NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.
BASIS OF PRESENTATION AND CONSOLIDATION
Description
of Business
The
accompanying Consolidated Financial Statements include the accounts of Omega Flex, Inc. (Omega) and its subsidiaries (collectively the
“Company”). The Company’s audited Consolidated Financial Statements for the years ended December 31, 2022, 2021 and
2020 have been prepared in accordance with accounting standards set by the Financial Accounting Standards Board (FASB) and Article 5
of Regulation S-X. All material intercompany accounts and transactions have been eliminated in consolidation.
The
Company is a leading manufacturer of flexible metal hose, which is used in a variety of applications to carry gases and liquids within
their particular applications. The Company’s business is controlled as a single operating segment that consists of the manufacture
and sale of flexible metal hose and accessories. These applications
include carrying fuel gases within residential and commercial buildings; gasoline and diesel gasoline products (both above and below
the ground) in a double containment piping to contain any possible leaks, which is used in automotive and marina refueling, and fueling
for back-up generation; and medical gases in health care facilities. The Company’s flexible metal piping is also used to carry other types of gases and fluids in a number of industrial
applications where the customer requires the piping to have both a degree of flexibility and/or an ability to carry corrosive compounds
or mixtures, or to carry at both very high and very low (cryogenic) temperatures.
The
Company manufactures flexible metal hose at its facilities in Exton, Pennsylvania and Houston, Texas, in the U.S., and in Banbury, Oxfordshire
in the U.K., and sells its products through distributors, wholesalers and to OEMs throughout North America, and in certain European markets.
2.
SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as
of the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management develops,
and changes periodically, these estimates and assumptions based on historical experience and on various other factors that are believed
to be reasonable under the circumstances. Actual amounts could differ significantly from these estimates.
Revenue
Recognition
The
Company applies the requirements of Accounting Standards Update 2014-09, 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 was achieved through applying the following five-step approach:
|
● |
Identification
of the contract, or contracts, with a customer — a contract with a customer exists when the Company enters into an enforceable
contract with a customer, typically a purchase order initiated by the customer, that defines each party’s rights regarding
the goods to be transferred and identifies the payment terms related to these goods. |
|
|
|
|
● |
Identification
of the performance obligations in the contract — performance obligations promised in a contract are identified based on
the goods that will be transferred to the customer that are distinct, whereby the customer can benefit from the goods on their own
or together with other resources that are readily available from third parties or from us. Persuasive evidence of an arrangement
for the sale of product must exist. The Company ships products in accordance with the purchase order and standard terms as reflected
within the Company’s order acknowledgments and sales invoices. |
|
● |
Determination
of the transaction price —the transaction price is determined based on the consideration to which the Company will be entitled
in exchange for transferring goods to the customer. This would be the agreed upon quantity and price per product type in accordance
with the customer purchase order, which is aligned with the Company’s internally approved pricing guidelines. |
|
|
|
|
● |
Allocation
of the transaction price to the performance obligations in the contract — if the contract contains a single performance
obligation, the entire transaction price is allocated to the single performance obligation. This applies to the Company as there
is only one performance obligation to ship the goods. |
|
|
|
|
● |
Recognition
of revenue when, or as, the Company satisfies a performance obligation — the Company satisfies performance obligations
at a point in time when control of the goods transfers to the customer. Determining the point in time when control transfers requires
judgment. Indicators considered in determining whether the customer has obtained control of a good include: |
|
■ |
The
Company has a present right to payment |
|
■ |
The
customer has legal title to the goods |
|
■ |
The
Company has transferred physical possession of the goods |
|
■ |
The
customer has the significant risks and rewards of ownership of the goods |
|
■ |
The
customer has accepted the goods |
It
is important to note that the indicators are not a set of conditions that must be met before the Company can conclude that control of
the goods has transferred to the customer. The indicators are a list of factors that are often present if a customer has control of the
goods.
The
Company has typical, unmodified FOB shipping point terms. As the seller, the Company can determine that the shipped goods meet the agreed-upon
specifications in the contract or customer purchase order (e.g., items, quantities, and prices) with the buyer, so customer acceptance
would be deemed a formality, as noted in ASC 606-10-55-86. As a result, the Company has a legal right to payment upon shipment of the
goods.
Based
upon the above, the Company has concluded that control substantively transfers to the customer upon shipment.
Other
considerations of Topic 606 include the following:
|
● |
Contract
Costs - costs to obtain a contract (e.g. customer purchase order) include sales commissions. Under Topic 606, these costs may
be expensed as incurred for contracts with a duration of one year or less. The majority of the Company’s customer purchase
orders are fulfilled (e.g. goods are shipped) within two days of receipt. |
|
|
|
|
● |
Warranties
- the Company does not offer a warranty as a separate component for customers to purchase. A warranty is generally included with
each purchase, providing assurance that the goods comply with agreed-upon specifications, and the cost is therefore accrued accordingly,
but contracts do not include any requirement for additional distinct services. Therefore, there is not a separate performance obligation,
and there is no impact of warranties under Topic 606 upon the financial reporting of the Company. |
|
|
|
|
● |
Returned
Goods - from time to time, the Company provides authorization to customers to return goods. If deemed to be material, the Company
would record a “right of return” asset for the cost of the returned goods which would reduce cost of sales. |
|
|
|
|
● |
Volume
Rebates (Promotional Incentives) - volume rebates are variable (dependent upon the volume of goods purchased by our eligible
customers) and, under Topic 606, must be estimated and recognized as a reduction of revenue as performance obligations are satisfied
(e.g. upon shipment of goods). Also under Topic 606, to ensure that the related revenue recognized would not be probable of a significant
reversal, the four following factors are considered: |
|
■ |
The
amount of consideration is highly susceptible to factors outside the Company’s influence. |
|
■ |
The
uncertainty about the amount of consideration is not expected to be resolved for a long period of time. |
|
■ |
The
Company’s experience with similar types of contracts is limited. |
|
■ |
The
contract has a large number and broad range of possible consideration amounts. |
If
it was concluded that the above factors were in place for the Company, it would support the probability of a significant reversal of
revenue. However, as none of the four factors apply to the Company, promotional incentives are recorded as a reduction of revenue based
upon estimates of the eligible products expected to be sold.
