective internal control

over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework

issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),

the 2020 consolidated financial statements of the Company and our report dated March 8, 2021 expressed an unqualified opinion.

have audited Omega Flex, Inc.’s (the Company) internal control over financial reporting as of December 31, 2021, based on criteria

established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway

Commission in 2013.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting

as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee

of Sponsoring Organizations of the Treadway Commission in 2013.

have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2021

consolidated financial statements of the Company and our report dated March 14, 2022 expressed an unqualified opinion.

Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment

of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control

over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting

based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect

to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and

Exchange Commission and the PCAOB.

of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control over

Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based

on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company

in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and

conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit

to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that

a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the

assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

that our audit provides a reasonable basis for our opinion.

Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,

and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included

performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis

for our opinion.

and Limitations of Internal Control Over Financial Reporting

company’s internal control over financial reporting is a process designed 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.

A company’s internal control over financial reporting includes those policies and procedures

that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and

dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit

preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures

of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide

reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s

assets that could have a material effect on the financial statements.

company’s internal control over financial reporting is a process designed 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

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the

maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in

accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance

with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection

of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections

of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes

in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Also, projections of

any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,

or that the degree of compliance with the policies or procedures may deteriorate.

Bell, Pennsylvania

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Cash and Cash Equivalents

Accounts Receivable - less allowances of $ 1,124 and $ 1,433 , respectively

Accounts Receivable - less allowances of $ 1,410

and $ 1,124 ,

Inventories - Net

41 unchanged sentences

the years ended December 31,

in thousands, except earnings per common shares)

in thousands, except per Share Data)

Cost of Goods Sold

3 unchanged sentences

Operating Profit

Interest (Expense) Income

Other (Expense) Income

Interest Income (Expense)

Other Income (Expense)

Income Before Income Taxes

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in Thousands)

Other Comprehensive Income (Loss):

Other Comprehensive (Loss) Income:

Foreign Currency Translation Adjustment

Other Comprehensive Income (Loss)

Other Comprehensive (Loss) Income

Comprehensive Income

5 unchanged sentences

the years ended December 31, 2021, 2020 and 2019

in Thousands)

in Thousands, Except Share Amounts)

Common Stock Outstanding

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Shares Reissued From Treasury Pursuant To Restricted Stock Unit Awards

Shares Reissued From Treasury Pursuant To Restricted Stock Unit Awards, shares

Dividends Declared

Balance - December 31, 2019

Balance - January 01, 2019

Cumulative Translation Adjustment

Shares Reissued From Treasury Pursuant To Restricted Stock Unit Awards

Dividends Declared

Balance - December 31, 2020

Balance - January 01, 2020

Beginning Balance value

Cumulative Translation Adjustment

1 unchanged sentence

Balance - December 31, 2021

Ending Balance value

accompanying Notes which are an integral part of the Consolidated Financial Statements.

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Cash Flows from Operating Activities:

Adjustments to Reconcile Net Income to Net Cash Provided by Operating

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Non-Cash Compensation Expense

Depreciation and Amortization

Provision for Losses on Accounts Receivable, net of write-offs and recoveries

Provision for Losses on Accounts

Receivable, net of write-offs and recoveries

Deferred Taxes

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Declared Dividend

Additions to Right-Of-Use Assets obtained from new operating Lease Liabilities

accompanying Notes which are an integral part of the Consolidated Financial Statements.

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accompanying Consolidated Financial Statements include the accounts of Omega Flex, Inc.

(Omega) and its subsidiaries (collectively

the “Company”).

The Company’s audited Consolidated Financial Statements for the years ended December 31, 2020,

2019 and 2018 have been prepared in accordance with accounting standards set by the Financial Accounting Standards Board (FASB),

and with the instructions of Form 10-K and Article 5 of Regulation S-X.

All material inter-company accounts and transactions have

been eliminated in consolidation.

Company is a leading manufacturer of flexible metal hose, which is used in a variety of applications to carry gases and liquids

within their particular applications.

The Company’s business is controlled as a single operating segment that consists of

the manufacture and sale of flexible metal hose and accessories.

These applications include carrying liquefied gases in certain

processing applications, fuel gases within residential and commercial buildings, medical gases in health care facilities, and

vibration absorbers in high vibration applications.

The Company’s flexible metal piping is also used to carry other types

of gases and fluids in a number of industrial applications where the customer requires the piping to have both a degree of flexibility

and/or an ability to carry corrosive compounds or mixtures, or to carry at both very high and very low (cryogenic) temperatures.

Company manufactures flexible metal hose at its facilities in Exton, Pennsylvania and Houston, Texas, in the U.S., and in Banbury,

Oxfordshire in the UK, and sells its products through distributors, wholesalers and to OEMs throughout North America, and in certain

European markets.

(Omega) and its subsidiaries (collectively the

The Company’s audited Consolidated Financial Statements for the years ended December 31, 2021, 2020 and

2019 have been prepared in accordance with accounting standards set by the Financial Accounting Standards Board (FASB), and with the

instructions of Form 10-K and Article 5 of Regulation S-X.

All material inter-company accounts and transactions have been eliminated

in consolidation.

Company is a leading manufacturer of flexible metal hose, which is used in a variety of applications to carry gases and liquids within

their particular applications.

The Company’s business is controlled as a single operating segment that consists of the manufacture

and sale of flexible metal hose and accessories.

These applications include carrying liquefied gases in certain processing applications,

fuel gases within residential and commercial buildings, medical gases in health care facilities, and vibration absorbers in high vibration

applications.

The Company’s flexible metal piping is also used to carry other types of gases and fluids in a number of industrial

applications where the customer requires the piping to have both a degree of flexibility and/or an ability to carry corrosive compounds

or mixtures, or to carry at both very high and very low (cryogenic) temperatures.

Company manufactures flexible metal hose at its facilities in Exton, Pennsylvania and Houston, Texas, in the U.S., and in Banbury, Oxfordshire

in the U.K., and sells its products through distributors, wholesalers and to OEMs throughout North America, and in certain European markets.

SIGNIFICANT ACCOUNTING POLICIES

preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to

make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets

and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting

The most significant estimates and assumptions relate to revenue recognition and related sales incentives, accounts receivable

allowances, investment valuations, inventory valuations, goodwill valuation, product liability reserves, phantom stock and accounting

for income taxes.

preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates

and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as

of the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

Management develops,

and changes periodically, these estimates and assumptions based on historical experience and on various other factors that are believed

to be reasonable under the circumstances.

Actual amounts could differ significantly from these estimates.

regard to revenue recognition, the Company applies the requirements of Accounting Standards Update 2014-09, Revenue from Contracts

with Customers (Topic 606) .

The standard requires revenue to be recognized in a manner to depict the transfer of goods or

services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services.

Company applies the requirements of Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) .

standard requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects

the consideration expected to be received in exchange for those goods or services.

principle of Topic 606 was achieved through applying the following five-step approach:

Identification

of the contract, or contracts, with a customer — a contract with a customer exists when the Company enters into

an enforceable contract with a customer, typically a purchase order initiated by the customer, that defines each party’s

rights regarding the goods to be transferred and identifies the payment terms related to these goods.

of the contract, or contracts, with a customer — a contract with a customer exists when the Company enters into an enforceable

contract with a customer, typically a purchase order initiated by the customer, that defines each party’s rights regarding

the goods to be transferred and identifies the payment terms related to these goods.

Identification

of the performance obligations in the contract — performance obligations promised in a contract are identified based

on the goods that will be transferred to the customer that are distinct, whereby the customer can benefit from the goods on

their own or together with other resources that are readily available from third parties or from us.

Persuasive evidence of

an arrangement for the sale of product must exist.

The Company ships product in accordance with the purchase order and standard

terms as reflected within the Company’s order acknowledgments and sales invoices.

of the performance obligations in the contract — performance obligations promised in a contract are identified based on

the goods that will be transferred to the customer that are distinct, whereby the customer can benefit from the goods on their own

or together with other resources that are readily available from third parties or from us.

Persuasive evidence of an arrangement

for the sale of product must exist.

The Company ships product in accordance with the purchase order and standard terms as reflected

within the Company’s order acknowledgments and sales invoices.

Determination

of the transaction price —the transaction price is determined based on the consideration to which the Company will

be entitled in exchange for transferring goods to the customer.

This would be the agreed upon quantity and price per product

type in accordance with the customer purchase order, which is aligned with the Company’s internally approved pricing

of the transaction price —the transaction price is determined based on the consideration to which the Company will be entitled

in exchange for transferring goods to the customer.

This would be the agreed upon quantity and price per product type in accordance

with the customer purchase order, which is aligned with the Company’s internally approved pricing guidelines.

of the transaction price to the performance obligations in the contract — if the contract contains a single performance

obligation, the entire transaction price is allocated to the single performance obligation.

This applies to the Company as

there is only one performance obligation to ship the goods.

This applies to the Company as there

is only one performance obligation to ship the goods.

of revenue when, or as, the Company satisfies a performance obligation — the Company satisfies performance obligations

at a point in time when control of the goods transfers to the customer.

Determining the point in time when control transfers

requires judgment.

Determining the point in time when control transfers requires

Indicators considered in determining whether the customer has obtained control of a good include:

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customer has accepted the goods

is important to note that the indicators are not a set of conditions that must be met before the Company can conclude that control

of the goods has transferred to the customer.

