10-Q
2012-09-30
false
Omega Flex, Inc.
0001317945
--12-31
Smaller Reporting Company
No
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2012
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<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;line-height:200%;text-autospace:ideograph-numeric ideograph-other'><b>1.  BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b>      <u>Basis of Presentation</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-autospace:ideograph-numeric ideograph-other'>            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 periods ended September 30, 2012 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='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-autospace:ideograph-numeric ideograph-other'>      <b><u>Description of Business</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b>            </b>The Company is a leading manufacturer of flexible metal hose, which is used in a variety of applications to carry gases and liquids within their particular applications.  These applications include carrying liquefied gases in certain processing applications, fuel gases within residential and commercial buildings and vibration absorbers in high vibration applications.  In addition, our flexible metal piping is used to carry other types of gases or fluids in a number of industrial applications where the customer requires a degree of flexibility, an ability to carry corrosive compounds or mixtures, a double containment system, or piping to carry gases or fluids at very high or very low (cryogenic) temperatures.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            The Company manufactures flexible metal hose at its facility in Exton, Pennsylvania, with a minor amount of manufacturing performed in the United Kingdom.  The Company sells its product through distributors, wholesalers and to original equipment manufacturers (“OEMs”) throughout North America, and in certain European markets.</p>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-autospace:ideograph-numeric ideograph-other'><b>2. SIGNIFICANT ACCOUNTING POLICIES</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Use of Estimates</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            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 at 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 valuations, inventory valuations, goodwill valuation, product liability reserve and accounting for income taxes.  Actual amounts could differ significantly from these estimates.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Revenue Recognition</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            The Company’s revenue recognition activities relate almost entirely to the manufacture and sale of flexible metal hose and pipe.  Under GAAP, revenues are considered to have been earned when the Company has substantially accomplished what it must do to be entitled to the benefits represented by the revenues.  The following criteria represent preconditions to the recognition of revenue:</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:20.4pt'><font style='font-family:Symbol'>·</font>    Persuasive evidence of an arrangement for the sale of product or services must exist.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:20.4pt'><font style='font-family:Symbol'>·</font><font style='font-family:Symbol'>    </font>Delivery has occurred or services rendered.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:20.4pt'><font style='font-family:Symbol'>·</font>    The sales price to the customer is fixed or determinable.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:20.4pt'><font style='font-family:Symbol'>·</font><font style='font-family:Symbol'>    </font>Collection is reasonably assured.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>      The Company recognizes revenue upon shipment in accordance with the above principles.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            Gross sales are reduced for all consideration paid to customers for which no identifiable benefit is received by the Company.  This includes promotional incentives, which includes various programs including year-end rebates and discounts.  The amounts of certain incentives are known with reasonable certainty at the time of sale, while others are projected based upon the most reliable information available at the reporting date.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            Commissions, for which the Company receives an identifiable benefit, are accounted for as a sales expense.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Accounts Receivable</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            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</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> Company’s customers were to deteriorate, resulting in their inability to make payments, additional allowances may be required.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Inventory</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            Inventories are valued at the lower of cost or market.  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 gross carrying value of inventory accordingly.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Goodwill and Intangible Assets</u></b></p> <p align="left" style='margin:0in;margin-bottom:.0001pt;text-align:justify;punctuation-wrap:simple;text-autospace:none;text-align:left'>        In accordance with FASB ASC Topic 350 Intangibles – Goodwill, the Company performed an annual impairment test in accordance with this guidance as of December 31, 2011.  This analysis did not indicate any impairment of goodwill.  There are no circumstances that indicate that Goodwill might be impaired at September 30, 2012.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Product Liability Reserves</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            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 Contingencies, for various product liability claims covered under the Company’s general liability insurance policies, the Company must pay certain defense costs within its deductible or self-insured retention limits, ranging from $25,000 to $250,000 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:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Fair Value of Financial and Nonfinancial Instruments</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            The Company measures financial instruments in accordance with Financial Accounting Standards Board (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 Goodwill and Intangibles.