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<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>1. BASIS OF PRESENTATION AND DESCRIPTION
OF BUSINESS</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify"><b><u>Basis of Presentation</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The accompanying
unaudited condensed consolidated financial statements include the accounts of Omega Flex, Inc. (Omega) and its subsidiaries (collectively
the “Company”). The Company’s unaudited condensed consolidated financial statements for the three and six months
ended June 30, 2018 have been prepared in accordance with accounting principles generally accepted in the United States (GAAP),
and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Certain information and note disclosures normally included
in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations,
although the Company believes that the disclosures made are adequate to make the information not misleading. It is suggested that
these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included
in the Company’s latest shareholders’ annual report (Form 10-K). All material inter-company accounts and transactions
have been eliminated in consolidation. It is Management’s opinion that all adjustments necessary for a fair statement of
the results for the interim periods have been made, and that all adjustments are of a normal recurring nature or a description
is provided for any adjustments that are not of a normal recurring nature.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify"><b><u>Description of Business</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Company’s
business is controlled 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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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, the transfer
of liquefied gases in certain processing applications, vibration absorbers in high vibration applications, 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, and the Company’s corrugated tubing can also be used
in the healthcare industry to carry various medical related gases.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Company manufactures
flexible metal hose at its facilities in Exton, Pennsylvania, in the United States, and in Banbury, Oxfordshire in the United
Kingdom, and 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.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>2. SIGNIFICANT ACCOUNTING POLICIES</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Use of Estimates</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The preparation
of financial statements in conformity with 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. The most significant estimates and assumptions
relate to revenue recognition and related sales incentives, accounts receivable allowances, inventory valuations, goodwill valuation,
product liability reserve, stock-based compensation valuations and accounting for income taxes. Actual amounts could differ significantly
from these estimates.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Revenue Recognition</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Effective January
1, 2018, the Company adopted the requirements of Accounting Standards Update 2014-09, <i>Revenue from Contracts with Customers
(Topic 606)</i>. The standard is a comprehensive new revenue recognition model that 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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The guidance permits
two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively
with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective
approach). The Company selected the modified retrospective approach however there was no material impact which required a cumulative
effect adjustment.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The principle of
Topic 606 was achieved through applying the following five-step approach:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 48px; text-align: justify; line-height: 107%"> </td>
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Identification of the contract, or contracts, with a customer —</i> 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.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Identification of the performance obligations in the contract — </i>performance obligations promised in a contract are identified based on the goods that will be transferred to the customer that are distinct, whereby the customer can benefit from the goods on their own or together with other resources that are readily available from third parties or from us. Persuasive evidence of an arrangement for the sale of product must exist. The Company ships product in accordance with the purchase order and standard terms as reflected within the Company’s order acknowledgments and sales invoices.</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: -0.25in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 48px; text-align: justify; line-height: 107%"> </td>
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Determination of the transaction price</i> —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.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Allocation of the transaction price to the performance obligations in the contract </i>— 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.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Recognition of revenue when, or as, the Company satisfies a performance obligation</i> — 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:</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: -0.25in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 72px; text-align: justify; line-height: 107%"> </td>
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">The Company has a present right to payment</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">The customer has legal title to the goods</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">The Company has transferred physical possession of the goods</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">The customer has the significant risks and rewards of ownership of the goods</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">The customer has accepted the goods</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 1in; text-align: justify; text-indent: -0.25in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: 0.25in">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: 0.25in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: 0.25in">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: 0.25in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: 0.25in">Based
upon the above, the Company has concluded that transfer of control substantively transfers to the customer upon shipment.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: 0.25in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Other considerations
of Topic 606 include the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 48px; text-align: justify; line-height: 107%"> </td>
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Contract Costs - </i>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 customer purchase orders are fulfilled (e.g. goods are shipped) within two days of receipt.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Warranties </i>- the Company does not offer customers to purchase a warranty separately. Therefore there is not a separate performance obligation. The Company does account for warranties as a cost accrual and the warranties do not include any additional distinct services other than the assurance that the goods comply with agreed-upon specifications. There is no impact of warranties under Topic 606 upon the financial reporting of the Company.</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 48px; text-align: justify; line-height: 107%"> </td>
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Returned Goods</i> - 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. Upon implementation of Topic 606, the Company will monitor pending authorized returns of goods and, if deemed appropriate, record the right of return asset accordingly.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Volume Rebates (Promotional Incentives) </i>- 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 revenue recognized would not be probable of a significant reversal, the four following factors are considered:</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 72px; text-align: justify; line-height: 107%"> </td>
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">The amount of consideration is highly susceptible to factors outside the company’s influence.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">The uncertainty about the amount of consideration is not expected to be resolved for a long period of time.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">The Company’s experience with similar types of contracts is limited.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">The contract has a large number and broad range of possible consideration amounts.</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 1in; text-align: justify; text-indent: -0.25in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: 0.25in">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 products expected to be sold.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: 0.25in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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, 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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Cash Equivalents</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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 US Treasury bills, notes and bonds, and/or
repurchase agreements, backed by such obligations. Carrying value approximates fair value. Cash and cash equivalents are deposited
at various area banks, which at times may exceed federally insured limits. The Company monitors the viability of the banking institutions
carrying its assets on a regular basis, and has the ability to transfer cash to various institutions during times of risk. The
Company has not experienced any losses related to these cash balances, and believes its credit risk to be minimal.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Accounts Receivable and Provision
for Doubtful Accounts</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Accounts receivable
are reduced by an allowance for amounts that may become uncollectible in the future. The estimated allowance for uncollectible
amounts is based primarily on specific analysis of accounts in the receivable portfolio and historical write-off experience. While
management believes the allowance to be adequate, if the financial condition of the Company’s customers were to deteriorate,
resulting in their inability to make payments, additional allowances may be required.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The allowance for
doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. The Company determines
the allowance based on any known collection issues, historical experience, and other currently available evidence. The reserve
for future credits, discounts, and doubtful accounts was $933,000 and $920,000 as of June 30, 2018 and December 31, 2017, respectively.