The indicators are a list of factors that are often present if a customer has control

of the goods.

is important to note that the indicators are not a set of conditions that must be met before the Company can conclude that control of

the goods has transferred to the customer.

The indicators are a list of factors that are often present if a customer has control of the

Company has typical, unmodified FOB shipping point terms.

As the seller, the Company can determine that the shipped goods meet

the agreed-upon specifications in the contract or customer purchase order (e.g.

items, quantities, and prices) with the buyer,

so customer acceptance would be deemed a formality, as noted in ASC 606-10-55-86.

As a result, the Company has a legal right to

payment upon shipment of the goods.

As the seller, the Company can determine that the shipped goods meet the agreed-upon

specifications in the contract or customer purchase order (e.g.

items, quantities, and prices) with the buyer, so customer acceptance

would be deemed a formality, as noted in ASC 606-10-55-86.

As a result, the Company has a legal right to payment upon shipment of the

upon the above, the Company has concluded that transfer of control substantively transfers to the customer upon shipment.

2 unchanged sentences

customer purchase order) include sales commissions.

Under Topic 606, these costs

may be expensed as incurred for contracts with a duration of one year or less.

The majority of the Company’s customer

purchase orders are fulfilled (e.g.

Under Topic 606, these costs may

be expensed as incurred for contracts with a duration of one year or less.

The majority of the Company’s customer purchase

orders are fulfilled (e.g.

goods are shipped) within two days of receipt.

- the Company does not offer customers to purchase a warranty separately.

Therefore there is not a separate performance

The Company does account for warranties as a cost accrual and the warranties do not include any additional distinct

services other than the assurance that the goods comply with agreed-upon specifications.

There is no impact of warranties

under Topic 606 upon the financial reporting of the Company.

- the Company does not offer a warranty as a separate component for customers to purchase.

A warranty is generally included with

each purchase, providing assurance that the goods comply with agreed-upon specifications, and the cost is therefore accrued accordingly,

but contracts do not include any requirement for additional distinct services.

Therefore, there is not a separate performance obligation,

and there is no impact of warranties under Topic 606 upon the financial reporting of the Company.

Goods - from time to time, the Company provides authorization to customers to return goods.

If deemed to be material,

the Company would record a “right of return” asset for the cost of the returned goods which would reduce cost

If deemed to be material, the Company

would record a “right of return” asset for the cost of the returned goods which would reduce cost of sales.

Rebates (Promotional Incentives) - volume rebates are variable (dependent upon the volume of goods purchased by our eligible

customers) and, under Topic 606, must be estimated and recognized as a reduction of revenue as performance obligations are

satisfied (e.g.

customers) and, under Topic 606, must be estimated and recognized as a reduction of revenue as performance obligations are satisfied

upon shipment of goods).

Also under Topic 606, to ensure that revenue recognized would not be probable of

a significant reversal, the four following factors are considered:

Also under Topic 606, to ensure that revenue recognized would not be probable of a significant reversal,

the four following factors are considered:

amount of consideration is highly susceptible to factors outside the Company’s influence.

2 unchanged sentences

contract has a large number and broad range of possible consideration amounts.

it was concluded that the above factors were in place for the Company, it would support the probability of a significant reversal

However, as none of the four factors apply to the Company, promotional incentives are recorded as a reduction of revenue

based upon estimates of the eligible products expected to be sold.

disaggregated revenue disclosures, as previously noted, the Company’s business is controlled as a single operating segment

that consists of the manufacture and sale of flexible metal hose.

Most of the Company’s transactions are very similar in

nature, contract, terms, timing, and transfer of control of goods.

As indicated within Note 2, Significant Accounting Policies,

in these Consolidated Financial Statements, under the caption “Significant Concentration”, the majority of the Company’s

sales were geographically contained within North America, with the remainder scattered internationally.

All performance assessments

and resource allocations are generally based upon the review of the results of the Company as a whole.

Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash

it was concluded that the above factors were in place for the Company, it would support the probability of a significant reversal of

However, as none of the four factors apply to the Company, promotional incentives are recorded as a reduction of revenue based

upon estimates of the eligible products expected to be sold.

disaggregated revenue disclosures, as previously noted, the Company’s business is controlled as a single operating segment that

consists of the manufacture and sale of flexible metal hose.

Most of the Company’s transactions are very similar in nature, contract,

terms, timing, and transfer of control of goods.

As indicated within Note 2, Significant Accounting Policies, in these Consolidated Financial

Statements, under the caption “Significant Concentration”, the majority of the Company’s sales were geographically

contained within North America, with the remainder scattered internationally.

All performance assessments and resource allocations are

generally based upon the review of the results of the Company as a whole.

Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents.

Cash equivalents include investments in an institutional money market fund, which invests in U.S.

Treasury bills,

notes and bonds, and/or repurchase agreements, backed by such obligations.

Treasury bills, notes, and bonds, and/or

repurchase agreements, backed by such obligations.

Carrying value approximates fair value.

Cash and cash

equivalents are deposited at various area banks, which at times may exceed federally insured limits.

The Company monitors the

viability of the banking institutions carrying its assets on a regular basis, and has the ability to transfer cash to various

institutions during times of risk.

The Company has not experienced any losses related to these cash balances, and believes its

credit risk to be minimal.

Receivable and Provision for Doubtful Accounts

Cash and cash equivalents are deposited at

various area banks, which at times may exceed federally insured limits.

The Company monitors the viability of the banking institutions

carrying its assets on a regular basis and has the ability to transfer cash to various institutions during times of risk.

has not experienced any losses related to these cash balances and believes its credit risk to be minimal.

Receivable and Provision for Credit Losses

accounts receivables are stated at amortized cost, net of allowances for credit losses, and adjusted for any write-offs.

maintains allowances for credit losses, which represent an estimate of expected losses over the remaining contractual life of

its receivables considering current market conditions and estimates for supportable forecasts when appropriate.

The estimate is

a result of the Company’s ongoing assessments and evaluations of collectability, historical loss experience, and future

expectations in estimating credit losses in its receivable portfolio.

For accounts receivables, the Company uses historical loss

experience rates and applies them to a related aging analysis while also considering customer and/or economic risk where appropriate.

Determination of the proper amount of allowances requires management to exercise judgment about the timing, frequency and severity

of credit losses that could materially affect the provision for credit losses and, as a result, net earnings.

The allowances consider

numerous quantitative and qualitative factors that include receivable type, historical loss experience, delinquency trends, collection

experience, current economic conditions, estimates for supportable forecasts, when appropriate, and credit risk characteristics.

reserve for credit losses, which include future credits, discounts, and doubtful accounts, was $ 1,124,000 and $ 1,433,000 as of

December 31, 2020 and 2019, respectively.

maintains allowances for credit losses, which represent an estimate of expected losses over the remaining contractual life of its receivables

considering current market conditions and estimates for supportable forecasts when appropriate.

The estimate is a result of the Company’s

ongoing assessments and evaluations of collectability, historical loss experience, and future expectations in estimating credit losses

in its receivable portfolio.

For accounts receivables, the Company uses historical loss experience rates and applies them to a related

aging analysis while also considering customer and/or economic risk where appropriate.

Determination of the proper amount of allowances

requires management to exercise judgment about the timing, frequency and severity of credit losses that could materially affect the provision

for credit losses and, as a result, net earnings.

The allowances consider numerous quantitative and qualitative factors that include

receivable type, historical loss experience, delinquency trends, collection experience, current economic conditions, estimates for supportable

forecasts, when appropriate, and credit risk characteristics.

reserve for credit losses, which include future credits, discounts, and doubtful accounts, was $ 1,410,000 and $ 1,124,000 as of December

31, 2021 and 2020, respectively.

Company invests excess funds in liquid interest earning instruments including U.S.

Treasury bills and bank time deposits, with

maturities typically of one year or less.

These investments are stated at fair value, which approximates amortized cost, and are

classified as available-for-sale in accordance with ASC 320, Investments – Debt and Equity Securities .

did not have any investments as of December 31, 2020 or 2019.

Treasury bills and bank time deposits, with maturities

typically of one year or less.

These investments are stated at fair value, which approximates amortized cost, and are classified as available-for-sale

in accordance with ASC 320, Investments – Debt and Equity Securities .

The Company did not have any investments as of December

31, 2021 or 2020.

are valued at the lower of cost or net realizable value.

The cost of inventories is determined by the first-in, first-out (FIFO)

The Company generally considers inventory quantities beyond two years of non-usage, measured on a historical usage basis,

to be excess inventory and reduces the gross carrying value of inventory accordingly.

The cost of inventories is determined by the first-in, first-out (FIFO) method.

The Company generally considers inventory quantities beyond two years of usage, measured on a historical usage basis, to be excess inventory

and reduces the carrying value of inventory accordingly.

and Equipment

and equipment are carried at cost.

and equipment are initially recorded at cost.

Depreciation and amortization are computed using the straight-line method over the estimated

useful lives of the assets or, for leasehold improvements, the life of the lease, if shorter.

When assets are retired or otherwise

disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected

in other income or expense for the period.

When assets are retired or otherwise disposed

of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in other

income or expense for the period.

The cost of maintenance and repairs is expensed as incurred;

significant improvements

are capitalized.

accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 350, Intangibles – Goodwill and Other

(ASU 2017-04) , using the simplified method as adopted, the Company performed an annual impairment test as of December 31,

This analysis did not indicate any impairment of goodwill.

the duration and severity of the COVID-19 pandemic could result in future goodwill impairment charges.

