The Company’s sales increased $4,521,000 (13.3%) from $34,054,000 in the nine-month period ended September 30, 2010 as compared to $38,575,000 in the nine-month period September 30, 2011.

 Revenue for the nine-months ended September 30, 2011 reflects the market’s support of the Company’s proprietary products and conviction to innovation and safety, as indicated by the strong sales of TracPipe^® CounterStrike^® over the prior year.  TracPipe^® CounterStrike^® is the only CSST product on the market that has been listed by independent evaluation agencies for resistance to damage from lightning, seismic events (earthquakes), and flame/smoke spread. Additionally, the Company has noticed improvements in its international revenues mostly associated with its United Kingdom subsidiary, and within its varied Industrial related metal hose products, including emerging products such as DoubleTrac^®.  For the Company as a whole, unit volume for the current year increased approximately 6% compared to the prior year.  There were also increases to the selling prices of numerous products, which were required to overcome the rising price of the Company’s core raw materials. A reduction in marketing incentives during the year also helped to increase net sales.

The Company’s gross profit margins dipped from 51.9% in the nine-month period ended September 30, 2010 to 51.1% in the nine-month period ended September 30, 2011.  The slight change is mostly due to cost increases in numerous commodity type metals including nickel and copper, which adversely impact the price of the Company’s component material costs, such as stainless steel and brass fittings.  Selling price increases were implemented as noted above, but were not sufficient enough to offset the higher material costs in their entirety, due to the competiveness of the market place.

Selling Expenses.  Selling expenses consist primarily of employee salaries and associated overhead costs, commissions, and the cost of marketing programs such as advertising, trade shows and related communication costs, and freight.  Selling expenses were $6,500,000 and $7,825,000 for the nine-months ended September 30, 2010 and 2011, respectively, increasing $1,325,000.  Approximately $365,000 of the increase was attributable to staffing expenses, designed to expand sales markets and marketing expertise.  In addition, the Company increased its advertising spending by $359,000, with a focus on the many benefits of the Company’s

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various proprietary products, such as TracPipe^® CounterStrike^®.  To a lesser extent, expenses related to trade shows, travel, and consulting have also grown.  Sales expense as a percentage of sales increased from 19.1% for the nine-months ended September 30, 2010 to 20.3% for the nine-months ended September 30, 2011.

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 $5,460,000 and $5,618,000 for the nine-months ended September, 2010 and 2011, respectively.  The $158,000 increase was mainly the result of two larger contrasting variances.  Staffing related expenses have decreased $646,000, primarily associated with incentive compensation which had a higher projected payout rate in 2010 as compared to 2011.  In contrast, an increase was experienced in product liability costs of $722,000.  Although there was an increase in general and administrative expense costs, as a percentage of sales, those costs have decreased from 16.0% for the nine-months ended September 30, 2010 to 14.6% for the nine-months ended September 30, 2011.  

Engineering Expense.  Engineering expenses consist of development expenses associated with the development of new products and enhancements to existing products, and manufacturing engineering costs.  Engineering expenses were $1,705,000 and $1,854,000 for the nine-months ended September 30, 2010 and 2011 respectively.  For the same periods, engineering expenses were 5.0% and 4.8% as a percent of sales, respectively.

Operating Profits.  Reflecting all of the factors mentioned above, Operating Profit increased $416,000 (10.4%) from a profit of $4,014,000 in the nine-month period ended September 30, 2010 to a profit of $4,430,000 in the nine-month period ended September 30, 2011.

Interest Income (Expense)-Net.  Interest income in the period ended September 30, 2010 includes interest earned at 6% on the note receivable from Mestek, the Company’s former parent, which was issued in September 2009, and repaid in October of 2010, in addition to income earned on short-term investments.  Interest expense was recorded at 4% on the Sovereign line of credit loan balance outstanding, which was established in December 2009, and paid in full by the end of November 2010.  Interest in 2011 strictly relates to interest income earned on short-term investments.  There was a net increase in interest income from last year of $39,000.

Other Income (Expense)-Net.  Other Income (Expense)-net primarily consists of foreign currency exchange gains (losses) on transactions with Omega Flex Limited, our U.K. subsidiary.

Income Tax Expense.  The Company’s effective tax rate in 2011 approximates the 2010 rate and does not differ materially from expected statutory rates.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

(All Amounts in Thousands)

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 Condensed

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Consolidated Financial Statements includes a summary of the significant accounting policies and

methods used in the preparation of our condensed Consolidated Financial Statements. The following is a brief discussion of the Company’sCompany’s more significant accounting policies.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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, product liability reserve and accounting for income taxes.  Actual amounts could differ significantly from these estimates.

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

Revenue Recognition

The Company’sCompany’s revenue recognition activities relate almost entirely to the manufacture and sale of flexible metal hose and pipe.  Under GAAP, 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:

·

Persuasive evidence of an arrangement for the sale of product or services must exist.

