Omega Flex, Inc.

OMEGA FLEX, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND CONSOLIDATION

Basis of Presentation

The accompanying Consolidated Financial Statements include the accounts of Omega Flex, Inc. and its subsidiaries (collectively the “Company”). The Company’s audited Consolidated Financial Statements for the years ended December 31, 2025 and 2024 have been prepared in accordance with accounting standards set by the Financial Accounting Standards Board (FASB) and Article 5 of Regulation S-X. All material intercompany accounts and transactions have been eliminated in consolidation.

Description of Business

The Company is a leading manufacturer of flexible metal hose, which is used in a variety of applications to carry gases and liquids within their particular applications. The Company’s business is controlled as a single operating segment that consists of the manufacture and sale of flexible metal hose and accessories. These applications include carrying fuel gases within residential and commercial buildings; gasoline and diesel gasoline products (both above and below the ground) in a double containment piping to contain any possible leaks, which is used in automotive and marina refueling, and fueling for back-up generation; and medical gases in health care facilities. The Company’s flexible metal piping is also used to carry other types of gases and fluids in a number of industrial applications where the customer requires the piping to have both a degree of flexibility and/or an ability to carry corrosive compounds or mixtures, or to carry at both very high and very low (cryogenic) temperatures.

The Company manufactures flexible metal hose at its facilities in Exton, Pennsylvania and Houston, Texas, in the U.S., and in Banbury, Oxfordshire in the U.K., and sells its products through distributors, wholesalers and to OEMs throughout North America, and in certain European markets.

2. SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management develops, and changes periodically, these estimates and assumptions based on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual amounts could differ significantly from these estimates.

Revenue Recognition

The Company applies the requirements of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606,Revenue from Contracts with Customers(“Topic 606”). The standard requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services.

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

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It is important to note that the indicators are not a set of conditions that must be met before the Company can conclude that control of the goods has transferred to the customer. The indicators are a list of factors that are often present if a customer has control of the goods.

The Company has typical, unmodified FOB shipping point terms. As the seller, the Company can determine that the shipped goods meet the agreed-upon specifications in the contract or customer purchase order (e.g., items, quantities, and prices) with the buyer, so customer acceptance would be deemed a formality, as noted in ASC 606-10-55-86. As a result, the Company has a legal right to payment upon shipment of the goods.

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

Other considerations of Topic 606 include the following:

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If it was concluded that the above factors were in place for the Company, it would support the probability of a significant reversal of revenue. However, as none of the four factors apply to the Company, promotional incentives are recorded as a reduction of revenue based upon estimates of the eligible products expected to be sold.

Accounts receivable, net of allowances, was $15,361,000 as of January 1, 2024.

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 in this Note 2, Significant Accounting Policies, in these Consolidated Financial Statements, under the caption “Significant Concentrations”, the majority of the Company’s sales were geographically contained within North America, with the remainder scattered internationally. All performance assessments and resource allocations are generally based upon the review of the results of the Company as a whole.

Cash Equivalents

The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash equivalents include investments in an institutional money market fund, which invests in U.S. Treasury bills, notes, and bonds, and/or repurchase agreements, backed by such obligations, and in U.S. Treasury bills and certificates of deposit. Carrying value approximates fair value except for U.S. Treasury bills and certificates of deposit where amortized cost approximates fair value. Cash and cash equivalents are deposited at various area banks, which at times may exceed federally insured limits. The Company monitors the viability of the banking institutions carrying their assets on a regular basis and has the ability to transfer cash to various institutions during times of risk. The Company has not experienced any losses related to these cash balances and believes its credit risk to be minimal.

Accounts Receivable and Provision for Credit Losses

All accounts receivable is stated at amortized cost, net of allowances for credit losses, and adjusted for any write-offs. The Company maintains allowances for credit losses, which represent an estimate of expected losses over the remaining contractual life of its receivables considering current market conditions and estimates for supportable forecasts when appropriate. The estimate is a result of the Company’s ongoing assessments and evaluations of collectability, historical loss experience, and future expectations in estimating credit losses in its receivable portfolio. For accounts receivable, the Company uses historical loss experience rates and applies them to a related aging analysis while also considering customer and/or economic risk where appropriate. Determination of the proper amount of allowances requires management to exercise judgment about the timing, frequency and severity of credit losses that could materially affect the provision for credit losses and, as a result, operating profit. The allowances consider numerous quantitative and qualitative factors that include receivable type, historical loss experience, delinquency trends, collection experience, current economic conditions, estimates for supportable forecasts, when appropriate, and credit risk characteristics.

