OFLX 10-K & 10-Q changes, risk factors and insider trading

Most of our sales are derived from the sale of TracPipe® and CounterStrike® CSSTflexible gas piping systems, including Autoflare® fittings and a variety of accessories. Sales of our flexible metal hose for other applications represent a small smaller portion of our overall sales and income. Any event or circumstance that adversely affects our TracPipe® or CounterStrike® CSSTflexible gas piping could have a greater impact on our business and financial results than if our business were more evenly distributed across several different product lines. The effects of such an adverse event or circumstance would be magnified in terms of our company as a whole as compared to one or more competitors whose product lines may be more diversified, or who are not as reliant on the sales generated by their respective flexible gas piping products. Therefore, risks relating to our TracPipe® and CounterStrike® CSSTflexible gas piping business – in particular, loss of distributors or sales channels, technological changes, loss of our key personnel involved in the flexible gas piping product line, increases in commodity prices, including tariffs on foreign exports, particularly in stainless steel, copper, and polyethylene – could damage our business, competitive position, results of operations or financial condition.

The markets for flexible metal hose are intensely competitive. There are a number of competitors in all markets in which we operate, and generally none of these markets have one dominant competitor. One or more of our competitors may develop technologies and products that are more effective, or which may cost less than our current or future products or could potentially render our products noncompetitive or obsolete. Volumes of competing low price imports hashave increased, and may continue to increase, negatively affecting our earnings. Our Our prior success has been due to our ability to develop new products and product improvements and to establish and maintain an effective distribution distribution network, which to some extent came at the expense of several competing manufacturers. Our business, competitive position, results of operations or financial condition could be negatively impacted if we are unable to maintain and develop our competitive products.

During 20242025 and 2023,2024, we derived 3% to 4% of our revenue from sales to customers located outside the U.S. Our ability to convince customers to expand their use of our products or renew their agreements with us is directly correlated to our direct engagement with such customers. To the extent that we are unable to engage with non-U.S. customers effectively, we may be unable to grow sales to international customers to to the same degree we have experienced in the past.

The majority of our manufacturing capacity is currently located in Exton, Pennsylvania, where we own two manufacturing facilities which are in close proximity to each other, and in Banbury, England in the U.K. where we lease a manufacturing facility. OnWe a smaller scale we also have manufacturing operations in Houston, Texas. We do not have any operational manufacturing capacity for flexible metal hose outside of these locations. We cannot replicate our manufacturing methods at a supplier’s facility due to the confidential and proprietary nature of our manufacturing process. If one of the manufacturing facilities were destroyed or damaged in a significant manner or otherwise disrupted for more than a short time, we would likely experience a delay or some interruption of our flexible metal hose operations. This could lead to a reduction in sales volume if customers were to purchase their requirements from our competitors, claims for breach of contract by certain customers with contracts for delivery of flexible metal hose by a certain date, and costs to replace our destroyed or damaged manufacturing capacity. The fittings and accessories for the flexible metal hose are manufactured for us by suppliers not located at our manufacturing facilities, and we also have outside warehouses which contain finished goods inventory. Disruption of or damage to our supply of these items could damage our business, competitive position, results of operations or financial condition.

As a manufacturer of flexible metal hose, we must use certain raw materials in the manufacture of the hose. The primary raw material is stainless steel that is used in the forming of the hose, and various other steel products used in the wire braid overlay over some flexible metal hoses for additional strength and durability, as well as copper alloy for MediTrac® CMT. We also use polyethylene in pellet form for the forming and extrusion of a polyethylene jacket over CSST for use in fuel gas applications, underground installations, and other installations that require that the metal hose be isolated from the environment. Finally, we also purchase brass and stainless steel for our proprietary fittings used with the flexible metal hose that provides a mechanical means of attaching the hose to an assembly or junction. We attempt to limit the effects of volatile raw material prices, and to ensure adequate and timely supply of material, by committing to annual purchase contractscontracts, when market conditions allow, for the bulk of our steel and polyethylene requirements, and for our fitting requirements. The contracts typically represent a significant portion of our annual planned usage and are set at a designated fixed price or a range of prices. These agreements sometimes require us to accept delivery of the commodity in the quantities committed, at the agreed upon prices. Transactions in excess of the pre-arranged commitments are conducted at current market prices at our discretion. We have identified multiple qualified vendors to produce or manufacture our critical purchase requirements. Although we tend to rely on more than one source for each or our primary components to leverage the relationship and pricing, there is no assurance that we would be able to eliminate all or most of the adverse effects of a sudden increase in the cost of materials or key components, or that the loss of one or more of our key sources would not lead to higher costs or a disruption in our business, which could damage our business, competitive position, results of operations or financial condition.

