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: September 30, 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	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 equity, as of the latest practicable date: 1,621,956 shares of common stock, par value $1.00, issued and outstanding as of November 3, 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 September 30, 2010 and December 31, 2009		4
Consolidated Statements of Operations (Unaudited) for the Nine Months Ended September 30, 2010 and 2009		6
Consolidated Statements of Operations (Unaudited) for the Three Months Ended September 30, 2010 and 2009		7
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2010 and 2009		8
Notes to Consolidated Financial Statements		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3. Quantitative and Qualitative Disclosures About Market Risk		19
Item 4. Controls and Procedures		19
PART II — OTHER INFORMATION		20
Item 6. Exhibits		20
SIGNATURES		21
EX-31.1
EX-31.2
EX-32.1

2

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.

3

American Locker Group Incorporated and Subsidiaries

Consolidated Balance Sheets

	September 30,			December 31,
	2010 (Unaudited)			2009
Assets
Current assets:
Cash and cash equivalents	$	1,149,301		$	526,752
Accounts receivable, less allowance for doubtful accounts of approximately $173,000 in 2010 and $216,000 in 2009		1,614,910			2,319,440
Inventories, net		2,990,926			2,378,017
Prepaid expenses		187,903			95,489
Income taxes receivable		—			1,409,696
Deferred income taxes		415,288			416,713
Total current assets		6,358,328			7,146,107
Property, plant and equipment:
Land		500			500
Buildings		395,695			394,739
Machinery and equipment		8,075,806			7,907,732
		8,472,001			8,302,971
Less allowance for depreciation and amortization		(7,301,338	)		(7,066,629	)
		1,170,663			1,236,342
Deferred income taxes		439,543			512,277
Total assets	$	7,968,534		$	8,894,726

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

4

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

	September 30,			December 31,
	2010 (Unaudited)			2009
Liabilities and stockholders’ equity
Current liabilities:
Secured borrowings from factoring agreement	$	—		$	428,588
Accounts payable		1,397,178			2,068,289
Commissions, salaries, wages, and taxes thereon		150,017			127,444
Income taxes payable		71,556			76,176
Deferred revenue		341,000			341,000
Other accrued expenses		322,572			346,941
Total current liabilities		2,282,323			3,388,438
Long-term liabilities:
Pension and other benefits		1,301,162			1,240,506
		1,301,162			1,240,506
Total liabilities		3,583,485			4,628,944
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common stock, $1.00 par value:
Authorized shares — 4,000,000 Issued shares — 1,813,956 in 2010 and 1,781,015 in 2009; Outstanding shares — 1,621,956 in 2010 and 1,589,015 in 2009		1,813,956			1,781,015
Other capital		260,423			242,846
Retained earnings		4,963,540			4,895,637
Treasury stock at cost, 192,000 shares		(2,112,000	)		(2,112,000	)
Accumulated other comprehensive loss		(540,870	)		(541,716	)
Total stockholders’ equity		4,385,049			4,265,782
Total liabilities and stockholders’ equity	$	7,968,534		$	8,894,726

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

5

American Locker Group Incorporated and Subsidiaries

Consolidated Statements of Operations
(Unaudited)

	Nine Months Ended September 30,
	2010			2009
Net Sales	$	8,800,340		$	8,654,627
Cost of products sold		5,513,219			5,581,190
Gross profit		3,287,121			3,073,437
Selling, general and administrative expenses		3,143,405			2,871,705
Restructuring costs		—			296,118
Pension settlement charge		—			209,807
Total selling, general and administrative		3,143,405			3,377,630
Total operating income (loss)		143,716			(304,193	)
Other income (expense):
Interest income		17,629			33
Loss on sale of property, plant and equipment		—			(13,352	)
Other income (expense) — net		(4,663	)		44,049
Interest expense		(11,957	)		(244,191	)
Total other income (expense)		1,009			(213,461	)
Income (loss) before income taxes		144,725			(517,654	)
Income tax benefit (expense)		(76,822	)		87,720
Net income (loss)	$	67,903		$	(429,934	)
Weighted average common shares:
Basic		1,600,439			1,571,849
Diluted		1,600,439			1,571,849
Income (loss) per share of common stock:
Basic	$	0.04		$	(0.27	)
Diluted	$	0.04		$	(0.27	)
Dividends per share of common stock	$	—		$	—

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

6

American Locker Group Incorporated and Subsidiaries

Consolidated Statements of Operations
(Unaudited)