In regards to identifying uncollectible accounts, the Company reviews an aging report on a consistent basis to determine past due
accounts, and utilizes a well-established credit rating agency. The Company charges off those accounts that are deemed uncollectible
once all collection efforts have been exhausted.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Inventories</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Inventories are
valued at the lower of cost or market. The cost of inventories is determined by the first-in, first-out (FIFO) method. The Company
generally considers inventory quantities beyond two-years usage, measured on a historical usage basis, to be excess inventory and
reduces the carrying value of inventory accordingly.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Property and Equipment</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Property and equipment
are carried 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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Goodwill</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">In accordance with
Financial Accounting Standards Board (FASB) ASC Topic 350, Intangibles – Goodwill and Other, the Company performed an annual
impairment test in accordance with this guidance as of December 31, 2017. This analysis did not indicate any impairment of goodwill.
There were no circumstances that indicate that Goodwill might be impaired at June 30, 2018.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Stock-Based Compensation Plans</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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. The Units follow a vesting schedule of three years from
the grant date, and are then paid upon maturity. In accordance with FASB ASC Topic 718, Stock Compensation, the Company uses the
Black-Scholes option pricing model as its method for determining the fair value of the Units. Further details of the Plan are provided
in Note 6.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Product Liability Reserves</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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 5, Commitments and Contingencies,
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
$1,000,000 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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Fair Value of Financial and Nonfinancial
Instruments</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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 on its actively traded
share value – a Level 1 input – in determining the fair value of the reporting unit in its annual impairment test as
described in the FASB ASC Topic 350, Intangibles - Goodwill and Other.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Earnings per Common Share</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Currency Translation</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Assets and liabilities
denominated in foreign currencies, most of which relate to our foreign subsidiary whose functional currency is British pound sterling,
are translated into US dollars at exchange rates prevailing on the balance sheet dates. The statements of income are translated
into US 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 income (other expense) in the period
in which they occur.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Income Taxes</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Company accounts
for tax liabilities in accordance with the FASB ASC Topic 740, Income Taxes. Under this method the Company recorded tax expense,
related deferred taxes and tax benefits, and uncertainties in tax positions.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Company reflected
the effects of the Tax Cuts and Jobs Act (the “Act”), in its 2017 financial statements. This included the effects of
the change in the US corporate tax rate from 35% to 21% on deferred tax assets and liabilities, and a provision related to previously
deferred taxes on earnings of the Company’s foreign subsidiary. The Company’s tax expense for the period ended June
30, 2018 includes the continuing effect of the reduction in the US corporate tax rate from 35% to 21%, effective for the Company’s
2018 tax year. The Company’s tax provision also reflects other changes as a result of the Act, including the impact of the
Global Intangible Low Taxed Income (“GILTI”) provisions, and changes affecting the deductibility of certain executive
compensation.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Other Comprehensive Income</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">For the quarters
ended June 30, 2018 and 2017, respectively, the components of other comprehensive income consisted solely of foreign currency translation
adjustments.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Significant Concentration</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Company has
one significant customer who represents more than 10% of the Company’s Net Sales for the three and six months ended June
30, 2018 and 2017, and more than 10% of the Company’s Accounts Receivable balance at June 30, 2018 and December 31, 2017.
