Omega Flex, Inc. (OFLX)

Item
7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You
should read the following discussion and analysis of our financial condition and results of operations together with our consolidated
financial statements and related notes included in this annual report. This discussion contains forward-looking statements based upon
current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth under the section titled “Risk Factors” or in other
parts of this annual report. See “Cautionary Note Regarding Forward-Looking Statements” in this annual report. Our historical
results are not necessarily indicative of the results that may be expected for any period in the future.

Overview

The
Company is a leading manufacturer of flexible metal hose and is currently engaged in a number of different markets, including construction,
manufacturing, transportation, petrochemical, pharmaceutical and other industries.

The
Company’s business is managed as a single operating segment that consists of the manufacture and sale of flexible metal hose, fittings,
and accessories. The Company’s products are concentrated in residential and commercial construction within buildings, and general
industrial markets, with a comprehensive portfolio of intellectual property and patents issued in various countries around the world.
The residential and commercial construction market also utilizes corrugated stainless steel tubing (“CSST”) primarily for
flexible gas piping. Through its flexibility and ease of use, the Company’s TracPipe® CSST and TracPipe®
CounterStrike® CSST, along with its fittings distributed under the trademark AutoFlare®, allows users
to substantially cut the time required to install gas piping, as compared to traditional methods. The Company’s newest product
line MediTrac® corrugated medical tubing (“CMT”) is used for piping medical gases (oxygen, nitrogen, nitrous
oxide, carbon dioxide, and medical vacuum) in health care facilities. Building on the recognized strengths and strategies employed in
the flexible gas piping market, MediTrac® CMT can be used in place of rigid copper pipe, and due to its long continuous
lengths and flexibility, it can be installed approximately five times faster than rigid copper pipe, saving on installation labor and
construction schedules. The Company’s products are manufactured at its Exton, Pennsylvania and Houston, Texas facilities in the
U.S., and in Banbury, Oxfordshire in the U.K. A majority of the Company’s sales across all industries are generated through independent
outside sales organizations such as sales representatives, wholesalers and distributors, or a combination of both. The Company has a
broad distribution network in North America and to a lesser extent in other global markets.

Changes
in Financial Condition

The
Company’s cash and cash equivalents balance of $51,699,000 as of December 31, 2024 increased $5,343,000 or 11.5% from a $46,356,000
balance at December 31, 2023. The primary reason for the increase is due to income generated from operations during 2024. This was partially
offset by dividend payments during 2024 totaling $13,527,000, as detailed in Note 12, Shareholders’ Equity, to the Consolidated
Financial Statements included in this report. See the Company’s Consolidated Statements of Cash Flows for further details regarding
the change in cash and cash equivalents.

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

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Results
of Operations

Twelve
months ended December 31, 2024 vs. twelve months ended December 31, 2023

The
Company reported comparative results from operations for the twelve month periods ended December 31, 2024 and 2023 as follows:

Net
Sales. The Company’s sales for the year were $101,681,000, reflecting a decrease of $9,784,000, or 8.8%, compared to $111,465,000
in the previous year. The decrease in sales is mainly due to lower sales unit volumes as a result of the overall market being suppressed
because of, among other factors, a decline in housing starts.

Gross
Profit. The Company’s gross profit margins were 61.2% and 61.3% for the years ended December 31, 2024, and 2023, respectively.

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 and $20,993,000
for 2024 and 2023, respectively, representing a decrease of $454,000, or 2.2%. The decrease is mostly related to commissions due to the
lower net sales, which were partially offset by higher travel. As a percentage of net sales, selling expenses were 20.2% and 18.8% for
the twelve months ended December 31, 2024 and 2023, 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 and $17,705,000 for the years ended December 31, 2024 and 2023, respectively, decreasing $1,620,000, or 9.1%
between periods. The incentive compensation component which is aligned with profitability decreased due to lower operating profit and
due to changes in the executive management team at the beginning of the year. In addition, product liability reserves 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. These were partly offset by increases in staffing related costs, computer and information technology related expenses,
and umbrella insurance premiums. As a percentage of net sales, general and administrative expenses were 15.8% and 15.9% for the twelve
months ended December 31, 2024 and 2023, 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 or 5.2% between periods, being
$4,068,000 and $3,868,000 for the years ended December 31, 2024 and 2023, respectively, mainly associated with increases in consulting
and staffing related costs. As a percentage of net sales for the year, engineering expenses were 4.0% in 2024 and 3.5% in 2023.

Operating
Profit. Reflecting all the factors mentioned above, operating profits decreased $4,228,000, or 16.4%, between periods, reflecting
a profit of $21,571,000 in 2024, as compared to $25,799,000 in 2023.

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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 for 2024, compared to $1,700,000
for 2023. The increase in interest income was mainly due to higher invested cash equivalent balances during 2024. There were no borrowings
on its line of credit during 2024 or 2023.

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 expense of $227,000 during 2024 and other income of $46,000 during 2023.

Income
Tax Expense. Income tax expense was $5,707,000 for 2024, compared to $6,825,000 for 2023. The $1,118,000 or 16.4% decrease in tax
expense was largely the result of the decrease in income before taxes. The effective tax rate for 2024 and 2023 was approximately 24%
and 25% of income before taxes respectively.

Commitments
and Contingencies

See
Note 7 to the Consolidated Financial Statements included in this report for a detailed description of commitments and contingencies.

Liquidity
and Capital Resources

Historically,
the Company’s primary cash needs have been related to working capital items, which the Company has largely funded through cash
generated from operations.

As
of December 31, 2024, the Company had a cash and cash equivalents balance of $51,699,000. Additionally, the Company has a $15,000,000
line of credit available, as discussed in detail in Note 6, Line of Credit and Other Borrowings, which had no borrowings outstanding
against it as of December 31, 2024. As of December 31, 2023, the Company had a cash and cash equivalents balance of $46,356,000, with
no borrowings against the line of credit.

Operating
Activities

Cash
provided by operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities, such
as those included in working capital.

For
2024, the Company’s cash provided from operating activities was $20,857,000, compared to $23,422,000 of cash provided during 2023.
This illustrates a decrease of $2,565,000 during 2024. For details of the operating cash flows refer to the Consolidated Statements of
Cash Flows in the Company’s Consolidated Financial Statements.

As
a general trend, the Company tends to deplete or generate lower amounts of cash early in the year, as significant payments are typically
made for accrued promotional incentives, incentive compensation, and taxes. Cash has then historically shown a tendency to be restored
and accumulated during the latter portion of the year.

Investing
Activities

Cash
used in investing activities during 2024 and 2023 was $2,006,000 and $1,642,000, respectively, all related to various capital expenditure
projects.

Financing
Activities

All
financing activities relate to dividend payments, which are detailed in Note 12, Shareholders’ Equity, in the Consolidated Financial
Statements included in this report. Dividend payments for 2024 and 2023 amounted to $13,527,000 and $13,124,000, respectively. The Company
had no borrowings or payments on its line of credit during 2024 or 2023 as described in Note 6, Line of Credit and Other Borrowings.

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Liquidity

We
believe our existing cash and cash equivalents, along with our borrowing capacity, will be sufficient to meet our anticipated cash needs
for at least the next twelve months. Our future capital requirements will depend upon many factors including our rate of revenue growth,
the timing and extent of any expansion efforts, the potential for investments in, or the acquisition of any complementary products, businesses,
or supplementary facilities for additional capacity.

Future
Impact of Known Trends or Uncertainties

The
Company’s operations are sensitive to a number of market and extrinsic factors, any one of which could materially adversely affect
the Company’s business, competitive position, results of operations or financial condition in any given year. See Item 1A, Risk
Factors, for a detailed description.

Critical
Accounting Policies and Estimates

Note
2, Significant Accounting Policies, to the Consolidated Financial Statements included in this report, includes a summary of the significant
accounting policies and methods used in the preparation of our Consolidated Financial Statements.

Our
discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which
have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure
of contingent assets and liabilities. We evaluate our estimates on an on-going basis. Estimates are used for, but not limited to, revenue
recognition and related sales incentives, provisions for credit losses, inventory reserves, valuation of goodwill, product liability
reserves, valuation of phantom stock, and accounting for income taxes. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. We believe our judgments related
to these accounting estimates are appropriate. Actual results may differ from these estimates under different assumptions or conditions.