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Earnings per Common Share</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            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:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Currency Translation</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at exchange rates prevailing on the balance sheet dates.  The statements of income are translated into U.S. dollars at average exchange rates for the period.  Adjustments resulting from the translation of financial statements are excluded from the determination of income and are accumulated in a separate component of shareholders’ equity.  Exchange gains and losses resulting from foreign currency transactions are included in operations (other income (expense)) in the period in which they occur.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Income Taxes</u></b></p> <p align="left" style='margin:0in;margin-bottom:.0001pt;text-align:justify;punctuation-wrap:simple;text-autospace:none;text-align:left;text-indent:.5in'>The Company accounts for taxes in accordance with the FASB ASC Topic 740 Income Taxes.  Under this method the Company records income tax expense and the related deferred taxes and tax benefits.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            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 in which the rate is enacted.  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.  No valuation allowance was deemed necessary at September 30, 2012 or at December 31, 2011.  Also, in accordance with FASB ASC Topic 740 (formerly FIN 48); the Company had reserves on the books for uncertainties in tax positions of $118,000 at September 30, 2012, and $135,000 at December 31, 2011.  These reserves are reviewed each quarter.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Other Comprehensive Income (Loss)</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            For the three and nine-months ended September 30, 2012 and 2011, respectively, the sole component of Other Comprehensive Income (Loss) was a foreign currency translation adjustment.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>New Accounting Pronouncements</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'>Accounting Standards Update (ASU) 2011-08, <i>Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment</i>.  In September 2011, the FASB issued guidance to amend and simplify the rules related to testing goodwill for impairment. The revised guidance allows an entity to make an initial qualitative evaluation, based on the entity’s events and circumstances, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The results of this qualitative assessment determine whether it is necessary to perform the currently required two-step impairment test. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Management is currently evaluating the impact on the consolidated financial statements as a result of potentially adopting this guidance, but does believe it will have any material impact.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in;line-height:12.0pt'>ASU 2011-05, <i>Comprehensive Income (Topic 220): Presentation of Comprehensive Income</i>.  In June 2011, the FASB issued new accounting guidance related to the presentation of comprehensive income that eliminates the option to present components of other comprehensive income as part of the statement of changes in shareholders' equity. The amendments require that all non-owner changes in shareholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted.  The Company adopted this guidance in the quarter ended March 31, 2012. The adoption of this guidance did not have any impact on the Company's financial position, results of operations or cash flows and only impacted the presentation of other comprehensive income in the financial statements.</p>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b>3. INVENTORIES</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b>            </b>Inventories, net of reserves consisted of the following:</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> <table border="0" cellspacing="0" cellpadding="0" width="622" style='width:466.25pt;border-collapse:collapse'> <tr align="left"> <td width="355" valign="top" style='width:3.7in;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="120" valign="top" style='width:1.25in;padding:0in 5.4pt 0in 5.4pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:center'><b>September 30,</b></p> </td> <td width="36" valign="top" style='width:27.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="110" valign="top" style='width:82.85pt;padding:0in 5.4pt 0in 5.4pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:center'><b>December 31,</b></p> </td> </tr> <tr align="left"> <td width="355" valign="top" style='width:3.7in;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="120" valign="top" style='width:1.25in;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:center'><b>2012</b></p> </td> <td width="36" valign="top" style='width:27.0pt;padding:0in 5.4pt 0in 5.4pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:center'> </p> </td> <td width="110" valign="top" style='width:82.85pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:center'><b>2011</b></p> </td> </tr> <tr align="left"> <td width="355" valign="top" style='width:3.7in;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="266" colspan="3" valign="top" style='width:199.85pt;padding:0in 5.4pt 0in 5.4pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:22.45pt;text-align:center'><b>(dollars in thousands)</b></p> </td> </tr> <tr align="left"> <td width="355" valign="top" style='width:3.7in;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="120" valign="top" style='width:1.25in;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="36" valign="top" style='width:27.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="110" valign="top" style='width:82.85pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> </tr> <tr align="left"> <td width="355" valign="top" style='width:3.7in;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:58.5pt'>Finished Goods</p> </td> <td width="120" valign="top" style='width:1.25in;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>   $                4,854</p> </td> <td width="36" valign="top" style='width:27.