10-Q

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, 2010

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 þ No o

     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 “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

     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 equity, as of the latest practicable date: 1,600,338 shares of common stock, par value $1.00, issued and outstanding as of May 14, 2010.

TABLE OF CONTENTS

	Page No.
FORWARD-LOOKING INFORMATION		3
PART I — FINANCIAL INFORMATION		3
Item 1. Financial Statements		3
Consolidated Balance Sheets (Unaudited) as of March 31, 2010 and December 31, 2009		4
Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2010 and 2009		6
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2010 and 2009		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		15
PART II — OTHER INFORMATION		16
Item 6. Exhibits		16
SIGNATURES		17
EX-31.1
EX-31.2
EX-32.1

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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, 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, 2009 presented in the Company’s Annual Report on Form 10-K that was filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2010.

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

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American Locker Group Incorporated and Subsidiaries

Consolidated Balance Sheets

	March 31,			December 31,
	2010 (Unaudited)			2009
Assets
Current assets:
Cash and cash equivalents	$	1,476,487		$	526,752
Accounts receivable, less allowance for doubtful accounts of approximately $201,000 in 2010 and $216,000 in 2009		1,530,842			2,319,440
Inventories, net		2,492,939			2,378,017
Prepaid expenses		100,209			95,489
Income taxes receivable		—			1,409,696
Deferred income taxes		405,947			416,713
Total current assets		6,006,424			7,146,107
Property, plant and equipment:
Land		500			500
Buildings		396,185			394,739
Machinery and equipment		8,079,193			7,907,732
		8,475,878			8,302,971
Less allowance for depreciation and amortization		(7,170,713	)		(7,066,629	)
		1,305,165			1,236,342
Deferred income taxes		487,857			512,277
Total assets	$	7,799,446		$	8,894,726

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

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

	March 31,			December 31,
	2010 (Unaudited)			2009
Liabilities and stockholders’ equity
Current liabilities:
Secured borrowings from factoring agreement	$	—		$	428,588
Accounts payable		1,590,180			2,068,289
Commissions, salaries, wages, and taxes thereon		141,335			127,444
Income taxes payable		73,486			76,176
Deferred revenue		341,000			341,000
Other accrued expenses		221,046			346,941
Total current liabilities		2,367,047			3,388,438
Long-term liabilities:
Pension and other benefits		1,267,005			1,240,506
		1,267,005			1,240,506
Total liabilities		3,634,052			4,628,944
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common stock, $1.00 par value:
Authorized shares — 4,000,000 Issued shares — 1,792,338 in 2010 and 1,781,015 in 2009; Outstanding shares — 1,600,338 in 2010 and 1,589,015 in 2009		1,792,338			1,781,015
Other capital		252,853			242,846
Retained earnings		4,770,133			4,895,637
Treasury stock at cost, 192,000 shares		(2,112,000	)		(2,112,000	)
Accumulated other comprehensive loss		(537,930	)		(541,716	)
Total stockholders’ equity		4,165,394			4,265,782
Total liabilities and stockholders’ equity	$	7,799,446		$	8,894,726

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

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American Locker Group Incorporated and Subsidiaries

Consolidated Statements of Operations
(Unaudited)

	Three Months Ended March 31,
	2010			2009
Net Sales	$	2,739,238		$	2,718,123
Cost of products sold		1,799,952			1,937,086
Gross profit		939,286			781,037
Selling, general and administrative expenses		1,033,529			973,572
Restructuring costs		—			260,000
Pension settlement charge		—			209,807
Total selling, general and administrative		1,033,529			1,443,379
Total operating loss		(94,243	)		(662,342	)
Other income (expense):
Interest income		17,300			33
Other expense — net		(9,641	)		(30,109	)
Interest expense		(7,249	)		(39,151	)
Total other income (expense)		410			(69,227	)
Loss before income taxes		(93,833	)		(731,569	)
Income tax benefit (expense)		(31,668	)		164,466
Net loss	$	(125,501	)	$	(567,103	)
Weighted average common shares:
Basic		1,589,015			1,571,849
Diluted		1,589,015			1,571,849
Loss per share of common stock:
Basic	$	(0.08	)	$	(0.36	)
Diluted	$	(0.08	)	$	(0.36	)
Dividends per share of common stock	$	—		$	—

