EASTERN CO 10-K

ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Eastern Company Consolidated Balance Sheets January 3, December 28, 2026 2024 ASSETS Current Assets Cash and cash equivalents $ 7,412,019 $ 14,010,388 Marketable Securities - 2,051,301 Accounts receivable, less allowances: 2025-$ 633,891 ; 2024-$ 530,560 30,128,669 35,515,632 Inventories: Raw materials and component parts 21,526,667 21,070,522 Work in process 7,135,539 7,120,460 Finished goods 27,681,550 27,018,616 56,343,756 55,209,598 Current portion of note receivable 33,844 286,287 Prepaid expenses and other assets 5,349,486 3,477,717 Current assets held for sale - 5,071,828 Total Current Assets 99,267,774 115,622,751 Property, Plant and Equipment Land 664,344 579,344 Buildings 9,786,364 7,293,565 Machinery and equipment 49,712,848 48,447,779 Accumulated depreciation ( 33,246,213 ) ( 28,810,628 ) Property, Plant and Equipment, net 26,917,343 27,510,060 Other Assets Goodwill 58,631,336 58,509,384 Trademarks 5,082,767 3,946,455 Patents, technology and other intangibles net of accumulated amortization 5,269,204 8,765,612 Long term note receivable, less current portion 162,102 Deferred income taxes 5,528,496 6,611,518 Right of use assets 15,979,696 14,180,865 Total Other Assets 90,491,499 92,175,936 TOTAL ASSETS $ 216,676,616 $ 235,308,747 See accompanying notes. 30 Table of Contents The Eastern Company Consolidated Balance Sheets January 3, December 28, 2026 2024 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities Accounts payable $ 16,426,259 $ 19,650,970 Accrued compensation 4,203,720 5,478,581 Other accrued expenses 2,349,400 9,577,019 Current portion of operating lease liability 3,729,769 3,072,668 Current portion of financing lease liability 908,332 761,669 Current portion of long-term debt - 3,603,935 Other current liabilities - 505,376 Current liabilities held for sale - 2,144,573 Total Current Liabilities 27,617,480 44,794,791 Other long-term liabilities 464,902 546,395 Operating lease liability, less current portion 12,235,188 11,108,197 Financing lease liability, less current portion 3,080,446 3,052,073 Long-term debt, less current portion 33,902,353 38,640,576 Accrued postretirement benefits 332,165 410,476 Accrued pension cost 14,398,753 16,064,840 Long-term liabilities held for sale - - Total Liabilities 92,031,287 114,617,348 Shareholders’ Equity Voting Preferred Stock, no par value: Authorized and unissued: 1,000,000 shares Nonvoting Preferred Stock, no par value: Authorized and unissued: 1,000,000 shares Common Stock, no par value, Authorized: 50,000,000 shares Issued: 9,179,288 shares in 2025 and 9,146,996 shares in 2024 Outstanding: 6,041,767 shares in 2025 and 6,163,138 shares in 2024 36,337,100 35,443,009 Treasury Stock: 3,137,521 shares in 2025 and 2,983,858 shares in 2024 ( 30,067,777 ) ( 26,338,309 ) Retained earnings 137,997,382 133,545,670 Accumulated other comprehensive loss: Foreign currency translation ( 1,437,363 ) ( 2,276,590 ) Unrealized gain (loss) on foreign currency swap, net of tax 570,097 ( 505,376 ) Unrecognized net pension and postretirement benefit costs, net of tax ( 18,754,110 ) ( 19,177,005 ) Accumulated other comprehensive loss ( 19,621,376 ) ( 21,958,971 ) Total Shareholders’ Equity 124,645,329 120,691,399 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 216,676,616 $ 235,308,747 See accompanying notes. 31 Table of Contents The Eastern Company Consolidated Statements of Income Year Ended January 3, December 28, 2026 2024 Net sales $ 248,970,345 $ 272,751,967 Cost of products sold ( 192,011,802 ) ( 205,484,807 ) Gross margin 56,958,543 67,267,160 Product development expense ( 4,064,474 ) ( 4,888,496 ) Selling and administrative expenses ( 42,220,760 ) ( 42,229,660 ) Operating profit 10,673,309 20,149,004 Interest expense ( 2,684,603 ) ( 2,721,318 ) Other expense ( 499,257 ) ( 353,366 ) Income from continuing operations before income taxes 7,489,449 17,074,320 Income taxes ( 1,522,345 ) ( 3,858,796 ) Net income from continuing operations $ 5,967,104 $ 13,215,524 Discontinued Operations (see note 2) Loss from operations of discontinued units $ ( 520,006 ) $ ( 2,821,898 ) Gain (loss) on classification as held for sale 2,016,696 ( 23,087,775 ) Income tax (expense) benefit ( 331,009 ) 4,164,932 Net income (loss) on discontinued operations $ 1,165,681 $ ( 21,744,741 ) Net income (loss) $ 7,132,785 $ ( 8,529,217 ) Earnings per share from continuing operations: Basic $ 0.98 $ 2.13 Diluted $ 0.98 $ 2.13 Earnings (loss) per share from discontinued operations: Basic $ 0.19 $ ( 3.50 ) Diluted $ 0.19 $ ( 3.50 ) Total earnings (loss) per share: Basic $ 1.17 $ ( 1.37 ) Diluted $ 1.17 $ ( 1.37 ) Cash dividends per share: $ 0.44 $ 0.44 See accompanying notes. 32 Table of Contents The Eastern Company Consolidated Statements of Comprehensive Income Year Ended January 3, December 28, 2026 2024 Net income (loss) $ 7,132,785 $ ( 8,529,217 ) Other comprehensive income: Change in foreign currency translation 839,227 ( 1,409,991 ) Change in fair value of foreign currency swap 1,075,473 ( 505,376 ) Change in pension and other postretirement benefit costs, net of taxes of: $177,258 in 2025 and $982,414 in 2024 422,895 2,951,372 Total other comprehensive income 2,337,595 1,036,005 Comprehensive income (loss) $ 9,470,380 $ ( 7,493,212 ) See accompanying notes. 33 Table of Contents The Eastern Company Consolidated Statements of Shareholders’ Equity Common Treasury Retained Accumulated Other Comprehensive Shareholders' Shares Stock Shares Stock Earnings Income (Loss) Equity Balances at December 30, 2023 9,091,815 $ 33,950,859 ( 2,874,445 ) $ ( 23,280,467 ) $ 144,805,168 $ ( 22,994,976 ) $ 132,480,584 Net Loss ( 8,529,217 ) ( 8,529,217 ) Cash dividends declared, $0.44 per share ( 2,730,281 ) ( 2,730,281 ) Currency translation adjustment ( 1,409,991 ) ( 1,409,991 ) Change in fair value of foreign currency swap ( 505,376 ) ( 505,376 ) Change in pension and other postretirement benefit costs, net of tax 2,951,372 2,951,372 Stock Options Exercised - Treasury Stock Purchase ( 109,413 ) ( 3,057,842 ) ( 3,057,842 ) Issuance of stock awards, net 36,987 968,672 968,672 Issuance of Common Stock for directors' fees 18,194 523,478 523,478 Balances at December 28, 2024 9,146,996 $ 35,443,009 ( 2,983,858 ) $ ( 26,338,309 ) $ 133,545,670 $ ( 21,958,971 ) $ 120,691,399 Net Income 7,132,785 7,132,785 Cash dividends declared, $0.44 per share ( 2,681,073 ) ( 2,681,073 ) Currency translation adjustment 839,227 839,227 Change in fair value of foreign currency swap 1,075,473 1,075,473 Change in pension and other postretirement benefit costs, net of tax 422,895 422,895 Stock Options Exercised - Treasury Stock Purchase ( 153,663 ) ( 3,729,468 ) ( 3,729,468 ) Issuance of stock awards, net 3,502 224,409 224,409 Issuance of Common Stock for directors' fees 28,790 669,682 669,682 Balances at January 3, 2026 9,179,288 $ 36,337,100 ( 3,137,521 ) $ ( 30,067,777 ) $ 137,997,382 $ ( 19,621,376 ) $ 124,645,329 See accompanying notes. 34 Table of Contents The Eastern Company Consolidated Statements of Cash Flows Year Ended January 3, 2026 December 28, 2024 Operating Activities Net (loss) income $ 7,132,785 $ ( 8,529,217 ) Less: Gain (loss) from discontinued operations 1,165,681 ( 21,744,741 ) Income from continuing operations $ 5,967,104 $ 13,215,524 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,586,040 5,888,050 Reduction in carrying amount of ROU assets ( 2,900,200 ) ( 2,883,273 ) Unrecognized pension and postretirement benefits ( 1,197,126 ) ( 1,613,436 ) Loss on refinancing of credit agreement 526,602 - Loss on sale of equipment and other assets 365,257 162,918 Provision for doubtful accounts 95,767 2,430 Stock compensation expense 894,091 1,492,150 Deferred taxes 1,080,040 ( 4,700,137 ) Changes in operating assets and liabilities: Accounts receivable 7,858,798 ( 1,322,130 ) Inventories ( 268,522 ) 3,126,444 Prepaid expenses and other ( 466,822 ) 1,790,094 Other assets ( 209,825 ) ( 236,304 ) Accounts payable ( 4,500,112 ) ( 4,000,280 ) Accrued compensation ( 1,094,203 ) 244,229 Change in operating lease liability 2,900,200 2,883,289 Other accrued expenses ( 6,771,706 ) 5,336,482 Net cash provided by operating activities 8,865,383 19,386,050 Investing Activities Marketable securities 2,222,059 ( 956,728 ) Business acquisition ( 421,039 ) - Payments received from notes receivable 14,545 499,811 Proceeds from sale of business 1,593,646 - Proceeds from sale of building and equipment 51,727 2,278,540 Purchases of property, plant and equipment ( 3,969,860 ) ( 9,709,673 ) Net cash used in investing activities ( 508,922 ) ( 7,888,050 ) Financing Activities Proceeds from short term borrowings (revolver) - 3,000,000 Principal payments on short-term borrowings (revolver) - ( 1,750,000 ) Financing fees paid ( 299,521 ) - Proceeds from new long-term debt refinancing 36,015,894 - Principal payments on long-term debt ( 44,750,000 ) ( 3,087,289 ) Financing leases, net ( 853,224 ) 2,801,516 Purchase common stock for treasury ( 3,729,468 ) ( 3,057,841 ) Dividends paid ( 2,681,073 ) ( 2,730,281 ) Net cash used in financing activities ( 16,297,392 ) ( 4,823,895 ) Discontinued Operations Cash provided by operating activities - 1,165,057 Cash used in investing activities - ( 583,242 ) Cash provided by discontinued operations - 581,815 Effect of exchange rate changes on cash 509,421 ( 711,844 ) Net change in cash and cash equivalents ( 7,431,510 ) 6,544,076 Cash and cash equivalents at beginning of year 14,843,529 8,299,453 Cash and cash equivalents at end of year¹ $ 7,412,019 $ 14,843,529 Supplemental disclosure of cash flow information: Interest $ 2,890,146 $ 3,224,798 Income taxes 1,924,358 5,166,195 Non-cash investing and financing activities Right of use asset 1,652,686 2,883,273 Lease liability 1,491,392 36,569 ¹ includes cash from assets held for sale of $0.8 million as of December 28, 2024 See accompanying notes 35 Table of Contents The Eastern Company Notes to Consolidated Financial Statements 1. DESCRIPTION OF BUSINESS The Eastern Company, and its subsidiaries (the “Company,” “Eastern,” “we,” “us” or “our”) manage industrial businesses that design, manufacture and sell engineered solutions to industrial markets. Eastern’s businesses operate in industries with long-term macroeconomic growth opportunities. We look to acquire businesses that produce stable and growing earnings and cash flows. Eastern may pursue acquisitions in industries other than those in which its businesses currently operate if an acquisition presents an attractive opportunity. Eastern manages the financial, operational, and strategic performance of its businesses to increase cash generation, operating earnings, and long-term shareholder value. Eastern encompasses four operating entities within the United States, one wholly owned Canadian subsidiary located in Cambridge, Ontario, Canada, a wholly owned Taiwanese subsidiary located in Taipei, Taiwan, a wholly owned subsidiary in Hong Kong, two wholly owned Chinese subsidiaries (one located in Shanghai, China, and one located in Dongguan, China), and a wholly owned subsidiary in Reynosa, Mexico. The Eastern Company has one reportable segment: Engineered Solutions. The Engineered Solutions segment provides engineered solutions to support our customer’s needs primarily in the commercial transportation and logistics markets. The Chief Operating Decision Maker (CODM), who is the Company’s Chief Executive Officer, uses both segment gross profit and segment profit or loss from operations before interest and income taxes to allocate resources (including employees, property, and financial or capital resources) for the Engineered Solutions segment predominantly in the annual budget and forecasting process. Company Operations The Engineered Solutions segment consists of Big 3 Precision, including Big 3 Precision Products, Inc. (“Big 3 Products”) and Big 3 Mold Services, Inc. (“Big 3 Mold”) and Hallink Moulds, Inc. (“Hallink Moulds”); Eberhard Manufacturing Company (“Eberhard Manufacturing”), Eastern Industrial Ltd, World Lock Company Ltd., Dongguan Reeworld Security Products Ltd., and World Security Industries (together “Eberhard”); and Velvac Holdings Inc. (“Velvac”). These businesses design, manufacture, and market a diverse product line of custom and standard vehicular and industrial hardware, including turnkey returnable packaging solutions, access and security hardware, mirrors, and mirror-cameras. Big 3 Products and Big 3 Mold’s turnkey returnable packaging solutions are used in the assembly processes of vehicles, aircraft, and durable goods and in the production processes of plastic packaging products, packaged consumer goods and pharmaceuticals. Big 3 Products works with original equipment manufacturers (“OEMs”) to design and produce custom returnable transport packaging to integrate with OEM assembly processes. Big 3 Mold designs and manufactures blow mold tools. Hallink Moulds is a producer of injection blow mold tooling and is a supplier of blow molds and change parts to the food, beverage, healthcare, and chemical industry. Hallink specializes in the design, development and manufacture of 2-step stretch blow molds, and related components for the stretch blow molding industry, offering integrated turnkey solutions to its customers worldwide. Eberhard specializes in the engineering and manufacturing of access and security hardware. Eberhard offers a standard product line of rotary latches, compression latches, draw latches, hinges, camlocks, key switches, padlocks, and handles among other products, as well as comprehensive development and program management services for custom electromechanical and mechanical systems designed for specific OEMs and customer applications. Eberhard’s products are found in an expansive range of applications and products globally. Velvac is a designer and manufacturer of proprietary vision technology for OEMs and aftermarket applications, and a provider of aftermarket components to the heavy-duty truck market in North America. Velvac serves diverse, niche segments within the heavy- and medium-duty truck, motorhome, and bus markets. Sales are made to customers primarily in North America. 36 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) 2. DISCONTINUED OPERATIONS In the third quarter of 2024, the Company decided to sell Big 3 Mold and determined that the Big 3 Mold business met the criteria to be held for sale and that the assets held for sale qualify for discontinued operations. As such, the financial results of the Big 3 Mold business are reflected in our consolidated statements of income as discontinued operations for all periods presented. Additionally, current and non-current assets and liabilities of discontinued operations are reflected in the consolidated balance sheets for all periods presented. On April 30, 2025, the Company sold the equipment, workforce and customer list of the ISBM division of Big 3 Mold. ISBM, which is located in Centralia, Illinois, is an injection stretch blow mold toolmaker. From April 30, 2025, the assets and liabilities and results of operations have been included in continuing operations. Summarized Financial Information of Discontinued Operations The following table represents income (loss) from discontinued operations, net of tax: Year Ended January 3, 2026 December 28, 2024 Net sales $ 1,670,208 $ 13,728,762 Cost of products sold ( 1,653,484 ) ( 11,573,847 ) Gross margin 16,724 2,154,915 Selling and administrative expenses ( 388,848 ) ( 4,296,484 ) Operating loss ( 372,124 ) ( 2,141,569 ) Other income (expense) 2,016,696 ( 23,087,775 ) Interest expense ( 147,882 ) ( 680,329 ) Income (Loss) from discontinued operations before income taxes 1,496,690 ( 25,909,673 ) Income tax (expense) benefit ( 331,009 ) 4,164,932 Income (Loss) from discontinued operations, net of tax $ 1,165,681 $ ( 21,744,741 ) 37 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) The following table represents the assets and liabilities from discontinued operations: January 3, 2026 December 28, 2024 Cash $ - $ 833,141 Accounts receivable - 2,533,357 Inventory - 784,485 Prepaid expenses - 789,438 Right of use assets - 131,407 Total assets of discontinued operations $ - $ 5,071,828 Current assets of discontinued operations¹ $ - $ 5,071,828 Total assets of discontinued operations $ - $ 5,071,828 Accounts payable $ - $ 756,842 Accrued compensation and other accrued expenses - 1,242,812 Current portion of operating lease liability - 121,299 Current portion of financing lease liability - 7,371 Other long-term liabilities - 16,249 Total liabilities of discontinued operations $ - $ 2,144,573 Current liabilities of discontinued operations¹ $ - $ 2,144,573 Total liabilities of discontinued operations $ - $ 2,144,573 ¹ the total assets and liabilities of discontinued operations are presented as current in the December 28, 2024 consolidated balance sheet as we expect to sell the discontinued operations and collect proceeds within one year. 38 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) 3. ACCOUNTING POLICIES Fiscal Year The Company’s year ends on the Saturday nearest to December 31. Based on this policy, fiscal year 2025 was comprised of 53 weeks and fiscal year 2024 was comprised of 52 weeks. References in these Notes to the consolidated financial statements to “2025” or “fiscal year 2025” mean the fiscal year ended January 3. 2026, and references to “2024” or “fiscal year 2024” mean the fiscal year ended December 28, 2024. References to the “fourth quarter of 2025” or the “fourth fiscal quarter of 2025” mean the fourteen-week period from September 28, 2025 to January 3, 2026, and references to the “fourth quarter of 2024” or the “fourth fiscal quarter of 2024” mean the thirteen-week period from September 29, 2024 to December 28, 2024. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All intercompany accounts and transactions are eliminated. Reclassification Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. On an ongoing basis the Company evaluates its estimates, including those related to product returns, bad debts, carrying value of inventories, intangible and other long-lived assets, income taxes, pensions, other postretirement benefits, and gain or loss on held for sale. Actual results could differ from those estimates. Foreign Currency For foreign operations asset and liability accounts are translated with an exchange rate at the respective balance sheet dates; income statement accounts are translated at the average exchange rate for the years. Resulting translation adjustments are made directly to a separate component of shareholders’ equity – “Accumulated other comprehensive (loss) – Foreign currency translation.” Foreign currency exchange transaction gains and losses are not material in any year. Cash Equivalents Highly liquid investments purchased with a maturity of three months or less are considered cash equivalents. The Company has deposits that exceed amounts insured by the Federal Deposit Insurance Corporation (FDIC) up to $ 250,000 , but the Company does not consider this a significant concentration of credit risk based on the strength of the financial institution. Approximately 31% of available cash is located outside of the United States in our foreign subsidiaries. Accounts Receivable Accounts receivable are stated at their net realizable value. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company reviews the collectability of its receivables on an ongoing basis considering a combination of factors. The Company reviews potential problems, such as past due accounts, a bankruptcy filing or deterioration in the customer’s financial condition, to ensure the Company has adequately accrued for potential loss. Accounts are considered past due based on when payment was originally due. If a customer’s situation changes, such as a bankruptcy or change in creditworthiness, or there is a change in the current economic climate, the Company may modify its estimate of the allowance for doubtful accounts. The Company will write off accounts receivable after reasonable collection efforts have been made and the accounts are deemed uncollectible. As of January 3, 2026 and December 28, 2024, the Company’s allowance for doubtful accounts total was $ 0.6 million and $ 0.5 million, respectively. As of January 3, 2026 and December 28, 2024, the Company’s bad debt expense was $ 0.1 million and $ 0.1 million, respectively. 39 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) Inventories Inventories are valued at the lower of cost or net realizable value. Cost is determined by the last-in, first-out (LIFO) method at Eberhard ($ 19.1 million on January 3, 2026 and $ 19.9 million December 28, 2024) and by the first-in, first-out (FIFO) method for inventories at Big 3 Precision, Velvac and outside the U.S. ($ 37.2 million on January 3, 2026 and $ 36.1 million on December 28, 2024). Cost exceeded the LIFO carrying value by approximately $ 3.8 million on January 3, 2026 and $ 3.8 million on December 28, 2024. There was no material LIFO quantity liquidation in 2025 or 2024. In addition, as of the balance sheet dates, the Company has recorded reserves for excess/obsolete inventory. Property, Plant and Equipment and Related Depreciation Property, plant, and equipment (including equipment under finance lease of $ 4.0 million) are stated at cost. Depreciation expense ($ 3.8 million in 2025, $ 3.8 million in 2024) is computed using the straight-line method based on the following estimated useful lives of the assets: Buildings - 10 to 39.5 years; Machinery and equipment - 3 to 10 years. Impairment of Long-Lived Assets In accordance with Accounting Standards Codification (“ASC”) 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company reviews its long-lived assets and certain intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In such an event, the carrying value of long-lived assets is reviewed by management to determine if the value may be impaired. If this review indicates that the carrying amount will not be recoverable, as determined based on the estimated expected future cash flows attributable to the asset over the remaining amortization period, management will reduce the carrying amount to recognize the impairment and recognize an impairment loss. The measurement of the impairment loss to be recognized is to be based on the difference between the fair value and the carrying amount of the asset. Fair value is defined as the amount by which the asset could be bought or sold in a current transaction between willing parties. Where quoted market prices in active markets are not available, management would estimate fair value based on the best information available in the circumstances such as the price of similar assets, a discounted cash flow analysis or other techniques. Goodwill The Company tests its reporting units for impairment annually in December, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Such events and circumstances could include, among other things, increased competition or unexpected loss of market share, significant adverse changes in the markets in which the Company operates, or unexpected business disruptions. The Company tests reporting units for impairment by comparing the estimated fair value of each reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its estimated fair value, the Company records an impairment loss based on the difference between fair value and carrying amount not to exceed the associated carrying amount of goodwill. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. The values assigned to the key assumptions represent management’s assessment of future trends in the relevant industry and have been based on historical data from both external and internal sources. In the third quarter of 2024 a goodwill impairment of approximately $ 12.1 million was recognized in discontinued operations when classifying the disposal group as held for sale. See Note 2 – Discontinued Operations for further discussion of discontinued operations. Less than $ 0.1 million were recognized as impairment losses for the year ending January 3, 2026. 40 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) The Company performed qualitative assessments of goodwill as of the end of fiscal 2025 and 2024 and determined that no impairment existed at the end of 2025 and 2024. The Company will continue to perform annual qualitative assessments as of the end of each fiscal year. Additionally, the Company will perform an interim analysis whenever conditions warrant. Intangible Assets Patents are recorded at cost and are amortized using the straight-line method over the lives of the patents. Technology and licenses are recorded at cost and are amortized on a straight-line basis over periods ranging from 1 to 20 years. Non-compete agreements and customer relationships are amortized using the straight-line method over their useful lives. Trademarks are deemed to have indefinite lives. If facts and circumstances indicate that the carrying value of the intangible assets, including definite life intangible assets, may be impaired, an evaluation is performed to determine if a write-down is required. In the third quarter of 2024 an impairment loss of approximately $ 4.7 million was recognized in discontinued operations when classifying the disposal group as held for sale. See Note 2 – Discontinued Operations for further discussion of discontinued operations. No impairment losses were recognized for the year ended January 3, 2026. Fair Value of Financial Instruments Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The company utilizes a fair value hierarchy, which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The fair value hierarchy has three levels of inputs that may be used to measure fair value: Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 Quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable. The Company’s financial instruments are primarily investments in marketable securities (Level 1) and pension assets, see Note 10 - Retirement Benefit Plans . The carrying amounts of other financial instruments (cash and cash equivalents, marketable securities, accounts receivable, accounts payable and debt) as of January 3, 2026 and December 28, 2024, approximate fair value because of their short-term nature and market-based interest rates. Leases The Company presents right-of-use (“ROU”) assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months, in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02, Leases. The Company elected to account for non-lease components as part of the lease component to which they relate. Lease accounting involves significant judgements, including making estimates related to the lease term, lease payments, and discount rate. The Company has operating leases for buildings, warehouses, and office equipment as well as finance leases for equipment. The Company determines whether an arrangement is, or contains, a lease at contract inception. An arrangement contains a lease if t Company has the right to direct the use of and obtain substantially all the economic benefits of an identified asset. ROU assets and lease liabilities are recognized at lease commencement based on the present value of lease payments over the lease term. 41 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Many leases include one or more options to renew. The exercise of lease renewal options is at our sole discretion. The Company’s option to extend certain leases ranges from 1–120 months. All options to extend, when it is reasonably certain the option will be exercised, have been included in the calculation of the ROU asset and lease liability. Currently, the Company has 17 operating leases with a lease liability of $ 16.0 million and 8 finance leases with a lease liability of $ 4.0 million as of January 3, 2026. The basis, terms, and conditions of the leases are determined by the individual agreements. The leases do not contain residual value guarantees, restrictions, or covenants that could cause the Company to incur additional financial obligations. There are no related party transactions. There are no leases that have not yet commenced that could create significant rights and obligations for the Company. The weighted average remaining lease term is 5.8 years. Revenue Recognition The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company considers several factors in determining that control transfers to the customer upon shipment of products. These factors include that legal title transfers to the customer, the Company has a present right to payment, and the customer has assumed the risk and rewards of ownership at the time of shipment. Big 3 Mold may employ the efforts expended method for the percentage of completion for revenue recognition for certain transactions. The efforts expended method calculates the proportion of effort expended to date in comparison to the total effort expected to be expended for the contract. The amount of revenue recognized by employing the percentage of completion method was $ 0.8 million for the year ended January 3, 2026 and $ 2.3 million for the year ended December 28, 2024. Based on historical experience, product returns have been immaterial, and the Company does not accrue a reserve for product returns. For the years ended January 3, 2026 and December 28, 2024, the Company recorded sales returns of $ 0.5 million and $ 0.8 million, respectively, as a reduction to revenue. Sales and similar taxes that are imposed on the Company’s sales and collected from the customer are excluded from revenues. Costs for shipping and handling activities, including those activities that occur after transfer of control to the customer, are recorded as cost of sales and are expensed as incurred. For the years ended January 3, 2026 and December 28, 2024, the Company recorded no revenues related to performance obligations satisfied in prior periods. The Company has elected to use the practical expedient to exclude disclosure of transaction prices allocated to remaining performance obligations, and when the Company expects to recognize such revenue, for all periods prior to the date of initial application of the standard. The Company notes that it is impracticable to provide revenues from external customers for each product and service. See Note 12 – Segment and Geographic Information regarding the Company’s revenue disaggregated by geography. 42 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) Cost of Goods Sold Cost of goods sold reflects the cost of purchasing, manufacturing, and preparing a product for sale. These costs generally represent the expenses to acquire or manufacture products for sale (including an allocation of depreciation and amortization) and are primarily comprised of direct materials, direct labor, and overhead, which includes indirect labor, facility and equipment costs, inbound freight, receiving, inspection, purchasing, warehousing, and any other costs related to the purchasing, manufacturing, or preparation of a product for sale. Shipping and Handling Costs Shipping and handling costs are included in the cost of goods sold. Product Development Costs Product development costs, charged to expense as incurred, were $ 4.1 million in 2025 and $ 4.9 million in 2024 and include costs to develop new or enhance existing products to better serve our customers. Selling and Administrative Expenses Selling and administrative expenses include all operating costs of the Company that are not directly related to the cost of purchasing, manufacturing, and preparing a product for sale. These expenses represent selling and administrative expenses for support functions and related overhead. Advertising Costs The Company expenses advertising costs as incurred. Advertising costs were $ 0.5 million in 2025 and $ 0.6 million in 2024. Stock - Based Compensation The Company accounts for its stock-based awards in accordance with ASC 718-10, Compensation-Stock Compensation , which requires a fair value measurement and recognition of compensation expense for all share-based payment awards made to its employees and Directors, including employee stock awards and restricted stock awards. The Company estimates the fair value of granted stock awards at the date of grant. This model requires the Company to make estimates and assumptions including, without limitation, estimates regarding the length of time an employee will retain vested stock awards before exercising them, the estimated volatility of the Company’s common stock price and the number of awards that will be forfeited prior to vesting. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Changes in these estimates and assumptions can materially affect the determination of the fair value of stock-based compensation and consequently, the related amount recognized in the Company’s consolidated statements of operations. Under the terms of the Director’s Fee Program, the directors receive their director’s fees in shares of Company common stock. Income Taxes The Company and its U.S. subsidiaries file a consolidated U.S. federal income tax return. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company accounts for uncertain tax positions pursuant to the provisions of ASC 740, Simplifying the Accounting for Income Tax es (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements. These provisions detail how companies should recognize, measure, present, and disclose uncertain tax positions that have or are expected to be taken. As such, the financial statements will reflect expected future tax consequences of uncertain tax positions presuming the taxing authorities’ full knowledge of the position and all relevant facts. See Note 8 - Income Taxes . 43 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) 4. GOODWILL The following is a roll-forward of goodwill for 2025 and 2024: 2025 Beginning Balance $ 58,509,384 Acquisition 90,000 Impairment Charge ( 73,528 ) Foreign Exchange 105,480 Ending Balance $ 58,631,336 2024 Beginning Balance $ 70,776,893 Impairment Charge ( 12,081,578 ) Foreign Exchange ( 185,931 ) Ending Balance $ 58,509,384 44 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) 5. INTANGIBLES Trademarks are not amortized as their lives are deemed to be indefinite. Amortization expense recognized $ 2.6 million in 2025 and $ 4.0 million in 2024. Total amortization expense for each of the next five years is estimated to be as follows: 2026 - $ 2.6 million; 2027 - $ 1.8 million; 2028 - $ 0.2 million; 2029 - $ 0.1 million and 2029 - $ 0.1 million. Weighted-Average Amortization 2025 Period (Years) Gross Amount Patents and developed technology $ 7,375,481 4.2 Customer relationships 16,675,904 3.6 Non-compete agreements 311,550 0.2 Total Gross Intangibles $ 24,362,935 3.7 Accumulated Amortization Patents and developed technology $ 4,331,720 Customer relationships 14,718,908 Non-compete agreements 43,103 Accumulated Amortization $ 19,093,731 Net 2025 per Balance Sheet $ 5,269,204 2024 Gross Amount Patents and developed technology $ 7,312,228 4.0 Customer relationships 17,884,257 3.6 Non-compete agreements 141,515 0.5 Total Gross Intangibles $ 25,338,000 3.7 Accumulated Amortization Patents and developed technology $ 4,134,929 Customer relationships 12,419,398 Non-compete agreements 18,061 Accumulated Amortization $ 16,572,388 Net 2024 per Balance Sheet $ 8,765,612 45 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) 6. DEBT On October 28, 2025, the Company entered into a Credit Agreement with Citizens Bank, N.A. that provides for the extension of credit to the Company in the form of revolving loans, swing line loans and letters of credit (the “Credit Agreement”). The Credit Agreement provides the Company with a $ 100 million five-year senior secured revolving credit facility. Under the revolving credit facility, up to $ 5 million is available for letters of credit and up to $5 million is available for swing line loans. The Company can elect to increase the revolving commitment under the Credit Agreement by up to $ 75 million, provided that one or more lending institutions (whether or not existing lenders under the Credit Agreement) voluntarily agree to provide the additional commitment. Revolving loans under the Credit Agreement bear interest at a variable rate based on the term secured overnight financing rate (“SOFR”) plus an applicable margin of 1.375 % to 2.125 % depending on the Company’s senor net leverage ratio. The Company’s obligations under the Credit Agreement are secured by a lien on substantially all of the Company’s and its subsidiaries’ assets pursuant to a Pledge and Security Agreement dated as of October 28, 2025. Amounts outstanding under the Credit Agreement are generally due and payable on the expiration date of the Credit Agreement (October 28, 2030) or the earlier termination of the revolving commitments thereunder. The Company can elect to prepay some or all of the outstanding balance from time to time without penalty. Debt consists of: 2025 2024 Term loans $ - $ 40,944,511 Revolving credit loan 33,902,353 1,250,000 33,902,353 42,244,511 Less current portion - 3,603,935 $ 33,902,353 $ 38,640,576 Amounts are net of unamortized discounts and debt issuance costs of $ 113,500 as of January 3, 2026 and $ 74,500 as of December 28, 2024. The Company paid interest of $ 2,458,000 in 2025 and $ 3,224,798 in 2024. The Company’s loan covenants under the Credit Agreement require the Company to maintain a senior net leverage ratio not to exceed 3.50 to 1.00, which is to be tested quarterly on a trailing twelve-month basis. In addition, the Company is required to maintain an interest coverage ratio not less than 3.00 to 1.00 . The Company was in compliance with all covenants as of January 3, 2026 and December 28, 2024. As of January 3, 2026, scheduled annual principal maturities of long-term debt, net of deferred financing fees, for each of the next five years follow: 2026 — 2027 — 2029 — 2030 33,902,353 Thereafter — $ 33,902,353 46 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) 7. STOCK OPTIONS AND AWARDS Stock Awards As of January 3, 2026, the Company has one incentive stock award plan, The Eastern Company 2020 Stock Incentive Plan (the “2020 Plan”), for officers, other key employees, and non-employee directors. Restricted stock awards or restricted stock units may be granted to participants under the 2020 Plan with restrictions determined by the Compensation Committee of the Company’s Board of Directors. The Company granted 88,416 and 92,016 restricted stock unit awards during 2025 and 2024, respectively. The 2020 Plan also permits the issuance of stock options. Stock option awards granted under the 2020 Plan will have exercise prices determined by the Compensation Committee of the Company’s Board of Directors that are not less than 100% of the fair market value of the Company’s common stock on the dates the stock awards are granted. The Company issued 50,688 and 53,568 stock options in 2025 and 2024, respectively. For the year of 2025, the Company used several assumptions which included an expected term of 3 years, volatility deviation of 42.54 % and 40.34 % and a risk-free rate of 3.73 % and 4.34 %. For the year of 2024, the Company used several assumptions which included an expected term of 3 years, volatility deviation of 38.30 % and a risk-free rate of 4.51 %. Stock-based compensation expense, including forfeitures, in connection with stock awards and stock options previously granted to employees was $ 254,000 and $ 1,030,000 for fiscal years 2025 and 2024, respectively. The Company used fair market value to determine the associated expense with stock awards for the 2025 and 2024 fiscal years. As of January 3, 2026, there were 780,962 shares of common stock reserved and available for future grant under 2020 Plan. The following tables set forth the outstanding stock options for the period specified: Year Ended January 3, 2026 Year Ended December 28, 2024 Shares Weighted - Average Exercise Price Shares Weighted - Average Exercise Price Outstanding at beginning of period 25,116 $ 28.18 13,000 $ 24.19 Issued 50,688 27.57 53,568 28.69 Expired ( 1,500 ) 20.20 ( 9,000 ) 26.30 Exercised - - ( 2,500 ) 20.20 Forfeited ( 16,824 ) 28.45 ( 29,952 ) 28.69 Outstanding at end of period 57,480 $ 27.77 25,116 $ 28.18 Stock Options Outstanding and Exercisable Range of Exercise Prices Outstanding as of January 3, 2026 Weighted- Average Remaining Contractual Life Weighted- Average Exercise Price Exercisable as of January 3, 2026 Weighted- Average Remaining Contractual Life Weighted- Average Exercise Price $ 21.52 - $ 28.69 57,480 4.0 $ 27.77 - - - 47 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) The following tables set forth the outstanding stock grants for the period specified: Year Ended January 3, 2026 Year Ended December 28, 2024 Shares Shares Outstanding at beginning of period 39,592 89,400 Issued 37,728 38,448 Exercised ( 4,579 ) ( 38,534 ) Forfeited ( 24,285 ) ( 49,722 ) Outstanding at end of period 48,456 39,592 As of January 3, 2026, outstanding stock options and awards had an intrinsic value of $ 951,000 . 8. INCOME TAXES Deferred income taxes are provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and those for income tax reporting purposes. Deferred income tax (assets) liabilities relate to: 2025 2024 Property, plant, and equipment $ 2,948,820 $ 2,587,121 Right of Use Asset 4,534,295 4,146,568 Other 318,787 295,062 Total deferred income tax liabilities 7,801,902 7,028,751 Other postretirement benefits ( 75,481 ) ( 93,832 ) Inventories ( 2,126,937 ) ( 1,926,286 ) Intangible assets ( 1,450,035 ) ( 2,342,735 ) Allowance for doubtful accounts ( 147,961 ) ( 136,667 ) Accrued compensation ( 438,761 ) ( 422,490 ) Lease Obligation ( 4,534,295 ) ( 4,146,568 ) Pensions ( 2,844,786 ) ( 3,362,108 ) Foreign Tax Credit ( 1,712,142 ) ( 1,209,583 ) Total deferred income tax assets ( 13,330,398 ) ( 13,640,269 ) Net deferred income tax (assets) liabilities $ ( 5,528,496 ) $ ( 6,611,518 ) 48 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) Income before income taxes consists of: 2025 2024 Continuing Operations Discontinued Operations Total Income Statement Continuing Operations Discontinued Operations Total Income Statement Domestic $ 3,523,580 $ 1,496,690 $ 5,020,270 $ 13,362,740 $ ( 26,029,224 ) $ ( 12,666,484 ) Foreign 3,965,869 - 3,965,869 3,711,580 119,551 3,831,131 $ 7,489,449 $ 1,496,690 $ 8,986,139 $ 17,074,320 $ ( 25,909,673 ) $ ( 8,835,353 ) The provision for income taxes follows: 2025 2024 Continuing Operations Discontinued Operations Total Income Statement Continuing Operations Discontinued Operations Total Income Statement Current Federal $ ( 382,645 ) $ - $ ( 382,645 ) $ 2,561,006 $ - $ 2,561,006 Foreign 1,140,895 - 1,140,895 1,572,973 31,681 1,604,654 State 205,454 - 205,454 859,579 - 859,579 Deferred: Federal 603,964 309,865 913,829 ( 959,267 ) ( 3,730,004 ) ( 4,689,271 ) Foreign ( 128,396 ) - ( 128,396 ) - - State 83,073 21,144 104,217 ( 175,495 ) ( 466,609 ) ( 642,104 ) $ 1,522,345 $ 331,009 $ 1,853,354 $ 3,858,796 $ ( 4,164,932 ) $ ( 306,136 ) 49 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) The Company adopted ASU 2023-09 "Income Taxes (Topic 740): Improvements To Income Tax Disclosures" on a prospective basis beginning with the year ended January 3, 2026. The following table presents required disclosure pursuant to ASU 2023-09 and reconciles the U.S. federal statutory tax amount and rate to our actual global effective amount and rate for the year ended January 3, 2026. Amount Percent U.S. federal statutory tax rate $ 1,887,090 21.0 % State and local income taxes, net of federal income tax effect (1) 303,947 3.4 % Foreign tax effects: China Statutory tax rate difference between China and the United States ( 239,069 ) -2.7 % Mexico Statutory tax rate difference between Mexico and the United States 500,157 5.6 % Other countries ( 81,421 ) - 0.9 % Effect of changes in tax laws or rates enacted in the current period - 0.0 % Effect of cross-border tax laws Global intangible low-taxed income 292,864 3.3 % Foreign partnership inclusion 247,104 2.7 % Tax credits Research and development tax credits ( 337,963 ) - 3.8 % Foreign tax credits ( 705,676 ) - 7.9 % Changes in valuation allowances - 0.0 % Nontaxable or nondeductible items Meals and entertainment 22,685 0.3 % Other 2,703 0.0 % Changes in unrecognized tax benefits ( 64,382 ) - 0.7 % Other adjustments 25,315 0.3 % Provision for income taxes and effective tax rate $ 1,853,354 20.6 % (1) During the year ended January 3, 2026, state taxes in Wisconsin and New Jersey made up the majority of tax effects in this category. 