UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

~~[X]~~

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

for the quarterly period ended April 1, 2023

OR ~~15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED~~ ~~September 30, 2017~~

~~[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO~~

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

for the transition period from ________________ to _______________

Commission File ~~Number:~~ Number 001-35383

~~THE EASTERN COMPANY~~

~~(Exact name of registrant as specified in its charter)~~

~~Connecticut~~	~~06-0330020~~ THE EASTERN COMPANY
(Exact name of registrant as specified in its charter)

Connecticut		06-0330020
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

~~112 Bridge Street, Naugatuck,~~ 3 Enterprise Drive, Suite 408, Shelton, Connecticut	~~06770~~	06484
(Address of principal executive offices)		(Zip Code)

(203)-729-2255

(Registrant’s telephone number, including area code)

~~(203) 729-2255~~

~~(Registrant's telephone number, including area code)~~

~~Not applicable~~

~~(Former name, former address and former fiscal year, if changed since last report)~~

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, No Par Value	EML	NASDAQ Global Market

Indicate by check mark whether the ~~registrant:~~registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ~~[X]~~☒ No ~~[ ]~~

☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

Yes ~~[X]~~☒ No ~~[ ]~~

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See ~~the~~ definitions of ~~"large~~“large accelerated filer,~~" "accelerated~~” “accelerated filer,~~" "smaller~~” “smaller reporting company,"” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer~~[ ]~~	☐	Accelerated ~~filer~~ ~~[X]~~Filer	☒
Non-accelerated filer~~[ ]~~ ~~(Do not check if a smaller reporting company)~~	☐	Smaller reporting company~~[ ]~~	☒
		Emerging growth company ~~[ ]~~	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ~~[ ]~~

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ~~[ ]~~☐ No ~~[X]~~

~~Indicate the number~~☒

As of April 1, 2023, 6,231,612 shares ~~outstanding of each~~ of the ~~issuer's classes of~~registrant’s common stock, ~~as of the latest practicable date.~~

no par value per share, were issued and outstanding.

~~Class~~	~~Outstanding as of October 18, 2017~~
~~Common Stock, No par value~~	~~6,261,415~~

~~TABLE OF CONTENTS~~

~~Item No.~~
~~Page~~

The Eastern Company

Form 10-Q

FOR THE QUARTERLY PERIOD ENDED APRIL 1, 2023

TABLE OF CONTENTS

~~PART I. FINANCIAL INFORMATION~~				Page
~~Item 1.~~	~~Financial Statements~~
	~~Condensed Consolidated Balance Sheets (Unaudited) at September 30, 2017 and December 31, 2016~~	3
	~~Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2017 and October 1, 2016~~	5
PART I	~~Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2017 and October 1, 2016~~	6 FINANCIAL INFORMATION
Item 1.	~~Condensed Consolidated~~	Financial Statements ~~of Cash Flows (Unaudited) for the nine months ended September 30, 2017 and October 1, 2016~~	7	3.
	~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~	8
Item 2.	~~Management's~~	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18	16.

Item 3.		Quantitative and Qualitative Disclosures ~~about~~About Market Risk	27	23.

Item 4.		Controls and Procedures	27	23.
	~~PART II. OTHER INFORMATION~~
~~Item 1.~~ PART II	~~Legal Proceedings~~	28 OTHER INFORMATION
Item ~~1A.~~1.	~~Risk Factors~~	28 Legal Proceedings		24.

Item 1A.		Risk Factors		24.

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	28	24.

Item 3.		Defaults Upon Senior Securities	29	24.
Item 4.		Mine Safety Disclosures	29	24.
Item 5.		Other Information	29	24.
Item 6.6	~~Exhibits~~	29 Exhibits		25.
~~SIGNATURES~~	30	Signatures		26.

Table of Contents

PART I1 – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED ~~BALANCE SHEETS~~STATEMENTS OF INCOME (UNAUDITED)

ASSETS September 30, 2017 December 31, 2016
Current Assets
Cash and cash equivalents $ 21,194,091 $ 22,725,376
Marketable securities 366,554 --
Accounts receivable, less allowances: $507,000 - 2017; $430,000 - 2016 28,448,534 18,135,792
Inventories 45,207,813 34,030,286
Prepaid expenses and other assets 4,398,041 1,858,471
Total Current Assets 99,615,033 76,749,925

Property, Plant and Equipment 70,500,848 64,911,071
Accumulated depreciation (41,629,685 ) (38,745,557 )
28,871,163 26,165,514

Goodwill 32,395,740 14,819,835
Trademarks 3,680,037 166,312
Patents, technology, and other intangibles net of accumulated amortization 9,621,147 1,764,449
Deferred income taxes 1,180,355 4,532,361
46,877,279 21,282,957
TOTAL ASSETS $ 175,363,475 $ 124,198,396

3

LIABILITIES AND SHAREHOLDERS' EQUITY September 30, 2017 December 31, 2016
Current Liabilities
Accounts payable $ 15,327,476 $ 7,048,174
Accrued compensation 3,273,317 3,112,404
Other accrued expenses 6,360,362 1,812,647
Current portion of long-term debt 6,550,000 892,857
Total Current Liabilities 31,511,155 12,866,082

Other long-term liabilities 288,805 288,805
Long-term debt, less current portion 29,062,500 892,857
Accrued postretirement benefits 1,018,815 1,051,700
Accrued pension cost 25,780,522 26,631,438

Shareholders' Equity
Voting Preferred Stock, no par value:
        Authorized and unissued: 1,000,000 shares
Nonvoting Preferred Stock, no par value:
        Authorized and unissued: 1,000,000 shares
Common Stock, no par value:
       Authorized: 50,000,000 shares
Issued: 8,956,144 shares in 2017 and 8,950,827 shares in 2016
Outstanding: 6,261,415 shares in 2017 and 6,256,098 shares in 2016 29,277,169 29,146,622
Treasury Stock: 2,694,729 shares in 2017 and 2016 (19,105,723 ) (19,105,723 )
Retained earnings 98,779,632 95,631,216

Accumulated other comprehensive income (loss):
Foreign currency translation (902,749 ) (2,165,081 )
Unrealized loss on marketable securities and
derivative, net of tax (9,479 ) --
Unrecognized net pension and postretirement benefit costs, net of tax (20,419,472 ) (21,039,520 )
   Accumulated other comprehensive loss (21,331,700 ) (23,204,601 )
Total Shareholders' Equity 87,619,378 82,467,514
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 175,363,475 $ 124,198,396

~~See accompanying notes.~~
4

	Three Months Ended
	April 1, 2023			April 2, 2022
Net sales	$	72,495,367		$	69,014,648
Cost of products sold		(56,997,668	)		(54,438,968	)
Gross margin		15,497,699			14,575,680

Product development expense		(1,401,199	)		(1,197,008	)
Selling and administrative expenses		(11,937,637	)		(9,865,614	)
Operating profit		2,158,863			3,513,058

Interest expense		(726,006	)		(434,335	)
Other (expense) income		(630,699	)		488,520
Income from continuing operations before income taxes		802,158			3,567,243

Income tax expense		(194,845	)		(881,125	)
Net income from continuing operations		607,313			2,686,118

Discontinued Operations (see note B)
Gain from operations of discontinued operations		-			471,187
Income tax expense		-			(126,867	)
Gain from discontinued operations		-			344,320

Net income	$	607,313		$	3,030,438

Earnings per share from continuing operations:
Basic	$	0.10		$	0.43

Diluted	$	0.10		$	0.43

Earnings per share from discontinued operations:
Basic	$	-		$	0.06

Diluted	$	-		$	0.05

Total earnings per share:
Basic	$	0.10		$	0.49

Diluted	$	0.10		$	0.48

Cash dividends per share:	$	0.11		$	0.11

See accompanying notes.

Table of Contents

THE EASTERN COMPANY AND SUBSIDIARIES

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)~~

Nine Months Ended Three Months Ended
September 30, 2017 October 1, 2016 September30, 2017 October 1, 2016
Net sales $ 150,095,975 $ 103,463,316 $ 56,007,937 $ 33,478,347
Cost of products sold (113,888,301 ) (77,980,077 ) (44,058,406 ) (24,105,604 )
Gross margin 36,207,674 25,483,239 11,949,531 9,372,743

Engineering expenses (4,162,151 ) (1,991,260 ) (1,848,861 ) (663,705 )
Selling and administrative expenses (23,749,219 ) (16,161,133 ) (6,527,029 ) (5,444,924 )
Operating profit 8,296,304 7,330,846 3,573,641 3,264,114

Interest expense (659,884 ) (97,486 ) (327,206 ) (28,817 )
Other income 69,278 54,687 13,513 28,169
Income before income taxes 7,705,698 7,288,047 3,259,948 3,263,466

Income taxes 2,491,674 2,152,073 1,029,467 863,402
Net income $ 5,214,024 $ 5,135,974 $ 2,230,481 $ 2,400,064

Earnings per Share:
Basic $ .83 $ .82 $ .36 $ .38

Diluted $ .83 $ .82 $ .35 $ .38

Cash dividends per share: $ .33 $ .33 $ .11 $ .11

~~See accompanying notes.~~

5

~~THE EASTERN COMPANY AND SUBSIDIARIES~~

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Nine Months Ended Three Months Ended
September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016
Net income $ 5,214,024 $ 5,135,974 $ 2,230,481 $ 2,400,064
Other comprehensive income/(loss):
Change in foreign currency translation 1,262,332 (311,697 ) 378,509 (231,831 )
Change in fair value marketable securities, net of tax
benefit of:
        2017 – $22,688 and $17,135, respectively
        2016 - $-
41,548 — 31,379 —
Change in fair value of derivative financial instrument, net of tax benefit of:
        2017 - $31,275 and $(10,406)
        2016 - $-
(51,027 ) — 16,978 —
Change in pension and postretirement benefit costs, net of taxes of:
2017 – $338,592 and $112,865 respectively
2016 – $559,542 and $(105,703), respectively
620,048 (696,200 ) 206,682 192,456
Total other comprehensive income 1,872,901 (1,007,897 ) 633,548 (39,375 )
Comprehensive income $ 7,086,925 $ 4,128,077 $ 2,864,029 $ 2,630,689

~~See accompanying notes~~
6

	Three Months Ended
	April 1, 2023			April 2, 2022
Net income	$	607,313		$	3,030,438
Other comprehensive income:

Change in foreign currency translation		336,585			202,281

Change in fair value of interest rate swap, net of tax (benefit) cost of: 2023 - $(87,691); 2022 - $333,635		(277,687	)		1,056,511

Change in pension and postretirement benefit costs, net of taxes of: 2023 - $74,360; 2022 - $92,235		252,668			313,408
Total other comprehensive income		311,566			1,572,200
Comprehensive income	$	918,879		$	4,602,638

See accompanying notes.

Table of Contents

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	April 1, 2023			December 31, 2022
	(unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	13,071,017		$	10,187,522
Accounts receivable, less allowances: 2023 - $676,000; 2022 - $677,000		44,481,853			42,886,250
Inventories		57,652,961			64,636,591
Current portion of notes receivable		214,780			1,006,421
Prepaid expenses and other assets		6,639,228			6,598,774
Total Current Assets		122,059,839			125,315,558

Property, Plant and Equipment		57,318,367			56,112,889
Accumulated depreciation		(30,877,891	)		(30,000,797	)
Property, Plant and Equipment, Net		26,440,476			26,112,092

Goodwill		70,788,971			70,777,459
Trademarks		5,514,888			5,514,886
Patents and other intangibles net of accumulated amortization		17,987,968			18,819,897
Long term notes receivable, less current portion		905,851			2,276,631
Deferred Income Taxes		488,989			488,989
Right of Use Assets		11,564,607			12,217,521
Total Other Assets		107,251,274			110,095,383

TOTAL ASSETS	$	255,751,589		$	261,523,033

See accompanying notes.

Table of Contents

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	April 1, 2023			December 31, 2022
	(unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	26,643,423		$	27,638,317
Accrued compensation		2,233,923			3,327,832
Other accrued expenses		3,900,764			3,944,964
Current portion of operating lease liability		3,030,116			3,059,547
Current portion of finance lease liability		150,773			-
Current portion of long-term debt		9,375,000			9,010,793
Total Current Liabilities		45,333,999			46,981,453

Other long-term liabilities		754,762			754,762
Operating lease liability, less current portion		8,556,037			9,195,205
Finance lease liability, less current portion		846,547			-
Long-term debt, less current portion		49,661,128			55,136,231
Accrued postretirement benefits		664,293			666,222
Accrued pension cost		23,134,787			22,174,465
Total Liabilities		128,951,553			134,908,338

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		33,536,918			33,586,165
Issued: 9,066,057 shares in 2023 and 9,056,421 shares in 2022
Outstanding: 6,231,612 shares in 2023 and 6,221,976 shares in 2022
Treasury Stock: 2,834,445 shares in 2023 and 2,834,445 shares in 2022		(22,544,684	)		(22,544,684	)
Retained earnings		138,908,874			138,985,852
Accumulated other comprehensive income (loss):
Foreign currency translation		(804,393	)		(1,140,978	)
Unrealized gain on interest rate swap, net of tax		1,172,067			1,449,754
Unrecognized net pension and postretirement benefit costs, net of tax		(23,468,746	)		(23,721,414	)
Accumulated other comprehensive loss		(23,101,072	)		(23,412,638	)
Total Shareholders’ Equity		126,800,036			126,614,695
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	255,751,589		$	261,523,033

See accompanying notes.