The reserve for credit losses, which include future credits, discounts, and doubtful accounts, was $857,000 and $866,000 as of December 31, 2025 and 2024, respectively.

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Inventories

Inventories are valued at the lower of cost or net realizable value. The cost of inventories is determined by the first-in, first-out (FIFO) method. The Company generally considers inventory quantities beyond two years of usage, measured on a historical usage basis, to be excess inventory and reduces the carrying value of inventory accordingly.

Property and Equipment

Property and equipment are initially recorded at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets or, for leasehold improvements, the life of the lease, if shorter. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in other income or expense for the period. The cost of maintenance and repairs is expensed as incurred; significant improvements are capitalized.

Goodwill

In accordance with FASB ASC Topic 350,Intangibles – Goodwill and Other, using the simplified method as adopted, the Company performed an annual impairment test as of December 31, 2025. This analysis did not indicate any impairment of goodwill.

Stock Based Compensation Plans

Phantom Stock Plan

In 2006, the Company adopted a Phantom Stock Plan (the “Phantom Plan”), which allows the Company to grant phantom stock units (“Units”) to certain key employees, officers, or directors. The Units each represent a contractual right to payment of compensation in the future based upon the market value of the Company’s common stock and are accordingly recorded as liabilities. The Units follow a vesting schedule over three years from the grant date and are then paid upon maturity. In accordance with FASB ASC Topic 718,Compensation - Stock Compensation, the Company uses the Black-Scholes option pricing model as its method for determining the fair value of the Units. The liabilities for the Units are adjusted to market value over time from the grant dates to the related maturity dates. The Company recognizes the reversal of any previously recognized compensation expense on forfeited nonvested Units in the period the Units are forfeited.

The Phantom Plan has been amended and restated, for all grants made starting January 1, 2023, to set the vesting method to three-year cliff vesting following the grant date, with payment upon maturity. Additionally, for grants made starting January 1, 2023, upon retirement at age 67 or greater, and with one year of continuous service prior to retirement, vesting of the issued grant(s) would accelerate on a pro-rata basis, 1/3 per year from the grant date.

Equity Incentive Plan

In 2024, the Flex-Trac, Inc. 2025 Equity Incentive Plan (the “Equity Incentive Plan”) was adopted to provide directors, officers, employees, contractors and consultants of Flex-Trac, Inc. or its affiliates an equity-based incentive to maintain and enhance the performance and profitability of Flex-Trac, Inc. Subject to adjustment as provided in the Equity Incentive Plan, up to 818,458 shares of the common stock, par value $0.01 per share, of Flex-Trac, Inc. (“FTI Common Stock”), or 7.5% of the fully-diluted shares of FTI Common Stock, may be issued pursuant to the Equity Incentive Plan with respect to awards.

On January 2, 2025,420,000 shares of restricted stock in the aggregate, or 4% of the shares of FTI Common Stock, were granted and issued to certain eligible participants under the Equity Incentive Plan (the “Awards”). The Awards cliff vest after eight years of continuous service or earlier upon the grantee’s death, disability or retirement, or a change of control, as defined and further described in the Equity Incentive Plan.

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In accordance with FASB ASC Topic 718,Compensation - Stock Compensation, the Company values the Awards at fair value at grant date and recognizes compensation expense over the vesting period. The Company recognizes the reversal of any previously recognized compensation expense on forfeited nonvested Awards in the period the Awards are forfeited.

Further details of the Phantom Plan and Equity Incentive Plan are provided in Note 8, Stock Based Compensation Plans, of the Consolidated Financial Statements included in this report.

Product Liability Reserves

Except for most product liability claims made for its yellow-jacketed TracPipe® CSST on or after September 1, 2025, for which the Company decided to self-insure (the “Self-Insured Claims”), product liability reserves represent the estimated unpaid amounts under the Company’s insurance policy retentions, with respect to existing claims. The Company uses the most current available data to estimate claims. As explained more fully under Note 7, Commitments and Contingencies, to the Consolidated Financial Statements included in this report for various product liability claims covered under the Company’s general liability insurance policies, the Company must pay certain defense and settlement costs within its insurance policy retentions, ranging primarily from $250,000 to $3,000,000 per claim, depending on the terms of the policy and the applicable policy year, up to an aggregate amount. The Company is vigorously defending against all known claims. There are no open Self-Insured Claims as of December 31, 2025.