While we have concluded

that a triggering event did not occur during 2020, a prolonged pandemic could impact the Company’s results of operations

in a manner significant enough to trigger an impairment test.

significant improvements are capitalized.

accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 350, Intangibles – Goodwill and Other (ASU

2017-04) , using the simplified method as adopted, the Company performed an annual impairment test as of December 31, 2021.

This analysis

did not indicate any impairment of goodwill.

Compensation Plans

2006, the Company adopted a Phantom Stock Plan (the “Plan”), which allows the Company to grant phantom stock units

(Units) to certain key employees, officers or directors.

The Units each represent a contractual right to payment of compensation

in the future based upon the market value of the Company’s common stock.

The Units follow a vesting schedule of three years

from the grant date, and are then paid upon maturity.

In accordance with FASB ASC Topic 718, Stock Compensation , the Company

uses the Black-Scholes option pricing model as its method for determining the fair value of the Units.

Further details of the

Plan are provided in Note 11, Stock-Based Compensation Plans, to the Consolidated Financial Statements included in this report.

2006, the Company adopted a Phantom Stock Plan (the “Plan”), which allows the Company to grant phantom stock units (“Units”)

to certain key employees, officers, or directors.

The Units each represent a contractual right to payment of compensation in the future

based upon the market value of the Company’s common stock and are accordingly recorded as liabilities.

The Units follow a vesting

schedule of three years from the grant date and are then paid upon maturity.

In accordance with FASB ASC Topic 718, Compensation -

Stock Compensation (“Topic 718”), the Company uses the Black-Scholes option pricing model as its method for determining

the fair value of the Units.

The liabilities for the Units are adjusted to market value over time from the grant dates to the related

maturity dates.

The Company recognizes the reversal of any previously recognized compensation expense on forfeited nonvested Units in

the period the Units are forfeited.

Further details of the Plan are provided in Note 11, Stock-Based Compensation Plans, to the Consolidated

Financial Statements included in this report.

Liability Reserves

liability reserves represent the estimated unpaid amounts under the Company’s insurance policies with respect to existing

liability reserves represent the estimated unpaid amounts under the Company’s insurance policies with respect to existing claims.

The Company uses the most current available data to estimate claims.

As explained more fully under Note 10, Commitments

and Contingencies, to the Consolidated Financial Statements included in this report for various product liability claims covered

under the Company’s general liability insurance policies, the Company must pay certain defense and settlement costs within

its deductible or self-insured retention limits, ranging primarily from $ 25,000 to $ 2,000,000 per claim, depending on the terms

of the policy in the applicable policy year, up to an aggregate amount.

The Company is vigorously defending against all known

January 1, 2019, the Company adopted the requirements of FASB ASU 2016-02, Leases (Topic 842) which defines a lease as

any contract that conveys the right to use a specific asset for a period of time in exchange for consideration.

Leases are classified

as a finance lease, formerly called a capital lease, if any of the following criteria are met:

As explained more fully under Note 10, Commitments and Contingencies,

to the Consolidated Financial Statements included in this report for various product liability claims covered under the Company’s

general liability insurance policies, the Company must pay certain defense and settlement costs within its deductible or self-insured

retention limits, ranging primarily from $25,000 to $2,000,000 per claim, depending on the terms of the policy in the applicable policy

year, up to an aggregate amount.

The Company is vigorously defending against all known claims.

January 1, 2019, the Company adopted the requirements of FASB ASU 2016-02, Leases (Topic 842) which defines a lease as any contract

that conveys the right to use a specific asset for a period of time in exchange for consideration.

Leases are classified as a finance

lease, formerly called a capital lease, if any of the following criteria are met:

lease transfers ownership of the underlying asset to the lessee by the end of the lease term.

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lease term is for the major part of the remaining economic life of the underlying asset.

present value of the sum of lease payments and any residual value guaranteed by the lessee equals or exceeds substantially

all of the fair value of the underlying asset.

underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of

the lease term.

present value of the sum of lease payments and any residual value guaranteed by the lessee equals or exceeds substantially all of

the fair value of the underlying asset.

underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease

any leases that do not meet the criteria identified above for finance leases, the Company treats such leases as operating leases.

As of December 31, 2020, each of the Company’s leases are classified as operating leases.

of December 31, 2021, each of the Company’s leases are classified as operating leases.

finance and operating leases are reflected on the balance sheet as lease or “right-of-use” assets and lease liabilities.

are some exceptions, which the Company has elected in its accounting policies.

For leases with terms of twelve months or less,

or below the Company’s general capitalization policy threshold, the Company has elected an accounting policy to not recognize

lease assets and lease liabilities for all asset classes.

The Company recognizes lease expense for such leases generally on a

straight-line basis over the lease term.

For leases with terms of twelve months or less, or below

the Company’s general capitalization policy threshold, the Company has elected an accounting policy to not recognize lease assets

and lease liabilities for all asset classes.

The Company recognizes lease expense for such leases generally on a straight-line basis

over the lease term.

Company determines if a contract is a lease at the inception of the arrangement.

The Company reviews all options to extend, terminate,

or purchase its right-of-use assets at the inception of the lease and accounts for these options when they are reasonably certain

to be exercised.

Certain leases contain non-lease components, such as common area maintenance, which are generally accounted for

In general, the Company will assess if non-lease components are fixed and determinable, or variable, when determining

if the component should be included in the lease liability.

For purposes of calculating the present value of the lease obligations,

the Company utilizes the implicit interest rate within the lease agreement when known and/or determinable, and otherwise utilizes

its incremental borrowing rate at the time of the lease agreement.

permitted under ASU 2018-11, the Company elected the optional transition method to adopt the new leases standard.

Under this new

transition method, the Company initially applied the new leases standard at the adoption date of January 1, 2019 and would have

recognized a cumulative-effect adjustment, if appropriate, to the opening balance of retained earnings in the period of adoption.

No cumulative-effect adjustment was recognized.

impact of the adoption of this new standard resulted in an increase to the Company’s operating lease assets and liabilities

on January 1, 2019 of approximately $ 800,000 .

The implementation did not have a material impact on our consolidated statements

of income and statements of cash flows.

or purchase its right-of-use assets at the inception of the lease and accounts for these options when they are reasonably certain to

be exercised.

Certain leases contain non-lease components, such as common area maintenance, which are generally accounted for separately.

In general, the Company will assess if non-lease components are fixed and determinable, or variable, when determining if the component

should be included in the lease liability.

For purposes of calculating the present value of the lease obligations, the Company utilizes

the implicit interest rate within the lease agreement when known and/or determinable, and otherwise utilizes its incremental borrowing

rate at the time of the lease agreement.

Value of Financial and Nonfinancial Instruments

Company measures financial instruments in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures .

The accounting standard defines fair value, establishes a framework for measuring fair value under GAAP, and enhances disclosures

about fair value measurements.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer

a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction

between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of

observable inputs and minimize the use of unobservable inputs.

The standard creates a fair value hierarchy which prioritizes the

inputs to valuation techniques used to measure fair value into three broad levels as follows:

Level 1 inputs are quoted prices

(unadjusted) in active markets for identical assets or liabilities;

Level 2 inputs are inputs other than quoted prices included

within Level 1 that are observable for the asset or liability, either directly or indirectly;

and Level 3 inputs are unobservable

inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset

or liability.

The Company relies upon Level 1 inputs in determining the fair value of investments and the fair value of the Company’s

reporting unit in its annual impairment test as described in the FASB ASC Topic 350, Intangibles - Goodwill and Other .

costs are charged to operations as incurred and are included in selling expenses in the accompanying consolidated statement of

Such charges aggregated $ 691,000 , $ 1,056,000 and $ 1,037,000 for the years ended December 31, 2020, 2019, and 2018,

respectively.

The accounting

standard defines fair value, establishes a framework for measuring fair value under GAAP, and enhances disclosures about fair value measurements.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the

principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable

The standard creates a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into

three broad levels as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly

or indirectly;

and Level 3 inputs are unobservable inputs that reflect the Company’s own assumptions about the assumptions market

participants would use in pricing the asset or liability.

The Company relies upon Level 1 inputs in determining the fair value of the

Company’s reporting unit in its annual impairment test as described in the FASB ASC Topic 350, Intangibles - Goodwill and Other .

costs are charged to operations as incurred and are included in selling expenses in the accompanying consolidated statement of operations.

Such charges aggregated $ 877,000 , $ 691,000 , and $ 1,056,000 for the years ended December 31, 2021, 2020, and 2019, respectively.

and Development Expense

and development expenses are charged to operations as incurred.

Such charges totaled $ 831,000 , $ 1,191,000 and $ 1,531,000 for the

years ended December 31, 2020, 2019 and 2018, respectively and are included in engineering expense in the accompanying consolidated

statements of operations.

Such charges totaled $ 627,000 , $ 831,000 , and $ 1,191,000 for the years

ended December 31, 2021, 2020 and 2019, respectively and are included in engineering expense in the accompanying consolidated statements

of operations.

costs are included in selling expense on the consolidated statements of operations.

The expense relating to shipping was $ 3,814,000 ,

$ 2,862,000 and $ 2,973,000 for the years ended December 31, 2020, 2019 and 2018, respectively.

$ 2,801,000 ,

and $ 2,862,000 for

the years ended December 31, 2021, 2020 and 2019, respectively.

per Common Share

earnings per share have been computed using the weighted-average number of common shares outstanding.