Table of Contents

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended
September 30, 2017 October 1, 2016
Operating Activities
Net income $ 5,214,024 $ 5,135,974
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 3,230,174 2,795,699
Unrecognized pension and postretirement benefits 74,839 952,205
Loss on sale of equipment and other assets 18,585 45,313
Provision for doubtful accounts 52,663 —
Issuance of Common Stock for directors' fees 130,547 112,086
Changes in operating assets and liabilities:
Accounts receivable (3,894,569 ) (1,626,625 )
Inventories 2,267,945 2,665,002
Prepaid expenses and other (2,686,763 ) 78,914
Other assets 494,750 (67,324 )
Accounts payable 1,466,401 (366,454 )
Accrued compensation (172,509 ) (215,313 )
Other accrued expenses 3,978,256 (526,930 )
Net cash provided by operating activities 10,174,343 8,982,547

Investing Activities
Marketable securities (366,554 ) —
Business Acquisition, net of cash acquired (42,148,000 ) —
Purchases of property, plant and equipment (1,457,641 ) (1,819,894 )
Net cash used in investing activities (43,972,195 ) (1,819,894 )

Financing Activities
Proceeds from issuance of long-term debt 31,000,000 —
Proceeds from short term borrowings 6,614,611 —
Payments on revolving credit note (1,614,611 ) —
Principal payments on long-term debt (2,173,214 ) (1,071,428 )
Dividends paid (2,065,607 ) (2,063,085 )
Net cash provided by (used in) financing activities 31,761,179 (3,134,513 )

Effect of exchange rate changes on cash 505,388 (203,066 )
Net change in cash and cash equivalents (1,531,285 ) 3,825,074

Cash and cash equivalents at beginning of period 22,725,376 17,814,986
Cash and cash equivalents at end of period $ 21,194,091 $ 21,640,060

	Three Months Ended
	April 1, 2023			April 2, 2022
Operating Activities
Net income	$	607,313		$	3,030,438
Less: gain from discontinued operations		-			344,320
Income from continuing operations		607,313			2,686,118
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization		1,814,749			1,830,427
Unrecognized pension and postretirement benefits		880,421			247,133
Loss on sale of equipment and other assets		-			268,770
Provision for doubtful accounts		3,269			19,740
Stock compensation (benefit) expense		(49,246	)		221,468
Changes in operating assets and liabilities:
Accounts receivable		(1,585,976	)		(3,951,314	)
Inventories		7,212,179			(4,902,631	)
Prepaid expenses and other		(37,330	)		(1,075,545	)
Other assets		(155,055	)		(89,366	)
Accounts payable		(1,031,704	)		3,526,499
Accrued compensation		(1,104,186	)		(1,858,898	)
Other accrued expenses		305,824			(478,878	)
Net cash provided by (used in) operating activities		6,860,258			(3,556,477	)

Investing Activities
Payments received from notes receivable		2,233,192			175,220
Proceeds from sale of equipment		-			1,371,073
Purchases of property, plant, and equipment		(1,151,205	)		(572,047	)
Net cash provided by investing activities		1,081,987			974,246

Financing Activities
Proceeds from short term borrowings (revolver)		(268,249	)		5,000,000
Principal payments on long-term debt		(4,858,000	)		(1,852,107	)
Financing leases, net		723,254			(92,111	)
Purchase common stock for treasury		-			(766,889	)
Dividends paid		(684,293	)		(687,180	)
Net cash (used in) provided by financing activities		(5,087,288	)		1,601,713

Discontinued Operations
Cash used in operating activities		-			(396,936	)
Cash used in discontinued operations		-			(396,936	)

Effect of exchange rate changes on cash		28,538			(22,903	)
Net change in cash and cash equivalents		2,883,495			(1,400,357	)

Cash and cash equivalents at beginning of period		10,187,522			6,602,429
Cash and cash equivalents at end of period ¹	$	13,071,017		$	5,202,072

Supplemental disclosure of cash flow information:
Interest	$	716,763		$	463,080
Income taxes		(59,681	)		110,917

Non-cash investing and financing activities
Right of use asset		(652,914	)		292,097
Lease liability		(328,721	)		(226,903	)

¹ includes cash from assets held for sale of $0.1 million as of April 2, 2022

See accompanying ~~notes.~~

notes

Table of Contents

THE EASTERN COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~September 30, 2017~~

April 1, 2023

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 of the information and footnotes required by generally accepted accounting principles in the United States (“GAAP”) for complete financial statements. Refer to the consolidated financial statements of The Eastern Company ~~(the "Company"~~(together with its consolidated subsidiaries, the “Company,” “we,” “us” or “our”) and the notes thereto included in the ~~Company's~~Company’s Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2016~~2022, filed with the Securities and Exchange Commission on March 14, 2023 (the “2022 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. ~~All intercompany accounts and transactions are eliminated.~~ Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.

On April 3, 2017, the Company completed its acquisition of Velvac Holdings, Inc., a Delaware corporation including its subsidiaries ("Velvac"), pursuant to a Securities Purchase Agreement (the "Securities Purchase Agreement"), dated April 3, 2017, by All intercompany accounts and among Jeffery R. Porter, W. Greg Bland, John Backovitch, Dave Otto, Bob Otto, Timothy Rintelman, Robert Brester, Dan McGrew, Mark Moeller and Prospect Partners II, L.P. (collectively, the "Sellers"). Pursuant to the Securities Purchase Agreement, the Company acquired 100% of the issued and outstanding stock of Velvac from the Sellers (the "Acquisition") for $39.5 million and earnout consideration contingent upon Velvac achieving minimum earnings performance levels with the amount of any such earnout consideration based on a specific percentage (either 7.5% or 15%) of sales of Velvac's new proprietary Road-iQ product line measured over annual calculation periods through April 2022, as set forth in the Securities Purchase Agreement (the "Earnout Consideration"), subject to certain customary post-closing adjustments. The Acquisition was financed with a $31 million term loan from People's United Bank, National Association ("People's"), a $5 million draw down on the Company's $10 million revolving credit facility with People's and $3.5 million in cash. Please refer to the Form 8-K filed on April 7, 2017 and the amendment thereto files on June 19, 2017 for further details.

transactions are eliminated.

The condensed consolidated balance sheet as of December 31, ~~2016~~2022 has been derived from the audited consolidated balance sheet asat that date.

~~Commencing with this Quarterly Report on Form 10-Q, engineering expenses have been separately identified for all periods presented. These expenses~~2022, the first fiscal quarter of 2022 or the three months ended April 2, 2022, mean the period from January 2, 2022 to April 2, 2022. References to the first quarter of 2023, the first fiscal quarter of 2023 or the three months ended April 1, 2023, mean the 13-week period from January 1, 2023 to April 1, 2023.

Certain amounts in the 2022 financial statements have been reclassified ~~from cost of products sold~~ to ~~selling and administrative expenses. Engineering expense is not necessarily a cost of product sold. Rather, these expenses are related~~conform with the 2023 presentation with no impact or change to ~~product development.~~

previously reported net income or shareholders’ equity.

Note B – Discontinued Operations

In the second quarter of 2021, the Company determined that the companies included in our former Diversified Products segment no longer fit with our long-term strategy and the Company initiated the process of selling the companies within the Diversified Products segment. We believe that selling the companies within this segment will allow management to focus on our core capabilities and offerings.

The former Diversified Products segment met the criteria to be held for sale and furthermore, we determined that the assets held for sale qualify for discontinued operations. As such, the financial results of the Diversified Products segment are reflected in our unaudited condensed consolidated statement of operations as discontinued operations for the prior period presented. The results of the former Diversified Products segment are not reflected in the unaudited condensed consolidated statement of operations for the three months ended April 1, 2023 because dispositions of the businesses that comprised that segment were completed prior to the start of the period.

On October 19, 2022, the Company sold its Argo EMS business (“Argo”). Argo supplies printed circuit boards and other electronic assemblies to original equipment manufacturers in various industries, including measurement systems, semiconductor equipment manufacturing, and industrial control, medical, and military products.

Table of Contents

Summarized Financial Information of Discontinued Operations

The following table represents income from discontinued operations, net of tax:

	Three Months Ended
	April 1, 2023		April 2, 2022
	(unaudited)		(unaudited)
Net sales	$	-	$	2,367,226
Cost of products sold		-		(1,603,762	)
Gross margin		-		763,464

Selling and administrative expenses		-		(257,060	)
Operating income		-		506,404

Interest expense		-		(35,217	)
Gain from discontinued operations before income taxes		-		471,187

Income tax expense		-		(126,867	)
Income from discontinued operations, net of tax	$	-	$	344,320

Note C – Earnings Per Share

The denominators used ~~in the~~to calculate earnings per share ~~computations~~ are as follows:

Nine Months Ended Three Months Ended
September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016
Basic:
Weighted average shares outstanding 6,258,278 6,250,185 6,259,872 6,254,287

Diluted:
Weighted average shares outstanding 6,258,278 6,250,185 6,259,872 6,254,287
Dilutive stock options 36,679 -- 36,679 --
Denominator for diluted earnings per share 6,294,957 6,250,185 6,296,551 6,254,287

~~Note C – Inventories, Net~~

~~The components of inventories are as follows:~~

September 30, 2017 December 31, 2016

Raw material and component parts $ 11,729,271 $ 8,829,236
Work in process 9,456,164 7,118,149
Finished goods 24,022,378 18,082,901
$ 45,207,813 $ 34,030,286

	Three Months Ended
	April 1, 2023		April 2, 2022
Basic:
Weighted average shares outstanding		6,223,027		6,247,649

Diluted:
Weighted average shares outstanding		6,223,027		6,247,649
Dilutive stock appreciation rights		10,962		12,055
Denominator for diluted earnings per share		6,233,989		6,259,704

Note D – ~~Segment Information~~

~~Segment~~Inventories

Inventories from continuing operations consist of the following components:

	April 1, 2023		December 31, 2022

Raw material and component parts	$	23,123,674	$	25,924,696
Work in process		8,315,774		9,323,082
Finished goods		26,213,513		29,388,813
Total inventories	$	57,652,961	$	64,636,591

Note E - Goodwill

The aggregate carrying amount of goodwill from continuing operations is approximately $70.8 million as of April 1, 2023. No impairment was recognized in the first quarter of 2023.

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The Company tests its reporting units for impairment annually in December, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Such events and circumstances could include, among other things, increased competition or unexpected loss of market share, significant adverse changes in the markets in which the Company operates, or unexpected business disruptions. The Company tests reporting units for impairment by comparing the estimated fair value of each reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its estimated fair value, the Company records an impairment loss based on the difference between fair value and carrying amount not to exceed the associated carrying amount of goodwill. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. The values assigned to the key assumptions represent management’s assessment of future trends in the relevant industry and have been based on historical data from both external and internal sources.

Note F – 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 judgements, including making estimates related to the lease term, lease payments, and discount rate.

The Company has operating leases for buildings, warehouses, and office equipment. 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 twenty-one operating leases with a lease liability of $11.6 million and three finance leases with a lease liability of $1.0 million as of April 1, 2023. 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 ~~information~~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.

Approximate total minimum lease payments for each of the next five fiscal years is estimated to be as follows:

Nine Months Ended Three Months Ended
September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016
Revenues:
Sales to unaffiliated customers:
Industrial Hardware $ 83,500,656 $ 45,689,104 $ 32,959,599 $ 15,210,943
Security Products 46,232,410 43,722,828 16,115,356 13,648,701
Metal Products 20,362,909 14,051,384 6,932,982 4,618,703
$ 150,095,975 $ 103,463,316 $ 56,007,937 $ 33,478,347

Income before income taxes:
     Industrial Hardware $ 2,877,052 $ 3,769,045 $ 1,813,133 $ 1,574,573
     Security Products 4,290,745 4,533,995 1,604,950 1,613,148
     Metal Products 1,128,507 (972,194 ) 155,558 76,393
Operating Profit 8,296,304 7,330,846 3,573,641 3,264,114
     Interest expense (659,884 ) (97,486 ) (327,206 ) (28,817 )
     Other income 69,278 54,687 13,513 28,169
$ 7,705,698 $ 7,288,047 $ 3,259,948 $ 3,263,466

remainder of 2023 - $2.4 million; 2024 - $2.8 million; 2025 - $1.9 million; 2026 - $1.5 million; 2027 - $1.2 million; and $2.8 million thereafter. The weighted average remaining lease term is 5.7 years. The implicit interest rate used was 5.0% to 6.4%.

Note EG - Debt

On August 30, 2019, the Company entered into a credit agreement with Santander Bank, N.A., for itself, M&T Bank, and TD Bank, N.A. as lenders (the “Credit Agreement”), that included a $100 million term portion and a $20 million revolving commitment portion. Proceeds of the term loan were used to repay the Company’s remaining outstanding term loan (and to terminate its existing credit facility) with M&T Bank (approximately $19 million) and to acquire certain subsidiaries of Big 3 Holdings, LLC (collectively “Big 3 Precision”). The term portion of the loan required quarterly principal payments of $1,250,000 for an 18-month period beginning December 31, 2019. The repayment amount then increased to $1,875,000 per quarter beginning September 30, 2021 and continuing through June 30, 2023. The repayment amount then increases to $2,500,000 per quarter beginning September 30, 2023 and continuing through June 30, 2024. The term loan is a 5-year loan with the remaining balance due on August 30, 2024. The revolving commitment portion has an annual commitment fee of 0.25% based on the unused portion of the revolver. The revolving commitment portion has a maturity date of August 30, 2024. As of April 1, 2023, the Company has not borrowed any funds on the revolving commitment portion of the facility. The term loan bears interest at a variable rate based on the LIBOR rate plus an applicable margin of 1.25% to 2.25%, depending on the Company’s senior net leverage ratio. Borrowings under the revolving portion bear interest at a variable rate based on, at the Company’s election, a base rate plus an applicable margin of 0.25% to 1.25% or the LIBOR rate plus an applicable margin of 1.25% to 2.25%, with such margins determined based on the Company’s senior net leverage ratio. The Company’s obligations under the Credit Agreement are secured by a lien on certain of the Company’s and its subsidiaries’ assets pursuant to a Pledge and Security Agreement, dated August 30, 2019, with Santander Bank, N.A., as administrative agent.

The Company’s loan covenants under the Credit Agreement require the Company to maintain a senior net leverage ratio not to exceed 4.25 to 1. In addition, the Company is required to maintain a fixed charge coverage ratio to be not less than 1.25 to 1. The Company was in compliance with all its covenants under the Credit Agreement on April 1, 2023, and through the date of filing this Form 10-Q.

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On August 30, 2019, the Company entered into an interest rate swap contract with Santander Bank, N.A., with an original notional amount of $50,000,000, which was equal to 50% of the outstanding balance of the term loan on that date. The Company has a fixed interest rate of 1.44% on the swap contract and will pay the difference between the fixed rate and LIBOR when LIBOR is below 1.44% and will receive interest when the LIBOR rate exceeds 1.44%. On April 1, 2023, the interest rate for approximately half ($20.1 million) of the term portion was 6.38%, using a one-month LIBOR rate, and 3.19% on the remaining balance ($39.1 million) of the term loan based on a one-month LIBOR rate.

The interest rates under the Credit Agreement and the interest rate swap contract are susceptible to changes to the method of determining LIBOR rates and to the phasing out of LIBOR. Information regarding the phasing out of LIBOR is provided below.

