UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended   September 30, 2007March 31, 2008

For the transition period from ________________________ to ______________________

Commission File Number             000-51372

Omega Flex, Inc.

(Exact name of registrant as specified in its charter)

(610) 524-7272

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                                                                                                                                        Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or a non-acceleratedsmaller reporting company filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of The Exchange Act).

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS

DURING THE PRECEDING FIVE YEARS.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 12 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the courts.

The number of shares of the registrant’s common stock issued and outstanding as of November 10, 2007April 30, 2008 was 10,153,633.10,106,408.

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OMEGA FLEX, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE NINE-MONTHSTHREE MONTHS ENDED SEPTEMBER 30, 2007MARCH 31, 2008

INDEX

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PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

OMEGA FLEX, INC.

CONSOLIDATED BALANCE SHEETS

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OMEGA FLEX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

See Accompanying Notes to Consolidated Financial Statements.

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OMEGA FLEX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

See Accompanying Notes to Consolidated Financial Statements.

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OMEGA FLEX, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All dollars in thousands except per share amounts)

(Unaudited)

1. BASIS OF PRESENTATION AND 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 unaudited consolidated financial statements for the quarter ended March 31, 2008 have been prepared in accordance with generally accepted accounting principles, and with the instructions of Form 10-Q and Article 10 of Regulation S-X. All material inter-company accounts and transactions have been eliminated in consolidation. It is Management’s opinion that all adjustments necessary for a fair statement of the results for the interim periods have been made, and that all adjustments are of a normal recurring nature or a description is provided for any adjustments that are not of a normal recurring nature.

The Company is a leading manufacturer of flexible metal hose, which is used in a variety of applications to carry gases and liquids within their particular applications. These applications include carrying liquefied gases in certain processing applications, fuel gases within residential and commercial buildings and vibration absorbers in high vibration applications. Our industrial flexible metal piping is 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 which is used in a variety of applications to carry gases and liquids within their particular applications. These applications include carrying liquefied gases in certain processing applications, fuel gases within residential and commercial buildings and vibration absorbers in high vibration applications. Our industrial flexible metal piping is 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 the majority of its products at its facility in Exton, Pennsylvania, and sells its product through distributors, wholesalers and to original equipment manufacturers (“OEMs”) throughout North America, and in certain European markets. A minor amount of manufacturing is performed in the UK.

2. SIGNIFICANT ACCOUNTING POLICIES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates and assumptions relate to revenue recognition and related sales incentives, accounts receivable valuations, inventory valuations, goodwill valuation, and accounting for income taxes. Actual amounts could differ significantly from these estimates.

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The Company’s revenue recognition activities relate almost entirely to the manufacture and sale of flexible metal hose and pipe. Under generally accepted accounting principles, revenues are considered to have been earned when the Company has substantially accomplished what it must do to be entitled to the benefits represented by the revenues. The following criteria represent preconditions to the recognition of revenue:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates

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of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates and assumptions relate to revenue recognition, accounts receivable valuations, inventory valuations, goodwill valuation, and accounting for income taxes. Actual amounts could differ significantly from these estimates.

The Company’s revenue recognition activities relate almost entirely to the manufacture and sale of flexible metal hose and pipe. Under generally accepted accounting principles, revenues are considered to have been earned when the Company has substantially accomplished what it must do to be entitled to the benefits represented by the revenues. The following criteria represent preconditions to the recognition of revenue:

The Company generally recognizes revenue upon shipment in accordance with the above principles.

Gross sales are reduced for all consideration paid to customers for which no identifiable benefit is received by the Company. This includes promotional incentives, year end rebates, and discounts. The amounts of certain incentives are estimated at the time of sale.

Commissions, for which the Company receives an identifiable benefit, are accounted for as a sales expense.

The Company accounts for federal tax liabilities in accordance with SFAS No. 109, “Accounting for Income Taxes”. Under this method the Company recorded tax expense and related deferred taxes and tax benefits.

The Company generally recognizes revenue upon shipment in accordance with the above principles.

Gross sales are reduced for all consideration paid to customers for which no identifiable benefit is received by the Company. This includes promotional incentives, year end rebates, and discounts. The amounts of certain incentives are estimated at the time of sale.

Commissions, for which the Company receives an identifiable benefit, are accounted for as a sales expense.

Basic earnings per share have been computed using the weighted average number of common shares outstanding.

Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), Share-Based Payment, (“SFAS 123R”), using the statement’s modified prospective application method. Prior to January 1, 2006, the Company followed SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock based Compensation Transition and Disclosure, an amendment to FASB Statement No. 123, which required entities to recognize as expense over the vesting period the fair value of stock-based awards on the date of grant or measurement date.

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On November 10, 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position SFAS 123R-3 “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards”. The Company has elected to adopt the alternative transition method provided by the FASB Staff Position for calculating the tax effects (if any) of stock-based compensation expense pursuant to SFAS 123R. The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool related to the tax effects of employee stock-based compensation, and to determine the subsequent impact to the additional paid-in capital pool and the consolidated statements of operations and cash flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS 123R.

Under the provisions of SFAS 123R, the Company recognizes the estimated fair value of stock based compensation in the consolidated statement of operations over the requisite service period of each option granted. Under the modified prospective application method of SFAS 123R, the Company applies the provisions of SFAS 123R to all awards granted or modified after January 1, 2006, as well as any unvested awards outstanding on January 1, 2006. The Company had no stock options outstanding at December 31, 2006 and made no option grants during the nine months ended September 30, 2007 and 2006.

During 2006, the Company established the Omega Flex, Inc. 2006 Phantom Stock Plan as described in detail in Note 7 under the caption “Stock Based Plans”. In accordance with SFAS 123R, the Company recorded compensation expense of approximately $24 in the first nine months of 2007 related to the Phantom Stock Plan.

Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at exchange rates prevailing on the balance sheet date. The Statement of Operations is translated at average exchange rates. Net foreign currency transactions are reported in the results of operations in U.S. dollars at average exchange rates. 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.

The Company elected in prior years and up to the date of the Spin-Off as described in Note 3 below to file its federal income tax return as part of the Mestek, Inc. consolidated return. Mestek and the Company account for the Company’s federal tax liabilities on the “separate company basis” method in accordance with SFAS No. 109, “Accounting for Income Taxes”. Under this method the Company recorded tax expense and related deferred taxes and tax benefits in a manner comparable to that which it would have recorded if it were then not affiliated with Mestek.

