e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2009


o		TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from to

Commission File Number: 0-439

American Locker Group Incorporated

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		16-0338330 (I.R.S. Employer Identification No.)

815 South Main Street, Grapevine, Texas (Address of principal executive offices)		76051 (Zip code)

(817) 329-1600
(Registrant’s telephone number, including area code)

None
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the 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 o No þ

Indicated by a 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 during the preceding 12 months (or for a shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller Reporting Company þ
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 1,589,015 shares of common stock, par value $1.00, issued and outstanding as of February 8, 2010

FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q contains various “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve certain known and unknown risks and uncertainties, including, among others, those contained in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” When used in this Quarterly Report on Form 10-Q, the words “anticipates,” “plans,” “believes,” “estimates,” “intends,” “expects,” “projects,” “will” and similar expressions may identify forward-looking statements, although not all forward-looking statements contain such words. Such statements, including, but not limited to, the Company’s statements regarding business strategy, implementation of its restructuring plan, competition, new product development and liquidity and capital resources are based on management’s beliefs, as well as on assumptions made by, and information currently available to, management, and involve various risks and uncertainties, some of which are beyond the Company’s control. The Company’s actual results could differ materially from those expressed in any forward-looking statement made by or on the Company’s behalf. In light of these risks and uncertainties, there can be no assurance that the forward-looking information will in fact prove to be accurate. The Company has undertaken no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

The interim financial statements included herein are unaudited but reflect, in management’s opinion, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of financial position and the results of our operations for the interim periods presented.

The interim financial statements should be read in conjunction with the financial statements of American Locker Group Incorporated (the “Company”) and the notes thereto contained in the Company’s audited financial statements for the year ended December 31, 2008 presented in the Company’s Annual Report on Form 10-K that was filed with the Securities and Exchange Commission (the “SEC”) on February 2, 2010.

Interim results are not necessarily indicative of results for the full fiscal year.

American Locker Group Incorporated and Subsidiaries
Consolidated Balance Sheets (continued)


	March 31,
	2009			December 31,
	(Unaudited)			2008
Liabilities and stockholders’ equity
Current liabilities:

Line of credit	$	756,373		$	752,623
Current portion of long-term debt		—			173,354
Accounts payable		1,861,493			1,853,225
Accrued payroll and taxes		208,218			182,752
Income taxes payable		68,791			68,791
Other accrued expenses		610,870			151,841

Total current liabilities		3,505,745			3,182,586

Long-term liabilities:
Long-term debt, net of current portion		2,000,000			1,830,961

Pension, benefits and other long-term liabilities		1,194,807			1,169,306


		3,194,807			3,000,267

Total liabilities		6,700,552			6,182,853

Commitments and contingencies (Note 11)

Stockholders’ equity:
Common stock, $1.00 par value:
Authorized shares — 4,000,000
Issued shares — 1,763,849 in 2009 and 1,763,849 in 2008; Outstanding shares — 1,571,849 in 2009 and 1,571,849 in 2008		1,763,849			1,763,849
Other capital		235,638			233,841

Retained earnings		4,751,140			5,318,243

Treasury stock at cost, 192,000 shares		(2,112,000	)		(2,112,000	)
Accumulated other comprehensive loss		(592,941	)		(576,748	)


Total stockholders’ equity		4,045,686			4,627,185


Total liabilities and stockholders’ equity	$	10,746,238		$	10,810,038

The accompanying notes are an integral part of these consolidated financial statements.

American Locker Group Incorporated and Subsidiaries

Consolidated Statements of Cash Flows
(Unaudited)


	Three Months Ended March 31,
	2009			2008
Operating activities
Net loss	$	(567,103	)	$	(733,523	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		93,378			109,158
Loss (gain) on disposal of property, plant and equipment		957			(1,623	)
Provision for uncollectible accounts		10,500			(495	)
Equity based compensation		1,797			52,336
Deferred income taxes		(164,466	)		18,585
Changes in assets and liabilities:
Restricted cash		(181,374	)		—
Accounts receivable		110,294			15,184
Inventories		263,670			23,293
Prepaid expenses		13,311			(15,558	)
Accounts payable and accrued expenses		497,877			(33,190	)
Pension and other benefits		62,916			(72,834	)
Income taxes		—			13,025

