EASTERN CO 10-Q

ITEM 1 – FINANCIAL STATEMENTS THE EASTERN COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Six Months Ended July 4, 2026 June 28, 2025 July 4, 2026 June 28, 2025 Net sales $ 61,821,757 $ 70,164,086 $ 121,498,295 $ 136,101,298 Cost of products sold ( 49,069,618 ) ( 53,801,184 ) ( 96,816,475 ) ( 104,642,211 ) Gross margin 12,752,139 16,362,902 24,681,820 31,459,087 Product development expense ( 1,042,688 ) ( 1,031,716 ) ( 2,078,000 ) ( 2,140,902 ) Selling and administrative expenses ( 10,051,659 ) ( 12,188,736 ) ( 19,621,306 ) ( 22,534,931 ) Operating profit 1,657,792 3,142,450 2,982,514 6,783,254 Interest expense ( 581,318 ) ( 636,287 ) ( 1,108,831 ) ( 1,330,941 ) Bargain purchase gain 6,529,299 - 6,529,299 - Other income (expense) ( 101,234 ) 75,210 ( 88,049 ) ( 124,495 ) Income before income taxes from continuing operations 7,504,539 2,581,373 8,314,933 5,327,818 Income tax expense ( 1,855,254 ) ( 546,383 ) ( 2,025,518 ) ( 1,124,703 ) Net income from continuing operations $ 5,649,285 $ 2,034,990 $ 6,289,415 $ 4,203,115 Discontinued Operations (see note C) Loss from operations of discontinued unit $ - $ ( 234,237 ) $ - $ ( 520,005 ) Income from disposal of discontinued unit - 2,016,696 - 2,016,696 Income tax expense - ( 377,282 ) - ( 315,952 ) Net income from discontinued operations $ - $ 1,405,177 $ - $ 1,180,739 Net Income $ 5,649,285 $ 3,440,167 $ 6,289,415 $ 5,383,854 Earnings per share from continuing operations: Basic $ 0.94 $ 0.33 $ 1.04 $ 0.69 Diluted $ 0.94 $ 0.33 $ 1.04 $ 0.69 Earnings per share from discontinued operations: Basic $ - $ 0.23 $ - $ 0.19 Diluted $ - $ 0.23 $ - $ 0.19 Total earnings per share: Basic $ 0.94 $ 0.56 $ 1.04 $ 0.88 Diluted $ 0.94 $ 0.56 $ 1.04 $ 0.88 Cash dividends per share: $ 0.11 $ 0.11 $ 0.22 $ 0.22 See accompanying notes 3 Table of Contents THE EASTERN COMPANY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) Three Months Ended Six Months Ended July 4, 2026 June 28, 2025 July 4, 2026 June 28, 2025 Net income $ 5,649,285 $ 3,440,167 $ 6,289,415 $ 5,383,854 Other comprehensive income: Change in foreign currency translation 300,399 ( 317,982 ) 461,585 397,593 Change in fair value of foreign currency swap 41,907 550,031 141,059 747,203 Change in pension and postretirement benefit costs, net of taxes: 2026 - $124,272 ; 2025 - $121,925 211,301 205,728 422,601 411,453 Total other comprehensive income 553,607 437,777 1,025,245 1,556,249 Comprehensive income $ 6,202,892 $ 3,877,944 $ 7,314,660 $ 6,940,103 See accompanying notes. 4 Table of Contents THE EASTERN COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS July 4, 2026 January 3, 2026 (unaudited) ASSETS Current Assets Cash and cash equivalents $ 15,108,764 $ 7,412,019 Marketable Securities 32,825 - Accounts receivable, less allowances: 2026 - $ 681,170 ; 2025 - $ 633,391 36,842,066 30,128,669 Inventories 65,989,520 56,343,756 Current portion of notes receivable 28,844 33,844 Prepaid expenses and other current assets 6,754,824 5,349,486 Total Current Assets 124,756,843 99,267,774 Property, Plant and Equipment 66,497,282 60,163,556 Accumulated depreciation ( 35,807,530 ) ( 33,246,213 ) Property, Plant and Equipment, Net 30,689,752 26,917,343 Goodwill 58,666,199 58,631,336 Trademarks 5,082,816 5,082,767 Patents and other intangibles, net of accumulated amortization 4,121,143 5,269,204 Deferred income taxes 5,528,496 5,528,496 Right of use assets 16,170,708 15,979,696 Other long term assets 102,674 - Total Other Assets 89,672,036 90,491,499 TOTAL ASSETS $ 245,118,631 $ 216,676,616 See accompanying notes. 