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

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American Locker Group Incorporated and Subsidiaries

Consolidated Statements of Cash Flows
(Unaudited)

	Three Months Ended March 31,
	2010			2009
Operating activities
Net loss	$	(125,501	)	$	(567,103	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		87,133			93,378
Loss on disposal of property, plant and equipment		—			957
Provision for uncollectible accounts		15,222			10,500
Equity based compensation		21,330			1,797
Deferred income taxes		33,473			(164,466	)
Changes in assets and liabilities:
Restricted cash		—			(181,374	)
Accounts receivable		654,974			110,294
Inventories		(244,798	)		263,670
Prepaid expenses		(4,416	)		13,311
Accounts payable and accrued expenses		(476,019	)		497,877
Pension and other benefits		29,029			62,916
Income taxes		1,407,006			—
Net cash provided by operating activities		1,397,433			141,757
Investing activities
Purchase of property, plant and equipment		(22,727	)		(28,294	)
Net cash used in investing activities		(22,727	)		(28,294	)
Financing activities
Long-term debt payments		—			(2,004,315	)
Repayment of factoring agreement		(428,588	)		—
Borrowings under line of credit		—			3,750
Long-term debt borrowings		—			2,000,000
Net cash used in financing activities		(428,588	)		(565	)
Effect of exchange rate changes on cash		3,617			(10,104	)
Net increase in cash and cash equivalents		949,735			102,794
Cash and cash equivalents at beginning of period		526,752			279,984
Cash and cash equivalents at end of period	$	1,476,487		$	382,778
Supplemental cash flow information:
Cash paid for:
Interest	$	7,128		$	30,572
Income taxes	$	7,587		$	—

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

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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, 2010 are not necessarily indicative of the results that may be expected for the year ended December 31, 2010.

The consolidated balance sheet at December 31, 2009 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, 2009.

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. Sale of Property

On September 18, 2009, the Company closed on the sale of its headquarters and primary manufacturing facility to the City of Grapevine (the “City”). 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.

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. The Company received a $341,000 payment towards the moving costs at close which is recorded as “deferred revenue” in the Company’s consolidated balance sheet as of March 31, 2010 and December 31, 2009. Proceeds of the sale were used to pay off the $2 million mortgage and for general working capital purposes.

3. 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, 2010		December 31, 2009
Finished products	$	58,835	$	76,303
Work-in-process		922,746		1,020,838
Raw materials		1,511,358		1,280,876
Net inventories	$	2,492,939	$	2,378,017

4. Income Taxes

The provision for income taxes is based upon the estimated annual effective tax rate. The effective tax rate for the three months ended March 31, 2010 and 2009 was 33.8% and 22.5%, respectively. The difference in the statutory rate and the effective rate is primarily due to a change in the valuation allowance of approximately $45,000 and $91,000 in 2010 and 2009 respectively.

5. Stockholders’ Equity

Changes in stockholders equity were due to a comprehensive loss of $121,714. On March 31, 2010, the Company issued 11,323 shares of common stock to non-employee directors and increased other capital by $10,007 representing compensation expense of $21,330.

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6. Comprehensive 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,
	2010			2009
Net loss	$	(125,501	)	$	(567,103	)
Foreign currency translation adjustments		7,579			(18,302	)
Minimum pension liability adjustments, net of tax effect of $(2,530) in 2010 and $1,405 in 2009		(3,793	)		2,108
Total comprehensive loss	$	(121,715	)	$	(583,297	)

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 months ended March 31, 2010 and 2009:

	Three Months Ended March 31,
	Pension Benefits
	U.S. Plan						Canadian Plan
	2010			2009			2010			2009
Service cost	$	5,250		$	5,250		$	—		$	—
Interest cost		43,750			42,250			17,226			12,665
Expected return on plan assets		(33,000	)		(33,750	)		(18,403	)		(15,323	)
Amortizations		10,500			—			—			—
Net actuarial loss		—			13,750			1,682			1,208
Pension Settlement Charge		—			—			—			209,807
Net periodic benefit cost	$	26,500		$	27,500		$	505		$	208,357

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.