Revenue
Recognition

The
Company 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 a five-step approach, which is discussed
further in the Notes to the Consolidated Financial Statements. The Company sells goods on typical, unmodified free on board (FOB) shipping
point terms. As the seller, it can be determined that the shipped goods meet the agreed-upon specifications in the contract or customer
purchase order (e.g., items, quantities, and prices) with the buyer, so customer acceptance would be deemed a formality, as noted in
ASC 606-10-55-86. As a result, the Company has a legal right to payment upon shipment of the goods. Based upon the above, the Company
has concluded that transfer of control substantively transfers to the customer upon shipment. Other than standard product warranty provisions,
the sales arrangements provide for no other post-shipment obligations. The Company offers rebates and other sales incentives, promotional
allowances, or discounts to certain customers, typically related to purchase volume, and are classified as a reduction of revenue and
recorded at the time of sale. The Company periodically evaluates whether an allowance for sales returns is necessary. Historically, the
Company has experienced minimal sales returns. If it is believed there are to be material potential sales returns, the Company will provide
the necessary provision against sales.

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Provision
for Credit Losses

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

Inventories

Inventories
are valued at the lower of cost or net realizable value. The cost of inventories is determined by the first-in, first-out (FIFO) method.
The Company generally considers inventory quantities beyond two years of usage, measured on a historical usage basis, to be excess inventory
and reduces the carrying value of inventory accordingly. These reductions to the inventory carrying values are estimates, which could
vary significantly, either favorably or unfavorably, from actual amounts if future economic conditions, sales levels, or competitive
conditions change.

Goodwill

In
accordance with FASB ASC Topic 350, Intangibles – Goodwill and Other (ASU 2017-04), using the simplified method as adopted,
the Company performed an annual impairment test as of December 31, 2024. This test did not indicate any impairment of goodwill as the
Company’s estimated fair value of the reporting unit exceeded carrying value. The test may be performed more frequently if we believe
indicators of impairment might exist. These indicators may include changes in macroeconomic and industry conditions, overall financial
performance, and other relevant entity-specific events.

Product
Liability Reserves

Product
liability reserves represent the estimated unpaid amounts under the Company’s insurance policies with respect to existing claims.
The Company uses the most current available data to estimate claims. As explained more fully under Note 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.

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Stock
Based Compensation Plans

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

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

Further
details of the 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.

Income
Taxes

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

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

Recent
Accounting Pronouncements

In
March 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation
of the Effects of Reference Rate Reform on Financial Reporting, updated in December 2022 by ASU No. 2022-06, Deferral of Sunset
Date of Topic 848. The ASUs apply to all entities that have contracts, hedging relationships, and other transactions that reference
LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASUs provide optional expedients and
exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain
criteria are met. The expedients and exceptions provided by the ASUs do not apply to contract modifications made and hedging relationships
entered into or evaluated after December 31, 2024, except for hedging relationships existing as of December 31, 2024, that an entity
has elected certain optional expedients for and that are retained through the end of the hedging relationship. ASU 2020-04, as updated
by ASU 2022-06, is effective for all entities as of March 12, 2020, through December 31, 2024. The impact of the adoption did not have
a material impact on the Company’s Consolidated Financial Statements.

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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. The Company is in the process of evaluating the impact of ASU No. 2023-09 on its 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.

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Item
7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You
should read the following discussion and analysis of our financial condition and results of operations together with our consolidated
financial statements and related notes included in this annual report. This discussion contains forward-looking statements based upon
current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth under the section titled “Risk Factors” or in other
parts of this annual report. See “Cautionary Note Regarding Forward-Looking Statements” in this annual report. Our historical
results are not necessarily indicative of the results that may be expected for any period in the future.

Overview

The
Company is a leading manufacturer of flexible metal hose and is currently engaged in a number of different markets, including construction,
manufacturing, transportation, petrochemical, pharmaceutical and other industries.

The
Company’s business is managed as a single operating segment that consists of the manufacture and sale of flexible metal hose, fittings,
and accessories. The Company’s products are concentrated in residential and commercial construction, and general industrial markets,
with a comprehensive portfolio of intellectual property and patents issued in various countries around the world. The Company’s
primary product, flexible gas piping, is used for gas piping within residential and commercial buildings. Through its flexibility and
ease of use, the Company’s TracPipe® and TracPipe® CounterStrike® flexible gas piping,
along with its fittings distributed under the trademark AutoFlare®, allows users to substantially cut the time required
to install gas piping, as compared to traditional methods. The Company’s newest product line MediTrac® corrugated
medical tubing (“CMT”) is used for piping medical gases (oxygen, nitrogen, nitrous oxide, carbon dioxide, and medical vacuum)
in health care facilities. Building on the recognized strengths and strategies employed in the flexible gas piping market, MediTrac®
CMT can be used in place of rigid copper pipe, and due to its long continuous lengths and flexibility, it can be installed approximately
five times faster than rigid copper pipe, saving on installation labor and construction schedules. The Company’s products are manufactured
at its Exton, Pennsylvania and Houston, Texas facilities in the U.S., and in Banbury, Oxfordshire in the U.K. A majority of the Company’s
sales across all industries are generated through independent outside sales organizations such as sales representatives, wholesalers
and distributors, or a combination of both. The Company has a broad distribution network in North America and to a lesser extent in other
global markets.

Changes
in Financial Condition

The
Company’s cash balance of $46,356,000 as of December 31, 2023 increased $8,653,000 (23.0%) from a $37,703,000 balance at December
31, 2022. The primary reason for the increase in cash is due to income generated from operations during 2023. This was partially offset
by dividend payments during 2023 totaling $13,124,000, as detailed in Note 12, Shareholders’ Equity, to the Consolidated Financial
Statements included in this report. See the Company’s Consolidated Statements of Cash Flows for further details regarding the change
in cash.

Accounts
Receivable were $15,361,000 and $17,503,000 as of December 31, 2023 and December 31, 2022, respectively, decreasing $2,142,000 or 12.2%.
This is mostly timing related, associated with greater cash collections resulting from higher sales during the fourth quarter of the
previous year versus the current quarter.

Inventory
was $15,597,000 and $17,764,000 as of December 31, 2023 and December 31, 2022, respectively, decreasing $2,167,000 or 12.2%. The decrease
is mainly the result of lower inventory required to be on hand as the supply chain environment has recently stabilized and due to lower
raw material costs.

Other
Liabilities were $4,390,000 and $7,530,000 as of December 31, 2023 and December 31, 2022, respectively. The decrease of $3,140,000 or
41.7% mainly relates to the payment of an accrual for legal and product liability matters associated with two cases provided for in the
previous year, which were resolved through settlement.

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Retained
earnings were $68,493,000 and $60,954,000 as of December 31, 2023 and December 31, 2022, respectively, increasing $7,539,000 or 12.4%.
The increase was primarily due to an increase from net income during the year, as provided on the Company’s Consolidated Statements
of Operations, partially offset by dividends declared during 2023, as discussed in detail in Note 12, Shareholders’ Equity, to
the Consolidated Financial Statements included in this report.

Results
of Operations

Twelve
months ended December 31, 2023 vs. twelve months ended December 31, 2022

The
Company reported comparative results from operations for the twelve month periods ended December 31, 2023 and 2022 as follows:

Net
Sales. The Company’s sales for the full year of 2023 were $111,465,000, reflecting a decrease of $14,022,000, or 11.2%, compared
to $125,487,000 in 2022. The decrease in sales is mainly due to lower sales unit volumes as a result of the overall market being suppressed
because of, among other factors, a decline in housing starts.

Gross
Profit. The Company’s gross profit margins were 61.3% and 62.4% for the years ended December 31, 2023, and 2022, respectively.
The decline in gross profit margin is mainly due to an increase in the provision for excess inventories for MediTrac® CMT
products. Higher amounts of materials for MediTrac® CMT products were initially purchased for cost considerations and
because of longer required lead times. Also, lower production, which caused lower absorption of factory labor and overhead costs, contributed
to the lower gross profit margin. Lower raw material costs, mainly for strip, partly offset the above referenced reasons for the decline
in gross profit margin.