Geographically, the Company has a significant amount of sales in the United States versus internationally. These concentrations
are consistent with those discussed in detail in the Company’s December 31, 2017 Form 10-K.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Subsequent Events</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Company evaluates
all events or transactions through the date of the related filing that may have a material impact on its condensed consolidated
financial statements. Refer to Note 9 of the condensed consolidated financial statements.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Recent Accounting Pronouncements</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">In May 2014, the
FASB issued ASU 2014-09, <i>Revenue from Contracts with Customers (Topic 606)</i>, requiring an entity to recognize the amount
of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard
replaced most existing revenue recognition guidance in US GAAP once it became effective and permits the use of either a full retrospective
or retrospective with cumulative effect transition method. The updated standard became effective for the Company in the first quarter
of fiscal year 2018. The Company completed its review of its customer contracts and its analysis of the impact of the disclosure
requirements of ASU 2014-09 during 2017. The Company has adopted the revenue guidance effective January 1, 2018, using the modified
retrospective approach. The adoption of ASU 2014-09 did not have a material impact on the Company’s financial statements,
and is not expected to have any material impact on an ongoing basis. Although there is no material impact on the financial statements
our accounting policy for revenue recognition has been updated as described previously in Note 1 of the condensed consolidated
financial statements.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">In February 2016,
the FASB issued ASU 2016-02, <i>Leases (Topic 842)</i>. Under this ASU, lessees are required to recognize right-of-use assets
and lease liabilities for all leases not considered short-term leases. By definition, a short-term lease is one in which: (a)
the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably
certain to exercise. For short-term leases, lessees may elect an accounting policy by class of underlying asset under which right-of-use
assets and lease liabilities are not recognized and lease payments are generally recognized as expense over the lease term on
a straight-line basis. This change will result in lessees recognizing right-of-use assets and lease liabilities for most leases
currently accounted for as operating leases under the legacy lease accounting guidance. ASU 2016-02 is effective for interim and
annual periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating its population
of leases, and is continuing to assess all potential impacts of the standard, but currently believes the most significant impact
relates to its accounting for real estate operating leases. The Company anticipates recognition of additional assets and corresponding
liabilities related to leases upon adoption, but has not quantified these amounts at this time. The Company plans to adopt the
standard effective January 1, 2019.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>3. INVENTORIES</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Inventories, net
of reserves consisted of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 107%"> </td>
<td style="text-align: center; line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>June 30, 2018</b></font></td>
<td style="text-align: center; line-height: 107%"> </td>
<td style="text-align: center; line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2017</b></font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="6" style="text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(dollars in thousands)</b></font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 54%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Finished Goods</font></td>
<td style="width: 2%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">5,150</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 19%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">5,461</font></td>
<td style="width: 1%; line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Raw Materials</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">3,121</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">2,546</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Inventories-Net</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">8,271</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">8,007</font></td>
<td style="line-height: 107%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>4. LINE OF CREDIT</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On December 1, 2017,
the Company agreed to a new Amended and Restated Revolving Line of Credit Note and Third Amendment to the Loan Agreement with Santander
Bank, N.A. (the “Bank”). The Company established a line of credit facility in the maximum amount of $15,000,000, maturing
on December 1, 2022, with funds available for working capital purposes and other cash needs. The loan is unsecured. The loan agreement
provides for the payment of any borrowings under the agreement at an interest rate range of either LIBOR plus 0.75% to plus 1.75%
(for borrowings with a fixed term of 30, 60, or 90 days), or, Prime Rate up to Prime Rate plus 0.50% (for borrowings with no fixed
term other than the December 1, 2022 maturity date), depending upon the Company’s then existing financial ratios. Currently,
the Company’s ratio would allow for the most favorable rate under the agreement’s range, which would be a rate of 3.09%.
The Company is also required to pay on a quarterly basis an unused facility fee of 10 basis points of the average unused balance
of the note. The Company may terminate the line at any time during the five year term, as long as there are no amounts outstanding.
Prior to this, the Company had been operating in adherence with the December 29, 2014 agreement, as outlined in the December 31,
2017 Form 10-K, and filed as an Exhibit to the Current Report on Form 8-K on December 29, 2014.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">As of June 30,
2018 and December 31, 2017, the Company had no outstanding borrowings on its line of credit, and was in compliance with all debt
covenants.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>5. COMMITMENTS AND CONTINGENCIES</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Commitments:</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Company has
salary continuation agreements with one current employee, and one former employee who retired at the end of 2010. 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 $474,000 at June
30, 2018, of which $462,000 is included in Other Long Term Liabilities, and the remaining current portion of $12,000 is included
in Other Liabilities, associated with the retired employee previously noted who is now receiving benefit payments. The December
31, 2017 liability of $496,000, had $484,000 reported in Other Long Term Liabilities, and a current portion of $12,000 in Other
Liabilities.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Company has
obtained and is the beneficiary of three whole life insurance policies with respect to the two employees discussed above, and one
other employee policy. The cash surrender value of such policies (included in Other Long Term Assets) amounts to $1,316,000 at
June 30, 2018 and $1,281,000 at December 31, 2017.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">As disclosed in
detail in Note 8 of the Company’s December 31, 2017 Form 10-K, under the caption “Leases”, the Company has several
lease obligations in place that will be paid out over time. Most notably, the Company leases a facility in Banbury, England that
serves the manufacturing, warehousing and distribution functions. Additionally, the Company purchased the operating facility at
427 Creamery Way in Exton, PA in February 2017, which was previously under lease through January 2018.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Contingencies:</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">In the ordinary