The Fair Value Measurements and Disclosure Topic of the ASC require the categorization of financial assets and liabilities, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and lowest priority to unobservable inputs. The various values of the Fair Value Measurements and Disclosure Topic of the ASC fair value hierarchy are described as follows:

Level 1 — Financial assets and liabilities whose values are based on unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.

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Level 2 — Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable for substantially the full term of the asset or liability.

Level 3 — Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

The fair value hierarchy of the plan assets are as follows:

		March 31, 2010
		US Plan		Canadian Plan
Cash and cash equivalents	Level 1	$	—	$	11,554
Mutual funds	Level 1		—		1,168,697
Pooled separate accounts	Level 2		1,815,374		—
Total		$	1,815,374	$	1,180,251

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, 2009.

8. Earnings Per Share

The Company reports earnings per share in accordance with GAAP. The following table sets forth the computation of basic and diluted earnings per common share:

	Three Months Ended March 31,
	2010			2009
Numerator:
Net loss	$	(125,501	)	$	(567,103	)
Denominator:
Denominator for basic earnings per share — weighted average shares		1,589,015			1,571,849
Effect of Dilutive Securities:
Stock options		—			—
Denominator for diluted earnings per share — adjusted weighted average shares and assumed conversion		1,589,015			1,571,849
Basic loss per common share:
Net loss	$	(0.08	)	$	(0.36	)
Diluted loss per common share:
Net loss	$	(0.08	)	$	(0.36	)

The Company had 12,000 and 15,000 stock options outstanding at March 31, 2010 and 2009, 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 July 29, 2009, the Company entered into a receivables purchase 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 would require the Company to repurchase the receivable.

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The receivables purchase agreement calls for the Company to pay a daily variable discount rate, which is the greater of prime plus 1.5% or 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. Fees related to the receivables purchase agreement of $7,495 are recorded in interest expense in the 2010 Consolidated Statement of Operations.

Secured borrowings at December 31, 2009 of $428,588 represent the Company’s liability on the sale of accounts receivables with recourse. When the Company sells accounts receivable with recourse, the receivables remain recorded in accounts receivable, and an equivalent liability is recorded in short-term secured borrowings on the Company’s balance sheet until the customers pay the receivables outstanding. There were no secured borrowings at March 31, 2010.

10. Restructuring

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 (a reduction of approximately 40% of the Company’s workforce) 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 changes resulted in severance and payroll tax charges during the three months ended March 31, 2009 of approximately $260,000. As of March 31, 2010, these payments are expected to be made over the next nine months. Additionally, the Company expects to incur $100,000 in relocation expenses, which have 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 in the Company’s reserve with respect to the restructuring plan from December 31, 2009 to March 31, 2010:

	December							March 31,
	31, 2009		Expense		Payment/Charges			2010
Severance	$	157,000		—	$	(10,000	)	$	147,000
Professional fees		—		—		—			—
Other		12,000		—		—			12,000
Total	$	169,000		—	$	(10,000	)	$	159,000

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

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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 30 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 March 17, 2010, the most recent date data is available, is approximately 43 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.

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

Effect of New Accounting Guidance

In January 2010 the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. ASU 2010-06 amends Codification Subtopic 820-10 to now require a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; and in the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances and settlements. In addition, ASU 2010-06 clarifies the disclosures for reporting fair value measurement for each class of assets and liabilities and the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early application is permitted. The Company is currently evaluating the impact of the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements.