Net cash provided by (used in) operating activities		141,757			(625,642	)

Investing activities
Proceeds from sale of property, plant and equipment		—			8,000
Purchase of property, plant and equipment		(28,294	)		(106,697	)

Net cash used in investing activities		(28,294	)		(98,697	)

Financing activities
Long-term debt payments		(2,004,315	)		(27,131	)
Borrowings under line of credit		3,750			250,804
Long-term debt borrowings		2,000,000			—

Net cash provided by (used in) financing activities		(565	)		223,673

Effect of exchange rate changes on cash		(10,104	)		(48,513	)

Net increase (decrease) in cash		102,794			(549,179	)
Cash and cash equivalents at beginning of period		279,984			1,561,951

Cash and cash equivalents at end of period	$	382,778		$	1,012,772


Supplemental cash flow information
Cash paid for:
Interest	$	30,572		$	40,348

Income taxes	$	—		$	—

The accompanying notes are an integral part of these consolidated financial statements

American Locker Group Incorporated and Subsidiaries

Notes to Consolidated Financial Statements

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of American Locker Group Incorporated (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q. Accordingly, the financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company’s management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of such condensed financial statements, have been included. Operating results for the three-month period ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ended December 31, 2009.

The consolidated balance sheet at December 31, 2008 has been derived from the Company’s audited financial statements at that date, but does not include all of the financial information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the Company’s consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Additional risks and uncertainties not presently known or that the Company currently deems immaterial may also impair its business operations. Should one or more of these risks or uncertainties materialize, the Company’s business, financial condition or results of operations could be materially adversely affected.

2. Inventories

Inventories are valued at the lower of cost or market value. Cost is determined using the first-in first-out method (FIFO).

Inventories consist of the following:


	March 31, 2009		December 31, 2008

Finished products	$	133,411	$	77,665
Work-in-process		740,433		1,071,218
Raw materials		1,258,594		1,247,302

Net inventories	$	2,132,438	$	2,396,185

3. Restricted Cash

The Company’s liquidity is affected by restricted cash balances, which are included in current and non-current assets and are not available for general corporate use. Current restricted cash was $121,374 and $0 as of March 31, 2009 and 2008, respectively. Non-current restricted cash was $60,000 and $0 as of March 31, 2009 and 2008, respectively. Restricted cash relates to escrows and reserves for our mortgage with F.F.F.C.,Inc.

4. Income Taxes

Provision for income taxes is based upon the estimated annual effective tax rate. The effective tax rate for the three months ended March 31, 2009 was 22.5%. The difference in the statutory rate and the effective rate is primarily due to a change in the valuation allowance of approximately $91,000 and $233,000 in 2009 and 2008, respectively.

5. Stockholders’ Equity

Changes in stockholders equity were due to changes in comprehensive loss as well as stock option compensation expense in 2009. Stock option compensation expense was recorded as an increase in other capital of $1,797. Changes in stockholders’ equity were also due to changes in comprehensive loss as well as the issuance of stock as compensation to non-employee directors in 2008.

Effective March 27, 2008, the Company issued 19,000 shares of common stock to non-employee directors and increased other capital by $45,600 representing compensation expense of $64,600. In addition, the Company also recorded an adjustment to estimated stock options compensation expense resulting in a benefit of $12,264 related to the forfeiture of 24,000 stock options by former employees. This benefit was recorded as a decrease to other capital of $12,264.

6. Comprehensive Income (Loss)

The following table summarizes net loss plus changes in accumulated other comprehensive loss, a component of stockholders’ equity in the consolidated statement of financial position.


	Three Months Ended March 31,
	2009			2008
Net loss	$	(567,103	)	$	(733,523	)
Foreign currency translation adjustments		(18,302	)		(68,299	)
Minimum pension liability adjustments, net of tax effect of $1,405 in 2009 and $4,689 in 2008		2,108			7,033

Total comprehensive loss	$	(583,297	)	$	(794,789	)

7. Pension Benefits

The following sets forth the components of net periodic employee benefit cost of the Company’s defined benefit pension plans for the three month periods ended March 31, 2009 and 2008, respectively:


	Three Months Ended March 31,
	Pension Benefits
	U.S. Plan						Canadian Plan
	2009			2008			2009			2008
Service cost	$	5,250		$	5,250		$	—		$	8,890
Interest cost		42,250			48,500			12,665			16,535
Expected return on plan assets		(33,750	)		(49,250	)		(15,323	)		(20,943	)
Net actuarial loss		13,750			—			1,208			2,515
Pension settlement charge		—			—			209,807			—

Net periodic benefit cost	$	27,500		$	4,500		$	208,357		$	6,997

The Company has frozen the accrual of any additional benefits under the U.S. defined benefit pension plan effective July 15, 2005.