For the periods presented,

there are no dilutive securities.

For the periods presented, there

are no dilutive securities.

Consequently, basic and dilutive earnings per share are the same.

and liabilities denominated in foreign currencies, most of which relate to the Company’s U.K.

subsidiary whose functional

currency is the British Pound, are translated into U.S.

subsidiary whose functional currency

is the British Pound, are translated into U.S.

dollars at exchange rates prevailing on the balance sheet dates.

The statements

of income are translated into U.S.

The statements of income

are translated into U.S.

dollars at average exchange rates for the period.

Adjustments resulting from the translation

of financial statements are excluded from the determination of income and are accumulated in a separate component of shareholders’

Exchange gains and losses resulting from foreign currency transactions are included in the statements of income (other

expense) in the period in which they occur.

Adjustments resulting from the translation of financial statements

are excluded from the determination of income and are accumulated in a separate component of shareholders’ equity.

Exchange gains

and losses resulting from foreign currency transactions are included in the statements of income (other expense) in the period in which

Company accounts for tax liabilities in accordance with the FASB ASC Topic 740, Income Taxes .

Under this method the Company

recorded tax expense, related deferred taxes and tax benefits, and uncertainties in tax positions.

Under this method the Company recorded

tax expense, related deferred taxes and tax benefits, and uncertainties in tax positions.

tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement

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Deferred tax assets and liabilities are measured

using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to

be recovered or settled.

The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income

in the period that includes the enactment date.

A valuation allowance is provided for deferred tax assets if it is more likely

than not that these items will either expire before the Company is able to realize the benefit, or that future deductibility is

FASB ASC Topic 740, Income Taxes , clarifies the criteria that an individual tax position must satisfy for some or all of

the benefits of that position to be recognized in a company’s financial statements.

This guidance prescribes a recognition

threshold of more-likely than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return,

in order for those tax positions to be recognized in the financial statements.

using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered

The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that includes

the enactment date.

A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either

expire before the Company is able to realize the benefit, or that future deductibility is uncertain.

FASB ASC Topic 740, Income Taxes , clarifies the criteria that an individual tax position must satisfy for some or all of the benefits

of that position to be recognized in a company’s financial statements.

This guidance prescribes a recognition threshold of more-likely

than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions

to be recognized in the financial statements.

Company follows the provisions of ASC 740-10 relative to accounting for uncertainties in tax positions.

These provisions provide

guidance on the recognition, de-recognition and measurement of potential tax benefits associated with tax positions.

Company reflected the effects of the Tax Cuts and Jobs Act (the “Act”) in its financial statements.

This included

the change in the U.S.

corporate tax rate from 35 % to 21 % and a provision related to previously deferred taxes on earnings of

the Company’s foreign subsidiary.

The Company’s tax provision also reflects other changes as a result of the Act,

including the impact of the Global Intangible Low Taxed Income (“GILTI”) provisions, and changes affecting the deductibility

of certain executive compensation.

These provisions provide guidance

on the recognition, de-recognition and measurement of potential tax benefits associated with tax positions.

March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law making several changes to the Internal

Revenue Code.

The changes include but are not limited to increasing the limitation on the amount of deductible interest expense, allowing

companies to carryback certain net operating losses, and increasing the amount of net operating loss carryforwards that corporations

can use to offset taxable income.

The tax law changes in the CARES Act did not have a material impact on the Company’s income tax

Comprehensive Income

the years ended December 31, 2020, 2019 and 2018, respectively, the components of other comprehensive income consisted solely

of foreign currency translation adjustments.

the years ended December 31, 2021, 2020 and 2019, respectively, the components of other comprehensive income consisted solely of foreign

currency translation adjustments.

Concentrations

customer represented 13 % to 14 % of sales during each of the fiscal years in the period from 2018 to 2020, and that same customer

accounted for approximately 18 % to 24 % of the Accounts Receivable balance over the last two years.

No other customer represented

more that 10% of Accounts Receivable or Sales.

Geographically, North America accounted for approximately 90 % of the Company’s

sales during the last three years.

The remaining portion of sales for each respective year was scattered among other countries,

with the U.K.

being the Company’s most dominant market outside North America.

customer represented 13% to 14% of sales during each of the fiscal years in the period from 2019 to 2021, and that same customer accounted

for approximately 7% to 18% of the Accounts Receivable balance over the last two years.

No other customer represented more that 10% of

Accounts Receivable or Sales.

Geographically, North America accounted for approximately 89% to 93% of the Company’s sales during

the last three years.

The remaining portion of sales for each respective year was scattered among other countries, with the U.K.

the Company’s most dominant market outside North America .

Company evaluates all events or transactions through the date of the related filing that may have a material impact on its Consolidated

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2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate

Reform on Financial Reporting .

The ASU applies to all entities that have contracts, hedging relationships, and other transactions

that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The ASU provides

optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference

rate reform if certain criteria are met.

The expedients and exceptions provided by the ASU do not apply to contract modifications

made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as

of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the

hedging relationship.

The ASU is effective for all entities as of March 12, 2020 through December 31, 2022.

The impact of the

adoption of ASU 2020-04 did not have a material impact on the Company’s Consolidated Financial Statements.

Facilitation of the Effects of Reference Rate Reform

on Financial Reporting .

The ASU applies to all entities that have contracts, hedging relationships, and other transactions that reference

LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The ASU provides optional expedients and

exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain

criteria are met.

The expedients and exceptions provided by the ASU do not apply to contract modifications made and hedging relationships

entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity

has elected certain optional expedients for and that are retained through the end of the hedging relationship.

The ASU is effective for

all entities as of March 12, 2020 through December 31, 2022.

The impact of the adoption of ASU 2020-04 did not have a material impact

on the Company’s Consolidated Financial Statements.

December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

guidance removes certain exceptions for recognizing deferred taxes for equity method investments, performing intraperiod allocation,

and calculating income taxes in interim periods.

The ASU also adds guidance to reduce complexity in certain areas, including recognizing

deferred taxes for goodwill and allocating taxes to members of a consolidated group, among others.

The amendments in ASU 2019-12

are effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods therein.

Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have

not yet been issued.

The Company is currently evaluating the impact of adopting this new guidance on its Consolidated Financial

Statements and does not expect the impact to be significant.

removes certain exceptions for recognizing deferred taxes for equity method investments, performing intraperiod allocation, and calculating

income taxes in interim periods.

The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes

for goodwill and allocating taxes to members of a consolidated group, among others.

The amendments in ASU 2019-12 are effective for public

business entities for fiscal years beginning after December 15, 2020, including interim periods therein.

Early adoption of the standard

is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued.

The Company adopted

this new guidance, and it did not have a material impact on its Consolidated Financial Statements.

net of reserves of $ 505,000 and $ 407,000 , respectively, were as follows at December 31:

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PROPERTY AND EQUIPMENT

and equipment consisted of the following at December 31:

and equipment consisted of the following on December 31:

SCHEDULE OF PROPERTY AND EQUIPMENT

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3 - 10 Years (Lesser of Life or Lease)

Property and Equipment - Gross

Accumulated Depreciation

Property and Equipment - Net

above amounts include capital related items of $ 234,000 and $ 199,000 as of December 31, 2020 and 2019, respectively, which had

not yet been placed in service by the Company, and therefore no depreciation was recorded in the related periods for those assets.

Depreciation and amortization expense was approximately $ 870,000 , $ 719,000 and $ 543,000 for the years ended December 31, 2020,

2019 and 2018, respectively.

above amounts include capital related items of $ 112,000 and $ 234,000 as of December 31, 2021 and 2020, respectively, which had not yet

been placed in service by the Company, and therefore no depreciation was recorded in the related periods for those assets.

and amortization expense was approximately $ 1,020,000 , $ 870,000 , and $ 719,000 for the years ended December 31, 2021, 2020 and 2019, respectively.

LINE OF CREDIT AND OTHER BORROWINGS

December 1, 2017, the Company agreed to a new Amended and Restated Revolving Line of Credit Note (the “Line”) and

Third Amendment to the Loan Agreement with Santander Bank, N.A.

December 1, 2017, the Company agreed to a new Amended and Restated Revolving Line of Credit Note (the “Line”) and Third Amendment

to the Loan Agreement with Santander Bank, N.A.

(the “Bank”).

The Company established a line of credit

facility in the maximum amount of $ 15,000,000 , maturing on December 1, 2022 , with funds available for working capital purposes

and other cash needs.

The loan is unsecured.

The loan agreement provides for the payment of any borrowings under the agreement

at an interest rate range of either LIBOR plus 0.75 % to plus 1.75 % (for borrowings with a fixed term of 30, 60, or 90 days), or,

Prime Rate up to Prime Rate plus 0.50 % (for borrowings with no fixed term other than the December 1, 2022 maturity date), depending

upon the Company’s then existing financial ratios.

Currently, the Company’s ratio would allow for the most favorable

rate under the agreement’s range, which would be a rate of 0.89 % .

The Company is also required to pay on a quarterly basis

an unused facility fee of 10 basis points of the average unused balance of the note.

The Company may terminate the line at any

time during the five-year term , as long as there are no amounts outstanding.

the quarter ended June 30, 2020, in an effort to ensure liquidity and secure all available resources during the COVID-19 pandemic,

the Company borrowed the full amount of its capacity on the line of $ 15,000,000 at the prime rate of 3.25 % .