5 Table of Contents THE EASTERN COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) July 4, 2026 January 3, 2026 (unaudited) LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities Accounts payable $ 27,192,690 $ 16,426,259 Accrued compensation 5,615,457 4,203,720 Other accrued expenses 6,884,543 2,349,400 Current portion of operating lease liability 3,997,516 3,729,769 Current portion of finance lease liability 905,524 908,332 Total Current Liabilities 44,595,730 27,617,480 Other long-term liabilities 464,902 464,902 Operating lease liability, less current portion 12,173,424 12,235,188 Finance lease liability, less current portion 2,772,205 3,080,446 Long-term debt, less current portion 41,683,212 33,902,353 Accrued postretirement benefits 329,767 332,165 Accrued pension cost 13,106,148 14,398,753 Total Liabilities 115,125,388 92,031,287 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 36,525,234 36,337,100 Issued: 9,195,728 shares as of July 4, 2026 and 9,179,288 shares as of January 3, 2026 Outstanding: 6,017,558 shares as of July 4, 2026 and 6,041,767 shares as of January 3, 2026 Treasury Stock: 3,178,170 shares as of July 4, 2026 and 3,137,521 shares as of January 3, 2026 ( 30,895,650 ) ( 30,067,777 ) Retained earnings 142,959,790 137,997,382 Accumulated other comprehensive loss: Foreign currency translation ( 975,778 ) ( 1,437,363 ) Unrealized gain on foreign currency swap, net of tax 711,155 570,097 Unrecognized net pension and postretirement benefit costs, net of tax ( 18,331,508 ) ( 18,754,110 ) Accumulated other comprehensive loss ( 18,596,131 ) ( 19,621,376 ) Total Shareholders’ Equity 129,993,243 124,645,329 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 245,118,631 $ 216,676,616 See accompanying notes. 6 Table of Contents THE EASTERN COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended July 4, 2026 June 28, 2025 Operating Activities Net income $ 6,289,415 $ 5,383,854 Less: Income from discontinued operations - 1,180,739 Income from continuing operations $ 6,289,415 $ 4,203,115 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,209,318 3,178,318 Bargain purchase gain ( 6,529,299 ) - Reduction in carrying amount of ROU assets 1,276,927 1,502,376 Unrecognized pension and postretirement benefit ( 1,211,007 ) ( 397,676 ) (Gain) loss on sale of equipment ( 64,661 ) 38,479 Provision for doubtful accounts 54,828 14,000 Stock compensation expense 188,134 289,126 Changes in operating assets and liabilities: Accounts receivable ( 4,974,987 ) ( 2,271,343 ) Inventories 920,744 1,886,960 Prepaid expenses and other ( 947,631 ) ( 314,221 ) Other assets ( 144,699 ) 124,859 Accounts payable 8,968,808 2,511,193 Accrued compensation 642,535 ( 445,105 ) Operating lease liability ( 1,276,927 ) ( 1,502,376 ) Other accrued expenses 5,635,050 ( 6,908,197 ) Net cash provided by operating activities 12,036,548 1,909,508 Investing Activities Marketable securities ( 32,825 ) 2,222,059 Acquisition ( 8,041,927 ) ( 421,039 ) Payments received from notes receivable 5,000 14,545 Proceeds from sale of equipment 3,500 800 Proceeds from sale of discontinued operations - 1,593,646 Purchases of property, plant, and equipment ( 1,482,339 ) ( 1,599,780 ) Net cash (used in) provided by investing activities ( 9,548,591 ) 1,810,231 Financing Activities Proceeds from long-term debt 8,000,000 - Proceeds from promissory note 785,000 - Principal payments on long-term debt ( 1,000,000 ) ( 5,919,065 ) Financing leases, net ( 442,282 ) ( 393,352 ) Purchase common stock for treasury ( 827,873 ) ( 2,123,705 ) Dividends paid ( 1,327,007 ) ( 1,347,951 ) Net cash provided by (used in) financing activities 5,187,838 ( 9,784,073 ) Effect of exchange rate changes on cash 20,950 331,115 Net change in cash and cash equivalents 7,696,745 ( 5,733,219 ) Cash and cash equivalents at beginning of period 7,412,019 14,843,530 Cash and cash equivalents at end of period $ 15,108,764 $ 9,110,311 Supplemental disclosure of cash flow information: Interest $ 1,099,963 $ 1,683,412 Income taxes 694,933 1,679,091 Non-cash investing and financing activities Right of use asset 205,983 3,050,510 Lease liability 104,836 2,836,158 See accompanying notes 7 Table of Contents THE EASTERN COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) Common Treasury Retained Accumulated Other Comprehensive Income Shareholders' Shares Stock Shares Stock Earnings (Loss) Equity 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 5,383,854 5,383,854 Cash dividends declared, $0.22 per share ( 1,347,951 ) ( 1,347,951 ) Currency translation adjustment 397,593 397,593 Change in fair value of foreign currency swap 747,202 747,202 Change in pension and other postretirement benefit costs, net of tax 411,454 411,454 Treasury Stock Purchase ( 81,549 ) ( 2,123,704 ) ( 