Effective January 1, 2009, the Company converted its pension plan for its Canadian employees (the “Canadian Plan”) from a noncontributory defined benefit plan to a defined contribution plan. Until the conversion, benefits for the salaried employees were based on specified percentages of the employees’ monthly compensation. The conversion of the Canadian plan has the effect of freezing the accrual of future defined benefits under the plan. Under the defined contribution plan, the Company will contribute 3% of employee compensation plus 50% of employee elective contributions up to a maximum contribution of 5% of employee compensation.

As a consequence of the Company’s staff reductions at its Canadian subsidiary, the Company recorded a non-cash pension settlement charge of $209,807 in the first quarter of 2009.

For additional information on the defined benefit pension plans, please refer to Note 8 of the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

8. Earnings Per Share

The Company reports earnings per share in accordance with the Statement of Financial Accounting Standards No. 128, “Earnings Per Share.” The following table sets forth the computation of basic and diluted earnings per common share:


	Three Months Ended March 31,
	2009			2008
Numerator:
Net loss	$	(567,103	)	$	(733,523	)


Denominator:
Denominator for basic earnings per share — weighted average shares		1,571,849			1,550,351
Effect of Dilutive Securities:
Stock options		—			—


Denominator for diluted earnings per share — adjusted weighted average shares and assumed conversion		1,571,849			1,550,351


Basic loss per common share:
Net loss	$	(0.36	)	$	(0.47	)


Diluted loss per common share:
Net loss	$	(0.36	)	$	(0.47	)

The Company had 15,000 and 40,000 stock options outstanding at March 31, 2009 and 2008, respectively, which were not included in the common share computation for loss per share, as the common stock equivalents were anti-dilutive.

9. Debt

On March 19, 2009, the Company obtained a new $2 million mortgage loan from F.F.F.C., Inc. which was used to repay the existing mortgage loan with the F&M Bank & Trust Co. Interest on the loan was 12% per annum and is payable monthly. The loan was scheduled to mature on March 20, 2011. This mortgage loan was paid in full on September 18, 2009 in conjunction with the sale of the Company’s headquarters and primary manufacturing facility to the City of Grapevine.

On March 5, 2009, the Company renewed its $750,000 revolving line of credit with F&M Bank and Trust Company. The loan accrued interest at prime plus 75 basis points (0.75%). The revolving line of credit matured on June 5, 2009. The line of credit was secured by all accounts receivable, and inventory. The credit agreement underlying the revolving line of credit required compliance with certain covenants.

On July 29, 2009, the Company entered into a receivables purchase agreement (the “Agreement”) with Gulf Coast Bank and Trust Company (“GCBT”), pursuant to which the Company will sell certain of its accounts receivable to GCBT. GCBT will not purchase receivables from the Company if the total of all outstanding receivables held by it, at any time, exceeds $2,500,000. In addition, if a receivable is determined to be uncollectible or otherwise ineligible, GCBT may require the Company to repurchase the receivable.

The Agreement calls for the Company to pay a daily variable discount rate, which is the greater of prime plus one and one-half of one percent (1.50%) or six and one-half of one percent (6.5%) per annum, computed on the amount of outstanding receivables held by GCBT, for the period during which such receivables are outstanding. The Company will also pay a fixed discount percentage of 0.2% for each ten-day period during which receivables held by GCBT are outstanding.

The Company has granted to GCBT a security interest in certain assets to secure its obligations under the Agreement. The Agreement is terminable at any time by either the Company or GCBT upon the giving of notice. The agreement expires July 29, 2010.