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 $20,993,000 and $21,931,000
for 2023 and 2022, respectively, representing a decrease of $938,000, or 4.3%. The decreases are mostly related to commissions and freight.
In the previous year, commissions increased partly because of a shift of more shipments from third party warehouses, whose shipments
are subject to commission, compared to those directly from the manufacturing facilities, whose shipments are not subject to commission.
Freight costs decreased because of lower sales volumes and lower carrier rates. These decreases were partially offset by higher staffing
related costs and travel. As a percentage of net sales, selling expenses were 18.8% and 17.5% for the twelve months ended December 31,
2023 and 2022, 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 $17,705,000 and $20,625,000 for the years ended December 31, 2023 and 2022, respectively, decreasing $2,920,000, or 14.2%
between periods. Product liability reserves and expenses were lower by $3,010,000, associated primarily with two cases, which were provided
for in the previous year and subsequently resolved through settlement. There also was a decrease in the incentive compensation component
which is aligned with profitability. These were partly offset by increases in staffing related costs, umbrella insurance premiums, and
stock based compensation, which moves in relation to the Company’s stock price, as detailed in Note 8, Stock Based Compensation
Plans. As a percentage of net sales, general and administrative expenses were 15.9% and 16.4% for the twelve months ended December 31,
2023 and 2022, respectively.

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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 decreased $865,000 or 18.3% between periods, being
$3,868,000 and $4,733,000 for the years ended December 31, 2023 and 2022, respectively, mainly associated with decreases in staffing
related costs. As a percentage of net sales for the year, engineering expenses were 3.5% in 2023 and 3.8% in 2022.

Operating
Profit. Reflecting all the factors mentioned above, operating profits decreased $5,217,000, or 16.8%, between periods, reflecting
a profit of $25,799,000 in 2023, as compared to $31,016,000 in 2022.

Interest
Income. Interest income is recorded on cash investments, and interest expense is recorded at times when the Company has debt amounts
outstanding on its line of credit. The Company recorded interest income of $1,700,000 for 2023, compared to $174,000 for 2022. The increase
in interest income was mainly due to the increase in interest rates during 2023. There were no borrowings on its line of credit during
2023 or 2022.

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.
The Company recognized other income of $46,000 during 2023 and other expense of $211,000 during 2022.

Income
Tax Expense. Income tax expense was $6,825,000 for 2023, compared to $7,327,000 for 2022. The $502,000 or 6.9% decrease in tax expense
was largely the result of the decrease in income before taxes. The effective tax rate for 2023 and 2022 was at approximately 25% and
24% of income before taxes, respectively.

Twelve
months ended December 31, 2022 vs. twelve months ended December 31, 2021

For
a comparison of our results of operations for the twelve months ended December 31, 2022 vs. twelve months ended December 31, 2021, see
“Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual
Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 10, 2023.

Commitments
and Contingencies

See
Note 7, to the Consolidated Financial Statements included in this report for a detailed description of commitments and contingencies.

Liquidity
and Capital Resources

Historically,
the Company’s primary cash needs have been related to working capital items, which the Company has largely funded through cash
generated from operations.

As
of December 31, 2023, the Company had a cash balance of $46,356,000. Additionally, the Company has a $15,000,000 line of credit available,
as discussed in detail in Note 6, Line of Credit and Other Borrowings, which had no borrowings outstanding against it as of December
31, 2023. As of December 31, 2022 and December 31, 2021, the Company had cash balances of $37,703,000 and $32,913,000, respectively,
with no borrowings against the line of credit.

Operating
Activities

Cash
provided by operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities, such
as those included in working capital.

For
2023, the Company’s cash provided from operating activities was $23,422,000, compared to $15,246,000 of cash provided during 2022,
and $25,149,000 of cash provided during 2021. This illustrates an increase of $8,176,000 during 2023, versus a decrease during 2022 of
$9,903,000. For details of the operating cash flows refer to the Consolidated Statements of Cash Flows in the Company’s Consolidated
Financial Statements.

-22-

As
a general trend, the Company tends to deplete or generate lower amounts of cash early in the year, as significant payments are typically
made for accrued promotional incentives, incentive compensation, and taxes. Cash has then historically shown a tendency to be restored
and accumulated during the latter portion of the year.

Investing
Activities

Cash
used in investing activities during 2023, 2022, and 2021 was $1,642,000, $942,000, and $971,000 respectively, all related to various
capital expenditure projects.

Financing
Activities

All
financing activities relate to dividend payments, which are detailed in Note 12, Shareholders’ Equity, in the Consolidated Financial
Statements included in this report. Dividend payments for 2023, 2022, and 2021 amounted to $13,124,000, $9,489,000, and $14,867,000,
respectively. The Company had no borrowings or payments on its line of credit during 2023, 2022, or 2021 as described in Note 6, Line
of Credit and Other Borrowings.

Liquidity

We
believe our existing cash and cash equivalents, along with our borrowing capacity, will be sufficient to meet our anticipated cash needs
for at least the next twelve months. Our future capital requirements will depend upon many factors including our rate of revenue growth,
the timing and extent of any expansion efforts, the potential for investments in, or the acquisition of any complementary products, businesses,
or supplementary facilities for additional capacity.

The
Company’s primary contractual obligations as of December 31, 2023, which are due over the next twelve months, are summarized in
the following table and are more fully explained in Notes to the Consolidated Financial Statements.

*Includes the estimated current portion of the West Chester, Pennsylvania lease, with a lease commencement date of January 1, 2024. See
Note 14, Subsequent Events, in the Consolidated Financial Statements for additional details.

As
explained in Note 8, Stock Based Compensation Plans, to the Consolidated Financial Statements included in this report, the Company is
obligated to make payments to plan participants. Due to the uncertain nature of the payments, due to numerous variables, including the
potential change in stock price, and employment status of participants and any applicable forfeitures, the amounts are not disclosed
in the above table. The liability associated with this plan as of December 31, 2023, which is anticipated to be paid within the next
year, is $206,000.

Future
Impact of Known Trends or Uncertainties

The
Company’s operations are sensitive to a number of market and extrinsic factors, any one of which could materially adversely affect
the Company’s business, competitive position, results of operations or financial condition in any given year. See Item 1A, Risk
Factors, for a detailed description.

-23-

Critical
Accounting Policies and Estimates

Note
2, Significant Accounting Policies, to the Consolidated Financial Statements included in this report, includes a summary of the significant
accounting policies and methods used in the preparation of our Consolidated Financial Statements.

Our
discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which
have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure
of contingent assets and liabilities. We evaluate our estimates on an on-going basis. Estimates are used for, but not limited to, revenue
recognition and related sales incentives, provisions for credit losses, inventory reserves, valuation of goodwill, product liability
reserves, valuation of phantom stock, and accounting for income taxes. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. We believe our judgments related
to these accounting estimates are appropriate. Actual results may differ from these estimates under different assumptions or conditions.

Revenue
Recognition

The
Company’s accounting policy relating to revenue recognition reflects the impact of the adoption of Accounting Standards Codification
(“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), which is discussed further in the Notes
to the Consolidated Financial Statements. As a result of the adoption of ASC 606, the Company records revenue based upon a five-step
approach. The Company sells goods on typical, unmodified free on board (FOB) shipping point terms. As the seller, it can be determined
that the shipped goods meet the agreed-upon specifications in the contract or customer purchase order (e.g., items, quantities, and prices)
with the buyer, so customer acceptance would be deemed a formality, as noted in ASC 606-10-55-86. As a result, the Company has a legal
right to payment upon shipment of the goods. Based upon the above, the Company has concluded that transfer of control substantively transfers
to the customer upon shipment. Other than standard product warranty provisions, the sales arrangements provide for no other post-shipment
obligations. The Company offers rebates and other sales incentives, promotional allowances, or discounts to certain customers, typically
related to purchase volume, and are classified as a reduction of revenue and recorded at the time of sale. The Company periodically evaluates
whether an allowance for sales returns is necessary. Historically, the Company has experienced minimal sales returns. If it is believed
there are to be material potential sales returns, the Company will provide the necessary provision against sales.

