Quality Engineered Flexible Metal Piping Products
2022 Annual Report
Historical Results: 2013 to 2022
Net Sales
Net Income
10%
9%
0.8%
8%
6%
3%
-5%
23%
-3%
34%
17%
-9%
9%
28%
-14%
15%
32%
-10%
CAGR 5%
85.2
77.1
93.3
94.1
101.8
108.3
111.4
105.8
130
125.5
CAGR 9%
$26.2
$23.6
$20.1
$19.9
$17.3
$15.8
$15.7
$14.4
$13.5
$10.0
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Revenue per Employee
$(’000)
Gross Margin
3.4%
16.1%
-7.6%
9.6%
0.2%
2.7%
-12.0% 19.0%
-7%
8.1%
4.4%
0.3%
-1.3%
0.5%
3.8%
-.6%
-.3%
-.05%
CAGR 1.9%
$707
$716
$717
$737
$765
$709
$589
$609
$653
$645
CAGR 1.4%
58.7%
54.3%
61.3%
61.5%
60.7%
61.0%
63.3%
62.9% 62.7% 62.4%
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
YOY GROWTH
Manufacturer of flexible metal hose and gas piping products
Dear Shareholders,
April 28, 2023
For Omega Flex, 2022 was a year of transition and invigoration. As the influence of the pandemic lessened,
we were glad to resume travel and in-person marketing efforts. We continued successfully managing the supply chain
issues that faced almost all manufacturing companies. Our expertise at sourcing raw materials enabled us to maintain
our normal lead times with very few exceptions throughout the year. Despite sales unit volumes decreasing during the
year and continuing material cost pressures, we were able to protect our margins. Though off our record sales for 2021,
our 2022 sales finished strong at $125.5 million, resulting in net income of $23.6 million.
Rising interest rates, inflation, and uncertainties on the part of home builders created an undeniable weakening
in overall demand, in particular in the residential housing construction market. However, we believe that in the long-
term, the demand for residential housing remains strong. According to industry experts, the United States has a housing
deficit of several million units. Builders facing wide-spread material and labor shortages impedes making any serious
dent in the shortage in the near-term, but the demand from this important product market should remain for many years
to come.
In the United States and internationally, we continue to make gains in sales of MediTrac® flexible medical gas
piping, our newest product. With medical facility installations in 46 states and 5 countries, we believe we have moved
beyond the proof of concept phase with this cutting-edge technology. We continue to expect sales to grow steadily
over time as the obvious benefits of the MediTrac® system are realized by a critical mass of customers. Well protected
by issued and pending patents, proprietary design features, and unique OmegaFlex® technology, we continue to expand
our MediTrac® salesforce.
Our most notable transition in 2022 occurred with the retirement of our president and chief operating officer,
Mark Albino, who was instrumental in the strength and growth of the company during his 26 years of service. We are
pleased that he continues to serve on our board of directors. However, it comes as no surprise that Dean Rivest, who
was promoted to president of the company last year after essentially performing many functions of that role successfully
for several years, has transitioned seamlessly. I am also pleased with the exceptional performance of our chief financial
officer during his first full year of service in that role, and I am pleased to welcome a new general counsel, following
the recent retirement of her predecessor whose counsel served us so well for 17 years.
Our firm beliefs that “new products are the lifeblood of any manufacturing company” and “best products win”
have been responsible for the exceptional success of our business. Under our new management team, we remain as
committed as ever to these beliefs, which will drive our success into the future.
Sincerely,
Kevin R. Hoben
C.E.O. and Chairman of the Board
OMEGA FLEX, Inc., 451 Creamery Way, Exton, PA 19341 Tel: (610) 524-7272
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________________ to ______________________
Commission file number
000-51372
Omega Flex, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of
incorporation or organization)
451 Creamery Way, Exton, PA
(Address of principal executive offices)
23-1948942
(I.R.S. Employer
Identification No.)
19341
(Zip Code)
Registrant’s telephone number, including area code
610-524-7272
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol
Common Stock, par value $0.01 per share OFLX
Name of each exchange on which registered
NASDAQ Global Market
Securities registered pursuant to section 12(g) of the Act:
Not applicable
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ]
No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ]
No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
No [ ]
Yes [X]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
Yes [X] No [ ]
submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] Smaller reporting company [ ] Emerging Growth Company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Yes [ ] No [ ]
-1-
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b)) by the registered public accounting firm that
prepared or issued its audit report [X]
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the Registrant
included in the filing reflect the correction of an error to previously issued financial statements. [ ]
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the Registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The aggregate market value of voting and non-voting shares of common stock held by non-affiliates of the registrant as of June 30, 2022, the last
business day of the second quarter of 2022, was $348,483,353.
The number of shares of common stock outstanding as of March 1, 2023 was 10,094,322.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 10, 11, 12, 13, and 14) is incorporated by reference from the registrant's definitive proxy statement (to
be filed pursuant to Regulation 14A no later than 120 days after the year ended December 31, 2022, or April 30, 2023) for the 2023 annual meeting
of shareholders.
-2-
Omega Flex, Inc.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Market for Registrant’s Common Equity, and Related Stockholder Matters and Issuer
Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risks
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Party Transactions, and Director Independence
Principal Accountant Fees and Services
Item 15.
Item 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART IV
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K (“annual report” or “report”) of Omega Flex, Inc.
that are not historical facts -- but rather reflect our current expectations concerning future results and events --
constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
The words “believes,” “expects,” “intends,” “plans,” “anticipates,” “intend,” “estimate,” “potential,”
“continue,” “hopes,” “likely,” “will,” and similar expressions, or the negative of these terms, identify such forward-
looking statements. Such forward-looking statements are not guarantees of future performance and are subject to
risks and uncertainties. Important factors that could cause the actual results, performance or achievements of
Omega Flex, Inc., or industry results, to differ materially from future results, performance or achievements expressed
or implied by such forward-looking statements are set forth in Part I, Item 1A. Risk Factors, and other parts of this
annual report.
Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect
management’s view only as of the date of this annual report. We undertake no obligation to update or revise any
forward-looking statements, whether to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events, conditions, or circumstances, except as required by law. In addition, certain
sections of this annual report contain information obtained from independent industry sources and other sources that
we have not independently verified.
Unless otherwise indicated or the context otherwise requires, all references in this annual report to the terms
“Omega Flex,” the “Company,” “us,” “we”, and “our” refer to Omega Flex, Inc. and its subsidiaries.
PART I
Item 1 - BUSINESS
Overview of the Company
The Company is a leading manufacturer of flexible metal hose, which is used in a variety of ways to carry
gases and liquids within their particular applications. Some of the more prominent uses include:
•
•
•
•
carrying fuel gases within residential and commercial buildings;
carrying gasoline and diesel gasoline products (both above and below the ground) in a double containment
piping to contain any possible leaks, which is used in automotive and marina refueling, and fueling for back-
up generation;
using copper-alloy corrugated piping in medical or health care facilities to carry medical gases (oxygen,
nitrogen, vacuum) or pure gases for pharmaceutical applications; and
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.
The Company’s business is managed as a single operating segment that consists of the manufacture and sale
of flexible metal hose (also described as corrugated tubing), as well as the sale of the Company’s related proprietary
fittings and a vast array of accessories.
The Company manufactures flexible metal hose at its facilities in Exton, Pennsylvania, and Houston, Texas
in the United States (U.S.), and in Banbury, Oxfordshire in the United Kingdom (U.K.). The Company primarily sells
its products through distributors, wholesalers and to original equipment manufacturers (“OEMs”) throughout North
America and Europe, and to a lesser extent other global markets.
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Industry Overview
The flexible metal hose industry is highly fragmented and diverse, with more than 10 companies producing
flexible metal hose in the U.S., and at least that many in Europe and Asia. Because of its simple and ubiquitous nature,
flexible metal hose has been applied to a number of different applications across a broad range of industries.
The major market categories for flexible metallic hose include (1) automotive, (2) aerospace, (3) residential,
commercial, and institutional construction, and (4) general industrial. Omega Flex participates in the latter two
markets for flexible metallic hose. The residential and commercial construction markets utilize corrugated stainless
steel tubing (CSST) primarily for flexible gas piping, double containment piping for conveying diesel fuel and gasoline
from a storage tank to a dispenser or back-up generator. The Company utilizes corrugated copper tubing for medical
gases in medical care facilities, including hospitals, clinics, dental and veterinary offices, and long-term care facilities.
The general industrial market includes all the processing industries, the most important of which include primary steel,
petrochemical, pharmaceutical, and specialty applications for the transfer of fluids at both extremely low and high
temperatures, (such as the conveying of cryogenic liquids) and a highly fragmented OEM market, as well as the
maintenance and repair market.
None of our competitors appear to be dominant in more than one market. We are a leading supplier of
flexible metal hose in each of the markets in which we participate. Our assessment of our overall competitive position
is based on several factors. The flexible gas piping market in the U.S. is currently concentrated in the residential
housing market. Based on the reports issued by the national trade groups on housing construction, the level of
acceptance of flexible gas piping in the construction market, and the average usage of flexible gas piping in a
residential building, we believe that we can estimate with a reasonable level of accuracy the size of the total gas piping
market. In addition, the Company is a member of an industry trade group comprised of the largest manufacturers of
CSST in the U.S., which compiles and distributes sales volume statistics for its members relative to flexible gas piping.
Based on our sales and the statistics described above, the Company believes it can estimate its position within that
market. For other applications, industry trade groups collect, and report data related to these markets, and we can then
compare and estimate our status within that group as a whole. In addition, the customer base for the products that we
sell, and the identity of the manufacturers aligned with those customers is fairly well known, which again allows the
Company to extract information and estimate its market position. Lastly, the term “leading” implies a host of factors
other than sales volume and market share position. It includes the range and capability of the product line, history of
product development and new product launches, all of which information is in the public domain. Based on all this
information, the Company is reasonably confident that it is indeed a leader in the major market segments in which it
participates.
Development of Business
Incorporated in 1975 under the name of Tofle America, Inc., the Company was originally established as the
subsidiary of a Japanese manufacturer of flexible metal hose. For a number of years, the Company was a manufacturer
of flexible metal hose that was sold primarily to customers using the hose for incorporation into finished assemblies
for industrial applications. The Company later changed its name to Omega Flex, Inc., and in 1996, the Company was
acquired by Mestek, Inc. (Mestek).
In January 2005, Mestek announced its intention to distribute its equity ownership in our common stock to
Mestek shareholders. A registration statement for the Omega Flex common stock was filed with the Securities and
Exchange Commission (the "SEC") and the registration statement was declared effective on July 22, 2005. The
Company also listed its common stock on the NASDAQ National Market (now the NASDAQ Global Market) under
the stock symbol “OFLX” and began public trading of the common stock on August 1, 2005.
Over the years, most of the Company’s business has been concentrated in North America, but the Company
also has foreign subsidiaries located in the U.K. and France, which are largely focused on European and other
international markets. The Company also has a U.S. subsidiary which owns the Company’s Exton, Pennsylvania real
estate.
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Overview of Current Business
Strategy
The Company’s strategy has been, and continues to be, focused on its core strengths in the development,
manufacture, and sale of flexible metal hose for use in a variety of applications. The Company is uniquely situated to
exploit its capabilities in this area due to its long experience in engineering and bringing new products to market, and
its proprietary rotary process, which permits the Company to manufacture flexible metal hose with superior quality
and efficiency as compared to its competitors. The Company’s strategy is to develop flexible metal products in new
and developing markets that would recognize and compensate for the value-added propositions that each product
brings to that industry. Typically, this would involve a new flexible metal hose that replaces traditional rigid products,
and thereby improve the quality of the installed product, increase installation efficiency, and provide an overall cost
and time savings. Examples of such new products are our flexible gas piping sold under the TracPipe ® CounterStrike®
trademarks, our new MediTrac® corrugated medical gas tubing, and our DoubleTrac® double-containment piping. In
each instance, the products we bring to market offers customers superior quality, expanded applications due to the
product’s flexibility, and reduced total costs. The Company seeks to protect its investments in product development
by seeking and obtaining patent protection for new and unique features of its products.
Sales, Products and Customers
We sell our products to customers scattered across a wide and diverse set of industries ranging from
construction to pharmaceutical with close to 10,400 customers on record. These sales channels include sales through
independent sales representatives, distributors, OEM, and direct sales. We utilize various distribution companies in
the sale of our TracPipe® and Counterstrike® flexible gas piping, and these distribution customers in the aggregate
represent a significant portion of our business. In particular, the Company has one significant distribution customer,
whose various branches had sales in the range of 12% to 13% of total sales during the periods of 2020 to 2022 and
was in the range of 7% to 19% of the Company’s accounts receivable balance over the last two years. All of this
business is done on a purchase order basis for immediate resale commitments or stocking, and there are no long-term
purchase commitments. In the event we were to lose an account, we would not expect any long-term reduction in our
sales due to the broad end-user acceptance of our products. We would anticipate that in the event of a loss of any one
or more distributors, that after an initial transition period, the sales of our products would resume at or near their
historical levels. Furthermore, in the case of certain national distribution chains, which is the case regarding the
Company’s largest customer noted above, and other distributors, it is possible that there would continue to be
purchasing activity from one or more regional or branch distribution customers. We sell our products within North
America, primarily in the U.S. and Canada, and we also sell our products internationally, primarily in Europe through
our manufacturing facility located in Banbury, U.K. Our sales outside of North America were in the range of 5% to
7% of our total sales during the last three years, with most of the sales occurring in the U.K. and elsewhere in Europe.
We do not have a material portion of our long-lived assets located outside of the U.S.
As mentioned previously, we sell our products primarily through independent outside sales organizations,
including independent sales representatives, distributors, fabricating distributors, wholesalers, and OEMs. We have a
limited internal sales function that sells our products to key accounts, including OEMs and distributors of bulk hose.
We believe that within each geographic market in which the independent sales representative, distributor or wholesaler
is located that our outside sales organizations are the first or second most successful outside sales organization for the
particular product line within that geographic area.
TracPipe®
The Company has had the most success within the residential construction industry with its flexible gas
piping products, TracPipe®, which was introduced in 1997, and its more robust counterpart TracPipe® CounterStrike®,
which came to market in 2004. Partnered with the development of our AutoFlare® and AutoSnap® fittings and
accessories, both have enjoyed wide acceptance due to their reliability and durability. Within the residential
construction industry, the flexible gas piping products that we offer, and similar products offered by our competitors
have sought to overcome the use of black iron pipe that has traditionally been used by the construction industry in the
U.S. and Canada for the piping of fuel gases within a building. Prior to the introduction of the first CSST system in
-6-
1989, nearly all construction in the U.S. and Canada used traditional black iron pipe for gas piping. However, the
advantages of CSST in areas subject to high incidence and likelihood of seismic events had been first demonstrated
in Japan. In seismic testing, the CSST was shown to withstand the stresses on a piping system created by the shifting
and movement of an earthquake better than rigid pipe. The advantages of CSST over the traditional black iron pipe
also include lower overall installation costs because it can be installed in long uninterrupted lines within the building.
The flexibility of the tube allows it to be bent by hand without any tools when a change in direction in the
line is required. In contrast, black iron pipe requires that each bend in the pipe have a separate fitting attached. This
requires the installer to thread the ends of the black iron pipe, apply an adhesive to the threads, and then screw on the
fitting, all of which is labor intensive and costly, including testing and rework if the work is not done properly. As a
result of these advantages, the Company estimates that CSST now commands over one-half of the market for fuel gas
piping in new and remodeled residential construction in the U.S., and the use of rigid iron pipe, and to a lesser degree
copper tubing, accounts for the remainder of the market. The Company plans to continue its growth trend by
demonstrating its advantages against other technologies, in both the residential and commercial markets, in both the
U.S. and overseas in geographic areas that have access to natural gas distribution systems.
CounterStrike®
As previously mentioned, in 2004, the Company introduced a new brand of flexible gas piping sold under
the registered trademark “CounterStrike®”. CounterStrike® is designed to be more resistant to damage from transient
electrical arcing. In a lightning strike, the electrical energy of the lightning can energize all metal systems and
components in a building. This electrical energy, in attempting to reach ground, may arc between metal systems that
have different electrical resistance, and arcing can cause damage to the metal systems. In standard CSST systems, an
electrical bond between the CSST and the building’s grounding electrode would address this issue, but lightning is an
extremely powerful and unpredictable force. CounterStrike® CSST is designed to be electrically conductive and
therefore disperse the energy of any electrical charge over the entire surface of the CounterStrike® line. In 2007, the
Company introduced a new version of CounterStrike® CSST that was tested to be even more resistant to damage from
electrical arcing than the original version, and substantially more effective than standard CSST products. As a result
of its robust performance, the new version of CounterStrike® has been widely accepted in the market, and thus during
2011, the Company made the decision to sell exclusively CounterStrike® within the U.S. This move demonstrated
the Company’s commitment to innovation and safety, and further enhanced its leadership in the marketplace.