The Company repaid

this amount in full prior to the end of such quarter, and as of December 31, 2020, had no borrowings on its line of credit.

of December 31, 2019, the Company had no outstanding borrowings on its line of credit.

The Company established a line of credit facility in the maximum

amount of $ 15,000,000 , maturing on December 1, 2022 , with funds available for working capital purposes and other cash needs.

is unsecured.

The loan agreement provides for the payment of any borrowings under the agreement at an interest rate range of either LIBOR

plus 0.75% to plus 1.75% (for borrowings with a fixed term of 30, 60, or 90 days), or, Prime Rate up to Prime Rate plus 0.50% (for borrowings

with no fixed term other than the December 1, 2022 maturity date), depending upon the Company’s then existing financial ratios.

Currently, the Company’s ratio would allow for the most favorable rate under the agreement’s range, which would be a rate

The Company is also required to pay on a quarterly basis an unused facility fee of 10 basis points of the average unused balance

The Company may terminate the line at any time during the five-year term, as long as there are no amounts outstanding.

the quarter ended June 30, 2020, in an effort to ensure liquidity and secure all available resources during the COVID-19 pandemic, the

Company borrowed the full amount of its capacity on the line of $ 15,000,000 at the prime rate of 3.25 %.

The Company repaid this amount

in full prior to the end of such quarter, and as of December 31, 2020, had no borrowings on its line of credit.

As of December 31, 2021,

the Company also had no outstanding borrowings on its line of credit.

Company was in compliance with all debt covenants as of December 31, 2021 and 2020.

Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the U.S.

On April 7, 2020,

the Company received a loan from the U.S.

Small Business Administration (“SBA”) to fund the Company’s

request for a loan under the SBA’s Paycheck Protection Program (“PPP” and “PPP Loan”) created as

part of the recently enacted CARES Act administered by the SBA.

In connection with the PPP Loan, the Company entered into a promissory

note filed as Exhibit 10.2 attached to Form 10-Q for the quarter ended March 31, 2020.

Pursuant to the terms of the PPP Loan,

the Company received total proceeds of $ 2,453,000 from the Bank at an interest rate of just below 1 % per annum.

After the issuance

of the PPP Loan, the U.S.

Treasury Department issued new guidance on the PPP program, and advised that publicly traded companies

that had access to other sources of financing may not be appropriate candidates for the PPP Loans, and provided a grace period

until May 7, 2020 for such companies to repay the previously issued PPP Loans.

Accordingly, in light of this guidance, the Company

repaid the PPP Loan by May 7, 2020.

Small Business Administration (“SBA”) to fund the Company’s request for a

loan under the SBA’s Paycheck Protection Program (“PPP” and “PPP Loan”) created as part of the recently

enacted CARES Act administered by the SBA.

In connection with the PPP Loan, the Company entered into a promissory note filed as Exhibit

10.2 attached to Form 10-Q for the quarter ended March 31, 2020.

Pursuant to the terms of the PPP Loan, the Company received total proceeds

of $ 2,453,000 from the Bank at an interest rate of just below 1 % per annum.

After the issuance of the PPP Loan, the U.S.

Treasury Department

issued new guidance on the PPP program, and advised that publicly traded companies that had access to other sources of financing may

not be appropriate candidates for the PPP Loans, and provided a grace period until May 7, 2020 for such companies to repay the previously

issued PPP Loans.

Accordingly, in light of this guidance, the Company repaid the PPP Loan by May 7, 2020.

as stated above, borrowings under our line of credit facility bear interest at variable rates based on LIBOR.

Currently, the Federal

Reserve Bank is considering options and transitioning away from LIBOR, and as such, has formed the Alternative Rates Committee

Reserve Bank is considering options and transitioning away from LIBOR, and as such, has formed the Alternative Rates Committee (ARRC).

The ARRC selected the Secured Overnight Financing Rate (SOFR) as an appropriate replacement.

SOFR is based on transactions

in the overnight repurchase markets, which reflects a transaction-based rate on a large number of transactions, better reflecting

current financing costs.

Discussions are ongoing with the Bank with regards to transitioning the rate for the Line from LIBOR

to another appropriate rate such as SOFR.

SOFR is based on transactions in the overnight

repurchase markets, which reflects a transaction-based rate on a large number of transactions, better reflecting current financing costs.

Discussions are ongoing with the Bank with regards to transitioning the rate for the Line from LIBOR to another appropriate rate such

SHAREHOLDERS’ EQUITY

of December 31, 2020 and December 31, 2019, the Company had authorized 20,000,000 common stock shares with par value of $ 0.01

For both periods, the total number of outstanding shares was 10,094,322 , shares held in Treasury was 59,311 , and total

shares issued was 10,153,633 .

During 2020 and 2019, upon approval of the

Board of Directors (the “Board”) the Company has declared and paid regular quarterly dividends, as well as special

of December 31, 2021 and December 31, 2020, the Company had authorized 20,000,000 common stock shares with par value of $ 0.01 per share.

For both periods, the total number of outstanding shares was 10,094,322 , shares held in Treasury was 59,311 , and total shares issued

was 10,153,633 .

2021, 2020, and 2019, upon approval of the Board of Directors (the “Board”) the Company has declared and paid regular quarterly

dividends, as set forth in the following table:

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December 9, 2021

January 5, 2021

December 30, 2021

September 15, 2021

October 4, 2021

June 24, 2020

July 13, 2020 *

March 24, 2021

April 14, 2021

December 16, 2019 (S)

December 11, 2020

December 14, 2019

January 5, 2021

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July 13, 2020

April 9, 2019

March 31, 2020

April 17, 2020

December 16, 2019 ( S )

December 30, 2019

December 14, 2019

January 3, 2020

The number of shares outstanding on the dividend payment date was 10,094,322.

The number of shares outstanding on the dividend payment date was 10,091,822.

special dividend

addition to the above dividend amounts, there were dividends approved by the Company’s foreign subsidiary during July and

December of 2019, with the cash distribution to the noncontrolling interest of $ 137,000 and $ 65,000 , respectively, paid during

those respective months.

should be noted that from time to time, the Board may elect to pay special dividends, in addition to or in lieu of the regular

quarterly dividends, depending upon the financial condition of the Company.

Special dividends are indicated in the above schedule

Board approved and granted a total of 2,500 restricted stock unit awards (the “Awards”) to be allocated to the existing

non-employee directors of the Company.

The Awards were approved by the shareholders of the Company at the annual meeting on June

11, 2019, and distributed on June 20, 2019.

A Form S-8 registration statement, and the restricted stock unit award agreements,

were filed with the SEC on December 13, 2018 ( 2,000 units) and May 24, 2019 ( 500 units).

The related director compensation cost

of approximately $ 217,000 was recognized during June 2019.

indicates special dividend

addition to the above dividend amounts, there were dividends approved by the Company’s foreign subsidiary during September 2021,

December 2019, and July 2019, which amounted to outlays of cash of $ 129,000 , $ 65,000 , and $ 137,000 to the foreign subsidiary’s

noncontrolling interest respectively.

should be noted that from time to time, the Board may elect to pay special dividends, in addition to or in lieu of the regular quarterly

dividends, depending upon the financial condition of the Company.

Board approved and granted a total of 2,500 restricted stock unit awards (the “Awards”) to be allocated to the existing non-employee

directors of the Company.

The Awards were approved by the shareholders of the Company at the annual meeting on June 11, 2019 and distributed

on June 20, 2019.

A Form S-8 registration statement, and the restricted stock unit award agreements, were filed with the SEC on December

13, 2018 ( 2,000 units) and May 24, 2019 ( 500 units).

The related director compensation cost of approximately $ 217,000 was recognized

during June 2019.

April 4, 2014, the Board authorized an extension of its stock repurchase program without expiration, up to a maximum amount of $ 1,000,000 .

$ 1,000,000 .

The original program established in December 2007 authorized the purchase of up to $ 5,000,000 of its common stock.

The purchases may be made from time-to-time in the open market or in privately negotiated transactions, depending on market and

business conditions.

The Board retained the right to cancel, extend, or expand the share buyback program, at any time and from

time-to-time.

Since inception, the Company has purchased a total of 61,811 shares for approximately $ 932,000 , or approximately

$ 15 per share, which were held as treasury shares.

The purchases may

be made from time-to-time in the open market or in privately negotiated transactions, depending on market and business conditions.

Board retained the right to cancel, extend, or expand the share buyback program, at any time and from time-to-time.

Since inception,

the Company has purchased a total of 61,811 shares for approximately $ 932,000 , or approximately $ 15 per share, which were held as treasury

The Company has not made any stock repurchases since 2014.

however, as stated

above, there were 2,500 shares distributed from treasury to non-employee directors during June 2019.

tax expense consisted of the following:

SCHEDULE OF COMPONENTS OF INCOME TAX EXPENSE (BENEFIT)

(in thousands)

Federal Income Tax:

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income tax expense differed from statutory income tax expense, computed by applying the U.S.

federal income tax rate of 21% to

earnings before income tax, as follows:

federal income tax rate of 21 % to earnings

before income tax, as follows:

SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION

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Income Tax Expense

deferred income tax (expense) benefit results from temporary timing differences in the recognition of income and expense for income

tax and financial reporting purposes.

The components of and changes in the net deferred tax assets (liabilities) which give rise

to this deferred income tax (expense) benefit for the years ended December 31, 2020 and 2019 are as follows:

deferred income tax (expense) benefit results from temporary timing differences in the recognition of income and expense for income tax

and financial reporting purposes.