Provision
for Credit Losses

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

Inventories

Inventories
are valued at the lower of cost or net realizable value. The cost of inventories is determined by the first-in, first-out (FIFO) method.
The Company generally considers inventory quantities beyond two years of usage, measured on a historical usage basis, to be excess inventory
and reduces the carrying value of inventory accordingly. These reductions to the inventory carrying values are estimates, which could
vary significantly, either favorably or unfavorably, from actual amounts if future economic conditions, sales levels, or competitive
conditions change.

-24-

Goodwill

In
accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 350, Intangibles – Goodwill and Other (ASU
2017-04), using the simplified method as adopted, the Company performed an annual impairment test as of December 31, 2023. This test
did not indicate any impairment of goodwill as the Company’s estimated fair value of the reporting unit exceeded carrying value.
The test may be performed more frequently if we believe indicators of impairment might exist. These indicators may include changes in
macroeconomic and industry conditions, overall financial performance, and other relevant entity-specific events.

Product
Liability Reserves

Product
liability reserves represent the estimated unpaid amounts under the Company’s insurance policies with respect to existing claims.
The Company uses the most current available data to estimate claims. As explained more fully under Note 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 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.

Stock
Based Compensation Plans

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

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

Further
details of the Plan are provided in Note 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.

-25-

Income
Taxes

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

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

Recent
Accounting Pronouncements

In
March 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation
of the Effects of Reference Rate Reform on Financial Reporting, updated in December 2022 by ASU No. 2022-06, Deferral of Sunset
Date of Topic 848. The ASUs apply to all entities that have contracts, hedging relationships, and other transactions that reference
LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASUs provide optional expedients and
exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain
criteria are met. The expedients and exceptions provided by the ASUs do not apply to contract modifications made and hedging relationships
entered into or evaluated after December 31, 2024, except for hedging relationships existing as of December 31, 2024, that an entity
has elected certain optional expedients for and that are retained through the end of the hedging relationship. ASU 2020-04, as updated
by ASU 2022-06, is effective for all entities as of March 12, 2020, through December 31, 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. The Company is in the process of evaluating the impact of ASU No. 2023-09 on its Consolidated Financial Statements.

Item
7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The
Company is a leading manufacturer of flexible metal hose and is currently engaged in a number of different markets, including construction,
manufacturing, transportation, petrochemical, pharmaceutical and other industries.

The
Company’s business is managed as a single operating segment that consists of the manufacture and sale of flexible metal hose, fittings,
and accessories. The Company’s products are concentrated in residential and commercial construction, and general industrial markets,
with a comprehensive portfolio of intellectual property and patents issued in various countries around the world. The Company’s
primary product, flexible gas piping, is used for gas piping within residential and commercial buildings. Through its flexibility and
ease of use, the Company’s TracPipe® and TracPipe® CounterStrike® flexible gas piping,
along with its fittings distributed under the trademarks AutoSnap® and AutoFlare®, allows users to substantially
cut the time required to install gas piping, as compared to traditional methods. The Company’s newest product line MediTrac®
corrugated medical tubing is used for piping medical gases (oxygen, nitrogen, nitrous oxide, carbon dioxide, and medical vacuum)
in health care facilities. Building on the recognized strengths and strategies employed in the flexible gas piping market, MediTrac®
can be used in place of rigid copper pipe, and due to its long continuous lengths and flexibility, it can be installed approximately
five times faster than rigid copper pipe, saving on installation labor and construction schedules. The Company’s products are manufactured
at its Exton, Pennsylvania and Houston, Texas facilities in the U.S., and in Banbury, Oxfordshire in the U.K. A majority of the Company’s
sales across all industries are generated through independent outside sales organizations such as sales representatives, wholesalers
and distributors, or a combination of both. The Company has a broad distribution network in North America and to a lesser extent in other
global markets.

Changes
in Financial Condition

The
Company’s cash balance of $37,703,000 on December 31, 2022 increased $4,790,000 (14.6%) from a $32,913,000 balance at December
31, 2021. The primary reason for the increase in cash is due to income generated from operations during 2022. This was partially offset
by dividend payments during 2022 totaling $9,489,000, as detailed in Note 7, Shareholders’ Equity, to the Consolidated Financial
Statements included in this report. See the Company’s Consolidated Cash Flow Statement for further details regarding the change
in cash.

Accounts
Receivable were $17,503,000 and $20,726,000 as of December 31, 2022 and December 31, 2021, respectively, decreasing $3,223,000 or 15.6%.
This is mostly timing related, associated with greater cash collections resulting from higher sales during the fourth quarter of the
previous year versus the current quarter.

Inventory
was $17,764,000 and $15,565,000 as of December 31, 2022 and December 31, 2021, respectively, increasing $2,199,000 or 14.1%. The increase
is mainly the result of the purchase of inventory to ensure enough materials on hand because of the challenging supply chain environment
and significantly increased costs.

Other
Long Term Assets were $5,871,000 and $1,702,000 as of December 31, 2022 and December 31, 2021, respectively, increasing $4,169,000 or
244.9%. The increase is due to higher inventories, which are estimated to be used beyond the next twelve months, mainly for the new corrugated
medical tubing (“CMT”) products. Higher amounts of materials for the new CMT products were initially purchased for cost considerations
and because of longer required lead times. As the market for these new products continues to develop the composition of the related inventories
is expected to become more current.

Accrued
Compensation was $3,782,000 on December 31, 2022, compared to $7,008,000 on December 31, 2021, decreasing $3,226,000 or 46.0%. A significant
portion of the liability that existed at the previous year end related to incentive compensation earned in 2021. As is customary, the
liability was then paid during the first quarter of the following year, or 2022, thus diminishing the balance. In 2022, there was a decrease
in the incentive compensation liability to align with the changes in the executive management team. The liability now represents amounts
earned during the current year.

-21-

Accrued
Commissions and Sales Incentives were $4,996,000 and $7,183,000 as of December 31, 2022 and December 31, 2021, respectively, decreasing
$2,187,000 or 30.4%. The decrease is the result of lower sales which did not allow most of our customers to achieve growth tiers as defined
within their sales incentive agreements.

Other
Liabilities were $7,530,000 and $4,864,000 as of December 31, 2022 and December 31, 2021, respectively. The increase of $2,666,000 or
54.8% mainly relates to accruals for legal and product liability matters associated mainly with two cases, one which was resolved through
settlement and the other is pending which the Company continues to vigorously defend.

Retained
earnings were $60,954,000 and $50,053,000 as of December 31, 2022 and December 31, 2021, respectively, increasing $10,901,000 or 21.8%.
The increase was primarily due to an increase from net income during the year, as provided on the Company’s Consolidated Statement
of Operations, partially offset by dividends declared during 2022, as discussed in detail in Note 7, Shareholders’ Equity, to the
Consolidated Financial Statements included in this report.

Results
of Operations

Twelve
months ended December 31, 2022 vs. twelve months ended December 31, 2021

The
Company reported comparative results from operations for the twelve month periods ended December 31, 2022 and 2021 as follows:

Net
Sales. The Company’s sales for the full year of 2022 were $125,487,000, reflecting a decrease of $4,524,000, or 3.5%, compared
to $130,011,000 in 2021. The decrease in sales resulted mostly from a decrease in unit volume. The effect of the lower sales volumes
was mostly offset by pricing actions to offset material cost pressure and to protect margins.

Gross
Profit. The Company’s gross profit margins were 62.4% and 62.7% for the years ended December 31, 2022, and 2021, respectively.
Similar to the previous year, the Company was able to maintain margins similar to prior year levels despite rising material commodity
costs which were mainly offset by increases in selling prices.

Selling
Expenses. Selling expenses consist primarily of employee salaries and associated overhead costs, commissions, and the cost of marketing
programs such as advertising, trade shows and related communication costs, and freight. Selling expenses were $21,931,000 and $20,429,000
for 2022 and 2021, respectively, representing an increase of $1,502,000, or 7.4%. The increases primarily related to costs for resumption
of travel and other marketing efforts, which were lower in the 2021 period mainly due to the COVID-19 pandemic. Staffing related expenses
and commissions were also higher. Commissions increased because of a shift of shipments from third party warehouses, whose shipments
are subject to commission, compared to those directly from the manufacturing facilities, whose shipments are not subject to commission.
Freight was lower mainly because of the lower sales. As a percentage of net sales, selling expenses were 17.5% and 15.7% for the twelve
months ended December 31, 2022 and 2021, respectively.