In February 2010 the FASB issued ASU No. 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. ASU 2010-09 reiterates that an SEC filer is required to evaluate subsequent events through the date that the financial statements are issued and eliminates the required disclosure of the date through which subsequent events have been evaluated. The updated guidance was effective upon issuance and its adoption had no impact on the Company’s consolidated financial statements.

Results of Operations — the Three Months Ended March 31, 2010 Compared to the Three Months Ended March 31, 2009

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 2010. 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 2010 reflect an increase of $21,115 to $2,739,238 primarily to increases in non-postal locker and contract manufacturing sales offsetting declines in postal locker sales. Pre-tax operating results improved to a pre-tax loss of $93,833 for the first three months of 2010 from a pre-tax loss of $731,569 for the first three months of 2009. After-tax operating results improved to a net loss of $125,501 for the first three months of 2010 compared to a net loss of $567,103 for the first three months of 2009. Net loss was $.08 per share (basic and diluted) for the first three months of 2010, an improvement from a net loss of $.36 per share (basic and diluted) for the same period in 2009.

Net Sales

Consolidated net sales for the three months ended March 31, 2010 were $2,739,238, an increase of $21,115, or 0.8%, compared to net sales of $2,718,123 for the same period of 2009. Sales of non-postal lockers for the three months ended March 31, 2010 were $1,824,338, an increase of $131,030, or 7.7%, compared to sales of $1,693,308 for the same period of 2009. The non-postal locker

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increase is primarily attributable to increased revenue from the Company’s Canada Locker Company, Ltd. (“Canadian Locker”) subsidiary as well as increased demand for the Company’s products in the United States. Sales of postal lockers were $542,011 for the three months ended March 31, 2010, a decrease of $482,804, or 47.1%, compared to sales of $1,024,815 for the same period of 2009. Lower postal locker sales were due primarily to the lack of new multifamily and commercial construction activity in the United States. The majority of the Company’s historical postal locker sales have come from new construction and the lack of new construction activity has greatly reduced the overall market for postal lockers.

	Three Months Ended March 31,				Percentage
	2010		2009		Increase/(Decrease)
Postal Lockers	$	542,011	$	1,024,815		(47.1	)%
Contract Manufacturing		372,889		—		—
Non-Postal Lockers		1,824,338		1,693,308		7.7	%
Total	$	2,739,238	$	2,718,123		0.8	%

Gross Margin

Consolidated gross margin for the three months ended March 31, 2010 was $939,286, or 34.3% of net sales, compared to $781,037, or 28.7% of net sales, for the same period of 2009, a increase of $158,249, or 20.3%. The increase in gross margin as a percentage of sales was primarily due to reduced raw material costs, decreased costs from the redesigned horizontal 4c mailbox and favorable sales mix.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended March 31, 2010 were $1,033,529 or 37.7% of net sales, compared to $973,572, or 35.8%, of net sales for the same period of 2009, an increase of $59,750, or 6.1%. This increase was primarily due to increased freight expenses. Freight expenses increased approximately $75,000 for the three month period ended March 31, 2010, as compared to the same period in 2009, as a result of the change in sales mix.

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 $260,000. These payments are expected to be made over the next nine 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 2010.

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 2010.

Interest Expense

Interest expense for the three month period ended March 31, 2010 was $7,249, a decrease of $31,902, or 81.5%, compared to interest expense of $39,151 for the same period of 2009. This decrease is due to the Company paying off all of its debt.

Income Taxes

For the three month period ended March 31, 2010, the Company recorded an income tax expense of $31,668 compared to a benefit of $164,466 for the same period of 2009. The Company’s effective tax rate on earnings was approximately 33.8% for the first three months of 2010 and (22.5)% for the first three months of 2009. 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 $45,000 and $91,000 for the first quarter of 2010 and 2009, respectively, due to the Company’s inability to record a tax benefit for losses from its U.S. and Canadian subsidiaries.