DoubleTrac®
In 2008, the Company introduced its first double containment piping product – DoubleTrac®. DoubleTrac®
double containment piping has earned stringent industry certifications for its ability to safely contain and convey liquid
fuels. DoubleTrac® received certification from Underwriters Laboratory, the testing and approval agency, that our
product is fully compliant with UL 971A, which is the product standard in the U.S. for metallic underground fuel
piping, ULc S679 which is the product standard in Canada for metallic underground fuel piping, as well as approvals
from other relevant state agencies that have more stringent testing procedures for the product. Additionally,
DoubleTrac® is fully compliant with UL 1369, which is the bi-national USA and Canada standard for aboveground
piping for flammable and combustible liquids. DoubleTrac® is one of a select few piping systems having listings and
approvals for both belowground and aboveground piping systems. Similar to our flexible gas piping, DoubleTrac®
provides advantages over older rigid pipe technologies. DoubleTrac® is made and can be installed in long continuous
runs, eliminating the need for manually assembling rigid pipe junctions at the end of a pipe or at a turn in direction.
In addition, DoubleTrac® has superior performance in terms of its ability to safely convey fuel from the storage tank
to the dispenser, primarily because DoubleTrac® is essentially a zero permeation piping system, far exceeding the
most stringent government regulations. Originally designed for applications involving automotive fueling stations
running from the storage tank to the fuel dispenser, the ability of DoubleTrac® to handle a variety of installation
challenges has broadened its applications to include refueling at marinas, fuel lines for back-up generators, and
corrosive liquids at waste treatment plants. In short, in applications where double containment piping is required to
handle potentially contaminating fluids or corrosive fluids, DoubleTrac® is engineered to handle those demanding
applications.
-7-
DEF-Trac®
DEF-Trac®, a complementary product which is very similar to DoubleTrac®, was brought to the marketplace
in 2011. DEF-Trac® piping is specifically engineered to handle the demanding requirements for diesel emissions fluid
(DEF). Federal regulations require all diesel engines to use DEF to reduce the particulate contaminants from the diesel
combustion process. However, DEF is highly corrosive and cannot be pre-mixed with diesel fuel. This requires that
new diesel trucks and automobiles must have separate tanks built into the vehicle so that the diesel emissions fluid
can be injected into the catalytic converter after the point of combustion. Similarly, a large portion of fueling stations
carrying diesel fuel are now also selling DEF through a separate dispenser. In addition to being highly corrosive, DEF
also has a high freezing temperature, requiring a heat trace in the piping in applications in northern areas of the U.S.
DEF-Trac® flexible piping is uniquely suited to handle all of these challenges, as the stainless steel inner core is
corrosion resistant, and DEF-Trac® also comes with options for heat trace that is extruded directly into the wall of the
product. In summary, DEF-Trac® provides a complete solution to the demanding requirements of this unique
application, as such, DEF-Trac® has been met with wide acceptance from the industry that was searching for a solution
to the new environmental requirement. The advantageous market position of DEF-Trac® has leveraged the penetration
of DoubleTrac® into the broader market for automotive fueling applications.
AutoSnap®
In September 2013, the Company announced that it would be releasing a newly developed fitting, AutoSnap®,
as part of its flexible gas piping product line. After successfully completing all required testing by independent testing
agencies, as well as extensive field trials across the U.S. by trained TracPipe® CounterStrike® installers, AutoSnap®
was officially introduced to the market in January 2014 to wide acceptance. With its patent-pending design, the
product simplified the installation process, and addressed installer preferences for both speed and ease of installation.
The AutoSnap® fitting now commands a significant portion of the Company’s fittings demand.
MediTrac®
In 2019, the Company commercialized MediTrac®, corrugated medical tubing (“CMT”), following its 2018
launch with several beta sites. Developed for the healthcare industry, the product can be used in hospitals, ambulatory
care centers, dental, physician and veterinary clinics, laboratories, and any facility that uses medical gases (oxygen,
nitrogen, carbon dioxide, etc.). Made from a copper alloy with an exterior fire-retardant jacket, MediTrac® is made
and sold in long continuous-length rolls. MediTrac®’s flexible nature and storage in rolls allows it to be transported
to and installed in health care facilities much more easily and quickly than traditional medical grade rigid copper pipe,
which comes in 20 foot long sections. MediTrac® is unrolled from a spool and installed in a medical facility in one
long continuous length and is bent by hand when a change in direction is needed. The long lengths and ability to
change direction with ease eliminates labor that would otherwise be needed to braze connections to straight sections
of copper pipe or elbows or tees for changes in direction, while increasing installation efficiency and operational safety
and minimizing downtime for healthcare facilities. Easy to assemble axial swaged brass fittings connect with all K,
L and DWV medical tubing that is sized from ½” to 2” in diameter and provides a leak-tight seal using ordinary hand
tools. The patent-pending fitting also prevents tampering or disassembly using a tamper-proof sleeve that is required
by the Health Care Facilities Code (NFPA 99 – 2018 edition). Rated at 185 psig, MediTrac® can deliver the necessary
volume of gas wherever it is needed across a facility. A recent case study comparing the installation of rigid copper
pipe and MediTrac® showed that MediTrac® increases installation efficiency by a factor of five (i.e., a 500% increase
in efficiency). By reducing the number of joints and brazed connections, MediTrac® also reduces possible
contamination into the medical gas system along with the fire risk associated with brazing. MediTrac® is currently
listed at UL 1365 and has an ASTM E84 rating of 25/50 and meets all 2018 requirements of the Health Care Facilities
Code (NFPA 99 – 2018). MediTrac® also meets Canadian standard Z7396.1, Medical Gas Pipeline Systems.
In 2020, the MediTrac® product line experienced significant growth in use and acceptance in the marketplace
resulting from its ability to be quickly and safely installed to meet the unprecedented crisis caused by the COVID-19
pandemic. Numerous medical institutions and emergency medical centers used MediTrac® CMT to quickly install
medical gas lines in tent hospitals or in converted facilities to handle the surging demand. For example, MediTrac®
medical gas piping was installed in a City of New York temporary hospital located in Central Park and in the Cleveland
Clinic for patients with COVID-19 infections and in need of supplemental oxygen treatments. On September 25,
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2020, the Centers for Medicare & Medicaid Services (CMS) issued a waiver allowing the use of CMT in new and
existing healthcare facilities based on the provisions in NFPA 99 – 2018, allowing MediTrac® to be installed in all
facilities in the U.S.
Additional Market Applications
In addition to the flexible gas piping and other previously described markets, our flexible metal hose is used
in a wide variety of other applications. Our involvement in these markets is important because just as the flexible gas
piping applications have sprung from our expertise in manufacturing metal hose, other applications may also evolve
from our participation in the industry. Flexible metal hose is used in a wide variety of industrial and processing
applications where the characteristics of the flexible hose in terms of its flexibility, and its ability to absorb vibration
and thermal expansion and contraction, have substantial benefits over rigid piping. For example, in certain
pharmaceutical processing applications, the process of developing the specific pharmaceutical may require rapid
freezing of various compounds through the use of liquefied gases, such as liquefied nitrogen, helium or
hydrofluorocarbons. The use of flexible metal tubing is particularly appropriate in these types of applications.
Flexible metal hose can accommodate the thermal expansion caused by the liquefied gases carried through the hose,
and the total length of the hose will not significantly vary. In contrast, fixed or rigid metal pipe would expand and
contract along its length as the liquid gases passed through it, causing stresses on the pipe junctions that would over
time cause fatigue and failure. Alternatively, within certain industrial or commercial applications using steam, either
as a heat source or in the industrial process itself, the pumps used to transfer the liquid or steam within the system are
subject to varying degrees of vibration. Additionally, flexible metal hoses can also be used as connections between
the pump and the intake of the fluids being transferred to eliminate the vibration effects of the pumps on the piping
transfer system. All of these areas provide opportunities for the flexible metal hose arena, and thus the Company
continues to participate in these markets, as it seeks new innovative solutions which will generate additional revenue
streams for the future.
In each instance, whether the application is for CSST for fuel gases, flexible metal hose for handling specialty
chemicals or gases, flexible double containment piping, unique industrial applications requiring the ability to
withstand wide variations in temperature and vibration, or copper alloyed CMT for medical facilities, all of our success
rests on our metal hose. Most of our flexible metal hoses range in diameter from 1/4” to 2” while certain applications
require diameters of up to 16”. All of our smaller diameter pipe (2” inner diameter and smaller) are made by a
proprietary process that is known as the rotary process. The proprietary process that we use to manufacture our annular
hose is the result of a long-term development effort begun in 1995. Through continuous improvement over the years,
we have developed and fine-tuned the process so that we can manufacture annular flexible metal hose on a high speed,
continuous process. We believe that our own rotary process for manufacturing annular corrugated metal hose is the
most cost efficient method in the industry, and that our rotary process provides us with a significant advantage in
many of the industries in which we participate. As a result, we can provide our product on a demand basis. Over the
years, the Company has had great success in achieving on-time delivery performance to the scheduled ship date. The
quick inventory turnover reduces our costs for in-process inventory, and further contributes to our gross profit levels.
We have also improved our productivity on a historical basis.
Markets and Competition
There are approximately 10 manufacturers of flexible metal hose in the U.S., and approximately that number
in Europe and Asia. The U.S. manufacturers include Titeflex Corporation, Ward Manufacturing, Microflex Inc., Hose
Master, Pennflex, and several smaller privately held companies. No one manufacturer, as a general rule, participates
in more than two of the major market categories, automotive, aerospace, residential and commercial construction, and
general industrial, with most concentrating on just one. We estimate that we are at or near the top position of the two
major categories in which we participate regarding market share. In the flexible gas piping market, the U.S. market
is currently concentrated in the residential housing market. Based on the reports issued by the national trade groups
on housing construction, the level of acceptance of flexible gas piping in the construction market, and the average
usage of flexible gas piping in a residential building, as well as through our sales position within that market, we can
estimate with a high level of accuracy the size of the total gas piping market. In addition, the Company is a member
of an industry trade group, which compiles and distributes sales statistics for its members relative to flexible gas
piping. For other applications, industry trade groups collect and report on the size of the relevant market, and we can
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estimate our percentage of the relevant market based on our sales as compared to the market as a whole. The larger
of our two markets, the construction industry, has seen a modest decrease in the number of residential housing starts
in 2022, as compared to the previous year. As discussed elsewhere, black iron pipe or copper tubing was historically
used by all builders of commercial and residential buildings until the advent of flexible gas piping and changes in the
relevant building codes. Since that time, flexible gas piping has taken an increasing share of the total amount of fuel
gas piping used in construction.
Due to the number of applications in which flexible metal hose may be used, and the number of companies
engaged in the manufacture and sale of flexible metal hose, the general industrial market is very fragmented, and we
estimate that no one company has a predominant market share of the business over other competitors. In the market
for double containment piping, we compete primarily against rigid pipe systems that are more costly to install than
DoubleTrac® double containment piping. For medical tubing applications, the main competitor is medical grade (Type
K or Type L) rigid copper pipe. MediTrac® is the only corrugated medical tubing in the U.S. that is approved to the
stringent requirements of UL 1365. The general industrial markets within Europe are very mature and tend to offer
opportunities that are interesting to us in niche markets or during periods in which a weak dollar increases the demand
for our products on a competitive basis. Such has been the case for several years and has created new relationships
for us. Currently, we are not heavily engaged in the manufacture of flexible metal hose for the aerospace or automotive
markets, but we continue to review opportunities in all markets for our products to determine appropriate applications
that will provide growth potential and high margins. In some cases, where the product offering is considered a
commodity, price is the overriding competing factor. In other cases, a proprietary product offering, or superior
performance will be the major factors with pricing being secondary, and in some cases, a non-factor. Most of our
sales are to distributors and wholesalers, and our relationships with these customers are on an arms-length basis in that
neither we nor the customers are so dependent on the other to yield any significant business advantage. See Note 2,
Significant Accounting Policies, under Significant Concentrations, to the Consolidated Financial Statements included
in this report for additional details. From our perspective, we can maintain a steady demand for our products due to
broad acceptance of our products by end users, regardless of which distributor or wholesaler sells the product.
Resources and Raw Materials
We use various materials in the manufacture of our products, primarily stainless steel for our flexible metal
hose and plastics for our jacketing material on TracPipe® CounterStrike® flexible gas piping and DoubleTrac® double
containment piping, as well as a copper alloy for our MediTrac® CMT. We also purchase all of our proprietary fittings
for use with the TracPipe® and CounterStrike® flexible gas piping, DoubleTrac® double containment piping, and
MediTrac® CMT. Although we have multiple sources qualified for all of our major raw materials and components,
we have historically used only one to three sources of supply for such raw materials and components. Our current
orders for stainless steel and fittings are each placed with one or two suppliers. If any one of these sources of supply
were interrupted for any reason, then we would have to devote additional time and expense to obtain the same volume
of supply from our other qualified sources. This potential transition, if it were to occur, could affect our operations
and financial results during the period of such transition. During 2022, the commodity price of nickel was significantly
higher, and copper was lower compared to last year. Nickel is a prime material in stainless steel which the Company
utilizes to manufacture CSST, and copper is a key component of the Company’s brass fittings and our MediTrac®
CMT. Fortunately, the Company was able to maintain reasonably stable margins during 2022. This was mainly
accomplished by implementing our own pricing actions to help offset the upward movements in the respective material
markets. We believe that with our purchase commitments for stainless steel, polyethylene and for our proprietary
fittings, we have adequate sources of supply for these raw materials and components. Like most other manufacturers,
we had sporadic supply chain issues in 2022, but we believe our multiple suppliers have sufficient raw materials and
capacity minimizing any potential disruption. We believe that the supply sufficiency of stainless steel will continue
until there is a reduction in global capacity, such as mine closures, which would then cause constriction. Volatility in
the commodities marketplace and competitive conditions in the sale of our products could potentially restrict us from
passing along raw materials or component part price increases to our customers.
Business Seasonality
The demand for our flexible piping products that are related to construction activity including TracPipe®,
Counterstrike®, DoubleTrac® and MediTrac®, may be affected by the construction industry’s demand, which generally
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tightens during the winter months of each year due to cold and inclement weather. Accordingly, sales are usually
higher in the spring, summer, and fall.
Government Regulations, Including Environmental Regulations
The Company believes that its businesses and operations, including its manufacturing plants and equipment,
are in substantial compliance with all applicable government laws and regulations, including those related to
environmental, consumer protection, international trade, labor and employment, human rights, tax, anti-bribery, and
competition matters. Any additional measures to maintain compliance are not expected to materially affect the
Company’s capital expenditures (including expenditures for environmental control facilities), competitive position,
financial position, or results of operations.
Various legislative and administrative regulations applicable to the Company in the matters noted above have
become effective or are under consideration in many parts of the world. To date, such developments have not had a
substantial adverse impact on the Company. However, if new or amended laws or regulations impose significant
operational restrictions and compliance requirements upon the Company or its products, the Company’s business,
capital expenditures, results of operations, financial condition and competitive position could be negatively impacted.
Refer to Item 1A. Risk Factors for further information.
Human Capital
We believe that our employees are the foundation of the innovative ideas necessary for the advancement of
our products, and success of our Company. Our employees are the conduits to successful relationships with our
customers, vendors, and various business partners, as well as the custodians of the safe and efficient operation of our
assets ending with a highly satisfied customer. The Company fosters a collaborative, inclusive, and safety-minded
work environment, with a focus on ingenuity. We seek to identify the most highly qualified talent for our organization,
enabling us to execute our strategic objectives of providing the most innovative and technologically advanced flexible
metal hose products on the market. To attract and retain employees, the Company offers competitive wages across
all levels, and maintains a superior package of employee benefits, including medical insurance, life insurance, and
retirement and savings programs, for all employees, as well as executive compensation plans as described in our proxy
statement.
As of December 31, 2022, the Company had 177 employees. Most of our employees are located in our
manufacturing facilities in Exton, Pennsylvania, which contain our factory personnel, engineering, finance, human
resources and most of our sales staff. Our factory workforce in Exton, Pennsylvania, is not party to a collective
bargaining agreement. A small number of employees work at our facility in Houston, Texas. We also maintain an
office in Middletown, Connecticut where certain management, sales and administrative personnel are assigned. A
number of individual sales personnel are also scattered across the U.S. We also maintain a manufacturing facility in
Banbury, U.K., which contains employees of similar functions to those in the U.S., but on a much smaller scale, as
well as a small presence in France. The sales personnel in England and France handle all sales and service for our
products in Europe, most notably the U.K., and most of our transactions with other international territories.
We are committed to fostering a work environment in which all employees treat each other with dignity and
respect. This commitment extends to providing equal employment and advancement opportunities based on merit and
experience. We continually strive to attract a diverse workforce by partnering with local organizations to identify
potential candidates to advance and strengthen our human capital management program.