10. Restructuring

As a result of the economic crisis, the Company implemented a restructuring plan in January 2009 to rationalize its cost structure in an uncertain economic environment. The restructuring included the elimination of approximately 50 permanent and temporary positions as well as an across the board 10% reduction in wages and a 15% reduction in the base fee paid to members of the Company’s Board of Directors. These reductions (representing approximately 40% of the Company’s workforce) resulted in severance and payroll tax charges during the three months ended March 31, 2009 of approximately $228,000. These payments are expected to be made over the next fifteen months. Additionally, the Company expects to incur $100,000 which has not been accrued for when it relocates its Ellicottville, New York operations to Texas in the first half of 2011. The restructuring and relocation is expected to result in approximately $1,400,000 in annual savings. To implement the restructuring plan, management anticipates incurring aggregate restructuring charges and costs of $396,000. Accrued restructuring expenses are included in “Other accrued liabilities” in the Company’s consolidated balance sheet.

The following table analyzes the changes incurred related to the Company’s reserve with respect to the restructuring plan which are included in “Other accrued liabilities” in the Company’s consolidated balance sheets as of December 31, 2008 and March 31, 2009:


	December							March 31,
	31, 2008		Expense		Payment/Charges			2009
Severance	$	—	$	228,000	$	(47,000	)	$	181,000
Professional fees		—		20,000		—		$	20,000
Other		—		12,000		—			12,000


Total	$	—	$	260,000	$	(47,000	)	$	213,000

11. Commitments and Contingencies

In July 2001, the Company received a letter from the New York State Department of Environmental Conservation (the “NYSDEC”) advising the Company that it is a potentially responsible party (“PRP”) with respect to environmental contamination at and alleged migration from property located in Gowanda, New York which was sold by the Company to Gowanda Electronics Corporation prior to 1980. In March 2001, the NYSDEC issued a Record of Decision with respect to the Gowanda site in which it set forth a remedy, including continued operation of an existing extraction well and air stripper, installation of groundwater pumping wells and a collection trench, construction of a treatment system in a separate building on the site, installation of a reactive iron wall covering 250 linear feet, which is intended to intercept any contaminates, and implementation of an on-going monitoring system. The NYSDEC has estimated that its selected remediation plan will cost approximately $688,000 for initial construction and a total of $1,997,000 with respect to expected operation and maintenance expenses over a 30-year period after completion of initial construction. The Company has not conceded to the NYSDEC that the Company is liable with respect to this matter and has not agreed with the NYSDEC that the remediation plan selected by NYSDEC is the most appropriate plan. This matter has not been litigated, and at the present time the Company has only been identified as a PRP. The Company also believes that other parties may have been identified by the NYSDEC as PRPs, and the allocation of financial responsibility of such parties has not been litigated. Based upon currently available information, the Company is unable to estimate timing with respect to the resolution of this matter. The NYSDEC has not commenced implementation of the remedial plan and has not indicated when construction will start, if ever. The Company’s primary insurance carrier has assumed the cost of the Company’s defense in this matter, subject to a reservation of rights.

Beginning in September 1998, the Company has been named as an additional defendant in approximately 200 cases pending in state court in Massachusetts and 1 in the state of Washington. The plaintiffs in each case assert that a division of the Company manufactured and furnished components containing asbestos to a shipyard during the period from 1948 to 1972 and that injury resulted from exposure to such products. The assets of this division were sold by the Company in 1973. During the process of discovery in certain of these actions, documents from sources outside the Company have been produced which indicate that the Company appears to have been included in the chain of title for certain wall panels which contained asbestos and which were delivered to the Massachusetts shipyards. Defense of these cases has been assumed by the Company’s insurance carrier, subject to a reservation of rights. Settlement agreements have been entered in approximately 27 cases with funds authorized and provided by the Company’s insurance carrier. Further, over 125 cases have been terminated as to the Company without liability to the Company under Massachusetts procedural rules. Therefore, the balance of unresolved cases against the Company as of September 8, 2009, the most current date through which information is available, is approximately 56 cases.

While the Company cannot estimate potential damages or predict the ultimate resolution of these asbestos cases as the discovery proceedings on the cases are not complete, based upon the Company’s experience to date with similar cases, as well as the assumption that insurance coverage will continue to be provided with respect to these cases, at the present time, the Company does not believe that the outcome of these cases will have a significant adverse impact on the Company’s operations or financial condition.