In the ordinary and normal conduct of our business, we are subject to periodic lawsuits, investigations, and claims (collectively, the “Claims”). WeThe haveClaims continuedgenerally relate to receivealleged repeatlightning patternor Claimsother relatingelectrical damage to our flexible gas piping products,products althoughand themay paceresult ofin newlegal and Claimsproduct has generallyliability declined.related Whileexpenses. weThe doCompany does not believe the Claims have legal merit,merit and vigorously defends them. While we have successfully defended against such Claims,Claims we cannot predict whetherand the pace of new Claims has generally declined, we cannot predict the volume or severity of Claims that will increasebe brought against us in the future, or subside.the magnitude of the related expenses we will incur. Any significant increase in the number of Claims, in the financial magnitude of ClaimsClaims, broughtor against us,in the costs of defending the Claims, particularly underor higher retentions ofunder our currentproduct liability insurance policies, or our decision to self-insure most product liability Claims made for our yellow-jacketed TracPipe® insuranceCSST policies,on or after September 1, 2025, could have a detrimental and material impact on our business, competitive position, results of operations or financial condition.

Our TracPipe® and CounterStrike® CSST products are used in the construction industry, both in residential, commercial, and industrial segments, for the piping of fuel gas within a building. The demand for new or remodeled construction in the construction industry – and in particular the residential construction industry – is susceptible to fluctuations in interest rates charged by banks and other financial institutions as well as consumer demand. The purchasers of new or remodeled construction generally finance the construction or acquisition of the residential, commercial, or industrial buildings, and increases in the interest rates on such financing raise the acquisition cost of the potential purchaser. Interest rates have been increasing and thereThere is no guarantee that theyinterest rates will not continue to increase in the future. If costsinterest continue torates increase, a higher number of potential buyers may not be able to support the level of financing under a higher interest rate environment. Increased acquisition costs may lead to a continued decline in the demand for new or remodeled construction, and as a result may also lead to a continued, reduced demand for our products used in the construction industry, which could damage our business, competitive position, results of operations or financial condition.

We have operations in the U.K. and France, and execute business transactions elsewhere in the world outside of the U.S. While the magnitude of these transactions outside of the U.S. have thus far not been significant, and typically not in currencies of high volatility, it is possible that they could be material. Events such as Brexit, or other instances of political and economic turmoil or uncertainty, could create a weakened British Pound (“BP”), Euro and Canadian Dollar (“CAD”) in comparison to other currencies. A weakened BP, Euro or CAD would in turn have a direct negative impact, as we would experience losses when settling transactions in other currencies, and experience unfavorable results due to the translation of financial statements with a lower exchange rate. During the2025, fourth quarter of 2024, the U.S.BP, DollarEuro and CAD strengthened relative to the value of the BP,U.S. Euro and CAD partly due to the results of the U.S. elections.Dollar. This in turn had a direct negativepositive impact on the Company’s financial statements and results. Going forward, it is possible that the BP, Euro, CAD, and other currencies that we engage in may materially impact on our financial position, operations, or liquidity.

Conflicts, wars, natural disasters, infectious disease outbreaks (such as the COVID-19 pandemic), active shooter or other workplace violence, or terrorist terrorist acts could also cause significant damage or disruption to our operations, employees, facilities, systems, suppliers, supply chain, distributors, resellers, or customers in the U.S. and internationally for extended periods of time and could also affect demand for our products.

Retained earnings were $72,880,000$73,979,000 and $68,493,000$72,880,000 as of December 31, 20242025 and December 31, 2023,2024, respectively, increasing $4,387,000$1,099,000 or 6.4%.1.5%. The increase was primarily due to an increase from net income during the year, as provided on the Company’s Consolidated Statements of Operations,Income, partially offset by dividends declared during 2024,2025, as discussed in detail in Note 12, Shareholders’ Equity, to the the Consolidated Financial Statements included in this report.

Selling Expenses. Selling expenses consist primarily of employee salaries and associated overhead costs, commissions, and the cost of marketing programs such as advertising, trade shows and related communication costs, and freight. Selling expenses were $20,539,000$20,730,000 and $20,993,000$20,539,000 for 20242025 and 2023,2024, respectively, representing aan decreaseincrease of $454,000,$191,000, or 2.2%.0.9%. The decreaseincrease is mostly related to commissions due to the lower net sales, which were partially offset by higher travel.sales incentive compensation. As a percentage of net sales, selling expenses were 20.2%21.1% and 18.8%20.2% for the twelve months ended December 31, 20242025 and 2023, 2024, respectively.