Leases

The Company applies the requirements of FASB ASC Topic 842,Leases which defines a lease as any contract that conveys the right to use a specific asset for a period of time in exchange for consideration. Leases are classified as a finance lease, formerly called a capital lease, if any of the following criteria are met:

For any leases that do not meet the criteria identified above for finance leases, the Company treats such leases as operating leases. As of December 31, 2025 and 2024, each of the Company’s leases is classified as an operating lease.

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

There are some exceptions which the Company has elected in its accounting policies. For leases with terms of twelve months or less, or below the Company’s general capitalization policy threshold, the Company has elected an accounting policy to not recognize lease assets and lease liabilities for all asset classes. The Company recognizes lease expense for such leases generally on a straight-line basis over the lease term.

The Company determines if a contract is a lease at the inception of the arrangement. The Company reviews all options to extend, terminate, or purchase its right-of-use assets at the inception of the lease and accounts for these options when they are reasonably certain to be exercised. Certain leases contain non-lease components, such as common area maintenance, which are generally accounted for separately. In general, the Company will assess if non-lease components are fixed and determinable, or variable, when determining if the component should be included in the lease liability. For purposes of calculating the present value of the lease obligations, the Company utilizes the implicit interest rate within the lease agreement when known and/or determinable and otherwise utilizes its incremental borrowing rate at the time of the lease agreement.

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Fair Value of Financial and Nonfinancial Instruments

The Company measures financial instruments in accordance with FASB ASC Topic 820,Fair Value Measurements and Disclosures. The accounting standard defines fair value, establishes a framework for measuring fair value under GAAP, and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard creates a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability. The Company relies upon Level 1 inputs in determining the fair value of the Company’s reporting unit in its annual impairment test as described in the FASB ASC Topic 350,Intangibles - Goodwill and Other and Level 3 inputs to value the Awards under the Equity Incentive Plan. Refer to Note 8, Stock Based Compensation Plans, of the Consolidated Financial Statements for additional details.

Advertising Expense

Advertising costs are charged to operations as incurred and are included in selling expenses in the accompanying Consolidated Statements of Income. Such charges aggregated $1,025,000 and $900,000 for the years ended December 31, 2025 and 2024, respectively.

Research and Development Expense

Research and development expenses are charged to operations as incurred. Such charges totaled $1,283,000 and $301,000 for the years ended December 31, 2025 and 2024, respectively and are included in engineering expenses in the accompanying Consolidated Statements of Income.

Shipping Costs

Shipping costs are included in selling expenses in the accompanying Consolidated Statements of Income. The expenses relating to shipping were $2,649,000, and $2,726,000 for the years ended December 31, 2025 and 2024, respectively.

Earnings per Common Share

Basic earnings per share have been computed using the weighted-average number of common shares outstanding. For the periods presented, there are no dilutive securities. Consequently, basic and diluted earnings per share are the same.

Currency Translation

Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at exchange rates prevailing on the balance sheet dates. The assets and liabilities denominated in foreign currencies relate to the Company’s U.K. subsidiary whose functional currency is the British Pound and the U.K. subsidiary’s France subsidiary whose functional currency is the Euro. The Consolidated 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 the statements of income in the period in which they occur.

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Income Taxes

The Company accounts for tax liabilities in accordance with the FASB ASC Topic 740,Income Taxes. Under this method the Company records tax expenses, related deferred taxes and tax benefits, and uncertainties in tax positions.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize the benefit, or that future deductibility is uncertain.

The FASB ASC Topic 740,Income Taxes, clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s financial statements. This guidance prescribes a recognition threshold of more-likely than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the financial statements.

The Company follows the provisions of FASB ASC Subtopic 740-10 relative to accounting for uncertain tax positions. These provisions provide guidance on the recognition, de-recognition and measurement of potential tax benefits associated with tax positions. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2025 and 2024, the Company hadno unrecognized tax benefits related to various federal and state income tax matters nor any accrued interest or penalties.

Effective January 1, 2022, as a result of changes made by the Tax Cuts and Jobs Act of 2017, the Company was required to capitalize certain research and development expenses for tax purposes, and amortize those expenses over a five year period, resulting in a deferred tax asset for the capitalized amounts. Effective January 1, 2025, as a result of the changes made by the One Big Beautiful Bill Act, the previously capitalized research and development expenses became deductible.

Other Comprehensive Income

For the years ended December 31, 2025 and 2024, respectively, the components of other comprehensive income consisted solely of foreign currency translation adjustments.