50 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) The following table presents required disclosure pursuant to ASU 2023-09 and reconciles the U.S. federal statutory tax amount and rate to our actual global effective amount and rate for continuing operations for the year ended January 3, 2026: Amount Percent U.S. federal statutory tax rate $ 1,572,785 21.0 % State and local income taxes, net of federal income tax effect (1) 287,243 3.8 % Foreign tax effects China Statutory tax rate difference between China and the United States ( 239,069 ) - 3.2 % Mexico Statutory tax rate difference between Mexico and the United States 500,157 6.7 % Other countries ( 81,421 ) - 1.1 % Effect of changes in tax laws or rates enacted in the current period - 0.0 % Effect of cross-border tax laws Global intangible low-taxed income 292,864 3.9 % Foreign partnership inclusion 247,104 3.3 % Tax credits Research and development tax credits ( 337,963 ) - 4.5 % Foreign tax credits ( 705,676 ) - 9.3 % Changes in valuation allowances - 0.0 % Nontaxable or nondeductible items Meals and entertainment 22,685 0.3 % Other 2,703 0.0 % Changes in unrecognized tax benefits ( 64,382 ) - 0.9 % Other adjustments 25,315 0.3 % Provision for income taxes and effective tax rate $ 1,522,345 20.3 % (1) During the year ended January 3, 2026, state taxes in Wisconsin and New Jersey made up the majority of tax effects in this category. 51 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) The following table presents required disclosure pursuant to ASU 2023-09 and reconciles the U.S. federal statutory tax amount and rate to our actual global effective amount and rate for discontinued operations for the year ended January 3, 2026: Amount Percent U.S. federal statutory tax rate $ 314,305 21.0 % State and local income taxes, net of federal income tax effect (1) 16,704 1.1 % Foreign tax effects - 0.0 % Effect of changes in tax laws or rates enacted in the current period - 0.0 % Effect of cross-border tax laws - 0.0 % Tax credits - 0.0 % Changes in valuation allowances - 0.0 % Nontaxable or nondeductible items - 0.0 % Changes in unrecognized tax benefits - 0.0 % Other adjustments - 0.0 % Provision for income taxes and effective tax rate $ 331,009 22.1 % (1) During the year ended January 3, 2026, state taxes in Wisconsin made up the majority of tax effects in this category. The following table presents the required disclosures prior to the adoption of ASU 2023-09 and reconciles the U.S. federal statutory income tax rate to the actual global effective income tax rate for the year ended December 28, 2024: Amount Percent Income taxes using U.S. federal statutory rate $ ( 1,855,424 ) 21 % State income taxes, net of federal benefit 188,037 ( 2 ) Impact of goodwill impairment charge 1,638,143 ( 18 ) Impact on Foreign Repatriation Tax Reform 252,786 ( 3 ) Impact of foreign subsidiaries on effective tax rate ( 95,924 ) 1 Impact of Research & Development tax credit ( 472,561 ) 5 Uncertain tax positions reserve ( 14,056 ) 0 Other net 52,863 0 $ ( 306,136 ) 4 % 52 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) The following table presents the required disclosures prior to the adoption of ASU 2023-09 and reconciles the U.S. federal statutory income tax rate to the actual global effective income tax rate for continuing operations for the year ended December 28, 2024: Amount Percent Income taxes using U.S. federal statutory rate $ 3,585,607 21 % State income taxes, net of federal benefit 556,658 3 Impact on Foreign Repatriation Tax Reform 252,786 2 Impact of foreign subsidiaries on effective tax rate ( 102,501 ) ( 1 ) Impact of Research & Development tax credit ( 472,561 ) ( 2 ) Uncertain tax positions reserve ( 14,056 ) 0 Other net 52,863 0 $ 3,858,796 23 % The following table presents the required disclosures prior to the adoption of ASU 2023-09 and reconciles the U.S. federal statutory income tax rate to the actual global effective income tax rate for discontinued operations for the year ended December 28, 2024: Amount Percent Income taxes using U.S. federal statutory rate $ ( 5,441,031 ) 21 % State income taxes, net of federal benefit ( 368,621 ) 1 Impact of foreign subsidiaries on effective tax rate 6,577 0 Impact of goodwill impairment charge 1,638,143 ( 6 ) $ ( 4,164,932 ) 16 % The Company adopted ASU 2023-09 on a prospective basis for the year ended January 3, 2026 and has included the following table as a result of adoption, which presents income taxes paid (net of refunds received) for the year ended January 3, 2026: U.S. Federal $ 400,000 State Wisconsin 145,792 Other states 237,671 Total state 383,463 Foreign Canada 266,686 China 112,012 Mexico 747,261 Other countries 14,936 Total foreign 1,140,895 Total cash paid for income taxes, net of refunds $ 1,924,358 The Company had income taxes paid of $ 5,166,195 for the year ended December 28, 2024, prior to the adoption of ASU 2023-09. Under accounting standards (ASC 740), a deferred tax liability is not recorded for the excess of the financial reporting (book) basis over the tax basis of an investment in a foreign subsidiary if the indefinite reinvestment criteria are met. Effective for foreign earnings after December 30, 2017, if such earnings are distributed in the form of cash dividends, the Company would not be subject to additional U.S. income taxes but could be subject to foreign income and withholding taxes. A provision has not been made for additional U.S. federal and foreign taxes on January 3, 2026 of undistributed earnings of foreign subsidiaries because the Company intends to reinvest these funds indefinitely. It is not practicable to estimate the unrecognized deferred tax liability for withholding taxes on these undistributed earnings. 53 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) On December 14, 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures which applies to all entities subject to income taxes. The standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. For public business entities (PBEs), the new requirements will be effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. The Company adopted ASU 2023-09 on a prospective basis for the year ending January 3, 2026. A reconciliation of the beginning and ending amount of unrecognized tax benefits are as follows: 2025 2024 Balance at beginning of year $ 494,358 $ 571,864 Increase for positions taken during the current period ( 12,424 ) ( 2,303 ) Increase (decrease) for positions taken during the prior period - - Decrease resulting from the expiration of the statute of limitations ( 82,040 ) ( 75,203 ) Balance at end of year $ 399,894 $ 494,358 The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state, and local income tax examinations by tax authorities for years before 2021 and non-U.S. income tax examinations by tax authorities prior to 2019. Included in the balance as of January 3, 2026, are $ 315,916 of unrecognized tax benefits that would affect the annual effective tax rate. In 2025, the Company recognized accrued interest related to unrecognized tax benefits in income tax expense. The Company had approximately $ 65,008 and $ 52,039 of accrued interest as of January 3, 2026 and December 28, 2024, respectively. The amount of interest reflected in the statement of operations was an expense of $ 12,969 and a benefit of $ 17,791 for the years ending January 3, 2026 and December 28, 2024, respectively. The total amount of unrecognized tax benefits could increase or decrease within the next twelve months for several reasons, including the closure of federal, state, and foreign tax years by expiration of the statute of limitations and the recognition and measurement considerations under ASC 740. 54 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) 9. LEASES The Company enters into leases for manufacturing facilities, warehouses, sales offices, plant equipment, vehicles, and certain other equipment with varying end dates from February 2026 to April 2033, including renewal options The following table (in millions) represents the impact of leasing on the consolidated balance sheets: Balance Sheet Classification January 3, 2026 December 28, 2024 Assets: Operating lease assets, net Right of use assets $ 16.0 $ 14.2 Finance lease right of use assets, net Property, plant and equipment, net 4.0 3.8 Total leased assets, net 20.0 18.0 Liabilities: Current operating lease liabilities Current portion of operating lease liability 3.8 3.1 Current finance lease liabilities Current portion of financing lease liability 0.9 0.8 Noncurrent operating lease liabilities Operating lease liability, less current portion 12.2 11.1 Noncurrent finance lease liabilities Financing lease liability, less current portion 3.1 3.1 Total lease liabilities $ 20.0 $ 18.0 Cash paid included in the measurement of operating lease liabilities was $ 4.0 million and $ 4.3 million for the fiscal years ended January 3, 2026 and December 28, 2024, respectively, all of which were included within the operating cash flow section of the consolidated statements of cash flows. Lease assets obtained in exchange for new operating lease liabilities were $ 4.5 million and $ 0.4 million for the fiscal years ended January 3, 2026 and December 28, 2024, respectively. Cash paid included in the measurement of finance lease liabilities was $ 0.9 million and $ 0.4 million for the fiscal years ended January 3, 2026 and December 28, 2024, respectively, which were included within the financing cash flow section of the consolidated statements of cash flows for the fiscal years ended January 3, 2026 and December 28, 2024, respectively. Total operating lease expense was $ 4.5 million and $ 4.9 million for the fiscal years ended January 3, 2026 and December 28, 2024, respectively. Total financing lease expense was $ 0.3 million and $ 0.1 million for the fiscal years ended January 3, 2026 and December 28, 2024, respectively. 55 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) 9. LEASES (continued) The future payments (in millions) due under non-cancelable operating and finance leases as of January 3, 2026 are as follows: Operating Finance 2026 $ 3.7 $ 0.9 2027 3.4 0.9 2028 3.0 0.9 2029 2.6 0.9 2030 1.7 0.7 thereafter 4.0 0.5 18.4 4.8 Less effects of discounting ( 2.4 ) ( 0.8 ) Lease liabilities recognized $ 16.0 $ 4.0 As of January 3, 2026, the weighted average lease term for all operating and finance leases is 5.9 and 5.2 years, respectively. The weighted average discount rate associated with operating leases was 7.0 % while the weighted average discount rate associated with finance leases was 7.2 %. 