The ICE Benchmark Administration (the “IBA”) ceased publication of all settings of non-US dollar LIBOR and the one-week and two-month U.S. dollar LIBOR settings on December 31, 2021, with the publication of the remaining U.S. dollar LIBOR settings scheduled to be discontinued after June 30, 2023. The Adjustable Interest Rate Act (the “LIBOR Act”), which was signed into law on March 15, 2022, provided a replacement framework for outstanding financial contracts tied to LIBOR once LIBOR ceases to be published. The LIBOR Act provides a statutory mechanism and safe harbor that applies on a nationwide basis to replace LIBOR with a benchmark rate, selected by the Federal Reserve Board based on SOFR, for certain contracts that reference LIBOR and contain no or insufficient fallback provisions. The LIBOR Act preempts and supersedes any state or local law, statute, rule, regulation, or standard relating to the selection or use of a benchmark replacement or related changes and allows parties that already have effective fallback provisions to opt out of the legislation. On December 16, 2022, the Federal Reserve adopted a final rule implementing the LIBOR Act that, among other things, identifies the applicable SOFR-based benchmark replacements under the LIBOR Act for various contact types. The difference between LIBOR and SOFR is that LIBOR is a forward-looking rate which means the interest rate is set at the beginning of the period with payment due at the end. SOFR is a backward-looking overnight rate, which has implications for how interest and other payments are based.

Note H - Stock Options and Awards

The Eastern Company 2010 Executive Stock Incentive Plan (the “2010 Plan”), for officers, other key employees, and non-employee directors expired in February 2020. 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 2020 Plan replaced the 2010 Plan. The Company has no other existing plan pursuant to which equity awards may be granted.

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. Restricted stock awards may also be granted to participants under the 2020 Plan with restrictions determined by the Compensation Committee of the Board. 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 did not grant any stock awards during the first three months of fiscal 2023. During the first three months of fiscal 2022, the Company granted 36,200 stock awards that were subject to the meeting of performance measurements. For the first three months of fiscal 2022, the Company used fair market value to determine the associated expense with stock awards.

The 2020 Plan also permits the issuance of Stock Appreciation Rights (“SARs”). The SARs are in the form of an option with a cashless exercise price equal to the difference between the fair value of the Company’s common stock at the date of grant and the fair value as of the exercise date resulting in the issuance of the Company’s common stock. During the first three months of fiscal 2023 and 2022 the Company did not issue any SARs.

Stock-based compensation (income) expense in connection with SARs previously granted to employees was approximately $(184,000) and $113,000 in the first quarter of 2023 and the first quarter of 2022, respectively.

As of April 1, 2023, there were 939,398 shares of Company common stock reserved and available for future grant under the 2020 Plan.

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The following tables set forth the outstanding SARs for the period specified:

	Three Months Ended					Year Ended
	April 1, 2023					December 31, 2022
	Units			Weighted Average Exercise Price		Units			Weighted Average Exercise Price
Outstanding at beginning of period		146,166		$	23.22		180,833		$	22.88
Issued		-			-		-			-
Expired		(42,000	)		24.90		-			-
Exercised		(33,333	)		21.10		(16,667	)		21.20
Forfeited		(32,500	)		21.97		(18,000	)		21.74
Outstanding at end of period		38,333			23.58		146,166			23.22

SARs Outstanding and Exercisable
Range of Exercise Prices	Outstanding as of April 1, 2023		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Exercisable as of April 1, 2023		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price

$19.44 - $26.30		38,333		0.9	$	23.58		38,333		0.9	$	23.58

The following tables set forth the outstanding stock awards for the period specified:

	Three Months Ended			Year Ended
	April 1, 2023			December 31, 2022
	Shares			Shares
Outstanding at beginning of period		64,500			27,300
Issued		-			43,300
Forfeited		(33,100	)		(6,100	)
Outstanding at end of period		31,400			64,500

As of April 1, 2023, outstanding SARs and stock awards had an intrinsic value of $611,672.

Note I – Share Repurchase Program

On May 2, 2018, the Company announced that the Board of Directors of the Company had authorized a new program to repurchase up to 200,000 shares of the Company’s common stock. 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 (the “Exchange Act”). Below is a summary of the Company’s shares repurchased during the first quarter of 2023.

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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
Balance as of December 31, 2022		139,716	$	24.61		139,716		60,284

January 1, 2023 - April 1, 2023		-		-		-		-

Balance as of April 1, 2023		139,716	$	24.61		139,716		60,284

Note J – 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 FASB Accounting Standards Codification (“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, discount and allowance 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 K - Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction, and in various states and 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 2018 and is no longer subject to non-U.S. income tax examinations by foreign tax authorities for years prior to 2016.

The total amount of unrecognized tax benefits could increase or decrease within the next 12 months for several reasons, including the closure of federal, state, and foreign tax years by expiration of the statute of limitations and the recognition and measurement considerations under FASB ASC Topic 740, “Income Taxes.” There have been no significant changes to the value of unrecognized tax benefits during the three months ended April 1, 2023. The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits will not increase or decrease significantly over the next twelve months.

Note L – Retirement Benefit Plans

The Company has four non-contributory defined benefit pension plans covering most U.S. employees. Three of these pension plans are frozen and participants in these three plans have not accrued benefits since the date on which these plans were frozen. A fourth pension plan does not permit new participants but existing participants in this fourth pension plan continue to accrue benefits. 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.

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Significant disclosures relating to these benefit plans for the first quarter of fiscal years 2023 and 2022 are as follows:

	Pension Benefits
	Three Months Ended
	April 1, 2023			April 2, 2022
Service cost	$	216,153		$	269,744
Interest cost		990,054			608,189
Expected return on plan assets		(1,049,016	)		(1,460,661	)
Amortization of prior service cost		—			16,563
Amortization of the net loss		342,865			390,075
Net periodic cost (benefit)	$	500,056		$	(176,090	)

	Other Postretirement Benefits
	Three Months Ended
	April 1, 2023			April 2, 2022
Service cost		6,486			13,323
Interest cost		14,533			10,988
Expected return on plan assets		(4,849	)		(4,400	)
Gain on significant event		—			—
Amortization of prior service cost		1,060			1,060
Amortization of the net loss		(16,895	)		(2,054	)
Net periodic benefit	$	335		$	18,917

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 2023, the Company expects to contribute approximately $800,000 into its pension plans and approximately $50,000 into its postretirement plan. As of April 1, 2023, the Company has not made any contributions to its pension plans, has contributed $12,000 to its postretirement plan, 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 Internal Revenue Code (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 Internal Revenue Code. The 401(k) Plan provides for contributions by the Company at its discretion.

The Company made contributions to the plan as follows:

	Three Months Ended
	April 1, 2023		April 2, 2022
Regular matching contribution	$	252,761	$	210,939
Transitional credit contribution		34,320		51,564
Non-discretionary contribution		431,950		343,377
Total contributions for the period	$	719,031	$	605,880

The non-discretionary contribution of $328,953 made in the three months ended April 1, 2023, was accrued for, and expensed in the prior fiscal year.

Effective January 1, 2023, the non-discretionary contributions are being contributed on a weekly basis.

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Note M - Recent Accounting Pronouncements

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations – Clarifying the Definition of a Business. ASU 2017-01 provides guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or dispositions of assets or businesses. The amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendment should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is evaluating the impact of the new guidance.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment. ASU 2017-04 provides guidance to simplify the subsequent measure of goodwill by eliminating Step 2 from the goodwill impairment test. The amendment is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The amendment should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period after January 1, 2017. The Company is evaluating the impact of the new guidance.

In February 2017, the FASB issued ASU No. 2017-06, Plan Accounting: Defined Benefit Pension Plans (Topic 960); Defined Contribution Pension Plans (Topic 962); Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting. ASU 2017-06 provides guidance for reporting by an employee benefit plan for its interest in a master trust. The amendment is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The amendment should be applied retrospectively with earlier application permitted as of the beginning of an interim or annual reporting period after December 15, 2018. The Company is evaluating the impact of the new guidance.

In March 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 provides guidance to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendment is effective for fiscal years beginning after December 15, 2017, including interim periods

~~within those fiscal years. The amendment should be applied retrospectively with earlier application permitted as of~~

~~the beginning of an interim or annual reporting period after December 15, 2017. The Company is evaluating the impact of the new guidance.~~

In September 2017, the FASB issued ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840) and Leases (Topic 842). ASU 2017-13 provides guidance regarding amendments to the aforementioned topics following SEC Staff announcement. The amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is evaluating the impact of the new guidance.

The Company has implemented all new accounting pronouncements that are in effect and that could impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued, but are not yet effective, that might have a material impact on the consolidated financial statements of the Company.

Note ~~F – Debt~~

On January 29, 2010, the Company signed a secured loan agreement (the "Loan Agreement") with People's United Bank, National Association ("People's"), which included a $5,000,000 term portion (the "Original Term Loan") and a $10,000,000 revolving credit portion. On January 25, 2012, the Company amended the Loan Agreement by taking an additional $5,000,000 term loan (the "2012 Term Loan"). Interest on the Original Term Loan portionN - Concentration of the Loan Agreement was fixed at 4.98%. Interest on the 2012 Term Loan was fixed at 3.90%. The interest rate on the revolving credit portion of the Loan Agreement varied based on the LIBOR rate or People's Prime rate plus a margin spread of 2.25%, with a floor rate of 3.25% and a maturity date of January 31, 2014. On January 23, 2014, the Company signed an amendment to the Loan Agreement which extended the maturity date of the $10,000,000 revolving credit portion of the Loan Agreement to July 1, 2016 and changed the interest rate to LIBOR plus 2.25%, eliminating the floor previously in place. On June 9, 2016, the Company signed a third amendment to its secured Loan Agreement which extended the maturity date of the $10,000,000 revolver portion of the Loan Agreement to July 1, 2018. On April 3, 2017, the Company signed an amended and restated loan agreement (the "Restated Loan Agreement") with People's that included a $31 million term portion and a $10 million revolving credit portion. Proceeds of the Restated Loan Agreement were used to repay the remaining outstanding term loans of the Company (approximately $1,429,000) and to acquire 100% of the common stock of Velvac Holdings, Inc. (see Note M). The term portion of the Restated Loan Agreement requires quarterly principal payments of $387,500 for a two-year period beginning July 3, 2017. The repayment amount then increases to $775,000 per quarter beginning July 1, 2019. The term portion of the Restated Loan Agreement is a five-year loan with any remaining outstanding balance due on March 1, 2022. The revolving credit portion of the Restated Loan Agreement has a quarterly commitment fee ranging from 0.2% to 0.375% based on operating results. Under the terms of the Restated Loan Agreement, this quarterly commitment fee will be 0.25% for the first six months. The revolving credit portion of the Restated Loan Agreement has a maturity date of April 1, 2022. On April 3, 2017, the Company borrowed approximately $6.6 million on the revolving credit portion of the Restated Loan Agreement. The Company subsequently paid off $1.6 million on the revolving credit portion leaving a balance on such revolving credit portion of $5 million.

The interest rates on the term portion and the revolving credit portion of the Restated Loan Agreement vary. The interest rates may vary based on the LIBOR rate plus a margin spread of 1.75% to 2.50%. The margin spread is based on operating results calculated on a rolling-four-quarter basis. The Company may also borrow funds at People's Prime rate. On September 30, 2017, the interest rate for one half ($15.3 million) of the term portion was 3.24%, using a 1 month LIBOR rate and 3.30% on the remaining balance ($15.3 million) of the term portion based on a 3 month LIBOR rate. The interest rate on the $5 million of the revolving credit portion was 3.24%.

The Company's loan covenants under the Restated Loan Agreement require the Company to maintain a consolidated minimum debt service coverage ratio of at least 1.1 to 1 for periods through December 31, 2018 and 1.2 to 1 thereafter, which is to be tested quarterly on a twelve-month trailing basis. In addition, the Company will be required to show a maximum total leverage ratio of 4.0x for periods through December 31, 2018, 3.5x for the periods from January 1, 2019 through December 31, 2019, 3.25x for the periods from January 1, 2020 through December 31, 2020 and 3.0x thereafter. The Company was in compliance with all covenants for the three and nine month periods ended September 30, 2017.

On April 4, 2017, the Company entered into an interest rate swap contract with People's with an original notional amount of $15,500,000, which is equal to 50% of the outstanding balance of the term portion of the Restated Loan Agreement on that date. The notional amount will decrease on a quarterly basis beginning July 3, 2017, following the principal repayment schedule of the term portion of the Restated Loan Agreement. The Company has a fixed interest rate of 1.92% on the swap contract and will pay the difference between the fixed rate and the LIBOR rate when the LIBOR rate is below 1.92% and will receive interest when the LIBOR rate exceeds 1.92%.

~~Note G – Goodwill~~

~~The following is a roll-forward of goodwill from year-end 2016 to the end of the third quarter of 2017:~~

Industrial
Hardware
Segment

Security
Products
Segment

Metal
Products
Segment

Total

Beginning balance $ 1,760,793 $ 13,059,042 $ — $ 14,819,835
Investment – Velvac 17,502,024 — — 17,502,024
Foreign exchange 73,881 — — 73,881
Ending balance $ 19,336,698 $ 13,059,042 $ — $ 32,395,740

~~Note H – Intangibles~~

~~The gross carrying amount and accumulated amortization of amortizable intangible assets are as follows:~~

Industrial Hardware Segment Security Products Segment Metal Products Segment Total Weighted-Average Amortization Period (Years)
2017 Gross Amount
Patents and developed technology $ 7,111,906 $ 1,069,594 $ -- $ 8,181,500 12.2
Customer relationships 3,650,000 449,706 -- 4,099,706 9.5
Non-compete agreements -- 407,000 -- 407,000 5.0
Intellectual property -- 307,370 -- 307,370 5.0
Total Gross Intangibles $ 10,761,906 $ 2,233,670 $ -- $ 12,995,576 10.8

2017 Accumulated Amortization
Patents and developed technology $ 1,888,433 $ 663,254 $ -- $ 2,551,687
Customer relationships 182,500 247,338 -- 429,838
Non-compete agreements -- 223,850 -- 223,850
Intellectual property -- 169,054 -- 169,054
Accumulated Amortization $ 2,070,933 $ 1,303,496 $ -- $ 3,374,429

Net September 30, 2017 per Balance Sheet $ 8,690,973 $ 930,174 $ -- $ 9,621,147

2016 Gross Amount
Patents and developed technology $ 2,159,060 $ 1,035,374 $ -- $ 3,194,434 15.6
Customer relationships -- 449,706 -- 449,706 5.0
Non-compete agreements -- 407,000 -- 407,000 5.0
Intellectual property -- 307,370 -- 307,370 5.0
Total Gross Intangibles $ 2,159,060 $ 2,199,450 $ -- $ 4,358,510 12.3

2016 Accumulated Amortization

Patents and developed technology $ 1,529,675 $ 598,756 $ -- $ 2,128,431
Customer relationships -- 179,882 -- 179,882
Non-compete agreements -- 162,800 -- 162,800
Intellectual property -- 122,948 -- 122,948
Accumulated Amortization $ 1,529,675 $ 1,064,386 $ -- $ 2,594,061

Net December 31, 2016 per Balance Sheet $ 629,385 $ 1,135,064 $ -- $ 1,764,449

12

~~Note I – Retirement Benefit Plans~~

The Company has non-contributory defined benefit pension plans covering certain U.S. employees. Plan benefits are generally based upon age at retirement, years of service and, for its salaried plan, the level of compensation. The Company also sponsors unfunded nonqualified supplemental retirement plans that provide certain current and 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.~~

Effective for fiscal year 2017, the Company changed the method used to measure Service Cost and Interest Cost for pension and other postretirement benefits for the Company's plans. Previously, the Company measured interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligations. For fiscal year 2017, interest costs will be measured by applying the specific spot rates along the yield curve to the plans' corresponding discounted cash flows that comprise the obligation (i.e., the Spot Rate approach). This new method provides a more precise measurement of interest costs by aligning the timing of the plans' discounted cash flows to the corresponding spot rates on the yield curve. The measurement of the Company's pension and other postretirement benefit obligations is not affected. The Company has accounted for this change as a change in accounting estimate, which is applied prospectively. Consequently, combined pension expense for the Company's pension plans and other postretirement plan under the Spot Rate approach for the nine-month period ended September 30, 2017 is approximately $406,000 lower when compared to the prior approach that the Company used.