-22-

General
and Administrative Expenses. General and administrative expenses consist primarily of employee salaries, benefits for administrative,
executive and finance personnel, legal and accounting, insurance, and corporate general and administrative services. General and administrative
expenses were $20,625,000 and $21,430,000 for the years ended December 31, 2022 and 2021, respectively, decreasing $805,000, or 3.8%
between periods. There was a decrease in the incentive compensation component, which is aligned with profitability of $3,189,000, mainly
because of the changes in the executive management team, and there was a reduction in expense pertaining to stock based compensation
which moves in relation to the Company’s stock price, as detailed in Note 12, Stock Based Compensation Plans. Items which increased
from the previous year include legal and product liability expenses, associated mainly with two cases, one which was resolved through
settlement and the other is pending, and salary related expenses. As a percentage of net sales, general and administrative expenses were
16.4% and 16.5% for the twelve months ended December 31, 2022 and 2021, respectively.

Engineering
Expenses. Engineering expenses consist of development expenses associated with the development of new products, and costs related
to enhancements of existing products and manufacturing processes. Engineering expenses increased $123,000 or 2.7% between periods, being
$4,733,000 and $4,610,000 for the years ended December 31, 2022 and 2021, respectively. As a percentage of net sales for the year, engineering
expenses were 3.8% in 2022 and 3.6% in 2021.

Operating
Profit. Reflecting all the factors mentioned above, operating profits decreased $4,046,000, or 11.5%, between periods, reflecting
a profit of $31,016,000 in 2022, as compared to $35,062,000 in 2021.

Interest
Income. Interest income is recorded on cash investments, and interest expense is recorded at times when the Company has debt amounts
outstanding on its line of credit. The Company recorded interest income of $174,000 for 2022, compared to $35,000 for 2021. The increase
in interest income was because of the increase in interest rates during the last six months of 2022. There were no borrowings on its
line of credit during 2022 and 2021.

Other
Income (Expense). Other income (expense) primarily consists of foreign currency exchange gains (losses) on transactions within our
foreign subsidiaries, and therefore tends to fluctuate with the strengthening and or weakening of the British Pound. The Company recognized
other expense of $211,000 during 2022 and other income of $21,000 during 2021.

Income
Tax Expense. Income tax expense was $7,327,000 for 2022, compared to $8,862,000 for 2021. The $1,535,000 or 17.3% decrease in tax
expense was largely the result of the decrease in income before taxes and from the reduction of non-deductible incentive compensation
to align with the changes in the executive management team. The effective tax rate for 2022 and 2021 was at approximately 24% and 25%
of income before taxes, respectively.

Twelve
months ended December 31, 2021 vs. twelve months ended December 31, 2020

The
Company reported comparative results from operations for the twelve month periods ended December 31, 2021 and 2020 as follows:

Net
Sales. The Company’s sales for the full year of 2021 were $130,011,000, reflecting an increase of $24,215,000, or 22.9%, compared
to $105,796,000 in 2020. The increase in sales resulted mostly from an increase in unit volume, which was in some measure impacted by
the COVID-19 pandemic in the previous year, as well as increases to selling prices that were necessary to help offset rising material
commodity costs.

-23-

Gross
Profit. The Company’s gross profit margins were 62.7% and 62.9% for the years ended December 31, 2021, and 2020, respectively.
The Company was able to maintain margins similar to prior year levels despite rising material commodity costs, which were mainly offset
by increases in selling prices.

Selling
Expenses. Selling expenses consist primarily of employee salaries and associated overhead costs, commissions, and the cost of marketing
programs such as advertising, trade shows and related communication costs, and freight. Selling expenses were $20,429,000 and $16,580,000
for 2021 and 2020, respectively, representing an increase of $3,849,000, or 23.2%. The most significant increases included commissions
and freight, driven by the increase in sales. In addition, sales personnel were added in France and advertising, trade shows and travel
returned to more expected levels as these were restricted in the previous year due to the COVID-19 pandemic. For the same annual periods,
selling expense as a percentage of net sales was consistent at 15.7%.

General
and Administrative Expenses. General and administrative expenses consist primarily of employee salaries, benefits for administrative,
executive and finance personnel, legal and accounting, insurance, and corporate general and administrative services. General and administrative
expenses were $21,430,000 and $19,117,000 for the years ended December 31, 2021 and 2020, respectively, increasing $2,313,000, or 12.1%
between periods. Incentive compensation was derived from two notable yet partly offsetting components. There was an increase in the incentive
compensation component which is aligned with profitability; however, this was partially offset by a reduction in expense pertaining to
stock based compensation which moves in relation to the Company’s stock price, as detailed in Note 12, Stock Based Compensation
Plans. Other items increasing from the previous year include legal and product liability expenses and director fees. As a percentage
of net sales, general and administrative expenses were 16.5% and 18.1% for the twelve months ended December 31, 2021 and 2020, respectively.

Engineering
Expenses. Engineering expenses consist of development expenses associated with the development of new products, and costs related
to enhancements of existing products and manufacturing processes. Engineering expenses increased $410,000 or 9.8% between periods, being
$4,610,000 and $4,200,000 for the years ended December 31, 2021 and 2020, respectively. The increase was primarily attributable to an
increase in staffing, mainly in the U.K., and certification and qualification expenses. As a percentage of net sales for the year, engineering
expenses were 3.6% in 2021 and 4.0% in 2020.

Operating
Profit. Reflecting all the factors mentioned above, operating profits increased $8,409,000, or 31.6%, between periods, reflecting
a profit of $35,062,000 in 2021, as compared to $26,653,000 in 2020.

Interest
Income. Interest income is recorded on cash investments, and interest expense is recorded at times when the Company has debt amounts
outstanding on its line of credit. The Company recorded interest income of $35,000 for 2021, compared to interest expense of $39,000
for 2020. The decrease in interest expense and increase in interest income was largely due to the interest expense incurred on the borrowings
of $15,000,000 on its line of credit for a portion of the second quarter of 2020 to ensure liquidity during the COVID-19 pandemic. There
were no borrowings on its line of credit during 2021.

Other
Income (Expense). Other income (expense) primarily consists of foreign currency exchange gains (losses) on transactions within our
foreign subsidiaries, and therefore tends to fluctuate with the strengthening and or weakening of the British Pound. The Company recognized
other income of $21,000 during 2021 and other expense of $53,000 during 2020.

Income
Tax Expense. Income tax expense was $8,862,000 for 2021, compared to $6,594,000 for 2020. The $2,268,000 or 34.4% increase in tax
expense was largely the result of the increase in income before taxes. The effective tax rate for both periods was similar at approximately
25% of income before taxes.

-24-

Commitments
and Contingencies

See
Note 11, to the Consolidated Financial Statements included in this report for a detailed description of commitments and contingencies.

Liquidity
and Capital Resources

Historically,
the Company’s primary cash needs have been related to working capital items, which the Company has largely funded through cash
generated from operations.

As
of December 31, 2022, the Company had a cash balance of $37,703,000. Additionally, the Company has a $15,000,000 line of credit
available, as discussed in detail in Note 6, Line of Credit and Other Borrowings, which had no borrowings outstanding against it as
of December 31, 2022. On December 31, 2021 and December 31, 2020, the Company had cash balances of $32,913,000 and $23,633,000,
respectively, with no borrowings against the line of credit.

Operating
Activities

Cash
provided by operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities, such
as those included in working capital.

For
2022, the Company’s cash provided from operating activities was $15,246,000, compared to $25,149,000 of cash provided during 2021,
and $19,310,000 of cash provided during 2020. This illustrates a decrease of $9,903,000 during 2022, versus an increase during 2021 of
$5,839,000. For details of the operating cash flows refer to the consolidated statements of cash flows in Item 8. Financial Statements
and Supplementary Data on page 40.

As
a general trend, the Company tends to deplete or generate lower amounts of cash early in the year, as significant payments are typically
made for accrued promotional incentives, incentive compensation, and taxes. Cash has then historically shown a tendency to be restored
and accumulated during the latter portion of the year.