General and Administrative Expenses. General and administrative expenses consist primarily of employee salaries, benefits for administrative, executive and finance personnel, legal and accounting, insurance, and corporate general and administrative services. General and administrative expenses were $16,085,000$16,300,000 and $17,705,000$16,085,000 for the years ended December 31, 20242025 and 2023,2024, respectively, decreasingincreasing $1,620,000,$215,000, or 9.1%1.3% between periods. The incentive compensation component whichincrease is aligned with profitability decreased due to lowerhigher operatingstaffing profitrelated andcosts, mainly employee benefits, celebration activities associated with due to changes in the executiveCompany’s managementfifty-year team at the beginning of the year. In addition, product liability reservesanniversary, and expenses and stock based compensation, which moves in relation to the Company’s stock price, as detailed in Note 8, Stock Based Compensation Plans, were lower.Plans. These were partly offset by increaseslower inproduct staffingliability related costs, computerreserves and informationexpenses technologyand the relatedincentive expenses, andcompensation umbrellacomponent, insurancewhich premiums.is aligned with profitability, due to lower operating profits. As a percentage of net sales, general and administrative expenses were 15.8%16.6% and 15.9%15.8% for the twelve months ended December 31, 20242025 and 2023,2024, respectively.

Engineering Expenses. Engineering expenses consist of development expenses associated with the development of new products, and costs related to enhancements of existing products and manufacturing processes. Engineering expenses increased $200,000$973,000 or 5.2%23.9% between periods, being $4,068,000$5,041,000 and $3,868,000$4,068,000 for the years ended December 31, 20242025 and 2023,2024, respectively, mainly associated with increases in consultingproduct development and certification related expenses, staffing related costs.costs, and consulting. As a percentage of net sales for the year, engineering expenses were were5.1% in 2025 and 4.0% in 2024 and 3.5% in 2023.2024.

Interest Income. Interest income is recorded on investments in cash equivalents, and interest expense is recorded at times when the Company has debt amounts outstanding on its line of credit. The Company recorded interest income of $2,278,000$1,989,000 for 2024,2025, compared to $1,700,000$2,278,000 for 2023.2024. The increasedecrease in interest income was mainly due to higherlower investedinterest cash equivalent balances during 2024.rates. There were no borrowings on its line of credit during 2024 2025 or 2023.2024.

Other Income (Expense). Other income (expense) primarily consists of foreign currency exchange gains (losses) on transactions settled in currencies other than the Company’s local currency, typically related to the Company’s foreign U.K. and France subsidiaries and Canada. The Company recognized other income of $331,000 during 2025 and other expense of $227,000 during 2024 and other income of $46,000 during 2023.2024.

Income Tax Expense. Income tax expense was $5,707,000$4,667,000 for 2024,2025, compared to $6,825,000$5,707,000 for 2023.2024. The $1,118,000$1,040,000 or 16.4%18.2% decrease in tax expense was largely the result of the decrease in income before taxes. The effective tax rate for 20242025 and 20232024 was approximately 24% and 25%24.2% of income before taxes respectively.

ProductExcept 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 policies 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 deductible or self-insured retention limits, 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. 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 financial magnitude of claims, higher legal costs, and higher insurance deductibles or retentions. Litigation is subject to many uncertainties and management is unable to predict the outcome of the pending suits and claims. From time to time, depending upon the nature of a particular case, the Company may decide to spend more than a deductible or retention to enable more discretion regarding the defense, although this is not common. It is possible that the results of operations or liquidity of the Company, as well as the Company’s ability to procure reasonably priced insurance, could be adversely affected by the pending litigation, potentially materially. The Company is currently unable to estimate the ultimate liability, if any, that may result from the pending litigation, or potential litigation from future claims or claims that have not yet come to our attention, and accordingly, the liability in the Consolidated Financial Statements primarily represents an accrual for legal costs for services previously rendered, settlements for Claims not yet paid, and anticipated settlements for claims within the Company’s remaining retention under its insurance policies. There are no open Self-Insured Claims as of December 31, 2025.

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 Compensation - Stock Compensation (“Topic 718”), the Company uses the Black-Scholes option pricing model as its method for determining the fair value of the Units. The liabilities for the Units are adjusted to market value over time from the grant dates to the related maturity dates. The Company recognizes the reversal of any previously recognized compensation expense on forfeited nonvested Units in the period the Units are forfeited.