Intellectual Property
We have a comprehensive portfolio of intellectual property, including approximately 123 patents issued in
various countries around the world. During 2022, the Company allowed some patents to lapse in countries where
warranted by market conditions, in particular, where the likelihood of entering the market is remote. Our active patents
cover (a) pre-sleeved CSST for use in underground applications, (b) an electrically conductive jacket for flexible gas
piping that we sell under the trademark CounterStrike®, (c) a tubing containment system for our DoubleTrac® double
containment piping, and (d) fittings for use with our MediTrac® corrugated medical tubing. Our patent-pending
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AutoSnap® fitting is a prominently used product with flexible gas piping because it offers a metal-to-metal seal
between the fitting and the tubing, and because of its robustness and ease of use. The metal-to-metal contact provides
for a longer lasting and more reliable seal than fittings which use gaskets or sealing compounds that can deteriorate
over time. In applications involving fuel gases in a building, the ability to maintain the seal and prevent the leaking
of such gases over long periods of time is valued by our customers. In addition, the AutoSnap® fitting provides the
installer with greater ease of use by preassembling all the securing elements inside the body of the fitting. We also
have a patent for the composition of the polyethylene jacket used in the prior version of CounterStrike® flexible gas
piping product, which has increased ability to dissipate electrical energy in the event of a nearby lightning strike. The
tubing containment system of our DoubleTrac® double containment piping, which is also patented in the U.S. and in
other countries, allows for the monitoring and collection of any liquids that may leak from the stainless steel
containment layer. We have filed patent applications for the MediTrac® fittings to cover the unique requirements in
the U.S. for fittings that permanently affix the fitting to the CMT system and provides a tamper-proof connection to
the CMT system. Several patents covering the prior version of the Counterstrike® jacket will expire in 2024. We
currently have several patent applications pending in the U.S. and internationally covering our AutoSnap® fittings and
improvements to our CounterStrike® polyethylene jacket. Finally, and as mentioned above, our unique rotary process
for manufacturing flexible metal hose has been developed over a number of years and constitutes a valuable trade
secret.
Available Information
You may learn more about our Company by visiting our website at www.omegaflex.com. Among other
things, you can access our filings with the SEC on our website free of charge. These filings include proxy statements,
annual reports (Form 10-K), quarterly reports (Form 10-Q), and current reports (Form 8-K), as well as Section 16
reports filed by our officers and directors (Forms 3, 4 and 5). All of these reports will be available on our website as
soon as reasonably practicable after we file the reports with the SEC. In addition, we have made available on our
website under the heading “Compliance” the charters for the Audit, Compensation and Nominating/Governance
Committees of our Board of Directors and our Code of Business Ethics. We intend to make available on our website
any future amendments or waivers to our Code of Business Ethics. The SEC maintains a website at www.sec.gov that
also contains the Company’s various reports, proxy, and information statements and other filings. The information
contained on or accessible through the websites referred to above is not incorporated by reference in, or otherwise a
part of, this annual report, and any references to these websites are intended to be inactive textual references only.
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Item 1A – RISK FACTORS
You should carefully consider the following risk factors and all the other information contained in this
annual report in evaluating our business and investment in our common stock. We have not disclosed general risk
factors that may be applicable to any for-profit organization, such as general economic conditions, interest rates,
labor supply and technological changes. If any of these risks occur, our business, financial condition, results of
operations and prospects could be materially and adversely affected. In that case, the market price of our common
stock could decline and you could lose all or part of your investment. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also materially harm our business, operating results and
financial condition and could result in a complete loss of your investment.
Risk Relating to Our Business – Sales and Competition
We are primarily dependent on one product line for most of our sales.
Most of the Company’s sales are derived from the sale of TracPipe® and CounterStrike® flexible gas piping
systems, including Autoflare® and AutoSnap® fittings and a variety of accessories. Sales of our flexible metal hose
for other applications represent a small portion of our overall sales and income. Any event or circumstance that
adversely affects our TracPipe® or CounterStrike® flexible gas piping could have a greater impact on our business and
financial results than if our business were more evenly distributed across several different product lines. The effects
of such an adverse event or circumstance would be magnified in terms of our Company as a whole as compared to
one or more competitors whose product lines may be more diversified, or who are not as reliant on the sales generated
by their respective flexible gas piping products. Therefore, risks relating to our TracPipe® and CounterStrike® flexible
gas piping business – in particular, loss of distributors or sales channels, technological changes, loss of our key
personnel involved in the flexible gas piping product line, increases in commodity prices, particularly in stainless
steel, copper, and polyethylene – could damage our business, competitive position, results of operations or financial
condition.
We face intense competition in all our markets.
The markets for flexible metal hose are intensely competitive. There are a number of competitors in all
markets in which we operate, and generally none of these markets have one dominant competitor – rather a large
number of competitors exist, each having a proportion of the total market. One or more of our competitors may develop
technologies and products that are more effective, or which may cost less than our current or future products or could
potentially render our products noncompetitive or obsolete. Our prior success has been due to our ability to develop
new products and product improvements and establish and maintain an effective distribution network which to some
extent came at the expense of several competing manufacturers. Our business, competitive position, results of
operations or financial condition could be negatively impacted if we are unable to maintain and develop our
competitive products.
We may not retain our independent sales organizations.
Almost all the Company’s products and product lines are sold by outside sales organizations. These
independent sales organizations or sales representatives are geographically dispersed in certain territorial markets
across the U.S., Canada and elsewhere. These outside sales organizations are independent of us and are typically
owned by the individual principals of such firms. We enter into agreements with such outside sales organizations for
the exclusive representation or distribution of our products, but such agreements are generally terminable on short
notice. At the expiration of the agreement, the agent or distributor may elect to represent a different manufacturer.
As a result, we have no ability to control which flexible metal hose manufacturer any such sales organization may
represent or carry. The competition to retain quality outside sales organizations is also intense between manufacturers
of flexible metal hose since it is these sales organizations that generally can direct the sales volume to distributors and,
ultimately, contractors and installers in important markets across the country, and in other countries in which we
operate. The failure to obtain the best outside sales organization within a particular geographic market can limit our
ability to generate sales of our products. While we currently have a fully developed sales and distribution network of
superior outside sales organizations, there can be no assurance that any one or more of the outside sales organizations
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will elect to remain with us, or that our competitors will not be able to disrupt our distribution network by causing one
or more of our sales representatives to drop our product lines. Our business, competitive position, results of operation
or financial condition could be negatively impacted if we cannot maintain adequate sales and distribution networks.
We are dependent on certain sales channels for a significant portion of our business.
Of the various sales channels that we use to sell our products, a significant portion of such sales are made
through our wholesale stocking distributors. These and other distributors purchase our products, and stock the goods
in warehouses for resale, either to their own local branches or to end users. Because of the breadth and penetration of
the distribution networks, and the range of complementary products they offer for sale, these wholesale distributors
are able to sell large amounts of our products to end users across the U.S. and Canada. The decision by a major
wholesaler distributor to stop distributing our products such as TracPipe® and CounterStrike® flexible gas piping, and
to distribute a competitive flexible gas piping product, could significantly affect our business, competitive position,
results of operations or financial condition.
Certain of our competitors may have greater resources, or they may acquire greater resources.
Some of our competitors have substantially more resources than are available to us as a stand-alone company.
For example, in the CSST market, two of our competitors are divisions of large corporations with revenues measured
in the billions of dollars. These competitors may be able to devote substantially greater resources to the development,
manufacture, distribution, and sale of their products than would be available to us as a stand-alone company. One or
more competitors may acquire several other competitors, or may be acquired by a larger entity, and through a
combination of resources be able to devote additional resources to their businesses. These additional resources could
be devoted to product development, reduced costs in an effort to obtain market share, greater flexibility in terms of
profit margin as part of a larger business organization, increased investment in plant, machinery, distribution and sales
concessions. As a stand-alone company, the resources that may be devoted by us to meet any potential developments
by larger, well-financed competitors may be limited.
Our business may be subject to the impact of Brexit.
The Company’s main operating subsidiary outside of the U.S., Omega Flex Limited, is headquartered in
Banbury, England in the U.K. The result of the referendum held by the U.K. to withdraw from the European Union
(“Brexit”) had created a level of uncertainty regarding the final terms of that withdrawal for a number of years, until
an agreement was reached on December 24, 2020, by the U.K. and the European Union. While an agreement was
reached, uncertainty still exists, and adherence to the new rules regarding border and customs controls could increase
costs on materials imported into the U.K. and finished goods exported from the U.K. In addition, it is possible that
logistical delays created by those controls could delay shipments of materials and supplies into the Banbury
manufacturing plant and could also affect our ability to ship goods to customers outside of the U.K., into the European
Union, Africa, and the Near East. Most of the business of Omega Flex Limited is within the U.K. and should therefore
not be unduly disrupted. However, the macroeconomic effects of Brexit on the economies of the U.K. and the
European Union remain partially unknown, and those effects could dampen economic activity and the overall demand
for the Company’s products in those markets. However, it is not expected that increased costs, logistical delays, nor
possible economic declines in those markets would be material to the Company.
Our business may be subject to macroeconomic effects caused by increased trade tariffs and reduced international
trade.
Recent events have caused various governments around the world to impose increased trade tariffs on
imported goods. These increased tariffs may cause the cost of materials to rise and may add additional expense on
exported goods. However, the Company does not believe that increased tariffs will materially affect the Company’s
sales or gross profits, as most of the raw materials and supplies used to manufacture our products are sourced
domestically in the U.S. Further, exports of our flexible gas piping products from our Exton, Pennsylvania facility
are primarily to Canada, which recently agreed to a revised North American trade treaty, and to a lesser extent to the
Caribbean and South America. Sales to Europe, Asia and Africa are primarily handled from our Banbury, England
facility, which are not affected by U.S. trade tariffs and retaliatory tariffs but may be subject to other constraints as
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discussed in the Brexit risk factor, above.
Our international sales subject us to additional risks that can adversely affect our business, operating results, and
financial condition.
During 2022, we derived 5% of our revenue from sales to customers located outside the U.S. Our ability to
convince customers to expand their use of our products or renew their agreements with us is directly correlated to our
direct engagement with such customers. To the extent that we are unable to engage with non-U.S. customers
effectively, we may be unable to grow sales to international customers to the same degree we have experienced in the
past.
Our international operations are subject to a variety of risks and challenges, including:
•
•
•
•
general economic or geopolitical conditions in each country or region;
the effects of a widespread outbreak of an illness or disease, or any other public health crisis,
including the COVID-19 pandemic, in each country or region;
economic uncertainty around the world; and
compliance with laws and regulations imposed on foreign operations, including the U.S. Foreign
Corrupt Practices Act, the U.K. Bribery Act, import and export control laws, tariffs, trade barriers,
economic sanctions and other regulatory or contractual limitations on our ability to sell our products
in certain foreign markets, and the risks and costs of non-compliance.
For example, in response to the continuing conflict between Russia and Ukraine, the U.S. has imposed and
may further impose, and other countries may additionally impose, broad sanctions or other restrictive actions against
governmental and other entities in Russia, and such sanctions or actions could cut off or impede the flow of raw
materials for our products, including minerals, such as nickel, that are used in our stainless steel and copper alloys.
Additionally, further escalation of geopolitical tensions could have a broader impact that extends into other markets
where we do business. Any of these risks could adversely affect our international sales, reduce our international
revenues, or increase our operating costs, adversely affecting our business, financial condition, and operating results.
Risk Relating to Our Business – Manufacturing and Operations
Our manufacturing plants may be damaged, destroyed or disrupted.
The majority of the Company’s manufacturing capacity is currently located in Exton, Pennsylvania, where
we own two manufacturing facilities which are in close proximity to each other, and in Banbury, England in the U.K.
where we rent a manufacturing facility. On a smaller scale the Company also manufactures products in Houston,
Texas. We do not have any operational manufacturing capacity for flexible metal hose outside of these locations. We
cannot replicate our manufacturing methods at a supplier’s facility due to the confidential and proprietary nature of
our manufacturing process. If one of the manufacturing facilities were destroyed or damaged in a significant manner
or otherwise disrupted for more than a short time, we would likely experience a delay or some interruption of our
flexible metal hose operations. This could lead to a reduction in sales volume if customers were to purchase their
requirements from our competitors, claims for breach of contract by certain customers with contracts for delivery of
flexible metal hose by a certain date, and costs to replace our destroyed or damaged manufacturing capacity. The
fittings and accessories for the flexible metal hose are manufactured for us by suppliers not located in Exton,
Pennsylvania, and the Company also has outside warehouses which contain finished goods inventory. Disruption of
or damage to our supply of these items could damage our business, competitive position, results of operations or
financial condition.
We are dependent on certain raw materials and supplies that could be subject to volatile price escalation.
As a manufacturer of flexible metal hose, we must use certain raw materials in the manufacture of the hose.
The primary raw material is stainless steel that is used in the forming of the hose, and various other steel products
used in the wire braid overlay over some flexible metal hoses for additional strength and durability, as well as copper
alloy for MediTrac® CMT. We also use polyethylene in pellet form for the forming and extrusion of a polyethylene
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jacket over CSST for use in fuel gas applications, underground installations, and other installations that require that
the metal hose be isolated from the environment. Finally, we also purchase brass and stainless steel for our
proprietary fittings used with the flexible metal hose that provide a mechanical means of attaching the hose to an
assembly or junction. We attempt to limit the effects of volatile raw material prices, and to ensure adequate and
timely supply of material, by committing to annual purchase contracts for the bulk of our steel and polyethylene
requirements, and for our fitting requirements. The contracts typically represent a significant portion of the
Company’s annual planned usage and are set at a designated fixed price or a range of prices. These agreements
sometimes require the Company to accept delivery of the commodity in the quantities committed, at the agreed upon
prices. Transactions in excess of the pre-arranged commitments are conducted at current market prices at the
Company’s discretion. We have identified multiple qualified vendors to produce or manufacture our critical purchase
requirements. The Company does, however, tend to rely on one to three sources for each or our primary components
to leverage the relationship and pricing. Therefore, there is no assurance that the Company would be able to eliminate
all or most of the adverse effects of a sudden increase in the cost of materials or key components, or that the loss of
one or more of our key sources would not lead to higher costs or a disruption in our business, which could damage
our business, competitive position, results of operations or financial condition.
If we were to lose the services of one or more of our senior management team, we may not be able to execute our
business strategy.
Our future success depends in large part upon the continued service of key members of our senior
management team. The senior executives are critical to the development of our products and our strategic direction
and have a keen knowledge of business operations and processes. Their unique abilities, experience and expertise
cannot be easily duplicated or replaced. Although, as much as possible, senior executives strive to educate and
develop other layers of staff for succession planning purposes, and the recent retirement of senior executives and
transition of their roles has gone smoothly, the loss of any of our senior management could seriously harm our
business.
Risk Relating to Our Business – Legal
Susceptibility of litigation and significant legal costs or settlements.
In the ordinary and normal conduct of the Company’s business, it is subject to periodic lawsuits,
investigations, and claims (collectively, the “Claims”). The Company has continued to receive repeat pattern Claims
relating to our flexible gas piping products, although the pace of new Claims has generally declined over the last
several years. While the Company does not believe the Claims have legal merit, and has successfully defended itself
vigorously against such Claims, there is no guarantee that the pace of claims will not increase or subside. Any
significant increase in the number of Claims, the financial magnitude of Claims brought against the Company, the
costs of defending the Claims, particularly under higher retentions of the Company’s current product liability
insurance policies, could have a detrimental and material impact on the Company’s business, competitive position,
results of operations or financial condition.
If we are not able to protect our intellectual property rights, we may not be able to compete as effectively.
We possess a wide array of intellectual property rights, including patents, trademarks, copyrights, and
applications for the above, as well as trade secrets, manufacturing know-how, and other proprietary information.
Certain of these intellectual property rights form the basis of our competitive advantage in the marketplace through a
superior product design, a superior business process, superior manufacturing methods or other features that provide
an advantage over our competitors. Intellectual property rights are sometimes subject to infringement or
misappropriation by other organizations, and failing an amiable resolution, we may be forced to resort to legal
proceedings to protect our rights in such intellectual property.
In the past, the Company has needed to protect itself and resort to legal action, in one instance regarding a
trade secret, and other instances where we sued flexible gas pipe competitors for infringement on one or more of our
U.S. patents covering our various piping and/or fitting products. In each instance, the Company received favorable
rulings, thus solidifying the validity of our intellectual property. Although the Company has had past success, the
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results we may obtain from resorting to any such legal proceedings are never assured, and it is possible that an adverse
decision may be delivered in any particular proceeding. As a result, we may not be able to retain the exclusive rights
to utilize and practice such intellectual property rights, and one or more of our competitors could utilize and practice
such intellectual property rights. This development may lessen our competitive advantage vis-à-vis one or more
competitors, and lead to a reduction in sales volume in one or more product lines, a reduction in profit margin in such
product lines, or both, which would damage our business, competitive position, results of operations or financial
condition.