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="110" valign="top" style='width:82.85pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>   $             4,824</p> </td> </tr> <tr align="left"> <td width="355" valign="top" style='width:3.7in;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:58.5pt'>Raw Materials</p> </td> <td width="120" valign="top" style='width:1.25in;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>                      1,571</p> </td> <td width="36" valign="top" style='width:27.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="110" valign="top" style='width:82.85pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>                   1,641</p> </td> </tr> <tr align="left"> <td width="355" valign="top" style='width:3.7in;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="120" valign="top" style='width:1.25in;border:none;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="36" valign="top" style='width:27.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="110" valign="top" style='width:82.85pt;border:none;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> </tr> <tr align="left"> <td width="355" valign="top" style='width:3.7in;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:58.5pt'>Total Inventory</p> </td> <td width="120" valign="top" style='width:1.25in;border:none;border-bottom:double windowtext 1.5pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>   $                6,425</p> </td> <td width="36" valign="top" style='width:27.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="110" valign="top" style='width:82.85pt;border:none;border-bottom:double windowtext 1.5pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>   $             6,465</p> </td> </tr> </table>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b>4. LINE OF CREDIT</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'>On December 30, 2010, the Company agreed to a new Revolving Line of Credit Note and Loan Agreement with Sovereign Bank, NA (“Sovereign”).  The Company established a line of credit facility in the maximum amount of $10,000,000, maturing on December 31, 2014, with funds available for working capital purposes and other cash needs.  The loan is collateralized by all of the Company’s tangible and intangible assets.  The loan agreement provides for the payment of any borrowings under the agreement at an interest rate range of either LIBOR plus 1.75% to plus 2.75% (for borrowings with a fixed term of 30, 60, or 90 days), or, Prime less 0.50% to plus 0.50% (for borrowings with no fixed term other than the December 31, 2014 maturity date), depending upon the Company’s then existing financial ratios.  At September 30, 2012, the Company’s ratio would allow for the most favorable rate under the agreement’s range, which would be a rate of 2.07% (LIBOR plus 1.75%).  The Company is required to pay an annual commitment fee for the access to the funds, and is also obligated to pay a “Line Fee” ranging from 17.5 to 35.0 basis points of the average unused balance on a quarterly basis, depending again upon the Company’s then existing financial ratios.  The Company may terminate the line at any time during the four year term, as long as there are no amounts outstanding.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'>As of September 30, 2012, and December 31, 2011, the Company had no outstanding borrowings on its line of credit.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'>As of September 30, 2012 and December 31, 2011, the Company was in compliance with all debt covenants.</p>
<!--egx--><p><font style='text-decoration:none;text-underline:none'>5. COMMITMENTS AND CONTINGENCIES</font></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Commitments:</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.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 of the Company’s obligations under the indemnity agreements.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:4.5pt'>           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 at age 65.  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 $486,000 at September 30, 2012, of which $474,000 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, 2011 liability of $468,000, had $456,000 reported in Other Long Term Liabilities, and a current portion of $12,000 in Other Liabilities. The increase in the liability was largely related to the time value of money, and the related decrease in the discount rate used to compute the liability.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.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 $828,000 at September 30, 2012 and $756,000 at December 31, 2011.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Contingencies:</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'>The Company’s general liability insurance policies are subject to deductibles or retentions, ranging from $25,000 to $250,000 per claim, (depending on the terms of the policy and the applicable policy year) up to an aggregate amount.  The Company is insured on a ‘first dollar’ basis for workers’ compensation subject to statutory limits.  </p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'>In the ordinary and normal conduct of the Company’s business, it is subject to periodic lawsuits, investigations and claims (collectively, the “Claims”).  There has been an increase in the frequency of those Claims over the past two years relating to product liability.  The Company does not believe that the Claims have legal merit, and is therefore vigorously defending against those Claims.  The Company has in place commercial general liability insurance policies that cover the Claims, as noted above, including those alleging damages as a result of product defects.  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 $250,000, depending upon the insurance deductible in place for the respective claim year, and the aggregate maximum exposure for all current open claims is estimated to not exceed $3,700,000.  It is possible that the results of operations or liquidity and capital resources of the Company could be adversely affected by the ultimate outcome of the pending litigation as a result of the costs of contesting such lawsuits, potentially materially. Again, the Company is currently unable to estimate the ultimate liability, if any, that may result from the pending litigation and, accordingly, the liability in the consolidated financial statements represents an accrual for legal costs for services previously rendered and settlements for existing claims. The liabilities recorded on the Company’s books at September 30, 2012 and December 31, 2011 were $598,000 and $414,000, respectively, and are included in Other Liabilities.  </p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'>In 2007, the Company instituted a legal complaint against a former insurer, seeking reimbursement of amounts paid in defense of a class action litigation, as well as supplementary payments made in connection with the class action.  In March of 2012, the Company and the insurer settled the litigation for $4,700,000, with receipt of the cash occurring during that same month.  For clarity regarding this item, it is defined as the “Insurance Legal Recovery” on the accompanying condensed consolidated statement of income for the nine-months ended September 30, 2012.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'>In February of 2012, the Company was made aware of a fraud perpetrated by an outside party involving insurance related premiums that the Company had prepaid for umbrella coverage. The assets are currently secured by a governmental agency who is investigating the case, and being held in a custodial account.  The value of the assets amount to $333,000 at September 30, 2012, and are included in Other Long Term Assets.  It is possible that not all of those funds will be returned to the Company, or the Company may need to incur additional costs to procure collection, but the outcome is currently not known or able to be estimated.  The Company is currently pursing all avenues in an effort to bring closure to the event, reclaim the assets, and has since replaced the aforementioned insurance coverage.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Warranty Commitments:</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            Gas transmission products such as those made by the Company carry potentially serious personal injury risks in the event of failures in the field.  As a result, the Company performs extensive internal testing and other quality control procedures.  Historically, due to the extensive nature of these quality controls the Company has not had a meaningful warranty claim rate, and the warranty expense is <i>de minimis. </i><i>A</i>ccordingly, the Company does not maintain a warranty reserve beyond a nominal amount.</p>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b>6. STOCK BASED PLANS</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b>Phantom Stock Plan</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b>            </b><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 and of any of its subsidiaries.  The phantom stock units ("Units") each represent a contractual right to payment of compensation in the future based on the market value of the Company’s common stock.  The Units are not shares of the Company’s common stock, and a recipient of the Units <u>does not</u> receive any of the following:</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:.5in'>•   ownership interest in the Company</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:.5in'>•   shareholder voting rights</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:.5in'>•   other incidents of ownership to the Company’s common stock</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.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 3 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='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.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='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.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='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.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='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'><b><i>Grants of Phantom Stock Units.  </i></b>As of December 31, 2011, the Company had 16,381 unvested units outstanding, all of which were granted at <i>Full Value</i>.  On February 16, 2012, the Company granted an additional 8,690 <i>Full Value</i> Units with a fair value of $14.44 per unit on grant date, using historical volatility. In all cases, the grant price was equal to the closing price of the Company’s common stock at the grant date. In March 2012, the Company paid $77,000 for the 5,076 fully vested and matured units that were granted on March 6, 2008.  As of September 30, 2012, the Company had 16,790 unvested units outstanding.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.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='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.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='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.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 September 30, 2012. </p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'>The total Phantom Stock related liability as of September 30, 2012 was $230,000 of which $107,000 is included in other liabilities, as it is expected to be paid in March 2013, and the balance of $123,000 is included in other long term liabilities.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'>In accordance with FASB ASC Topic 718 Stock Compensation, the Company recorded compensation expense of approximately $9,000 and $28,000 related to the Phantom Stock Plan for each of the nine month periods ended September 30, 2012 and 2011 respectively.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'>The following table summarizes information about the Company’s nonvested phantom stock Units at September 30, 2012:</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'> </p> <div align="center"> <table border="0" cellspacing="0" cellpadding="0" style='margin-left:40.2pt;border-collapse:collapse'> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="147" valign="bottom" style='width:110.0pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:center'><b>Units</b></p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:center'><b>Weighted Average Grant Date Fair Value</b></p> </td> </tr> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="147" valign="bottom" style='width:110.0pt;border:none;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;border:none;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> </tr> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>Number of Phantom Stock Unit Awards:</p> </td> <td width="147" valign="bottom" style='width:110.0pt;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> </tr> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> Nonvested at December 31, 2011</p> </td> <td width="147" valign="bottom" style='width:110.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>              16,381 </p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>  $               10.38 </p> </td> </tr> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:8.4pt;text-indent:-8.4pt'> Granted</p> </td> <td width="147" valign="bottom" style='width:110.