~~Significant disclosures relating to these benefit plans for the third quarter and first nine months of fiscal years 2017 and 2016 are as follows:~~

Pension Benefits
Nine Months Ended Three Months Ended

September 30, 2017

October 1, 2016

September 30, 2017

October 1, 2016

Service cost $ 952,078 $ 1,612,278 $ 317,360 $ 270,721
Interest cost 2,373,167 2,541,968 791,055 767,625
Expected return on plan assets (3,587,682 ) (3,603,483 ) (1,195,895 ) (1,121,311 )
Amortization of prior service cost 109,312 150,427 36,438 50,143
Amortization of the net loss 923,614 1,319617 307,871 277,469
Net periodic benefit cost $ 770,489 $ 2,020,807 $ 256,829 $ 244,647

Postretirement Benefits
Nine Months Ended Three Months Ended

September 30, 2017

October 1, 2016

September 30, 2017

October 1, 2016

Service cost $ 20,542 $ 21,975 $ 6,847 $ 7,325
Interest cost 60,620 71,154 20,206 23,718
Expected return on plan assets (38,621 ) (35,649 ) (12,874 ) (11,883 )
Amortization of prior service cost (16,083 ) (17,918 ) (5,361 ) (5,973 )
Amortization of the net loss (58,201 ) (70,441 ) (19,400 ) (23,480 )
Net periodic benefit cost $ (31,743 ) $ (30,879 ) $ (10,582 ) $ (10,293 )

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 2017, the Company expects to contribute $700,000 into its pension plans and $140~~,000 into its postretirement plan. As of September 30, 2017~~, ~~the Company has contributed $322,000 into its pension plans and $109,000 into its postretirement plan and will make the remaining contributions as required during the remainder of the year.~~
13

The Company has a contributory savings plan under Section 401(k) of the Internal Revenue Code of 1986, as amended covering substantially all non-union employees. The plan allows participants to make voluntary contributions on a pretax basis of their annual compensation, subject to IRS limitations. At its discretion, the Company provides for matching contributions to the plan. The plan also provides for a transitional credit to certain eligible employees who were active participants of the Company's Salaried Retirement Plan at the time that benefits under such plan were frozen in fiscal year 2016, as well as a non-discretionary contribution to all eligible employees.

~~The Company made contributions to the plan as follows:~~

Nine Months Ended Three Months Ended

September 30, 2017

October 1, 2016

September 30, 2017

October 1, 2016

Regular matching contribution $ 346,713 $ 226,090 $ 111,291 $ 94,042
Transitional credit contribution 307,597 136,416 76,526 94,868
Non-discretionary contribution 339,220 51,470 15,987 --
Total contributions for the period $ 993,530 $ 413,976 $ 203,804 $ 188,910

~~The non-discretionary contributions made in each of the periods disclosed above were expensed in the prior fiscal year.~~

~~Note J – Stock Based Compensation~~

The Company accounts for its stock based awards in accordance with Accounting Standards Codification subtopic 718-10, Compensation ("ASC 718-10"), which requires a fair value measurement and recognition of compensation expense for all share-based payment awards made to its employees and directors, including employee stock options and restricted stock awards. The Company estimates the fair value of granted stock options using the Black-Scholes valuation model. This model requires the Company to make estimates and assumptions including, without limitation, estimates regarding the length of time an employee will retain vested stock options before exercising them, the estimated volatility of the Company's common stock price and the number of options that will be forfeited prior to vesting. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Changes in these estimates and assumptions can materially affect the determination of the fair value of stock-based compensation and consequently, the related amount recognized in the Company's consolidated statements of operations.

As of September 30, 2017, the Company had one stock option plan, The Eastern Company 2010 Executive Stock Incentive Plan (the "2010 Plan"), for officers, other key employees, and non-employee directors. Incentive stock options granted under the 2010 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. Restricted stock awards may also be granted to participants under the 2010 Plan with restrictions determined by the Compensation Committee of the Company's Board of Directors. Under the 2010 Plan, non-qualified stock options granted to participants will have exercise prices determined by the Compensation Committee of the Company's Board of Directors. In the third quarter of 2017, no stock options were granted and in the third quarter of 2016, no stock options or restricted stock were granted that were subject to the meeting of performance measurements.

The 2010 Plan also permits the issuance of Stock Appreciation Rights ("SARs"). The SARs are in the form of an option with a cashless exercise price equal to the difference between the fair value of the Company's common stock at the date of grant and the fair value as of the exercise date resulting in the issuance of Company's common stock.
~~During the third quarter of 2017, the Company did not issue any SARs.~~

~~Stock-based compensation expense in connection with SARs granted to employees in the nine months of fiscal year 2017 was approximately $117,222.~~

~~As of September 30, 2017, there were 325,500 shares of common stock reserved and available for future grant under the above noted 2010 Plan.~~
14
~~The following tables set forth the outstanding stock options and SARs for the period specified:~~

Three Months Ended
September 30, 2017

Year Ended
December 31, 2016

Shares Weighted - Average Exercise Price Shares Weighted - Average Exercise Price
Outstanding at beginning of period 174,500 $ 20.39 -- $ --
Issued -- -- -- --
Outstanding at end of period 174,500 20.39 -- --

SARs and Options Outstanding and Exercisable
Range of Exercise Prices
Outstanding as of
September 30, 2017
Weighted- Average Remaining Contractual Life Weighted- Average Exercise Price
Exercisable as of
September 30, 2017
Weighted- Average Remaining Contractual Life Weighted- Average Exercise Price
$19.10-21.10 174,500 4.4 $20.39 -- -- --

~~As of September 30, 2017, outstanding SARs and options had an intrinsic value of $1,968,950.~~

~~Note K – Income Taxes~~

The Company files federal income tax returns as well as tax returns in various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2013 and foreign income tax examinations by tax authorities prior to 2011.

The total amount of unrecognized tax benefits could increase or decrease within the next twelve months for a number of reasons, including the closure of federal, state and foreign tax years as a result of the expiration of applicable statutes of limitation and the recognition and measurement considerations under FASB Accounting Standards Codification ("ASC") 740. There have been no significant changes to the amount of unrecognized tax benefits during the nine months ended September 30, 2017. The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits will not increase or decrease significantly over the next twelve months.

~~Note L - Financial Instruments and Fair Value Measurements~~
~~Financial~~ Risk ~~Management Objectives and Policies~~

~~The Company is exposed primarily to credit, interest rate and currency exchange rate risks which arise in the ordinary course of business.~~

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 ~~September 30, 2017 and December 31, 2016,~~of April 1, 2023, there ~~were no~~was one significant ~~concentrations~~concentration of credit ~~risk. No~~risk with a customer, who has receivables representing 15% of our total accounts receivable. One single customer represented ~~more than 10%~~14% of the ~~Company's~~Company’s net accounts receivable as of ~~September 30, 2017 or at~~ December 31, ~~2016.~~2022. The maximum exposure to credit risk is primarily represented by the carrying amount of the ~~Company's~~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~~Company’s exposure to the risk of changes in market interest rates relates primarily to the ~~Company's~~Company’s debt, which bears interest at variable rates based on the LIBOR rate plus a margin spread of ~~1.75%~~1.25% to ~~2.50%~~2.25%. The Company has an interest rate swap with a notional amount of ~~$15,306,250~~$39.0 million on ~~September 30, 2017~~April 1, 2023, to convert a portion of ~~its 2017 Term Loan~~borrowings under the Credit Agreement from variable to fixed rates. The valuation of this swap is determined using the ~~three month~~one-month LIBOR rate index and mitigates the ~~Company's~~Company’s exposure to interest rate risk.

~~Fair Value Measurements~~

~~Assets~~ Additionally, interest rates on the Company’s debt are susceptible to the transition from LIBOR to alternative benchmark rates, such as SOFR. This transition is discussed in greater detail under Note G -Debt hereof and ~~liabilities that require fair value measurement~~under Note 6 - Debt in Part II, Item 8 of the 2022 Form 10-K.

Currency Exchange Rate Risk

The Company’s currency exposure is concentrated in the Canadian dollar, Mexican peso, New Taiwan dollar, Chinese RMB, Hong Kong dollar and United Kingdom pound sterling. Because of the Company’s limited exposure to any single foreign market, any exchange gains or losses have not been material and are ~~recorded~~not expected to be material in the future. As a result, the Company does not attempt to mitigate its foreign currency exposure through the acquisition of any speculative or leveraged financial instruments.

Note O – Subsequent Events

On April 25, 2023, the Board of Directors of The Eastern Company (the “Company”) approved a plan to close the Company’s Associated Tool Makers Ltd. facility located in Farndon, United Kingdom, which specializes in the design and manufacture of molds for the plastic injection molding industry. The plan is intended to address long-standing profitability issues at ~~fair value using market and income valuation approaches and considering~~ the ~~Company's and counterparty's credit risk.~~ Farndon facility. The plan would include approximately 10 job reductions at the Farndon facility.

The Company ~~uses~~expects to substantially complete this plan by the ~~market approach and the income approach to value assets and liabilities as appropriate. The assets or liabilities requiring fair value measurements on September 30, 2017 are as follows:~~

Fair Value Level 1 Level 2 Level 3
Financial Liabilities
Interest rate swap

$ 82,302

$ --

$ 82,302

$ --
Total liabilities $ 82,302 $ -- $ 82,302 $ --

~~The Company's interest rate swap is not an exchange-traded instrument. However, it is valued based on observable inputs for similar liabilities and accordingly is classified as Level 2. The amount~~end of the ~~interest rate swap is included in other accrued liabilities.~~

~~Note M – Business Combination~~

~~On April 3, 2017, the Company completed the Acquisition~~third quarter of ~~Velvac for $39.5~~2023 and estimates total pre-tax charges associated with this action to be between $3.5 million and ~~earnout consideration contingent upon Velvac achieving minimum earning performance levels with the amount~~$4.5 million, of any such earnout consideration based on a specified percentage (7.5% or 15%)of sales of Velvac's new proprietary Road-iQ product line (the "Earnout Consideration") measured over annual calculation periods through April 2022, set forth in the Securities Purchase Agreement, subjectwhich $0.4 million to certain customary post-closing adjustments. Velvac is a premier designer and manufacturer of proprietary vision technology for original equipment manufacturers serving the heavy-duty and medium-duty truck, motorhome, and bus markets.

The goodwill of $17,502,000 arising from the acquisition consist of the difference between the consideration paid and the fair value of the assets and liabilities acquired. None of the goodwill recognized$0.8 million is expected to be ~~deductible~~cash charges primarily for ~~income tax purposes. The following table summarizes~~associate-related and other exit costs, with the ~~consideration paid~~remainder representing non-cash charges primarily for ~~Velvac~~accelerated depreciation and ~~the amounts of the assets acquired and liabilities assumed recognized at the acquisition date, as well as the fair value at the acquisition date.~~

~~At April 3, 2017:~~

Consideration
Cash $ 4,078,000
Debt 36,000,000
Contingent consideration arrangement 2,070,000
$ 42,148,000
Recognized amounts of identifiable assets acquired and liabilities assumed
Accounts receivable $ 6,063,429
Inventory 12,992,377
Prepaid and other assets 494,617
Property plant and equipment 3,911,767
Other noncurrent assets 366,401
Other intangible assets 11,560,000
Current liabilities (7,720,591 )
Deferred tax liabilities (3,022,000 )
Total identifiable net assets 24,646,000
Goodwill 17,502,000
$ 42,148,000

other asset-related charges. The Company ~~determined~~expects to record the ~~acquisition date fair value~~majority of the contingent consideration obligation using the Income Approach method which is a valuation technique that provides an estimate of the fair value of an asset based on the market participant expectations of thethese pre-tax charges and cash flows that an asset would generate over a period of time. The contingent consideration obligation was based on weighted projected cash flows discounted back to present value equivalents at a risk adjusted discount rate. The Velvac earnout is contingent upon the ability of Velvac to reach certain EBITDA targets over the course of the next five years. At each annual period, the Company will revalue the contingent consideration obligation to estimated fair value and record changes in fair value as income or expense in the Company's consolidated statement of operations.

~~Accounts Receivable~~

~~Acquired receivables are amounts due from customers.~~

~~Inventories~~

The estimated fair value of inventories acquired included a purchase price adjustment of $11,804,709 above the seller's original cost basis of $1,187,668. The entire amount was charged to cost of salesoutflows in the second quarter of ~~2017.~~

~~Intangible Assets~~

The estimated fair value of identifiable intangible assets is determined primarily using the Income Approach method which is a valuation technique that provides an estimate of the fair value of an asset based on the market participant's expectations of the cash flows that an asset would generate over its remaining useful life. Some of the more significant assumption inherent in the development of the identifiable intangible assets valuation, from the perspective of a market participant, include the estimate net cash flows for each year for each project or product, the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each asset's life cycle, competitive trends impacting the asset and each cash flow stream as well as other factors.

~~Goodwill Allocation~~

Among the primary reasons why the Company entered into the Velvac acquisition and the factors that contributed to a purchase price resulting in the recognition of goodwill were Velvac's history of operating margins and profitability, Velvac's strong research and development center, including its Road-iQTM 360-degree view camera, recording and communication system and TrailerLinkTM, a new patent-pending solution that supports trailer-to-trailer video and data communications, the expansion of the Company's commercial footprint on a nationwide basis as a result of the Velvac acquisition, and key pipeline additions of Velvac products which will enable the Company to expand its product offerings and offer its customers a greater breadth of products.