The 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 vesting following the grant date, with full value paid upon maturity. Additionally, for grants made starting January 1, 2023, upon retirement at age 67 or greater, and with one year of continuous service prior to retirement, vesting of the issued grant(s) would accelerate on a pro-rata basis, 1/3 per year from the grant date. The amended and restated plan did not have a material impact upon compensation expense.

Further details of the Phantom Plan are provided in Note 8, Stock Based Compensation Plans, to the Consolidated Financial Statements included in this report. Any significant changes in the Company’s stock price may have a material impact upon the valuation of the Units.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize the benefit, or that future deductibility is uncertain. The Company’s accounting for deferred tax consequences represents the best estimate of those future events. The Company recognizes interest and penalties related to any uncertain tax positions in income tax expense. Changes in estimates, due to unanticipated events or otherwise, could have a material effect on the financial condition and results of operations of the Company. The Company continually evaluates its deferred tax assets to determine if a valuation allowance is required.

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. TheIn 2025, the Company is in the process of evaluating the impact ofadopted ASU No. 2023-09 onretrospectively itsand reflected these improvements in Note 9. Income Taxes of the Consolidated Financial Statements.

For the period ended MarchJune 31,30, 2026 vs. December 31, 2025

The Company’s cash and cash equivalents balance of $49,757,000$47,905,000 on MarchJune 31,30, 2026 decreased $3,469,000$5,321,000 (6.5%10.0%) from a $53,226,000 balance at December 31, 2025. Consistent with prior years, the Company paid a significant amount of cash during the first quarter for obligations that were accrued as of the end of the preceding year such as incentive related compensation. The Company also paid a dividenddividends during 2026 totaling $3,431,000,$6,864,000, as detailed in Note 9, Shareholders’ Equity, to the Condensed Consolidated Financial Statements included in this report, and capital expenditures of $709,000$885,000 partially offset by cash provided by operating activities of $608,000.$2,377,000. See the Company’s Company’s Condensed Consolidated Statements of Cash Flow for further details regarding the change in cash.

Retained earnings were $72,623,000$71,867,000 and $73,979,000 as of MarchJune 31,30, 2026 and December 31, 2025, respectively, decreasing $1,356,000$2,112,000 or 1.8%.2.9%. The decrease was primarily due to a dividenddividends declared during 2026, as discussed in detail in Note 9, Shareholders’ Equity, to the Condensed Consolidated Financial Statements included in this report, partially offset by net income during the year, as provided on the Company’s Condensed Consolidated Statements of Income.

Three months ended MarchJune 31,30, 2026 compared to three months ended MarchJune 31,30, 2025

The Company reported comparative results from operations for the three month periods ended MarchJune 31,30, 2026 and 2025 as follows:

Net Sales. The Company’s 2026 firstsecond quarter sales of $23,093,000$24,057,000 decreased $237,000$1,468,000 or 1.0%5.8% compared to the firstsecond quarter of 2025, 2025, which generated sales of $23,330,000.$25,525,000.

Gross Profit. The Company’s gross profit margins were 56.7%55.0% and 60.3%60.4% for the quarters ended MarchJune 31,30, 2026 and 2025, respectively. The decrease in gross profit is mostly attributable to an increase in raw material costs, whichincluding includesinbound transportation costs and tariffs.

Selling Expenses. Selling expenses consist primarily of employee salaries and associated overhead costs, commissions, and the cost of marketing programs such as advertising, trade shows and related communication costs, and freight. Selling expenses were $5,494,000$5,411,000 and $5,001,000$5,217,000 for the quarters ended MarchJune 31,30, 2026 and 2025, respectively, representing an increase of $493,000$194,000 or 9.9%.3.7%. The increase is mostly related to higher trade showshows and advertising,advertising salary related, annual sales meeting, and outbound freight related expenses, partly offset by lower travel and commissions.expenses. Selling expenses increased as a percentage of net sales compared to last year, being 23.8% for the quarter ended March 31, 2026, and 21.4%22.5% for the quarter ended MarchJune 31,30, 2026, and 20.4% for the quarter ended June 30, 2025.