2,123,704 ) Issuance of stock awards, net 3,502 ( 35,803 ) ( 35,803 ) Issuance of Common Stock for directors' fees 13,072 324,929 324,929 Balances at June 28, 2025 9,163,570 $ 35,732,135 (3,065,407 ) $ ( 28,462,013 ) $ 137,581,573 $ ( 20,402,722 ) $ 124,448,973 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 Net Income 6,289,415 6,289,415 Cash dividends declared, $0.22 per share ( 1,327,007 ) ( 1,327,007 ) Currency translation adjustment 461,585 461,585 Change in fair value of foreign currency swap 141,059 141,059 Change in pension and other postretirement benefit costs, net of tax 422,601 422,601 Treasury Stock Purchase ( 40,649 ) ( 827,873 ) ( 827,873 ) Issuance of stock awards, net 2,032 ( 116,327 ) ( 116,327 ) Issuance of Common Stock 14,408 304,461 304,461 for directors' fees - Balances at July 4, 2026 9,195,728 $ 36,525,234 (3,178,170 ) $ ( 30,895,650 ) $ 142,959,790 $ ( 18,596,131 ) $ 129,993,243 See accompanying notes. 8 Table of Contents THE EASTERN COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) July 4, 2026 Note A – Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X and do not include all the information and footnotes required by generally accepted accounting principles in the United States (“GAAP”) for complete financial statements. You should refer to the consolidated financial statements of The Eastern Company (together with its consolidated subsidiaries, the “Company,” “we,” “us” or “our”) and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended January 3, 2026, as amended on March 19, 2026 (the “2025 Form 10-K”), for additional information. The accompanying condensed consolidated financial statements are unaudited. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for interim periods have been reflected therein. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. All intercompany accounts and transactions are eliminated. The condensed consolidated balance sheet as of January 3, 2026 has been derived from the audited consolidated balance sheet at that date. The Company’s fiscal year is a 52- or 53-week fiscal year ending on the Saturday nearest to December 31. Each fiscal quarter also ends on a Saturday. References in this Quarterly Report on Form 10-Q for the quarterly period ended July 4, 2026 (this “Form 10-Q”) to 2025, the fiscal year 2025 or fiscal 2025 mean the 53-week period ended on January 3, 2026, and references to 2026, fiscal year 2026 or fiscal 2026 mean the 52-week period ending on January 2, 2027. In a 53-week fiscal year, the first three quarters each have 13 weeks, and the fourth quarter has 14 weeks. In a 52-week fiscal year, each quarter has 13 weeks. References to the second quarter of 2025, the second fiscal quarter of 2025, the second three months of fiscal 2025 or the three months ended June 28, 2025 mean the 13-week period from March 30, 2025 to June 28, 2025. References to the second quarter of 2026, the second fiscal quarter of 2026, the second three months of fiscal 2026 or the three months ended July 4, 2026, mean the 13-week period from April 5, 2026 to July 4, 2026. References to the first six months of 2025 or the six months ended June 28, 2025 mean the period from December 29, 2024 to June 28, 2025. References to the first six months of 2026 or the six months ended July 4, 2026 mean the period from January 4, 2026 to July 4, 2026. Certain amounts in the 2025 financial statements have been reclassified to conform with the 2026 presentation with no impact or change to previously reported net income or shareholders’ equity. 9 Table of Contents Note B – Acquisition On June 1, 2026, we completed the acquisition of Sinecera LLC (doing business as Crown Precision) and Sungear LLC , both of which manufacture and supply aerospace and defense components within the United States. Sinecera LLC and Sungear LLC became wholly-owned consolidated subsidiaries of Eastern Precision Holdings, Inc., a newly-formed wholly owned direct subsidiary of the Company. The purchase price of the acquired net assets was $ 7,850,000 , of which $ 7,065,000 was paid at closing and $ 785,000 was financed through a note due on September 27, 2027 The aggregate fair value of the identifiable