and normal conduct of the Company’s business, it is subject to periodic lawsuits, investigations and claims (collectively,
the “Claims”). Most of the Claims, including a putative class-action claim, 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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">In 2010, the Company
took its first Claim to trial in Pennsylvania, and the jury returned a verdict that the Company was not negligent in designing
and selling the TracPipe<sup>®</sup> product, but also returned a verdict for plaintiff on strict liability. The Company
appealed that portion of the verdict, and in December 2014, the Supreme Court of Pennsylvania ruled in favor of the Company, and
returned the case to the trial court for further hearings. After further extended appellate review, on February 16, 2018 the appeals
court ruled in favor of the Company, and the prior strict liability verdict for the plaintiff has been vacated and the case remanded
for a new trial. As a result, the cash bond of $1,600,000, which was previously included in Other Long Term Assets and posted as
security for the subsequent appeal, was returned to the Company in May 2018.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">In March 2017, a
putative class action case was re-filed against the Company and other parties in Missouri state court after the predecessor case
was dismissed without prejudice by the federal court. The Company successfully removed the case to federal court and is currently
vigorously defending the case.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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 $1,000,000 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 $1,000,000, 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 is estimated to not exceed approximately $3,800,000, which represents the potential costs that may
be incurred over time for the Claims within the applicable insurance policy deductibles or retentions. From time to time, depending
upon the nature of a particular case, the Company may decide to spend in excess of a deductible or retention to enable more discretion
regarding the defense, although this is not common. It is possible that the results of operations or liquidity of the Company,
as well as the Company’s ability to procure reasonably priced insurance, could be adversely affected by the pending litigation,
potentially materially. The Company is currently unable to estimate the ultimate liability, if any, that may result from the pending
litigation, or potential litigation from future claims or claims that have not yet come to our attention, and accordingly, the
liability in the consolidated financial statements primarily represents an accrual for legal costs for services previously rendered,
and outstanding or anticipated settlements for Claims. The liabilities recorded on the Company’s books at June 30, 2018
and December 31, 2017 were $160,000 and $175,000, respectively, and are included in Other Liabilities.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>6. STOCK BASED PLANS</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Phantom Stock Plan</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b><i>Plan Description. </i></b>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 <u>does not</u> receive
any of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 48px; line-height: 107%"> </td>
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">ownership interest in the Company</font></td></tr>
<tr style="vertical-align: top">
<td style="line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">shareholder voting rights</font></td></tr>
<tr style="vertical-align: top">
<td style="line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">other incidents of ownership to the Company’s common stock</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: -0.25in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Units are granted
to participants upon the recommendation of the Company’s CEO, and the approval of the Compensation Committee. Each of the
Units that are granted to a participant will be initially valued by the Compensation Committee, at an amount equal to the closing
price of the Company’s common stock on the grant date, but are recorded at fair value using the Black-Sholes method as described
below. The Units follow a vesting schedule, with a maximum vesting of three years after the grant date. Upon vesting, the Units
represent a contractual right of payment for the value of the Unit. The Units will be paid on their maturity date, one year after
all of the Units granted in a particular award have fully vested, unless an acceptable event occurs under the terms of the Plan
prior to one year, which would allow for earlier payment. The amount to be paid to the participant on the maturity date is dependent
on the type of Unit granted to the participant.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Units may be <i>Full
Value,</i> in which the value of each Unit at the maturity date, will equal the closing price of the Company’s common
stock as of the maturity date; or <i>Appreciation Only</i>, in which the value of each Unit at the maturity date will be equal
to the closing price of the Company’s common stock at the maturity date <i>minus</i> the closing price of the Company’s
common stock at the grant date.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On December 9, 2009,
the Board of Directors authorized an amendment to the Plan to pay an amount equal to the value of any cash or stock dividend declared
by the Company on its common stock to be accrued to the phantom stock units outstanding as of the record date of the common stock
dividend. The dividend equivalent will be paid at the same time the underlying phantom stock units are paid to the participant.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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 his relationship with the Company or its subsidiary for “cause,” which is defined
under the Plan. If a participant’s employment or relationship with the Company is terminated for reasons other than for “cause,”
then any vested Units will be paid to the participant upon termination. However, Units granted to certain “specified employees”
as defined in Section 409A of the Internal Revenue Code will be paid approximately 181 days after termination.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b><i>Grants of
Phantom Stock Units. </i></b>As of December 31, 2017, the Company had 21,296 unvested units outstanding, all of which were
granted at <i>Full Value</i>. On February 12, 2018, the Company granted an additional 6,450 <i>Full Value </i>Units
with a fair value of $53.04 per unit on grant date, using historical volatility. As of June 30, 2018, the Company had 18,188 unvested
units outstanding.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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 period of each grant or award.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The FASB ASC Topic
718, Stock Compensation, requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates in order to derive the Company’s best estimate of awards ultimately to
vest.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Forfeitures represent
only the unvested portion of a surrendered Unit and are typically estimated based on historical experience. Based on an analysis
of the Company’s historical data, which has limited experience related to any stock-based plan forfeitures, the Company applied
a 0% forfeiture rate to Plan Units outstanding in determining its Plan Unit compensation expense as of June 30, 2018.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The total Phantom
Stock related liability as of June 30, 2018 was $2,036,000 of which $853,000 is included in Other Liabilities, as it is expected
to be paid in February 2019, and the balance of $1,183,000 is included in Other Long Term Liabilities. At December 31, 2017, the
total Phantom Stock liability was $2,238,000, with $776,000 in Other Liabilities, and $1,462,000 included in Other Long Term Liabilities.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Related to the Phantom
Stock Plan, in accordance with FASB ASC Topic 718, Stock Compensation, the Company recorded compensation expense of approximately
$444,000 and $468,000 for the six months ended June 30, 2018 and 2017, respectively. Compensation income or expense for a given