The Company is involved in other claims and litigation from time to time in the normal course of business. The Company does not believe these matters will have a significant adverse impact on the Company’s operations or financial condition.

12. Subsequent Events

Proceeds from the sales of receivables under the Agreement were used to repay the Company’s existing $750,000 revolving line of credit with the F&M Bank & Trust Co. The Company has granted to GCBT a security interest in certain assets to secure its obligations under the Agreement. The Agreement is terminable at any time by either the Company or GCBT upon the giving of notice. The Agreement expires on July 29, 2010.

On September 18, 2009, the Company closed on the sale of its headquarters and primary manufacturing facility to the City of Grapevine. The Company estimates the total value of the Agreement at $3,500,000. Under the Agreement, the City paid a purchase price of $2,747,000. In addition, the Company is entitled to continue to occupy the facility, through December 31, 2010, at no cost. The City has further agreed to pay the Company’s relocation costs within the Dallas-Fort Worth area and to pay the Company’s real property taxes for the Facility through December 31, 2010. Proceeds of the sale were used to pay off the $2 million mortgage to F.F.F.C., Inc. and for general working capital purposes.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Effect of New Accounting Guidance

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”). SFAS 165 incorporates guidance into accounting literature that was previously addressed only in auditing standards. SFAS 165 refers to subsequent events that provide additional evidence about conditions that existed at the balance-sheet date as “recognized subsequent events”. Subsequent events which provide evidence about conditions that arose after the balance-sheet date but prior to the issuance of the financial statements are referred to as “non-recognized subsequent events”. SFAS 165 also requires companies to disclose the date through which subsequent events have been evaluated and whether this date is the date the financial statements were issued or the date the financial statements were available to be issued. Statement 165 is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. The Company does not expect the adoption of SFAS 165 to have a significant impact on the consolidated financial statements.

In June 2009 the FASB issued Statement No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162” (“SFAS 168”). The FASB Accounting Standards Codification is intended to be the source of authoritative U.S. generally accepted accounting principles (GAAP) and reporting standards as issued by the Financial Accounting Standards Board. Its primary purpose is to improve clarity and use of existing standards by grouping authoritative literature under common topics. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Codification does not change or alter existing GAAP and there is no expected impact on our consolidated financial position or results of operations.

In June 2009 the SEC released Staff Accounting Bulletin No. 112 (“SAB 112”). SAB 112 amends or rescinds existing portions of the interpretive guidance included in the SEC’s Staff Accounting Bulletin Series to be consistent with the authoritative accounting guidance of FASB Statement No. 141 (revised 2007), Business Combinations (“FAS 141R”) and FASB Statement No. 160, Non-controlling Interests in Consolidated Financial Statements (“FAS 160”). SAB 112 is effective for the Company beginning with the first fiscal quarter of 2010 and will be utilized in conjunction with future business combinations accounted for in accordance with FAS 141R and non-controlling interests accounted for in accordance with FAS 160.

Results of Operations — the Three Months Ended March 31, 2009 Compared to the Three Months Ended March 31, 2008

Overall Results and Outlook

The financial market and economic turmoil and the related disruption of the credit markets caused a significant slowdown in new construction of multifamily and commercial buildings during the second half of 2008 and continuing through 2009. The economic crisis also negatively impacted our customers in the travel and recreation industries. New construction in these markets is a key driver of revenue for the Company. Consolidated net sales for the first three months of 2009 reflect a decline of $803,425 to $2,718,123 when compared to net sales of $3,521,548 for the same period of 2008, representing a 22.8% decline. This decrease was attributable primarily to the negative effects of the credit crisis as described above. Pre-tax operating results improved to a pre-tax loss of $731,569 for the first three months of 2009 from a pre-tax loss of $746,742 for the first three months of 2008. After-tax operating results improved to a net loss of $567,103 for the first three months of 2009 compared to a net loss of $733,523 for the first three months of 2008. Net loss was $.36 per share (basic and diluted) for the first three months of 2009, an improvement from a net loss of $.47 per share (basic and diluted) for the same period in 2008.