The Company filed a separate Federal income tax return for the five months of 2005 in which it was a separate company. The Company has also filed a separate Federal income tax return for 2006 and expects to file separately for 2007.

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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.

For the quarters ended September 30, 2007, and 2006 respectively, the components of Other Comprehensive (Loss) Income

For the quarters ended March 31, 2008 and 2007, respectively, the components of Other Comprehensive (Loss) Income consisted solely of foreign currency translation adjustments.

Effective January 1, 2008, the Company prospectively implemented the provisions of Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” for financial assets and financial liabilities reported or disclosed at fair value. At March 31, 2008, there were no applicable financial assets or financial liabilities that required fair value measurements. Accordingly, the impact of adopting these SFAS 157 provisions on the Company’s financial statements had no material effect on the Company’s financial position, results of operations, or liquidity.

In February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. 157-2, which delayed until the first quarter of 2009 the effective date of SFAS 157 provisions concerning non-financial assets and non-financial liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis. Also in February 2008, the FASB issued FSP No. 157-1 to exclude SFAS No. 13, “Accounting for Leases”, and its related interpretative accounting pronouncements from the scope of SFAS 157. The Company continues to evaluate the impact of these provisions, but does not anticipate that they will have a material effect on the Company’s financial position, results of operations, or liquidity.

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The Company also adopted, effective January 1, 2008, the provisions of SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of SFAS No. 115”. SFAS 159 provided an option to the Company to measure eligible assets and liabilities at fair value with changes in value recognized in earnings. Fair value recognition may be elected either upon initial recognition of an eligible asset or liability or, for an existing asset or liability, if an event triggers a new basis of accounting. The Company did not elect to remeasure any existing financial assets or liabilities under the provisions of SFAS 159. Accordingly, the impact of adopting these SFAS 159 provisions on the Company’s financial statements had no material effect on the Company’s financial position, results of operations, or liquidity.

In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 160 “Non-controlling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. The Company believes that this new pronouncement will not have any significant impact on the Company’s financial statements in future periods.

In December 2007, the FASB issued SFAS No. 141 (R) “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. SFAS 141Ralso provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. The Company believes that this new pronouncement will have an impact on our accounting for future business combinations once adopted, but the effect is dependent upon the acquisitions that are made in the future.

In March 2008, FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133” which establishes the disclosure requirements for derivative instruments and for hedging activities. This Statement amends and expands the disclosure requirements of Statement 133 with the intent to provide users of financial statements with an enhanced understanding of derivative instruments and hedging activities. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early adoption encouraged. We do not expect adoption of SFAS 161 to have a material impact on the Company’s financial statements.

Reclassifications

Certain reclassifications have been made to prior years’ financial statements to conform to the 2008 presentation.

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3. DISTRIBUTION FROM MESTEK, INC. (Spin-Off)

The Company completed a Spin-Off from its former parent, Mestek, Inc. (Mestek) on July 29, 2005. The Company’s common shares began trading on the NASDAQ Global Market under the trading symbol “OFLX” on August 1, 2005.

In connection with the Spin-Off, the Company executed certain agreements governing its relationship with Mestek subsequent to the date of the Spin-Off which are disclosed in the initial Form 10 and also discussed in detail in Note 3 of the December 31, 2006 Form 10-K filing.

At the effective date of the Spin-Off, Mestek was indebted to the Company in the amount of $3,250 which was converted on the effective date of the Spin-Off to a 3-year note receivable from Mestek bearing interest at 100 basis points above the then prevailing 3-year US Treasury note yield at approximately 5%. The principal balance of the Note at March 31, 2008 and December 31, 2007 remained $3,250. The interest income recorded on the note was approximately $41 for the three months ended 2008 and 2007, respectively.

In connection with the Mestek Note, on October 19, 2007 the Company entered into a Subordination Agreement with Bank of America, N.A. Under the Agreement, Mestek shall be permitted to repay any regularly scheduled payment of the subordinated debt to the Company provided that, at the time of repayment there exists no event of default under the terms of Mestek’s loan agreement with Bank of America, or an instance of insolvency or bankruptcy. If Mestek were to default under its loan agreement with Bank of America, or if it became insolvent, then the Company’s rights to collect the amounts due under the Mestek Note would become subordinate to choose to measure many financial instruments and certain other items at fair value at specified election dates. This Statement applies to all entities, including not-for-profit organizations. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ending December 31, 2008. The Company is currently evaluating the impact of SFAS 159 on its consolidated financial statements

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS 157 will be applied prospectively and will be effective for periods beginning after November 15, 2007. The Company is currently evaluating the effect, if any, of SFAS 157 on the Company's consolidated financial statements.

In June, 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109” (“FIN 48”). This statement 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. FIN 48 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.

Effective January 1, 2007, the Company has adopted the provisions of FIN 48. No adjustment was required to retained earnings as a result of the adoption of this standard.

As of January 1, 2007, the Company has provided a liability of $546 for unrecognized tax benefits related to various federal and state income tax matters. Of this amount, the amount that

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would impact the Company’s effective tax rate, if recognized, is $500. The difference between the total amount of unrecognized tax benefits and the amount that would impact the effective tax rate consists of items that are offset by the federal tax benefit of state income tax items of $46. The reserve has increased by $6 in the nine months ended September 30, 2007.

The Company does not expect that the amounts of unrecognized tax benefits will change significantly within the next 12 months.

The Company is currently subject to audit by the Internal Revenue Service for the calendar years ended 2005 and 2006. The Company and its Subsidiaries state income tax returns are subject to audit for the calendar years ended 2003 through 2006.

3. DISTRIBUTION FROM MESTEK, INC. (Spin-Off)

The Company completed a Spin-Off from its former parent, Mestek, Inc. (Mestek) on July 29, 2005. The Company’s common shares began trading on the NASDAQ Global Market under the trading symbol “OFLX” on August 1, 2005.

In connection with the Spin-Off, the Company executed certain agreements governing its relationship with Mestek subsequent to the date of the Spin-Off which are disclosed in the initial Form 10 and also discussed in detail in Note 3 of the December 31, 2006 Form 10-K filing.

At the effective date of the Spin-Off, Mestek was indebted to the Company in the amount of $3,250 which was converted on the effective date of the Spin-Off to a 3-year note receivable from Mestek bearing interest at 100 basis points above the then prevailing 3-year US Treasury note yield at approximately 5%. The principal balance of the Note at September 30, 2007 and December 31, 2006 remained $3,250. The interest income recorded on the note was approximately $122 for the first nine months of both 2007, and 2006.