Significant Concentrations

One customer represented 13% and 15% of sales during 2025 and 2024, respectively, and that same customer accounted for 22% and 23% of the accounts receivable balance as of December 31, 2025 and 2024, respectively. No other customer represented more than 10% of sales or accounts receivable. Geographically, North America accounted for 97% of the Company’s sales during both 2025 and 2024. The remaining portion of sales for each respective year was scattered among other countries, with the U.K. being the Company’s most dominant market outside North America.

Subsequent Events

The Company evaluates all events or transactions through the date of the related filing that may have a material impact on its Consolidated Financial Statements. Refer to Note 16, Subsequent Events, to the Consolidated Financial Statements included in this report.

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Recent Accounting Pronouncements

In November 2023, the FASB issued ASU No. 2023-07,Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. The purpose of the guidance is to enable investors to better understand an entity’s overall performance and assess potential future cash flows. The amendment is effective for fiscal years beginning after December 15, 2023 and interim periods in fiscal years beginning after December 15, 2024. The impact of the adoption did not have a material impact on the Company’s Consolidated Financial Statements.

In December 2023, the FASB issued ASU No. 2023-09,Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU expands public entities tax disclosures including improving disclosures surrounding the company’s rate reconciliation, cash taxes paid, and disaggregation of income tax expense (or benefit) from continuing operations. The amendment is effective for annual periods beginning after December 15, 2024. In 2025, the Company adopted ASU No. 2023-09 retrospectively and reflected these improvements in Note 9. Income Taxes of the Consolidated Financial Statements.

In November 2024, the FASB issued ASU No. 2024-03,Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The ASU requires new tabular disclosures disaggregating prescribed expense categories within relevant income statement captions. The amendment is effective for annual periods beginning after December 15, 2026 and interim periods in fiscal years beginning after December 15, 2027. The Company is in the process of evaluating the impact of ASU No. 2024-03 on its Consolidated Financial Statements.

3. INVENTORIES

Inventories, net of reserves of $822,000 and $864,000 as of December 31, 2025 and 2024, respectively, consisted of the following:

See Note 5, Other Long Term Assets, for details on inventories which are estimated to be used beyond the next twelve months.

4. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of December 31:

The above amounts include capital related items of $1,190,000 and $341,000 as of December 31, 2025 and 2024, respectively, which had not yet been placed in service by the Company, and therefore no depreciation was recorded in the related periods for those assets. Depreciation and amortization expense was approximately $1,363,000 and $1,255,000 for the years ended December 31, 2025 and 2024, respectively.

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5. OTHER LONG TERM ASSETS

Other long term assets were as follows as of December 31:

The Company maintains inventories, net of reserves of $1,000,000 as of December 31, 2025 and 2024, which is estimated to be used beyond the next twelve months, mainly for the corrugated medical tubing (“CMT”) products. Higher amounts of materials for the CMT products were initially purchased for cost considerations and because of longer required lead times.

The Company has obtained and is the beneficiary of life insurance policies with respect to past employees. During 2024, the insured for one of the policies became deceased which allowed for proceeds to be received from a claim upon the policy of $739,000.

6. LINE OF CREDIT AND OTHER BORROWINGS

On July 3, 2023, the Company agreed to an Amended and Restated Loan Agreement with Santander Bank, N.A. (the “Bank”), and a Second Amended and Restated Committed Revolving Line of Credit Note to the Bank (both documents together, the “Facility”). The Facility is an unsecured revolving credit facility in the maximum amount of $15,000,000, with a $1,000,000 letter of credit sublimit, expiring June 1, 2028, with funds available for working capital and other corporate purposes. The interest rate payable on any borrowings is either the Term SOFR Reference Rate or the Bank’s Prime Rate, as specified by the Company, plus the Applicable Margin. The Applicable Margin for the Term SOFR Reference Rate is plus 0.75% to plus 1.75%, and for Prime Rate, up to plus 0.50%, depending upon the Company’s then existing specified financial ratios. As of December 31, 2025, the Company’s ratio would allow for the most favorable rate under the Facility’s ranges or 4.54%. 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 and an annual commitment fee of $5,000 due and payable on each anniversary date of the Facility. The Company may terminate the Facility at any time as long as there are no amounts outstanding and may prepay any borrowings.

As of December 31, 2025 and as of December 31, 2024, the Company hadno outstanding borrowings on the Facility, and was in compliance with all debt covenants.

7. COMMITMENTS AND CONTINGENCIES

Commitments

Under a number of indemnity agreements between the Company and each of its officers and directors, the Company has agreed to indemnify each of its officers and directors against any liability asserted against them in their capacity as an officer or director, or both. The Company’s indemnity obligations under the indemnity agreements are subject to certain conditions and limitations set forth in each of the agreements. Under the terms of the agreement, the Company is contingently liable for costs which may be incurred by the officers and directors in connection with claims arising by reason of these individuals’ roles as officers and directors. The Company has obtained directors’ and officers’ insurance policies to fund certain obligations under the indemnity agreements.

