Eastern Company EML Form 10-Q filing Q2 FY2027

**

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

See accompanying notes

**

See accompanying notes.

**

See accompanying notes.

**

See accompanying notes.

**

See accompanying notes

**

See accompanying notes.

**

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.

**

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:

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.

**

Summarized Financial Information of Discontinued Operations

The following table represents income from discontinued operations, net of tax, for the periods presented:

Note D – Earnings Per Share

The denominators used to calculate earnings per share are as follows:

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.

**

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:

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:

**

Note F – Inventories

Inventories consist of the following components:

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.

**

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:

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 1.375% to 2.125% 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.

**

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:

**

The following table sets forth the outstanding stock awards for the periods specified:

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.

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.

**

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:

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:

**

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:

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.

**

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 1.375% to 2.125%, 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.

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

**

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to highlight significant changes in the financial position and results of operations of The Eastern Company (together with its consolidated subsidiaries, the “Company,” “we,” “us” or “our”) for the three and six months ended July 4, 2026. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the fiscal year ended January 3, 2026 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2026, as amended on March 19, 2026 (the “2025 Form 10-K”).

The Company’s fiscal year is a 52- or 53-week fiscal year ending on the Saturday nearest to December 31. References in this Quarterly Report on Form 10-Q for the quarterly period ended July 4, 2026 (this “Form 10-Q”) to 2025, 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.

**

Recent Developments

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. The transaction establishes a fourth operating platform for Eastern, complementing its existing portfolio of Eberhard Manufacturing, Velvac, and Big 3 Precision. These acquisitions align with the Company's strategic priorities to expand its portfolio of operating platforms, add engineered products with attractive end-market exposure, and deploy capital into businesses that benefit from Eastern’s decentralized, holding-company model.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) became law. Among other provisions, the OBBBA extends permanently, with modifications, tax provisions enacted as part of the 2017 Tax Cuts and Jobs Act and restores and makes permanent many business provisions, such as full expensing for research and development and capital investments. In addition, the OBBBA contains other new tax relief measures and various revenue raising measures. We are currently assessing the potential impact of the OBBBA on our business and financial results.

For the three months ended July 4, 2026, we incurred approximately $1.9 million in tariff and tariff-related expenses, $1.8 million of which have been mitigated through price increases. On February 20, 2026, the U.S. Supreme Court ruled in Learning Resources, Inc. v. Trump that the International Emergency Economic Powers Act (“IEEPA”) does not authorize the executive branch to impose certain tariffs. The U.S. Customs and Border Protection (“CBP”) is developing an administrative process for seeking refunds of tariffs paid pursuant to the IEEPA, and on April 20, 2026, launched the first phase of that administrative process. The Company is in the process of submitting refund claims to the CBP. The amount and timing of any potential refund remain uncertain, and, as of July 4, 2026, we have not recorded a material benefit for potential refunds of IEEPA tariffs paid. In response to the U.S. Supreme Court’s decision, the presidential administration implemented a tariff surcharge pursuant to Section 122 of the Trade Act of 1974, establishing a minimum 10% duty on imports, subject to certain exemptions, for 150 days. The tariff environment remains dynamic, and it is likely that additional developments will occur over the next several months, particularly as the U.S. continues to negotiate with trade partners and the CBP further develops and executes on the administrative process for refunds. While the long-term effects remain uncertain, we continue to closely monitor the evolving tariff environment which presents a mix of impacts, such as higher pricing, including higher product and operating costs, and the potential for refunds. See Part I, Item 1A, Risk Factors in the 2025 Form 10-K for a discussion regarding tariff-related risks.

**

On February 14, 2025, the Company acquired certain assets under asset and real estate purchase agreements from Centralia Industrial Painting, Inc. and Ronald R. Rainwater, respectively. These assets are held in our Big 3 Precision Products, Inc. (“Big 3”) subsidiary. We expect the acquisitions will enable the Company to become more competitive with respect to cost and quality of the products sold by Big 3.

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. The other divisions of Big 3 Mold have been reclassified to continuing operations.

The following analysis excludes discontinued operations.

Net sales for the second quarter of 2026 decreased 12% to $61.8 million from $70.2 million for the corresponding period in 2025. The decrease in sales was due to lower shipments of truck mirror assemblies, returnable transport packaging and latch and handle assemblies of $5.7 million, $3.4 million, $0.9 million, respectively, partially offset by $1.7 million in aerospace and defense sales from the acquisition of Sungear and Crown Precision. Net sales for the first six months of 2026 decreased 11% to $121.5 million from $136.1 million for the corresponding period in 2025. Sales decreased in the first six months of 2026 due to lower shipments of returnable transport packaging, truck mirror assemblies and latch and handle assemblies of $10.9 million, $4.5 million, $0.8 million, respectively, partially offset by $1.7 million in aerospace and defense sales from the acquisition of Sungear and Crown Precision.