Net Sales

Consolidated net sales for the three months ended March 31, 2009 were $2,718,123, a decrease of $803,425, or 22.8%, compared to net sales of $3,521,548 for the same period of 2008. Sales of non-postal lockers for the three months ended March 31, 2009 were $1,693,308, a decrease of $593,093, or 25.9%, compared to sales of $2,286,401 for the same period of 2008. The non-postal locker decrease is primarily attributable to lower revenue from the Company’s Canada Locker Company, Ltd. (“Canadian Locker”) subsidiary. Canadian Locker revenue for the first three months of 2009 was approximately $490,000 less than revenue during the same period in 2008. In addition to the overall reduction in economic activity, Canadian Locker sales were negatively impacted by the decrease in value of the Canadian Dollar as compared to the United States Dollar from an average of $1.00 for the first three months of 2008 to an average of $0.81 for the first three months of 2009. The decrease in the value of the Canadian Dollar caused our products to be more expensive in Canadian Dollars which resulted in fewer sales. Sales of postal lockers were $1,024,815 for the three months ended March 31, 2009, a decrease of $210,332, or 17.0%, compared to sales of $1,235,147 for the same period of 2008. Lower postal locker sales were due primarily to lower sales of post office boxes to the United States Postal Service (“USPS”) and private customers. Post office box sales were negatively impacted by fewer new USPS post office openings as well as fewer private mail store openings in 2009 as compared to 2008.


	Three Months Ended March 31,				Percentage
	2009		2008		Increase/(Decrease)
Postal Lockers	$	1,024,815	$	1,235,147		(17.0	%)
Non-Postal Lockers		1,693,308		2,286,401		(25.9	%)

Total	$	2,718,123	$	3,521,548		(22.8	%)

Cost of Products Sold

Cost of products sold for the three months ended March 31, 2009 was $1,937,086, or 71.3% of net sales, compared to $2,701,882, or 76.7% of net sales, for the same period of 2008, a decrease of $764,796, or 28.3%. The decrease in the cost of sales as a percentage of sales was primarily due to reduced overhead expenses as a result of the Company’s restructuring plan as well as reduced raw material costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended March 31, 2009 were $973,572, or 35.8% of net sales, compared to $1,529,765, or 43.4%, of net sales for the same period of 2008, a decrease of $556,193, or 36.4%. This decrease was primarily due to reduced personnel costs related to the Company’s restructuring plan. Freight expenses decreased approximately $111,658 for the three month period ended March 31, 2009, as compared to the same period in 2008, as a result of the decreased net sales coupled with lower negotiated freight rates.

Restructuring Costs

As a result of the economic crisis, the Company implemented a restructuring in January 2009 to rationalize its cost structure in an uncertain economic environment. The restructuring included the elimination of approximately 50 permanent and temporary positions as well as an across the board 10% reduction in wages. These (a reduction of approximately 40%) resulted in severance and payroll tax charges during the three months ended March 31, 2009 of approximately $228,000. These payments are expected to be made over the next fifteen months. Additionally, the Company will relocate its Ellicottville, New York operations to Texas in the first half of 2011. The restructuring and relocation is expected to result in approximately $1,400,000 in annual savings. To implement the

restructuring plan, management anticipates incurring aggregate impairment charges and costs of $396,000. Refer to note 10 in Item 1 of the Quarterly Report on Form 10-Q for more detail related to restructuring costs incurred during the first three months of 2009.

Pension Settlement Charge

As a consequence of the Company’s staff reductions at its Canadian subsidiary, the Company recorded a non-cash pension settlement charge of $209,807 during the first three months of 2009. Refer to note 7 in Item 1 of the Quarterly Report on Form 10-Q for detail related to Pension Benefits during the first three months of 2009.

Interest Expense

Interest expense for the three month period ended March 31, 2009 was $39,151, an increase of $607, or 1.6%, compared to interest expense of $38,544 for the same period of 2008.

Income Taxes

For the three month period ended March 31, 2009, the Company recorded an income tax benefit of $164,466 compared to $13,219 for the same period of 2008. The Company’s effective tax rate on earnings was approximately 22.5% for the first three months of 2009 and 1.8% for the first three months of 2008. The effective tax rate was lower than the U.S Federal statutory tax rate primarily due to a change in the valuation allowance of approximately $91,000 and $233,000 for the first quarter of 2009 and 2008, respectively, due to the Company’s inability to record a tax benefit for losses from its U.S. subsidiaries.