Regarding
disaggregated revenue disclosures, as previously noted, the Company’s business is controlled as a single operating segment that
consists of the manufacture and sale of flexible metal hose. Most of the Company’s transactions are very similar in nature, contract,
terms, timing, and transfer of control of goods. As indicated within Note 2, Significant Accounting Policies, in these Consolidated Financial
Statements, under the caption “Significant Concentration”, the majority of the Company’s sales were geographically
contained within North America, with the remainder scattered internationally. All performance assessments and resource allocations are
generally based upon the review of the results of the Company as a whole.
Cash
Equivalents
The
Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents.
Cash equivalents include investments in an institutional money market fund, which invests in U.S. Treasury bills, notes, and bonds, and/or
repurchase agreements, backed by such obligations. Carrying value approximates fair value. Cash and cash equivalents are deposited at
various area banks, which at times may exceed federally insured limits. The Company monitors the viability of the banking institutions
carrying their assets on a regular basis and has the ability to transfer cash to various institutions during times of risk. The Company
has not experienced any losses related to these cash balances and believes its credit risk to be minimal.
Accounts
Receivable and Provision for Credit Losses
All
accounts receivable is stated at amortized cost, net of allowances for credit losses, and adjusted for any write-offs. The Company maintains
allowances for credit losses, which represent an estimate of expected losses over the remaining contractual life of its receivables considering
current market conditions and estimates for supportable forecasts when appropriate. The estimate is a result of the Company’s ongoing
assessments and evaluations of collectability, historical loss experience, and future expectations in estimating credit losses in its
receivable portfolio. For accounts receivable, the Company uses historical loss experience rates and applies them to a related aging
analysis while also considering customer and/or economic risk where appropriate. Determination of the proper amount of allowances requires
management to exercise judgment about the timing, frequency and severity of credit losses that could materially affect the provision
for credit losses and, as a result, 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.
The
reserve for credit losses, which include future credits, discounts, and doubtful accounts, was $1,111,000 and $1,410,000 as of December
31, 2022 and 2021, respectively.
Inventories
Inventories
are valued at the lower of cost or net realizable value. The cost of inventories is determined by the first-in, first-out (FIFO) method.
The Company generally considers inventory quantities beyond two years of usage, measured on a historical usage basis, to be excess inventory
and reduces the carrying value of inventory accordingly.
Property
and Equipment
Property
and equipment are initially recorded at cost. Depreciation and amortization are computed using the straight-line method over the estimated
useful lives of the assets or, for leasehold improvements, the life of the lease, if shorter. When assets are retired or otherwise disposed
of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in other
income or expense for the period. The cost of maintenance and repairs is expensed as incurred; significant improvements are capitalized.
Goodwill
In
accordance with 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 analysis
did not indicate any impairment of goodwill.
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.
Further
details of the Plan are provided in Note 12, Stock Based Compensation Plans, to the Consolidated Financial Statements included in
this report.
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.
Leases
The
Company applies the requirements of FASB ASU 2016-02, Leases (Topic 842) which defines a lease as any contract that conveys the
right to use a specific asset for a period of time in exchange for consideration. Leases are classified as a finance lease, formerly
called a capital lease, if any of the following criteria are met:
|
1. |
The
lease transfers ownership of the underlying asset to the lessee by the end of the lease term. |
|
2. |
The
lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise. |
|
3. |
The
lease term is for the major part of the remaining economic life of the underlying asset. |
|
4. |
The
present value of the sum of lease payments and any residual value guaranteed by the lessee equals or exceeds substantially all of
the fair value of the underlying asset. |
|
5. |
The
underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease
term. |
For
any leases that do not meet the criteria identified above for finance leases, the Company treats such leases as operating leases. As
of December 31, 2022 and 2021, each of the Company’s leases are classified as operating leases.
Both
finance and operating leases are reflected on the balance sheet as lease or “right-of-use” assets and lease liabilities.
There
are some exceptions which the Company has elected in its accounting policies. For leases with terms of twelve months or less, or below
the Company’s general capitalization policy threshold, the Company has elected an accounting policy to not recognize lease assets
and lease liabilities for all asset classes. The Company recognizes lease expense for such leases generally on a straight-line basis
over the lease term.
The
Company determines if a contract is a lease at the inception of the arrangement. The Company reviews all options to extend, terminate,
or purchase its right-of-use assets at the inception of the lease and accounts for these options when they are reasonably certain to
be exercised. Certain leases contain non-lease components, such as common area maintenance, which are generally accounted for separately.
In general, the Company will assess if non-lease components are fixed and determinable, or variable, when determining if the component
should be included in the lease liability. For purposes of calculating the present value of the lease obligations, the Company utilizes
the implicit interest rate within the lease agreement when known and/or determinable, and otherwise utilizes its incremental borrowing
rate at the time of the lease agreement.