Risk Relating to Our Business – General and Macroeconomic
Our business may be subject to the supply and availability of fuel gas supplies and infrastructure.
With increasing awareness of the effect of human activities on climate change, there has been a focus on
transitioning energy and heating in buildings away from fossil fuels, such as natural gas and liquid propane, mainly
to electric. Several municipalities in the U.S. have announced policy decisions to move away from fossil fuel
applications in the future, including prohibiting the new installation of appliances fueled by natural gas or liquid
propane. Although there are significant technical and economic hurdles, it is possible that a large scale movement, in
individual cities and states or on a federal level, away from fossil fuels may increase in the future. Such moves could
reduce the demand for our flexible gas piping products that carry natural gas or liquid propane from the building’s
meter to the gas-fired appliance, which represent a major part of the Company's sales and net profits. As a result, it is
possible in the future that proposals to limit or eliminate the use of fossil fuels could adversely impact the financial
results of the Company, perhaps materially.
Our TracPipe® and CounterStrike® flexible gas piping products are used to convey fuel gas, primarily natural
gas, but also propane, within a building from the exterior wall of the building to any gas-fired appliances within the
building. Because those products are used in the transmission of fuel gas, the applications are limited to geographic
areas where such fuel gas is available. Certain geographic areas of the U.S. and other countries do not have the
infrastructure to make natural gas available. Other types of fuel gas may be used in areas where there are no natural
gas pipelines, but these alternate fuel gas sources have other distribution issues that may constrict their availability.
Our prospects for future growth of the TracPipe® and CounterStrike® products are largely limited to those areas that
have natural gas transmission lines available for use in residences and commercial buildings.
We may substantially increase our debt in the future or be restricted from accessing funds.
We are currently not carrying any long-term debt, although the Company has a line of credit facility available
for use as described in Note 6, Line of Credit and Other Borrowings, to the Consolidated Financial Statements included
in this report. We may consider borrowing funds for purposes of working capital, capital purchases, research and
development, potential acquisitions, and business development. If we do use credit facilities, interest costs associated
with any such borrowings and the terms of the loan could potentially adversely affect our profitability. Additionally,
the current line of credit has debt covenants associated with it which may restrict the level of borrowing the Company
may incur. Lack of access to financing or to reasonable terms could damage our business, competitive position, results
of operations or financial condition.
Changes in the method pursuant to which the SOFR rates are determined and potential phasing out of LIBOR and
adoption of SOFR after 2022 may affect our financial results.
Borrowings under our line of credit facility bear interest at variable rates based on LIBOR. The U.K.’s
Financial Conduct Authority, which regulates LIBOR, has announced that it intends to stop encouraging or requiring
banks to submit rates for the calculation of LIBOR rates after 2022, and it is unclear if LIBOR will cease to exist or
if new methods of calculating LIBOR will evolve. The Federal Reserve Bank formed the Alternative Rates Committee
(ARRC) to consider options for transitioning away from LIBOR. 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. If LIBOR ceases to exist or if the methods of calculating LIBOR change from their current form, or if new
methods are implemented such as SOFR, interest rates on our current or future debt obligations may be adversely
-17-
affected.
Our business may be subject to varying demands based on market interest rates.
Our TracPipe® and CounterStrike® flexible gas piping products are used in the construction industry, both in
residential, commercial, and industrial segments, for the piping of fuel gas within a building. The demand for new or
remodeled construction in the construction industry – and in particular the residential construction industry – is
susceptible to fluctuations in interest rates charged by banks and other financial institutions as well as consumer
demand. The purchasers of new or remodeled construction generally finance the construction or acquisition of the
residential, commercial, or industrial buildings, and increases in the interest rates on such financing raise the
acquisition cost of the potential purchaser. Interest rates have been increasing and there is no guarantee that they will
not continue to increase in the future. If costs continue to increase, a higher number of potential buyers may not be
able to support the level of financing under a higher interest rate environment. Increased acquisition costs may lead
to a continued decline in the demand for new or remodeled construction, and as a result may also lead to a continued,
reduced demand for our products used in the construction industry, which could damage our business, competitive
position, results of operations or financial condition.
Our business may be subject to cyclical demands.
The demand for our products may be subject to cyclical demand in the markets in which we operate. Our
customers who use our products in industrial and commercial applications are generally manufacturing capital
equipment for their customers. Similarly, our TracPipe® and CounterStrike® flexible gas piping products are used
primarily in residential construction, both in single-family buildings, and in larger multi-unit buildings. Should there
be any change in factors that affect the rate of new residential construction, our growth rate would likely be impacted.
To the extent that interest rates increase, in conjunction with an economic cycle or as part of the general economic
conditions in the U.S. or abroad, the demand for our products in such applications may decrease as well, which could
damage our business, competitive position, results of operations or financial condition.
Our business may be subject to seasonal or weather related factors.
The demand for our products may be affected by factors relating to seasonal demand for the product, or a
decline in demand due to inclement weather. Our TracPipe® and CounterStrike® flexible gas piping products are
installed in new or remodeled buildings, including homes, apartment buildings, office buildings, warehouses, and
other commercial or industrial buildings. Generally, the rate of new or remodeled buildings in the U.S. and in the
other geographic markets in which we are present decline in the winter months due to the inability to dig foundations,
challenges at the job site relating to snow, or generally due to low temperatures and stormy weather. As the rate of
construction activity declines during the winter, the demand for our corrugated stainless steel tubing may also decrease
or remain static.
Our business may be subject to the impact of currency volatility.
The Company has operations in the U.K. and France, and does business transactions elsewhere in the world
outside of the U.S. While the magnitude of these transactions outside of the U.S. have thus far not been significant,
and typically not in currencies of high volatility, it is possible that they could be material. Events such as Brexit, as
described above, or other instances of political and economic turmoil or uncertainty, could create a weakened British
Pound (“BP”) or Euro in comparison to other currencies. A weakened BP or Euro would in turn have a direct negative
impact, as we would experience losses when settling transactions in other currencies, and experience unfavorable
results due to the translation of financial statements with a lower exchange rate. During 2022 and 2021 there was not
any notable impact due to currency volatility, but going forward, it is possible that the BP, Euro, and other currencies
that we engage in may materially impact the financial position, operations, and liquidity of the Company.
A cyber security incident or other technology disruption could harm us.
We face certain security threats and technology disruptions, including threats to our information technology
(“IT”) infrastructure, attempts to gain access to our or our customers’ proprietary or confidential information, threats
-18-
of terrorism events, and failures of our technology tools and systems. Our IT networks and related systems are critical
to the operation of our business and essential to our ability to successfully perform day-to-day operations.
Cybersecurity threats, which include, but are not limited to, computer viruses, spyware, and malware, attempts to
access information, denial of service attacks and other electronic security breaches, are persistent and evolve quickly.
In general, such threats have increased in frequency, scope, and potential impact in recent years. Further, a variety of
technological tools and systems, including both company-owned IT and technological services provided by outside
parties, support our critical functions. These technologies, as well as our products, are subject to failure and the user’s
inability to have such technologies properly supported, updated, expanded, or integrated into other technologies and,
in certain cases, may contain open source and third-party software which may unbeknownst to us contain defects or
viruses that pose unintended risks. These risks, if not effectively mitigated or controlled, could materially harm our
business or reputation. While we believe that we have implemented appropriate measures and controls, there can be
no assurance that such actions will be sufficient to prevent disruptions to critical systems, unauthorized release of
confidential information or corruption of data.
The security measures we have implemented may become subject to third-party security breaches, employee
error, malfeasance, faulty password management or other irregularities. For example, third parties may attempt to
fraudulently induce employees or customers into disclosing usernames, passwords, or other sensitive information,
which may in turn be used to access our IT systems. These security systems cannot provide absolute security. To the
extent we were to experience a breach of our systems and were unable to protect sensitive data, such a breach could
materially damage business partner and customer relationships and curtail or otherwise impact the use of our IT
systems. Moreover, if a security breach of our IT systems affects our computer systems or results in the release of
personally identifiable or other sensitive information of customers, business partners, employees and other third
parties, our reputation and brand could be materially damaged, use of our products and services could decrease, and
we could be exposed to a risk of loss, litigation, and potential liability. Such an event could require significant
management attention and resources, negatively impact our reputation among our customers and the public, which
could have a material adverse effect on our business, financial condition, and results of operations.
The ongoing COVID-19 pandemic may adversely affect the business.
The Company has not yet seen a material impact from the COVID-19 pandemic on its business, financial
position, liquidity, or ability to service customers or maintain critical operations. However, some parts of the world
are continuing to see a rise in COVID-19 cases and hospitalizations, and it is possible that new, more virulent strains
and variants of COVID-19 may emerge and lead governments and private sectors to re-institute quarantine and trade
restrictions, which could adversely impact market conditions. The Company will continue to monitor the impact of
the COVID-19 pandemic on its business, including how it has impacted and will impact the Company’s employees,
customers, suppliers, and distribution channels. The Company could face liquidity shortages, weaker product demand
from its customers, disruptions in its supply chain, and/or staffing shortages in its workforce in the future due to the
direct and indirect effects of the COVID-19 pandemic.
The impact of the COVID-19 pandemic may also exacerbate other risk factors in this Item 1A, any of which
could have a material effect on the Company. For example, the risks associated with potential cybersecurity threats
may be magnified given the increase in the number of Company employees working remotely using personal
electronic devices and home internet connections.
Various other general and macroeconomic issues may impact the business.
Conflicts, wars, natural disasters, infectious disease outbreaks (see COVID-19 pandemic above), active
shooter or other workplace violence, or terrorist acts could also cause significant damage or disruption to our
operations, employees, facilities, systems, suppliers, supply chain, distributors, resellers, or customers in the U.S. and
internationally for extended periods of time and could also affect demand for our products.
-19-
Risks Associated with Our Common Stock
The concentration of ownership of our common stock could impact on its market price.
As of December 31, 2022, approximately 68% of our issued and outstanding common stock was owned or
controlled by certain of our directors and officers and their respective affiliates, with the largest holders being: The
Estate of John E. Reed, Stewart B. Reed, Kevin R. Hoben and Mark F. Albino. Stewart B. Reed currently serves as
Vice Chairman of the Board of Directors. Mr. Hoben and Mr. Albino also serve on the Board of Directors, with Mr.
Hoben being the Chairman of the Board and Chief Executive Officer of the Company. This concentration of
ownership may have the effect of reducing the volume of trading of the common stock on the NASDAQ. A decrease
in trading volume could result in lower prices for the common stock because there is not a sufficient supply of shares
to create a vibrant market for our shares on the NASDAQ, or inversely could drive the common stock price higher
when demand exceeds supply.
This concentration of ownership of common stock could exert significant influence over matters requiring
approval by our shareholders, including the election of directors and the approval of mergers or other business
combinations. This concentration also could have the effect of delaying, preventing, or deterring a change in control
of the Company.
Item 1B – UNRESOLVED STAFF COMMENTS
None.
Item 2 - PROPERTIES
The Company owns two facilities in Exton, Pennsylvania, which is located approximately one hour west of
Philadelphia, Pennsylvania. These facilities contain approximately 113,000 square feet of manufacturing and office
space. The Company leases an additional facility located near its Exton facilities, which provides another 11,000
square feet of space, used for warehousing. Most of the manufacturing of flexible metal hose is performed at the
Exton facilities. In the U.S., the Company also leases a facility in Houston, Texas, which contains manufacturing,
stocking and sales operations, and a corporate office located in Middletown, Connecticut. In the U.K., the Company
leases a facility in Banbury, England, which manufactures products and serves sales, warehousing, and operational
functions as well.
Item 3 - LEGAL PROCEEDINGS
See legal proceedings disclosure in Note 11, Commitments and Contingencies, to the Consolidated Financial
Statements included in this report.
Item 4 – MINE SAFETY DISCLOSURES
Not applicable.
-20-
PART II
Item 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, AND RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
Our common stock is listed on the NASDAQ Global Market, under the symbol OFLX. The number of
shareholders of record as of December 31, 2022, based on inquiries of the registrant’s transfer agent, was 297. For
this purpose, shareholders whose shares are held by brokers on behalf of such shareholders (shares held in “street
name”) are not separately counted or included in that total.
Shareholder Return Performance Presentation
The Shareholder Return Performance Presentation shall not be deemed to be “soliciting material” or subject
to Regulations 14A or 14C of the Securities and Exchange Commission or to the liabilities of Section 18 of the
Securities Exchange Act of 1934 (the “Exchange Act”) and shall not be deemed incorporated by reference by any
general statement incorporating by reference this annual report into any filing under the Securities Act of 1933 or
under the Exchange Act, and shall not otherwise be deemed filed under such Acts.
The following graph shows the changes on a cumulative basis in the total shareholder return on the Omega
Flex common stock and compares those changes in shareholder return with the total return on the S&P 500 Index and
the total return on the S&P 500 Building Products Index. The graph begins with a base value of $100 on December
31, 2017, and shows the cumulative changes over the last five years, ending on December 31, 2022. The graph
assumes $100 was invested on December 31, in each of the three alternatives, and that all dividends have been
reinvested.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Omega Flex, Inc., the S&P 500 Index
and the S&P Building Products Index
$250
$200
$150
$100
$50
$0
12/17
12/18
12/19
12/20
12/21
12/22
Omega Flex, Inc.
S&P 500
S&P Building Products
*$100 invested on 12/31/17 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Company / Index
Omega Flex, Inc.
S&P 500
S&P Building Products
Base
Period
12/31/17
12/17
100.00
100.00
100.00
12/18
76.84
95.62
75.62
-21-
Indexed Returns – Year Ending
12/21
12/20
12/19
159.07
125.72
112.16
218.52
148.85
142.35
191.62
191.58
209.07
12/22
142.54
156.89
162.87
Dividends
The Company currently has a policy of paying regular quarterly dividends, which is expected to continue. In
addition, the Company may pay special dividends from time to time. Further details regarding dividends are contained
in Note 7, Shareholders’ Equity to the Consolidated Financial Statements included in this report.
The Board, in its sole discretion, has a general policy of reviewing the cash needs of the Company from time
to time, and based on results of operations, financial condition and capital expenditure plans, possible acquisitions, as
well as other factors that the Board may consider relevant, determine on a quarterly basis whether to declare a regular
quarterly dividend, or a special dividend.
Item 6 – [RESERVED]
-22-
Item 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The Company is a leading manufacturer of flexible metal hose and is currently engaged in a number of
different markets, including construction, manufacturing, transportation, petrochemical, pharmaceutical and other
industries.
The Company’s business is managed as a single operating segment that consists of the manufacture and sale
of flexible metal hose, fittings, and accessories. The Company’s products are concentrated in residential and
commercial construction, and general industrial markets, with a comprehensive portfolio of intellectual property and
patents issued in various countries around the world. The Company’s primary product, flexible gas piping, is used
for gas piping within residential and commercial buildings. Through its flexibility and ease of use, the Company’s
TracPipe® and TracPipe® CounterStrike® flexible gas piping, along with its fittings distributed under the trademarks
AutoSnap® and AutoFlare®, allows users to substantially cut the time required to install gas piping, as compared to
traditional methods. The Company’s newest product line MediTrac® corrugated medical tubing is used for piping
medical gases (oxygen, nitrogen, nitrous oxide, carbon dioxide, and medical vacuum) in health care facilities.
Building on the recognized strengths and strategies employed in the flexible gas piping market, MediTrac® can be
used in place of rigid copper pipe, and due to its long continuous lengths and flexibility, it can be installed
approximately five times faster than rigid copper pipe, saving on installation labor and construction schedules. The
Company’s products are manufactured at its Exton, Pennsylvania and Houston, Texas facilities in the U.S., and in
Banbury, Oxfordshire in the U.K. A majority of the Company’s sales across all industries are generated through
independent outside sales organizations such as sales representatives, wholesalers and distributors, or a combination
of both. The Company has a broad distribution network in North America and to a lesser extent in other global
markets.
Changes in Financial Condition
The Company’s cash balance of $37,703,000 on December 31, 2022 increased $4,790,000 (14.6%) from a
$32,913,000 balance at December 31, 2021. The primary reason for the increase in cash is due to income generated
from operations during 2022. This was partially offset by dividend payments during 2022 totaling $9,489,000, as
detailed in Note 7, Shareholders’ Equity, to the Consolidated Financial Statements included in this report. See the
Company’s Consolidated Cash Flow Statement for further details regarding the change in cash.
Accounts Receivable were $17,503,000 and $20,726,000 as of December 31, 2022 and December 31, 2021,
respectively, decreasing $3,223,000 or 15.6%. This is mostly timing related, associated with greater cash collections
resulting from higher sales during the fourth quarter of the previous year versus the current quarter.