Non-GAAP Financial Measure — Adjusted EBITDA

The Company presents the non-GAAP financial performance measure of Adjusted EBITDA because management uses this measure to monitor and evaluate the performance of the business and believes the presentation of this measure will enhance investors’ ability to analyze trends in the Company’s business, evaluate the Company’s performance relative to other companies, and evaluate the Company’s ability to service debt.

Adjusted EBITDA is not a presentation made in accordance with GAAP and our computation of Adjusted EBITDA may vary from other companies. Adjusted EBITDA should not be considered as an alternative to operating earnings or net income as a measure of operating performance. In addition, Adjusted EBITDA is not presented as and should not be considered as an alternative to cash flows as a measure of liquidity. Adjusted EBITDA has important limitations as an analytical tool and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. For example, Adjusted EBITDA (as computed by the Company):

	•		Does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

	•		Does not reflect changes in, or cash requirements for, our working capital needs;

	•		Does not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

	•		Excludes tax payments that represent a reduction in available cash;

	•		Excludes non-cash equity based compensation;

	•		Excludes one-time restructuring costs and pension settlement costs; and

	•		Does not reflect any cash requirements for assets being depreciated and amortized that may have to be replaced in the future.

The following table reconciles earnings as reflected in our condensed consolidated statements of operations prepared in accordance with GAAP to Adjusted EBITDA:


	Three Months Ended March 31,
	2009			2008
Net income (loss)	$	(567,103	)	$	(733,523	)
Income tax (benefit)		(164,466	)		(13,219	)
Interest expense		39,151			38,544
Depreciation and amortization expense		93,378			109,158
(Gain) loss on sale of equipment		957			(1,623	)
Equity based compensation		1,797			52,336
Restructuring costs		260,000			—
Pension settlement costs		209,807			—

Adjusted EBITDA	$	(126,479	)	$	(548,327	)
Adjusted EBITDA as a percentage of revenues		(4.7	%)		(15.6	%)

Liquidity and Sources of Capital

The Company’s liquidity is reflected by its current ratio, which is the ratio of current assets to current liabilities, and its working capital, which is the excess of current assets over current liabilities. These measures of liquidity are as follows:


	As of March 31,		As of December 31,
	2009		2008
Current Ratio		1.7 to 1		1.9 to 1
Working Capital	$	2,462,954	$	2,802,308

The decrease in working capital of $339,354 results primarily from the increase in the Company’s other accured expenses of $459,029 partially offset by the reclassification of $173,354 of current portion of long-term debt to long-term debt as a result of the Company’s new mortgage.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Raw Materials

The Company does not have any long-term commitments for the purchase of raw materials. With respect to its products that use steel and aluminum, the Company expects that any raw material price changes would be reflected in adjusted sales prices. The Company believes that the risk of supply interruptions due to such matters as strikes at the source of supply or to logistics systems is limited. Present sources of supplies and raw materials incorporated into the Company’s products are generally considered to be adequate and are currently available in the marketplace.

Foreign Currency

The Company’s Canadian operation subjects the Company to foreign currency risk, though it is not considered a significant risk since the Canadian operation’s net assets represented only 11.6% of the Company’s aggregate net assets as of March 31, 2009. Presently, management does not hedge its foreign currency risk.

Interest Rate Risks

On March 5, 2009, the Company renewed its $750,000 revolving line of credit with F&M Bank and Trust Company. The loan accrued interest at prime plus 75 basis points (0.75%).

Item 4. Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of its management, including its principal executive officer and principal accounting officer, of the effectiveness of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of March 31, 2009. These disclosure controls and procedures are designed to provide reasonable assurance to the Company’s management and board of directors that information required to be disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to its management, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, including consideration of the existence of the material weaknesses discussed below, the principal executive officer and principal accounting officer of the Company have concluded that the Company’s disclosure controls and procedures as of March 31, 2009 were not effective, at the reasonable assurance level, to ensure that (a) material information relating to the Company is accumulated and made known to the Company’s management, including its principal executive officer and principal accounting officer, to allow timely decisions regarding required disclosure and (b) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