Fair
Value of Financial and Nonfinancial Instruments
The
Company measures financial instruments in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures. The accounting
standard defines fair value, establishes a framework for measuring fair value under GAAP, and enhances disclosures about fair value measurements.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement
date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable
inputs. The standard creates a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into
three broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level
2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
or indirectly; and Level 3 inputs are unobservable inputs that reflect the Company’s own assumptions about the assumptions market
participants would use in pricing the asset or liability. The Company relies upon Level 1 inputs in determining the fair value of the
Company’s reporting unit in its annual impairment test as described in the FASB ASC Topic 350, Intangibles - Goodwill and Other.
Advertising
Expense
Advertising
costs are charged to operations as incurred and are included in selling expenses in the accompanying consolidated statement of operations.
Such charges aggregated $976,000, $877,000, and $691,000 for the years ended December 31, 2022, 2021, and 2020, respectively.
Research
and Development Expense
Research
and development expenses are charged to operations as incurred. Such charges totaled $653,000, $627,000, and $831,000 for the years ended
December 31, 2022, 2021 and 2020, respectively and are included in engineering expense in the accompanying consolidated statements of
operations.
Shipping
Costs
Shipping
costs are included in selling expense on the consolidated statements of operations. The expense relating to shipping was $3,548,000,
$3,814,000, and $2,801,000 for the years ended December 31, 2022, 2021 and 2020, respectively.
Earnings
per Common Share
Basic
earnings per share have been computed using the weighted-average number of common shares outstanding. For the periods presented, there
are no dilutive securities. Consequently, basic and dilutive earnings per share are the same.
Currency
Translation
Assets
and liabilities denominated in foreign currencies, most of which relate to the Company’s U.K. subsidiary whose functional currency
is the British Pound, are translated into U.S. dollars at exchange rates prevailing on the balance sheet dates. The statements of operations
are translated into U.S. dollars at average exchange rates for the period. Adjustments resulting from the translation of financial statements
are excluded from the determination of income and are accumulated in a separate component of shareholders’ equity. Exchange gains
and losses resulting from foreign currency transactions are included in the statements of operations in the period in which they occur.
Income
Taxes
The
Company accounts for tax liabilities in accordance with the FASB ASC Topic 740, Income Taxes. Under this method the Company records
tax expense, related deferred taxes and tax benefits, and uncertainties in tax positions.
Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that includes
the enactment date. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either
expire before the Company is able to realize the benefit, or that future deductibility is uncertain.
The
FASB ASC Topic 740, Income Taxes, clarifies the criteria that an individual tax position must satisfy for some or all of the benefits
of that position to be recognized in a company’s financial statements. This guidance prescribes a recognition threshold of more-likely
than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions
to be recognized in the financial statements.
The
Company follows the provisions of ASC 740-10 relative to accounting for uncertainties in tax positions. These provisions provide guidance
on the recognition, de-recognition and measurement of potential tax benefits associated with tax positions.
On
March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law making several changes to the Internal
Revenue Code. The changes include but are not limited to increasing the limitation on the amount of deductible interest expense, allowing
companies to carryback certain net operating losses, and increasing the amount of net operating loss carryforwards that corporations
can use to offset taxable income. The tax law changes in the CARES Act did not have a material impact on the Company’s income tax
provision.
As
a result of changes made by the Tax Cuts and Jobs Act of 2017, which became effective as of January 1, 2022, the Company is required
to capitalize certain research and development expenses for tax purposes, and amortize those expenses over a five year
period, resulting in a deferred tax asset for the capitalized amounts.
Other
Comprehensive Income
For
the years ended December 31, 2022, 2021 and 2020, respectively, the components of other comprehensive income consisted solely of foreign
currency translation adjustments.
Significant
Concentrations
One
customer represented 12% to 13% of sales during each of the fiscal years in the period from 2020 to 2022, and that same customer accounted
for approximately 7% to 19% of the Accounts Receivable balance over the last two years. No other customer represented more than 10% of
Accounts Receivable or Sales. Geographically, North America accounted for approximately 93% to 95% of the Company’s sales during
the last three years. The remaining portion of sales for each respective year was scattered among other countries, with the U.K. being
the Company’s most dominant market outside North America.
Subsequent
Events
The
Company evaluates all events or transactions through the date of the related filing that may have a material impact on its Consolidated
Financial Statements. Refer to Note 14.
Recent
Accounting Pronouncements
In
March 2021, the FASB issued ASU No. 2021-04, 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, 2021 through December 31, 2022. The impact of the adoption of ASU 2021-04 did not have a material impact
on the Company’s Consolidated Financial Statements.
In
December 2020, the FASB issued ASU 2020-12, 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 2020-12 are effective for public
business entities for fiscal years beginning after December 15, 2021, including interim periods therein. The Company adopted this new
guidance in 2021, and it did not have a material impact on its Consolidated Financial Statements.
3.
INVENTORIES
Inventories,
net of reserves of $571,000 and $505,000, respectively, were as follows on December 31:
SCHEDULE
OF INVENTORIES, NET OF RESERVES
| |
2022 | | |
2021 | |
| |
(in
thousands) | |
Finished
Goods | |
$ | 6,744 | | |
$ | 5,903 | |
Raw
Materials | |
| 11,020 | | |
| 9,662 | |
Inventories
- Net | |
$ | 17,764 | | |
$ | 15,565 | |
See
Note 5, Other Long Term Assets, for details on inventories which are estimated to be used beyond the next twelve months.
4.
PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following on December 31:
SCHEDULE
OF PROPERTY AND EQUIPMENT
| |
2022 | | |
2021 | | |
Depreciation
and Amortization Est. Useful
Lives |
| |
(in
thousands) | | |
|
Land | |
$ | 1,205 | | |
$ | 1,205 | | |
|
Buildings | |
| 6,640 | | |
| 6,640 | | |
39
Years |
Leasehold
Improvements | |
| 396 | | |
| 412 | | |
3-10
Years (Lesser of Life or Lease) |
Equipment | |
| 15,448 | | |
| 14,625 | | |
3-10
Years |
Property
and Equipment - Gross | |
| 23,689 | | |
| 22,882 | | |
|
Accumulated
Depreciation | |
| (15,285 | ) | |
| (14,313 | ) | |
|
Property
and Equipment - Net | |
$ | 8,404 | | |
$ | 8,569 | | |
|
The
above amounts include capital related items of $535,000 and $112,000 as of December 31, 2022 and 2021, respectively, which had not yet
been placed in service by the Company, and therefore no depreciation was recorded in the related periods for those assets. Depreciation
and amortization expense was approximately $1,096,000, $1,020,000, and $870,000 for the years ended December 31, 2022, 2021 and 2020,
respectively.
5.
OTHER LONG TERM ASSETS
Other
long term assets were as follows on December 31:
SCHEDULE OF OTHER LONG TERM ASSETS
| |
2022 | | |
2021 | |
| |
(in
thousands) | |
Inventories | |
$ | 4,261 | | |
$ | - | |
Cash
surrender value of life insurance policies | |
| 1,546 | | |
| 1,651 | |
Other | |
| 64 | | |
| 51 | |
Other
Long Term Assets | |
$ | 5,871 | | |
$ | 1,702 | |
The
Company maintains 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.
The
cash surrender value of life insurance policies where the Company is beneficiary is further described in Note 11, Commitments and Contingencies.
6.
LINE OF CREDIT AND OTHER BORROWINGS
On
December 1, 2017, the Company agreed to an Amended and Restated Revolving Line of Credit Note (the “Line”) and Third Amendment
to the Loan Agreement with Santander Bank, N.A. (the “Bank”). The Company established a line of credit facility in the maximum
amount of $15,000,000, maturing on December 1, 2022, with funds available for working capital purposes and other cash needs. The Line
is unsecured and has been extended maturing on June 1, 2023. The loan agreement provides for the payment of any borrowings under the agreement
at an interest rate range of either LIBOR plus 0.75% to plus 1.75% (for borrowings with a fixed term of 30, 60, or 90 days), or Prime
Rate up to Prime Rate plus 0.50% (for borrowings with no fixed term other than the June 1, 2023 extended maturity date), depending upon
the Company’s then existing financial ratios. Currently, the Company’s ratio would allow for the most favorable rate under
the agreement’s range, which would be a rate of 5.14%. The Company is also required to pay on a quarterly basis an unused facility
fee of 10 basis points of the average unused balance of the note. The Company may terminate the line at any time during the five-year
term and extension period, as long as there are no amounts outstanding.
During
the quarter ended June 30, 2020, in an effort to ensure liquidity and secure all available resources during the COVID-19 pandemic, the
Company borrowed the full amount of its capacity on the line of $15,000,000 at the prime rate of 3.25%. The Company repaid this amount
in full prior to the end of such quarter, and as of December 31, 2020, had no borrowings on its line of credit. As of December 31, 2022
and as of December 31, 2021, the Company also had no outstanding borrowings on its line of credit.
The
Company was in compliance with all debt covenants as of December 31, 2022 and 2021.
The
Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the U.S. On April 7, 2020,
the Company received a loan from the U.S. Small Business Administration (“SBA”) to fund the Company’s request for a
loan under the SBA’s Paycheck Protection Program (“PPP” and “PPP Loan”) created as part of the recently
enacted CARES Act administered by the SBA. In connection with the PPP Loan, the Company entered into a promissory note filed as Exhibit
10.2 attached to Form 10-Q for the quarter ended March 31, 2020. Pursuant to the terms of the PPP Loan, the Company received total proceeds
of $2,453,000 from the Bank at an interest rate of just below 1% per annum. After the issuance of the PPP Loan, the U.S. Treasury Department
issued new guidance on the PPP program and advised that publicly traded companies that had access to other sources of financing may not
be appropriate candidates for the PPP Loans, and provided a grace period until May 7, 2020 for such companies to repay the previously
issued PPP Loans. Accordingly, in light of this guidance, the Company repaid the PPP Loan by May 7, 2020.
Lastly,
as stated above, borrowings under our line of credit facility bear interest at variable rates based on LIBOR. Currently, the Federal
Reserve Bank is considering options and transitioning away from LIBOR, and as such, has formed the Alternative Rates Committee (ARRC).
The ARRC selected the Secured Overnight Financing Rate (SOFR) as an appropriate replacement. SOFR is based on transactions in the overnight
repurchase markets, which reflects a transaction-based rate on a large number of transactions, better reflecting current financing costs.
Discussions are ongoing with the Bank with regards to transitioning the rate for the Line from LIBOR to another appropriate rate such
as SOFR.
7.
SHAREHOLDERS’ EQUITY
As
of December 31, 2022 and December 31, 2021, the Company had authorized 20,000,000 common stock shares with par value of $0.01 per share.
For both periods, the total number of outstanding shares was 10,094,322, shares held in Treasury was 59,311, and total shares issued
was 10,153,633.