The components of and changes in the net deferred tax assets (liabilities) which give rise to this

deferred income tax (expense) benefit for the years ended December 31, 2021 and 2020 are as follows:

SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES

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Total Deferred Tax Liability

believes it is more likely than not that the Company will have sufficient taxable income when these timing differences reverse

and that the deferred tax assets will be realized with the exception of a carryover of foreign operating losses.

Due to the uncertainty

of future income in the foreign subsidiary, the Company has recognized a valuation allowance related to the foreign operating

losses carrying forward.

believes it is more likely than not that the Company will have sufficient taxable income when these timing differences reverse and that

the deferred tax assets will be realized with the exception of a carryover of foreign operating losses.

Due to the uncertainty of future

income in the foreign subsidiary, the Company has recognized a valuation allowance related to the foreign operating losses carrying forward.

Company is currently subject to audit by the Internal Revenue Service for the calendar years ended 2018 through 2020.

and its Subsidiaries’ state income tax returns are subject to audit for the calendar years ended 2016 through 2019.

of December 31, 2020, the Company had no liability for unrecognized tax benefits related to various federal and state income tax

The Company and

its Subsidiaries’ state income tax returns are subject to audit for the calendar years ended 2017 through 2020.

of December 31, 2021, the Company had no liability for unrecognized tax benefits related to various federal and state income tax matters.

the U.S., the Company owns its two main operating facilities located in Exton, Pennsylvania.

In addition to the owned facilities,

the Company also has operations in other locations that are leased, as well as other leased assets.

In conjunction with the new

guidance for leases, as defined by the FASB with ASU 2016-02, Leases (Topic 842), the Company has described the existing

leases, which are all classified as operating leases, pursuant to the below.

the U.S., the Company leases a facility in Houston, Texas, which currently provides manufacturing, stocking and sales operations,

with the lease term running through October 2024.

In addition to the owned facilities, the

Company also has operations in other locations that are leased, as well as other leased assets.

In conjunction with the new guidance

for leases, as defined by the FASB with ASU 2016-02, Leases (Topic 842), the Company has described the existing leases, which

are all classified as operating leases, pursuant to the below.

the U.S., the Company leases a facility in Houston, Texas, which currently provides manufacturing, stocking and sales operations, with

the lease term running through October 2024.

Additionally, the Company leases its corporate office space in Middletown, Connecticut,

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the U.K., the Company leases a facility in Banbury, England, which serves manufacturing, warehousing, and other operational functions.

The lease in Banbury was effective April 1, 2006 and has a 15-year term ending in March 2021, and currently being negotiated for

addition to property rentals, the Company also has lease agreements in place for various fleet vehicles and equipment with various

the December 31, 2020 consolidated balance sheet, the Company has recorded right-of-use assets of $ 493,000 , and a lease liability

of $ 499,000 , of which $ 247,000 is reported as a current liability.

The respective weighted average remaining lease term and discount

rate are approximately 2.41 years and 2.81 % .

The lease in Banbury was effective April 1, 2006 and had a 15-year term which ended in March 2021.

A new lease for Banbury was recently

consummated, effective April 1, 2021, with a 15-year term ending in March 2036.

addition to property rentals, the Company also has lease agreements in place for various fleet vehicles and equipment with various lease

the December 31, 2021 consolidated balance sheet, the Company has recorded right-of-use assets of $ 3,374,000 , and a lease liability of

$ 3,373,000 , of which $ 383,000 is reported as a current liability.

The respective weighted average remaining lease term and discount rate

are approximately 12.95 years and 1.07 %.

expense for operating leases was approximately $ 421,000 , $ 301,000 , and $ 298,000 for the years ended December 31, 2021, 2020 and 2019,

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Operating Leases

(in thousands)

(Amounts in thousands)

Total Minimum Lease Payments

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Company maintains a qualified non-contributory profit-sharing plan (the “Plan”) covering all eligible employees.

were $ 430,000 , $ 380,000 and $ 361,000 of contributions accrued for the Plan in 2020, 2019 and 2018 respectively, which were charged

to expense in those respective years.

$ 441,000 , $ 430,000 , and $ 380,000 of contributions accrued for the Plan in 2021, 2020 and 2019 respectively, which were charged to expense

in those respective years.

Contributions

to the Plan are defined as three percent ( 3 % ) of gross wages up to the current Old Age, Survivors, and Disability (OASDI) limit

and six percent ( 6 % ) of the excess over the OASDI limit, subject to the maximum allowed under the Employee Retirement Income Security

to the Plan are defined as three percent ( 3 %) of gross wages up to the current Old Age, Survivors, and Disability (OASDI) limit and six

percent ( 6 %) of the excess over the OASDI limit, subject to the maximum allowed under the Employee Retirement Income Security Act (ERISA).

Participants vest over six years.

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are eligible to participate in the Plan the first day of the month following date of hire.

Participants may elect to have up to

fifty percent ( 50 % ) of their compensation withheld, up to the maximum allowed by the Internal Revenue Code.

After completing one

year of service, the Company contributed an additional amount equal to 50 % of all employee contributions, up to a maximum of 6 %

of an employee’s gross wages.

Participants may elect to have up to fifty

percent ( 50 )% of their compensation withheld, up to the maximum allowed by the Internal Revenue Code.

After completing one year of service,

the Company contributed an additional amount equal to 50 % of all employee contributions, up to a maximum of 6 % of an employee’s

Contributions are funded on a current basis.

Contributions to the Plan charged to expense

for the years ended December 31, 2020, 2019 and 2018 were $ 295,000 , $ 276,000 and $ 256,000 , respectively.

The participant’s

Company contribution vests ratably over six years.

Contributions to the Plan charged to expense for the years ended December 31,

2021, 2020 and 2019 were $ 315,000 , $ 295,000 , and $ 276,000 , respectively.

The participant’s Company contribution vests ratably over

COMMITMENTS AND CONTINGENCIES

a number of indemnity agreements between the Company and each of its officers and directors, the Company has agreed to indemnify

each of its officers and directors against any liability asserted against them in their capacity as an officer or director, or

The Company’s indemnity obligations under the indemnity agreements are subject to certain conditions and limitations

set forth in each of the agreements.

Under the terms of the Agreement, the Company is contingently liable for costs which may

be incurred by the officers and directors in connection with claims arising by reason of these individuals’ roles as officers

and directors.

The Company has obtained directors’ and officers’ insurance policies to fund certain obligations under

the indemnity agreements.

a number of indemnity agreements between the Company and each of its officers and directors, the Company has agreed to indemnify each

of its officers and directors against any liability asserted against them in their capacity as an officer or director, or both.

The Company’s

indemnity obligations under the indemnity agreements are subject to certain conditions and limitations set forth in each of the agreements.

Under the terms of the indemnity agreements, the Company is contingently liable for costs which may be incurred by the officers and directors

in connection with claims arising by reason of these individuals’ roles as officers and directors.

The Company has obtained directors’

and officers’ insurance policies to fund certain obligations under the indemnity agreements.

Company has salary continuation agreements with current and/or past employees.

These agreements provide for monthly payments to

each of the employees or their designated beneficiary upon the employee’s retirement or death.

The payment benefits range

from $ 1,000 per month to $ 3,000 per month with the term of such payments limited to 15 years after the employee’s retirement.

The agreements also provide for survivorship benefits if the employee dies before attaining age 65, and severance payments if

the employee is terminated without cause;

These agreements provide for monthly payments to each

of the employees or their designated beneficiary upon the employee’s retirement or death.

The payment benefits range from $ 1,000

per month to $ 3,000 per month with the term of such payments limited to 15 years after the employee’s retirement.

The agreements

also provide for survivorship benefits if the employee dies before attaining age 65, and severance payments if the employee is terminated

without cause;

the amount of which is dependent on the length of Company service at the date of termination.

The net present value of the retirement payments associated with these agreements is $ 499,000 at December 31, 2020, of which $ 436,000

is included in Other Long Term Liabilities, and the remaining current portion of $ 63,000 is included in Other Liabilities, associated

with the applicable retirement benefit payments over the next twelve months.

The December 31, 2019 liability of $ 492,000 had $ 480,000

reported in Other Long Term Liabilities, and a current portion of $ 12,000 in Other Liabilities.

The net present value of

the retirement payments associated with these agreements is $ 447,000 as of December 31, 2021, of which $ 399,000 is included in Other

Long Term Liabilities, and the remaining current portion of $ 48,000 is included in Other Liabilities, associated with the applicable

retirement benefit payments over the next twelve months.

The December 31, 2020 liability of $ 499,000 had $ 436,000 reported in Other Long

Term Liabilities, and a current portion of $ 63,000 in Other Liabilities.

Company has obtained and is the beneficiary of life insurance policies with respect to current and/or past employees.

surrender value of such policies (included in Other Long Term Assets) amounts to $ 1,556,000 at December 31, 2020 and $ 1,417,000

at December 31, 2019.

The cash surrender

value of such policies (included in Other Long Term Assets) amounts to $ 1,651,000 at December 31, 2021 and $ 1,556,000 at December 31,

addition to the above, the Company has other contractual employment and or change of control agreements in place with key employees,

as previously disclosed and noted in the Exhibit Index to this Form 10-K.

Obligations related to these arrangements are currently

indeterminable due to the variable nature and timing of possible events required to incur such obligations.

disclosed in detail in Note 8, under the caption “Leases”, the Company has several lease obligations in place that

will be paid out over time.