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The Company has salary continuation agreements with past employees. These agreements provide for monthly payments to each of the employees or their designated beneficiary upon the employee’s retirement or death. The payment benefits range from $1,000 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 $276,000 as of December 31, 2025, of which $240,000 is included in Other Long Term Liabilities, and the remaining current portion of $36,000 is included in Other Liabilities, associated with the applicable retirement benefit payments over the next twelve months. The December 31, 2024 liability of $302,000 had $255,000 reported in Other Long Term Liabilities, and a current portion of $47,000 in Other Liabilities.

In addition to the above, the Company has other contractual employment and or change of control agreements in place with key employees, as previously disclosed and noted in the Exhibit Index to this Form 10-K. Obligations related to these arrangements are currently indeterminable due to the variable nature and timing of possible events required to incur such obligations.

As disclosed in detail in Note 10, Leases, to the Consolidated Financial Statements included in this report, the Company has several lease obligations in place that will be paid over time. Most notably, the Company leases a facility in Banbury, England that serves the manufacturing, warehousing, and distribution functions.

Lastly, the Company has contractual obligations in place for the forthcoming year to purchase raw materials totaling $10,487,000.

Contingencies

In the ordinary and normal conduct of the Company’s business, it is subject to lawsuits, investigations, and claims (collectively, the “Claims”). The Claims generally relate to alleged lightning or other electrical damage to our flexible gas piping products and may result in legal and product liability related expenses. The Company does not believe the Claims have legal merit and vigorously defends them. 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 and expert costs, higher retentions, and/or the Company’s decision to self-insure most product liability Claims made for its yellow-jacketed TracPipe® CSST on or after September 1, 2025 (the “Self-Insured Claims”).

Except for the Self-Insured Claims, the Company has in place commercial general liability insurance policies that cover most Claims, which are subject to retentions, ranging primarily from $250,000 to $3,000,000 per claim (depending on the terms of the policy and the applicable policy year), up to an aggregate amount. Litigation is subject to many uncertainties and management is unable to predict the outcome of the pending suits and claims. Except for Self-Insured Claims, the potential liability for a given claim could range from zero to a maximum of $3,000,000, depending upon the circumstances, and retentions in place for the respective claim year. The aggregate maximum exposure for all current open Claims as of December 31, 2025 is estimated to not exceed approximately $1,041,000, which represents the potential costs that may be incurred over time for the Claims within the applicable retentions. As of December 31, 2025, there are no open Self-Insured Claims.

From time to time, depending upon the nature of a particular case, the Company may decide to spend in excess of retentions to enable more discretion regarding the defense, although this is not common. It is possible that the results of operations or liquidity of the Company, as well as the Company’s ability to procure reasonably priced insurance, could be adversely affected by the pending litigation, potentially materially. The Company is currently unable to estimate the ultimate liability, if any, that may result from the pending litigation, or potential litigation from future claims or claims that have not yet come to our attention, and accordingly, the liability in the Consolidated Financial Statements primarily represents an accrual for legal costs for services previously rendered, outstanding settlements for Claims not yet paid, and anticipated, probable, settlements for Claims within the Company’s remaining retentions under its insurance policies. The liabilities recorded in the Company’s books as of December 31, 2025 and December 31, 2024 were $703,000 and $706,000, respectively, and are included in Other Liabilities.

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8. STOCK BASED COMPENSATION PLANS

Phantom Stock Plan

***Plan Description.***On April 1, 2006, the Company adopted the Omega Flex, Inc. 2006 Phantom Stock Plan (the “Phantom Plan”). The Phantom Plan authorizes the grant of up to one million units of phantom stock to employees, officers, or directors of the Company. The phantom stock units (“Units”) each represent a contractual right to payment of compensation in the future based on the market value of the Company’s common stock. The Units are not shares of the Company’s common stock, and a recipient of the Units does not receive any of the following:

The Units are granted to participants upon the recommendation of the Company’s Chief Executive Officer and President, and the approval of the Compensation Committee. Each of the Units that are granted to a participant will be initially valued by the Compensation Committee at an amount equal to the closing price of the Company’s common stock on the grant date but are recorded at fair value using the Black-Sholes method as described below. The Units follow a vesting schedule, with a maximum vesting of three years after the grant date. Grants made on or after January 1, 2023, will cliff vest three-years from the grant date. Upon vesting, the Units represent a contractual right of payment for the value of the Unit and therefore are stated as liabilities in accordance with FASB ASC Topic 718,Compensation - Stock Compensation. The Units will be paid on their maturity date, one year after all the Units granted in a particular award have fully vested, unless a specified event occurs under the terms of the Phantom Plan, which would allow for earlier payment. Units granted with value at the maturity date equal to the closing price of the Company’s common stock as of the maturity date are defined as Full Value Units. Unless stated otherwise, all Units described herein are Full Value Units.