10. RETIREMENT BENEFIT PLANS The Company has non-contributory defined benefit pension plans covering some U.S. employees. Plan benefits are generally based upon age at retirement, years of service and, for its salaried plan, the level of compensation. The Company also sponsors unfunded non-qualified supplemental retirement plans that provide certain former officers with benefits in excess of limits imposed by federal tax law. The Company also provides health care and life insurance for retired salaried employees in the United States who meet specific eligibility requirements. Components of the net periodic benefit cost of the Company’s pension benefit plans for the fiscal year indicated were as follows: 2025 2024 Service cost $ 723,496 $ 712,013 Interest cost 3,877,550 3,866,809 Expected return on plan assets ( 4,321,276 ) ( 4,396,137 ) Amortization of the net loss 1,184,812 1,309,455 Net periodic benefit cost $ 1,464,582 $ 1,492,140 Service costs are reported in the cost of products sold and the other components of net periodic benefit costs are reported in other income in the consolidated statements of income. 56 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) Assumptions used to determine net periodic benefit cost for the Company’s pension benefit plans for the fiscal year indicated were as follows: 2025 2024 Discount rate - Pension plans 5.56 % - 5.59 % 4.99 % - 5.00 % - Supplemental pension plans 5.16 % 4.72 % Expected return on plan assets 7.5 % 7.5 % Rate of compensation increase 0 % 0 % Components of the net periodic benefit cost of the Company’s other postretirement benefit plan were as follows: 2025 2024 Service cost $ 8,662 $ 14,296 Interest cost 47,630 51,805 Expected return on plan assets ( 19,486 ) ( 18,736 ) Amortization of prior service cost ( 3,391 ) 4,241 Amortization of the net loss ( 94,149 ) ( 78,267 ) Net periodic benefit cost $ ( 60,734 ) $ ( 26,661 ) Assumptions used to determine net periodic benefit cost for the Company’s other postretirement plan for the fiscal year indicated were as follows: 2025 2024 Discount rate 5.65 % 5.04 % Expected return on plan assets 4.0 % 4.0 % Rate of compensation increase 4.3 % 4.3 % As of January 3, 2026 and December 28, 2024, the status of the Company’s pension benefit plans and other postretirement benefit plan was as follows: Pension Benefit Other Postretirement Benefit 2025 2024 2025 2024 Benefit obligation at beginning of year $ 75,916,060 $ 81,862,011 $ 897,615 $ 1,070,276 Change in discount rate 1,468,280 ( 4,449,660 ) 3,514 ( 81,579 ) Service cost 723,496 712,013 8,662 14,296 Interest cost 3,877,550 3,866,809 47,630 51,805 Plan amendment - - - ( 44,757 ) Actuarial (gain)/loss ( 1,317,379 ) ( 924,172 ) ( 102,401 ) ( 85,064 ) Benefits paid ( 5,174,612 ) ( 5,150,941 ) ( 22,868 ) ( 27,362 ) Benefit obligation at end of year $ 75,493,395 $ 75,916,060 $ 832,152 $ 897,615 2025 2024 2025 2024 Fair value of plan assets at beginning of year $ 59,311,220 $ 60,836,643 $ 487,139 $ 468,403 Actual return on plan assets 3,892,809 1,509,268 12,848 18,736 Employer contributions 3,065,225 2,116,250 49,129 46,479 Benefits paid ( 5,174,612 ) ( 5,150,941 ) ( 49,129 ) ( 46,479 ) Fair value of plan assets at end of year $ 61,094,642 $ 59,311,220 $ 499,987 $ 487,139 57 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) Pension Benefit Other Postretirement Benefit Funded Status 2025 2024 2025 2024 Net amount recognized in the balance sheet $ ( 14,398,753 ) $ ( 16,604,840 ) $ ( 332,165 ) $ ( 410,476 ) Amounts recognized in accumulated other comprehensive income consist of: Pension Benefit Other Postretirement Benefit 2025 2024 2025 2024 Net (loss)/gain $ ( 30,682,543 ) $ ( 31,287,987 ) $ 1,043,479 $ 1,045,379 Prior service (cost) credit - - 17,701 21,092 $ ( 30,682,543 ) $ ( 31,287,987 ) $ 1,061,180 $ 1,066,471 Change in the components of accumulated other comprehensive income consist of: Pension Benefit Other Postretirement Benefit 2025 2024 2025 2024 Balance at beginning of period $ ( 31,287,987 ) $ ( 35,084,405 ) $ 1,066,471 $ 929,097 Charged to net periodic benefit cost Prior service cost - - ( 3,391 ) 4,241 Net loss (gain) 1,184,812 1,309,455 ( 94,149 ) ( 78,267 ) Liability (gains)/losses Discount rate ( 1,468,280 ) 4,449,660 ( 3,514 ) 81,579 Asset (gains)/losses deferred 320,829 ( 2,149,183 ) ( 6,638 ) - Plan amendments - 44,757 Other 568,083 186,486 102,401 85,064 Balance at end of period $ ( 30,682,543 ) $ ( 31,287,987 ) $ 1,061,180 $ 1,066,471 Assumptions used to determine the projected benefit obligations for the Company’s pension benefit plans and other postretirement benefit plan for the fiscal year indicated were as follows: 2025 2024 Discount rate - Pension plans 5.34 % - 5.42 % 5.56 % - 5.59 % - Supplemental pension plans 4.52 % 5.16 % - Other postretirement plan 5.62 % 5.65 % On January 3, 2026 and December 28, 2024, the accumulated benefit obligation for all qualified and nonqualified defined benefit pension plans was $ 75,493,395 and $ 75,916,060 , respectively. 58 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) Information for the under-funded pension plans with a projected benefit obligation and an accumulated benefit obligation in excess of plan assets: 2025 2024 Number of plans 5 5 Projected benefit obligation $ 75,493,395 $ 75,916,060 Accumulated benefit obligation 75,493,395 75,916,060 Fair value of plan assets 61,094,642 59,311,220 Net amount recognized in accrued benefit liability $ ( 14,398,753 ) $ ( 16,604,840 ) Estimated future benefit payments to participants of the Company’s pension plans are $ 5.4 million in 2026, $ 5.4 million in 2027, $ 5.6 million in 2028, $ 5.6 million in 2029, $ 5.7 million in 2030 and a total of $ 28.4 million from 2031 through 2035. Estimated future benefit payments to participants of the Company’s other postretirement plan are $ 40,000 in 2026, $ 40,000 in 2027, $ 41,000 in 2028, $ 43,000 in 2029, $ 44,000 in 2030 and a total of $ 240,000 from 2031 through 2035. The Company expects to make cash contributions to its qualified pension plans of approximately $ 2,800,000 and to its other postretirement plan of approximately $ 40,000 in 2026. We consider a number of factors in determining and selecting assumptions for the overall expected long-term rate of return on plan assets. We consider the historical long-term return experience of our assets, the current and expected allocation of our plan assets, and expected long-term rates of return. We derive these expected long-term rates of return with the assistance of our investment advisors and generally base these rates on a 10-year horizon for various asset classes and consider the expected positive impact of active investment management. We base our expected allocation of plan assets on a diversified portfolio consisting of domestic and international equity securities and fixed income securities. We consider a variety of factors in determining and selecting our assumptions for the discount rate at the end of the year. In 2025, as in 2024, we developed each plan’s discount rate with the assistance of our actuaries by matching expected future benefit payments in each year to the corresponding spot rates from the FTSE Pension Liability Yield Curve, comprised of high quality (rated AA or better) corporate bonds. The fair values of the Company’s pension plan assets on January 3, 2026 and December 28, 2024, utilizing the fair value hierarchy discussed in Note 3 – Accounting Policies – Fair Value of Financial Instruments , follow: January 3, 2026 Level 1 Level 2 Level 3 Total Cash and Equivalents: Common/collective trust funds $ — $ 426,069 $ — $ 426,069 Equities: The Eastern Company Common Stock 4,273,084 4,273,084 RITC Russell Investments Russell 1000® Index Fund (a) 7,100,097 7,100,097 RITC Small Cap Fund (b) 564,998 564,998 RITC International Fund (c) 3,656,693 3,656,693 RITC Emerging Markets Fund (d) 1,321,582 1,321,582 RITC World Equity Fund (e) 7,931,426 7,931,426 RITC Global Real Estate Securities Fund (f) 1,312,608 1,312,608 RITC Global Listed Infrastructure Fund (g) 1,312,870 1,312,870 RIIFL High Yield Bond Fund (h) 1,596,550 1,596,550 RITC Commodities Fund (i) 175,440 175,440 Russell Global Private Credit Fund (j) 1,820,985 1,820,985 RITC Mult-Manager Bond Fund (k) 521,599 521,599 Fixed Income: Target Duration LDI Fixed Income Funds (l) · Russell 25 Year LDI Fixed Income Fund 8,430,904 8,430,904 · Russell 14 Year LDI Fixed Income Fund 16,876,369 16,876,370 STRIPS Fixed Income Funds (m) · Russell 15 to 20 Year STRIPS Fixed Income Fund 2,963,094 2,963,094 · Russell 10 to 15 Year STRIPS Fixed Income Fund 810,273 810,273 Total $ 4,273,084 $ 56,821,557 $ — $ 61,094,642 59 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) December 28, 2024 Level 1 Level 2 Level 3 Total Cash and Equivalents: Common/collective trust funds $ — $ 413,731 $ — $ 413,731 Equities: The Eastern Company Common Stock 5,759,658 — 5,759,658 RITC Russell Investments Russell 1000® Index Fund (a) 6,791,908 6,791,908 RITC Small Cap Fund (b) 515,724 515,724 RITC International Fund (c) 3,403,688 3,403,688 RITC Emerging Markets Fund (d) 1,233,972 1,233,972 RITC World Equity Fund (e) 7,470,472 7,470,472 RITC Global Real Estate Securities Fund (f) 1,208,511 1,208,511 RITC Global Listed Infrastructure Fund (g) 1,229,983 1,229,983 RIIFL High Yield Bond Fund (h) 1,641,701 1,641,701 RITC Commodities Fund (i) 171,003 171,003 Russell Global Private Credit Fund (j) 1,227,378 1,227,378 RITC Mult-Manager Bond Fund (k) 961,911 961,911 Fixed Income: Target Duration LDI Fixed Income Funds (l) · Russell 25 Year LDI Fixed Income Fund — 7,714,633 — 7,714,633 · Russell 14 Year LDI Fixed Income Fund 16,009,003 16,009,003 STRIPS Fixed Income Funds (m) · Russell 15 to 20 Year STRIPS Fixed Income Fund 2,764,897 2,764,897 · Russell 10 to 15 Year STRIPS Fixed Income Fund 793,047 793,047 Total $ 5,759,658 $ 53,551,562 $ — $ 59,311,220 Equity common funds primarily hold publicly traded common stock of both U.S and international companies selected for purposes of total return and to maintain equity exposure consistent with policy allocations. The Level 1 investment is made up of shares of The Eastern Company Common Stock and is valued at market price. Level 2 investments include commingled funds valued at unit values provided by the investment managers, which are based on the fair value of the underlying publicly traded securities. (a) The RITC Russell Investments Russell 1000® Index Fund - Series I seeks to replicate the performance of the Russell 1000® Index as closely as possible before the deduction of Fund expenses. The Fund invests, through an underlying fund, primarily in stocks that closely match the composition of the Russell 1000® Index. The stocks in the index are highly diversified across industries and sectors. The Fund practices a passive investment approach and seeks to replicate the performance of the Russell 1000® Index. (b) The RITC Small Cap Fund seeks to provide long-term capital appreciation. It aims to outperform the Russell 2000® Index while managing volatility and maintaining diversification similar to the Index over a full market cycle. The Fund invests primarily in common stocks of U.S. small capitalization companies. Advisors in the Fund use a wide range of criteria and disciplines, focusing on factors such as: undervalued or under-researched companies, special situations, emerging growth, asset plays and turnarounds. 