period largely depends upon fluctuations in the Company’s stock price.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">The following table summarizes information
about the Company’s nonvested phantom stock Units at June 30, 2018:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Units</b></font></td>
<td style="text-align: center; line-height: 107%"> </td>
<td style="text-align: center; line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Weighted Average</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Grant Date Fair Value</b></p></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Number of Phantom Stock Unit Awards:</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="width: 57%; padding-left: 10pt; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Nonvested at December 31, 2017</font></td>
<td style="width: 2%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 16%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">21,296</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">34.74</font></td>
<td style="width: 1%; line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 20pt; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Granted</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">6,450</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">53.04</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 20pt; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Vested</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">(9,558</font></td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">32.96</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 20pt; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Forfeited</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 20pt; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Canceled</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Nonvested at June 30, 2018</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">18,188</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">43.53</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Phantom Stock Unit Awards Expected to Vest</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">18,188</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">43.53</font></td>
<td style="line-height: 107%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The total unrecognized
compensation costs calculated at June 30, 2018 are $1,077,000 which will be recognized through February of 2021. The Company will
recognize the related expense over the weighted average period of 1.4 years.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>7. SHAREHOLDERS’ EQUITY</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">For the periods
ending June 30, 2018 and December 31, 2017, the Company had authorized 20,000,000 common stock shares with par value of $0.01 per
share. At these dates, the number of shares issued was 10,153,633, and the total number of outstanding shares was 10,091,822, with
the 61,811 variance representing shares held in Treasury.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">During 2018, the
Board of Directors (the “Board”) announced regular quarter dividends in April and June of $0.22 and $0.24 per share,
respectively, to all Shareholders of record. The respective dividend payments amounting to $2,220,000 and $2,422,000 were made
in April and July of 2018. Additionally, there was a dividend that was paid in April by the Company’s foreign subsidiary,
which amounted to an outlay of cash of $491,000 to the foreign subsidiary’s noncontrolling interest.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">During 2017, the
Board revised its dividend policy to allow for and establish a record of paying regular quarterly dividends. In furtherance of
this policy, during 2017 the Company announced in June, September, and December that the Board had approved a quarterly dividend
in the amount of $0.22 per share to all Shareholders of record, amounting to the respective dividend payments of $2,220,000 in
July, October, and January of 2018.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On December 14,
2016, the Board declared a special dividend of $0.85 per share to all Shareholders of record as of December 26, 2016, payable on
or before January 6, 2017. The total payment to shareholders made in January 2017 was $8,578,000.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On April 4, 2014,
the Company’s Board of Directors 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. The Company has not made any stock repurchases since 2014.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>8. RELATED PARTY TRANSACTIONS</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">From time to time
the Company may have related party transactions (“RPTs”). In short, RPTs represent any transaction between the Company
and any Company employee, director or officer, or any related entity, or relative, etc. The Company performs a review of transactions
each year to determine if any RPTs exist. Through this investigation, the Company is currently not aware of any RPTs between the
Company and any of its current directors or officers outside the scope of their normal business functions or expected contractual
duties. The Company does on occasion share a small amount of services with its former parent Mestek, Inc., mostly related to board
meeting expenses. Additionally, the Company is aware of transactions between a few service providers which employ individuals
indirectly associated to Omega Flex employees, but these have been determined to be independent transactions with no indication
that they are influenced by the related relationships. The Company currently also has note agreement assets with related parties
amounting to approximately $5,000 and $147,000 at June 30, 2018 and December 31, 2017, respectively, which are contractually secured
by the Company. In April 2018, a majority of the amounts due from related parties was collected.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>9. SUBSEQUENT EVENTS</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Company evaluated
all events or transactions that occurred through the date of this filing. During this period, the Company did not have any material
subsequent events that impacted its condensed consolidated financial statements.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Use of Estimates</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The preparation
of financial statements in conformity with 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. The most significant estimates and assumptions
relate to revenue recognition and related sales incentives, accounts receivable allowances, inventory valuations, goodwill valuation,
product liability reserve, stock-based compensation valuations and accounting for income taxes. Actual amounts could differ significantly
from these estimates.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Revenue Recognition</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Effective January
1, 2018, the Company adopted the requirements of Accounting Standards Update 2014-09, <i>Revenue from Contracts with Customers
(Topic 606)</i>. The standard is a comprehensive new revenue recognition model that 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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The guidance permits
two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively
with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective
approach). The Company selected the modified retrospective approach however there was no material impact which required a cumulative
effect adjustment.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The principle of
Topic 606 was achieved through applying the following five-step approach:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 48px; text-align: justify; line-height: 107%"> </td>