Inventory was $17,764,000 and $15,565,000 as of December 31, 2022 and December 31, 2021, respectively,
increasing $2,199,000 or 14.1%. The increase is mainly the result of the purchase of inventory to ensure enough
materials on hand because of the challenging supply chain environment and significantly increased costs.
Other Long Term Assets were $5,871,000 and $1,702,000 as of December 31, 2022 and December 31, 2021,
respectively, increasing $4,169,000 or 244.9%. The increase is due to higher inventories, which are estimated to be
used beyond the next twelve months, mainly for the new corrugated medical tubing (“CMT”) products. Higher
amounts of materials for the new CMT products were initially purchased for cost considerations and because of longer
required lead times. As the market for these new products continues to develop the composition of the related
inventories is expected to become more current.
Accrued Compensation was $3,782,000 on December 31, 2022, compared to $7,008,000 on December 31,
2021, decreasing $3,226,000 or 46.0%. A significant portion of the liability that existed at the previous year end
related to incentive compensation earned in 2021. As is customary, the liability was then paid during the first quarter
of the following year, or 2022, thus diminishing the balance. In 2022, there was a decrease in the incentive
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compensation liability to align with the changes in the executive management team. The liability now represents
amounts earned during the current year.
Accrued Commissions and Sales Incentives were $4,996,000 and $7,183,000 as of December 31, 2022 and
December 31, 2021, respectively, decreasing $2,187,000 or 30.4%. The decrease is the result of lower sales which
did not allow most of our customers to achieve growth tiers as defined within their sales incentive agreements.
Other Liabilities were $7,530,000 and $4,864,000 as of December 31, 2022 and December 31, 2021,
respectively. The increase of $2,666,000 or 54.8% mainly relates to accruals for legal and product liability matters
associated mainly with two cases, one which was resolved through settlement and the other is pending which the
Company continues to vigorously defend.
Retained earnings were $60,954,000 and $50,053,000 as of December 31, 2022 and December 31, 2021,
respectively, increasing $10,901,000 or 21.8%. The increase was primarily due to an increase from net income during
the year, as provided on the Company’s Consolidated Statement of Operations, partially offset by dividends declared
during 2022, as discussed in detail in Note 7, Shareholders’ Equity, to the Consolidated Financial Statements included
in this report.
Results of Operations
Twelve months ended December 31, 2022 vs. twelve months ended December 31, 2021
The Company reported comparative results from operations for the twelve month periods ended December
31, 2022 and 2021 as follows:
Net Sales
Gross Profit
Operating Profit
Twelve-months ended December 31,
(dollars in thousands)
2022
2022
2021
2021
$ 125,487
78,305
$
31,016
$
100.0%
62.4%
24.7%
$ 130,011
$ 81,531
$ 35,062
100.0%
62.7%
27.0%
Net Sales. The Company’s sales for the full year of 2022 were $125,487,000, reflecting a decrease of
$4,524,000, or 3.5%, compared to $130,011,000 in 2021. The decrease in sales resulted mostly from a decrease in
unit volume. The effect of the lower sales volumes was mostly offset by pricing actions to offset material cost pressure
and to protect margins.
Gross Profit. The Company’s gross profit margins were 62.4% and 62.7% for the years ended December 31,
2022, and 2021, respectively. Similar to the previous year, the Company was able to maintain margins similar to prior
year levels despite rising material commodity costs which were mainly offset by increases in selling prices.
Selling Expenses. Selling expenses consist primarily of employee salaries and associated overhead costs,
commissions, and the cost of marketing programs such as advertising, trade shows and related communication costs,
and freight. Selling expenses were $21,931,000 and $20,429,000 for 2022 and 2021, respectively, representing an
increase of $1,502,000, or 7.4%. The increases primarily related to costs for resumption of travel and other marketing
efforts, which were lower in the 2021 period mainly due to the COVID-19 pandemic. Staffing related expenses and
commissions were also higher. Commissions increased because of a shift of shipments from third party warehouses,
whose shipments are subject to commission, compared to those directly from the manufacturing facilities, whose
shipments are not subject to commission. Freight was lower mainly because of the lower sales. As a percentage of
net sales, selling expenses were 17.5% and 15.7% for the twelve months ended December 31, 2022 and 2021,
respectively.
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General and Administrative Expenses. General and administrative expenses consist primarily of employee
salaries, benefits for administrative, executive and finance personnel, legal and accounting, insurance, and corporate
general and administrative services. General and administrative expenses were $20,625,000 and $21,430,000 for the
years ended December 31, 2022 and 2021, respectively, decreasing $805,000, or 3.8% between periods. There was a
decrease in the incentive compensation component, which is aligned with profitability of $3,189,000, mainly because
of the changes in the executive management team, and there was a reduction in expense pertaining to stock based
compensation which moves in relation to the Company’s stock price, as detailed in Note 12, Stock Based
Compensation Plans. Items which increased from the previous year include legal and product liability expenses,
associated mainly with two cases, one which was resolved through settlement and the other is pending, and salary
related expenses. As a percentage of net sales, general and administrative expenses were 16.4% and 16.5% for the
twelve months ended December 31, 2022 and 2021, respectively.
Engineering Expenses. Engineering expenses consist of development expenses associated with the
development of new products, and costs related to enhancements of existing products and manufacturing processes.
Engineering expenses increased $123,000 or 2.7% between periods, being $4,733,000 and $4,610,000 for the years
ended December 31, 2022 and 2021, respectively. As a percentage of net sales for the year, engineering expenses
were 3.8% in 2022 and 3.6% in 2021.
Operating Profit. Reflecting all the factors mentioned above, operating profits decreased $4,046,000, or
11.5%, between periods, reflecting a profit of $31,016,000 in 2022, as compared to $35,062,000 in 2021.
Interest Income. Interest income is recorded on cash investments, and interest expense is recorded at times
when the Company has debt amounts outstanding on its line of credit. The Company recorded interest income of
$174,000 for 2022, compared to $35,000 for 2021. The increase in interest income was because of the increase in
interest rates during the last six months of 2022. There were no borrowings on its line of credit during 2022 and 2021.
Other Income (Expense). Other income (expense) primarily consists of foreign currency exchange gains
(losses) on transactions within our foreign subsidiaries, and therefore tends to fluctuate with the strengthening and or
weakening of the British Pound. The Company recognized other expense of $211,000 during 2022 and other income
of $21,000 during 2021.
Income Tax Expense. Income tax expense was $7,327,000 for 2022, compared to $8,862,000 for 2021. The
$1,535,000 or 17.3% decrease in tax expense was largely the result of the decrease in income before taxes and from
the reduction of non-deductible incentive compensation to align with the changes in the executive management team.
The effective tax rate for 2022 and 2021 was at approximately 24% and 25% of income before taxes, respectively.
Twelve months ended December 31, 2021 vs. twelve months ended December 31, 2020
The Company reported comparative results from operations for the twelve month periods ended December
31, 2021 and 2020 as follows:
Net Sales
Gross Profit
Operating Profit
Twelve-months ended December 31,
(dollars in thousands)
2021
2021
2020
2020
$ 130,011
81,531
$
35,062
$
100.0%
62.7%
27.0%
$ 105,796
$ 66,550
$ 26,653
100.0%
62.9%
25.2%
Net Sales. The Company’s sales for the full year of 2021 were $130,011,000, reflecting an increase of
$24,215,000, or 22.9%, compared to $105,796,000 in 2020. The increase in sales resulted mostly from an increase in
unit volume, which was in some measure impacted by the COVID-19 pandemic in the previous year, as well as
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increases to selling prices that were necessary to help offset rising material commodity costs.
Gross Profit. The Company’s gross profit margins were 62.7% and 62.9% for the years ended December 31,
2021, and 2020, respectively. The Company was able to maintain margins similar to prior year levels despite rising
material commodity costs, which were mainly offset by increases in selling prices.
Selling Expenses. Selling expenses consist primarily of employee salaries and associated overhead costs,
commissions, and the cost of marketing programs such as advertising, trade shows and related communication costs,
and freight. Selling expenses were $20,429,000 and $16,580,000 for 2021 and 2020, respectively, representing an
increase of $3,849,000, or 23.2%. The most significant increases included commissions and freight, driven by the
increase in sales. In addition, sales personnel were added in France and advertising, trade shows and travel returned
to more expected levels as these were restricted in the previous year due to the COVID-19 pandemic. For the same
annual periods, selling expense as a percentage of net sales was consistent at 15.7%.
General and Administrative Expenses. General and administrative expenses consist primarily of employee
salaries, benefits for administrative, executive and finance personnel, legal and accounting, insurance, and corporate
general and administrative services. General and administrative expenses were $21,430,000 and $19,117,000 for the
years ended December 31, 2021 and 2020, respectively, increasing $2,313,000, or 12.1% between periods. Incentive
compensation was derived from two notable yet partly offsetting components. There was an increase in the incentive
compensation component which is aligned with profitability; however, this was partially offset by a reduction in
expense pertaining to stock based compensation which moves in relation to the Company’s stock price, as detailed in
Note 12, Stock Based Compensation Plans. Other items increasing from the previous year include legal and product
liability expenses and director fees. As a percentage of net sales, general and administrative expenses were 16.5%
and 18.1% for the twelve months ended December 31, 2021 and 2020, respectively.
Engineering Expenses. Engineering expenses consist of development expenses associated with the
development of new products, and costs related to enhancements of existing products and manufacturing processes.
Engineering expenses increased $410,000 or 9.8% between periods, being $4,610,000 and $4,200,000 for the years
ended December 31, 2021 and 2020, respectively. The increase was primarily attributable to an increase in staffing,
mainly in the U.K., and certification and qualification expenses. As a percentage of net sales for the year, engineering
expenses were 3.6% in 2021 and 4.0% in 2020.
Operating Profit. Reflecting all the factors mentioned above, operating profits increased $8,409,000, or
31.6%, between periods, reflecting a profit of $35,062,000 in 2021, as compared to $26,653,000 in 2020.
Interest Income. Interest income is recorded on cash investments, and interest expense is recorded at times
when the Company has debt amounts outstanding on its line of credit. The Company recorded interest income of
$35,000 for 2021, compared to interest expense of $39,000 for 2020. The decrease in interest expense and increase
in interest income was largely due to the interest expense incurred on the borrowings of $15,000,000 on its line of
credit for a portion of the second quarter of 2020 to ensure liquidity during the COVID-19 pandemic. There were no
borrowings on its line of credit during 2021.
Other Income (Expense). Other income (expense) primarily consists of foreign currency exchange gains
(losses) on transactions within our foreign subsidiaries, and therefore tends to fluctuate with the strengthening and or
weakening of the British Pound. The Company recognized other income of $21,000 during 2021 and other expense
of $53,000 during 2020.
Income Tax Expense. Income tax expense was $8,862,000 for 2021, compared to $6,594,000 for 2020. The
$2,268,000 or 34.4% increase in tax expense was largely the result of the increase in income before taxes. The
effective tax rate for both periods was similar at approximately 25% of income before taxes.
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Commitments and Contingencies
See Note 11, to the Consolidated Financial Statements included in this report for a detailed description of
commitments and contingencies.
Liquidity and Capital Resources
Historically, the Company’s primary cash needs have been related to working capital items, which the
Company has largely funded through cash generated from operations.
As of December 31, 2022, the Company had a cash balance of $37,703,000. Additionally, the Company has
a $15,000,000 line of credit available, as discussed in detail in Note 6, Line of Credit and Other Borrowings, which
had no borrowings outstanding against it as of December 31, 2022. On December 31, 2021 and December 31, 2020,
the Company had cash balances of $32,913,000 and $23,633,000, respectively, with no borrowings against the line of
credit.
Operating Activities
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in certain
assets and liabilities, such as those included in working capital.
For 2022, the Company’s cash provided from operating activities was $15,246,000, compared to $25,149,000
of cash provided during 2021, and $19,310,000 of cash provided during 2020. This illustrates a decrease of $9,903,000
during 2022, versus an increase during 2021 of $5,839,000. For details of the operating cash flows refer to the
consolidated statements of cash flows in Item 8. Financial Statements and Supplementary Data on page 40.
As a general trend, the Company tends to deplete or generate lower amounts of cash early in the year, as
significant payments are typically made for accrued promotional incentives, incentive compensation, and taxes. Cash
has then historically shown a tendency to be restored and accumulated during the latter portion of the year.
Investing Activities
Cash used in investing activities during 2022, 2021, and 2020 was $942,000, $971,000, and $564,000
respectively, all related to various capital expenditure projects.
Financing Activities
All financing activities relate to dividend payments, which are detailed in Note 7, Shareholders’ Equity, in
the Consolidated Financial Statements included in this report. Dividend payments for 2022, 2021, and 2020 amounted
to $9,489,000, $14,867,000, and $11,306,000, respectively. Also, see Note 6, Line of Credit and Other Borrowings,
for a description of borrowings and repayments during the second quarter of 2020. The Company had no borrowings
or payments on its line of credit during 2022 or 2021.
Liquidity
We believe our existing cash and cash equivalents, along with our borrowing capacity, will be sufficient to
meet our anticipated cash needs for at least the next twelve months. Our future capital requirements will depend upon
many factors including our rate of revenue growth, the timing and extent of any expansion efforts, the potential for
investments in, or the acquisition of any complementary products, businesses, or supplementary facilities for
additional capacity.
-27-
The Company’s primary contractual obligations as of December 31, 2022, which are due over the next twelve
months, are summarized in the following table and are more fully explained in Notes to the Consolidated Financial
Statements.
Contractual Obligations
(in thousands)
Operating Lease Obligations
Purchase Obligations
Other Liabilities
Total Contractual Obligations
Total
$ 447
16,137
171
$ 16,755
======
As explained in Note 12, Stock Based Compensation Plans, to the Consolidated Financial Statements
included in this report, the Company is obligated to make payments to plan participants. Due to the uncertain nature
of the payments, due to numerous variables, including the potential change in stock price, and employment status of
participants and any applicable forfeitures, the amounts are not disclosed in the above table. The liability associated
with this plan as of December 31, 2022, which is anticipated to be paid within the next year, is $665,000.
Future Impact of Known Trends or Uncertainties
The Company’s operations are sensitive to a number of market and extrinsic factors, any one of which could
materially adversely affect the Company’s business, competitive position, results of operations or financial condition
in any given year. See Item 1A, Risk Factors, for a detailed description.
Critical Accounting Policies and Estimates
Note 2, Significant Accounting Policies, to the Consolidated Financial Statements included in this report,
includes a summary of the significant accounting policies and methods used in the preparation of our Consolidated
Financial Statements.
Our discussion and analysis of our financial condition and results of operations are based upon our
Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting
principles. The preparation of these financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.
We evaluate our estimates on an on-going basis. Estimates are used for, but not limited to, revenue recognition and
related sales incentives, provisions for credit losses, inventory reserves, valuation of goodwill, product liability
reserves, valuation of phantom stock, and accounting for income taxes. We base our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. We believe our judgments related to these accounting estimates are appropriate. Actual results may
differ from these estimates under different assumptions or conditions.
Revenue Recognition
The Company’s accounting policy relating to revenue recognition reflects the impact of the adoption of
Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), which is
discussed further in the Notes to the Consolidated Financial Statements. As a result of the adoption of ASC 606, the
Company records revenue based upon a five-step approach. The Company sells goods on typical, unmodified free on
board (FOB) shipping point terms. As the seller, it can be determined 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. Based upon the above, the Company has concluded that transfer
of control substantively transfers to the customer upon shipment. Other than standard product warranty provisions,
the sales arrangements provide for no other post-shipment obligations. The Company offers rebates and other sales
-28-
incentives, promotional allowances, or discounts to certain customers, typically related to purchase volume, and are
classified as a reduction of revenue and recorded at the time of sale. The Company periodically evaluates whether an
allowance for sales returns is necessary. Historically, the Company has experienced minimal sales returns. If it is
believed there are to be material potential sales returns, the Company will provide the necessary provision against
sales.
Provision for Credit Losses
The Company 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 receivable, 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. Changes in allowances may occur in the future as the above referenced quantitative and qualitative
factors change.
Inventories
Inventories are valued at the lower of cost or net realizable value. 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. These reductions to the inventory carrying values are estimates, which could vary significantly, either
favorably or unfavorably, from actual amounts if future economic conditions, sales levels, or competitive conditions
change.
Goodwill
In 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, 2022. This test did not indicate any impairment of goodwill as the Company’s estimated fair
value of the reporting unit exceeded carrying value. The test may be performed more frequently if we believe
indicators of impairment might exist. These indicators may include changes in macroeconomic and industry
conditions, overall financial performance, and other relevant entity-specific events.
Product Liability Reserves
Product 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 11, 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 $3,000,000 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. 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. Litigation is subject to many uncertainties
and management is unable to predict the outcome of the pending suits and claims. From time to time, depending upon
the nature of a particular case, the Company may decide to spend more than 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,
-29-
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, settlements for Claims not yet paid, and anticipated settlements
for claims within the Company’s remaining retention under its insurance policies.