net assets acquired exceeded the fair value of the consideration transferred which resulted in a bargain purchase. Before recording this gain, we reassessed whether we had correctly identified all of the assets acquired and all of the liabilities assumed and recognized any additional assets or liabilities that were identified in that review. The resulting gain of $ 6.5 million was recognized as a "bargain purchase gain" in the consolidated statement of operations for the quarter ended July 4, 2026. This bargain purchase gain arose primarily due to the seller’s need for immediate liquidity which provided the Company with an opportunity to enter the aerospace and defense market for engineered components at a favorable purchase price. The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date: Acquired Balance Sheet Accounts Receivable $ 1,747,939 Inventory 10,471,217 Property Plant and Equipment 4,322,206 Other Assets 291,725 Less: Liabilities assumed 2,453,788 Net Assets Acquired 14,379,299 Purchase Price 7,850,000 Bargain purchase gain $ 6,529,299 Income Statement for the period since acquisition (June 1, 2026) to July 4, 2026 Net Sales $ 1,725,160 Cost of Goods Sold ( 1,718,083 ) Gross Margin 7,077 Total Selling & Administrative Expense ( 130,724 ) Operating Loss ( 123,647 ) Bargain purchase gain 6,529,299 Income before income taxes $ 6,405,652 Note C – Discontinued Operations In the third quarter of 2024, we determined that the business of Big 3 Precision Mold Services, Inc. (“Big 3 Mold”) met the criteria to be held for sale and that the assets held for sale qualified for discontinued operations. As such, the financial results of the Big 3 Mold business are reflected in our unaudited condensed consolidated statements of operations as discontinued operations for all periods presented. Additionally, current and non-current assets and liabilities of discontinued operations are reflected in the unaudited condensed consolidated balance sheets for both 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. 10 Table of Contents Summarized Financial Information of Discontinued Operations The following table represents income from discontinued operations, net of tax, for the periods presented: Three Months Ended Six Months Ended June 28, 2025 June 28, 2025 (unaudited) (unaudited) Net sales $ 359,046 $ 1,670,208 Cost of products sold ( 421,730 ) ( 1,653,484 ) Gross margin ( 62,684 ) 16,724 Selling and administrative expenses ( 100,854 ) ( 388,847 ) Income from disposal of discontinued Unit 2,016,696 2,016,696 Operating Income 1,853,158 1,644,573 Interest expense ( 70,699 ) ( 147,882 ) Income from discontinued operations before income taxes 1,782,459 1,496,691 Income tax expense ( 377,282 ) ( 315,951 ) Income from discontinued operations, net of tax $ 1,405,177 $ 1,180,739 Note D – Earnings Per Share The denominators used to calculate earnings per share are as follows: Three Months Ended Six Months Ended July 4, 2026 June 28, 2025 July 4, 2026 June 28, 2025 Basic: Weighted average shares outstanding 6,020,111 6,113,303 6,029,410 6,126,070 Diluted: Weighted average shares outstanding 6,020,111 6,113,303 6,029,410 6,126,070 Dilutive stock appreciation rights 10,308 7,953 10,308 7,953 Denominator for diluted earnings per share 6,030,419 6,121,256 6,039,718 6,134,023 Note E– Fair Value of Instruments 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. 11 Table of Contents Designated Foreign Currency Hedge Contracts All of the Company’s designated foreign currency hedge contracts as of July 4, 2026 were cash flow hedges under Accounting Standards Codification (“ASC”) Topic 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 $9.6 million as of July 4, 2026 and $8.4 million as of January 3, 2026. As of July 4, 2026, $0.5 million is expected to be reclassified to earnings within the next six months. The following table presents the effect of the Company’s derivative instruments designated as cash flow hedges under ASC 815 in its unaudited Condensed Consolidated Statements of Operations for the six months ended July 4, 2026: Derivative Instruments Amount of Gain Recognized in Accumulated Other Comprehensive Income Amount