During
2022, 2021, and 2020, upon approval of the Board of Directors (the “Board”) the Company has declared and paid regular quarterly
dividends, as set forth in the following table:
SCHEDULE
OF REGULAR QUARTER DIVIDEND PAYMENTS
Dividend
Declared | |
Dividend
Paid |
Date | |
Price
Per Share | | |
Date | |
Amount | |
December
7, 2022 | |
$ | 0.32 | | |
January
4, 2023
| |
$ | 3,232,000 | |
September 30, 2022 | |
$ | 0.32 | | |
October 24, 2022 | |
$ | 3,231,000 | |
June 10, 2022 | |
$ | 0.32 | | |
July 5, 2022 | |
$ | 3,230,000 | |
March 29, 2022 | |
$ | 0.30 | | |
April 25, 2022 | |
$ | 3,028,000 | |
December 9, 2021
| |
$ | 0.30 | | |
December 30, 2021
| |
$ | 3,029,000 | |
September 15, 2021
| |
$ | 0.30 | | |
October 4, 2021
| |
$ | 3,028,000 | |
June 9, 2021 | |
$ | 0.30 | | |
July 6, 2021 | |
$ | 3,028,000 | |
March 24, 2021 | |
$ | 0.28 | | |
April 14, 2021 | |
$ | 2,827,000 | |
December 11, 2020 | |
$ | 0.28 | | |
January 5, 2021 | |
$ | 2,826,000 | |
September 23, 2020 | |
$ | 0.28 | | |
October 13, 2020 | |
$ | 2,827,000 | |
June 24, 2020 | |
$ | 0.28 | | |
July 13, 2020 | |
$ | 2,826,000 | |
March 31, 2020 | |
$ | 0.28 | | |
April 17, 2020 | |
$ | 2,827,000 | |
In
addition to the above dividend amounts, there were dividends approved by the Company’s foreign subsidiary during September 2021
which amounted to an outlay of cash of $129,000 to the foreign subsidiary’s noncontrolling interest respectively.
It
should be noted that from time to time, the Board may elect to pay special dividends, in addition to or in lieu of the regular quarterly
dividends, depending upon the financial condition of the Company.
On
April 4, 2014, the Board authorized an extension of its stock repurchase program without expiration, up to a maximum amount of $1,000,000.
The original program established in December 2007 authorized the purchase of up to $5,000,000 of its common stock. The purchases may
be made from time-to-time in the open market or in privately negotiated transactions, depending on market and business conditions. The
Board retained the right to cancel, extend, or expand the share buyback program, at any time and from time-to-time. Since inception,
the Company has purchased a total of 61,811 shares for approximately $932,000, or approximately $15 per share, which were held as treasury
shares. The Company has not made any stock repurchases since 2014.
8.
INCOME TAXES
Income
tax expense consisted of the following:
SCHEDULE
OF COMPONENTS OF INCOME TAX EXPENSE (BENEFIT)
| |
2022 | | |
2021 | | |
2020 | |
| |
December
31, | |
| |
2022 | | |
2021 | | |
2020 | |
| |
(in
thousands) | |
Federal
Income Tax: | |
| | | |
| | | |
| | |
Current | |
$ | 7,453 | | |
$ | 7,197 | | |
$ | 5,617 | |
Deferred | |
| (1,156 | ) | |
| 264 | | |
| (175 | ) |
| |
| | | |
| | | |
| | |
State
Income Tax: | |
| | | |
| | | |
| | |
Current | |
| 1,126 | | |
| 1,062 | | |
| 923 | |
Deferred | |
| (173 | ) | |
| 43 | | |
| (30 | ) |
| |
| | | |
| | | |
| | |
Foreign
Income Tax: | |
| | | |
| | | |
| | |
Current | |
| 84 | | |
| 298 | | |
| 266 | |
Deferred | |
| (7 | ) | |
| (2 | ) | |
| (7 | ) |
Income
Tax Expense | |
$ | 7,327 | | |
$ | 8,862 | | |
$ | 6,594 | |
Pre-tax
income included foreign income of $437,000, $1,500,000, and $1,341,000 in 2022, 2021 and 2020, respectively.
Total
income tax expense differed from statutory income tax expense, computed by applying the U.S. federal income tax rate of 21% to earnings
before income tax, as follows:
SCHEDULE
OF EFFECTIVE INCOME TAX RATE RECONCILIATION
| |
2022 | | |
2021 | | |
2020 | |
| |
December
31, | |
| |
2022 | | |
2021 | | |
2020 | |
| |
(in
thousands) | |
Computed
Statutory Income Tax Expense | |
$ | 6,505 | | |
$ | 7,362 | | |
$ | 5,566 | |
State
Income Tax, Net of Federal Tax Benefit | |
| 753 | | |
| 902 | | |
| 759 | |
Foreign
Tax Rate Differential | |
| (9 | ) | |
| (29 | ) | |
| (27 | ) |
Executive
Compensation Limitation | |
| 296 | | |
| 773 | | |
| 503 | |
Foreign
Derived Intangible Income Deduction | |
| (98) | | |
| (107) | | |
| (75) | |
Research
Credit | |
| (171) | | |
| (59) | | |
| (62) | |
Other
- Net | |
| 51 | | |
| 20 | | |
| (70 | ) |
Income
Tax Expense | |
$ | 7,327 | | |
$ | 8,862 | | |
$ | 6,594 | |
A
deferred income tax (expense) benefit results from temporary timing differences in the recognition of income and expense for income tax
and financial reporting purposes. The components of and changes in the net deferred tax assets (liabilities) which give rise to this
deferred income tax (expense) benefit for the years ended December 31, 2022 and 2021 are as follows:
SCHEDULE
OF DEFERRED TAX ASSETS AND LIABILITIES
| |
2022 | | |
2021 | |
| |
December
31, | |
| |
2022 | | |
2021 | |
| |
(in thousands) | |
Deferred
Tax Assets: | |
| | | |
| | |
Compensation
Assets | |
$ | 201 | | |
$ | 130 | |
Inventory
Valuation | |
| 529 | | |
| 334 | |
Accounts
Receivable Valuation | |
| 259 | | |
| 329 | |
Deferred
Litigation Costs | |
| 12 | | |
| 12 | |
Capitalized
Research Costs | |
| 590 | | |
| - | |
Accrued
Product Liability | |
| 900 | | |
| 61 | |
Foreign
Net Operating Losses | |
| 78 | | |
| 76 | |
Valuation
Allowance for Loss Carryover | |
| (78 | ) | |
| (76 | ) |
Other | |
| 17 | | |
| 37 | |
Compensation
Liabilities | |
| 360 | | |
| 673 | |
Total
Deferred Assets | |
$ | 2,868 | | |
$ | 1,576 | |
| |
| | | |
| | |
Deferred
Tax Liabilities: | |
| | | |
| | |
Prepaid
Expenses | |
| (592 | ) | |
| (544 | ) |
Depreciation
and Amortization | |
| (1,359 | ) | |
| (1,452 | ) |
Total
Deferred Liabilities | |
$ | (1,951 | ) | |
$ | (1,996 | ) |
| |
| | | |
| | |
Total
Deferred Tax Asset (Liability) | |
$ | 917 | | |
$ | (420 | ) |
Management
believes it is more likely than not that the Company will have sufficient taxable income when these timing differences reverse and that
the deferred tax assets will be realized with the exception of a carryover of foreign operating losses. Due to the uncertainty of future
income in the foreign subsidiary, the Company has recognized a valuation allowance related to the foreign operating losses carrying forward.