Investing
Activities

Cash
used in investing activities during 2022, 2021, and 2020 was $942,000, $971,000, and $564,000 respectively, all related to various capital
expenditure projects.

Financing
Activities

All
financing activities relate to dividend payments, which are detailed in Note 7, Shareholders’ Equity, in the Consolidated Financial
Statements included in this report. Dividend payments for 2022, 2021, and 2020 amounted to $9,489,000, $14,867,000, and $11,306,000,
respectively. Also, see Note 6, Line of Credit and Other Borrowings, for a description of borrowings and repayments during the second
quarter of 2020. The Company had no borrowings or payments on its line of credit during 2022 or 2021.

Liquidity

We
believe our existing cash and cash equivalents, along with our borrowing capacity, will be sufficient to meet our anticipated cash needs
for at least the next twelve months. Our future capital requirements will depend upon many factors including our rate of revenue growth,
the timing and extent of any expansion efforts, the potential for investments in, or the acquisition of any complementary products, businesses,
or supplementary facilities for additional capacity.

-25-

The
Company’s primary contractual obligations as of December 31, 2022, which are due over the next twelve months, are summarized in
the following table and are more fully explained in Notes to the Consolidated Financial Statements.

As
explained in Note 12, Stock Based Compensation Plans, to the Consolidated Financial Statements included in this report, the Company is
obligated to make payments to plan participants. Due to the uncertain nature of the payments, due to numerous variables, including the
potential change in stock price, and employment status of participants and any applicable forfeitures, the amounts are not disclosed
in the above table. The liability associated with this plan as of December 31, 2022, which is anticipated to be paid within the next
year, is $665,000.

Future
Impact of Known Trends or Uncertainties

The
Company’s operations are sensitive to a number of market and extrinsic factors, any one of which could materially adversely affect
the Company’s business, competitive position, results of operations or financial condition in any given year. See Item 1A, Risk
Factors, for a detailed description.

Critical
Accounting Policies and Estimates

Note
2, Significant Accounting Policies, to the Consolidated Financial Statements included in this report, includes a summary of the significant
accounting policies and methods used in the preparation of our Consolidated Financial Statements.

Our
discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which
have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure
of contingent assets and liabilities. We evaluate our estimates on an on-going basis. Estimates are used for, but not limited to, revenue
recognition and related sales incentives, provisions for credit losses, inventory reserves, valuation of goodwill, product liability
reserves, valuation of phantom stock, and accounting for income taxes. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. We believe our judgments related
to these accounting estimates are appropriate. Actual results may differ from these estimates under different assumptions or conditions.

Revenue
Recognition

The
Company’s accounting policy relating to revenue recognition reflects the impact of the adoption of Accounting Standards Codification
(“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), which is discussed further in the Notes
to the Consolidated Financial Statements. As a result of the adoption of ASC 606, the Company records revenue based upon a five-step
approach. The Company sells goods on typical, unmodified free on board (FOB) shipping point terms. As the seller, it can be determined
that the shipped goods meet the agreed-upon specifications in the contract or customer purchase order (e.g., items, quantities, and prices)
with the buyer, so customer acceptance would be deemed a formality, as noted in ASC 606-10-55-86. As a result, the Company has a legal
right to payment upon shipment of the goods. Based upon the above, the Company has concluded that transfer of control substantively transfers
to the customer upon shipment. Other than standard product warranty provisions, the sales arrangements provide for no other post-shipment
obligations. The Company offers rebates and other sales incentives, promotional allowances, or discounts to certain customers, typically
related to purchase volume, and are classified as a reduction of revenue and recorded at the time of sale. The Company periodically evaluates
whether an allowance for sales returns is necessary. Historically, the Company has experienced minimal sales returns. If it is believed
there are to be material potential sales returns, the Company will provide the necessary provision against sales.

-26-

Provision
for Credit Losses

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

Inventories

Inventories
are valued at the lower of cost or net realizable value. The cost of inventories is determined by the first-in, first-out (FIFO) method.
The Company generally considers inventory quantities beyond two years of usage, measured on a historical usage basis, to be excess inventory
and reduces the carrying value of inventory accordingly. These reductions to the inventory carrying values are estimates, which could
vary significantly, either favorably or unfavorably, from actual amounts if future economic conditions, sales levels, or competitive
conditions change.

Goodwill

In
accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 350, Intangibles – Goodwill and Other (ASU
2017-04), using the simplified method as adopted, the Company performed an annual impairment test as of December 31, 2022. This test
did not indicate any impairment of goodwill as the Company’s estimated fair value of the reporting unit exceeded carrying value.
The test may be performed more frequently if we believe indicators of impairment might exist. These indicators may include changes in
macroeconomic and industry conditions, overall financial performance, and other relevant entity-specific events.

Product
Liability Reserves

Product
liability reserves represent the estimated unpaid amounts under the Company’s insurance policies with respect to existing claims.
The Company uses the most current available data to estimate claims. As explained more fully under Note 11, Commitments and Contingencies,
to the Consolidated Financial Statements included in this report for various product liability claims covered under the Company’s
general liability insurance policies, the Company must pay certain defense and settlement costs within its deductible or self-insured
retention limits, ranging primarily from $25,000 to $3,000,000 per claim, depending on the terms of the policy in the applicable policy
year, up to an aggregate amount. The Company is vigorously defending against all known claims. It is possible that the Company may incur
increased litigation costs in the future due to a variety of factors, including a higher number of claims, higher legal costs, and higher
insurance deductibles or retentions. Litigation is subject to many uncertainties and management is unable to predict the outcome of the
pending suits and claims. From time to time, depending upon the nature of a particular case, the Company may decide to spend more than
a deductible or retention to enable more discretion regarding the defense, although this is not common. It is possible that the results
of operations or liquidity of the Company, as well as the Company’s ability to procure reasonably priced insurance, could be adversely
affected by the pending litigation, potentially materially. The Company is currently unable to estimate the ultimate liability, 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.

-27-

Stock
Based Compensation Plans

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

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

Further
details of the Plan are provided in Note 12, Stock Based Compensation Plans, to the Consolidated Financial Statements included in
this report. Any significant changes in the Company’s stock price may have a material impact upon the valuation of the
Units.

Income
Taxes

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

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

Recent
Accounting Pronouncements

In
March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform
on Financial Reporting. The ASU applies to all entities that have contracts, hedging relationships, and other transactions that reference
LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASU provides optional expedients and
exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain
criteria are met. The expedients and exceptions provided by the ASU do not apply to contract modifications made and hedging relationships
entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity
has elected certain optional expedients for and that are retained through the end of the hedging relationship. The ASU is effective for
all entities as of March 12, 2020 through December 31, 2022. The impact of the adoption of ASU 2020-04 did not have a material impact
on the Company’s Consolidated Financial Statements.

In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The guidance
removes certain exceptions for recognizing deferred taxes for equity method investments, performing intraperiod allocation, and calculating
income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes
for goodwill and allocating taxes to members of a consolidated group, among others. The amendments in ASU 2019-12 are effective for public
business entities for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard
is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company adopted
this new guidance, and it did not have a material impact on its Consolidated Financial Statements.

Item
7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This
report contains forward-looking statements, which are subject to inherent uncertainties. These uncertainties include, but are not limited
to, variations in weather, changes in the regulatory environment, customer preferences, general economic conditions, increased competition,
the outcome of outstanding litigation, and future developments affecting environmental matters. All of these are difficult to predict,
and many are beyond the ability of the Company to control.

Certain
statements in this Annual Report on Form 10-K that are not historical facts, but rather reflect the Company’s current expectations
concerning future results and events, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. The words “believes”, “expects”, “intends”, “plans”, “anticipates”,
“hopes”, “likely”, “will”, and similar expressions identify such forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results,
performance or achievements of the Company, or industry results, to differ materially from future results, performance or achievements
expressed or implied by such forward-looking statements.

Readers
are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s view only as of the date
of this Form 10-K. The Company undertakes no obligation to update the result of any revisions to these forward-looking statements which
may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, conditions,
or circumstances.