In connection with the preparation of the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2008, which was filed late with the SEC on February 2, 2010, a material weaknesses was identified in Item 9A(T) of that Form 10-K.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Taking into account the communication dated February 1, 2010 by the Company’s independent registered public accounting firm to the Audit Committee of the Board of Directors, management has identified the following material weakness in the Company’s internal control over financial reporting:

Material weakness previously identified as of December 31, 2007 that continues to exist as of December 31, 2008:

•

Timeliness of Financial Reporting — Subsequent to the Company filing its September 30, 2008 quarterly report on Form 10-Q in a timely manner, the Company reduced its accounting staff as part of its January 2009 restructuring. In January 2009, management chose to delay the audit of the Company’s financial statements for the year ended December 31, 2008 in order to improve the Company’s liquidity position. Additionally, the Company was impacted by the unplanned departure of several key members of the accounting department after the restructuring was implemented. Once the decision was made to restore staffing levels in the accounting department to an adequate level, the rebuilding of accounting function took longer than anticipated. As a consequence of the foregoing, the Company has been unable to file its required interim and annual reports with the SEC in a timely manner.

Based on management’s assessment, and because of the material weakness described above, we have concluded that our internal control over financial reporting was not effective as of December 31, 2008.

Changes in Internal Control over Financial Reporting

We have developed and are implementing remediation plans to address our material weakness. We have taken the following actions to improve our internal control over financial reporting:

Actions implemented or initiated after 2008 to address the material weakness described above that exists as of December 31, 2008:

•

The Company is taking the following actions to strengthen controls over financial reporting to ensure the timely filing of required interim and annual financial reporting with the SEC which include; (i) the hiring of additional accounting and finance personnel will increase the Company’s ability to timely file interim and annual reports with the SEC; and (ii) the filing of late interim and annual financial reports with the SEC will reduce time spent by accounting and finance personnel on these matters.

PART II — OTHER INFORMATION

Item 6. Exhibits.

Except as otherwise indicated, the following documents are filed as part of this Quarterly Report on Form 10-Q:


Exhibit
Number		Description
31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934.

31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934.

32.1		Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


	March 31,
	2009		December 31,
	(Unaudited)		2008
Assets
Current assets:
Cash and cash equivalents	$	382,778	$	279,984
Restricted cash		121,374		—
Accounts receivable, less allowance for doubtful accounts of approximately $190,000 in 2009 and $180,000 in 2008		1,185,542		1,315,536
Inventories, net		2,132,438		2,396,185
Prepaid expenses		199,293		212,867
Income taxes receivable		1,599,892		1,599,892
Deferred income taxes		347,382		180,430

Total current assets		5,968,699		5,984,894

Property, plant and equipment:
Land		500,500		500,500
Buildings		3,502,616		3,503,515
Machinery and equipment		7,759,123		7,756,607

		11,762,239		11,760,622
Less allowance for depreciation and amortization		7,595,304		7,526,963

		4,166,935		4,233,659

Deferred income taxes		550,604		552,043
Restricted cash		60,000		—
Prepaid pension asset		—		39,442

		610,604		591,485

Total assets	$	10,746,238	$	10,810,038


	AMERICAN LOCKER GROUP INCORPORATED
February 9, 2010	By:	/s/ Allen D. Tilley
		Allen D. Tilley
		Chief Executive Officer


February 9, 2010	By:	/s/ Paul M. Zaidins
		Paul M. Zaidins
		President, Chief Operating Officer and Chief Financial Officer

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and



Date: February 9, 2010	By:	/s/ Allen D. Tilley
		Allen D. Tilley
		Chief Executive Officer

	(d)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(e)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(f)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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	Page No.
FORWARD-LOOKING INFORMATION		3

PART I — FINANCIAL INFORMATION		3
Item 1. Financial Statements		3
Consolidated Balance Sheets (Unaudited) as of March 31, 2009 and December 31, 2008		4
Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2009 and March 31, 2008		6
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2009 and March 31, 2008		7
Notes to Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3. Quantitative and Qualitative Disclosures About Market Risk		15
Item 4. Controls and Procedures		16

PART II — OTHER INFORMATION		17
Item 6. Exhibits		17

SIGNATURES		18
EX-31.1
EX-31.2
EX-32.1

	1.		I have reviewed this Quarterly Report on Form 10-Q of American Locker Group Incorporated;

	2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably like to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.