Stock Based Compensation Plans
In 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 over 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.
The Plan has been amended and restated, for all grants made starting January 1, 2023, to set the vesting
method to three-year cliff vesting following the grant date, with full value paid upon maturity. Additionally, for grants
made starting January 1, 2023, upon retirement at age 67 or greater, and with one year of continuous service prior to
retirement, vesting of the issued grant(s) would accelerate on a pro-rata basis, 1/3 per year from the grant date. The
Company does not believe the amended and restated plan will have a material impact upon compensation expense.
Further details of the Plan are provided in Note 12, Stock Based Compensation Plans, to the Consolidated
Financial Statements included in this report. Any significant changes in the Company’s stock price may have a
material impact upon the valuation of the Units.
Income Taxes
The Company accounts for tax liabilities in accordance with the FASB ASC Topic 740, Income Taxes. Under
this method the Company recorded tax expense and related deferred taxes and tax benefits.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
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 uncertain. The Company’s accounting
for deferred tax consequences represents the best estimate of those future events. Changes in estimates, due to
unanticipated events or otherwise, could have a material effect on the financial condition and results of operations of
the Company. The Company continually evaluates its deferred tax assets to determine if a valuation allowance is
required.
Recent Accounting Pronouncements
In March 2020, the FASB issued ASU No. 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
-30-
impact of the adoption of ASU 2020-04 did not have a material impact on the Company's Consolidated Financial
Statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting
for Income Taxes. The 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 adopted this new guidance, and it did not have a material impact on its Consolidated Financial
Statements.
Item 7A - QUANTITATATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company does not engage in the purchase or trading of market risk sensitive instruments. The Company
does not presently have any positions with respect to hedge transactions such as forward contracts relating to currency
fluctuations. No market risk sensitive instruments are held for speculative or trading purposes.
-31-
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Omega Flex, Inc.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm – Financial Statements (PCAOB ID: 49)
Report of Independent Registered Public Accounting Firm – Internal Control over Financial Reporting
(PCAOB ID: 49)
Financial Statements:
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020
Page
33
35
36
37
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020
38
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2022, 2021 and 2020
39
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Notes to the Consolidated Financial Statements
40
41 to 56
-32-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Omega Flex, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Omega Flex, Inc. and its subsidiaries (the
Company) as of December 31, 2022 and 2021, 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, 2022, 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,
2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
We 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, 2022, 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 10, 2023 expressed an unqualified opinion on the
effectiveness of the Company's internal control over financial reporting.
Basis for Opinion
These 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.
We 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 or fraud. 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
The 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.
Product liability claims
As described in Notes 2 and 11 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, 2022, the Company accrued a product
liability reserve of $3,848,000, and disclosed that the aggregate maximum exposure for all current open claims is
estimated not to exceed $7,416,000. 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.
We 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
-33-
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.
Our audit procedures related to the Claims included the following, among others:
• We 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.
• We 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.
• We 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.
• We 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.
• We tested claim and settlement payment activity occurring subsequent to year end to assess the
reasonableness of management’s estimates and disclosures.
/s/ RSM US LLP
We have served as the Company's auditor since 2010.
Blue Bell, Pennsylvania
March 10, 2023
-34-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Omega Flex, Inc.
Opinion on the Internal Control Over Financial Reporting
We have audited Omega Flex, Inc.'s (the Company) internal control over financial reporting as of December 31, 2022,
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, 2022, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the 2022 consolidated financial statements of the Company and our report dated March 10, 2023
expressed an unqualified opinion.
Basis for Opinion
The 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.
We 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 respects. 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. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A 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.
Because 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.
/s/ RSM US LLP
Blue Bell, Pennsylvania
March 10, 2023
-35-
OMEGA FLEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(Dollars in Thousands, except Common Stock par value)
ASSETS
Current Assets:
Cash and Cash Equivalents
Accounts Receivable - less allowances of
$1,111 and $1,410, respectively
Inventories - Net
Other Current Assets
Total Current Assets
Right-Of-Use Assets - Operating
Property and Equipment - Net
Goodwill - Net
Deferred Taxes
Other Long Term Assets
Total Assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable
Accrued Compensation
Accrued Commissions and Sales Incentives
Dividends Payable
Taxes Payable
Lease Liability - Operating
Other Liabilities
Total Current Liabilities
Lease Liability - Operating, net of current portion
Deferred Taxes
Tax Payable Long Term
Other Long Term Liabilities
Total Liabilities
Commitments and Contingencies (Note 11)
Shareholders’ Equity:
Omega Flex, Inc. Shareholders’ Equity:
Common Stock – par value $0.01 share: authorized 20,000,000 shares:
10,153,633 shares issued and 10,094,322 shares outstanding as of
December 31, 2022 and December 31, 2021, respectively
Treasury Stock
Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Total Omega Flex, Inc. Shareholders’ Equity
Noncontrolling Interest
Total Shareholders’ Equity
2022
2021
$
37,703
$
32,913
17,503
17,764
2,785
75,755
3,205
8,404
3,526
923
5,871
97,684
$
$
2,290
3,782
4,996
3,232
109
447
7,530
22,386
2,763
6
370
986
26,511
20,726
15,565
2,533
71,737
3,374
8,569
3,526
7
1,702
88,915
$
$
3,355
7,008
7,183
-
1
383
4,864
22,794
2,990
427
493
1,670
28,374
102
(1)
11,025
60,954
(1,103)
70,977
196
71,173
102
(1)
11,025
50,053
(827)
60,352
189
60,541
Total Liabilities and Shareholders’ Equity
$
97,684
$
88,915
See accompanying Notes which are an integral part of the Consolidated Financial Statements.
-36-
OMEGA FLEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
(Amounts in Thousands, except per Common Share Data)
Net Sales
Cost of Goods Sold
Gross Profit
Selling Expense
General and Administrative Expense
Engineering Expense
Operating Profit
Interest Income (Expense)
Other Income (Expense)
2022
2021
2020
$ 125,487
$ 130,011
$ 105,796
47,182
48,480
39,246
78,305
81,531
66,550
21,931
20,625
4,733
20,429
21,430
4,610
16,580
19,117
4,200
31,016
35,062
26,653
174
(211)
35
21
(39)
(53)
Income Before Income Taxes
30,979
35,118
26,561
Income Tax Expense
7,327
8,862
6,594
Net Income
Less: Net Income – Noncontrolling Interest
23,652
(30)
26,256
(61)
19,967
(57)
Net Income attributable to Omega Flex, Inc.
$ 23,622
$ 26,195
$ 19,910
Basic and Diluted Earnings per Common Share
$
2.34
$
2.60
$
1.97
Cash Dividends Declared per Common Share
$ 1.26
$ 1.18
$ 1.12
Basic and Diluted Weighted Average Shares Outstanding
10,094
10,094
10,094
See accompanying Notes which are an integral part of the Consolidated Financial Statements.
-37-
OMEGA FLEX, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31,
(Dollars in Thousands)
2022
2021
2020
Net Income
$ 23,652
$ 26,256
$ 19,967
Other Comprehensive (Loss) Income:
Foreign Currency Translation Adjustment
Other Comprehensive (Loss) Income
(299)
(299)
(52)
(52)
140
140
Comprehensive Income
23,353
26,204
20,107
Less: Comprehensive Income Attributable to the Noncontrolling Interest
(7)
(58)
(66)
Total Other Comprehensive Income
$ 23,346
$ 26,146
$ 20,041
See accompanying Notes which are an integral part of the Consolidated Financial Statements.
-38-
OMEGA FLEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the years ended December 31, 2022, 2021 and 2020
(Amounts in Thousands, Except Share Amounts)
December 31, 2019
Net Income
Cumulative Translation Adjustment
Dividends Declared
Common
Stock
Outstanding
10,094,322
Common
Stock
$ 102
Treasury
Stock
$ (1)
Paid In
Capital
$ 11,025
Retained
Earnings
$ 27,165
Accumulated
Other
Comprehensive
Income (Loss)
$ (909)
Noncontrolling
Interest
$ 194
Shareholders’
Equity
$ 37,576
19,910
(11,306)
131
57
9
19,967
140
(11,306)
December 31, 2020
10,094,322
$ 102
$ (1)
$ 11,025
$ 35,769
$ (778)
$ 260
$ 46,377
Net Income
Cumulative Translation Adjustment
Dividends Declared
26,195
(11,911)
(49)
61
(3)
(129)
26,256
(52)
(12,040)
December 31, 2021
10,094,322
$ 102
$ (1)
$ 11,025
$ 50,053
$ (827)
$ 189
$ 60,541
Net Income
Cumulative Translation Adjustment
Dividends Declared
23,622
(12,721)
(276)
30
(23)
23,652
(299)
(12,721)
December 31, 2022
10,094,322
$ 102
$ (1)
$ 11,025
$ 60,954
$ (1,103)
$ 196
$ 71,173
See accompanying Notes which are an integral part of the Consolidated Financial Statements.
-39-
OMEGA FLEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
(Dollars in Thousands)
Cash Flows from Operating Activities:
Net Income
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
Deferred Taxes
Provision for Inventory Reserves
Changes in Assets and Liabilities:
Accounts Receivable
Inventories
Right-Of-Use Assets
Other Assets
Accounts Payable
Accrued Compensation
Accrued Commissions and Sales Incentives
Lease Liabilities
Other Liabilities
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Capital Expenditures
Net Cash Used In Investing Activities
Cash Flows from Financing Activities:
Dividends Paid
Net Cash Used In Financing Activities
Net Increase in Cash and Cash Equivalents
Translation effect on cash
Cash and Cash Equivalents - Beginning of Year
Cash and Cash Equivalents - End of Year
Supplemental Disclosure of Cash Flow Information
Cash paid for Income Taxes
Cash paid for Interest
Declared Dividend
2022
2021
2020
$ 23,652
$ 26,256
$ 19,967
156
1,096
506
1,020
1,453
870
(301)
(1,337)
91
286
305
101
(299)
(212)
45
3,396
(2,578)
481
(4,429)
(1,002)
(3,194)
(2,179)
(475)
1,869
15,246
(943)
(4,185)
328
(509)
894
1,582
2,835
(335)
(2,992)
25,149
(2,683)
(440)
278
(176)
79
804
(110)
(287)
21
19,310
(942)
(942)
(971)
(971)
(564)
(564)
(9,489)
(9,489)
(14,867)
(14,867)
(11,306)
(11,306)
4,815
(25)
32,913
$ 37,703
9,311
(31)
23,633
$ 32,913
7,440
95
16,098
$ 23,633
$ 8,678
$ -
$ 3,232
$ 9,602
$ -
$ -
$ 6,436
$ 112
$ 2,826
Additions to Right-Of-Use Assets obtained from new operating Lease
Liabilities
$ 644
$ 3,261
$ -
See accompanying Notes which are an integral part of the Consolidated Financial Statements.
-40-
OMEGA FLEX, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND CONSOLIDATION
Description of Business
The 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, 2022, 2021 and 2020 have been prepared in accordance with accounting standards set by
the Financial Accounting Standards Board (FASB) and Article 5 of Regulation S-X. All material intercompany
accounts and transactions have been eliminated in consolidation.
The 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 fuel gases within residential and commercial buildings; gasoline and diesel gasoline products (both above
and below the ground) in a double containment piping to contain any possible leaks, which is used in automotive and
marina refueling, and fueling for back-up generation; and medical gases in health care facilities. 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.
The 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.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The 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.
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.
The 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.
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
-41-
readily available from third parties or from us. Persuasive evidence of an arrangement for the sale of
product must exist. The Company ships products 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 guidelines.
• Allocation 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.
• Recognition 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. Indicators considered in
determining whether the customer has obtained control of a good include:
The Company has a present right to payment
The customer has legal title to the goods
The Company has transferred physical possession of the goods
The customer has the significant risks and rewards of ownership of the goods
The customer has accepted the goods
It 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.
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.
Based upon the above, the Company has concluded that control substantively transfers to the customer upon
shipment.
Other considerations of Topic 606 include the following:
• Contract Costs - costs to obtain a contract (e.g. 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. goods are shipped)
within two days of receipt.
• Warranties - 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.
• Returned 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 of sales.
• Volume 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. upon shipment of goods). Also
under Topic 606, to ensure that the related revenue recognized would not be probable of a significant
-42-
reversal, the four following factors are considered:
The amount of consideration is highly susceptible to factors outside the Company’s influence.
The uncertainty about the amount of consideration is not expected to be resolved for a long period
of time.
The Company’s experience with similar types of contracts is limited.
The contract has a large number and broad range of possible consideration amounts.
If it was concluded that the above factors were in place for the Company, it would support the
probability of a significant reversal of revenue. 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.
Regarding 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.
Cash Equivalents
The 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.
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 their
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.
Accounts Receivable and Provision for Credit Losses
All accounts receivable is stated at amortized cost, net of allowances for credit losses, and adjusted for any
write-offs. The Company 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 receivable, 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.
The reserve for credit losses, which include future credits, discounts, and doubtful accounts, was $1,111,000
and $1,410,000 as of December 31, 2022 and 2021, respectively.
Inventories
Inventories are valued at the lower of cost or net realizable value. 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.
-43-
Property and Equipment
Property 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. The cost of
maintenance and repairs is expensed as incurred; significant improvements are capitalized.
Goodwill
In 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, 2022. This analysis did not indicate any impairment of goodwill.
Stock-Based Compensation Plans
In 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 over 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.
The Plan has been amended and restated, for all grants made starting January 1, 2023, to set the vesting
method to three-year cliff vesting following the grant date, with full value paid upon maturity. Additionally, for grants
made starting January 1, 2023, upon retirement at age 67 or greater, and with one year of continuous service prior to
retirement, vesting of the issued grant(s) would accelerate on a pro-rata basis, 1/3 per year from the grant date.
Further details of the Plan are provided in Note 12, Stock-Based Compensation Plans, to the Consolidated
Financial Statements included in this report.
Product Liability Reserves
Product 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 11, 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 $3,000,000 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.
Leases
The Company applies 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:
1. The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
-44-
2. The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain
to exercise.
3. The lease term is for the major part of the remaining economic life of the underlying asset.
4. The 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.
5. The 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.
For 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, 2022 and 2021, each of the Company’s leases are classified as operating
leases.
Both finance and operating leases are reflected on the balance sheet as lease or “right-of-use” assets and lease
liabilities.
There 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.
The 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 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.
Fair Value of Financial and Nonfinancial Instruments
The 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 the
Company’s reporting unit in its annual impairment test as described in the FASB ASC Topic 350, Intangibles -
Goodwill and Other.
Advertising Expense
Advertising costs are charged to operations as incurred and are included in selling expenses in the
accompanying consolidated statement of operations. Such charges aggregated $976,000, $877,000, and $691,000 for
the years ended December 31, 2022, 2021, and 2020, respectively.
-45-
Research and Development Expense
Research and development expenses are charged to operations as incurred. Such charges totaled $653,000,
$627,000, and $831,000 for the years ended December 31, 2022, 2021 and 2020, respectively and are included in
engineering expense in the accompanying consolidated statements of operations.
Shipping Costs
Shipping costs are included in selling expense on the consolidated statements of operations. The expense
relating to shipping was $3,548,000, $3,814,000, and $2,801,000 for the years ended December 31, 2022, 2021 and
2020, respectively.
Earnings per Common Share
Basic earnings per share have been computed using the weighted-average number of common shares
outstanding. For the periods presented, there are no dilutive securities. Consequently, basic and dilutive earnings per
share are the same.
Currency Translation
Assets 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. dollars at exchange rates prevailing
on the balance sheet dates. The statements of operations 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’ equity. Exchange gains and losses resulting
from foreign currency transactions are included in the statements of operations in the period in which they occur.
Income Taxes
The Company accounts for tax liabilities in accordance with the FASB ASC Topic 740, Income Taxes. Under
this method the Company records tax expense, related deferred taxes and tax benefits, and uncertainties in tax
positions.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
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 uncertain.
The 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.
The 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.
On 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 provision.
-46-
As a result of changes made by the Tax Cuts and Jobs Act of 2017, which became effective as of January 1,
2022, the Company is required to capitalize certain research and development expenses for tax purposes, and amortize
those expenses over a five year period, resulting in a deferred tax asset for the capitalized amounts.
Other Comprehensive Income
For the years ended December 31, 2022, 2021 and 2020, respectively, the components of other
comprehensive income consisted solely of foreign currency translation adjustments.
Significant Concentrations
One customer represented 12% to 13% of sales during each of the fiscal years in the period from 2020 to
2022, and that same customer accounted for approximately 7% to 19% of the Accounts Receivable balance over the
last two years. No other customer represented more than 10% of Accounts Receivable or Sales. Geographically,
North America accounted for approximately 93% to 95% 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.