of Gain Reclassified from Accumulated Other Comprehensive Income into Earnings Location in Condensed Consolidated Statement of Income Designated foreign currency hedge contracts $ 711,155 $ 442,655 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 Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) 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 July 4, 2026, the Company classified its derivative assets and liabilities within Level 2 of the fair value hierarchy prescribed by ASC 820, as discussed below, because these observable inputs are available for substantially the full term of its derivative instruments. 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 following tables present the fair value of the Company’s derivative instruments as they appear in its Condensed Consolidated Balance Sheets as of July 4, 2026, and January 3, 2026: Location in Condensed Consolidated Balance Sheets As of July 4, 2026 As of January 3, 2026 Derivative Assets: Designated foreign currency hedge contracts Other current assets $ 608,481 $ 570,097 Designated foreign currency hedge contracts Other long-term assets $ 102,674 $ - 12 Table of Contents Note F – Inventories Inventories consist of the following components: July 4, 2026 January 3, 2026 Raw material and component parts $ 25,211,922 $ 21,526,667 Work in process 8,357,107 7,135,539 Finished goods 32,420,491 27,681,550 Total inventories $ 65,989,520 $ 56,343,756 Note G - Goodwill The aggregate carrying amount of goodwill is approximately $ 58.7 million as of July 4, 2026. No impairment was recognized in the second quarter of 2026. The Company evaluates 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. Note H – 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 accounts for non-lease components as part of the lease component to which they relate. Lease accounting involves significant judgments, including making estimates related to the lease term, lease payments, and discount rate. The Company has operating leases for buildings, warehouses, and office equipment. The Company determines whether an arrangement is, or contains, a lease at contract inception. An arrangement contains a lease if the 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. 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. Most leases include one or more options to renew. The exercise of lease renewal options is at our sole discretion. 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. 13 Table of Contents Currently, the Company has 18 operating leases with lease liabilities of $ 16.2 million and 8 finance leases with lease liabilities of $ 3.7 million as of July 4, 2026. The 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 lease transactions. There are no leases that have not yet commenced that could create significant rights and obligations for the Company. The future payments (in millions) due under non-cancelable operating and finance leases as of July 4, 2026 are as follows: Operating Finance 2026 $ 2.0 $ 0.5 2027 3.8 0.9 2028 3.4 0.9 2029 3.0 0.8 2030 2.1 0.7 thereafter 3.6 0.5 17.9 4.3 Less effects of discounting ( 1.7 ) ( 0.6 ) Lease liabilities recognized $ 16.2 $ 3.7 As of July 4, 2026, the weighted average lease term for all operating and finance leases is 5.2 and 4.7 years, respectively. The weighted average discount rate associated with operating and finance leases was 7.2 % and 7.2 %, respectively. Note I – 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 1.37 5% to 2.12 5% depending on the Company’s senior 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. The Company has $ 59 million available on its line of credit under the Credit Agreement as of the date of filing this Form 10-Q. 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. 