60 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) (c) The RITC International Fund seeks to provide long-term growth of capital. It aims to outperform the MSCI World ex USA Index Net (the “Index”) while managing volatility and maintaining diversification similar to the index over a full market cycle. The Fund invests primarily in equity securities issued by Non-U.S. companies and in depositary receipts and other derivatives representing economic ownership of securities of non-U.S. companies. Seeks to invest in most of the developed nations of the world to maintain a high degree of diversification among countries and currencies. Employs multiple managers with distinct investment styles (growth, market-oriented and value), which are intended to be complementary. (d) The RITC Emerging Markets Fund seeks to provide the potential for long-term growth of capital. It aims to outperform the MSCI Emerging Markets Index Net over a full market cycle. The Fund Invests in equity securities of companies located in, or are economically tied to, emerging market countries. Securities are denominated principally in foreign currencies and are typically held outside the U.S. The Fund employs a multi-style (growth, market-oriented and value) and multi-manager approach whereby portions of the fund are allocated to different money managers who employ distinct styles. (e) The RITC World Equity Fund seeks to provide long-term capital appreciation. It aims to outperform the MSCI World Net Dividend Index over a full market cycle. The Fund employs specialist global equity advisors using global stock and sector selection strategies. Advisors invest across the world, without being limited by national borders or to specific regions, and typically take more aggressive positions on stocks and sectors and the extended equity markets. Their cross-border approach offers a different, complementary source of excess returns to Russell Investments' U.S. and International funds. (f) The RITC Global Real Estate Securities Fund seeks to provide current income and long-term capital growth. It strives to outperform the FTSE EPRA NAREIT Developed Index Net TRI with above-average consistency over a full market cycle. The Fund invests principally in equity securities of real estate companies, primarily in real estate investment trusts (REITs), other property trusts and real estate-related companies listed on global stock exchanges, predominantly in North America, Europe, Asia, and Australia. It employs a multi-manager approach whereby portions of the fund are allocated to different money managers whose approaches are intended to complement one another. (g) The RITC Global Listed Infrastructure Fund seeks to provide the potential for excess return streams, stable income potential, and a possible hedge against inflation. It seeks to outperform the S&P Infrastructure Index over a full market cycle. The Fund invests in a diversified portfolio of listed companies that provide services essential for a functioning modern economy, including roads, utilities, hospitals, schools, and airports. Employs multiple managers with complementary strategies with each manager expected to take an active management approach with a ’pure play’ bias - meaning they select companies with assets that tend to be monopolistic, highly regulated, long-lived, with steady cash flows. (h) The RIIFL High Yield Bond Fund seeks to provide current income and capital appreciation. It aims to outperform the ICE BofA Developed Markets High Yield Constrained Index (USD-hedged) over an interest rate cycle. The Fund invests primarily in non-investment grade, high yielding fixed income securities issued by companies from around the globe. These securities are commonly referred to as "junk bonds." A majority of the Fund's holdings are U.S. dollar denominated. (i) The RITC Commodities Fund is designed to provide the potential for long-term growth of capital and income. It seeks to outperform the Bloomberg Commodity Index Total Return with above-average consistency over a full market cycle. The Fund invests in commodity index-linked securities, other commodity-linked securities, derivative instruments, cash, and fixed income securities that together are intended to provide exposure to the performance of the collateralized commodity futures market. Combines strategies with different payoffs over different phases of an economic and stock market cycle. Multiple advisors, funds and strategies are employed to reduce style or strategy concentration risk. (j) The Global Private Credit Fund seeks to outperform the public credit markets in the long term, in an effort to provide further diversification of income streams for income-focused investors, through directly investments in a diversified portfolio of private markets funds and separately managed accounts. The Fund is expected to target investment opportunities in private debt and related investments and to focus on opportunities are secured by cash flows as well as hard assets, which may also include equity and/or equity related securities in associated transactions. 61 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) (k) The RITC Multi-Manager Bond Fund is designed to provide current income, and as a secondary objective, capital appreciation through a variety of diversified strategies. It seeks to outperform the Bloomberg U.S. Aggregate Bond Index† over an interest rate cycle. The Fund employs multiple advisors with distinct but complementary investment styles that generally have similar universes of investable securities, but different sectors of specialization and expertise and utilize varied methods of identifying value in intermediate duration fixed income markets. (l) The RITC Target Duration LDI Fixed Income Funds seek to outperform their respective Barclays-Russell LDI Indexes over a full market cycle. These Funds invest primarily in investment grade corporate bonds that closely match those found in discount curves used to value U.S. pension liabilities. They seek to provide additional incremental return through modest interest rate timing, security selection and tactical use of non-credit sectors. Generally, for use in combination with other bond funds to gain additional credit exposure, with the goal of reducing the mismatch between a plan’s assets and liabilities. (m) The RITC STRIPS (Separate Trading of Registered Interest and Principal of Securities) Funds seek to provide duration and Treasury exposure by investing in an optimized subset of the STRIPS universe with a similar duration profile as the Barclays U.S. Treasury STRIPS 10–15 year, 15-20 year or 25+ year Index. These passively managed funds are generally used with other bond funds to add additional duration to the asset portfolio. This will help reduce the mismatch between a plan’s assets and liabilities. The investment portfolio contains a diversified blend of common stocks, bonds, cash equivalents, and other investments, which may reflect varying rates of return. The investments are further diversified within each asset classification. The portfolio diversification provides protection against a single security or class of securities having a disproportionate impact on aggregate performance. The Company has elected to change its investment strategy to better match the assets with the underlying plan liabilities. Currently, the long-term target allocations for plan assets are 50% in equities and 50% in fixed income although the actual plan asset allocations may be within a range around these targets. The actual asset allocations are reviewed and rebalanced on a periodic basis to maintain the target allocations. It is expected that, as the funded status of the plans improves, more assets will be invested in long-duration fixed income instruments. The plans’ assets include 217,018 shares of the common stock of the Company having a market value of $ 4,273,084 and $ 5,759,658 on January 3, 2026 and December 28, 2024, respectively. No shares were purchased in 2025 or 2024 nor were any shares sold in either period. Dividends received during 2025 and 2024 on the common stock of the Company were $ 95,488 and $ 95,488 , respectively. U.S. salaried and non-union hourly employees are covered by defined contribution plans. The Company has a contributory savings plan under Section 401(k) of the Internal Revenue Code covering substantially all U.S. non-union employees. This plan allows participants to make voluntary contributions of up to 100% of their annual compensation on a pretax basis, subject to IRS limitations. The plan provides for contributions by the Company at its discretion. The Eastern Company Savings and Investment Plan as amended effective April 1, 2023 (“401(k) Plan Amendment”) provides for a match of 50% of the first 6% of employee contributions. The 401(k) Plan Amendment also provides for an additional non-discretionary contribution (the “transitional credit”) for certain non-union U.S. employees. The amount of this non-discretionary contribution ranges from 0% to 4% of wages, based on the age of the individual on June 1, 2016. The 401(k) Plan Amendment provides a non-discretionary safe harbor contribution of 3%. All non-union U.S. employees are eligible to join the plan . The Company made contributions to the plan as follows: 2025 2024 Regular matching contributions $ 957,137 $ 1,068,843 Transitional credit contributions 80,787 91,945 Non-discretionary contributions 368,829 376,962 Total contributions made for the period $ 1,406,753 $ 1,537,750 62 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) 11. EARNINGS PER SHARE The denominators used in the earnings per share computations follow: 2025 2024 Basic: Weighted average shares outstanding 6,092,374 6,207,754 Diluted: Weighted average shares outstanding 6,092,374 6,207,754 Dilutive stock awards 7,953 7,891 Denominator for diluted earnings per share 6,100,327 6,215,645 There were no anti-dilutive stock equivalents in 2025 or 2024. 