OVERVIEW

The
Company is a leading manufacturer of flexible metal hose and is currently engaged in a number of different markets, including construction,
manufacturing, transportation, petrochemical, pharmaceutical and other industries.

The
Company’s business is managed as a single operating segment that consists of the manufacture and sale of flexible metal hose, fittings,
and accessories. The Company’s products are concentrated in residential and commercial construction, and general industrial markets,
with a comprehensive portfolio of intellectual property and patents issued in various countries around the world. The Company’s
primary product, flexible gas piping, is used for gas piping within residential and commercial buildings. Through its flexibility and
ease of use, the Company’s TracPipe® and TracPipe® CounterStrike® flexible gas piping,
along with its fittings distributed under the trademarks AutoSnap® and AutoFlare®, allows users to substantially
cut the time required to install gas piping, as compared to traditional methods. The Company’s newest product line MediTrac®
corrugated medical tubing is used for piping medical gases (oxygen, nitrogen, nitrous oxide, carbon dioxide, and medical vacuum)
in health care facilities. Building on the recognized strengths and strategies employed in the flexible gas piping market, MediTrac®
can be used in place of rigid copper pipe, and due to its long continuous lengths and flexibility, it can be installed approximately
five times faster than rigid copper pipe, saving on installation labor and construction schedules. The Company’s products are manufactured
at its Exton, Pennsylvania and Houston, Texas facilities in the U.S., and in Banbury, Oxfordshire in the U.K. A majority of the Company’s
sales across all industries are generated through independent outside sales organizations such as sales representatives, wholesalers
and distributors, or a combination of both. The Company has a broad distribution network in North America and to a lesser extent in other
global markets.

-21-

CHANGES
IN FINANCIAL CONDITION

The
Company’s cash balance of $32,913,000 at December 31, 2021 increased $9,280,000 (39.3%) from a $23,633,000 balance at December
31, 2020. The primary reason for the increase in cash related to income generated from operations during 2021. This was partially offset
by dividend payments during 2021 totaling $14,867,000, as detailed in Note 6, Shareholders’ Equity, to the Consolidated Financial
Statements included in this report. See the Company’s Consolidated Cash Flow Statement for further details regarding the change
in cash.

Inventory
was $15,565,000 and $11,510,000 as of December 31, 2021 and December 31, 2020, respectively, increasing $4,055,000 or 35.2%. The increase
is mainly the result of the purchase of inventory in anticipation of stronger customer demand and to ensure enough materials on hand
because of sporadic supply chain issues.

Accrued
Commissions and Sales Incentives were $7,183,000 and $4,348,000 as of December 31, 2021 and December 31, 2020, respectively, increasing
$2,835,000 or 65.2%. The increase is the result of higher sales which allowed for many of our customers to achieve growth tiers as defined
within their sales incentive agreements.

Retained
earnings were $50,053,000 and $35,769,000 as of December 31, 2021 and December 31, 2020, respectively, increasing $14,284,000 or 39.9%.
The increase was primarily due to an increase in net income during the year, as provided on the Company’s Consolidated Statement
of Operations, partially offset by dividends declared during 2021, as discussed in detail in Note 6, Shareholders’ Equity, to the
Consolidated Financial Statements included in this report.

RESULTS
OF OPERATIONS

Twelve-months
ended December 31, 2021 vs. twelve months ended December 31, 2020

The
Company reported comparative results from operations for the twelve-month periods ended December 31, 2021 and 2020 as follows:

Net
Sales. The Company’s sales for the full year of 2021 were $130,011,000, reflecting an increase of $24,215,000, or 22.9%, compared
to $105,796,000 in 2020. The increase in sales resulted mostly from an increase in unit volume, which was in some measure impacted by
the COVID-19 pandemic in the previous year, as well as increases to selling prices that were necessary to help offset rising material
commodity costs.

Gross
Profit. The Company’s gross profit margins were 62.7% and 62.9% for the years ended December 31, 2021, and 2020, respectively.
The Company was able to maintain margins similar to prior year levels despite rising material commodity costs which were mainly offset
by increases to selling prices.

Selling
Expenses. Selling expenses consist primarily of employee salaries and associated overhead costs, commissions, and the cost of marketing
programs such as advertising, trade shows and related communication costs, and freight. Selling expense was $20,429,000 and $16,580,000
for 2021 and 2020, respectively, representing an increase of $3,849,000, or 23.2%. The most significant increases included commissions
and freight, driven by the increase in sales. In addition, sales personnel were added in France and advertising, trade shows and travel
returned to more expected levels as these were restricted in the previous year due to the COVID-19 pandemic. For the same annual periods,
selling expense as a percentage of net sales was consistent at 15.7%.

-22-

General
and Administrative Expenses. General and administrative expenses consist primarily of employee salaries, benefits for administrative,
executive and finance personnel, legal and accounting, insurance, and corporate general and administrative services. General and administrative
expenses were $21,430,000 and $19,117,000 for the years ended December 31, 2021 and 2020, respectively, increasing $2,313,000, or 12.1%
between periods. Incentive compensation was derived from two notable yet partly offsetting components. There was an increase in the incentive
compensation component which is aligned with profitability; however, this was partially offset by a reduction in expense pertaining to
stock based compensation which moves in relation to the Company’s stock price, as detailed in Note 11, Stock Based Compensation
Plans. Other items increasing from the previous year include legal and product liability expenses and director fees. As a percentage
of net sales, general and administrative expenses were 16.5% and 18.1% for the twelve-months ended December 31, 2021 and 2020, respectively.

Engineering
Expenses. Engineering expenses consist of development expenses associated with the development of new products, and costs related
to enhancements of existing products and manufacturing processes. Engineering expenses increased $410,000 or 9.8% between periods, being
$4,610,000 and $4,200,000 for the years ended December 31, 2021 and 2020, respectively. The increase was primarily attributable to an
increase in staffing, mainly in the U.K., and certification and qualification expenses. As a percentage of net sales for the year, engineering
expenses were 3.6% in 2021 and 4.0% in 2020.

Operating
Profit. Reflecting all of the factors mentioned above, operating profits increased $8,409,000, or 31.6%, between periods, reflecting
a profit of $35,062,000 in 2021, as compared to $26,653,000 in 2020.

Interest
Income. Interest income is recorded on cash investments, and interest expense is recorded at times when the Company has debt amounts
outstanding on its line of credit. The Company recorded interest income of $35,000 for 2021, compared to interest expense of $39,000
for 2020. The decrease in interest expense and increase in interest income was largely due to the interest expense incurred on the borrowings
of $15,000,000 on its line of credit for a portion of the second quarter of 2020 to ensure liquidity during the COVID-19 pandemic. There
were no borrowings on its line of credit during 2021.

Other
Income (Expense). Other income (expense) primarily consists of foreign currency exchange gains (losses) on transactions within our
foreign subsidiaries, and therefore tends to fluctuate with the strengthening and or weakening of the British Pound. The Company recognized
other income of $21,000 during 2021 and other expense of $53,000 during 2020.

Income
Tax Expense. Income tax expense was $8,862,000 for 2021, compared to $6,594,000 for 2020. The $2,268,000 or 34.4% increase in tax
expense was largely the result of the increase in income before taxes. The effective tax rate for both periods was similar at approximately
25% of income before taxes.

Twelve-months
ended December 31, 2020 vs. twelve months ended December 31, 2019

The
Company reported comparative results from operations for the twelve-month periods ended December 31, 2020 and 2019 as follows:

-23-

Net
Sales. The Company’s sales for the full year of 2020 were $105,796,000, reflecting a decrease of $5,564,000, or 5.0%, compared
to $111,360,000 in 2019. The decrease in sales resulted mostly from a decrease in unit volume, which was in some measure impacted by
the COVID-19 pandemic, partially offset by a mild increase to selling prices that was necessary to help offset a rise in material commodity
costs.

Gross
Profit. The Company’s gross profit margins were 62.9% and 63.3% for the twelve-months ended December 31, 2020 and 2019, respectively.
The Company was able to maintain margins like prior year levels despite COVID-19 disruptions, such as increased costs to sanitize the
factory and equipment, inefficiencies from staggered work shifts and overtime costs due to employees being quarantined, as well as unabsorbed
overhead.