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 its covenants under the Credit Agreement as of July 4, 2026 and through the date of filing this Form 10-Q. 14 Table of Contents Note J - Stock Options and Awards On February 19, 2020, the Board of Directors of the Company (the “Board”) adopted The Eastern Company 2020 Stock Incentive Plan (the “2020 Plan”). On April 29, 2020, at the Company’s 2020 Annual Meeting of Shareholders, the shareholders of the Company approved and adopted the 2020 Plan. The Company has no other existing plan pursuant to which equity awards may be granted. Restricted stock unit awards may be granted to participants under the 2020 Plan with restrictions determined by the Compensation Committee of the Board. During the first six months of fiscal 2026 and 2025, the Company granted stock awards with respect to 57,456 and 35,856 shares of Company common stock, respectively, that were subject to the satisfaction of performance measurements or time-based requirements. For the first six months of fiscal years 2026 and 2025, the Company used fair market value to determine the associated expense with stock awards. Incentive stock options granted under the 2020 Plan must have exercise prices that are not less than 100% of the fair market value of the Company’s common stock on the dates the stock options are granted. Under the 2020 Plan, non-qualified stock options granted to participants will have exercise prices determined by the Compensation Committee of the Board. The Company issued 75,168 and 48,240 options during the first six months of fiscal 2026 and 2025, respectively. For the first six months of fiscal 2026, the Company used several assumptions which included an expected term of three years, volatility deviation of 40.94 % and 43.08 %, and a risk-free rate of 4.14 % and 3.63 % to determine the expense associated with options. For the first six months of fiscal 2025, the Company used several assumptions which included an expected term of three years, volatility deviation of 40.34 % and a risk-free rate of 4.34 % to determine the expense associated with options. Stock-based compensation expense (income), including forfeitures, in connection with stock options and stock awards previously granted to employees was approximately $ 198,000 and $ 147,000 in the second quarter of 2026 and the second quarter of 2025, respectively, and was approximately $( 109,000 ) and $( 6,000 ) in the first six months of fiscal years 2026 and 2025, respectively. As of July 4, 2026, there were 675,456 shares of Company common stock reserved and available for future grant under the 2020 Plan. The following tables set forth the outstanding stock options for the periods specified: Six Months Ended Year Ended July 4, 2026 January 3, 2026 Units Weighted Average Exercise Price Units Weighted Average Exercise Price Outstanding at beginning of period 57,480 $ 27.77 25,116 $ 28.18 Issued 75,168 18.66 50,688 27.57 Expired - - ( 1,500 ) 20.20 Exercised - - - - Forfeited ( 21,415 ) 27.85 ( 16,824 ) 28.45 Outstanding at end of period 111,233 $ 21.60 57,480 $ 27.77 Stock Options Outstanding and Exercisable Range of Exercise Prices Outstanding as of July 4, 2026 Weighted Average Remaining Contractual Life Weighted Average Exercise Price Exercisable as of July 4, 2026 Weighted Average Remaining Contractual Life Weighted Average Exercise Price $ 18.55 - $ 28.69 111,233 4.2 $ 21.60 - - - 15 Table of Contents The following table sets forth the outstanding stock awards for the periods specified: Six Months Ended Year Ended July 4, 2026 January 3, 2026 Shares Shares Outstanding at beginning of period 48,456 39,592 Issued 57,456 37,728 Exercised ( 2,032 ) ( 4,579 ) Forfeited ( 19,719 ) ( 24,285 ) Outstanding at end of period 84,161 48,456 As of July 4, 2026, outstanding stock options and stock awards had an intrinsic value of $ 3,285,000 . Note K – Share Repurchase Program On April 30, 2025, the Board of Directors of the Company approved a share repurchase program authorizing the Company to repurchase up to 400,000 shares of the Company’s common stock over a five-year term expiring in April 2030. The Company’s share repurchase program does not obligate it to acquire the Company’s common stock at any specific cost per share. Under this program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. Below is a summary of the Company’s share repurchases during the second quarter of 2026 under the share repurchase program. Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that may yet be Purchased Under the Plans or Programs April 5, 2026 – May 2, 2026 4,407 $ 20.99 4,407 271,397 May 3, 2026 – May 30, 2026 15,122 20.70 15,122 256,275 May 31, 2026 – July 4, 2026 - - - 256,275 Total 19,529 $ 20.76 19,529 256,275 Note L – Revenue Recognition The Company’s revenues result from the sale of goods and services and reflect the consideration to which the Company expects to be entitled. The Company records revenues in accordance with ASC Topic 606, “Revenue from Contracts with Customers.” The Company has defined purchase orders as contracts in accordance with ASC Topic 606. For its customer contracts, the Company identifies its performance obligations, which are delivering goods or services, determines the transaction price, allocates the contract transaction price to the performance obligations (when applicable), and recognizes the revenue when (or as) the performance obligation is transferred to the customer. A good or service is transferred when the customer obtains control of that good or service. The Company’s revenues are recorded at a point in time from the sale of tangible products. Revenues are recognized when products are shipped. 16 Table of Contents Customer volume rebates, product returns, discounts and allowances are variable considerations and are recorded as a reduction of revenue in the same period that the related sales are recorded. The Company has reviewed the overall sales transactions for variable consideration and has determined that these costs are not material. The Company has no future performance obligations and does not capitalize costs to obtain or fulfill contracts. Note M - Income Taxes The Company files income tax returns in the U.S. at the federal and state levels, and in foreign jurisdictions. With limited 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 is no longer subject to non-U.S. income tax examinations by foreign tax authorities for years prior to 2019. There have been no significant changes to the value of unrecognized tax benefits during the six months ended July 4, 2026. On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (“OBBBA”), which resulted in many tax extensions and other rule changes, including the following which we believe will have an effect on our tax provision in 2026: 1. Return of the Section 163(j) taxable income base excluding the deductions for depreciation and amortization in 2025 and 2026 (change from “Tax EBIT” to “Tax EBITDA”); 2. Decrease in the Section 250 deduction for Net CFC Tested Income (formerly GILTI) to 40% (from 50%), instead of the scheduled decrease to 37.5% prior to the OBBBA; 3. Decrease in the Section 250 deduction for foreign-derived income to 33.34% (from 37.5%), instead of the scheduled decrease to 21.875% prior to the OBBBA; and 4. Increase in the foreign tax credit rate on Net CFC Tested Income (formerly GILTI) to 90% (from 80%), and a 10% disallowance on repatriation. The Company has elected to change its method of accounting for domestic research or experimental expenditures to the deduction method on a cut-off basis under §174A(a) of the Internal Revenue Code (“IRC”), pursuant to Section 7.02(3)(a) of Rev Proc 2025-28 and will continue to amortize research and development costs capitalized between 2022 and 2024 over a 5 or 15 year period for U.S and foreign §174 costs, respectively. Note N - Retirement Benefit Plans The Company has four non-contributory defined benefit pension plans covering most U.S. employees. All of these pension plans are frozen and participants in these plans have not accrued benefits since the date on which these plans were frozen. Plan benefits are generally based upon age at retirement, years of service and, for the plan covering salaried employees, 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. Significant disclosures relating to these benefit plans for the second quarter and first six months of fiscal years 2026 and 2025 are as follows: Pension Benefits Three Months Ended Six Months Ended July 4, 2026 June 28, 2025 July 4, 2026 June 28, 2025 Service cost $ 181,206 $ 184,287 $ 362,413 $ 361,749 Interest cost 876,829 987,679 1,753,658 1,938,776 Expected return on plan assets ( 1,107,069 ) ( 1,100,704 ) ( 2,214,137 ) ( 2,160,640 ) Amortization of