In connection with the Mestek Note, on October 19, 2007 the Company entered into a Subordination Agreement with Bank of America, N.A. Under the Agreement, Mestek shall be permitted to repay any regularly scheduled payment of the subordinated debt to the Company provided that at the time of repayment there exists no event of default under the terms of Mestek’s loan agreement with Bank of America, or an instance of insolvency or bankruptcy. If Mestek were to default under its loan agreement with Bank of America, or if it became insolvent, then the Company’s rights to collect the amounts due under the Mestek Note would subordinate the rights of Bank of America under its loan agreement with Mestek.

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4. INVENTORIES

5. SHAREHOLDERS’ EQUITY

As of March 31, 2008 and December 31, 2007, the Company had authorized 20,000,000 common stock shares with par value of $0.01 per share, and had 10,106,408 and 10,128,516 shares issued and outstanding, respectively.

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On December 11, 2007, the Board authorized a special dividend of $0.70 per share to all Shareholders of record as of January 3, 2008, which was subsequently paid on January 16, 2008 in the amount of $7,092.

Our future decisions concerning the payment of dividends on our common stock will depend upon our results of operations, financial condition and capital expenditure plans, as well as such other factors as the Board of Directors, in its sole discretion, may consider relevant.

On September 12, 2007, the Company announced that its Board of Directors has authorized the purchase of up to $5,000 of its common stock. The purchases may be made from time-to-time in open market or in privately negotiated transactions, depending on market and business conditions, within the next 24 months. The Board retained the right to cancel, extend, or expand the share buyback program, at any time and from time-to-time. During the first quarter of 2008, the Company purchased 22,108 shares for $340. Since inception, the Company has purchased in total 47,225 shares for approximately $700.

6. COMMITMENTS AND CONTINGENCIES

Commitments:

On September 5, 2006 the Company and other defendants entered into a Stipulation and Settlement Agreement with the Class Representatives and Class Counsel, to settle and resolve the allegations brought forth in the case also signed the Settlement Agreement. The lawsuit titled Lovelis, et al. v. Titeflex Corp., Inc., et al. in the Arkansas Circuit Court, Clark County. Both the Company and the other defendants denied these allegations, and denied any wrongdoing or legal liability, but agreed to settle this matter to avoid further cost and the uncertainty and risk of the outcome of further litigation. Under the Settlement Agreement, the Company agreed to pay the value of each payment voucher redeemed by a class member for the installation of a lightning protection system or bonding and grounding of the Company’s CSST product. The amount of the voucher is dependent on the geographical area in the United States where the building is located and the size of the heated or air-conditioned area of the building. The Company also agreed to pay a fixed amount of administrative expenses and attorneys’ fees to the Class Counsel.

The Company cannot determine the exact amount for which it may be liable for the costs of the payment vouchers tendered under the claim program, because of the number of unknown variables associated with this liability. However, the Company estimated that the total amount of the liability relating to the settlement of the litigation would fall within a range of approximately $8,810 and $10,200. Thus far the Company has paid approximately $8,421 related to the Settlement with a remaining liability of $239 Short-Term Liability. This amount is based on currently available information and certain estimates and judgments, and is subject to revision as actual claims are received. In addition, there is a $14 current liability for legal services related to the Settlement. As of March 31, 2008, the third party administrator of the settlement program has received 775 claims relating to the Company’s products in connection with the Settlement.

Included in the payments noted above, and as indicated in Note 15 of the Company’s December 31, 2007 Form 10-K, on February 4, 2008, the Company reached an agreement for final payment relating to the class action settlement, excluding the outstanding vouchers. This

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final payment, which was made on March 3, 2008, in the amount of $1,850, represents the $1,000 current portion due as previously disclosed, and the remaining $1,000 long-term portion which was due in March of 2009, less a $150 (15%) reduction resulting from early payment.

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 entered into salary continuation agreements with two employees, which provide for monthly payments to each of the employee or his designated beneficiary upon the employee’s retirement or death. The payment benefits range from $1 per month to $3 per month with the term of such payments limited to 15 years after the employee’s retirement at age 65. The agreements also provide for survivorship benefits if the employee dies before attaining age 65, and severance payments if the employee is terminated without cause, the amount of which is dependent on the length of company service at the date of termination. The net present value of the retirement payments is included in Other Long-Term Liabilities, which amounts to $312 for March 31, 2008 and December 31, 2007, respectively. The Company has obtained and is the beneficiary of three whole life insurance policies in respect of the two employees discussed above, and one other policy. The cash surrender value of such policies (included in Other Assets) amounts to $521 at March 31, 2008 and December 31, 2007, respectively.

Contingencies:

The Company retains significant obligations under its commercial insurance policies for losses occurring in the policy years in which it was a subsidiary of Mestek, Inc. For the policy year ending October 1, 2004, the Company retained liability for the first $2,000 per occurrence of commercial general liability claims (including product liability claims), subject to an agreed aggregate. In addition, for 2004 the Company retained liability for the first $250 per occurrence of workers compensation coverage, subject to an agreed aggregate. However, for policy years beginning on July 22, 2005 (the effective date of the Spin-Off), the Company retained liability for a maximum of $50 per occurrence of commercial liability claims (including products liability claims), subject to an agreed aggregate, and the Company is insured on a ‘first dollar’ basis for workers’ compensation subject to statutory limits.

The Company’s liability is limited to $30 per case and an aggregate of $620 annually for health insurance.

Warranty Commitments:

Gas transmission products such as those made by the Company carry potentially serious personal injury risks in the event of failures in the field. As a result, the Company has extensive internal testing and other quality control procedures and historically the Company has not had a meaningful failure rate in the field due to the extensive nature of these quality controls. Due to allegations that the Company’s CSST products posed an unreasonable risk of fire due to lightning strikes. Both the Company and the other defendants denied these allegations, and denied any wrongdoing or legal liability, but agreed to settle this matter to avoid further cost and the uncertainty and risk of the outcome of further litigation.

The court gave final approval to the Settlement Agreement on February 1, 2007 and

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dismissed the case. The remedial program provided under the Settlement Agreement is currently processing claims from class members. The deadline for submitting any claims was September 5, 2007.