~~Acquisition Related Expenses~~

Included in general and administrative expenses in the consolidated statements of operations for the three and nine month periods ended September 30, 2017 were $102,000 and $863,000, respectively, for acquisition expenses.

2023.

Table of Contents

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

The following discussion is intended to highlight significant changes in the ~~Company's~~ financial position and results of operations of The Eastern Company (together with its consolidated subsidiaries, the “Company,” “we,” “us” or “our”) for the ~~thirteen weeks~~quarter ended ~~September 30, 2017. The interim financial statements and this Management's~~April 1, 2023. 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 December 31, ~~2016~~2022 and the related ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the ~~Company's~~Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016 ("2016 Annual~~2022, which was filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2023 (the “2022 Form 10-K”).

The Company’s fiscal year is a 52-53-week fiscal year ending on the Saturday nearest to December 31. References to 2022 or the 2022 fiscal year mean the 52-week period ended on December 31, 2022, and references to 2023 or the 2023 fiscal year mean the 52-week period ending on December 30, 2023. In a 52-week fiscal year, each quarter has 13 weeks. References to the first quarter of 2022, the first fiscal quarter of 2022 or the three months ended April 2, 2022, mean the period from January 2, 2022 to April 2, 2022. References to the first quarter of 2023, the first fiscal quarter of 2023 or the three months ended April 1, 2023, mean the 13-week period from January 1, 2023 to April 1, 2023.

Safe Harbor for Forward-Looking Statements

Statements contained in this Quarterly Report on Form ~~10-K").~~

~~Certain statements set forth in this discussion and analysis~~10-Q of ~~financial condition and results of operations~~the Company that are ~~forward-looking statements~~not based on historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. ~~They~~Forward-looking statements may be identified by the use of forward-looking terminology such ~~words~~ as ~~"may," "will," "expect," "believe," "plan"~~“would,” “should,” “could,” “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” “plan,” “potential,” “opportunities,” or similar terms or variations of those terms or the negative of those terms. There are many factors that affect the Company’s business and ~~other similar terminology.~~the results of its operations and that may cause the actual results of operations in future periods to differ materially from those currently expected or anticipated. These ~~statements reflect management's current expectations regarding future events and operating performance and speak only as~~factors include the impact of the ~~date~~COVID-19 pandemic and resulting economic effects, including supply chain disruptions, cost inflation, rising interest rates, delays in delivery of ~~this report. These forward-looking statements involve~~our products to our customers, impact on demand for our products, reductions in production levels, increased costs, including costs of raw materials, the impact on global economic conditions, the availability, terms and cost of financing, including borrowings under credit arrangements or agreements, the potential impact of bank failures on our ability to access financing or capital markets, and the impact of market conditions on pension plan funded status. Other factors include, but are not limited to: restrictions on operating flexibility imposed by the agreement governing our credit facility; the effect on interest rates of the replacement of the London Interbank Offered Rate (LIBOR) with a ~~number~~Secured Overnight Financing Rate (SOFR); risks associated with doing business overseas, including fluctuations in exchange rates and the inability to repatriate foreign cash, the impact on cost structure and on economic conditions as a result of ~~risks~~actual and ~~uncertainties,~~threatened increases in trade tariffs and ~~actual future results~~the impact of political, economic and ~~trends may differ materially depending on a variety~~social instability; the inability to achieve the savings expected from global sourcing of ~~factors, including, without limitation, changing customer preferences, lack~~materials; the impact of ~~success of new products, loss of customers, competition, increased~~higher raw material ~~prices, problems~~and component costs, including the impact of supply chain shortages and inflation, particularly steel, plastics, scrap iron, zinc, copper and electronic components; lower-cost competition; our ability to design, introduce and sell new or updated products and related components; market acceptance of our products; the inability to attain expected benefits from acquisitions or the inability to effectively integrate such acquisitions and achieve expected synergies; domestic and international economic conditions, including the impact, length and degree of economic downturns on the customers and markets we serve and more specifically conditions in the automotive, construction, aerospace, energy, oil and gas, transportation, electronic, and general industrial markets; costs and liabilities associated with ~~foreign sourcing~~environmental compliance; the impact of parts and products, changes within the Company's industry segments and in the overall economy, litigation and legislation, and other factors included in and incorporated by reference in Item 1A of our most recently filed Annual Report on Form 10-K, as amendedclimate change or ~~supplemented in our reports subsequently filed with the Securities and Exchange Commission ("SEC"), Item 1A of this Part II of this report. In addition,~~ terrorist threats and the possible responses by the ~~United States~~U.S. and foreign ~~governments, the effects on consumer demand, the financial markets, the travel industry, the trucking industry~~governments; failure to protect our intellectual property; cyberattacks; materially adverse or unanticipated legal judgments, fines, penalties or settlements; and other ~~conditions increase the uncertainty inherent~~risks identified and discussed in ~~forward-looking statements. Forward-looking statements reflect the expectations~~this Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 1A, Risk Factors, and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the ~~Company at~~2022 Form 10-K and that may be identified from time to time in our quarterly reports on Form 10-Q, current reports on Form 8-K and other filings we make with the time they are made, and investors should rely on them only as expressions of opinion about what may happen in the future and only at the time they are made. The Company undertakes no obligation to update any forward-looking statement.SEC. Although the Company believes it has an appropriate business strategy and the resources necessary for its operations, future revenue and margin trends cannot be reliably predicted and the Company may alter its business strategies to address changing conditions.

~~In addition,~~ Also, the Company makes estimates and assumptions that may materially affect reported amounts and disclosures. These relate to valuation allowances for accounts receivable and ~~for~~ excess and obsolete inventories, accruals for pensions and other postretirement benefits (including forecasted future cost increases and returns on plan assets), provisions for depreciation (estimating useful lives), uncertain tax positions, and, on occasion, accruals for contingent losses.

On The Company undertakes no obligation to update, alter, or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events, or otherwise, except as required by law.

Table of Contents

Overview

General Overview

The following analysis excludes discontinued operations.

Net sales in the first quarter of 2023 increased 5% to $72.5 million from $69.0 million in the corresponding period in 2022. Sales increased in the first quarter of 2023 primarily due to increased demand for truck accessories and automotive returnable transport packaging products as well as increased demand from distributors. Our returnable transport packaging sales benefited from the increase in new automotive product launches, including several electric vehicle launches. Our backlog as of April ~~3, 2017,~~1, 2023 was down 16% to $72.0 million from $85.8 million as of April 2, 2022 as we optimize our supply chain to reduce past due orders and transition from old to new programs with our commercial vehicle and automotive customers and increased shipments to customers.

Net sales of existing products increased 3% in the first quarter of 2023 compared to the corresponding period in 2022. Price increases and new products increased net sales by 2% in the first quarter of 2023 compared to the corresponding period in 2022. New products included various truck mirror assemblies, rotary latches, electronic latches and locks, D-rings, and mirror cams. Price increases primarily reflect our efforts to recover an increase in raw material and freight costs.

Cost of products sold increased $2.6 million, or 5%, in the first quarter of 2023 compared to the corresponding period in 2022. The increase is primarily due to higher sales volume. Additionally, the Company ~~completed its acquisition~~paid tariff costs on China-sourced products of ~~Velvac Holdings, Inc.,~~approximately $0.6 million in the first quarter of 2023, compared to $0.6 million in the first quarter of fiscal 2022. Most tariffs on China-sourced products have been recovered through price increases.

Gross margin as a Delaware corporation including its subsidiaries ("Velvac"), pursuant to a Securities Purchase Agreement (the "Securities Purchase Agreement"), dated April 3, 2017, by and among Jeffery R. Porter, W. Greg Bland, John Backovitch, Dave Otto, Bob Otto, Timothy Rintelman, Robert Brester, Dan McGrew, Mark Moeller and Prospect Partners II, L.P. (collectively, the "Sellers"). Pursuant to the Securities Purchase Agreement, the Company acquired 100% of the issued and outstanding stock of Velvac from the Sellers (the "Acquisition") for $39.5 million and earnout consideration contingent upon Velvac achieving minimum earnings performance levels with the amount of any such earnout consideration based on a specific percentage ~~(either 7.5% or 15%)~~ of sales ~~of Velvac's new proprietary Road-iQ product line measured over annual calculation periods through April 2022, as set forth~~was 21% in the ~~Securities Purchase Agreement (the "Earnout Consideration"), subject~~first quarter of fiscal 2023 compared to certain customary post-closing adjustments. The Acquisition was financed with a $31 million term loan from People's United Bank, National Association ("People's"), a $5 million draw down on the Company's $10 million revolving credit facility with People's and $3.5 million in cash. Please refer to the Form 8-K filed on April 7, 2017 and the amendment thereto files on June 19, 2017 for further details.

~~Overview~~

~~Sales~~21% in the ~~third~~first quarter of ~~2017~~fiscal 2022.

Product development expense increased ~~67%~~$0.2 million, or 17% in the first quarter of 2023 when compared to the ~~third~~corresponding period in 2022 as we continue to invest in new products at Eberhard and Velvac. As a percentage of net sales, product development costs were 1.9% for the first quarter of ~~2016. Sales~~2023 and 1.7% for the corresponding period in 2022.

Selling and administrative expense increased $2.1 million, or 21%, in the ~~Industrial Hardware segment by 117% in the third~~first quarter of ~~2017, primarily as a result of sales generated from the Velvac acquisition. Excluding Velvac's sales in the third quarter of 2017, sales in the Industrial Hardware segment would have increased 12%~~2023 when compared to the ~~third~~corresponding period in 2022 primarily due to severance and other accrued compensation expenses of $1.8 million related to the elimination of the Chief Operating Officer position and the departure of our previous Chief Executive Officer and other selling costs and payroll-related expenses. The increase in selling expenses reflects both the increase in sales as well as our investments in sales capabilities.

Interest expense increased $0.3 million in the first quarter of ~~2016.~~

Sales increased 50% in the Metals segment and sales in the Security Products segment increased 18%, when compared to the third quarter of 2016. Sales volume of existing products which include the sales of Velvac products increased by 61% in the third quarter of 2017 compared to the third quarter of 2016. The third quarter of 2017 was favorably affected by the introduction of new products which increased sales by 6%. Sales of new products in the Metals Segment included numerous types of pipe and gas fittings for the oil, water and gas industries. Sales of new products in the Industrial Hardware Segment included Class 8 truck tumbler paddles, latch brackets, and panels. Sales of new products in the Security Products Segment included locking kits for the motorcycle market and connecting rods for the vehicle market.

~~Sales for the first nine months of 2017 increased 45%~~2023 compared to the corresponding ~~prior year~~ period ~~primarily as a result of the Velvac acquisition. Excluding Velvac's sales for the nine months ended September 30, 2017, sales~~in 2022.

Other income was down $1.1 million in the ~~Industrial Hardware segment would have increased by 13% when~~first quarter of 2023 compared to the ~~first nine months~~corresponding period in 2022. The decrease in other income of ~~2016. Sales volume of existing products, which include the sales of Velvac products, increased by 40%~~$1.1 million in the first ~~nine months~~quarter was primarily driven by an unfavorable final working capital adjustment of ~~2017~~$0.4 million related to the sale of the Greenwald business and pension cost of $0.3 million in the first quarter of 2023, while in the first quarter of 2022 the Company had a favorable pension cost adjustment of $0.4 million, partially offset by a loss on the sale of the Wheeling, IL building of $0.2 million.

Net income from continuing operations for the first quarter of fiscal 2023 was $0.6 million, or $0.10 per diluted share, compared to ~~the first nine months~~net income from continuing operations of 2016. The results for the nine months ended September 30, 2017 were favorably affected by the introduction of new products which increased sales by 5%. The Industrial Hardware segment sales increased 83%, Metal Products segment increased 45%, and Security Products segment increased by 6% as compared to the first nine months of 2016.

~~For the three months ended September 30, 2017, gross margin was 21% compared to 28%~~$2.7 million, or $0.43 per diluted share, for the comparable period ~~of 2016. This decrease was primarily the result of the Velvac acquisition. Excluding Velvac, the gross margin would have been 24%~~ in ~~the third quarter of 2017. Gross margin for the first nine months of 2017 was 24% compared to 25% for the prior year period.~~

For the three and nine months ended September 30, 2017, engineering expense increased $1.2 million or 179% and $2.2 million or 109% from the comparable periods in 2016. This increase is primarily related to the accelerated development of new technology vision products at Road-iQ, a division of Velvac and gPay, a mobile app to transact credit card payments to laundry equipment, at Greenwald Industries. Road-iQ is a connected vehicle technology that provides both active and passive safety to drivers of RV's , trucks and other specialty vehicles. The Company expects these new products to be ready for market latter in the fourth quarter of 2017.

Selling and administrative costs increased $1.1 million or 20% in the third quarter of 2017 compared to the third quarter of 2016 primarily as a result of the inclusion of the Velvac acquisition. Excluding Velvac's selling and administrative costs in the third quarter of 2017, selling and administrative costs would have increased $0.3 million or 5% compared to the third quarter of 2016. Selling and administrative costs increased $7.7 million or 47% in the first nine months of 2017 compared to the first nine months of 2016. Excluding Velvac's selling and administrative costs in the first nine months of 2017, selling and administrative costs would have increased $1.9 million or 11% compared to the nine months of 2016. Selling and administrative costs were adversely impacted by several one-time charges, which included personnel charges of $0.2 million in the Security segment, environmental costs of $0.4 million in the Metal Products segment, and acquisition costs of $0.9 million in the Industrial Hardware segment.

In general, raw material prices increased in 2017compared to 2016 and are expected to increase during the fourth quarter of 2017. The Company tries to recover these costs through price increases when possible. Cost reduction in components along with manufacturing efficiency help to minimize the impact of commodity price increases. Currently, there is no indication that the Company will be unable to obtain supplies of all the raw materials that it requires.

The Company generated approximately $10,174,000 of cash from its operations during the first nine months of 2017 compared to generating approximately $8,983,000 during the same period in 2016. This increase was primarily due to the increase in earnings and cash flow generation in the Company's Metal Products segment. Cash on hand and cash flow from operations, along with the controlling of discretionary expenditures, are anticipated to be sufficient to enable the Company to meet its existing obligations.

2022.