·

Delivery has occurred or services rendered.

·

The sales price to the customer is fixed or determinable.

·

Collection is reasonably assured.

The Company 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, which includes various programs including year-end rebates and discounts.  The amounts of certain incentives are known with reasonable certainty at the time of sale, while others are projected based upon the

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most reliable information available at the reporting date.

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

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

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 Company’s Company’s customers were to deteriorate, resulting in their inability to make payments, additional allowances may be required.

Inventory

Inventories are valued at the lower of cost or market.  Cost of inventories is determined by the first-in, first-out (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 gross carrying value of inventory accordingly.

Goodwill and Intangible Assets

In accordance with FASB ASC Topic 350 Intangibles – Goodwill.  The Goodwill, the Company performed an annual impairment test in accordance with this guidance as of December 31, 2010.2011.  This analysis did not indicate any impairment of goodwill.  There are no circumstances that indicate that Goodwill might be impaired at September 30, 2011.

March 31, 2012.

Product Liability Reserves

Product liability reserves represent the unpaid amounts under the Company’sCompany’s insurance policies with respect to Claims that have been resolved.  The Company uses the most current available data to estimate claims.  As explained more fully under Contingencies, for various product liability claims covered under the Company’sCompany’s general liability insurance policies, the Company must pay certain defense costs within its deductible or self-insured retention limits, ranging from $25,000 to $250,000 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.

Fair Value of Financial and Nonfinancial Instruments

The Company measures financial instruments in accordance with Financial Accounting Standards Board (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

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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 on its actively traded share value – a level 1 input – in determining the fair value of the reporting unit in its annual impairment test as described in the FASB ASC Topic 350 Goodwill and Intangibles.

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 are translated into U.S. dollars at exchange rates prevailing on the balance sheet dates.  The Statements of Income are translated into U.S. dollars at average exchange rates for the period.  Adjustments resulting from the translation of financial statements are excluded from the determination of income and are accumulated in a separate component of shareholders’ equity.  Exchange gains and losses resulting from foreign currency transactions are included in operations (other income (expense)) in the period in which they occur.

Accounting for Income Taxes

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

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that includes the enactment date.  A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize the benefit, or that future deductibility is uncertain.  No valuation allowance was deemed necessary at DecemberMarch 31, 20102012 or at September 30,December 31, 2011.  Also, in accordance with FASB ASC Topic 740, the Company had reserves on the books for uncertainties in tax positions of $286,000$140,000 at September 30, 2011,March 31, 2012, and $276,000

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$135,000 at December 31, 2010.2011.  These reserves are reviewed each quarter.

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For the quarter ended March 31, 2012 and 2011, respectively, the sole component of Other Comprehensive Income (Loss) was a foreign currency translation adjustment.

LIQUIDITY AND CAPITAL RESOURCES

Nine-MonthsThree-months ended September 30, 2011March 31, 2012

The Company’sCompany’s cash balance at September 30, 2011March 31, 2012 was $1,362,000$8,520,000 compared to $2,209,000$3,476,000 at December 31, 2010,2011, which represents a decreasean increase of $847,000$5,044,000 between periods.

Operating Activities

The company’scompany’s cash from operations was a decreaseincreased $6,078,000 over the prior year, with $5,018,000 of $769,000cash provided being during the first ninethree months of 2012, while the first three months of 2011 versus an increaseinversely had used cash of $2,508,000$1,060,000.  The Insurance Legal Recovery of $4,700,000 that was received during the same periodfirst quarter of 2012 was the primary reason for this change.  Although there was a depletion in 2010, a change of $3,277,000.  The more notable uses of cash related to accounts receivables, there were associated with accounts receivable, accrued compensation, accrued commissions and sales incentives, andnumerous other assets.  Thesefavorable items arethat contributed to the increase in cash, as described below.

Cash related to accounts receivable and its applicable reserves is unfavorable by $1,056,000$793,000 compared to last year.  At September, sales forThere was a sizable decrease last year in net receivables between the preceding twoperiod of March 31, 2011 and December 31, 2010, generally related to increased cash collections during that period.  There was very little change in net receivables between March 31, 2012 and December 31, 2011.

Accrued compensation changed favorably by $770,000, largely because the Company has recorded additional incentive compensation during the first quarter of 2012 associated with the previously noted Insurance Legal Recovery, but will not expend the cash until the first quarter of 2013, consistent with historical payouts.  The first quarter of 2011 simply consisted of the payout of incentive compensation earned during 2010, offset by the first three months accrual for 2011 were substantially stronger than in the same period of 2010.  The collectionawards, and was thus of a majority of that cash however had yet to be realized.  The overall disparity in cash is considered to be timing relatedmore normal nature and is expected to flow through in the coming months.  There has been no discernible deterioration to the Company’s customer base or customer liquidity, as it is tracked on a regular basis.  Also, accounts over 90 days old have diminished, a sign of healthy receivables.

therefore less significant.