Under the Settlement Agreement, the Company has agreed to pay the value of each payment voucher redeemed by a class member for the installation of a lightning protection system or bonding and grounding of the Company’s CSST product. The amount of the voucher is dependent on the geographical area in the United States where the building is located and the size of the heated or air-conditioned area of the building, as set forth in the Settlement Agreement. The Company also agreed to pay a fixed amount of administrative expenses in providing notice to the class, and establishing and operating a claim system under which class members may obtain information, submit claims, and have claims processed. Finally, the Company agreed to pay attorneys’ fees to the Class Counsel to resolve this matter.

The Company cannot determine the exact amount for which it may be liable for the costs of the payment vouchers tendered under the claim program because of the number of unknown variables associated with this liability, including; the number of buildings in the United States that contain the Company’s CSST product; the number of payment vouchers that are properly and timely submitted by claimants; the extent to which vouchers are for lightning protection systems or for bonding and grounding; the geographical location of the building within the United States; and the size of the building in which the CSST is located. However, the Company estimated that the total amount of the liability relating to the settlement of the litigation would fall within a range of approximately $8,810 and $10,200. Thus far the Company has paid approximately $6,475 related to the Settlement with a remaining liability of $1,335 allocated as a Short-Term Liability and $1,000 recorded as Long-Term. This amount is based on currently available information and certain estimates and judgments, and is subject to revision as actual claims are received, and a claim history is established. In addition, there is a $202 current liability for legal services related to the Settlement. As of September 30, 2007, the third party administrator of the settlement program has received 663 claims relating to the Company’s products in connection with the Settlement.

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 entered into salary continuation agreements with two employees which provide for monthly payments to each of the employee or his designated beneficiary upon the employee’s retirement or death. The payment benefits range from $1 per month to $3 per month with the term of such payments limited to 15 years after the employee’s retirement at age 65. The agreements also provide for survivorship benefits if the employee dies before attaining age 65; and severance payments if the employee is terminated without cause, the amount of which is dependent on the length of company service at the date of termination. The net present value of the retirement payments is included in Other Long-Term Liabilities, which amounts to $277 for

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September 30, 2007 and $268 for December 31, 2006, respectively. The Company has obtained and is the beneficiary of three whole life insurance policies in respect of the two employees discussed above, and one other policy. The cash surrender value of such policies (included in Other Assets) amounts to $484 at September 30, 2007 and $448 at December 31, 2006, respectively. These amounts are typically reviewed and updated annually when new data is available, pending any significant changes.

The Company entered into a Separation Agreement and General Release with Duane E. Shooltz, formerly the general manager of the Company’s TracPipe^® business. The agreement became effective on October 8, 2007. Under the agreement, Mr. Shooltz will receive $172, to be paid in 39 equal weekly payments beginning on October 8, 2007. The Company expects to record a charge for the full $172 in the fourth quarter of 2007, relating to the Separation Agreement.

The Company entered into a Revolving Line of Credit Note and a Loan Agreement with Sovereign Bank, N.A., whereby the company established a line of credit facility for a one year duration, and in the maximum amount of $7,500. The loan agreement provides for the payment of any loan under the agreement at a rate that is either prime rate less 1%, or LIBOR rate plus 1%. As of September 30, 2007, the Company does not have any loans or loan balances under the loan agreement.

Contingencies:

The Company retains significant obligations under its commercial insurance policies for losses occurring in the policy years in which it was a subsidiary of Mestek, Inc. For the policy year ending October 1, 2004, the Company retained liability for the first $2,000 per occurrence of commercial general liability claims (including product liability claims), subject to an agreed aggregate. In addition, for 2004 the Company retained liability for the first $250 per occurrence of workers compensation coverage, subject to an agreed aggregate. However, for policy years beginning on July 22, 2005 (the effective date of the Spin-Off), the Company retained liability for the first $25 per occurrence of commercial liability claims (including products liability claims), subject to an agreed aggregate, and the Company is insured on a ‘first dollar’ basis for workers’ compensation subject to statutory limits.

Prior to the Spin-Off, the Company self-insured a substantial portion of the health benefits provided for its employees and maintained reserves in this regard and relied upon a recognized actuarial consulting firm to help it set and maintain these reserves. After the Spin-Off, the Company’s liability is limited to $30 per case and an aggregate of $600 annually.

Warranty Commitments:

Gas transmission products such as those made by the Company carry potentially serious personal injury risks in the event of failures in the field. As a result, the Company has extensive internal testing and other quality control procedures and historically the Company has not had a meaningful failure rate in the field due to the extensive nature of these quality controls. Due to the Company’s quality systems, the warranty expense is de minimis, and accordingly, the Company does not maintain a warranty reserve beyond a nominal amount.

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7. STOCK BASED 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 and of any of its subsidiaries. The phantom stock units ("Units") each represent a contractual right to payment of compensation in the future based on the market value of the Company’s common stock. The Units are not shares of the Company’s common stock, and a recipient of the Units does not receive any of the following:

The Units are granted to participants upon the recommendation of the Company’s CEO, and the approval of the compensation committee. Each of the Units that are granted to a participant will be initially valued by the compensation committee, and at a minimum, the Unit’s value will be in an amount equal to the closing price of the Company’s common stock on the grant date. The Units have a vesting schedule, with a maximum vesting schedule of 3 years after the grant date. Upon vesting, the Units represent a contractual right to the payment of the value of the Unit. The Units will be paid on their maturity date, which is a maximum of one year after all of the Units granted in a particular award have fully vested. The amount to be paid to the participant on the maturity date is dependant on the type of Unit granted to the participant. The Units may be Full Value, in which the value of each Unit at the maturity date, will equal the closing price of the Company’s common stock as of the maturity date; or Appreciation Only, in which the value of each Unit at the maturity date will equal to the closing price of the Company’s common stock at the maturity date minus the closing price of the Company’s common stock at 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 his relationship with the Company or its subsidiary for “cause,” which is defined under the

Plan. If a participant’s employment or relationship with the Company is terminated for reasons other than for “cause,” then any vested Units will be paid to the participant upon termination. However, Units granted to certain “specified employees” as defined in Section 409A of the Internal Revenue Code will be paid approximately 181 days after that termination.