Our backlog as of July 4, 2026 increased $39.0 million, or 45%, to $126.2 million from $87.1 million as of June 28, 2025, driven by acquired aerospace and defense orders of $19.0 million, increased orders for truck mirror assemblies of $11.7 million, returnable transport packaging products of $4.7 million, latch and handle assemblies of $3.6 million.

Net sales of existing products decreased 16.0% for the second quarter of 2026 and 12.0% for the first six months of 2026 compared to the corresponding periods in 2025. New products increased net sales by 1.8% in the second quarter of 2026 and 2.7% in the first six months of 2026 compared to the corresponding periods in 2025. New product sales included various latch and handle assemblies.

Cost of products sold decreased $4.7 million for the second quarter of 2026 and $7.8 million for the first six months of 2026 compared to the corresponding period in 2025. These decreases were due to lower shipment volume, partially offset by increased cost of sales on acquired aerospace and defense shipments. Additionally, the Company paid tariff costs on China-sourced products of approximately $1.9 million in the second quarter of 2026 and $5.0 million in the first six months of 2026, compared to $2.4 million in the second quarter of 2025 and $3.0 million in the first six months of 2025. Most tariffs on China-sourced products have been recovered through price increases.

Gross margin as a percentage of sales was 20.6% for the second quarter of 2026 and 20.3% for the first six months of 2026 compared to 23.3% and 23.1%, respectively, for the corresponding periods in 2025.

Product development expenses remained consistent with the second quarter of 2025 and decreased less than $0.1 million for the first six months of 2026 compared to the corresponding periods in 2025. As a percentage of net sales, product development costs were 1.7% and 1.6% in the first six months of 2026 and 2025, respectively, as we continue to invest in new products at our businesses.

Selling and administrative expenses decreased $2.1 million, or 17.5%, for the second quarter of 2026 compared to the corresponding period in 2025 due to $1.9 million of lower restructuring charges, lower personnel costs of $0.1 million, lower amortization of $0.1 million and other expenses of $0.4 million, partially offset by higher computer expenses of $0.4 million. Selling, general and administrative expenses decreased $2.9 million, or 12.9% for the first six months of 2026 due to $1.9 million of lower restructuring charges, lower personnel costs of $0.5 million, lower amortization of $0.2 million, lower commission expenses of $0.4 million and other expenses of $0.6 million, partially offset by higher legal expenses of $0.3 million and higher computer expenses of $0.4 million.

Interest expense decreased $0.1 million for the second quarter of 2026 and $0.2 million for the first six months of 2026 compared to the corresponding periods in 2025 due to lower principal balances, offset by higher interest rates.

**

Other income increased $6.4 million for the second quarter of 2026 and $6.6 million for the first six months of 2026 compared to the corresponding periods in 2025. The increase for the second quarter and for the first six months of 2026 are the result of $6.5 million of bargain purchase gain recorded on a recent acquisition, offset by $0.2 million of transaction costs incurred to complete that acquisition.

Net income for the second quarter of fiscal 2026 was $5.6 million, or $0.94 per diluted share, compared to net income of $2.0 million, or $0.33 per diluted share, for the comparable period in 2025. For the first six months of 2026, net income was $6.3 million, or $1.04 per diluted share, compared to $4.2 million, or $0.69 per diluted share, for the comparable period in 2025.

A more detailed analysis of the Company’s results of operations and financial condition follows.

Results of Operations

The following table shows, for the periods indicated, selected line items from the condensed consolidated statements of operations as a percentage of net sales:

The following table shows the change in sales and operating profit for the second quarter and first six months of 2026 compared to the second quarter and first six months of 2025 (dollars in thousands):

**

Liquidity and Sources of Capital

The Company generated $12.0 million of cash from operations during the first six months of fiscal 2026 compared to generating $1.9 million during the first six months of fiscal 2025. Cash flow from operations in the first six months of 2026 increased due to timing of vendor payments partially offset by timing of customer receivable collections and the exclusion of the non-cash bargain purchase gain.

Purchases of capital equipment were $1.5 million and $1.6 million for the first six months of 2026 and 2025, respectively. As of July 4, 2026, there were approximately $0.1 million of outstanding commitments for capital expenditures.