In 2009, the Board of Directors authorized an amendment to the Phantom Plan to pay an amount equal to the value of any cash or stock dividend declared by the Company on its common stock to be accrued to the Units outstanding as of the record date of the common stock dividend. The dividend equivalent will be paid at the same time the underlying Units are paid to the participant.

In addition, the Phantom Plan has been amended and restated, for all grants made starting January 1, 2023, to set the vesting method to three-year cliff vesting following the grant date, with payment upon maturity. Additionally, for grants made starting January 1, 2023, upon retirement at age 67 or greater, and with one year of continuous service prior to retirement, vesting of the issued grant(s) would accelerate on a pro-rata basis, 1/3 per year from the grant date.

In certain circumstances, the Units may be immediately vested upon the participant’s death or disability. All Units granted to a participant are forfeited if the participant is terminated from their relationship with the Company or its subsidiary for “cause,” which is defined under the Phantom Plan. If a participant’s employment or relationship with the Company is terminated for reasons other than for “cause,” then any vested Units will be paid to the participant upon termination. However, Units granted to certain “specified employees” as defined in Section 409A of the Internal Revenue Code will be paid approximately 181 days after termination.

***Grants of Units.***As of December 31, 2024, the Company had 9,872 nonvested and unmatured Units outstanding. In February 2025, the Company paid $53,000 for 1,206 fully vested and matured Units that were granted during 2021, including their respective earned dividend values. In addition, the Company granted 12,829 Units with a fair value of $32.35 per Unit on grant date, using historical volatility in February 2025. In September 2025, the Company paid $33,000 for 808 fully vested and matured Units that were granted during 2021, including their respective earned dividend values. As of December 31, 2025, the Company had 23,057 nonvested and unmatured Units outstanding.

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The Company uses the Black-Scholes option pricing model as its method for determining fair value of the Units. The Company uses the straight-line method of attributing the value of the stock based compensation expense relating to the Units. The compensation expense (including adjustment of the liability to its fair value) from the Units is recognized over the vesting and maturity periods of each grant.

The FASB ASC Topic 718,Compensation - Stock Compensation, requires forfeitures either to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates to derive an estimate of awards ultimately to vest or to recognize the effect of any forfeited awards for which the requisite vesting period is not completed in the period that the award is forfeited.

The Company recognizes the reversal of any previously recognized compensation expense on forfeited awards in the period that the award is forfeited. For the year ended December 31, 2025, no awards were forfeited. For the year ended December 31, 2024, a reversal of $6,000 of previously recognized compensation expense was recognized on 244 nonvested forfeited Units.

The total liability related to the Units as of December 31, 2025 was $434,000 of which $92,000 is included in Other Liabilities, as it is expected to be paid within the next twelve months, and the balance of $342,000 is included in Other Long Term Liabilities. The total liability related to the Units as of December 31, 2024 was $365,000 of which $94,000 was included in Other Liabilities, and the balance of $271,000 was included in Other Long Term Liabilities.

Related to the Phantom Plan, in accordance with FASB ASC Topic 718,Compensation - Stock Compensation, the Company recorded compensation expense of $155,000 and $54,000 for the years ended December 31, 2025 and 2024, respectively. Compensation expense or income for a given period largely depends upon fluctuations in the Company’s stock price.

The following table summarizes information about the Company’s nonvested and unmatured Units as of and for the year ended December 31, 2025:

The other increase of 4,165 Units reflects adjustments to conform with three-year cliff vesting in accordance with the amended and restated Phantom Plan described above.

The total unrecognized compensation costs calculated as of December 31, 2025 were $309,000 which will be recognized through February of 2028. The Company will recognize the related expense over the weighted average period of 1.6 years.