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Identification of the contract, or contracts, with a customer —</i> 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.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Identification of the performance obligations in the contract — </i>performance obligations promised in a contract are identified based on the goods that will be transferred to the customer that are distinct, whereby the customer can benefit from the goods on their own or together with other resources that are readily available from third parties or from us. Persuasive evidence of an arrangement for the sale of product must exist. The Company ships product in accordance with the purchase order and standard terms as reflected within the Company’s order acknowledgments and sales invoices.</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: -0.25in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 48px; text-align: justify; line-height: 107%"> </td>
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Determination of the transaction price</i> —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.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Allocation of the transaction price to the performance obligations in the contract </i>— 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.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Recognition of revenue when, or as, the Company satisfies a performance obligation</i> — 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:</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: -0.25in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 72px; text-align: justify; line-height: 107%"> </td>
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">The Company has a present right to payment</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">The customer has legal title to the goods</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">The Company has transferred physical possession of the goods</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">The customer has the significant risks and rewards of ownership of the goods</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">The customer has accepted the goods</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 1in; text-align: justify; text-indent: -0.25in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: 0.25in">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: 0.25in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: 0.25in">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: 0.25in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: 0.25in">Based
upon the above, the Company has concluded that transfer of control substantively transfers to the customer upon shipment.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: 0.25in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Other considerations
of Topic 606 include the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 48px; text-align: justify; line-height: 107%"> </td>
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Contract Costs - </i>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 customer purchase orders are fulfilled (e.g. goods are shipped) within two days of receipt.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Warranties </i>- the Company does not offer customers to purchase a warranty separately. Therefore there is not a separate performance obligation. The Company does account for warranties as a cost accrual and the warranties do not include any additional distinct services other than the assurance that the goods comply with agreed-upon specifications. There is no impact of warranties under Topic 606 upon the financial reporting of the Company.</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 48px; text-align: justify; line-height: 107%"> </td>
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Returned Goods</i> - 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. Upon implementation of Topic 606, the Company will monitor pending authorized returns of goods and, if deemed appropriate, record the right of return asset accordingly.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><i>Volume Rebates (Promotional Incentives) </i>- 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 revenue recognized would not be probable of a significant reversal, the four following factors are considered:</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 72px; text-align: justify; line-height: 107%"> </td>
<td style="width: 24px; text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">The amount of consideration is highly susceptible to factors outside the company’s influence.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">The uncertainty about the amount of consideration is not expected to be resolved for a long period of time.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">The Company’s experience with similar types of contracts is limited.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 107%"> </td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">The contract has a large number and broad range of possible consideration amounts.</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 1in; text-align: justify; text-indent: -0.25in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: 0.25in">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 products expected to be sold.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: 0.25in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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, 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.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Cash Equivalents</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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 US Treasury bills, notes and bonds, and/or
repurchase agreements, backed by such obligations. Carrying value approximates fair value. Cash and cash equivalents are deposited
at various area banks, which at times may exceed federally insured limits. The Company monitors the viability of the banking institutions
carrying its assets on a regular basis, and has the ability to transfer cash to various institutions during times of risk. The
Company has not experienced any losses related to these cash balances, and believes its credit risk to be minimal.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Accounts Receivable and Provision
for Doubtful Accounts</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Accounts receivable
are reduced by an allowance for amounts that may become uncollectible in the future. The estimated allowance for uncollectible
amounts is based primarily on specific analysis of accounts in the receivable portfolio and historical write-off experience. While
management believes the allowance to be adequate, if the financial condition of the Company’s customers were to deteriorate,
resulting in their inability to make payments, additional allowances may be required.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The allowance for
doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. The Company determines
the allowance based on any known collection issues, historical experience, and other currently available evidence. The reserve
for future credits, discounts, and doubtful accounts was $933,000 and $920,000 as of June 30, 2018 and December 31, 2017, respectively.
In regards to identifying uncollectible accounts, the Company reviews an aging report on a consistent basis to determine past
due accounts, and utilizes a well-established credit rating agency. The Company charges off those accounts that are deemed uncollectible
once all collection efforts have been exhausted.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Inventories</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Inventories are
valued at the lower of cost or market. The cost of inventories is determined by the first-in, first-out (FIFO) method. The Company
generally considers inventory quantities beyond two-years usage, measured on a historical usage basis, to be excess inventory
and reduces the carrying value of inventory accordingly.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Property and Equipment</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Property and equipment
are carried 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.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Goodwill</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">In accordance with
Financial Accounting Standards Board (FASB) ASC Topic 350, Intangibles – Goodwill and Other, the Company performed an annual
impairment test in accordance with this guidance as of December 31, 2017. This analysis did not indicate any impairment of goodwill.