The following table shows key financial ratios at the end of each specified period:

The following table shows important liquidity measures as of the balance sheet date for each specified period or for the period, as applicable (in millions):

Inventories of $66.0 million at July 4, 2026 increased by $9.6 million, or 17.1%, when compared to $56.3 million at January 3, 2026 and increased $11.8 million, or 21.9%, when compared to $54.1 million at June 28, 2025. Accounts receivable, less allowances, were $36.8 million at July 4, 2026, as compared to $30.1 million at January 3, 2026 and $40.2 million at June 28, 2025.

**

On October 28, 2025, the Company entered into a credit agreement with the lenders from time to time party thereto, Citizens Bank, N.A., as the administrative agent, as an LC issuer, and as the swing line lender (the “Credit Agreement”). The Credit Agreement replaces the Company’s prior credit facility with TD Bank, N.A., which was repaid using borrowings under the Credit Agreement and terminated on October 28, 2025.. The Credit Agreement established a $100 million five-year senior secured revolving credit facility and provides for the extension of credit to the Company in the form of revolving loans, swing line loans and letters of credit, at any time and from time to time during the term of the Credit Agreement. See Note I, Debt, for additional information regarding the terms of the Credit Agreement, including repayment terms, interest rates, and applicable loan covenants. Under the terms of the Credit Agreement, the Company is subject to restrictive covenants that limit our ability to, among other things, incur additional indebtedness, pay dividends, or make other distributions, and consolidate, merge, sell or otherwise dispose of assets, as well as financial covenants that require us to maintain a maximum senior net leverage ratio and a minimum interest coverage ratio. These covenants may limit how we conduct our business, and in the event of certain defaults, our repayment obligations may be accelerated.

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. 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.

Cash, cash flow from operating activities and funds available under the revolving credit portion of the Credit Agreement are expected to be sufficient to cover future foreseeable working capital requirements in the short-term (i.e., the next 12 months from July 4, 2026) and separately in the long-term (i.e., beyond the next 12 months). However, the Company cannot provide any assurances of the availability of future financing or the terms on which it might be available. In addition, the interest rate on borrowings under the Credit Agreement varies based on our senior net leverage ratio, and the Credit Agreement requires us to maintain a senior net leverage ratio not to exceed 3.50 to 1 and an interest coverage ratio to be not less than 3.00 to 1. A decrease in earnings due to the impact of economic conditions and inflationary pressures or the resulting harm to the financial condition of our customers, or an increase in indebtedness incurred to offset such a decrease in earnings, would have a negative impact on our senior net leverage ratio and our interest coverage ratio, which in turn would increase the cost of borrowing under the Credit Agreement and could cause us to fail to comply with the covenants under the Credit Agreement.

In addition to funding capital requirements, we may use available cash to pay down our indebtedness, to make investments, which may include investments in publicly traded securities, or to make acquisitions that we believe will complement or expand our existing businesses.

As of the end of the second quarter of 2026, the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires management to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. For a full description of our critical accounting estimates, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of the 2025 Form 10-K. While there have been no material changes to our critical accounting estimates since the filing of the 2025 Form 10-K, we continue to monitor the methodologies and assumptions underlying such critical accounting estimates.

Non-GAAP Financial Measures

The non-GAAP financial measures we provide in this report should be viewed in addition to, and not as an alternative for, results prepared in accordance with GAAP.

To supplement the condensed consolidated financial statements prepared in accordance with GAAP, we have presented Adjusted Net Income from Continuing Operations, Adjusted Earnings Per Share from Continuing Operations, and Adjusted EBITDA from Continuing Operations, which are considered non-GAAP financial measures. The non-GAAP financial measures presented may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures in the same way. These measures are not substitutes for their comparable GAAP financial measures, such as net income from continuing operations, diluted earnings per share from continuing operations, net (loss) income from discontinued operations, net income (loss) or other measures prescribed by GAAP, and there are limitations to using non-GAAP financial measures.

**

Adjusted Net Income from Continuing Operations is defined as net income from continuing operations excluding, when incurred, gains or losses that we do not believe reflect our ongoing operations, including, for example, the impacts of impairment losses, gains/losses on the sale of subsidiaries, property and facilities, transaction expenses primarily relating to acquisitions and divestitures, factory start-up costs, factory relocation expenses, executive severance, and restructuring costs. This measure also excludes credit agreement refinancing expenses, when applicable, because we do not believe these expenses are reflective of our ongoing operations. Adjusted Net Income from Continuing Operations is a tool that can assist management and investors in comparing our performance on a consistent basis across periods by removing the impact of certain items that management believes do not directly reflect our underlying operating performance.