Most notably, the Company leases a facility in Banbury, England that serves the manufacturing, warehousing

and distribution functions.

as provided earlier in Item 7 under the “Tabular Disclosure of Contractual Obligations and Off-Balance Sheet Arrangements”,

the Company has numerous purchase obligations in place for the forthcoming year, largely related to the Company’s core material

inventory components, totaling $ 25,539,000 .

Obligations related to these arrangements are currently indeterminable

due to the variable nature and timing of possible events required to incur such obligations.

disclosed in detail in Note 8, under the caption “Leases”, the Company has several lease obligations in place that will be

paid out over time.

Most notably, the Company leases a facility in Banbury, England that serves the manufacturing, warehousing, and distribution

as provided earlier in Item 7 under “Liquidity and Capital Resources”, the Company has numerous purchase obligations in place

for the forthcoming year, largely related to the Company’s core material inventory components, totaling $ 31,846,000 .

Contingencies:

the ordinary and normal conduct of the Company’s business, it is subject to periodic lawsuits, investigations and claims

(collectively, the “Claims”).

The Claims relate to potential lightning damage to our flexible gas piping products,

which impact legal and product liability related expenses.

The Company does not believe the Claims have legal merit, and therefore

has commenced a vigorous defense in response to the Claims.

It is possible that the Company may incur increased litigation costs

in the future due to a variety of factors, including a higher number of Claims, higher legal costs, and higher insurance deductibles

or retentions.

the ordinary and normal conduct of the Company’s business, it is subject to periodic lawsuits, investigations, and claims (collectively,

the “Claims”).

The Claims generally relate to potential lightning damage to our flexible gas piping products, which impact

legal and product liability related expenses.

The Company does not believe the Claims have legal merit, and therefore has commenced a

vigorous defense in response to the Claims.

It is possible that the Company may incur increased litigation costs in the future due to

a variety of factors, including a higher number of Claims, higher legal costs, and higher insurance deductibles or retentions.

September 2017, a putative class action case was filed against the Company and other parties in Missouri state court.

successfully removed the case to federal court, and in August 2020, the court granted the defendants’ joint summary judgement

motion, and dismissed the case.

The parties have fully resolved the plaintiffs appeal of that decision, and the case has been

dismissed by the plaintiffs, thus concluding the matter.

The Company successfully

removed the case to federal court, and in August 2020, the court granted the defendants’ joint summary judgement motion, and dismissed

The parties have fully resolved the plaintiffs appeal of that decision, and the case has been dismissed by the plaintiffs,

thus concluding the matter.

Company was made aware of a potential legal liability regarding a legal dispute in the U.K., in which the Company’s subsidiary,

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for the defendant’s costs (including a portion of its attorneys’ fees).

The Company reached an initial agreement during

the fourth quarter and made a payment of £ 320,000 accordingly.

A nominal liability remains at December 31, 2020 approximating

any outstanding amounts that may potentially be due as part of the final arrangement.

Company has in place commercial general liability insurance policies that cover most Claims, which are subject to deductibles

or retentions, ranging primarily from $ 25,000 to $ 2,000,000 per claim (depending on the terms of the policy and the applicable

policy year), up to an aggregate amount.

Litigation is subject to many uncertainties and management is unable to predict the outcome

of the pending suits and claims.

The potential liability for a given claim could range from zero to a maximum of $ 2,000,000 , depending

upon the circumstances, and insurance deductible or retention in place for the respective claim year.

The aggregate maximum exposure

for all current open Claims as of December 31, 2020 is estimated to not exceed approximately $ 6,200,000 , which represents the

potential costs that may be incurred over time for the Claims within the applicable insurance policy deductibles or retentions.

From time to time, depending upon the nature of a particular case, the Company may decide to spend in excess of a deductible or

retention to enable more discretion regarding the defense, although this is not common.

It is possible that the results of operations

or liquidity of the Company, as well as the Company’s ability to procure reasonably priced insurance, could be adversely

affected by the pending litigation, potentially materially.

The Company is currently unable to estimate the ultimate liability,

if any, that may result from the pending litigation, or potential litigation from future claims or claims that have not yet come

to our attention, and accordingly, the liability in the Consolidated Financial Statements primarily represents an accrual for

legal costs for services previously rendered, and outstanding or anticipated settlements for Claims.

The liabilities recorded

on the Company’s books at December 31, 2020 and December 31, 2019 were $ 642,000 and $ 215,000 , respectively, and are included

in Other Liabilities.

The Company reached an initial agreement during the

fourth quarter of 2020 and made a payment of £ 320,000 accordingly.

An additional payment of £ 110,000 was made on January

5, 2022, which was recorded as an accrued liability as of December 31, 2021, and represented the remaining amount of the liability as

part of the final arrangement.

This matter is now closed.

Company has in place commercial general liability insurance policies that cover most Claims, which are subject to deductibles or retentions,

ranging primarily from $ 25,000 to $ 2,000,000 per claim (depending on the terms of the policy and the applicable policy year), up to an

aggregate amount.

Litigation is subject to many uncertainties and management is unable to predict the outcome of the pending suits and

The potential liability for a given claim could range from zero to a maximum of $ 2,000,000 , depending upon the circumstances,

and insurance deductible or retention in place for the respective claim year.

The aggregate maximum exposure for all current open Claims

as of December 31, 2021 is estimated to not exceed approximately $ 9,100,000 , which represents the potential costs that may be incurred

over time for the Claims within the applicable insurance policy deductibles or retentions.

From time to time, depending upon the nature

of a particular case, the Company may decide to spend in excess of a deductible or retention to enable more discretion regarding the

defense, although this is not common.

It is possible that the results of operations or liquidity of the Company, as well as the Company’s

ability to procure reasonably priced insurance, could be adversely affected by the pending litigation, potentially materially.

is currently unable to estimate the ultimate liability, if any, that may result from the pending litigation, or potential litigation

from future claims or claims that have not yet come to our attention, and accordingly, the liability in the Consolidated Financial Statements

primarily represents an accrual for legal costs for services previously rendered, and outstanding or anticipated settlements for Claims.

The liabilities recorded on the Company’s books as of December 31, 2021 and December 31, 2020 were $ 262,000 and $ 642,000 , respectively,

and are included in Other Liabilities.

STOCK BASED COMPENSATION PLANS

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2006 Phantom Stock Plan (the “Plan”).

The Plan authorizes the grant of up to 1 million units of phantom stock to employees, officers or directors of the Company and

of any of its subsidiaries.

The phantom stock units (“Units”) each represent a contractual right to payment of compensation

in the future based on the market value of the Company’s common stock.

The Units are not shares of the Company’s common

stock, and a recipient of the Units does not receive any of the following:

Plan authorizes the grant of up to one million units of phantom stock to employees, officers or directors of the Company.

stock units (“Units”) each represent a contractual right to payment of compensation in the future based on the market value

of the Company’s common stock .

The Units are not shares of the Company’s common stock, and a recipient of the Units does

not receive any of the following:

interest in the Company

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Units are granted to participants upon the recommendation of the Company’s CEO, and the approval of the Compensation Committee.

Each of the Units that are granted to a participant will be initially valued by the Compensation Committee, at an amount equal

to the closing price of the Company’s common stock on the grant date, but are recorded at fair value using the Black-Scholes

method as described below.

Each of the Units that are granted to a participant will be initially valued by the Compensation Committee, at an amount equal to the

closing price of the Company’s common stock on the grant date, but are recorded at fair value using the Black-Scholes method as

described below.

The Units follow a vesting schedule, with a maximum vesting of three years after the grant date.

vesting, the Units represent a contractual right of payment for the value of the Unit.

The Units will be paid on their maturity

date, one year after all of the Units granted in a particular award have fully vested, unless an acceptable event occurs under

the terms of the Plan prior to one year, which would allow for earlier payment.

The amount to be paid to the participant on the

maturity date is dependent on the type of Unit granted to the participant.

Upon vesting, the Units

represent a contractual right of payment for the value of the Unit and therefore are stated as liabilities in accordance with FASB ASC

Topic 718 , Compensation - Stock Compensation .

The Units will be paid on their maturity date, one year after all of the Units granted

in a particular award have fully vested, unless an acceptable event occurs under the terms of the Plan prior to one year, which would

allow for earlier payment.

The amount to be paid to the participant on the maturity date is dependent on the type of Unit granted to

the participant.

Units may be Full Value, in which the value of each Unit at the maturity date, will equal the closing price of the Company’s

common stock as of the maturity date;

or Appreciation Only , in which the value of each Unit at the maturity date will be

equal to the closing price of the Company’s common stock at the maturity date minus the closing price of the Company’s

common stock at the grant date.

December 9, 2009, the Board of Directors authorized an amendment to the Plan to pay an amount equal to the value of any cash or

stock dividend declared by the Company on its common stock to be accrued to the phantom stock units outstanding as of the record

date of the common stock dividend.

The dividend equivalent will be paid at the same time the underlying phantom stock units are

paid to the participant.

or Appreciation Only , in which the value of each Unit at the maturity date will be equal

to the closing price of the Company’s common stock at the maturity date minus the closing price of the Company’s common

stock at the grant date.

December 9, 2009, the Board of Directors authorized an amendment to the Plan to pay an amount equal to the value of any cash or stock

dividend declared by the Company on its common stock to be accrued to the phantom stock units outstanding as of the record date of the

common stock dividend.