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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,
	2010			2009
Net loss	$	(125,501	)	$	(567,103	)
Income tax (benefit) expense		31,668			(164,466	)
Interest expense		7,249			39,151
Depreciation and amortization expense		87,133			93,378
Loss on sale of equipment		—			957
Equity based compensation		21,330			1,797
Restructuring costs		—			260,000
Pension settlement costs		—			209,807
Adjusted EBITDA	$	21,879		$	(126,479	)
Adjusted EBITDA as a percentage of revenues		0.8	%		(4.7	)%

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,
	2010		2009
Current Ratio		2.5 to 1		2.1 to 1
Working Capital	$	3,639,377	$	3,757,669

The decrease in working capital of $118,292 results primarily from the Company’s net loss of $125,501.

The Company’s primary sources of liquidity include available cash and cash equivalents and borrowings under the Receivables Agreement.

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Expected uses of cash in fiscal 2010 include funds required to support the Company’s operating activities, capital expenditures, relocation of the Company’s primary manufacturing facility and contributions to the Company’s defined benefit pension plans. The Company expects capital expenditures in 2010 to be higher than in 2009.

The Company has taken steps to enhance its liquidity position with the new Receivables Agreement, which expands its ability to leverage accounts receivable. The Company’s plans to manage the Company’s liquidity position in 2010 include maintaining an intense focus on controlling expenses, reducing capital expenditures, continuing the Company’s implementation of lean manufacturing processes and reducing inventory levels by increasing sales and using excess capacity by manufacturing products for outside parties.

The Company has considered the impact of the financial outlook on its liquidity and has performed an analysis of the key assumptions in its forecast. Based upon these analyses and evaluations, the Company expects that its anticipated sources of liquidity will be sufficient to meet its obligations without disposition of assets outside of the ordinary course of business or significant revisions of the Company’s planned operations through 2010.

On November 6, 2009, President Obama signed the Worker, Homeownership, and Business Assistance Act of 2009 (HR 3548) into law. The law includes a provision that allowed the Company to carry back its net operating loss for federal income tax purposes from 2008 for up to five years and obtain a refund to the extent that taxes were paid in the previous five years. As a result of this law, the Company received a refund in the amount of approximately $1,400,000 during the first quarter of 2010.

Credit markets have recently experienced significant dislocations and liquidity disruptions. These factors have materially impacted debt markets, making financing terms for borrowers less attractive, and in certain cases have resulted in the unavailability of certain types of debt financing. Continued uncertainty in the credit markets may negatively impact the Company’s ability to access additional debt financing on favorable terms, or at all. The credit market disruptions could impair the Company’s ability to fund operations, limit the Company’s ability to expand the business or increase interest expense, which could have a material adverse effect on the Company’s financial results.

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 17.1% of the Company’s aggregate net assets as of March 31, 2010. Presently, management does not hedge its foreign currency risk.

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, 2010. 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, 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, 2010 were 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. There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

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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.

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SIGNATURES

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

	AMERICAN LOCKER GROUP INCORPORATED
May 17, 2010	By:	/s/ Allen D. Tilley
		Allen D. Tilley
		Chief Executive Officer
May 17, 2010	By:	/s/ Paul M. Zaidins
		Paul M. Zaidins
		President, Chief Operating Officer and Chief Financial Officer

17

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Allen D. Tilley, certify that:

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)	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

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(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.

Date: May 17, 2010	By:	/s/ Allen D. Tilley
		Allen D. Tilley
		Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Paul M. Zaidins, certify that:

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:

(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

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

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.

Date: May 17, 2010	By:	/s/ Paul M. Zaidins
		Paul M. Zaidins
		President, Chief Operating Officer and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certifications Pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of American Locker Group Incorporated (the “Company”) on Form 10-Q for the quarter ended March 31, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the respective capacities and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1)	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 17, 2010

/s/ Allen D. Tilley  

Allen D. Tilley 

Chief Executive Officer 

/s/ Paul M. Zaidins  

Paul M. Zaidins 

President, Chief Operating Officer and
Chief Financial Officer