Equity Incentive Plan

In 2024, the Flex-Trac, Inc. 2025 Equity Incentive Plan (the “Equity Incentive Plan”) was adopted to provide directors, officers, employees, contractors and consultants of Flex-Trac, Inc. or its affiliates an equity-based incentive to maintain and enhance the performance and profitability of Flex-Trac, Inc. Subject to adjustment as provided in the Equity Incentive Plan, up to 818,458 shares of the common stock, par value $0.01 per share, of Flex-Trac, Inc. (“FTI Common Stock”), or 7.5% of the fully-diluted shares of FTI Common Stock, may be issued pursuant to the Equity Incentive Plan with respect to awards.

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On January 2, 2025,420,000 shares of restricted stock in the aggregate, or 4% of the shares of FTI Common Stock, were granted and issued to certain eligible participants under the Equity Incentive Plan (the “Awards”). The Awards cliff vest after eight years of continuous service or earlier upon the grantee’s death, disability or retirement, or a change of control, as defined and further described in the Equity Incentive Plan.

In accordance with FASB ASC Topic 718,Compensation - Stock Compensation, the Company values the Awards at fair value at grant date and recognizes compensation expense, on a straight-line basis, over the vesting period. The Company recognizes the reversal of any previously recognized compensation expense on forfeited nonvested Awards in the period the Awards are forfeited.

The fair value of the Awards at the grant date of January 2, 2025 was $0.27 per share or $113,400. The fair value of the Awards was determined through the income valuation approach using real option analysis which utilized the Black-Scholes option pricing model.

The following table summarizes information about the nonvested Awards as of and for the year ended December 31, 2025:

For the year ended December 31, 2025, compensation expense was $14,000. There wereno forfeitures.

9. INCOME TAXES

The Company’s earnings were primarily domestic, and its effective tax rate on earnings from operations for the years ended December 31, 2025 and 2024 was 24.2%. The Company’s effective tax rate differed from the statutory federal corporate income tax rate primarily because of state income taxes, net of federal income tax benefits, and a valuation allowance upon foreign deferred tax assets of one of its foreign subsidiaries, where it was considered more likely than not that these deferred tax assets would not be realized.

As of December 31, 2025, the Company’s foreign subsidiaries were in a cumulative loss position. Accordingly, there were no undistributed foreign earnings for which deferred income taxes would be required.

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Income (loss) before income tax expense (benefit) consisted of the following:

Income tax expense (benefit) consisted of the following:

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The following table reconciles the Company’s actual income tax expense based on the statutory federal corporate income tax rate:

Income taxes paid, net of refunds, are as follows:

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A deferred income tax (expense) benefit results from temporary timing differences in the recognition of income and expense for income tax and financial reporting purposes. The components of and changes in the net deferred tax assets (liabilities) which give rise to this deferred income tax (expense) benefit for the years ended December 31, 2025 and 2024 are as follows:

Management believes it is more likely than not that the Company will have sufficient taxable income when these timing differences reverse and that the deferred tax assets will be realized except for a carryover of foreign operating losses of $3,046,000 incurred by one of its foreign subsidiaries. Due to the uncertainty of future income in the foreign subsidiary, the Company has recognized a valuation allowance of $762,000, an increase of $319,000 from the previous year, related to the foreign operating losses carrying forward. These foreign operating losses may be carried forward indefinitely.

The Company is currently subject to audit by the Internal Revenue Service for the calendar years after 2021. The Company’s state income tax returns are subject to audit for the calendar years after 2020.

10. LEASES

In the U.S., the Company owns its two main operating facilities located in Exton, Pennsylvania. In addition to the owned facilities, the Company also has operations in other locations that are leased, as well as other leased assets. In conjunction with the guidance for leases, as defined by FASB ASC Topic 842,Leases, the Company has described the existing leases, which are all classified as operating leases, pursuant to the below.

In the U.S., the Company leases a facility in West Chester, Pennsylvania, which was consummated effective January 2024, with its lease terminating in February 2030, which provides warehousing and storage, quality control, distribution, and office space. The Company also leases a facility in Houston, Texas, which was consummated effective June 2024, with its lease terminating in July 2029, which provides manufacturing, stocking, and sales operations. Additionally, the Company leases office space in Middletown, Connecticut, with its lease terminating in June 2027.

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In the U.K., the Company leases a facility in Banbury, England, which serves manufacturing, warehousing, and other operational functions. The lease in Banbury has a 15-year term ending in March 2036.

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

As of December 31, 2025, the Company recorded right-of-use assets of $4,437,000, and a lease liability of $4,757,000, of which $771,000 is reported as a current liability. On December 31, 2024, the Company recorded right-of-use assets of $4,944,000, and a lease liability of $5,278,000, of which $712,000 was reported as a current liability. The respective weighted average remaining lease term and discount rate are approximately 7.1 years and 3.59% as of December 31, 2025.