Grants of Phantom Stock Units. As of December 31, 2007, the Company had 2,724 units outstanding, all of which were granted at Full Value. On December 11, 2006,March 6, 2008, the Company granted 2,420an additional 5,076 Full Value Units with a face value of $50$80 (fair value at the grant date of approximately $46) to an executive officer. On March 5, 2007, the Company granted an additional 3,178 Full Value Units with a face value of $70 (fair value at the grant date of approximately $65), of which 1,589 Units related to officers of the Company.$70). In bothall cases, the grant price was equal to the closing price of the Company’s common stock at the grant date. Since the Plan came into existence in 2006, there are no outstanding Units relating to periods prior to 2006.

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

Statement 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates in order to derive the Company’s best estimate of awards ultimately to vest. Forfeitures represent only the unvested portion of a surrendered Unit and are typically estimated based on historical experience. BasedAs of October 8, 2007, in connection with an officer’s resignation, a total of 2,874 unvested units were forfeited, however; based on an analysis of the Company’s historical data, which through the third quarter of 2007 has never experienced forfeitureslimited experience related to any stock basedstock-based plan forfeitures, the Company applied a 0% forfeiture rate to Plan Units outstanding in determining its Plan Unit compensation expense for September 30, 2007. As of October 8, 2007, in connection with an officer’s resignation, a total of 2,874 unvested units were forfeited.March 31, 2008.

The fair value of the Units granted through the thirdfirst quarter September 30, 2007March 31, 2008 using the Black-Scholes option-pricing model, uses the following assumptions:

The Company has elected to use the “Simplified” method for calculating the Expected Term in accordance with SAB 107, and has opted to use the Expected Dividend Amount rather than an Expected Dividend Yield.

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The following table summarizes information about phantom stock the Units outstanding at September 30, 2007:March 31, 2008:

At September 30, 2007March 31, 2008 none of the Units have vested. The Units granted are expected to vest in three year intervals, subject to earlier termination or forfeiture.

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As of September 30, 2007,March 31, 2008, the unrecognized compensation costs related to Plan Units vesting will be primarily recognized over a period of approximately 3 years.

The Units outstanding and exercisable at September 30, 2007March 31, 2008 were in the following exercise price ranges:

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Item 2 – 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 Quarterly Report on Form 10-Q 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.

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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-Q. 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.

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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 controlled as a single operating segment that consists of the manufacture and sale of flexible metal hose and accessories. The Company’s products are concentrated in residential and commercial construction, and general industrial markets. The Company’s primary product line, TracPipe^® flexible gas piping, is used for gas piping within residential and commercial buildings. Through its flexibility and ease of use with patented fittings distributed under the trademark AutoFlare^®, the TracPipe^® and CounterStrike^®flexible gas piping systems allows users to substantially cut the time required to install the gas piping, as compared to traditional methods. Most of the Company’s products are manufactured at the Company’s Exton, Pennsylvania facility with a minor amount of manufacturing performed in the UK. 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

(All dollars in thousands)

During the first nine months of 20072008, the Company’s cash balance has decreased $8,634$9,219 from $17,424$13,143 at December 31, 20062007 to $8,790$3,924 at September 30, 2007. As noted inMarch 31, 2008. Some of the year-end Form 10-K there wasmajor transactions that affected our cash balance were a $4,061$7,092 special dividend payment made on January 16, 2007,2008, and in accordance witha payment of $1,850 on March 3, 2008 to the Settlement Agreement as outlined in Note 1115 of the year-end Form 10-K, the Company paid $6,000 on March 7, 2007. This was10-K. Those payments were partially offset by cash generated from earnings for the year.

Accrued Legal Settlement and Related Costs have decreased $4,919 with a detailed description provided in Note 6, Commitments and Contingencies.

As discussed in Note 5, Shareholders’ Equity, in December of 2007 the Company declared a dividend, which amounted to $7,092. The Company subsequently paid a $4,061the dividend on January 16, 2007 therefore reducing the balance of the dividend payable to zero.2008.

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RESULTS OF OPERATIONS

(All dollars in thousands)

Three-months ended September 30,March 31, 2008 vs. March 31, 2007 vs. September 30, 2006

The Company reported comparative results from continuing operations for the three-month period ended September 30,March 31, 2008 and 2007 and 2006 as follows:

The Company’s sales decreased $1,017 (5.3%$908 (5.2%) from $19,283$17,331 in the three-month period ended September 30, 2006March 31, 2007 as compared to $18,266$16,423 in the three-month period September 30, 2007. Despite growth inMarch 31, 2008.

Revenue for the non-residential construction and international markets, and strategic price increases, a decrease resulted from thethree-months ended March 31, 2008 reflects continued weakness in the U.S. residential construction industry.industry, which was offset somewhat by gains in market share in residential, non-residential and international construction markets. Overall volume for the quarter was down 13.5%.18.1% compared to the prior year quarter.

The Company’s gross profit margins decreasedincreased from 51.5%47.8% in the three-month period ended September 30, 2006March 31, 2007 to 42.6%49.8% in the three-month period ended September 30, 2007 indicativeMarch 31, 2008. The increase in margin is primarily the result of increases toa decrease in the cost of the Company’s primary raw materials during the quarter; in particular stainless steel.steel combined with strategic price increases implemented in the last half of 2007, and other manufacturing efficiences.

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 $3,040$2,827 and $2,846$2,494 for the three months ended September 30, 2006March 31, 2007 and 2007,2008, respectively. The $194 decrease in selling expenses is principally duereduction was largely attributable to decreases in marketing programscommissions and freight.freight related to sales volume. Sales expense as a percentage of sales decreased from 15.8%16.3% for the three-months ended September 30, 2006March 31, 2007 to 15.6%15.2% for the three-months ended September 30, 2007.March 31, 2008.

General and Administrative Expenses. General and administrative expenses consist primarily of employee salaries, benefits for administrative, executive and finance personnel, legal and accounting, and corporate general and administrative services. General and administrative expenses were $1,239$1,863 and $1,682$1,997 for the three months ended September 30, 2006March 31, 2007 and 2007,2008, respectively. The $443$134 increase in expenses is mostly attributable to an increase in incentive compensation,staffing related expenses, and to a lesser extent, consulting fees. For the preceding reasons, general and

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administrative expense, as a percentage of sales, increased from 6.4%10.7% for the three months ended September 30, 2006March 31, 2007 to 9.2%12.2% for the three months ended September 30, 2007.March 31, 2008.

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Legal Settlement and Related Costs. Legal charges related to the Arkansas litigation in the three months of 20062007 and 2007,2008, were $9,008$164 and $155,($106), respectively. Further details are providedThe Company recognized a $150 reduction in legal costs in 2008 due to the early class action settlement payment in March of 2008 as disclosed in Note 6, Commitments and Contingencies. We believe theThe majority of the costs associated with this litigation are behind us.the Company.