The
Company is currently subject to audit by the Internal Revenue Service for the calendar years ended 2019 through 2021. The Company and
its Subsidiaries’ state income tax returns are subject to audit for the calendar years ended 2018 through 2021.
As
of December 31, 2022, the Company had no liability for unrecognized tax benefits related to various federal and state income tax matters.
9.
LEASES
In
the U.S., the Company owns its two main operating facilities located in Exton, Pennsylvania. In addition to the owned facilities, the
Company also has operations in other locations that are leased, as well as other leased assets. In conjunction with the guidance for
leases, as defined by the FASB with ASU 2016-02, Leases (Topic 842), the Company has described the existing leases, which are
all classified as operating leases, pursuant to the below.
In
the U.S., the Company leases a facility in Houston, Texas, which currently provides manufacturing, stocking, and sales operations, with
the lease term running through October 2024, and a facility in Malvern, Pennsylvania, which was consummated effective January 1, 2022,
with a three year term ending in December 2024, that provides warehousing. Also in 2022, the Company extended its operating lease agreement
for its corporate office space in Middletown, Connecticut, with the lease term ending in June 2027.
In
the U.K., the Company leases a facility in Banbury, England, which serves manufacturing, warehousing, and other operational functions.
The lease in Banbury has a 15-year term ending in March 2036.
In
addition to property rentals, the Company also has lease agreements in place for various fleet vehicles and equipment with various lease
terms.
On
December 31, 2022, the Company has right-of-use assets of $3,205,000, and a lease liability of $3,210,000, of which $447,000 was reported
as a current liability. On December 31, 2021, the Company has right-of-use assets of $3,374,000, and a lease liability of $3,373,000,
of which $383,000 was reported as a current liability. The respective weighted average remaining lease term and discount rate are approximately
11.02 years and 1.06% as of December 31, 2022.
Rent
expense for operating leases was approximately $504,000, $421,000, and $301,000 for the years ended December 31, 2022, 2021 and 2020,
respectively.
Future
minimum lease payments, inclusive of interest of $178,000, under non-cancelable leases as of December 31, 2022 is as follows:
SCHEDULE
OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING LEASES
Year
Ending December 31, | |
Operating
Leases | |
| |
(in
thousands) | |
| |
| |
2023 | |
$ | 447 | |
2024 | |
| 419 | |
2025 | |
| 258 | |
2026 | |
| 256 | |
2027 | |
| 223 | |
Thereafter | |
| 1,607 | |
Total
Minimum Lease Payments | |
$ | 3,210 | |
10.
EMPLOYEE BENEFIT PLANS
Defined
Contribution and 401(K) Plans
The
Company maintains a qualified non-contributory profit-sharing plan (the “Plan”) covering all eligible employees. There were
$474,000, $441,000, and $430,000 of contributions accrued for the Plan in 2022, 2021 and 2020 respectively, which were charged to expense
in those respective years.
Contributions
to the Plan are defined as three percent (3%) of gross wages up to the current Old Age, Survivors, and Disability (OASDI) limit and six
percent (6%) of the excess over the OASDI limit, subject to the maximum allowed under the Employee Retirement Income Security Act (ERISA).
Participant balances vest over six years.
The
Company also maintains a savings and retirement plan qualified under Internal Revenue Code Section 401(k) for all employees. Employees
are eligible to participate in the Plan the first day of the month following date of hire. Participants may elect to have up to fifty
percent (50%) of their compensation withheld, up to the maximum allowed by the Internal Revenue Code. After completing one year of service,
the Company contributed an additional amount equal to 50% of all employee contributions, up to a maximum of 6% of an employee’s
gross wages. Contributions are funded on a current basis. Contributions to the Plan charged to expense for the years ended December 31,
2022, 2021 and 2020 were $319,000, $315,000, and $295,000, respectively. The participant’s Company contribution vests ratably over
six years.
11.
COMMITMENTS AND CONTINGENCIES
Commitments
Under
a number of indemnity agreements between the Company and each of its officers and directors, the Company has agreed to indemnify each
of its officers and directors against any liability asserted against them in their capacity as an officer or director, or both. The Company’s
indemnity obligations under the indemnity agreements are subject to certain conditions and limitations set forth in each of the agreements.
Under the terms of the agreement, the Company is contingently liable for costs which may be incurred by the officers and directors in
connection with claims arising by reason of these individuals’ roles as officers and directors. The Company has obtained directors’
and officers’ insurance policies to fund certain obligations under the indemnity agreements.