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>                8,690 </p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>  $               14.44 </p> </td> </tr> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> Vested</p> </td> <td width="147" valign="bottom" style='width:110.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>              (8,281)</p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>  $               11.07 </p> </td> </tr> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> Forfeited</p> </td> <td width="147" valign="bottom" style='width:110.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>                   (---)</p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>                       (---)</p> </td> </tr> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> Canceled</p> </td> <td width="147" valign="bottom" style='width:110.0pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>                   (---)</p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>                       (---)</p> </td> </tr> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="147" valign="bottom" style='width:110.0pt;border:none;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;border:none;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> </tr> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>Nonvested at September 30, 2012</p> </td> <td width="147" valign="bottom" style='width:110.0pt;border:none;border-bottom:double windowtext 1.5pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>              16,790 </p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;border:none;border-bottom:double windowtext 1.5pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>  $               12.14 </p> </td> </tr> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="147" valign="bottom" style='width:110.0pt;border:none;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;border:none;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> </tr> <tr style='height:12.6pt'> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt;height:12.6pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>Phantom Stock Unit Awards Expected to Vest</p> </td> <td width="147" valign="bottom" style='width:110.0pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.6pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>              16,790 </p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt;height:12.6pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.6pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>  $               12.14 </p> </td> </tr> </table> </div> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> The total unrecognized compensation costs calculated at September 30, 2012 were $107,000 which will be recognized through March of 2015.  The Company will recognize the related expense over the weighted average period of 1.44 years.</p>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b>7.  NONCONTROLLING INTERESTS</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'>The Company owns 100% of all subsidiaries, except for its UK subsidiary Omega Flex, Limited, of which it owns 95%.  A noncontrolling interest owns the other 5%, and held a value of $113,000 at December 31, 2011.  The total equity of the Company including the non-controlling interest was $22,917,000 at December 31, 2011. </p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'>For the nine months ended September 30, 2012, the operations of Omega Flex, Limited generated loss of $3,000.  The noncontrolling interest’s portion of the loss was therefore nominal.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'>The noncontrolling interest must also recognize its share of any currency translation adjustment, since the subsidiary’s functional currency is British Pounds, and the local books are translated into US Dollars for consolidation purposes.  The noncontrolling interest’s share of foreign currency translation income was $5,000 as of September 30, 2012.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'>At September 30, 2012, after considering the income and foreign currency translation components described above, the balance of the noncontrolling interest was $118,000.</p>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b>8. SHAREHOLDERS’ EQUITY</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'>As of September 30, 2012 and December 31, 2011, the Company had authorized 20,000,000 common stock shares with par value of $0.01 per share.  At both 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='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'>On April 4, 2012, 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 of 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 did not make any stock repurchases during the first nine months of 2012, or during the year ended December 31, 2011.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'>In connection with the aforementioned share buyback program, on December 15, 2009 the Company entered into an amendment of its Rule 10b5-1 Repurchase Plan (the “Plan”) dated December 15, 2008 with Hunter Associates, Inc. (“Hunter”), by which Hunter will continue to implement the share buyback program by purchasing shares of the Company’s common stock in accordance with the terms of the Plan and within the safe harbor afforded by Rule 10b5-1.</p>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b>9.         SUBSEQUENT EVENTS</b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.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>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Use of Estimates</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            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 at 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 valuations, inventory valuations, goodwill valuation, product liability reserve and accounting for income taxes.  Actual amounts could differ significantly from these estimates.</p>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Revenue Recognition</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            The Company’s revenue recognition activities relate almost entirely to the manufacture and sale of flexible metal hose and pipe.  Under GAAP, revenues are considered to have been earned when the Company has substantially accomplished what it must do to be entitled to the benefits represented by the revenues.  