Engineering Expense. Engineering expenses consist of development expenses associated with the development of new products and enhancements to existing products, and manufacturing engineering costs. Engineering expenses were $467$606 and $729$603 for the three months ended September 30, 2006March 31, 2007 and 20072008 respectively. The $262 increase in engineering expenses is due to an increase in new product development costs and engineering staffing. Accordingly, engineering expenses as a percentage of sales grew to 4.0%were in line with the prior year at 3.5% for the three months ended September 30,March 31, 2007 from 2.4%and 3.7% for the three months ended September 30, 2006.March 31, 2008.

Reflecting all of the factors mentioned above, Operating Profit margins increased $6,189$376 from a lossprofit of ($3,820)$2,816 in the three-month period ended September 30, 2006March 31, 2007 to a profit of $2,369$3,192 in the three-month period ended September 30, 2007. The increase in Operating Profit was primarily as a result of the negative effect of the legal settlement of the class action litigation on the third quarter 2006 operating results.March 31, 2008.

Interest Income-Net. Interest income-net includes interest income on the note receivable from Mestek and interest income on our interest-bearing investments.

Other Income-Net. Other Income-net primarily consists of realized foreign currency exchange gains (losses) on transactions with Omega Flex Limited, payments for accounts payable, interest and management fee to Omega Flex, Inc., its parent corporation.our U.K. subsidiary.

Income Tax Expense. The Company’s effective tax rate in 20072008 approximates the 20062007 rate and does not differ materially from expected statutory rates.

Nine-months ended September 30, 2007 vs. September 30, 2006

The Company reported comparative results from continuing operations for the nine-months period ended September 30, 2007 and 2006 as follows:

The Company’s sales increased slightly from $54,506 in the nine-month period ended September 30, 2006 as compared to $54,799 in the nine-month period ended September 30, 2007. Sales reflect growth in the non-residential construction and international markets coupled with strategic price increases. These increases were, however, dampened by a decrease in sales in the residential construction industry. Overall volume for the nine months was down 7.2%.

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The Company’s gross profit margins have decreased from 51.9% in the nine-month period ended September 30, 2006 to 44.5% in the nine-month period ended September 30, 2007, indicative of increases to the cost of the Company’s primary raw materials, particularly stainless steel.

Selling Expenses. Selling expense was $8,472 and $8,937 for the nine-months ended September 30, 2006 and 2007, respectively. The $465 increase in selling expenses is mostly due to increases in various marketing programs and increased staffing and related costs. Sales expense as a percentage of sales had increased to 16.3% for the nine-months ended September 30, 2007 as compared to 15.5% for the nine-months ended September 30, 2006.

General and Administrative Expenses. General and administrative expenses increased to $5,437 and $4,950 for the nine-months ended September 30, 2007 and 2006, respectively. The $487 increase was mostly attributable to consulting, and to a lesser extent, incentive compensation. As a percentage of sales, general and administrative costs increased from 9.1% for the nine-months ended September 30, 2006 to 9.9% for the nine-months ended September 30, 2007.

Legal Settlement and Related Costs. Legal charges related to the Arkansas litigation in the first nine months of 2006 and 2007, were $10,324 and $485, respectively. Further details are provided in Note 6, Commitments and Contingencies. We believe the majority of the litigation costs associated with this case are behind us.

Engineering Expense. Engineering expenses were $1,947 and $1,410 for the nine-months ended September 30, 2007 and 2006 respectively. The $537 increase in engineering expenses is largely due to expenditures associated with the certification and qualification of new products and to a lesser extent increased staffing and related costs. Engineering expenses as a percentage of sales were 3.6% for the nine-months ended September 30, 2007 and 2.6% for the nine-months ended September 30, 2006.

Reflecting all of the factors mentioned above, Operating Profit margins increased $4,462 from $3,129 in the nine-month period ended September 30, 2006 to $7,591 in the nine-month period ended September 30, 2007. The increase in Operating Profit was primarily as a result of the negative effect of the legal settlement of the class action litigation on the third quarter 2006 operating results.

Interest Income-Net. Interest income-net includes interest income on the note receivable from Mestek and interest income on our interest-bearing investments. In the first quarter of 2006 the Company paid interest associated with the mortgage on our manufacturing facility; however, as disclosed in the December 31, 2006 10-K, that mortgage was paid off on April 27, 2006.

Other Income-Net. Other Income-net primarily consists of realized foreign currency exchange gains (losses) on Omega Flex Limited payments for accounts payable, interest and management fee to Omega Flex, Inc., its parent corporation.

Income Tax Expense. The Company’s effective tax rate in 2007 approximates the 2006

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rate and does not differ materially from expected statutory rates.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

Financial Reporting Release No. 60, released by the Securities and Exchange Commission, requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. Note 2 of the Notes to the Consolidated Financial Statements includesinclude a summary of the significant accounting policies and methods used in the preparation of our Consolidated Financial Statements. The following is a brief discussion of the Company’s more significant accounting policies.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates and assumptions relate to revenue recognition, accounts receivable valuations, inventory valuations, goodwill valuation,and intangible asset valuations, product liability costs, workers compensation claims reserves, health care claims reserves, and accounting for income taxes. Actual amounts could differ significantly from these estimates.

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Our critical accounting policies and significant estimates and assumptions are described in more detail as follows:

Revenue Recognition

The Company’s revenue recognition activities relate almost entirely to the manufacture and sale of its flexible metal hose and related products.pipe. Under generally accepted accounting principles, revenues are considered to have been earned when the Company has substantially accomplished what it must do to be entitled to the benefits represented by the revenues. With respect to sales of the Company’s products, theThe following criteria represent preconditions to the recognition of revenue:

The Company generally recognizes revenue upon shipment in accordance with the above principles.

Gross sales are reduced for all consideration paid to customers for which no identifiable benefit is received by the Company. This includes promotional incentives, year endyear-end rebates, and discounts. The amountamounts of certain incentives isare estimated at the time of sale.

Commissions, for which the Company receives an identifiable benefit, are accounted for as a sales expense.

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Accounts Receivable

Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. The estimated allowance for uncollectible amounts is based primarily on specific analysis of accounts in the receivable portfolio and historical write-off experience. While management believes the allowance to be adequate, if the financial condition of the Company’s customers were to deteriorate, resulting in impairment of their ability to make payments, additional allowances may be required.