A more detailed analysis of the ~~Company's~~Company’s results of operations and financial condition follows:

Table of Contents

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, by segment:~~

Three Months Ended September 30, 2017
Industrial Security Metal
Hardware Products Products Total
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of products sold 80.6 % 70.5 % 88.8 % 78.7 %
Gross margin 19.4 % 29.5 % 11.2 % 21.3 %

Engineering expense 4.1 % 3.0 % -- 3.3 %
Selling and administrative expense 9.8 % 16.5 % 9.0 % 11.6 %
Operating profit 5.5 % 10.0 % 2.2 % 6.4 %

Three Months Ended October 1, 2016
Industrial Security Metal
Hardware Products Products Total
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of products sold 72.7 % 65.7 % 88.8 % 72.0 %
Gross margin 27.3 % 34.3 % 11.2 % 28.0 %

Engineering expense 0.9 % 3.8 % -- 2.0 %
Selling and administrative expense 16.1 % 18.7 % 9.5 % 16.3 %
Operating profit 10.3 % 11.8 % 1.7 % 9.7 %

sales:

	Three Months Ended
	April 1, 2023			April 2, 2022

Net sales		100.0	%		100.0	%
Cost of products sold		78.6	%		78.9	%
Gross margin		21.4	%		21.1	%
Product development expense		1.9	%		1.7	%
Selling and administrative expense		16.5	%		14.3	%
Operating Profit		3.0	%		5.1	%

The following table shows the ~~amount of~~ change ~~for the third quarter of 2017 compared to the third quarter of 2016~~ in sales ~~cost of products sold, gross margin, engineering expense, selling and administrative expenses~~ and operating profit ~~by segment (dollars in thousands):~~

Industrial Security Metal
Hardware Products Products Total
Net sales $ 17,749 $ 2,467 $ 2,314 $ 22,530

         Volume 110.2 % 16.0 % 30.3 % 60.8 %
         Prices -0.4 % -0.1 % 3.0 % 0.2 %
         New products 6.9 % 2.2 % 16.8 % 6.3 %
116.7 % 18.1 % 50.1 % 67.3 %

Cost of products sold $ 15,495 $ 2,393 $ 2,051 $ 19,939
140.2 % 26.7 % 50.0 % 82.7 %

Gross margin $ 2,254 $ 74 $ 263 $ 2,591
54.2 % 1.6 % 50.9 % 27.5 %

Engineering expense $ 1,215 $ (30 ) -- $ 1,185
845 % -5.8 % 178.6 %

Selling and administrative expenses $ 800 $ 99 $ 184 $ 1,083
32.8 % 3.8 % 41.8 % 19.9 %

Operating profit $ 239 $ 5 $ 79 $ 323
15.2 % 0.3 % 103.6 % 9.9 %

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

Nine Months Ended September 30, 2017
Industrial Security Metal
Hardware Products Products Total
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of products sold 77.1 % 69.8 % 84.8 % 75.9 %
Gross margin 22.9 % 30.2 % 15.2 % 24.1 %

Engineering expense 3.3 % 3.0 % -- 2.8 %
Selling and administrative expense 16.2 % 17.9 % 9.7 % 15.8 %
Operating profit 3.4 % 9.3 % 5.5 % 5.5 %

Nine Months Ended October 1, 2016
Industrial Security Metal
Hardware Products Products Total
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of products sold 74.7 % 69.2 % 97.1 % 75.4 %
Gross margin 25.3 % 30.8 % 2.9 % 24.6 %

Engineering expense 0.8 % 3.7 % -- 1.9 %
Selling and administrative expense 16.3 % 16.8 % 9.8 % 15.6 %
Operating profit 8.2 % 10.3 % -6.9 % 7.1 %

~~The following table shows the amount of change~~ for the first ~~nine months~~quarter of ~~2017~~fiscal 2023 compared to the first ~~nine months~~quarter of ~~2016 in sales, cost of products sold, gross margin, engineering expense, selling and administrative expenses and operating profit, by segment~~fiscal 2022 (dollars in thousands):

Industrial Security Metal
Hardware Products Products Total
Net sales $ 37,812 $ 2,510 $ 6,312 $ 46,634

         Volume 77.4 % 4.2 % 29.7 % 40.0 %
         Prices -0.3 % -0.1 % 2.8 % 0.2 %
         New products 5.7 % 1.6 % 12.4 % 4.9 %
82.8 % 5.7 % 44.9 % 45.1 %

Cost of products sold $ 30,265 $ 2,005 $ 3,623 $ 35,893
88.7 % 6.6 % 26.6 % 46.0 %

Gross margin $ 7,547 $ 505 $ 2,689 $ 10,741
65.2 % 3.7 % 658.3 % 42.2 %

Engineering expense $ 2,402 $ (230 ) -- $ 2,172
626.9 % -14.3 109.0 %

Selling and administrative expenses $ 6,038 $ 963 $ 588 $ 7,589
81.3 % 13.1 % 42.6 % 47.0 %

Operating profit $ (893 ) $ (228 ) $ 2,101 $ 980
-23.7 % -5.1 % 216.1 % 13.4 %

~~Industrial Hardware Segment~~

~~Net sales~~ in

	Three Months
	Ended
	April 1, 2023

Net Sales	$	3,481

Volume		3.3	%
Price		0.8	%
New products		0.9	%
		5.0	%

Operating Profit	$	(1,355	)

Liquidity and Sources of Capital

The Company generated approximately $6.9 million of cash from continuing operations during the ~~Industrial Hardware segment were up 117% in~~first three months of fiscal 2023 compared to consuming approximately $3.6 million during the ~~third quarter~~first three months of ~~2017 and 83%~~fiscal 2022. Cash flow from operations in the first ~~nine~~three months of ~~2017 compared to the respective corresponding prior year periods. The increase in sales in both the third quarter and first nine months of 2017~~2023 was higher when compared to the ~~respective~~ corresponding ~~prior~~period last year ~~periods primarily reflected sales from the Velvac acquisition.~~ Excluding Velvac's sales in the third quarter of 2017, sales in the Industrial Hardware segment would have increased 12% when compared to the third quarter of 2016 and sales in the first nine months of 2017 would have increased by 13% when compared to the first nine months of 2016. ~~Sales of new products included tumbler paddles, latch brackets and panels for the class 8 trucking industry.~~

~~Cost of products sold~~ for the Industrial Hardware segment increased $15.5 million or 140% in the third quarter of 2017 and $30.3 million or 89% in the first nine months of 2017 compared to the respective corresponding periods in 2016. The increase in the cost of products sold in both the third quarter and first nine months of 2017 when compared to the respective corresponding prior year periods primarily reflects cost of products sold attributable to the Velvac acquisition.

~~The most significant factors resulting in changes in cost of products sold in the third quarter of 2017 compared to the third quarter 2016 included:~~

·	~~an increase of $10.5 million or 163% in raw material costs, with Velvac representing $9.6 million of such increase;~~

·	~~an increase of $2.3 million or 73% in costs for payroll and payroll related charges, with Velvac representing $1.9 million of such increase;~~

·	~~an increase of $0.8 million or 368% in freight and other shipping costs;~~

·	~~an increase of $0.6 million in miscellaneous costs;~~

·	~~an increase of $0.3 million or 100% in depreciation expense;~~

·	~~an increase of $0.3 million in scrap costs;~~

·	~~an increase of $0.2 million or 85% in supplies and tools expense; and~~

·	~~an increase of $0.2 million or 189% in rent expense.~~

~~The most significant factors resulting in changes in cost of products sold in the first nine months of 2017 compared to the first nine months of 2016 included:~~

·	~~an increase of $22.3 million or 114% in raw materials costs, with Velvac representing $18.1 million such increase;~~

·	~~an increase of $2.6 million or 28% in payroll and payroll related charges, with Velvac representing the entire increase;~~

·	~~an increase of $2.1 million in miscellaneous expenses, with Velvac representing the entire increase;~~

·	~~an increase of $1.7 million in freight and other shipping costs, Velvac represents the entire increase;~~

·	~~an increase of $0.3 million or 125% in scrap costs;~~

·	~~an increase of $0.3 million in foreign currency exchange expense;~~

·	~~an increase of $0.2 million or 35% in supplies and tools expense;~~

·	~~an increase of $0.2 million or 39% in utilities costs~~

·	~~an increase of $0.2 million or 62% in rents expense; and~~

·	~~an increase of $0.2 million or 26% in depreciation expense.~~

~~Gross margin~~ for the Industrial Hardware segment decreased in the third quarter of 2017 to 19% from 27% in the comparable prior year period and decreased in the first nine months of 2017 to 23% from 25% in the first nine months of 2016. ~~Gross margin as a percentage of sales was adversely effected by~~ ~~a $1.2 million charge to cost of goods sold related to purchase accounting for the Velvac acquisition.~~

~~Engineering expenses~~ as a percentage of sales for the Industrial Hardware segment increased in the third quarter of 2017 to 4% from 1% in the three month period of 2016 and increased to 3% in the nine month period of 2017 from 1% in the nine months of 2016. This increase was primarily the result of the Velvac acquisition.

~~Selling and administrative expenses~~ in the Industrial Hardware segment increased $0.8 million or 33% in the third quarter of 2017 and $6.0 million or 81% in the first nine months of 2017 as compared to the respective corresponding periods of 2016. The increase in the selling and administrative expenses in both the third quarter and nine months of 2017 when compared to the respective corresponding prior year periods primarily reflects costs from the Velvac acquisition.

~~The most significant factors resulting in changes in selling and administrative costs in the third quarter of 2017 compared to the third quarter of 2016 included:~~

·	~~an increase of $0.4 million or 24% for payroll and payroll related charges, with Velvac representing the entire increase;~~

·	~~an increase of $0.2 million or 291% in travel expenses; and~~

·	~~an increase of $0.2 million or 606% in amortization of patent costs.~~

~~The most significant factors resulting in changes in selling and administrative costs in the first nine months of 2017 compared to the first nine months of 2016 included:~~

·	~~an increase of $4.0 million or 71% for payroll and payroll related charges, with Velvac representing $3.4 million of such increase;~~

·	~~an increase of $0.8 million for commissions and royalty costs;~~

·	~~an increase of $0.7 million or 79% for other administrative expenses, which includes Velvac; and~~

·	~~an increase of $0.5 million in depreciation and amortization charges.~~

~~Security Products Segment~~

~~Net sales~~ in the Security Products segment increased 18% in the third quarter of 2017 and increased 6% in the first nine months of 2017 compared to the respective corresponding periods of 2016. The increase in sales in the third quarter of 2017 was primarily the result of the introduction of new products in the vehicle lock markets. Sales of new products included locking kits for the motorcycle market and connecting rods for the vehicle market.

~~Cost of products sold~~ for the Security Products segment increased $2.4 million or 27% in the third quarter of 2017 and increased $2.0 million or 7% in the first nine months of 2017 compared to the respective corresponding periods of 2016.

~~The most significant factors resulting in changes in cost of products sold in the third quarter of 2017 compared to the third quarter of 2016 included:~~

·	~~an increase of $1.7 million or 30% in raw material costs;~~

·	~~an increase of $0.4 million or 17% in costs for payroll and payroll related charges;~~

·	~~an increase of $0.1 million in foreign currency costs; and~~

·	~~an increase of $0.1 million or 45% in supplies and tools expenses.~~

~~The most significant factors resulting in changes in cost of products sold in the first nine months of 2017 compared to the first nine months of 2016 included:~~

·	~~an increase of $1.4 million or 7% in raw materials;~~

·	~~an increase of $0.3 million in foreign exchange charges;~~

·	~~an increase of $0.1 million or 8% in other shipping costs; and~~

·	~~an increase of $0.1 million or 8% in supplies and tools expense.~~

~~Gross margin~~ for the Security Products segment in the third quarter of 2017 decreased to 30% from 34% in the third quarter of 2016 and decreased to 30% in 2017 from 31% in the first nine months of 2017 and the comparable prior year period of 2016.

~~Engineering expenses~~ as a percentage of sales for the Security Products segment decreased in the third quarter of 2017 to 3% from 4% in the three month period of 2016 and decreased to 3% in the first nine month period of 2017 from 4% in the nine months of 2016.

~~Selling and administrative expenses~~ in the Security Products segment increased $0.1 million or 4% in the third quarter of 2017 and $1.0 million or 13% in the first nine months of 2017 as compared to the respective corresponding periods of 2016. This was due to third quarter costs related to personnel changes and investment in sales and marketing resources in order to support the strategic growth plan for this segment.

~~The most significant factors resulting in changes in selling and administrative costs in the third quarter of 2017 compared to the third quarter of 2016 included:~~

·	~~an increase of $0.1 million or 7% for payroll and payroll related charges.~~

~~The most significant factors resulting in changes in selling and administrative costs in the first nine months of 2017 compared to the first nine months of 2016 included:~~

·	~~an increase of $0.6 million or 12% for payroll and payroll related charges; and~~

·	~~an increase of $0.3 million or 33% in other administrative expenses.~~

~~Metal Products Segment~~

~~Net sales~~ in the Metal Products segment increased 50% in the third quarter of 2017 and 45% in the first nine months of 2017 as compared to the respective corresponding prior year periods. Mining sales increased 34% and 39%, respectively, for the third quarter and first nine months of 2017 as compared to the comparable periods of 2016. The rebound in the mining industry is the result of the easing of environmental regulations and increases in natural gas prices, which created an increase in demand for our mine related products. The sale of industrial products increased substantially as compared to the prior year and was up 130% and 92%, respectively, for the three and nine months September 30, 2017. Sales of new products included numerous types of pipe and gas fittings for the oil, water and gas industries.

~~Cost of products sold~~ for the Metal Products segment increased $2.1 million or 50% in the third quarter of 2017 and $3.6 million or 27% in the first nine months of 2017 compared to the respective corresponding periods of 2016. Most of the cost increase in the third quarter relates to increased sales volume, however an increase of 33% in raw material cost had a disproportionate effect on the third quarter 2017 as compared to the third quarter of 2016.