Adjusted Earnings Per Share from Continuing Operations is defined as earnings per share from continuing operations excluding, when incurred, certain per share gains or losses that we do not believe reflect our ongoing operations, including, for example, the impacts of impairment losses, gains/losses on the sale of subsidiaries, property and facilities, transaction expenses primarily relating to acquisitions and divestitures, factory start-up costs, factory relocation expenses, executive severance, and restructuring costs. This measure also excludes credit agreement refinancing expenses, when applicable, because we do not believe these expenses are reflective of our ongoing operations. We believe that Adjusted Earnings Per Share from Continuing Operations provides important comparability of underlying operational results, allowing investors and management to assess operating performance on a consistent basis from period to period.

Adjusted EBITDA from Continuing Operations is defined as net income from continuing operations before interest expense, provision for income taxes, and depreciation and amortization and excluding, when incurred, the impacts of certain losses or gains that we do not believe reflect our ongoing operations, including, for example, impairment losses, gains/losses on sale of subsidiaries, property and facilities, transaction expenses primarily relating to acquisitions and divestitures, factory start-up costs, factory relocation expenses, executive severance, and restructuring expenses. This measure also excludes credit agreement refinancing expenses, when applicable, because we do not believe these expenses are reflective of our ongoing operations. Adjusted EBITDA from Continuing Operations is a tool that can assist management and investors in comparing our performance on a consistent basis by removing the impact of certain items that management believe do not directly reflect our underlying operations.

Management uses such measures to evaluate performance period over period, to analyze the underlying trends in our business, to assess our performance relative to our competitors, and to establish operational goals and forecasts that are used in allocating resources. These financial measures should not be considered in isolation from, or as a replacement for, GAAP financial measures.

We believe that presenting non-GAAP financial measures in addition to GAAP financial measures provides investors greater transparency to the information used by our management for its financial and operational decision-making. We further believe that providing this information enables our investors to better understand our operating performance and to evaluate the methodology used by management to evaluate and measure such performance.

**

(1) We estimate the tax effect of the items identified to determine a non-GAAP annual effective tax rate applied to the pre-tax amount in order to calculate the non-GAAP provision for income taxes

(a) consists of personnel related and facility costs

**

Reconciliation of Non-GAAP Measures

Adjusted EBITDA Calculation

For the Three and Six Months ended July 4, 2026 and June 28, 2025

($000's)

(a) consists of personnel related and facility costs

**

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a result of the Company’s status as a smaller reporting company pursuant to Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is not required to provide information under this Item 3.

ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures:

As of July 4, 2026, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (the “CEO”) and the Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) pursuant to Exchange Act Rule 13a-15. As defined in Exchange Act Rules 13a-15(e) and 15d-15(e), “the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.”

The Company believes that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and the CEO and CFO have concluded that these controls and procedures are effective at the “reasonable assurance” level as of July 4, 2026.

Changes in Internal Control Over Financial Reporting:

During the period covered by this Form 10-Q, there were no changes in the Company's internal control over financial reporting that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

**

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

The Company is a party to various legal proceedings from time to time related to its normal business operations. As of the end of the quarter ended July 4, 2026, the Company does not have any material pending legal proceedings, other than as set forth in Part I, Item 3, Legal Proceedings, of the 2025 Form 10-K, or any material legal proceedings known to be contemplated by governmental authorities.

ITEM 1A – RISK FACTORS

The Company’s business is subject to several risks, some of which are beyond its control. In addition to the other information set forth in this Form 10-Q, the Company’s shareholders should carefully consider the risk factors discussed in Part I, Item 1A, Risk Factors, of the 2025 Form 10-K. These risk factors could have a material adverse effect on the Company’s business, results of operations, financial condition and/or liquidity and could cause our operating results to vary significantly from period to period. As of July 4, 2026, there have been no material changes to the risk factors disclosed in the 2025 Form 10-K. The Company may disclose changes to such risk factors or disclose additional risk factors from time to time in its future filings with the SEC. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial also may materially adversely affect its business, financial condition, or operating results.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On April 30, 2025, the Board 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.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable.

**

ITEM 5 – OTHER INFORMATION

(a) None.

(b) None.

(c) During the second quarter of 2026, no director or officer of the Company adopted or terminated a “10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

ITEM 6 – EXHIBITS

**

32