Inventory

The Company values its inventoryInventories are valued at the lower of cost to purchase and/or manufacture the inventory,market. Cost of inventories are determined onby the first-in, first-out (“FIFO”) method, or(FIFO) method. The Company generally considers inventory quantities beyond two-years’ usage, measured on a historical usage basis, to be excess inventory and reduces the current estimated marketgross carrying value of the inventory. The Company periodically reviews inventory quantities on hand and records a provision for excess and/or obsolete inventory based primarily on its historical usage, as well as estimated forecast of product demand. A significant decrease in demand for the Company’s products or technological changes in the industries in which the Company operates could result in an increase of excess or obsolete inventory quantities on hand, requiring adjustments to the value of the Company’s inventories.accordingly.

Excess inventory charges for the nine-months ended September 30, 2007 were $165, compared to $97 for the same period last year.

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Goodwill and Intangible Assets

In accordance with FAS 142, the Company ceased recording amortization of goodwill and intangible assets with indefinite lives effective January 1, 2002. The Company performed its annual valuation exercisesimpairment test in accordance with FAS 142 as of December 31, 20062007 which indicated no impairment of goodwill.

Goodwill is considered impaired when the net book value exceeds its estimated fair value. Fair value is primarily determined using a discounted cash flow methodology, determined based on the Company’s strategic plans and future forecasts.

Product Liability Reserves

As explained more fully under Contingencies, the Company currently retains liability for the first $25$50 of product liability claims. To date, the Company has not experienced a meaningful product failure rate.

Workers Compensation Claims Reserves

Prior to the Spin-Off, the Company provided workers compensation coverage principally through commercial insurance carriers using “high deductible” programs, which required the Company to reserve for and pay a high proportion of its workers compensation claims payable and relied upon the expertise of its insurance carriers and its own historical experience in setting the reserves related to these claims. One such workers compensation claim is still outstanding from the pre-Spin-Off period for which the company remains liable for amounts up to the deductible. The remaining potential liability is minimal, and the Company maintains a reserve

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for these amounts.

Health Care Claim Reserves

Prior to the Spin-Off, the Company self-insured a substantial portion of the health benefits provided for its employees and maintained reserves in this regard and relied upon a recognized actuarial consulting firm to help it set and maintain these reserves. After the Spin-Off, theThe Company’s liability is limited to $30 per case and an aggregate of $600$620 annually.

Accounting for Income Taxes

Up to the date of the Spin-Off, theThe Company elected to file its federal income tax return as part of the Mestek, Inc. parent company, consolidated return. Mestek and Omega accountedaccounts for Omega’s federal tax liabilities on the “separate company basis” method in accordance with FASSFAS No. 109, Accounting“Accounting for Income Taxes.Taxes”. Under this method Omegathe Company recorded tax expense and related deferred taxes and tax benefits in a manner comparable to that which it would record if it were not affiliated with Mestek.benefits.

The Company filed a separate Federal incomeDeferred tax returnassets and liabilities are recognized for the five monthsfuture tax consequences attributable to differences between the financial statement carrying amounts of 2005existing 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 it was a separate company. The Company has also filed a separate Federal income tax return for 2006 and expects to file separately for 2007.

By agreement, the Company will be responsible for and hold Mestek harmless from, any liability for its income taxes for all taxable periods, whether before or after the Spin-Off.

The preparation of the Company’s Consolidated Financial Statements requires it to estimate its income taxes in each of the jurisdictions in which it operates, including those outside the United States which may be subject to certain risks that ordinarily would not be expected in the United States. The income tax accounting process involves estimating its actual current exposure together with assessing temporary differences resulting from differing treatment of items such as depreciation, stock based compensation, and legal settlements for tax and accounting purposes. These differences result in the recognition ofare expected to be recovered or settled. The effect on deferred tax assets and liabilities. The Company must then recordliabilities from a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance to reduce itsis provided for deferred tax assets to the amount thatif it is more likely than not to be realized. Significant management judgment is required in determining the Company’s provision for income taxes, its deferred tax assets and liabilities and any valuation allowance recorded against deferred tax assets. In the event that actual results differ from these estimates oritems will either expire before the Company adjusts these estimates inis able to realize the benefit, or that future periods, it could materially impact its financial position and results of operations. See also Note 2, which discusses the adoption of FIN 48.

Related Party Service Fees

In connection with the Spin-Off described in Note 3 to the Company’s financial statements, the Company entered into a transitional services agreement with its former parent, Mestek, Inc., for various services including legal, treasury, tax, employee benefits, insurance, executive oversight and other services. The Company paid Mestek an annual fee for the

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services provided, and the charges from Mestek for the above noted services were approximately $47 and $22 for the first nine-months ended September 30, 2006 and 2007, respectively. The transitional services agreement with Mestek was terminated effective July of 2007.

IMPACT OF INFLATION

Stainless steel and other related commodities represent a significant portion of the Company’s prime costs. As such, the Company’s margins are subject to the cost of these metals in the commodity markets and any inflationary or deflationary volatility. In the first nine months of 2007 the Company’s margins were unfavorably impacted by inflation by 7.4 percentage points compared to the first nine months of 2006. In addition, the demand for our primary productdeductibility is dependant on market interest rates in the residential housing industry. If the rate of inflation continues to climb in 2007, with concurrent interest rate increases, the Company expects that the construction markets and the commodity markets in which it operates could be adversely impacted, thus potentially impacting the Company’s results of operations.uncertain.

LIQUIDITY AND CAPITAL RESOURCES  

(All dollarsamounts in thousands)thousands except share amounts)

NineThree Months ended September 30, 2007March 31, 2008

As of September 30, 2007,March 31, 2008, we had $8,790$3,924 in consolidated cash, cash equivalents and short-term investments, which is $8,634$9,219 less than at December 31, 20062007, mostly resulting from cash payments during the first quarter of 2007 of $4,061$7,092 for a special dividend, and $6,000$1,850 related to the Legal Settlement discussed in Note 6. The decrease was partially offset by cash generated from earnings for the year.

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Operating Activities

Cash used in operations for the first ninethree months of 2008 was $1,697 compared with $8,514 used in the first three months of 2007, was $4,228 compared with $5,597 provided by the first nine months of 2006, a $9,825$6,817 decrease. The most significant component was the $1,850 and $6,000 paymentpayments related to the Legal Settlement.