~~The most significant factors resulting in changes in cost of products sold in the third quarter of 2017 compared to the third quarter of 2016 included:~~

·	~~an increase of $0.8 million or 60% in raw materials;~~

·	~~an increase of $0.5 million or 132% in costs for supplies and tools;~~

·	~~an increase of $0.3 million or 21% in payroll and payroll related charges;~~

·	~~an increase of $0.2 million or 85% in utilities costs; and~~

·	~~an increase of $0.3 million or 287% in maintenance and repair costs.~~

~~The most significant factors resulting in changes in cost of products sold in the first nine months of 2017 compared to the first nine months of 2016 included:~~

·	~~an increase of $1.2 million or 24% in payroll and payroll related charges;~~

·	~~an increase of $1.1 million or 28% in raw materials;~~

·	~~an increase of $1.1 million or 85% in costs for supplies and tools;~~

·	~~an increase of $0.3 million or 35% in utilities costs;~~

·	~~an increase of $0.3 million or 42% in maintenance and repair costs;~~

·	~~a decrease of $0.2 million or 100% in outside finishing costs; and~~

·	~~a decrease of $0.1 million or 12% in depreciation expense.~~

~~Gross margin~~ ~~for the Metal Products segment was flat at 11% in the third quarters of 2017 and of 2016~~ ~~and was 15% in the first nine months of 2017 and 3% in the comparable prior year period. The increases in the gross margin for the first nine months of 2017 was~~ primarily due to ~~the higher sales volume which caused improved utilization of the Company's production capacity~~a decrease in ~~2017 as compared to the corresponding 2016 periods.~~

~~Selling and administrative expenses~~ in the Metal Products segment increased $0.2 million or 42% in the third quarter of 2017 and $0.6 million or 43% in the first nine months of 2017 as compared to the respective corresponding periods of 2016.

The most significant factor resulting in changes in selling and administrative costs in the third quarter and first nine months of 2017 compared to the third quarter and first nine months of 2016 was a $0.4 million charge to remediate and monitor a landfill environmental issue that was expensed in the second and third quarters of 2017.

~~Other Items~~

~~Interest expense~~ increased $0.3 million in the third quarter of 2017 and $0.6 million in the first nine months of 2017 compared to the respective corresponding prior year period due to the increased level of debt incurred in the Velvac acquisition.

~~Other income~~ ~~was not material to the financial statements during the periods covered by this Quarterly Report on Form 10-Q.~~

~~Income taxes~~ reflected the change in operating results. The effective tax rates in the third quarter and first nine months of 2017 were 32% and 32%, respectively, compared to 26% and 30%, respectively in the corresponding periods of 2016. The higher than expected effective rate for the first nine months of 2017 was the result of higher earnings estimates from our United States sources compared to earnings estimates from foreign sources that have lower overall tax rates.

~~Liquidity and Sources of Capital~~

The Company generated $10.2 million of cash from its operations during the first nine months of 2017 compared to $9.0 million during the same period in 2016. The increase in cash flows in the 2017 period compared to the prior year period was primarily the result of increased sales and profitability during the 2017 period, including as a result of the Velvac acquisition, and the associated timing differences in the collection of accounts receivable, payments of liabilities, and changes in inventories.inventory. Cash flow from operations coupled with cash at the ~~new loan~~beginning of the 2023 fiscal year were sufficient to ~~acquire Velvac and~~ fund capital expenditures, debt service, and dividend ~~payments.~~

~~The Company holds marketable securities totaling approximately $367,000. The Company did not purchase any marketable securities during~~payments for the first three ~~month period ended September 30, 2017 Marketable securities are acquired~~months of 2023. See Note G - Debt for ~~investment purposes.~~ further discussion on the Company’s debt facilities.

Additions to property, plant and equipment for continuing operations were ~~$1.5~~approximately $1.2 million for the first ~~nine~~three months of ~~2017~~2023 and ~~$1.8~~$0.6 million for the ~~same period in 2016. Total capital expenditures for all~~first three months of ~~2017 are expected to be approximately $3.0 million.~~2022. As of ~~September 30, 2017,~~April 1, 2023, there was approximately ~~$200,000~~$1.2 million of outstanding commitments for ~~these~~ capital expenditures.

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

Third
Quarter
2017

Third
Quarter
2016

Year
End
2016

Current ratio

3.1

5.7

6.0

Average days' sales in accounts receivable

53

53

49

Inventory turnover

3.5

3.1

3.0

Total debt to shareholders' equity

40.6
%

2.6
%

2.2
%

~~Total debt to shareholders' equity increased due to the Company leveraging the purchase of Velvac with a $31 million loan and a drawdown of $5 million on the revolving portion of its line of credit.~~

	First Quarter 2023			First Quarter 2022			Fiscal Year 2022
Current ratio		2.7			2.7			2.7
Average days’ sales in accounts receivable		57			63			56
Inventory turnover		4.0			3.2			3.4
Total debt to shareholders’ equity		46.6	%		63.2	%		50.7	%

Table of Contents

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

Third
Quarter
2017

Third
Quarter
2016

Year
End
2016

Cash and cash equivalents

- Held in the United States
$
7.1

$
9.7

$
11.2

- Held by a foreign subsidiary

14.1

11.9

11.5

21.2

21.6

22.7

Working capital

68.0

64.1

64.8

Net cash provided by operating activities

10.2

9.0

12.4

Change in working capital impact on net cash
used in operating activities

1.4

(0.1
)
(0.5
)
Net cash used in investing activities

(43.9
)
(1.8
)
(2.9
)
Net cash used in financing activities

31.8

(3.1
)
(4.2
)

~~The cash used in investing activities was primarily for the acquisition~~

	First			First			Fiscal
	Quarter			Quarter			Year
	2023			2022			2022
Cash and cash equivalents
- Held in the United States	$	9.7		$	2.3		$	7.4
- Held by a foreign subsidiary		3.4			2.9			2.8
		13.1			5.2			10.2

Working capital		76.7			83.2			78.3
Net cash provided by (used in) operating activities		6.9			(3.6	)		7.4
Change in working capital impact on net cash Provided by (used in) operating activities		3.6			(8.8	)		(5.2	)
Net cash provided by investing activities		1.1			1.0			5.1
Net cash (used in) provided by financing activities		(5.1	)		1.6			(11.8	)

Inventories of Velvac. The cash from financing activities was the result of the execution of the loan with People's and the revolving line of credit facility with People's to provide a significant share of the capital used in the acquisition of Velvac.

Federal income taxes have not been provided for on the undistributed earnings of the Company's foreign subsidiaries except where required under federal tax laws. The Company would be required to accrue and pay United States income taxes to repatriate the funds held by foreign subsidiaries not otherwise provided. The Company intends to reinvest these earnings outside of the United States indefinitely.

~~All cash held by foreign subsidiaries is readily convertible into other currencies, including the U.S. Dollar.~~

~~Total inventories increased approximately 33% to $45.2~~$57.7 million as of ~~September 30, 2017~~April 1, 2023, represent a decrease of 10.8% as compared to ~~$34.0~~$64.6 million at the end of fiscal year 2022 and a decrease of 14.9% as ~~of year-end 2016 and increased approximately 33% from $34.1~~compared to $67.8 million at the end of the ~~third~~first quarter of ~~2016. The increase of inventory was primarily attributable to the acquisition of Velvac as management has made inventory control a priority since 2016.~~fiscal 2022. Accounts receivable, less allowances, were ~~$28.3~~$44.5 million as of ~~September 30, 2017~~April 1, 2023, as compared to ~~$18.1~~$42.9 million at 2022 fiscal year end ~~2016~~ and ~~$19.0~~$47.0 million ~~as of~~at the end of the ~~third~~first quarter of ~~2016.~~

On April 3, 2017, we incurred indebtedness under the Restated Loan Agreement in the aggregate principal amount of $31 million in the form of a term loan, the proceeds of which were used to repay the remaining outstanding ~~balances of the Original Term Loan and 2012 Term Loan (approximately~~ $1,429,000) and to acquire 100% of the common stock of Velvac (see Note A and F). On April 3, 2017, the Company also borrowed approximately $6.6 million on the revolving credit portion of the Restated Loan Agreement. The Company subsequently paid off $1.6 million on the revolving credit portion of the Restated Loan Agreement, which left an outstanding balance of $5 million on such revolving credit portion at September 30, 2017. See Note F for additional information regarding the terms of the Restated Loan Agreement, including repayment terms, interest rates and applicable loan covenants. Under the terms of the Restated Loan Agreement, the Company is subject to restrictive covenants that limit its 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 the Company to maintain a minimum debt service coverage ratio and a maximum total leverage ratio. These covenants may limit how we conduct our business, and in the event of certain defaults, our repayment obligations may be accelerated. We were in compliance with all of our covenants as of September 30, 2017.

fiscal 2022.

Cash, ~~on hand,~~ cash flow from operating activities and funds available under the revolving credit portion of the ~~Company's Restated Loan~~Credit Agreement are expected to be sufficient to cover future foreseeable working capital ~~requirements subject~~requirements. 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 4.25 to 1 and a fixed charge coverage ratio to be not less than 1.25 to 1. A decrease in earnings due to the ~~risks~~impact of COVID-19 or the resulting harm to the financial condition of our customers or economic conditions generally, 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 ~~uncertainties outlined~~our fixed charge 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 our Credit Agreement.

As of the end of the fiscal quarter ended April 1, 2023, 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 ~~risk factors disclosed~~United States (“U.S. 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 policies, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the 2022 Form 10-K. While there have been no material changes to our critical accounting estimates, we continue to monitor the methodologies and assumptions underlying such critical accounting estimates.

Table of Contents

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 U.S. GAAP.

To supplement the consolidated financial statements prepared in accordance with U.S. 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 U.S. GAAP financial measures, such as net sales, net income from continuing operations, diluted earnings per share from continuing operations, or other measures prescribed by U.S. 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. 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. We believe that Adjusted Earnings Per Diluted Share from Continuing Operations provides important comparability of underlying operational results, allowing investors and management to access 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. 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 believes do not directly reflect our underlying operations.

Management uses such measures to evaluate performance period over period, to analyze the underlying trends in our ~~2016 Annual Report~~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, U.S. GAAP financial measures.

We believe that presenting non-GAAP financial measures in addition to U.S. 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 better enables our investors to understand our operating performance and to evaluate the methodology used by management to evaluate and measure such performance.

Table of Contents

Reconciliation of Non-GAAP Measures

Adjusted Net Income and Adjusted Earnings per Share from Continuing Operations Calculation

For the Three Months ended April 1, 2023 and April 2, 2022

($000's)

	Three Months Ended
	April 1, 2023			April 2, 2022
Net income from continuing operations as reported per generally accepted accounting principles (GAAP)	$	607		$	2,686

Earnings per share from continuing operations as reported under generally accepted accounting principles (GAAP):

Basic	$	0.10		$	0.43
Diluted	$	0.10		$	0.43

Adjustments:
Loss on sale of Wheeling, IL building, net of tax		-			202	A
Severance and accrued compensation, net of tax		1,349	B		-
Greenwald final sale adjustment, net of tax		293	C		-
Total adjustments (non-GAAP)	$	1,642		$	202

Adjusted net income from continuing operations	$	2,249		$	2,888

Adjusted earnings per share from continuing operations (non-GAAP):

Basic	$	0.36		$	0.46
Diluted	$	0.36		$	0.46

A) Loss on ~~Form 10-K as updated by,~~sale of ILC building in Wheeling, IL

B) Severance expenses associated with accrued compensation and ~~incorporated by reference,~~severance related to the elimination of the Chief Operating Officer position and the departure of the Chief Executive Officer

C) Final settlement of working capital adjustment associated with Greenwald sale

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Reconciliation of Non-GAAP Measures

Adjusted EBITDA from Continuing Operations Calculation

For the Three Months ended April 1, 2023 and April 2, 2022

($000's)

	Three Months Ended
	April 1, 2023			April 2, 2022

Net income from continuing operations as reported per generally accepted accounting principles (GAAP)	$	607		$	2,686

Interest expense		726			434
Provision for income taxes		195			881
Depreciation and amortization		1,815			1,830
Loss on sale of Wheeling, IL building		-			269	A
Severance and accrued compensation		1,799	B		-
Greenwald final sale adjustment		390	C		-
Adjusted EBITDA from continuing operations	$	5,532		$	6,100

A) Loss on sale of ILC building in ~~Item 1A~~Wheeling, IL

B) Severance expenses associated accrued compensation and severance related to the elimination of ~~this Quarterly Report on Form 10-Q.~~

the Chief Operating Officer position and the departure of the Chief Executive Officer

C) Final settlement of working capital adjustment associated with Greenwald sale

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ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~During~~

As a result of the ~~third quarter~~Company’s status as a smaller reporting company pursuant to Rule 12b-2 of ~~2017, there were no material changes in market risk from what was reported in~~ the ~~Company's 2016 Annual Report on Form 10-K.~~

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 ~~the end of the quarter ended September 30, 2017,~~April 1, 2023, the Company carried out an evaluation, under the supervision and with the participation of the ~~Company's~~Company’s management, including the Chief Executive Officer (the ~~"CEO"~~“CEO”) and the Chief Financial Officer (the ~~"CFO"~~“CFO”), of the effectiveness of the design and operation of the ~~Company's~~Company’s disclosure controls and procedures (as defined in Exchange Act Rules 240.13a-15(e) and 240.15d-15(e)) pursuant to Exchange Act Rule ~~240.13a-15.~~13a-15. As defined in Exchange Act Rules 240.13a-15(e) and 240.15d-15(e), ~~"the~~“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 ~~Commission's~~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." Based upon that evaluation, the CEO and CFO concluded that the Company's current disclosure controls and procedures were effective as of the September 30, 2017 evaluation date.~~

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~~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.~~

“reasonable assurance” level as of April 1, 2023.

Changes in Internal ~~Controls~~Control Over Financial ~~Reporting:~~

Reporting:

During the ~~third quarter of 2017,~~period covered by this Quarterly Report on Form 10-Q, there were no ~~significant~~ changes in the Company's internal control over financial reporting that have materially affected or are reasonably likely to materially affect, the ~~Company's~~Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

During 2010, the Company was contacted by the State of Illinois regarding potential ground contamination at its plant in Wheeling, Illinois. The Company entered into a voluntary remediation program in Illinois and has engaged an environmental clean-up company to perform testing and develop a remediation plan. Since 2010, the environmental company has completed a number of tests and the design of a final remediation system is currently being reviewed and is expected to be approved in the fourth quarter of 2017. The total estimated cost for the proposed remediation system is anticipated to be approximately $55,000.

During 2016 the Company created a plan to remediate a landfill of spent foundry sand maintained at the Company's Metal Casting facility in Syracuse, New York. This plan was presented to the New York Department of Environmental Conservation (the "DEC") for approval in 2017.

The Company is ~~in final negotiations with~~a party to various legal proceedings from time to time related to its normal business operations. As of the ~~DEC, and based on estimates provided by~~end of the ~~Company's environmental engineers, the cost to remediate and monitor the landfill was $380,000 which~~quarter ended April 1, 2023, the Company ~~expensed in the second and third quarters of 2017.~~

~~There are no other~~does not have any material pending legal proceedings, other than ~~ordinary routine litigation incidental to~~as set forth in Part I, Item 3 of the ~~Company's business, to which either the Company~~2022 Form 10-K, or any ~~of its subsidiaries is a party or of which any of property of the Company or any subsidiary is the subject.~~

material legal proceedings known to be contemplated by governmental authorities.