General and Administrative Expenses. General and administrative expenses consist primarily of employee salaries, benefits for administrative, executive and finance personnel, legal and accounting, and corporate general and administrative services. General and administrative expenses were $3,768,000$3,464,000 and $3,891,000$4,133,000 for the quarters ended MarchJune 31,30, 2026 and 2025, respectively, decreasing by $123,000$669,000 or 3.2%.16.2%. The decrease is mostly due to lower legalproduct liability reserves and productexpenses liabilityof $641,000 and incentive compensation expenses, which are aligned with profitability,profitability. partly offsetProduct byliability higherreserves stockand basedexpenses compensation,are whichlower moves in relationdue to lower lawsuit, investigation, and claims (collectively, the Company’s“Claims”) stockrelated price,expenses, including lower insurance premiums as detailedthe inCompany Notedecided 7,to Stockself-insure Basedmost product liability CompensationClaims Plans.made for its yellow-jacketed TracPipe® CSST on or after September 1, 2025. As a percentage of sales, general and administrative expenses decreased to 16.3%14.4% for the quarter ended MarchJune 31, 30, 2026 from 16.7%16.2% for the quarter ended MarchJune 31,30, 2025.

Engineering Expense. Engineering expenses consist of development expenses associated with the development of new products and enhancements to existing products, and manufacturing engineering costs. Engineering expenses were $1,512,000$1,293,000 and $1,130,000$1,350,000 for the quarters ended MarchJune 31,30, 2026 and 2025, respectively, increasingdecreasing by $382,000$57,000 or 33.8%.4.2%. The increasedecrease is mostly due to lower product development and certification related expenses. Engineering expenses increased as a percentage of sales, being 6.5%5.4% for the quarter ended MarchJune 31,30, 2026, and 4.8%5.3% for for the same quarter in 2025.

Operating Profits. Reflecting all of the factors mentioned above, operating profits were $2,311,000$3,053,000 and $4,050,000$4,722,000 for the quarters ended MarchJune 31,30, 2026 and 2025, respectively, decreasing by $1,739,000$1,669,000 or 42.9%.35.3%.

Interest Income. Interest income is recorded on cash investments, and interest expense is recorded at times when the Company has debt amounts outstanding on its line of credit. The Company recorded $456,000$428,000 of interest income for the firstsecond quarter of 2026 and $511,000$493,000 for the firstsecond quarter of 2025.2025, decreasing by $65,000 or 13.2%. The decrease is mainly due to lower interest rates.

Other (Expense) Income. Other (expense) income primarily consists of foreign currency exchange gains (losses) on transactions settled in currencies other than the Company’s local currency, typically related to the Company’s foreign U.K. and France subsidiaries. There was a lossgain of $93,000$7,000 during the firstsecond quarter of 2026 compared to a gain of $83,000$229,000 during the firstsecond quarter of 2025 mainly due to the strengthening of the U.S. dollar in the current quarter compared to the Britishweakening Pound and Euro and, conversely, the weakening of the U.S dollar in the same quartereach of 2025.the quarterly periods.

Income Tax Expense. Income tax expense was $670,000$876,000 for the firstsecond quarter of 2026, compared to $1,124,000$1,341,000 for the firstsecond quarter in 2025, decreasing $454,000$465,000 or 40.4%,34.7%, mostly the result of lower income before income taxes. The effective tax rates were 25.1% and 24.2%24.6% for the quarters ending MarchJune 31,30, 2026 and MarchJune 31,30, 2025 respectively.

As of MarchJune 31,30, 2026, the Company had a cash balance of $49,757,000.$47,905,000. Additionally, the Company has a $15,000,000 line of credit available, as discussed in detail in Note 5, which had no borrowings outstanding upon it as of MarchJune 31,30, 2026. As of December 31, 2025, the Company had a cash balance of $53,226,000, also with no borrowings against the line of credit.

For the threesix months ended MarchJune 31,30, 2026, the Company’s operating activities provided cash of $608,000,$2,377,000, compared to the threesix months ended MarchJune 31,30, 2025 which provided cash of $1,555,000,$7,013,000, a decrease of $947,000.$4,636,000. For details of the operating cash flows refer to the Condensed Consolidated Statements of Cash Flows in Part I – Financial Information on page eight.nine.

Cash used in investing activities during the threesix months ended MarchJune 31,30, 2026 and 2025 was $709,000$885,000 and $552,000,$996,000, respectively, mainly as a a result of payments for manufacturing equipment capital expenditures and leasehold improvements.

All financing activities relate to dividend payments, which are detailed in Note 9, Shareholders’ Equity. Dividend payments through the first threesix months of 2026 and 2025 amounted to $3,431,000$6,864,000 andfor $3,432,000,each respectively.period.