Accounts receivable provided $462 for the nine-months ending September 30, 2006 compared to $1,355 used during the first nine months of 2007. The decrease is predominately due to Company applying approximately $2,800 of credits to customer’s accountsSettlement made in the first halfthree months of the 2006 for promotional rebates earned in lieu of receiving a cash payment.2008 and 2007, respectively.

Investing Activities

Capital spending was $102 and $68 in the first quarters ended March 31, 2008 and March 31, 2007, respectively.

Financing

Cash used in financing activities during the first three months of 2008 was $7,432 compared with $4,061 used in the first three months of 2007. The most significant component for the nine-months ended September 30, 2007first three months of 2008 was $288. Capital spending in the nine-months ended September 30, 2006 was $1,158.$7,092 related to the special dividend.

On September 12, 2007, the Company announced that its Board of Directors has authorized the purchase of up to $5,000 of its common stock. The purchases may be made from time-to-time in open market or in privately negotiated transactions, depending on market and business conditions, within the next 24 months. The Board retained the right to cancel, extend, or expand the share buyback program at any time and from time-to-time.

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Financing

Cash used in financing activities during During the first nine monthsquarter of 2007 was $4,061 related to the special dividend. This is compared to $3,411 in 2006 when2008, the Company paid off the entire outstanding principal balance remaining on the Company’s main operating facility in Exton, Pennsylvania, as discussed in detail in Note 6 to the Company’s December 31, 2006 year-end 10-K.had purchased 22,108 shares of treasury stock for $340.

The Company entered into a Revolving Line of Credit Note and a Loan Agreement with Sovereign Bank, N.A., whereby the Company established a line of credit facility for a one-year duration, and in the maximum amount of $7,500. The loan agreement provides for the payment of any loan under the agreement at a rate that is either prime rate less 1% or LIBOR rate plus 1%. As of September 30, 2007March 31, 2008 the Company does not have any loans or loan balances, under the loan agreement.

The Company believes its liquidity position as of September 30, 2007March 31, 2008 is fully adequate to meet foreseeable future needs and that the Company will possess adequate cash reserves to meet its day-to-day needs including any acquisitions or capital expenditures or stock repurchases it can reasonably foresee at this time.

CONTINGENT LIABILITIES AND GUARANTEES

See Note 6 to the Company’s financial statements.

OFF-BALANCE SHEET ARRANGEMENTS

As noted inRefer to Item 7 of the Company’s 20062007 year-end Form 10-K under the caption “Tabular Disclosure of Contractual Obligations and Off-Balance Sheet Arrangements”, the Company has no off-balance sheet arrangements..

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Item 3. Quantitative And Qualitative Information About Market Risks

The Company does not engage in the purchase or trading of market risk sensitive instruments. The Company does not presently have any positions with respect to hedge transactions such as forward contracts relating to currency fluctuations. No market risk sensitive instruments are held for speculative or trading purposes. For a discussion of the risk factors facing the Company, and the shareholders’ investment in the Company, please refer to the Risk Factors set forth in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 2, 2007.

Item 4 – Controls And Procedures

At the end of the fiscal thirdfirst quarter of 2007,2008, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures. The Company’s disclosure

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controls and procedures are designed to ensure that the Company records, processes, summarizes and reports in a timely manner the information required to be disclosed in the periodic reports filed by the Company with the Securities and Exchange Commission. The Company’s management, including the chief executive officer, and chief financial officer and principal accounting officer, have conducted an evaluation of the effectiveness of the design and operation of the Company’s Disclosure Controls and Procedures as defined in the Rule 13a-15(e) of Securities Exchange Act of 1934. Based on that evaluation, the chief executive officer, and chief financial officer and principal accounting officer have concluded that, as of the date of this report, the Company’s disclosure controls and procedures are effective to provide reasonable assurance of achieving the purposes described in Rule 13a-15(e), and no changes are required at this time.

There was no change in the Company’s “internal control over financial reporting” (as defined in rule 13a-15(f) of the Securities Exchange Act of 1934) identified in connection with the evaluation required by Rule 13a-15(d) of the Securities Exchange Act of 1934 that occurred during the three-month period covered by this Report on Form 10-Q that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting subsequent to the date the chief executive officer and chief financial officer and principal accounting officer completed their evaluation.

PART II - OTHER INFORMATION

Item 1 – Legal Proceedings

On September 4, 2006, the Company entered into the Stipulation and Settlement Agreement between the Class Representatives and Class Counsel and the Company and all of the other defendants in the lawsuit titled “Lovelis, et al. v. Titeflex, Inc., et al.” The Settlement Agreement was filed on September 5, 2006 in the Arkansas Circuit Court in Clark County, preliminarily settling all of the allegations set forth in the lawsuit. On September 6, 2006, the Company issued a press release and filed a Current Report on Form 8-K with the Securities and Exchange Commission regarding the settlement. On February 1, 2007, the Circuit Court gave

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final approval of the Settlement Agreement and dismissed the case. The remedial program provided under the Settlement Agreement, processed claims from class members during the claim period. The deadline for submitting any claims was September 5, 2007.

See Note 6 – Contingencies of the Notes to the Condensed Consolidated Financial Statements (Part 1, Item 1) for information regarding legal proceedings in which we are involved.

Item 4 – Submission of Matter to a Vote of the Security Holders

No matters were submitted to the security holders of the Company for a vote during the thirdfirst quarter of 2007.2008.

Item 5 – Material Definitive Agreement with Executive Officer

The Company has entered into a consulting agreement with E. Lynn Wilkinson, the Company’s Vice President – Finance and Chief Financial Officer. Mr. Wilkinson has previously announced his retirement, and the agreement becomes effective upon his retirement, May 19, 2008. Mr. Wilkinson will provide limited and part-time management services relating to the finance and accounting, assist in the preparation of financial statements, and perform other services as requested. The agreement is for a term of six months, and may be renewed for successive 90-day periods by the mutual consent of the parties. The Company will pay to Mr. Wilkinson a retainer of $52,000, which is equal to one-half of his regular base pay at the time of his retirement for the six-month period. Mr. Wilkinson will not receive any other compensation or benefits under the agreement.”

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On June 5, 2007, the Company held its 2007 annual meeting of shareholders.  The shareholders voted on the following proposals:

The results of the voting are as follows:

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Item 6 - Exhibits  

Exhibit

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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