The
Company has salary continuation agreements with current and/or past employees. These agreements provide for monthly payments to each
of the employees or their designated beneficiary upon the employee’s retirement or death. The payment benefits range from $1,000
per month to $3,000 per month with the term of such payments limited to 15 years after the employee’s retirement. The agreements
also provide for survivorship benefits if the employee dies before attaining age 65, and severance payments if the employee is terminated
without cause; the amount of which is dependent on the length of company service at the date of termination. The net present value of
the retirement payments associated with these agreements is $357,000 as of December 31, 2022, of which $309,000 is included in Other
Long Term Liabilities, and the remaining current portion of $48,000 is included in Other Liabilities, associated with the applicable
retirement benefit payments over the next twelve months. The December 31, 2021 liability of $447,000 had $399,000 reported in Other Long
Term Liabilities, and a current portion of $48,000 in Other Liabilities.
The
Company has obtained and is the beneficiary of life insurance policies with respect to current and/or past employees. The cash surrender
value of such policies (included in Other Long Term Assets) amounts to $1,546,000 at December 31, 2022 and $1,651,000 at December 31,
2021.
In
addition to the above, the Company has other contractual employment and or change of control agreements in place with key employees,
as previously disclosed and noted in the Exhibit Index to this Form 10-K. Obligations related to these arrangements are currently indeterminable
due to the variable nature and timing of possible events required to incur such obligations.
As
disclosed in detail in Note 9, Leases, to the Consolidated Financial Statements included in this report, the Company has several lease
obligations in place that will be paid out over time. Most notably, the Company leases a facility in Banbury, England that serves the
manufacturing, warehousing, and distribution functions.
Lastly, as provided earlier in Item 7 under “Liquidity and Capital Resources”, the Company has numerous contractual obligations in place for the forthcoming year, mainly related to purchase obligations for the Company’s raw material inventories, totaling $16,755,000.
Contingencies
In
the ordinary and normal conduct of the Company’s business, it is subject to periodic lawsuits, investigations, and claims (collectively,
the “Claims”). The Claims generally relate to potential lightning damage to our flexible gas piping products, which impact
legal and product liability related expenses. The Company does not believe the Claims have legal merit, and therefore has commenced a
vigorous defense in response to the Claims. It is possible that the Company may incur increased litigation costs in the future due to
a variety of factors, including a higher number of Claims, higher legal costs, and higher insurance deductibles or retentions.
The
Company was made aware of a potential legal liability regarding a legal dispute in the U.K., in which the Company’s subsidiary,
Omega Flex Limited (“OFL”), was the claimant. After withdrawing the claim, the court determined that OFL was responsible
for the defendant’s costs (including a portion of its attorneys’ fees). The Company reached an initial agreement during the
fourth quarter of 2020 and made a payment of £320,000 accordingly. An additional payment of £110,000 was made on January
5, 2022, which was recorded as an accrued liability as of December 31, 2021, and represented the remaining amount of the liability as
part of the final arrangement. This matter is now closed.
The
Company has in place commercial general liability insurance policies that cover most Claims, which are subject to deductibles or retentions,
ranging primarily from $25,000 to $3,000,000 per claim (depending on the terms of the policy and the applicable policy year), up to an
aggregate amount. Litigation is subject to many uncertainties and management is unable to predict the outcome of the pending suits and
claims. The potential liability for a given claim could range from zero to a maximum of $3,000,000, depending upon the circumstances,
and insurance deductible or retention in place for the respective claim year. The aggregate maximum exposure for all current open Claims
as of December 31, 2022 is estimated to not exceed approximately $7,416,000, which represents the potential costs that may be incurred
over time for the Claims within the applicable insurance policy deductibles or retentions. From time to time, depending upon the nature
of a particular case, the Company may decide to spend in excess of a deductible or retention to enable more discretion regarding the
defense, although this is not common. It is possible that the results of operations or liquidity of the Company, as well as the Company’s
ability to procure reasonably priced insurance, could be adversely affected by the pending litigation, potentially materially. The Company
is currently unable to estimate the ultimate liability, if any, that may result from the pending litigation, or potential litigation
from future claims or claims that have not yet come to our attention, and accordingly, the liability in the Consolidated Financial Statements
primarily represents an accrual for legal costs for services previously rendered, outstanding settlements for Claims not yet paid, and
anticipated settlements for Claims within the Company’s remaining retention under its insurance policies. The liabilities recorded
in the Company’s books as of December 31, 2022 and December 31, 2021 were $3,848,000 and $262,000, respectively, and are included
in Other Liabilities.
12.
STOCK BASED COMPENSATION PLANS
Phantom
Stock Plan
Plan
Description. On April 1, 2006, the Company adopted the Omega Flex, Inc. 2006 Phantom Stock Plan (the “Plan”). The
Plan authorizes the grant of up to one million units of phantom stock to employees, officers, or directors of the Company. The phantom
stock units (“Units”) each represent a contractual right to payment of compensation in the future based on the market value
of the Company’s common stock. The Units are not shares of the Company’s common stock, and a recipient of the Units does
not receive any of the following:
|
■ |
ownership
interest in the Company |
|
■ |
shareholder
voting rights |
|
■ |
other
incidents of ownership to the Company’s common stock |
The
Units are granted to participants upon the recommendation of the Company’s President, and the approval of the Compensation
Committee. Each of the Units that are granted to a participant will be initially valued by the Compensation Committee at an amount
equal to the closing price of the Company’s common stock on the grant date but are recorded at fair value using the
Black-Sholes method as described below. The Units follow a vesting schedule, with a maximum vesting of three years after the grant
date. Grants made on or after January 1, 2023, will fully vest three years from the grant date. Upon vesting, the Units represent a
contractual right of payment for the value of the Unit and therefore are stated as liabilities in accordance with FASB ASC Topic
718, Compensation - Stock Compensation. The Units will be paid on their maturity date, one year after all the Units granted
in a particular award have fully vested, unless a specified event occurs under the terms of the Plan, which would allow for earlier
payment. The value of each Unit at the maturity date will equal the closing price of the Company’s common stock as of the
maturity date (Full Value).