Accrued commissions and sales incentives required $934,000 more$615,000 less cash.  This was largely due to the increase in sales inIn 2010, over 2009, thus allowing morenumerous customers were able to reach growth tiers and earn higher annual rebates, including our most significant customer, which were paid out during the first quarter of 2011.

Accrued compensation has also changed unfavorably by $823,000,  Although sales in 2011 were stronger than in 2010, the number of customers that achieved growth tiers was not as this was being estimateddramatic, and accrued at a much higher ratetherefore the payouts made during the first ninequarter of 2012 relative to sales incentives earned in 2011 had decreased.

Other Liabilities shows cash provided of $1,343,000 for the first three months of 2010.2012,

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Cash has also been used at a higher level in Other Assets.  A change of $1,168,000

compared to last year$197,000 provided in the first three months of the prior year. The majority of the $1,146,000 change is primarilyattributable to additional accrued taxes of approximately $1,400,000 stemming from the Net Insurance Legal Recovery.  Those taxes were still payable at the end of the first quarter, and therefore there was no cash outlay, so the change represents an addition to cash when reconciling cash to net income.  There was however additional cash outflows between years related to higher insurance premiums for 5-Year product liability coverage.  Infringe benefits, largely associated with the pasttiming of profit sharing payments, which offsets a portion of the Company only had premiums related to a twelve or thirteen month period, and the cost was not as significant.  

gain in cash.  

Investing Activities

Cash used in investing activities for the first ninethree months of 20112012 was $85,000, compared with $75,000 used in$38,000, all related to capital expenditures.  There were no investing activities during the first ninethree months of 2010, all of which was related to a capital spending.

2011.

Financing

There was only cash used inwere no financing activities relative to 2010 in the amountfirst three months of $3,353,000, which was the result of available cash being applied to the outstanding line of credit.

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2012 or 2011.

CONTINGENT LIABILITIES AND GUARANTEES

See Note 5 to the Company’sCompany’s financial statements.

OFF-BALANCE SHEET ARRANGEMENTS

Refer to Item 7 of the Company’s 2010Company’s 2011 year-end Form 10-K under the caption “Tabular“Tabular Disclosure of Contractual Obligations and Off-Balance Sheet Arrangements”Arrangements”.

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.  

Item 4 – Controls And Procedures

(a)

Evaluation of Disclosure Controls and Procedures.

At the end of the fiscal thirdfirst quarter of 2011,2012, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures.  The Company’sCompany’s disclosure 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’sCompany’s management, including the chief executive officer and chief financial officer, have conducted an evaluation of the effectiveness of the design and operation of the Company’sCompany’s Disclosure Controls and Procedures as defined in the Rule 13a-15(e) of Securities Exchange Act of 1934.  Based on

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that evaluation, the chief executive officer and chief financial officer have concluded that, as of the date of this report, the Company’sCompany’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.

(b)

Changes in Internal Controls.

There was no change in the Company’s “internalCompany’s “internal control over financial reporting”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’sCompany’s internal control over financial reporting subsequent to the date the chief executive officer and chief financial officer completed their evaluation.

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PART II - OTHER INFORMATION

Item 1 – Legal Proceedings

The Company is not presently involved in any litigation that it believes could materially and adversely affect its financial condition or results of operations.

In October 2010, the companyCompany took the first case relating to CSST and lightning to trial.  At trial the companyCompany proved that the companyit was not negligent in the product design, but the jury did find the companyCompany liable under strict product liability.  However, the company has appealed the jury verdict.  The final outcome of the case is not yet determined.

In 2007, the Company instituted a legal complaint against a former insurer, seeking reimbursement of amounts paid in defense of a class action litigation, as well as supplementary payments made in connection with the class action.  After an adverse ruling at the trial court level, the Company appealed the ruling, and inIn January 2011, the appealsan appellate court found in the Company’sCompany’s favor, reversing the trial court decision and establishing the insurer’sinsurer’s legal obligation to reimburse the Company for the defense costs.  The case will be remanded toSubsequently, in March of 2012, the trial courtCompany and the insurer settled the litigation for further proceedings and determination$4,700,000, with receipt of the amount payable to the company, which the Company estimates to be in excess of $3,000,000, together with attorneys’ fees incurred in establishing the insurer’s defense obligations.  The litigation has not been fully resolved and while the Company believes they will ultimately prevail, further developments in the case could reduce or eliminate any potential recoveries.cash occurring during that same month.

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 2011.2012.

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Item 6 - Exhibits

Exhibit

No.

Description

31.1

Certification of Chief Executive Officer of Omega Flex, Inc. pursuant to Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

31.2

Certification of Chief Financial Officer of Omega Flex, Inc. pursuant to 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

32.1

Certification of Chief Executive Officer and Chief Financial Officer of Omega Flex, Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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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