The following criteria represent preconditions to the recognition of revenue:</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:20.4pt'><font style='font-family:Symbol'>·</font>    Persuasive evidence of an arrangement for the sale of product or services must exist.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:20.4pt'><font style='font-family:Symbol'>·</font><font style='font-family:Symbol'>    </font>Delivery has occurred or services rendered.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:20.4pt'><font style='font-family:Symbol'>·</font>    The sales price to the customer is fixed or determinable.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:20.4pt'><font style='font-family:Symbol'>·</font><font style='font-family:Symbol'>    </font>Collection is reasonably assured.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>      The Company recognizes revenue upon shipment in accordance with the above principles.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            Gross sales are reduced for all consideration paid to customers for which no identifiable benefit is received by the Company.  This includes promotional incentives, which includes various programs including year-end rebates and discounts.  The amounts of certain incentives are known with reasonable certainty at the time of sale, while others are projected based upon the most reliable information available at the reporting date.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            Commissions, for which the Company receives an identifiable benefit, are accounted for as a sales expense.</p>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Accounts Receivable</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            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</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> Company’s customers were to deteriorate, resulting in their inability to make payments, additional allowances may be required.</p>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Inventory</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            Inventories are valued at the lower of cost or market.  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 gross carrying value of inventory accordingly.</p>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Goodwill and Intangible Assets</u></b></p> <p align="left" style='margin:0in;margin-bottom:.0001pt;text-align:justify;punctuation-wrap:simple;text-autospace:none;text-align:left'>        In accordance with FASB ASC Topic 350 Intangibles – Goodwill, the Company performed an annual impairment test in accordance with this guidance as of December 31, 2011.  This analysis did not indicate any impairment of goodwill.  There are no circumstances that indicate that Goodwill might be impaired at September 30, 2012.</p>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Product Liability Reserves</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            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 Contingencies, for various product liability claims covered under the Company’s general liability insurance policies, the Company must pay certain defense costs within its deductible or self-insured retention limits, ranging from $25,000 to $250,000 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>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Fair Value of Financial and Nonfinancial Instruments</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            The Company measures financial instruments in accordance with Financial Accounting Standards Board (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 Goodwill and Intangibles.</p>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Earnings per Common Share</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            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>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Currency Translation</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at exchange rates prevailing on the balance sheet dates.  The statements of income are translated into U.S. dollars at average exchange rates for the period.  Adjustments resulting from the translation of financial statements are excluded from the determination of income and are accumulated in a separate component of shareholders’ equity.  Exchange gains and losses resulting from foreign currency transactions are included in operations (other income (expense)) in the period in which they occur.</p>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Income Taxes</u></b></p> <p align="left" style='margin:0in;margin-bottom:.0001pt;text-align:justify;punctuation-wrap:simple;text-autospace:none;text-align:left;text-indent:.5in'>The Company accounts for taxes in accordance with the FASB ASC Topic 740 Income Taxes.  Under this method the Company records income tax expense and the related deferred taxes and tax benefits.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            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 in which the rate is enacted.  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.  No valuation allowance was deemed necessary at September 30, 2012 or at December 31, 2011.  Also, in accordance with FASB ASC Topic 740 (formerly FIN 48); the Company had reserves on the books for uncertainties in tax positions of $118,000 at September 30, 2012, and $135,000 at December 31, 2011.  These reserves are reviewed each quarter.</p>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>Other Comprehensive Income (Loss)</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>            For the three and nine-months ended September 30, 2012 and 2011, respectively, the sole component of Other Comprehensive Income (Loss) was a foreign currency translation adjustment.</p>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'><b><u>New Accounting Pronouncements</u></b></p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'>Accounting Standards Update (ASU) 2011-08, <i>Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment</i>.  In September 2011, the FASB issued guidance to amend and simplify the rules related to testing goodwill for impairment. The revised guidance allows an entity to make an initial qualitative evaluation, based on the entity’s events and circumstances, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The results of this qualitative assessment determine whether it is necessary to perform the currently required two-step impairment test. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Management is currently evaluating the impact on the consolidated financial statements as a result of potentially adopting this guidance, but does believe it will have any material impact.</p> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in;line-height:12.0pt'>ASU 2011-05, <i>Comprehensive Income (Topic 220): Presentation of Comprehensive Income</i>.  In June 2011, the FASB issued new accounting guidance related to the presentation of comprehensive income that eliminates the option to present components of other comprehensive income as part of the statement of changes in shareholders' equity. The amendments require that all non-owner changes in shareholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted.  The Company adopted this guidance in the quarter ended March 31, 2012. The adoption of this guidance did not have any impact on the Company's financial position, results of operations or cash flows and only impacted the presentation of other comprehensive income in the financial statements.</p>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> <table border="0" cellspacing="0" cellpadding="0" width="622" style='width:466.25pt;border-collapse:collapse'> <tr align="left"> <td width="355" valign="top" style='width:3.7in;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="120" valign="top" style='width:1.25in;padding:0in 5.4pt 0in 5.4pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:center'><b>September 30,</b></p> </td> <td width="36" valign="top" style='width:27.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="110" valign="top" style='width:82.85pt;padding:0in 5.4pt 0in 5.4pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:center'><b>December 31,</b></p> </td> </tr> <tr align="left"> <td width="355" valign="top" style='width:3.7in;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="120" valign="top" style='width:1.25in;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:center'><b>2012</b></p> </td> <td width="36" valign="top" style='width:27.0pt;padding:0in 5.4pt 0in 5.4pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:center'> </p> </td> <td width="110" valign="top" style='width:82.85pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:center'><b>2011</b></p> </td> </tr> <tr align="left"> <td width="355" valign="top" style='width:3.7in;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="266" colspan="3" valign="top" style='width:199.85pt;padding:0in 5.4pt 0in 5.4pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:22.45pt;text-align:center'><b>(dollars in thousands)</b></p> </td> </tr> <tr align="left"> <td width="355" valign="top" style='width:3.7in;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="120" valign="top" style='width:1.25in;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="36" valign="top" style='width:27.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="110" valign="top" style='width:82.85pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> </tr> <tr align="left"> <td width="355" valign="top" style='width:3.7in;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:58.5pt'>Finished Goods</p> </td> <td width="120" valign="top" style='width:1.25in;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>   $                4,854</p> </td> <td width="36" valign="top" style='width:27.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="110" valign="top" style='width:82.85pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>   $             4,824</p> </td> </tr> <tr align="left"> <td width="355" valign="top" style='width:3.7in;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:58.5pt'>Raw Materials</p> </td> <td width="120" valign="top" style='width:1.25in;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>                      1,571</p> </td> <td width="36" valign="top" style='width:27.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="110" valign="top" style='width:82.85pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>                   1,641</p> </td> </tr> <tr align="left"> <td width="355" valign="top" style='width:3.7in;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="120" valign="top" style='width:1.25in;border:none;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="36" valign="top" style='width:27.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="110" valign="top" style='width:82.85pt;border:none;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> </tr> <tr align="left"> <td width="355" valign="top" style='width:3.7in;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:58.5pt'>Total Inventory</p> </td> <td width="120" valign="top" style='width:1.25in;border:none;border-bottom:double windowtext 1.5pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>   $                6,425</p> </td> <td width="36" valign="top" style='width:27.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="110" valign="top" style='width:82.85pt;border:none;border-bottom:double windowtext 1.5pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>   $             6,465</p> </td> </tr> </table>
<!--egx--><p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-indent:.5in'> </p> <div align="center"> <table border="0" cellspacing="0" cellpadding="0" style='margin-left:40.2pt;border-collapse:collapse'> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="147" valign="bottom" style='width:110.0pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:center'><b>Units</b></p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p align="center" style='margin:0in;margin-bottom:.0001pt;text-autospace:none;text-align:center'><b>Weighted Average Grant Date Fair Value</b></p> </td> </tr> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="147" valign="bottom" style='width:110.0pt;border:none;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;border:none;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> </tr> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>Number of Phantom Stock Unit Awards:</p> </td> <td width="147" valign="bottom" style='width:110.0pt;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;border:none;border-top:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> </tr> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> Nonvested at December 31, 2011</p> </td> <td width="147" valign="bottom" style='width:110.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>              16,381 </p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>  $               10.38 </p> </td> </tr> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none;margin-left:8.4pt;text-indent:-8.4pt'> Granted</p> </td> <td width="147" valign="bottom" style='width:110.