Rent expense for operating leases was $943,000 and $939,000 for the years ended December 31, 2025 and 2024, respectively.

Future minimum lease payments under non-cancelable leases as of December 31, 2025 are as follows:

11. EMPLOYEE BENEFIT PLANS

Defined Contribution and 401(K) Plans

The Company maintains a qualified non-contributory profit-sharing plan (the “Plan”) covering all eligible employees. There were $505,000 and $476,000 of contributions accrued for the Plan in 2025 and 2024 respectively, which were charged to expense in those respective years.

Contributions to the Plan are defined as three percent (3%) of gross wages up to the current Old Age, Survivors, and Disability (OASDI) limit and six percent (6%) of the excess over the OASDI limit, subject to the maximum allowed under the Employee Retirement Income Security Act (ERISA). Participant balances vest over six years.

The Company also maintains a savings and retirement plan qualified under Internal Revenue Code Section 401(k) for all employees. Employees are eligible to participate in the Plan the first day of the month following date of hire. Participants may elect to have up to fifty percent (50%) of their compensation withheld, up to the maximum allowed by the Internal Revenue Code. After completing one year of service, the Company contributed an additional amount equal to 50% of all employee contributions, up to a maximum of 6% of an employee’s gross wages. Contributions are funded on a current basis. Contributions to the Plan charged to expense for the years ended December 31, 2025 and 2024 were $374,000 and $348,000, respectively. The participant’s Company contribution vests ratably over six years.

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12. SHAREHOLDERS’ EQUITY

As of December 31, 2025 and December 31, 2024, the Company had 20,000,000 shares of common stock, with par value of $0.01 per share, authorized. For both periods, the total number of outstanding shares was 10,094,322, shares held in Treasury was 59,311, and total shares issued was 10,153,633.

During 2025 and 2024, upon approval of the Board of Directors (the “Board”) the Company has declared and paid regular quarterly dividends, as set forth in the following table:

It should be noted that from time to time, the Board may elect to pay special dividends, in addition to or in lieu of the regular quarterly dividends, depending upon the financial condition of the Company. The most recent special dividend was declared and paid in December 2019.

13. SEGMENT REPORTING

The Company derives revenues from the manufacture and sale of flexible metal hose and accessories (the “flexible metal hose” segment). These applications include carrying fuel gases within residential and commercial buildings; gasoline and diesel gasoline products (both above and below the ground) in a double containment piping to contain any possible leaks, which is used in automotive and marina refueling, and fueling for back-up generation; and medical gases in health care facilities.

The accounting policies of the flexible metal hose segment are the same as described in Note 2. Significant Accounting Policies. The Chief Operating Decision Maker (“CODM”), which includes the Chief Executive Officer, Executive Chairman, and President, assesses performance for the flexible metal hose segment and decides how to allocate resources based on the measures which are also reported in the Consolidated Statements of Income as Operating Profit and Net Income. Segment assets are reported in the Consolidated Balance Sheets as Total Assets.

The CODM uses Operating Profit and Net Income to evaluate performance and income generated from segment assets (return on assets) in deciding whether to reinvest profits into the flexible metal hose segment or into other areas, such as for acquisitions or to pay dividends. Significant segment expense categories reviewed by the CODM are consistent with the categories reflected in the Consolidated Statements of Income.

14. GEOGRAPHIC INFORMATION

The Company operates as a single reportable segment. Geographic information regarding sales from external customers and long-lived assets is presented below.

Sales are attributed to geographic areas based on the location of the external customer. Long-lived assets are attributed to geographic areas based on the location of the assets and consist of property and equipment and right-of-use assets. Long-lived assets exclude goodwill.

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Sales by external customer location are as follows:

Long-lived assets by geographic area are as follows:

15. RELATED PARTY TRANSACTIONS

From time to time, the Company may have related party transactions (“RPTs”). RPTs represent any transaction between the Company and any Company employee, director or officer, or any related entity, or relative, etc. The Company performs a review of transactions each year to determine if any RPTs exist, and if so, determines if the related parties act independently of each other in a fair transaction. Through this investigation the Company noted a limited number of RPTs. In all cases, these RPTs have been determined to be arms length transactions with no indication that they are influenced by the related relationships.

16. SUBSEQUENT EVENTS

The Company evaluated all events or transactions that occurred through the date of this filing. During this period, no events came to the Company’s attention that would impact the Consolidated Financial Statements for the year ended December 31, 2025.

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