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 expense was $16,580,000 and $19,032,000
for 2020 and 2019, respectively, representing a decrease of $2,452,000, or 12.9%. The most significant reduction relates to atypical
consulting costs identified during 2019, attributable to the Company’s new product, MediTrac® flexible medical gas
piping. The Company also experienced decreases in travel and advertising during 2020, mostly related to restrictions stemming from the
pandemic. Commissions were also down due to the decrease in sales. Conversely, the Company expanded its sales related staffing resources.
For the same periods, selling expense as a percentage of net sales was 15.7% and 17.1%, 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 $19,117,000 and $24,818,000 for the years ended December 31, 2020 and 2019, respectively, decreasing $5,701,000, or 23%
between periods. Legal and product liability defense costs decreased $5,158,000, associated primarily with one class action case which
was dismissed during 2020, as explained in detail in Note 10, Commitments and Contingencies, of the Consolidated Financial Statements
to this report. Professional fees and director related fees were also lower. Those items were softened by an increase to incentive compensation,
which although not significant in total, was derived from two notable yet mostly offsetting components. There was an increase in the
incentive compensation component which is aligned with profitability; however, there was a reduction in stock based compensation expense
which moves in relation to the Company’s stock price, as detailed in Note 11, Stock Based Compensation Plans. As a percentage of
net sales, general and administrative expenses were 18.1% and 22.3% for the twelve-months ended December 31, 2020 and 2019, 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 decreased $515,000 or 10.9% between periods, being
$4,200,000 and $4,715,000 for the years ended December 31, 2020 and 2019, respectively. The decrease was primarily attributable to a
reduction in experimental materials that diminished after the work was completed on various promising applications during 2019, and to
a lesser extent travel. As a percentage of net sales for the year, engineering expenses were 4.0% in 2020 and 4.2% in 2019.

Operating
Profit. Reflecting all of the factors mentioned above, operating profits increased $4,731,000, or 21.6%, between periods, reflecting
a profit of $26,653,000 in 2020, as compared to $21,922,000 in 2019.

Interest
Income. Interest income is recorded on cash investments, and interest expense is recorded at times when the Company has debt amounts
outstanding on its line of credit. The Company recorded interest expense of $39,000 for 2020, compared to interest income of $876,000
for 2019. The reduction in interest income was largely due to the lower cash balance and thus reduced investment, mostly resulting from
the $35,330,000 special dividend paid in December 2019. Additionally, the Company had borrowed $15,000,000 on its line of credit for
a portion of the second quarter of 2020 to ensure liquidity during the COVID-19 crisis. Earning potential on short-term liquid investments
has also diminished in comparison to this time last year.

-24-

Other
Income (Expense). Other income (expense) primarily consists of foreign currency exchange gains (losses) on transactions within our
foreign subsidiaries, and therefore tends to fluctuate with the strengthening and or weakening of the British Pound. The Company recognized
other expense of $53,000 during 2020 and other income of $56,000 during 2019.

Income
Tax Expense. Income tax expense was $6,594,000 for 2020, compared to $5,429,000 for 2019. The $1,165,000 or 21.5% increase in tax
expense was largely the result of the increase in income before taxes. The effective tax rate for both periods was similar at approximately
24% to 25% of income before taxes.

COMMITMENTS
AND CONTINGENCIES

See
Note 10, to the Consolidated Financial Statements included in this report for a detailed description of commitments and contingencies.

FUTURE
IMPACT OF KNOWN TRENDS OR UNCERTAINTIES

The
Company’s operations are sensitive to a number of market and extrinsic factors, any one of which could materially adversely affect
the Company’s business, competitive position, results of operations or financial condition in any given year. See Item 1A, Risk
Factors, for a detailed description.

LIQUIDITY
AND CAPITAL RESOURCES

Historically,
the Company’s primary cash needs have been related to working capital items, which the Company has largely funded through cash
generated from operations.

As
of December 31, 2021, the Company had a cash balance of $32,913,000. Additionally, the Company has a $15,000,000 line of credit available,
as discussed in detail in Note 5, which had no borrowings outstanding against it as of December 31, 2021. On December 31, 2020, the Company
had a cash balance of $23,633,000, with no borrowings against the line of credit.

Operating
Activities

Cash
provided by operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities, such
as those included in working capital.

For
2021, the Company’s cash provided from operating activities was $25,149,000, compared to $19,310,000 of cash provided during 2020,
and $16,041,000 of cash provided during 2019. This illustrates an increase of $5,839,000 during 2021, versus an increase during 2020
of $3,269,000. For details of the operating cash flows refer to the consolidated statements of cash flows in Item 8. Financial Statements
and Supplementary Data on page 37.

As
a general trend, the Company tends to deplete or generate lower amounts of cash early in the year, as significant payments are typically
made for accrued promotional incentives, incentive compensation, and taxes. Cash has then historically shown a tendency to be restored
and accumulated during the latter portion of the year. However, as previously disclosed, during December 2019, the Company liquidated
its investments to support the payment of a special dividend to shareholders totaling $35,330,000.

Investing
Activities

Cash
used in investing activities during 2021 and 2020 was $971,000 and $564,000 respectively, all related to various capital expenditure
projects.

-25-

Cash
provided by investing activities during 2019 was $13,719,000, with most of the transactions related to the purchase and/or sale of short-term
investments. During December 2019, the Company liquidated all its existing short-term investments to support the payment of a special
dividend to shareholders. In total, cash proceeds from the sale of short-term investments during 2019 was $70,882,000. Inversely, cash
used for the purchase of the short-term investments during 2019 was $55,938,000. Cash was also used to purchase capital expenditures
of $1,225,000, mostly related to the new MediTrac® products.

Financing
Activities

All
financing activities relate to dividend payments, which are detailed in Note 6, Shareholders’ Equity. Dividend payments for 2021,
2020, and 2019 amounted to $14,867,000, $11,306,000, and $46,028,000, respectively. 2019 included the payment of a special dividend,
which is primarily why the cash outflow in that year is higher. Dividend payments are outlined in Note 6, Shareholders’ Equity,
to the Consolidated Financial Statements included in this report. Also, see Note 5, Line of Credit and Other Borrowings, for a description
of borrowings and repayments during the second quarter of 2020. The Company had no borrowings or payments on its line of credit during
2021 or 2019.

Liquidity

We
believe our existing cash and cash equivalents, along with our borrowing capacity, will be sufficient to meet our anticipated cash needs
for at least the next twelve months. Our future capital requirements will depend upon many factors including our rate of revenue growth,
the timing and extent of any expansion efforts, the potential for investments in, or the acquisition of any complementary products, businesses
or supplementary facilities for additional capacity, and the COVID-19 pandemic.

The
Company’s primary contractual obligations as of December 31, 2021, which are due over the next twelve months are summarized in
the following table and are more fully explained in Notes to the Consolidated Financial Statements.

As
explained in Note 11, Stock Based Compensation Plans, to the Consolidated Financial Statements included in this report, the Company is
obligated to make payments to plan participants. Due to the uncertain nature of the payments, due to numerous variables, including the
potential change in stock price, and employment status of participants and any applicable forfeitures, the amounts are not disclosed
in the above table. The liability associated with this plan as of December 31, 2021, which is anticipated to be paid within the next
year is $1,156,000.

RECENT
ACCOUNTING PRONOUNCEMENTS

In
March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform
on Financial Reporting. The ASU applies to all entities that have contracts, hedging relationships, and other transactions that reference
LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASU provides optional expedients and
exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain
criteria are met. The expedients and exceptions provided by the ASU do not apply to contract modifications made and hedging relationships
entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity
has elected certain optional expedients for and that are retained through the end of the hedging relationship. The ASU is effective for
all entities as of March 12, 2020 through December 31, 2022. The impact of the adoption of ASU 2020-04 did not have a material impact
on the Company’s Consolidated Financial Statements.

In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The guidance
removes certain exceptions for recognizing deferred taxes for equity method investments, performing intraperiod allocation, and calculating
income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes
for goodwill and allocating taxes to members of a consolidated group, among others. The amendments in ASU 2019-12 are effective for public
business entities for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard
is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company adopted
this new guidance, and it did not have a material impact on its Consolidated Financial Statements.