The dividend equivalent will be paid at the same time the underlying phantom stock units are paid to the participant.

certain circumstances, the Units may be immediately vested upon the participant’s death or disability.

All Units granted

to a participant are forfeited if the participant is terminated from his relationship with the Company or its subsidiary for “cause,”

which is defined under the Plan.

If a participant’s employment or relationship with the Company is terminated for reasons

other than for “cause,” then any vested Units will be paid to the participant upon termination.

However, Units granted

to certain “specified employees” as defined in Section 409A of the Internal Revenue Code will be paid approximately

181 days after termination.

All Units granted to a participant

are forfeited if the participant is terminated from their relationship with the Company or its subsidiary for “cause,” which

is defined under the Plan.

If a participant’s employment or relationship with the Company is terminated for reasons other than

for “cause,” then any vested Units will be paid to the participant upon termination.

However, Units granted to certain “specified

employees” as defined in Section 409A of the Internal Revenue Code will be paid approximately 181 days after termination.

of Phantom Stock Units.

As of December 31, 2019, the Company had 15,493 unvested units outstanding, all of which were

granted at Full Value .

On February 28, 2020, the Company granted an additional 4,875 Full Value Units with a fair

value of $ 74.52 per unit on grant date, using historical volatility.

In February 2020, the Company paid $ 968,000 for the 10,460

fully vested and matured units that were granted during February 2016, including their respective earned dividend values.

2020, the Company paid $ 356,000 for the 2,750 fully vested and matured units that were granted during August 2016, including their

respective earned dividend values.

On August 24, 2020, the Company granted an additional 870 Full Value Units with a fair

value of $ 134.19 per unit on grant date, using historical volatility.

As of December 31, 2020, the Company had 13,252 unvested

units outstanding.

As of December 31, 2020, the Company had 13,252 unvested units outstanding, all of which were granted

at Full Value .

On February 18, 2021, the Company granted an additional 2,412 Full Value Units with a fair value of $ 146.06

per unit on grant date, using historical volatility.

In February 2021, the Company paid $ 1,214,000 for the 7,750 fully vested and matured

units that were granted during 2017, including their respective earned dividend values.

In August 2021, the Company paid $ 195,000 for

the 1,250 fully vested and matured units that were granted during August 2017, including their respective earned dividend values.

August 25, 2021, the Company granted an additional 808 Full Value Units with a fair value of $ 144.81 per unit on grant date, using

historical volatility.

On August 27, 2021, 1,212 unvested Full Value Units were forfeited.

As of December 31, 2021, the Company

had 8,358 unvested units outstanding.

Company uses the Black-Scholes option pricing model as its method for determining fair value of the Units.

The Company uses the

straight-line method of attributing the value of the stock-based compensation expense relating to the Units.

The compensation

expense (including adjustment of the liability to its fair value) from the Units is recognized over the vesting period of each

grant or award.

FASB ASC Topic 718, Stock Compensation , requires forfeitures to be estimated at the time of grant and revised, if necessary,

in subsequent periods if actual forfeitures differ from those estimates in order to derive the Company’s best estimate of

awards ultimately to vest.

represent only the unvested portion of a surrendered Unit and are typically estimated based on historical experience.

an analysis of the Company’s historical data, which has limited experience related to any stock-based plan forfeitures,

the Company applied a 0% forfeiture rate to Plan Units outstanding in determining its Plan Unit compensation expense as of December

total Phantom Stock related liability as of December 31, 2020 was $ 3,331,000 of which $ 1,378,000 is included in Other Liabilities,

as it is expected to be paid in February and August 2021, and the balance of $ 1,953,000 is included in Other Long Term Liabilities.

The total Phantom Stock related liability as of December 31, 2019 was $ 3,201,000 of which $ 1,508,000 is included in Other Liabilities,

and the balance of $ 1,693,000 is included in Other Long Term Liabilities.

accordance with FASB ASC Topic 718, Stock Compensation , the Company recorded compensation expense of approximately $ 1,453,000 ,

$ 2,255,000 , and $ 118,000 related to the Phantom Stock Plan for the years ended December 31, 2020, 2019 and 2018, respectively.

following table summarizes information about the Company’s nonvested phantom stock Units at December 31, 2020:

The Company uses the straight-line

method of attributing the value of the stock based compensation expense relating to the Units.

The compensation expense (including adjustment

of the liability to its fair value) from the Units is recognized over the vesting period of each grant or award.

FASB ASC Topic 718, Compensation - Stock Compensation , requires forfeitures either to be estimated at the time of grant and revised,

if necessary, in subsequent periods if actual forfeitures differ from those estimates to derive an estimate of awards ultimately to vest

or to recognize the effect of any forfeited awards for which the requisite vesting period is not completed in the period that the award

is forfeited.

Company recognizes the reversal of any previously recognized compensation expense on forfeited awards in the period that the award is

For the year ended December 31, 2021, the reversal of $ 56,000 of previously recognized compensation expense was recognized

on 1,212 nonvested forfeited Units.

total Phantom Stock related liability as of December 31, 2021 was $ 2,427,000 of which $ 1,156,000 is included in Other Liabilities, as

it is expected to be paid in February and August 2022, and the balance of $ 1,271,000 is included in Other Long Term Liabilities.

total Phantom Stock related liability as of December 31, 2020 was $ 3,331,000 of which $ 1,378,000 is included in Other Liabilities, and

the balance of $ 1,953,000 is included in Other Long Term Liabilities.

to the Phantom Stock Plan, in accordance with FASB ASC Topic 718, Compensation - Stock Compensation , the Company recorded compensation

expense of approximately $ 506,000 , $ 1,453,000 , and $ 2,255,000 related to the Phantom Stock Plan for the years ended December 31, 2021,

2020 and 2019, respectively.

Compensation expense for a given period largely depends upon fluctuations in the Company’s stock price.

following table summarizes information about the Company’s nonvested phantom stock Units as of December 31, 2021:

SUMMARY OF NONVESTED PHANTOM STOCK UNITS

1 unchanged sentence

Number of Phantom Stock Unit Awards:

Nonvested at December 31, 2019

Nonvested at December 31, 2020

Nonvested as of December 31, 2020

Nonvested as of December 31, 2021

Phantom Stock Unit Awards Expected to Vest

total unrecognized compensation costs calculated at December 31, 2020 are $ 1,124,000 which will be recognized through August 2023 .

The Company will recognize the related expense over the weighted average period of 1.1 years.

PARTY TRANSACTIONS

total unrecognized compensation costs calculated on December 31, 2021 are $ 669,000 which will be recognized through August 2024 .

Company will recognize the related expense over the weighted average period of 1.0 years.

RELATED PARTY TRANSACTIONS

time to time the Company may have related party transactions (“RPTs”).

In short, RPTs represent any transaction between

the Company and any Company employee, director or officer, or any related entity, or relative, etc.

The Company performs a review

of transactions each year to determine if any RPTs exist, and if so, determines if the related parties act independently of each

other in a fair transaction.

In short, RPTs represent any transaction between the

Company and any Company employee, director or officer, or any related entity, or relative, etc.

The Company performs a review of transactions

each year to determine if any RPTs exist, and if so, determines if the related parties act independently of each other in a fair transaction.

Through this investigation the Company noted a limited number of RPTs which are disclosed hereto.

Legal services were performed by a firm which formerly employed one member of the board.

On occasion the Company shares a small

amount of services with its former parent Mestek, Inc., mostly related to board meeting expenses.

The Company is aware of transactions

between a few service providers which employ individuals with associations to Omega Flex employees.

In all cases, these transactions

have been determined to be independent transactions with no indication that they are influenced by the related relationships.

Other than as disclosed above, the Company is currently not aware of any RPTs between the Company and any of its current directors

or officers outside the scope of their normal business functions or expected contractual duties.

First, legal and accounting fees of

$ 117,000 were paid on behalf of three affiliated shareholders during the first two quarters of 2021 for the filing of a registration

statement with the SEC (Form S-3) which allowed for the resale of up to 300,000 shares of common stock owned by the affiliated shareholders.

The legal and accounting fees are to be repaid to the Company by the three affiliated shareholders, and that amount is reported in Other

Current Assets.

Legal services for the Form S-3 and for other legal services were performed by a firm which formerly employed one member

of the board.

Second, on occasion the Company shares a small amount of services with its former parent Mestek, Inc., mostly related to

board meeting expenses.

Finally, the Company is aware of transactions between a few service providers which employ individuals with associations

to Omega Flex employees.

In all cases, these transactions have been determined to be independent transactions with no indication that

they are influenced by the related relationships.

Other than as disclosed above, the Company is currently not aware of any RPTs between

the Company and any of its current directors or officers outside the scope of their normal business functions or expected contractual

SUBSEQUENT EVENTS

Company evaluated all events or transactions that occurred through the date of this filing.

During this period, no events came

to the Company’s attention that would impact the Consolidated Financial Statements for 2020.

QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

table below sets forth selected quarterly information for each quarter of 2020 and 2019.

SCHEDULE OF QUARTERLY FINANCIAL INFORMATION

For the Year-Ended December 31, 2020

(dollars in thousands except per share data)

Net Income attributable to Omega Flex, Inc.

Basic and Diluted Earnings per common share

For the Year-Ended December 31, 2019

(dollars in thousands except per share data)

Net Income attributable to Omega Flex, Inc.

Basic and Diluted Earnings per common share

During this period, no events came to the

Company’s attention that would impact the Consolidated Financial Statements for 2021.

9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data