63 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) 12. SEGMENT AND GEOGRAPHIC INFORMATION The Company has one reportable segment, and the Chief Executive Officer is the Company’s chief operating decision maker (CODM). The CODM uses the following reported measures to assess performance and make decisions on resource allocation throughout the Company: Engineered Solutions Segment January 3, 2026 December 28, 2024 Net Sales $ 248,970,345 $ 272,751,967 Less: Material cost ( 126,857,981 ) ( 142,280,064 ) Labor cost ( 12,672,273 ) ( 13,809,443 ) Other variable and fixed overhead¹ ( 52,481,548 ) ( 49,395,300 ) Gross Margin 56,958,543 67,267,160 Product development expense ( 4,064,474 ) ( 4,888,496 ) Selling and administrative expenses ( 42,220,760 ) ( 42,229,660 ) Operating Profit $ 10,673,309 $ 20,149,004 Reconciliation of operating profit Adjustments and reconciling items - - Consolidated operating profit $ 10,673,309 $ 20,149,004 ¹ Other variable and fixed overhead items included in segment operating profit include manufacturing salaries, indirect labor, insurance, lease expense, depreciation, and other overhead expenses. 2025 2024 Geographic Information: Net Sales: United States $ 243,623,167 $ 268,337,355 Foreign 5,347,178 4,414,612 $ 248,970,345 $ 272,751,967 Foreign sales are primarily to customers in North America. Identifiable Assets: United States $ 201,325,909 $ 221,585,028 Foreign 15,350,707 13,723,719 $ 216,676,616 $ 235,308,747 64 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) 13. RECENT ACCOUNTING PRONOUNCEMENTS In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 240), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit disaggregated between domestic and foreign and (3) income tax expense or benefit from continuing operations disaggregated by Federal, state, and foreign. The update also requires entities to disclose their income tax payments to various jurisdictions. This standard is effective for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025. We do not expect this new standard to have a significant impact to our disclosures. The Company has implemented all new accounting pronouncements that are in effect and that could impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued, but are not yet effective, that might have a material impact on the consolidated financial statements of the Company. 14. CONTINGENCIES The Company is party to various legal proceedings from time to time related to its normal business operations. Currently, the Company is not involved in any legal proceedings. 15. CONCENTRATION OF RISK Credit Risk Credit risk is the potential financial loss resulting from the failure of a customer or counterparty to settle its financial and contractual obligations to the Company, as and when they become due. The primary credit risk for the Company is its accounts receivable due from customers. The Company has established credit limits for customers and monitors their balances to mitigate the risk of loss. As of January 3, 2026 and December 28, 2024, there was one significant concentration of credit risk. One customer represented 13 % of total accounts receivable for 2025 and one customer represented 14 % of total accounts receivable in 2024. The maximum exposure to credit risk is primarily represented by the carrying amount of the Company’s accounts receivable. In 2025, this customer had revenues totaling $ 33.1 million ( 13 % of Engineered Solutions segment total revenue). In 2024, this customer had revenues totaling $ 35.6 million ( 12 % of Engineered Solutions segment total revenue). Interest Rate Risk The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s debt, which bears interest at a variable rate based on the term secured overnight financing rate (“SOFR”) plus an applicable margin of 1.37 5% to 2.12 5% depending on the Company’s senor net leverage ratio. See Note 6 – Debt for more information regarding the Company’s debt facility. 16. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS The Company incurs certain manufacturing, marketing, and selling costs in international markets in local currency. Accordingly, earnings and cash flows are exposed to market risk from changes in foreign currency exchange rates relative to the U.S. dollar, the Company’s reporting currency. The Company has a program in place that is designed to mitigate the exposure to changes in foreign currency exchange rates. The program includes the use of derivative financial instruments to minimize, for a period of time, the impact on its financial results from changes in foreign exchange rates. The Company utilizes foreign currency forward contracts to hedge the anticipated cash flows from transactions denominated in foreign currencies, namely Mexican pesos. This does not eliminate the impact of the volatility of foreign exchange rates. However, because the Company generally enters into forward contracts twelve to eighteen months out, rates are fixed for a twelve-to-eighteen-month period, thereby facilitating financial planning and resource allocation. Designated Foreign Currency Hedge Contracts All of the Company’s designated foreign currency hedge contracts as of January 3, 2026 were cash flow hedges under ASC 815, Derivatives and Hedging (“ASC 815”). The Company records the effective portion of any change in the fair value of designated foreign currency hedge contracts in other comprehensive income until the related third-party transaction occurs. Once the related third-party transaction occurs, the Company reclassifies the effective portion of any related gain or loss on the designated foreign currency hedge contracts to earnings. In the event the hedged forecasted transaction does not occur, or it becomes probable that it will not occur, the Company will reclassify the amount of any gain or loss on the related cash flow hedge to earnings at that time. The Company had designated foreign currency hedge contracts outstanding in the contract amount of $ 8.4 million as of January 3, 2026 and $ 9.6 million as of December 28, 2024. As of January 3, 2026, a gain of $ 0.6 million, net of tax, will be reclassified to earnings within the next twelve months. All currency cash flow hedges outstanding as of January 3, 2026 mature within twelve months. 65 Table of Contents The Eastern Company Notes to Consolidated Financial Statements (continued) Fair Value of Derivative Instruments The following table presents the effect of the Company’s derivative instruments designated as cash flow hedges under ASC 815 in its Condensed Consolidated Statements of Income for the twelve months ended January 3, 2026: Derivative Instruments Amount of Gain Recognized in Accumulated Other Comprehensive Loss Amount of Loss Reclassified from Accumulated Other Comprehensive Income into Loss Location in Condensed Consolidated Statement of Income Designated foreign currency hedge contracts, net of tax $ 570,097 $ ( 57,086 ) Cost of products sold ASC 815 requires all derivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet. The Company determines the fair value of its derivative instruments using the framework prescribed by ASC 820, Fair Value Measurements and Disclosures , by considering the estimated amount it would receive or pay to sell or transfer these instruments at the reporting date. Generally, the Company uses inputs that include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; other observable inputs for the asset or liability; and inputs derived principally from, or corroborated by, observable market data by correlation or other means. As of January 3, 2026, the Company has classified its derivative assets and liabilities within Level 2 of the fair value hierarchy prescribed by ASC 815, as discussed below, because these observable inputs are available for substantially the full term of its derivative instruments. The following tables present the fair value of the Company’s derivative instruments as they appear in its Condensed Consolidated Balance Sheets as of January 3, 2026 and December 28, 2024: Location in Condensed Consolidated Balance Sheets As of January 3, 2026 As of December 28, 2024 Derivative Assets: Designated foreign currency hedge contracts Other current assets $ 570,097 $ - Derivative Liabilities: Designated foreign currency hedge contracts Other current liabilities $ - $ 505,376 66 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of The Eastern Company Shelton, Connecticut Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of The Eastern Company (the Company) as of January 3, 2026 and December 28, 2024, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the two-year period ended January 3, 2026, including the related notes and financial statement schedule appearing under Item 15(a)(2) on Form 10-K (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 3, 2026 and December 28, 2024, and the results of its operations and its cash flows for each of the years in the two-year period ended December 28, 2024, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 3, 2026, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 3, 2026 expressed an unqualified opinion on the Company’s internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the Audit Committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Impairment Assessment of Goodwill Critical Audit Matter Description As described in Notes 3 and 4 to the financial statements, the Company’s consolidated goodwill balance is $58.6 million as of January 3, 2026. Management tests reporting units for impairment annually in December, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. As disclosed by management, reporting units are tested for impairment by utilizing qualitative factors that include a) macroeconomic conditions, b) market and industry conditions, c) cost factors, d) overall financial performance, e) other relevant entity-specific events, and f) events affecting a reporting unit. 67 Table of Contents The principal considerations for our determination that performing procedures relating to the goodwill impairment assessments is a critical audit matter are (i) the significant judgments and assumptions used by management when developing the qualitative factors that are part of the impairment assessment; and (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant judgments and assumptions related to the qualitative factors. How the Critical Audit Matter was Addressed in the Audit Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessments. These procedures also included, among others (i) testing management’s process for developing the qualitative factors; (ii) evaluating the appropriateness of the qualitative factors; and (iii) testing the completeness and accuracy of underlying data used in the qualitative factors by corroborating and recalculating the relevant metrics. Evaluating management’s significant judgments and assumptions related to qualitative factors involved evaluating whether those significant judgments and assumptions used by management were reasonable considering (i) the current and past performance of the reporting units; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. /s/ Fiondella, Milone & LaSaracina LLP Fiondella, Milone & LaSaracina LLP, PCAOB ID 2230 We have served as the Company’s auditor since 2009. Glastonbury, Connecticut March 3, 2026 68 Table of Contents ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.