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>                8,690 </p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>  $               14.44 </p> </td> </tr> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> Vested</p> </td> <td width="147" valign="bottom" style='width:110.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>              (8,281)</p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>  $               11.07 </p> </td> </tr> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> Forfeited</p> </td> <td width="147" valign="bottom" style='width:110.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>                   (---)</p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>                       (---)</p> </td> </tr> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> Canceled</p> </td> <td width="147" valign="bottom" style='width:110.0pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>                   (---)</p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>                       (---)</p> </td> </tr> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="147" valign="bottom" style='width:110.0pt;border:none;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;border:none;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> </tr> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>Nonvested at September 30, 2012</p> </td> <td width="147" valign="bottom" style='width:110.0pt;border:none;border-bottom:double windowtext 1.5pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>              16,790 </p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;border:none;border-bottom:double windowtext 1.5pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>  $               12.14 </p> </td> </tr> <tr align="left"> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="147" valign="bottom" style='width:110.0pt;border:none;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;border:none;padding:0in 5.4pt 0in 5.4pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> </tr> <tr style='height:12.6pt'> <td width="768" valign="bottom" style='width:575.95pt;padding:0in 5.4pt 0in 5.4pt;height:12.6pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>Phantom Stock Unit Awards Expected to Vest</p> </td> <td width="147" valign="bottom" style='width:110.0pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.6pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>              16,790 </p> </td> <td width="15" valign="top" style='width:11.1pt;padding:0in 5.4pt 0in 5.4pt;height:12.6pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'> </p> </td> <td width="143" valign="bottom" style='width:107.3pt;border:none;border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.6pt'> <p style='margin:0in;margin-bottom:.0001pt;text-autospace:none'>  $               12.14 </p> </td> </tr> </table> </div>
118000
135000
4854000
4824000
1571000
1641000
6425000
6465000
On December 30, 2010, the Company agreed to a new Revolving Line of Credit Note and Loan Agreement with Sovereign Bank, NA (“Sovereign”). The Company established a line of credit facility in the maximum amount of $10,000,000, maturing on December 31, 2014, with funds available for working capital purposes and other cash needs.
10000000
The loan is collateralized by all of the Company’s tangible and intangible assets.
The loan agreement provides for the payment of any borrowings under the agreement at an interest rate range of either LIBOR plus 1.75% to plus 2.75% (for borrowings with a fixed term of 30, 60, or 90 days), or, Prime less 0.50% to plus 0.50% (for borrowings with no fixed term other than the December 31, 2014 maturity date), depending upon the Company’s then existing financial ratios. At September 30, 2012, the Company’s ratio would allow for the most favorable rate under the agreement’s range, which would be a rate of 2.07% (LIBOR plus 1.75%).
The Company is required to pay an annual commitment fee for the access to the funds, and is also obligated to pay a “Line Fee” ranging from 17.5 to 35.0 basis points of the average unused balance on a quarterly basis, depending again upon the Company’s then existing financial ratios.
0000
0000
As of September 30, 2012 and December 31, 2011, the Company was in compliance with all debt covenants.
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 of the Company’s obligations under the indemnity agreements.
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 at age 65. 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.
486000
474000
12000
468000
456000
12000
828000
756000
25000
250000
3700000
598000
414000
4700000
Insurance Legal Recovery
-333000
Other Long Term Assets
0000
Plan Description. On April 1, 2006, the Company adopted the Omega Flex, Inc. 2006 Phantom Stock Plan (the “Plan”). The Plan authorizes the grant of up to one million units of phantom stock to employees, officers or directors of the Company and of any of its subsidiaries. The phantom stock units ('Units') each represent a contractual right to payment of compensation in the future based on the market value of the Company’s common stock. The Units are not shares of the Company’s common stock
1000000
The phantom stock units ('Units') each represent a contractual right to payment of compensation in the future based on the market value of the Company's common stock. The Units are not shares of the Company's common stock, and a recipient of the Units does not receive any of the following: (a) ownership interest in the Company, (b) shareholder voting rights, and (c) other incidents of ownership to the Company's common stock. 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, and at a minimum, the Unit's value will be equal to the closing price of the Company's common stock on the grant date. The Units follow a vesting schedule, with a maximum vesting of 3 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.
The Units follow a vesting schedule, with a maximum vesting of 3 years after the grant date. Upon vesting, the Units represent a contractual right of payment for the value of the Unit.
16381
8690
14.44
77000
5076
16790
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.
230000
107000
123000
9000
28000
16381
10.38
8690
14.44
8281
-11.07
0
0
16790
12.14
-16790
107000
1.44
113000
22917000
-5000
118000
20000000
20000000
0.01
0.01
10153633
10153633
10091822
10091822
61811
61811
1000000
0
0
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iso4217:USD
shares
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shares
pure
less allowances of $677
less allowances of $624