There were no circumstances that indicate that Goodwill might be impaired at June 30, 2018.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Stock-Based Compensation Plans</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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. The Units follow a vesting schedule of three years from
the grant date, and are then paid upon maturity. In accordance with FASB ASC Topic 718, Stock Compensation, the Company uses the
Black-Scholes option pricing model as its method for determining the fair value of the Units. Further details of the Plan are
provided in Note 6.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Product Liability Reserves</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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 5, Commitments and Contingencies,
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 $1,000,000 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.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Fair Value of Financial and Nonfinancial
Instruments</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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 on its
actively traded share value – a Level 1 input – in determining the fair value of the reporting unit in its annual
impairment test as described in the FASB ASC Topic 350, Intangibles - Goodwill and Other.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Earnings per Common Share</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Currency Translation</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Assets and liabilities
denominated in foreign currencies, most of which relate to our foreign subsidiary whose functional currency is British pound sterling,
are translated into US dollars at exchange rates prevailing on the balance sheet dates. The statements of income are translated
into US 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 income (other expense) in the
period in which they occur.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Income Taxes</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Company accounts
for tax liabilities in accordance with the FASB ASC Topic 740, Income Taxes. Under this method the Company recorded tax expense,
related deferred taxes and tax benefits, and uncertainties in tax positions.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Company reflected
the effects of the Tax Cuts and Jobs Act (the “Act”), in its 2017 financial statements. This included the effects
of the change in the US corporate tax rate from 35% to 21% on deferred tax assets and liabilities, and a provision related to
previously deferred taxes on earnings of the Company’s foreign subsidiary. The Company’s tax expense for the period
ended June 30, 2018 includes the continuing effect of the reduction in the US corporate tax rate from 35% to 21%, effective for
the Company’s 2018 tax year. The Company’s tax provision also reflects other changes as a result of the Act, including
the impact of the Global Intangible Low Taxed Income (“GILTI”) provisions, and changes affecting the deductibility
of certain executive compensation.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Other Comprehensive Income</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">For the quarters
ended June 30, 2018 and 2017, respectively, the components of other comprehensive income consisted solely of foreign currency
translation adjustments.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Subsequent Events</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Company evaluates
all events or transactions through the date of the related filing that may have a material impact on its condensed consolidated
financial statements. Refer to Note 9 of the condensed consolidated financial statements.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Recent Accounting Pronouncements</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">In May 2014, the
FASB issued ASU 2014-09, <i>Revenue from Contracts with Customers (Topic 606)</i>, requiring an entity to recognize the amount
of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard
replaced most existing revenue recognition guidance in US GAAP once it became effective and permits the use of either a full retrospective
or retrospective with cumulative effect transition method. The updated standard became effective for the Company in the first quarter
of fiscal year 2018. The Company completed its review of its customer contracts and its analysis of the impact of the disclosure
requirements of ASU 2014-09 during 2017. The Company has adopted the revenue guidance effective January 1, 2018, using the modified
retrospective approach. The adoption of ASU 2014-09 did not have a material impact on the Company’s financial statements,
and is not expected to have any material impact on an ongoing basis. Although there is no material impact on the financial statements
our accounting policy for revenue recognition has been updated as described previously in Note 1 of the condensed consolidated
financial statements.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">In February 2016,
the FASB issued ASU 2016-02, <i>Leases (Topic 842)</i>. Under this ASU, lessees are required to recognize right-of-use assets
and lease liabilities for all leases not considered short-term leases. By definition, a short-term lease is one in which: (a)
the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably
certain to exercise. For short-term leases, lessees may elect an accounting policy by class of underlying asset under which right-of-use
assets and lease liabilities are not recognized and lease payments are generally recognized as expense over the lease term on
a straight-line basis. This change will result in lessees recognizing right-of-use assets and lease liabilities for most leases
currently accounted for as operating leases under the legacy lease accounting guidance. ASU 2016-02 is effective for interim and
annual periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating its population
of leases, and is continuing to assess all potential impacts of the standard, but currently believes the most significant impact
relates to its accounting for real estate operating leases. The Company anticipates recognition of additional assets and corresponding
liabilities related to leases upon adoption, but has not quantified these amounts at this time. The Company plans to adopt the
standard effective January 1, 2019.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Inventories, net
of reserves consisted of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 107%"> </td>
<td style="text-align: center; line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>June 30, 2018</b></font></td>
<td style="text-align: center; line-height: 107%"> </td>
<td style="text-align: center; line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2017</b></font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="6" style="text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(dollars in thousands)</b></font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 54%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Finished Goods</font></td>
<td style="width: 2%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">5,150</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 19%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">5,461</font></td>
<td style="width: 1%; line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Raw Materials</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">3,121</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">2,546</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Inventories-Net</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">8,271</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">8,007</font></td>
<td style="line-height: 107%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">The following table summarizes information
about the Company’s nonvested phantom stock Units at June 30, 2018:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Units</b></font></td>
<td style="text-align: center; line-height: 107%"> </td>
<td style="text-align: center; line-height: 107%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Weighted Average</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Grant Date Fair Value</b></p></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Number of Phantom Stock Unit Awards:</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"> </td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="width: 57%; padding-left: 10pt; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Nonvested at December 31, 2017</font></td>
<td style="width: 2%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 16%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">21,296</font></td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"> </td>
<td style="width: 1%; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">34.74</font></td>
<td style="width: 1%; line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 20pt; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Granted</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">6,450</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">53.04</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 20pt; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Vested</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">(9,558</font></td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">32.96</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 20pt; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Forfeited</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 20pt; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Canceled</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Nonvested at June 30, 2018</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">18,188</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">43.53</font></td>
<td style="line-height: 107%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">Phantom Stock Unit Awards Expected to Vest</font></td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">18,188</font></td>
<td style="line-height: 107%"> </td>
<td style="line-height: 107%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 107%"><font style="font: 10pt Times New Roman, Times, Serif">43.53</font></td>
<td style="line-height: 107%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
2018
10091822
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Significant Concentration</u></b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Company has
one significant customer who represents more than 10% of the Company’s Net Sales for the three and six months ended June
30, 2018 and 2017, and more than 10% of the Company’s Accounts Receivable balance at June 30, 2018 and December 31, 2017.