Subsequent Events
The Company evaluates all events or transactions through the date of the related filing that may have a
material impact on its Consolidated Financial Statements. Refer to Note 14.
Recent Accounting Pronouncements
In March 2021, the FASB issued ASU No. 2021-04, 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, 2021 through December 31, 2022. The
impact of the adoption of ASU 2021-04 did not have a material impact on the Company's Consolidated Financial
Statements.
In December 2020, the FASB issued ASU 2020-12, Income Taxes (Topic 740): Simplifying the Accounting
for Income Taxes. The 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 2020-12 are effective for public business
entities for fiscal years beginning after December 15, 2021, including interim periods therein. The Company adopted
this new guidance in 2021, and it did not have a material impact on its Consolidated Financial Statements.
3. INVENTORIES
Inventories, net of reserves of $571,000 and $505,000, respectively, were as follows on December 31:
Finished Goods
Raw Materials
Inventories - Net
-47-
2022
2021
(in thousands)
$ 6,744
11,020
$ 17,764
$ 5,903
9,662
$ 15,565
See Note 5, Other Long Term Assets, for details on inventories which are estimated to be used beyond the
next twelve months.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following on December 31:
Land
Buildings
Leasehold Improvements
Equipment
Accumulated Depreciation
Property and Equipment - Net
2022
2021
(in thousands)
$ 1,205
6,640
396
15,448
23,689
(15,285)
$ 8,404
$ 1,205
6,640
412
14,625
22,882
(14,313)
$ 8,569
Depreciation and Amortization Est.
Useful Lives
39 Years
3-10 Years (Lesser of Life or Lease)
3-10 Years
The above amounts include capital related items of $535,000 and $112,000 as of December 31, 2022 and
2021, 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 $1,096,000,
$1,020,000, and $870,000 for the years ended December 31, 2022, 2021 and 2020, respectively.
5. OTHER LONG TERM ASSETS
Other long term assets were as follows on December 31:
Inventories
Cash surrender value of life insurance policies
Other
Other Long Term Assets
2022
2021
(in thousands)
$ 4,261
1,546
64
$ 5,871
$ -
1,651
51
$ 1,702
The Company maintains inventories, which are estimated to be used beyond the next twelve months, mainly
for the new corrugated medical tubing (“CMT”) products. Higher amounts of materials for the new CMT products
were initially purchased for cost considerations and because of longer required lead times.
The cash surrender value of life insurance policies where the Company is beneficiary is further described in
Note 11, Commitments and Contingencies.
6. LINE OF CREDIT AND OTHER BORROWINGS
On December 1, 2017, the Company agreed to an 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 Line is unsecured and has been extended
maturing on June 1, 2023. 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 June 1, 2023
extended 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 5.14%. 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 and extension period,
as long as there are no amounts outstanding.
-48-
During 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, 2022 and as of December 31, 2021, the Company
also had no outstanding borrowings on its line of credit.
The Company was in compliance with all debt covenants as of December 31, 2022 and 2021.
The 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.
Lastly, 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 (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.
7. SHAREHOLDERS’ EQUITY
As of December 31, 2022 and December 31, 2021, 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.
During 2022, 2021, and 2020, 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:
Dividend Declared
Date
December 7, 2022
September 30, 2022
June 10, 2022
March 29, 2022
December 9, 2021
September 15, 2021
June 9, 2021
March 24, 2021
December 11, 2020
September 23, 2020
June 24, 2020
March 31, 2020
Price Per Share
$0.32
$0.32
$0.32
$0.30
$0.30
$0.30
$0.30
$0.28
$0.28
$0.28
$0.28
$0.28
Dividend Paid
Date
Amount
January 4, 2023
October 24, 2022
July 5, 2022
April 25, 2022
December 30, 2021
October 4, 2021
July 6, 2021
April 14, 2021
January 5, 2021
October 13, 2020
July 13, 2020
April 17, 2020
-49-
$3,232,000
$3,231,000
$3,230,000
$3,028,000
$3,029,000
$3,028,000
$3,028,000
$2,827,000
$2,826,000
$2,827,000
$2,826,000
$2,827,000
In addition to the above dividend amounts, there were dividends approved by the Company’s foreign
subsidiary during September 2021 which amounted to an outlay of cash of $129,000 to the foreign subsidiary’s
noncontrolling interest respectively.
It 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.
On April 4, 2014, the Board authorized an extension of its stock repurchase program without expiration, up
to a maximum amount of $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 Company has not made any stock repurchases since 2014.
8. INCOME TAXES
Income tax expense consisted of the following:
Federal Income Tax:
Current
Deferred
State Income Tax:
Current
Deferred
Foreign Income Tax:
Current
Deferred
Income Tax Expense
2022
December 31,
2021
(in thousands)
2020
$ 7,453
(1,156)
$ 7,197
264
$ 5,617
(175)
1,126
(173)
1,062
43
923
(30)
84
298
(7)
$ 7,327
(2)
$ 8,862
266
(7)
$ 6,594
Pre-tax income included foreign income of $437,000, $1,500,000, and $1,341,000 in 2022, 2021 and 2020,
respectively.
Total 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:
2022
2020
December 31,
2021
(in thousands)
$ 7,362
902
(29)
Computed Statutory Income Tax Expense
State Income Tax, Net of Federal Tax Benefit
Foreign Tax Rate Differential
Executive Compensation Limitation
Foreign Derived Intangible Income Deduction
Research Credit
Other - Net
Income Tax Expense
$ 6,505
753
(9)
296
(98)
(171)
51
$ 7,327
773
(107)
(59)
20
$ 8,862
$ 5,566
759
(27)
503
(75)
(62)
(70)
$ 6,594
-50-
A 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, 2022 and 2021 are as follows:
December 31,
2022
2021
(in thousands)
Deferred Tax Assets:
Compensation Assets
Inventory Valuation
Accounts Receivable Valuation
Deferred Litigation Costs
Capitalized Research Costs
Accrued Product Liability
Foreign Net Operating Losses
Valuation Allowance for Loss Carryover
Other
Compensation Liabilities
Total Deferred Assets
Deferred Tax Liabilities:
Prepaid Expenses
Depreciation and Amortization
Total Deferred Liabilities
$
$
201
529
259
12
590
900
78
(78)
130
334
329
12
-
61
76
(76)
37
673
$ 1,576
17
360
$ 2,868
(592)
(1,359)
($ 1,951)
(544)
(1,452)
($1,996)
Total Deferred Tax Asset (Liability)
$ 917
($ 420)
Management 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.
The Company is currently subject to audit by the Internal Revenue Service for the calendar years ended 2019
through 2021. The Company and its Subsidiaries’ state income tax returns are subject to audit for the calendar years
ended 2018 through 2021.
As of December 31, 2022, the Company had no liability for unrecognized tax benefits related to various
federal and state income tax matters.
9. LEASES
In 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 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.
In 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, and a facility in Malvern,
Pennsylvania, which was consummated effective January 1, 2022, with a three year term ending in December 2024,
that provides warehousing. Also in 2022, the Company extended its operating lease agreement for its corporate office
space in Middletown, Connecticut, with the lease term ending in June 2027.
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In the U.K., the Company leases a facility in Banbury, England, which serves manufacturing, warehousing,
and other operational functions. The lease in Banbury has a 15-year term ending in March 2036.
In addition to property rentals, the Company also has lease agreements in place for various fleet vehicles and
equipment with various lease terms.
On December 31, 2022, the Company has right-of-use assets of $3,205,000, and a lease liability of
$3,210,000, of which $447,000 was reported as a current liability. On December 31, 2021, the Company has right-
of-use assets of $3,374,000, and a lease liability of $3,373,000, of which $383,000 was reported as a current liability.
The respective weighted average remaining lease term and discount rate are approximately 11.02 years and 1.06% as
of December 31, 2022.
Rent expense for operating leases was approximately $504,000, $421,000, and $301,000 for the years ended
December 31, 2022, 2021 and 2020, respectively.
Future minimum lease payments, inclusive of interest of $178,000, under non-cancelable leases as of
December 31, 2022 is as follows:
Year Ending December 31,
Operating Leases
(in thousands)
2023
2024
2025
2026
2027
Thereafter
Total Minimum Lease Payments
$
$
447
419
258
256
223
1,607
3,210
10. EMPLOYEE BENEFIT PLANS
Defined Contribution and 401(K) Plans
The Company maintains a qualified non-contributory profit-sharing plan (the “Plan”) covering all eligible
employees. There were $474,000, $441,000, and $430,000 of contributions accrued for the Plan in 2022, 2021 and
2020 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 Act (ERISA). Participant balances vest over six
years.
The Company also maintains a savings and retirement plan qualified under Internal Revenue Code Section
401(k) for all employees. Employees 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.
Contributions are funded on a current basis. Contributions to the Plan charged to expense for the years ended
December 31, 2022, 2021 and 2020 were $319,000, $315,000, and $295,000, respectively. The participant’s Company
contribution vests ratably over six years.
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11. COMMITMENTS AND CONTINGENCIES
Commitments
Under 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 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.
The 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; 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 $357,000 as of December 31, 2022, of which $309,000
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, 2021 liability of $447,000 had $399,000 reported in Other Long Term Liabilities, and a current portion of $48,000
in Other Liabilities.
The Company has obtained and is the beneficiary of life insurance policies with respect to current and/or past
employees. The cash surrender value of such policies (included in Other Long Term Assets) amounts to $1,546,000
at December 31, 2022 and $1,651,000 at December 31, 2021.
In 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.
As disclosed in detail in Note 9, Leases, to the Consolidated Financial Statements included in this report, 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.
Lastly, as provided earlier in Item 7 under “Liquidity and Capital Resources”, the Company has numerous
contractual obligations in place for the forthcoming year, mainly related to purchase obligations for the Company’s
raw material inventories, totaling $16,755,000.
Contingencies
In 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.
The Company was made aware of a potential legal liability regarding a legal dispute in the U.K., in which
the Company’s subsidiary, Omega Flex Limited (“OFL”), was the claimant. After withdrawing the claim, the court
determined that OFL was responsible for the defendant’s costs (including a portion of its attorneys’ fees). 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
-53-
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.
The 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 $3,000,000 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 $3,000,000, 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, 2022 is estimated to not exceed approximately $7,416,000, 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, outstanding settlements for Claims not yet paid, and anticipated settlements for Claims within the
Company’s remaining retention under its insurance policies. The liabilities recorded in the Company’s books as of
December 31, 2022 and December 31, 2021 were $3,848,000 and $262,000, respectively, and are included in Other
Liabilities.
12. STOCK BASED COMPENSATION PLANS
Phantom Stock Plan
Plan Description. On April 1, 2006, the Company adopted the Omega Flex, Inc. 2006 Phantom Stock Plan
(the “Plan”). The Plan authorizes the grant of up to one million units of phantom stock to employees, officers, or
directors of the Company. 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:
ownership interest in the Company
shareholder voting rights
other incidents of ownership to the Company’s common stock
The Units are granted to participants upon the recommendation of the Company’s President, 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-Sholes method as described below. The Units follow a vesting schedule,
with a maximum vesting of three years after the grant date. Grants made on or after January 1, 2023, will fully vest
three-years from the grant date. 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 the Units granted in a particular award
have fully vested, unless a specified event occurs under the terms of the Plan, which would allow for earlier payment.
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 (Full Value).
In 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 Units outstanding as
of the record date of the common stock dividend. The dividend equivalent will be paid at the same time the underlying
Units are paid to the participant.
-54-
In addition, the Plan has been amended and restated, for all grants made starting January 1, 2023, to set the
vesting method to three-year cliff vesting following the grant date, with full value paid upon maturity. Additionally,
for grants made starting January 1, 2023, upon retirement at age 67 or greater, and with one year of continuous service
prior to retirement, vesting of the issued grant(s) would accelerate on a pro-rata basis, 1/3 per year from the grant date.
In 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 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.
Grants of Units. As of December 31, 2021, the Company had 8,358 nonvested and unmatured Units
outstanding, all of which were granted at Full Value. On February 22, 2022, the Company granted an additional 2,471
Full Value Units with a fair value of $148.03 per Unit on grant date, using historical volatility. In February 2022, the
Company paid $838,000 for 5,450 fully vested and matured Units that were granted during 2018, including their
respective earned dividend values. In March 2022, the Company paid $295,000 for 1,870 fully vested Units that were
granted during 2018, 2019 and 2020, including their respective earned dividend values. On August 19, 2022, the
Company granted an additional 1,022 Full Value Units with a fair value of $113.63 per Unit on grant date, using
historical volatility. In August 2022, the Company paid $107,000 for the 950 fully vested and matured Units that were
granted during August 2018, including their respective earned dividend values. As of December 31, 2022, the
Company had 6,653 nonvested and unmatured Units outstanding.
The 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 and maturity periods of each grant.
The 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.
The Company recognizes the reversal of any previously recognized compensation expense on forfeited
awards in the period that the award is forfeited. For the year ended December 31, 2022, no awards were forfeited.
However, for the year ended December 31, 2021, a reversal of $56,000 of previously recognized compensation
expense was recognized on 1,212 nonvested forfeited Units.
The total liability related to the Units as of December 31, 2022 was $1,343,000 of which $665,000 is included
in Other Liabilities, as it is expected to be paid within the next twelve months, and the balance of $678,000 is included
in Other Long Term Liabilities. The total liability related to the Units as of December 31, 2021 was $2,427,000 of
which $1,156,000 was included in Other Liabilities, and the balance of $1,271,000 was included in Other Long Term
Liabilities.
Related to the Plan, in accordance with FASB ASC Topic 718, Compensation - Stock Compensation, the
Company recorded compensation expense of approximately $156,000, $506,000, and $1,453,000 related to the Plan
for the years ended December 31, 2022, 2021 and 2020, respectively. Compensation expense (or income) for a given
period largely depends upon fluctuations in the Company’s stock price.
-55-
The following table summarizes information about the Company’s nonvested and unmatured Units as of and
for the year ended December 31, 2022:
Number of Units:
Nonvested and Unmatured as of December 31, 2021
Granted
Vested
Forfeited
Canceled
Nonvested and Unmatured as of December 31, 2022
Units Expected to Vest and Mature
Units
8,358
3,493
(5,198)
---
---
6,653
6,653
Weighted Average Grant
Date Fair Value
$ 100.93
$ 137.97
$ 89.78
---
---
$ 129.09
$ 129.09
The total unrecognized compensation costs calculated on December 31, 2022 are $387,000 which will be
recognized through August of 2025. The Company will recognize the related expense over the weighted average
period of 1.2 years.
13. RELATED PARTY TRANSACTIONS
From time to time the Company may have related party transactions (“RPTs”). 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. In all cases, these RPTs have been determined to be independent transactions with
no indication that they are influenced by the related relationships.
14. SUBSEQUENT EVENTS
The 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 2022.
-56-
Item 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
Item 9A – CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
We evaluated, under the supervision and with the participation of the Chief Executive Officer and
Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934
(“Exchange Act”), as amended, as of December 31, 2022, the end of the period covered by this report on
Form 10-K. Based on this evaluation, our Chief Executive Officer (principal executive officer) and Chief
Financial Officer (principal financial officer) have concluded that our disclosure controls and procedures
were effective as of December 31, 2022. Disclosure controls and procedures are designed to ensure that
information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is
recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms
and (ii) is accumulated and communicated to management, including the chief executive officer and chief
financial officer, as appropriate, to allow timely decisions regarding required disclosures.
(b) Management’s Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f)
promulgated under the Exchange Act and is a process designed by, or under the supervision of, our principal
executive and principal financial officers and effected by our management and other personnel, 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 and includes
those policies and procedures that:
• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of our assets;
• 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 our
management and directors; and
• 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.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. 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.
Our management assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2022. In making this assessment, the Company’s management used the criteria
set forth by the Committee of Sponsoring Organizations (COSO) in the Internal Control-Integrated
Framework (2013).
Based on the assessment, management has concluded that the Company maintained effective
internal control over financial reporting as of December 31, 2022, based on criteria in the Internal Control-
Integrated Framework (2013) issued by COSO.
-57-
The Company’s independent registered public accounting firm, RSM US LLP, audited the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2022. RSM US
LLP’s report on the effectiveness of the Company’s internal control over financial reporting as of December
31, 2022, is included herein on page 35.
(c) Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial reporting during the most recent quarter
ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Item 9B – OTHER INFORMATION
None.
Item 9C - DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
-58-
PART III
With respect to Items 10 through 14, the Company will file with the Securities and Exchange Commission,
within 120 days after December 31, 2022, a definitive proxy statement relating to the Company’s annual meeting of
shareholders (the “2023 Proxy Statement”).
Item 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding directors of the Company will be set forth in the 2023 Proxy Statement, under the
caption “Current Directors and Nominees for Election – Background Information”, and to the extent required and
except as set forth therein, is incorporated herein by reference.
Information regarding executive officers of the Company will be set forth under the caption “Executive
Officers” in the 2023 Proxy Statement, and to the extent required and except as set forth therein, incorporated herein
by reference.