prior service cost - - - - Amortization of the net loss 298,780 301,791 597,561 592,406 Net periodic benefit cost $ 249,746 $ 373,053 $ 499,495 $ 732,291 17 Table of Contents Other Postretirement Benefits Three Months Ended Six Months Ended July 4, 2026 June 28, 2025 July 4, 2026 June 28, 2025 Service cost $ 1,641 $ 2,206 $ 3,282 $ 4,331 Interest cost 10,393 12,132 20,787 23,815 Expected return on plan assets ( 5,000 ) ( 4,963 ) ( 10,000 ) ( 9,743 ) Amortization of prior service cost ( 848 ) ( 864 ) ( 1,696 ) ( 1,696 ) Amortization of the net loss ( 24,496 ) ( 23,982 ) ( 48,993 ) ( 47,075 ) Net periodic benefit gain $ ( 18,310 ) $ ( 15,471 ) $ ( 36,620 ) $ ( 30,368 ) The Company’s funding policy with respect to its qualified plans is to contribute at least the minimum amount required by applicable laws and regulations. In fiscal year 2026, the Company expects to make cash contributions to its qualified pension plans of approximately $ 2,800,000 and approximately $ 40,000 into its other postretirement plan. As of July 4, 2026, the Company has contributed $ 1,184,000 to its pension plans and $ 13,000 to its postretirement plan in fiscal year 2026 and expects to make the remaining contributions as required during the remainder of the fiscal year. The Company has a contributory savings plan under Section 401(k) of the IRC (the “401(k) Plan”) covering substantially all U.S. non-union employees. The 401(k) Plan allows participants to make voluntary contributions from their annual compensation on a pre-tax basis, subject to limitations under the IRC. The 401(k) Plan provides for contributions by the Company at its discretion. The Company made contributions to the 401(k) Plan as follows: Three Months Ended Six Months Ended July 4, 2026 June 28, 2025 July 4, 2026 June 28, 2025 Regular matching contribution $ 222,643 $ 239,797 $ 443,045 $ 546,436 Transitional credit contribution 17,060 18,622 35,998 42,487 Non-discretionary contribution 84,929 87,415 168,881 195,907 Total contributions for the period $ 324,632 $ 345,834 $ 647,924 $ 784,830 Note O - Recent Accounting Pronouncements 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 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. 18 Table of Contents Note P - 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 July 4, 2026, there were significant concentrations of credit risk with 2 customers that had receivables representing greater than 10 % of our net accounts receivable. As of January 3, 2026, there was one customer representing 13 % of the Company’s net accounts receivable. The maximum exposure to credit risk is primarily represented by the carrying amount of the Company’s accounts receivable. The Company has deposits that exceed amounts up to $ 250,000 that are insured by the Federal Deposit Insurance Corporation (FDIC), but the Company does not consider this a significant concentration of credit risk based on the strength of the financial institution. Interest Rate Risk The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s debt under the Credit Agreement, which bears interest at variable rates based on term SOFR, plus an adjustment of ten basis points, plus an applicable margin of 1.37 5% to 2.12 5%, depending on the Company’s senior net leverage ratio. Note Q - Segment Information The Company has one reportable segment, its Engineered Solutions 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 Three Months Ended Six Months Ended July 4, 2026 June 28, 2025 July 4, 2026 June 28, 2025 Net Sales $ 61,821,757 $ 70,164,086 $ 121,498,295 $ 136,101,298 Less: Material cost ( 28,961,722 ) ( 37,051,351 ) ( 59,194,456 ) ( 71,561,763 ) Labor cost ( 3,645,315 ) ( 3,507,414 ) ( 6,706,780 ) ( 7,522,727 ) Other variable and fixed overhead¹ ( 16,462,581 ) ( 13,242,419 ) ( 30,915,239 ) ( 25,557,721 ) Gross Margin 12,752,139 16,362,902 24,681,820 31,459,087 Product development expense ( 1,042,688 ) ( 1,031,716 ) ( 2,078,000 ) ( 2,140,902 ) Selling and administrative expenses ( 10,051,659 ) ( 12,188,736 ) ( 19,621,306 ) ( 22,534,931 ) Operating Profit $ 1,657,792 $ 3,142,450 $ 2,982,514 $ 6,783,254 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 19 Table of Contents