Geographically, the Company has a significant amount of sales in the United States versus internationally. These concentrations
are consistent with those discussed in detail in the Company’s December 31, 2017 Form 10-K.</p>
15000000
2022-12-01
The Company is also required to pay on a quarterly basis an unused facility fee of 10 basis points of the average unused balance of the note. The Company may terminate the line at any time during the five year term, as long as there are no amounts outstanding.
P5Y
On December 1, 2017, the Company agreed to a new Amended and Restated Revolving Line of Credit Note and Third Amendment to the Loan Agreement with Santander Bank, N.A. (the "Bank").
0.21
1000
3000
474000
496000
462000
484000
12000
12000
1316000
1281000
1600000
25000
1000000
0
1000000
3800000
160000
175000
through February of 2021
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.
18188
21296
6450
53.04
53.04
0.00
2036000
2238000
853000
776000
1183000
1462000
1077000
P1Y4M24D
18188
21296
6450
18188
43.53
34.74
32.96
43.53
61811
61811
0.85
0.22
0.22
0.22
0.22
0.24
8578000
2220000
491000
2220000
2220000
2422000
2220000
1000000
5000000
61811
932000
15
5000
147000
The Company reflected the effects of the Tax Cuts and Jobs Act (the "Act"), in its 2017 financial statements. This included the effects of the change in the US corporate tax rate from 35% to 21% on deferred tax assets and liabilities, and a provision related to previously deferred taxes on earnings of the Company's foreign subsidiary. The Company's tax expense for the period ended June 30, 2018 includes the continuing effect of the reduction in the US corporate tax rate from 35% to 21%, effective for the Company's 2018 tax year.
0.10
0.10
0.10
0.10
0.10
0.10
10091822
10091822
67000
65000
2000
15532000
15636000
8271000
8007000
963000
1895000
63270000
63476000
7463000
6998000
3526000
3526000
12000
12000
1332000
3079000
75603000
77091000
1454000
2598000
2466000
4851000
3177000
4284000
2422000
2220000
909000
568000
3474000
3583000
13902000
18104000
37000
209000
761000
1646000
1948000
15585000
21022000
102000
102000
1000
1000
10808000
10808000
49754000
45457000
-843000
-908000
59820000
55458000
198000
611000
75603000
77091000
20997000
19934000
10633000
9663000
31247000
29478000
16214000
14142000
8695000
8352000
4281000
4046000
8554000
8817000
4465000
4799000
2140000
1670000
1110000
862000
11858000
10639000
6358000
4435000
145000
49000
94000
25000
-40000
-22000
-76000
18000
11963000
10666000
6376000
4478000
2948000
3399000
1564000
1394000
76000
95000
36000
50000
8939000
7172000
4776000
3034000
0.89
0.71
0.47
0.30
10092000
10092000
10092000
10092000
0.46
0.22
0.46
0.22
67000
425000
-363000
290000
67000
425000
-363000
290000
9082000
7692000
4449000
3374000
78000
118000
15000
66000
9004000
7574000
4434000
3308000
5133000
2220000
4642000
491000
444000
468000
241000
230000
2000
-87000
-154000
66000
-172000
-486000
-52000
-79000
142000
1104000
-2683000
-556000
-1140000
-225000
-2380000
-2105000
1104000
265000
-1258000
-39000
6087000
4355000
708000
2862000
-708000
-2862000
4931000
8578000
-4931000
-8578000
448000
-7085000
118000
335000
35318000
38504000
37938000
28568000
3517000
4457000
The loan is unsecured. The loan agreement provides for the payment of any borrowings under the agreement at an interest rate range of either LIBOR plus 0.75% to plus 1.75% (for borrowings with a fixed term of 30, 60, or 90 days), or, Prime Rate up to Prime Rate plus 0.50% (for borrowings with no fixed term other than the December 1, 2022 maturity date), depending upon the Company's then existing financial ratios. Currently, the Company's ratio would allow for the most favorable rate under the agreement's range, which would be a rate of 3.09%.
The Units follow a vesting schedule, with a maximum vesting of three years after the grant date. Upon vesting, the Units represent a contractual right of payment for the value of the Unit.
9558
52244000
49412000
26847000
23805000
1000000
444000
468000