Information regarding the Company’s Audit Committee and its “Audit Committee Financial Expert” will be
set forth in the 2023 Proxy Statement, under the caption “Board Committees”, and incorporated herein by reference.
Information concerning any delinquent filings under Section 16(a) of the Securities Exchange Act of 1934 will be set
forth in the Company’s proxy statement also, under the Caption “Delinquent Section 16(a) Reports” incorporated
herein by reference.
The Company has adopted a Code of Business Ethics (“Code”) applicable to its principal executive officer
and principal financial officer, its directors, and all other employees generally. A copy of the Code may be found at
the Company’s website www.omegaflex.com. Any changes to or waivers from this Code will be disclosed on the
Company’s website as well as in appropriate filings with the Securities and Exchange Commission.
Item 11 - EXECUTIVE COMPENSATION
Information required by Item 11 will be set forth in the 2023 Proxy Statement, under the caption “Executive
Compensation” and to the extent required and except as set forth therein, is incorporated herein by reference.
The report of the Compensation Committee of the Board of Directors of the Company shall not be deemed
incorporated by reference by any general statement incorporating by reference the proxy statement into any filing
under the Securities Exchange Act of 1934 and shall not otherwise be deemed filed under such Act.
Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information required by Item 12 will be set forth in the 2023 Proxy Statement, under the caption “Security
Ownership of Certain Beneficial Owners and Management”, and to the extent required and except as set forth therein,
is incorporated herein by reference.
Item 13 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information required by Item 13 will be set forth in the 2023 Proxy Statement, under the caption “Certain
Relationships and Related Party Transactions” and to the extent required and except as set forth therein, is incorporated
herein by reference.
Item 14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by Item 14 will be set forth in the 2023 Proxy Statement, under the caption “Principal
Accountant Fees and Services”, and to the extent required, and except as set forth therein, is incorporated herein by
reference.
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Item 15 – EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
(a)
The following documents are filed as part of this Form 10-K:
PART IV
1.
2.
Exhibits. See Index to Exhibits on pages 60 through 62.
Consolidated Financial Statements. See Index to Consolidated Financial Statements on
page 32. Financial statement schedules have been omitted because they are not required,
not applicable, not present in amounts sufficient to require submission of the schedule, or
the required information is otherwise included.
EXHIBIT INDEX
Those documents followed by a parenthetical notation are incorporated herein by reference to previous
filings with the Securities and Exchange Commission, under Commission File No. 000-51372, as set forth below.
Description
Amended and Restated Articles of Incorporation of Omega Flex, Inc.
Reference
Key
(A)
Exhibit
No.
3.1
3.2
4.1
10.1
10.2
Amended and Restated By-laws of Omega Flex, Inc.
Description of Common Stock
Indemnification and Insurance Matters Agreement dated July 29, 2005 between
Omega Flex, Inc. and Mestek, Inc.
* Form of Indemnification Agreements entered into between Omega Flex, Inc. and its
Directors and Officers and the Directors of its wholly-owned subsidiaries.
10.3
* Schedule of Directors/Officers with Indemnification Agreement
10.4
10.5
10.6
10.7
10.8
* Employment Agreement dated December 15, 2008 between Omega Flex, Inc. and
Kevin R. Hoben
* Amendment No. 1 to the Employment Agreement dated January 1, 2014 between
Omega Flex, Inc. and Kevin R. Hoben
* Employment Agreement dated December 15, 2008 between Omega Flex, Inc. and
Mark F. Albino
* Amendment No. 1 to the Employment Agreement dated January 1, 2014 between
Omega Flex, Inc. and Mark F. Albino
Amended and Restated Committed Revolving Line of Credit Note dated December 1,
2017 by Omega Flex, Inc. to Santander Bank, N.A. in the principal amount of
$15,000,000.
-60-
(F)
(B)
(A)
(C)
**
(D)
(E)
(D)
(E)
(K)
10.9
10.10
10.11
10.12
Loan and Security Agreement dated December 17, 2009 between Omega Flex, Inc.
and Sovereign Bank, N.A.
First Amendment dated December 30, 2010 to the Loan and Security Agreement
between Omega Flex, Inc. and Sovereign Bank, N.A.
Second Amendment dated December 29, 2014 to the Loan and Security Agreement
between Omega Flex, Inc. and Santander Bank, N.A., (as successor in interest to
Sovereign Bank, N.A.)
Third Amendment dated December 1, 2017 to the Loan and Security Agreement
between Omega Flex, Inc. and Santander Bank, N.A., (as successor in interest to
Sovereign Bank, N.A.)
10.13
* Phantom Stock Plan dated December 11, 2006.
10.14
* First Amendment to the Omega Flex, Inc. 2006 Phantom Stock Plan
10.15
10.16
10.17
10.18
10.19
10.20
* Omega Flex, Inc. 2006 Phantom Stock Plan (as amended and restated effective
January 1, 2023).
* Form of Phantom Stock Agreement entered into between Omega Flex, Inc. and its
directors, officers and employees (for grants made prior to January 1, 2023).
* Form of Phantom Stock Agreement entered into between Omega Flex, Inc. and its
directors, officers and employees (for grants made on or after January 1, 2023).
* Schedule of Phantom Stock Agreements between Omega Flex, Inc. and its directors
and officers as of December 31, 2022.
* Form of Change of Control Agreement entered into between Omega Flex, Inc. and
certain officers and employees.
* Schedule of Change of Control Agreements between Omega Flex, Inc. and certain
officers and employees as of December 31, 2022.
21.1
List of Subsidiaries
23.1
Consent of RSM US LLP
31.1
31.2
Certification of Chief Executive Officer of Omega Flex, Inc. pursuant to Rule 15d-
14(a) promulgated under the Securities Exchange Act of 1934, as amended
Certification of Chief Financial Officer of Omega Flex, Inc. pursuant to Rule 15d-
14(a) promulgated under the Securities Exchange Act of 1934, as amended
(G)
(H)
(I)
(K)
(J)
(G)
(L)
(J)
(L)
**
(M)
**
**
**
**
**
-61-
***
**
**
**
**
**
**
32.1
Certification of Chief Executive Officer and Chief Financial Officer of Omega Flex,
Inc. pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
101.1NS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Reference
Key
(A)
(B)
(C)
(D)
(E)
(F)
(G)
(H)
(I)
(J)
(K)
(L)
(M)
*
**
***
Inline XBRL Instance Document (the instance document does not appear in the
Interactive Data File because its XBRL tags are embedded within the Inline XBRL
document)
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Definition Linkbase Document
Inline XBRL Taxonomy Extension Label Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (the cover page XBRL tags are embedded in the
Inline XBRL document and included in Exhibit 101).
Filed as an Exhibit to the Registration Statement on Form 10-12G filed on June 22, 2005.
Filed as an Exhibit to the Annual Report on Form 10-K filed March 9, 2020.
Filed as an Exhibit to the Quarterly Report on Form 10-Q filed May 4, 2020.
Filed as an Exhibit to the Annual Report on Form 10-K filed March 18, 2009.
Filed as an Exhibit to the Current Report on Form 8-K/A filed July 24, 2014.
Filed as an Exhibit to the Current Report on Form 8-K filed September 15, 2021.
Filed as an Exhibit to the Annual Report on Form 10-K filed March 17, 2010.
Filed as an Exhibit to the Annual Report on Form 10-K filed March 10, 2011.
Filed as an Exhibit to the Current Report on Form 8-K filed December 29, 2014.
Filed as an Exhibit to the Annual Report on Form 10-K filed April 2, 2007.
Filed as an Exhibit to the Current Report on Form 8-K filed December 5, 2017.
Filed as an Exhibit to the Quarterly Report on Form 10-Q filed November 7, 2022.
Filed as an Exhibit to the Current Report on Form 8-K filed March 1, 2019.
Management contract, compensatory plan, or arrangement
Filed herewith
Furnished herewith
-62-
Item 16 – Form 10-K Summary
None.
-63-
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 10, 2023
Date: March 10, 2023
Date: March 10, 2023
By:
By:
By:
OMEGA FLEX, INC.
/s/ Kevin R. Hoben
Kevin R. Hoben, Chairman and
Chief Executive Officer (Principal Executive Officer)
/s/ Matthew F. Unger
Matthew F. Unger, Vice President Finance,
Chief Financial Officer (Principal Financial Officer)
/s/ Luke S. Hawk
Luke S. Hawk
Financial Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: March 10, 2023
Date: March 10, 2023
Date: March 10, 2023
Date: March 10, 2023
Date: March 10, 2023
Date: March 10, 2023
Date: March 10, 2023
By:
By:
By:
By:
By:
By:
By:
/s/ Mark F. Albino
Mark F. Albino, Director
/s/ James M. Dubin
James M. Dubin, Director
/s/ David K. Evans
David K. Evans, Director
/s/ J. Nicholas Filler
J. Nicholas Filler, Director
/s/ Derek W. Glanvill
Derek W. Glanvill, Director
/s/ Kevin R. Hoben
Kevin R. Hoben, Director
/s/ Stewart B. Reed
Stewart B. Reed, Director
-64-
EXHIBIT 10.3
Schedule of Directors/Officers with Indemnification Agreement
Directors
Mark F. Albino
James M. Dubin
David K. Evans
J. Nicholas Filler
Derek Glanvill
Kevin R. Hoben
Bruce C. Klink
Stewart B. Reed
Officers
Susan Asch
Geraldine Glazer
Robert Haines
James Hockenberry
Edwin B. Moran
Dean W. Rivest
Timothy P. Scanlan
Matthew F. Unger
OMEGA FLEX, INC.
Phantom Stock Agreements
Schedule of Directors and Officers
As of December 31, 2022
EXHIBIT 10.18
Director/Officer
Type Number Grant Date Grant Price Maturity Date Vesting Schedule
Geraldine Glazer
Robert Haines
Full
Full
Full
Full
Full
Full
James Hockenberry Full
Full
Full
Full
Daniel Hrynkow
Edwin B. Moran
Dean W. Rivest
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Timothy P. Scanlan Full
Full
Full
Full
201
198
465
375
201
198
465
375
201
198
754
435
404
511
930
750
402
494
930
750
603
593
930
750
402
395
02/18/2021
02/22/2022
$149.92
$151.90
02/18/2025
02/22/2026
02/15/2019
02/28/2020
02/18/2021
02/22/2022
02/15/2019
02/28/2020
02/18/2021
02/22/2022
08/27/2019
08/24/2020
08/25/2021
08/19/2022
02/15/2019
02/28/2020
02/18/2021
02/22/2022
02/15/2019
02/28/2020
02/18/2021
02/22/2022
02/15/2019
02/28/2020
02/18/2021
02/22/2022
$68.06
$78.30
$149.92
$151.90
$68.06
$78.30
$149.92
$151.90
$79.57
$138.01
$148.68
$117.55
$68.06
$78.30
$149.92
$151.90
$68.06
$78.30
$149.92
$151.90
$68.06
$78.30
$149.92
$151.90
02/15/2023
02/28/2024
02/18/2025
02/22/2026
02/15/2023
02/28/2024
02/18/2025
02/22/2026
08/27/2023
08/24/2024
08/25/2025
08/19/2026
02/15/2023
02/28/2024
02/18/2025
02/22/2026
02/15/2023
02/28/2024
02/18/2025
02/22/2026
02/15/2023
02/28/2024
02/18/2025
02/22/2026
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
Matthew F. Unger
Full
395
02/22/2022
$151.90
02/22/2026
3 years
James Upchurch
Full
Full
Full
Full
754
435
404
511
08/27/2019
08/24/2020
08/25/2021
08/19/2022
$79.57
$138.01
$148.68
$117.55
08/27/2023
08/24/2024
08/25/2025
08/19/2026
3 years
3 years
3 years
3 years
EXHIBIT 10.20
Schedule of Change of Control Agreements
Susan Asch
David Edler
Geraldine Glazer
Robert Haines
James Hockenberry
Daniel Hrynkow
Edwin Moran
Dean Rivest
Timothy Scanlan
Steven Treichel
Matthew Unger
James Upchurch
EXHIBIT 21.1
LIST OF SUBSIDIARIES of OMEGA FLEX, INC.
Name
Exton Ranch, LLC
Omega Flex Limited
Omega Flex Industrial Limited
Jurisdiction of Formation
Delaware
England
England
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement (Nos. 333-135515, 333-228784 and 333-
231739) on Form S-8 of Omega Flex, Inc. of our reports dated March 10, 2023, relating to the consolidated financial
statements and the effectiveness of internal control over financial reporting of Omega Flex, Inc., appearing in this
Annual Report on Form 10-K of Omega Flex, Inc. for the year ended December 31, 2022.
/s/ RSM US LLP
Blue Bell, Pennsylvania
March 10, 2023
Certification by the Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EXHIBIT 31.1
I, Kevin R. Hoben, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2022, of Omega
Flex, Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: March 10, 2023
/s/ Kevin R. Hoben__________________________
Kevin R. Hoben
Chief Executive Officer
Certification by the Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EXHIBIT 31.2
I, Matthew F. Unger, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2022, of Omega
Flex, Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: March 10, 2023
/s/ Matthew F. Unger
Matthew F. Unger
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned hereby certifies, for the purposes of 18 U.S.C. Section 1350, in his capacity as an officer of
Omega Flex, Inc. (the “Company”), that, to his knowledge:
(a)
the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2022, as filed
with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a)
of the Securities Exchange Act of 1934; and
(b)
the information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Dated: March 10, 2023
/s/ Kevin R. Hoben
Kevin R. Hoben
Chief Executive Officer
/s/ Matthew F. Unger
Matthew F. Unger
Chief Financial Officer
This certification is not deemed to be “filed” for purposes of section 18 of the Securities Exchange Act of 1934, or
otherwise subject to the liability of that section. This certification is not deemed to be incorporated by reference into
any filing under the Securities Act of 1933 or Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates it by reference.
Directors
Mark F. Albino - Former President and Chief Opera�ng Officer, Omega Flex, Inc.
Directors
James M. Dubin – Managing Partner, Madison Place Partners, LLC
Directors
Mark F. Albino - Former President and Chief Opera�ng Officer, Omega Flex, Inc.
David K. Evans – President and Chief Execu�ve Officer, Partners Mechanical, Inc.
Mark F. Albino - Former President and Chief Opera�ng Officer, Omega Flex, Inc.
James M. Dubin – Managing Partner, Madison Place Partners, LLC
J. Nicholas Filler – Lead Independent Director of Omega Flex, Inc., and former President and Chief
James M. Dubin – Managing Partner, Madison Place Partners, LLC
David K. Evans – President and Chief Execu�ve Officer, Partners Mechanical, Inc.
Opera�ng Officer, Argotec, Inc.
J. Nicholas Filler – Lead Independent Director of Omega Flex, Inc., and former President and Chief
David K. Evans – President and Chief Execu�ve Officer, Partners Mechanical, Inc.
Derek W. Glanvill – Sr. Advisor, Oaktree Capital, and former President and COO, McCarthy Holdings
Opera�ng Officer, Argotec, Inc.
J. Nicholas Filler – Lead Independent Director of Omega Flex, Inc., and former President and Chief
Kevin R. Hoben - Chairman and Chief Execu�ve Officer, Omega Flex, Inc.
Derek W. Glanvill – Sr. Advisor, Oaktree Capital, and former President and COO, McCarthy Holdings
Opera�ng Officer, Argotec, Inc.
Stewart B. Reed – Chairman and Chief Execu�ve Officer, Mestek, Inc.
Kevin R. Hoben - Chairman and Chief Execu�ve Officer, Omega Flex, Inc.
Derek W. Glanvill – Sr. Advisor, Oaktree Capital, and former President and COO, McCarthy Holdings
Stewart B. Reed – Chairman and Chief Execu�ve Officer, Mestek, Inc.
Kevin R. Hoben - Chairman and Chief Execu�ve Officer, Omega Flex, Inc.
Execu�ve Officers
Stewart B. Reed – Chairman and Chief Execu�ve Officer, Mestek, Inc.
Kevin R. Hoben, Chairman and Chief Executive Officer
Execu�ve Officers
Dean W. Rivest, President
Kevin R. Hoben, Chairman and Chief Executive Officer
Execu�ve Officers
Edwin B. Moran, Execu�ve Vice President
Dean W. Rivest, President
Kevin R. Hoben, Chairman and Chief Executive Officer
Mathew F. Unger, Vice President – Finance and Chief Financial Officer
Edwin B. Moran, Execu�ve Vice President
Dean W. Rivest, President
Susan B. Asch, General Counsel and Secretary
Edwin B. Moran, Execu�ve Vice President
Mathew F. Unger, Vice President – Finance and Chief Financial Officer
Mathew F. Unger, Vice President – Finance and Chief Financial Officer
Susan B. Asch, General Counsel and Secretary
Susan B. Asch, General Counsel and Secretary