ITEM 1A – RISK FACTORS

The ~~Company's~~Company’s business is subject to ~~a number of~~several risks, some of which are beyond its control. In addition to the other information set forth in this ~~report,~~Quarterly Report on Form 10-Q, the ~~Company's stockholders~~Company’s shareholders should carefully consider the risk factors discussed in Part I, Item ~~1A. - "Risk Factors"~~1A “Risk Factors” of the ~~Company's 2016 Annual Report on~~2022 Form ~~10-K, as filed with the SEC on March 15, 2017, that~~10-K. These risk factors could have a material adverse effect on the ~~Company's~~Company’s business, results of operations, financial condition and/or liquidity and ~~that~~ could cause ~~its~~our operating results to vary significantly from period to period. As of ~~September 30, 2017,~~April 1, 2023, there have been no material changes to the risk factors disclosed in the ~~Company's most recent Annual Report on~~2022 Form 10-K. The Company may ~~also~~ 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

~~There have been no sales of unregistered securities by~~

On May 2, 2018, the Company announced that the Board had authorized a new program to repurchase up to 200,000 shares of the Company’s common stock. 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 ~~purchases~~open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act. During the first fiscal quarter of ~~registered equity securities by~~2023, the Company ~~during the period covered by this Quarterly Report on Form 10-Q.~~

had no share repurchases.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5 – OTHER INFORMATION

None

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ITEM 6 – EXHIBITS

~~31) Certifications required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~32) Certifications pursuant to Rule 13a-14(b) and 18 USC 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

3.1)		Restated Certificate of Incorporation of the Company, as amended (conformed copy) (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed on May 6, 2020).

3.2)		Amended and Restated By-Laws of the Company, as amended through March 11, 2022 (incorporated by reference to Exhibit 3(ii) to the Company’s Current Report on Form 8-K filed on March 11, 2022).

10.1)		Employment Agreement, dated as of January 9, 2023, between the Company and Mark Anthony Hernandez (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 13, 2023.

10.2)		Offer Letter, dated February 1, 2023, between the Company and Nicholas Vlahos (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed on February 6, 2023).

10.3)		Severance Agreement, dated as of February 1, 2023, between the Company and Nicholas Vlahos (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K/A filed on February 6, 2023).

31)		Certifications required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32)		Certifications pursuant to Rule 13a-14(b) and 18 USC 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

101)		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended April 1, 2023, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations (Unaudited) for the three months ended April 1, 2023 and April 2, 2022; (ii) Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three ended April 1, 2023, and April 2, 2022; (iii) Condensed Consolidated Balance Sheets (Unaudited) as of April 1, 2023 and December 31, 2022; (iv) Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended April 1, 2023 and April 2, 2022; and (iv) Notes to the Condensed Consolidated Financial Statements (Unaudited).**

104)		Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101). **

* Filed herewith.

** Furnished herewith

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SIGNATURES

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

	THE EASTERN COMPANY
	(Registrant)
~~DATE: November 6, 2017~~	~~/s/A ugust M. Vlak~~
DATE: May 9, 2023	~~August M. Vlak~~ /s/Mark Hernandez
	Mark Hernandez President and Chief Executive Officer

DATE: ~~November 6, 2017~~May 9, 2023	/s/~~John L. Sullivan III~~ Nicholas Vlahos
	~~John L. Sullivan III~~ Nicholas Vlahos Vice President and Chief Financial Officer


~~DATE: November 6, 2017~~	~~/s/Angelo M. Labbadia~~ 26
	~~Angelo M. Labbadia~~
	~~Chief Operating Officer~~

ASSETS	September 30, 2017			December 31, 2016
Current Assets
Cash and cash equivalents	$	21,194,091		$	22,725,376
Marketable securities		366,554			--
Accounts receivable, less allowances: $507,000 - 2017; $430,000 - 2016		28,448,534			18,135,792
Inventories		45,207,813			34,030,286
Prepaid expenses and other assets		4,398,041			1,858,471
Total Current Assets		99,615,033			76,749,925


Property, Plant and Equipment		70,500,848			64,911,071
Accumulated depreciation		(41,629,685	)		(38,745,557	)
		28,871,163			26,165,514


Goodwill		32,395,740			14,819,835
Trademarks		3,680,037			166,312
Patents, technology, and other intangibles net of accumulated amortization		9,621,147			1,764,449
Deferred income taxes		1,180,355			4,532,361
		46,877,279			21,282,957
TOTAL ASSETS	$	175,363,475		$	124,198,396

LIABILITIES AND SHAREHOLDERS' EQUITY	September 30, 2017			December 31, 2016
Current Liabilities
Accounts payable	$	15,327,476		$	7,048,174
Accrued compensation		3,273,317			3,112,404
Other accrued expenses		6,360,362			1,812,647
Current portion of long-term debt		6,550,000			892,857
Total Current Liabilities		31,511,155			12,866,082

Other long-term liabilities		288,805			288,805
Long-term debt, less current portion		29,062,500			892,857
Accrued postretirement benefits		1,018,815			1,051,700
Accrued pension cost		25,780,522			26,631,438



Shareholders' Equity
Voting Preferred Stock, no par value:
Authorized and unissued: 1,000,000 shares
Nonvoting Preferred Stock, no par value:
Authorized and unissued: 1,000,000 shares
Common Stock, no par value:
Authorized: 50,000,000 shares
Issued: 8,956,144 shares in 2017 and 8,950,827 shares in 2016
Outstanding: 6,261,415 shares in 2017 and 6,256,098 shares in 2016		29,277,169			29,146,622
Treasury Stock: 2,694,729 shares in 2017 and 2016		(19,105,723	)		(19,105,723	)
Retained earnings		98,779,632			95,631,216

Accumulated other comprehensive income (loss):
Foreign currency translation		(902,749	)		(2,165,081	)
Unrealized loss on marketable securities and
derivative, net of tax		(9,479	)		--
Unrecognized net pension and postretirement benefit costs, net of tax		(20,419,472	)		(21,039,520	)
Accumulated other comprehensive loss		(21,331,700	)		(23,204,601	)
Total Shareholders' Equity		87,619,378			82,467,514
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	175,363,475		$	124,198,396

	Nine Months Ended						Three Months Ended
	September 30, 2017			October 1, 2016			September30, 2017			October 1, 2016
Net sales	$	150,095,975		$	103,463,316		$	56,007,937		$	33,478,347
Cost of products sold		(113,888,301	)		(77,980,077	)		(44,058,406	)		(24,105,604	)
Gross margin		36,207,674			25,483,239			11,949,531			9,372,743

Engineering expenses		(4,162,151	)		(1,991,260	)		(1,848,861	)		(663,705	)
Selling and administrative expenses		(23,749,219	)		(16,161,133	)		(6,527,029	)		(5,444,924	)
Operating profit		8,296,304			7,330,846			3,573,641			3,264,114

Interest expense		(659,884	)		(97,486	)		(327,206	)		(28,817	)
Other income		69,278			54,687			13,513			28,169
Income before income taxes		7,705,698			7,288,047			3,259,948			3,263,466

Income taxes		2,491,674			2,152,073			1,029,467			863,402
Net income	$	5,214,024		$	5,135,974		$	2,230,481		$	2,400,064

Earnings per Share:
Basic	$	.83		$	.82		$	.36		$	.38

Diluted	$	.83		$	.82		$	.35		$	.38

Cash dividends per share:	$	.33		$	.33		$	.11		$	.11

	September 30, 2017		December 31, 2016

Raw material and component parts	$	11,729,271	$	8,829,236
Work in process		9,456,164		7,118,149
Finished goods		24,022,378		18,082,901
	$	45,207,813	$	34,030,286

	Industrial Hardware Segment		Security Products Segment		Metal Products Segment		Total

Beginning balance	$	1,760,793	$	13,059,042	$	—	$	14,819,835
Investment – Velvac		17,502,024		—		—		17,502,024
Foreign exchange		73,881		—		—		73,881
Ending balance	$	19,336,698	$	13,059,042	$	—	$	32,395,740

	Industrial Hardware Segment		Security Products Segment		Metal Products Segment		Total		Weighted-Average Amortization Period (Years)
2017 Gross Amount
Patents and developed technology	$	7,111,906	$	1,069,594	$	--	$	8,181,500		12.2
Customer relationships		3,650,000		449,706		--		4,099,706		9.5
Non-compete agreements		--		407,000		--		407,000		5.0
Intellectual property		--		307,370		--		307,370		5.0
Total Gross Intangibles	$	10,761,906	$	2,233,670	$	--	$	12,995,576		10.8

2017 Accumulated Amortization
Patents and developed technology	$	1,888,433	$	663,254	$	--	$	2,551,687
Customer relationships		182,500		247,338		--		429,838
Non-compete agreements		--		223,850		--		223,850
Intellectual property		--		169,054		--		169,054
Accumulated Amortization	$	2,070,933	$	1,303,496	$	--	$	3,374,429

Net September 30, 2017 per Balance Sheet	$	8,690,973	$	930,174	$	--	$	9,621,147

2016 Gross Amount
Patents and developed technology	$	2,159,060	$	1,035,374	$	--	$	3,194,434	15.6
Customer relationships		--		449,706		--		449,706	5.0
Non-compete agreements		--		407,000		--		407,000	5.0
Intellectual property		--		307,370		--		307,370	5.0
Total Gross Intangibles	$	2,159,060	$	2,199,450	$	--	$	4,358,510	12.3

2016 Accumulated Amortization
Patents and developed technology	$	1,529,675	$	598,756	$	--	$	2,128,431
Customer relationships		--		179,882		--		179,882
Non-compete agreements		--		162,800		--		162,800
Intellectual property		--		122,948		--		122,948
Accumulated Amortization	$	1,529,675	$	1,064,386	$	--	$	2,594,061

Net December 31, 2016 per Balance Sheet	$	629,385	$	1,135,064	$	--	$	1,764,449

	Pension Benefits
	Nine Months Ended						Three Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016
Service cost	$	952,078		$	1,612,278		$	317,360		$	270,721
Interest cost		2,373,167			2,541,968			791,055			767,625
Expected return on plan assets		(3,587,682	)		(3,603,483	)		(1,195,895	)		(1,121,311	)
Amortization of prior service cost		109,312			150,427			36,438			50,143
Amortization of the net loss		923,614			1,319617			307,871			277,469
Net periodic benefit cost	$	770,489		$	2,020,807		$	256,829		$	244,647

	Postretirement Benefits
	Nine Months Ended						Three Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016
Service cost	$	20,542		$	21,975		$	6,847		$	7,325
Interest cost		60,620			71,154			20,206			23,718
Expected return on plan assets		(38,621	)		(35,649	)		(12,874	)		(11,883	)
Amortization of prior service cost		(16,083	)		(17,918	)		(5,361	)		(5,973	)
Amortization of the net loss		(58,201	)		(70,441	)		(19,400	)		(23,480	)
Net periodic benefit cost	$	(31,743	)	$	(30,879	)	$	(10,582	)	$	(10,293	)

	Three Months Ended September 30, 2017					Year Ended December 31, 2016
	Shares		Weighted - Average Exercise Price			Shares		Weighted - Average Exercise Price
Outstanding at beginning of period		174,500		$	20.39		--		$	--
Issued		--			--		--			--
Outstanding at end of period		174,500			20.39		--			--

SARs and Options Outstanding and Exercisable
Range of Exercise Prices	Outstanding as of September 30, 2017	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price	Exercisable as of September 30, 2017	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price
$19.10-21.10	174,500	4.4	$20.39	--	--	--

	Fair Value	Level 1	Level 2	Level 3
Financial Liabilities Interest rate swap	$ 82,302	$ --	$ 82,302	$ --
Total liabilities	$ 82,302	$ --	$ 82,302	$ --

Consideration
Cash	$	4,078,000
Debt		36,000,000
Contingent consideration arrangement		2,070,000
	$	42,148,000
Recognized amounts of identifiable assets acquired and liabilities assumed
Accounts receivable	$	6,063,429
Inventory		12,992,377
Prepaid and other assets		494,617
Property plant and equipment		3,911,767
Other noncurrent assets		366,401
Other intangible assets		11,560,000
Current liabilities		(7,720,591	)
Deferred tax liabilities		(3,022,000	)
Total identifiable net assets		24,646,000
Goodwill		17,502,000
	$	42,148,000

	Three Months Ended September 30, 2017
	Industrial			Security			Metal
	Hardware			Products			Products			Total
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of products sold		80.6	%		70.5	%		88.8	%		78.7	%
Gross margin		19.4	%		29.5	%		11.2	%		21.3	%

Engineering expense		4.1	%		3.0	%		--			3.3	%
Selling and administrative expense		9.8	%		16.5	%		9.0	%		11.6	%
Operating profit		5.5	%		10.0	%		2.2	%		6.4	%


	Three Months Ended October 1, 2016
	Industrial			Security			Metal
	Hardware			Products			Products			Total
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of products sold		72.7	%		65.7	%		88.8	%		72.0	%
Gross margin		27.3	%		34.3	%		11.2	%		28.0	%

Engineering expense		0.9	%		3.8	%		--			2.0	%
Selling and administrative expense		16.1	%		18.7	%		9.5	%		16.3	%
Operating profit		10.3	%		11.8	%		1.7	%		9.7	%

	Nine Months Ended September 30, 2017
	Industrial			Security			Metal
	Hardware			Products			Products			Total
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of products sold		77.1	%		69.8	%		84.8	%		75.9	%
Gross margin		22.9	%		30.2	%		15.2	%		24.1	%

Engineering expense		3.3	%		3.0	%		--			2.8	%
Selling and administrative expense		16.2	%		17.9	%		9.7	%		15.8	%
Operating profit		3.4	%		9.3	%		5.5	%		5.5	%


	Nine Months Ended October 1, 2016
	Industrial			Security			Metal
	Hardware			Products			Products			Total
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of products sold		74.7	%		69.2	%		97.1	%		75.4	%
Gross margin		25.3	%		30.8	%		2.9	%		24.6	%

Engineering expense		0.8	%		3.7	%		--			1.9	%
Selling and administrative expense		16.3	%		16.8	%		9.8	%		15.6	%
Operating profit		8.2	%		10.3	%		-6.9	%		7.1	%

	Third Quarter 2017			Third Quarter 2016			Year End 2016
Current ratio		3.1			5.7			6.0
Average days' sales in accounts receivable		53			53			49
Inventory turnover		3.5			3.1			3.0
Total debt to shareholders' equity		40.6	%		2.6	%		2.2	%