In
2009, the Board of Directors authorized an amendment to the Plan to pay an amount equal to the value of any cash or stock dividend declared
by the Company on its common stock to be accrued to the Units outstanding as of the record date of the common stock dividend. The dividend
equivalent will be paid at the same time the underlying Units are paid to the participant.
In
addition, the 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.
In
certain circumstances, the Units may be immediately vested upon the participant’s death or disability. All Units granted to a participant
are forfeited if the participant is terminated from their relationship with the Company or its subsidiary for “cause,” which
is defined under the Plan. If a participant’s employment or relationship with the Company is terminated for reasons other than
for “cause,” then any vested Units will be paid to the participant upon termination. However, Units granted to certain “specified
employees” as defined in Section 409A of the Internal Revenue Code will be paid approximately 181 days after termination.
Grants
of Units. As of December 31, 2021, the Company had 8,358 nonvested and unmatured Units outstanding, all of which were granted
at Full Value. On February 22, 2022, the Company granted an additional 2,471 Full Value Units with a fair value of $148.03 per Unit on
grant date, using historical volatility. In February 2022, the Company paid $838,000 for 5,450 fully vested and matured Units that were
granted during 2018, including their respective earned dividend values. In March 2022, the Company paid $295,000 for 1,870 fully vested
Units that were granted during 2018, 2019 and 2020, including their respective earned dividend values. On August 19, 2022, the Company
granted an additional 1,022 Full Value Units with a fair value of $113.63 per Unit on grant date, using historical volatility. In August
2022, the Company paid $107,000 for the 950 fully vested and matured Units that were granted during August 2018, including their respective
earned dividend values. As of December 31, 2022, the Company had 6,653 nonvested and unmatured Units outstanding.
The
Company uses the Black-Scholes option pricing model as its method for determining fair value of the Units. The Company uses the straight-line
method of attributing the value of the stock based compensation expense relating to the Units. The compensation expense (including adjustment
of the liability to its fair value) from the Units is recognized over the vesting and maturity periods of each grant.
The
FASB ASC Topic 718, Compensation - Stock Compensation, requires forfeitures either to be estimated at the time of grant and revised,
if necessary, in subsequent periods if actual forfeitures differ from those estimates to derive an estimate of awards ultimately to vest
or to recognize the effect of any forfeited awards for which the requisite vesting period is not completed in the period that the award
is forfeited.
The
Company recognizes the reversal of any previously recognized compensation expense on forfeited awards in the period that the award is
forfeited. For the year ended December 31, 2022, no awards were forfeited. However, for the year ended December 31, 2021, a reversal
of $56,000 of previously recognized compensation expense was recognized on 1,212 nonvested forfeited Units.
The
total liability related to the Units as of December 31, 2022 was $1,343,000 of which $665,000 is included in Other Liabilities, as it
is expected to be paid within the next twelve months, and the balance of $678,000 is included in Other Long Term Liabilities. The total
liability related to the Units as of December 31, 2021 was $2,427,000 of which $1,156,000 was included in Other Liabilities, and the
balance of $1,271,000 was included in Other Long Term Liabilities.
Related
to the Plan, in accordance with FASB ASC Topic 718, Compensation - Stock Compensation, the Company recorded compensation expense
of approximately $156,000, $506,000, and $1,453,000 related to the Plan for the years ended December 31, 2022, 2021 and 2020, respectively.
Compensation expense (or income) for a given period largely depends upon fluctuations in the Company’s stock price.
The
following table summarizes information about the Company’s nonvested and unmatured Units as of and for the year ended December
31, 2022:
SUMMARY
OF NONVESTED PHANTOM STOCK UNITS
| |
Units | | |
Weighted
Average Grant Date
Fair Value | |
Number of Units: | |
| | |
| |
Nonvested
and Unmatured as of December 31, 2021 | |
| 8,358 | | |
$ | 100.93 | |
Granted | |
| 3,493 | | |
$ | 137.97 | |
Vested | |
| (5,198 | ) | |
$ | 89.78 | |
Forfeited | |
| - | | |
| - | |
Canceled | |
| - | | |
| - | |
Nonvested
and Unmatured as of December 31, 2022 | |
| 6,653 | | |
$ | 129.09 | |
Units
Expected to Vest and Mature | |
| 6,653 | | |
$ | 129.09 | |
The
total unrecognized compensation costs calculated on December 31, 2022 are $387,000 which will be recognized through August of 2025. The
Company will recognize the related expense over the weighted average period of 1.2 years.
13.
RELATED PARTY TRANSACTIONS
From
time to time the Company may have related party transactions (“RPTs”). RPTs represent any transaction between the Company
and any Company employee, director or officer, or any related entity, or relative, etc. The Company performs a review of transactions
each year to determine if any RPTs exist, and if so, determines if the related parties act independently of each other in a fair transaction.
Through this investigation the Company noted a limited number of RPTs. In all cases, these RPTs have been determined to be independent
transactions with no indication that they are influenced by the related relationships.
14.
SUBSEQUENT EVENTS
The
Company evaluated all events or transactions that occurred through the date of this filing. During this period, no events came to the
Company’s attention that would impact the Consolidated Financial Statements for 2022.