	Three Months Ended September 30,
	2010			2009
Net Sales	$	2,948,706		$	2,890,719
Cost of products sold		1,801,888			1,815,192
Gross profit		1,146,818			1,075,527
Selling, general and administrative expenses		1,039,251			903,218
Total selling, general and administrative		1,039,251			903,218
Total operating income		107,567			172,309
Other income (expense):
Interest income		120			—
Loss on sale of property, plant and equipment		—			(12,396	)
Other income (expense) — net		8,936			26,322
Interest expense		(2,158	)		(132,960	)
Total other income (expense)		6,898			(119,034	)
Income before income taxes		114,465			53,275
Income tax (expense) benefit		7,857			(21,264	)
Net income (loss)	$	122,322		$	32,011
Weighted average common shares:
Basic		1,611,343			1,571,849
Diluted		1,611,343			1,571,849
Income (loss) per share of common stock:
Basic	$	0.08		$	0.02
Diluted	$	0.08		$	0.02
Dividends per share of common stock	$	—		$	—

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

7

American Locker Group Incorporated and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
	2010			2009
Operating activities
Net loss	$	67,903		$	(429,934	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		230,000			272,562
Loss on disposal of property, plant and equipment		—			13,352
Provision for uncollectible accounts		20,000			31,500
Equity based compensation		50,518			4,795
Deferred income taxes		73,034			(99,494	)
Changes in assets and liabilities:
Restricted cash		—			—
Accounts receivable		652,366			(283,540	)
Inventories		(742,785	)		185,578
Prepaid expenses		(92,275	)		14,101
Accounts payable and accrued expenses		(643,998	)		341,068
Pension and other benefits		62,328			97,446
Income taxes		1,405,076			192,918
Net cash provided by operating activities		1,082,167			340,352
Investing activities
Proceeds from sale of property, plant & equipment		—			2,747,000
Purchase of property, plant and equipment		(33,262	)		(73,019	)
Net cash used in investing activities		(33,262	)		2,673,981
Financing activities
Long-term debt payments		—			(4,004,315	)
Repayment of factoring agreement		(428,588	)		(757,081	)
Borrowings under line of credit		—			4,458
Long-term debt borrowings		—			2,000,000
Net cash used in financing activities		(428,588	)		(2,756,938	)
Effect of exchange rate changes on cash		2,232			(102	)
Net increase in cash and cash equivalents		622,549			257,293
Cash and cash equivalents at beginning of period		526,752			279,984
Cash and cash equivalents at end of period	$	1,149,301		$	537,277
Supplemental cash flow information:
Cash paid for:
Interest	$	13,898		$	206,139
Income taxes	$	12,185		$	—

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 consolidated financial statements, have been included. Operating results for the nine-month period ended September 30, 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 closing which is recorded as “Deferred revenue” in the Company’s consolidated balance sheet as of September 30, 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:

	September 30, 2010		December 31, 2009
Finished products	$	193,934	$	76,303
Work-in-process		941,889		1,020,838
Raw materials		1,855,103		1,280,876
Net inventories	$	2,990,926	$	2,378,017

4. Income Taxes

Provision for income taxes is based upon the estimated annual effective tax rate. The effective tax rate for the nine months ended September 30, 2010 and 2009 was 53.1% and 36.6%, respectively. The difference in the statutory rate and the effective rate is primarily due to a change in the valuation allowance of approximately $7,000 and $122,000 in 2010 and 2009 respectively.

5. Stockholders’ Equity

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. On June 30, 2010, the Company issued 11,005 shares of common stock to directors and officers and increased other capital by $6,933 representing compensation expense of $17,938. On

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September 30, 2010, the Company issued 10,613 shares of common stock to directors and officers and increased other capital by $637 representing compensation expense of $17,938. Changes in stockholders’ equity were also due to comprehensive income of $68,749.

6. Comprehensive Loss

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

	Nine Months Ended September 30,
	2010			2009
Net Income	$	67,903		$	(429,934	)
Foreign currency translation adjustments		3,354			27,467
Minimum pension liability adjustments, net of tax effect of $(1,672) in 2010 and $(8,208) in 2009		(2,508	)		(12,311	)
Total comprehensive income (loss)	$	68,749		$	(414,778	)

	Three Months Ended September 30,
	2010		2009
Net Income	$	122,322	$	32,011
Foreign currency translation adjustments		7,225		15,580
Minimum pension liability adjustments, net of tax effect of $1,583 in 2010 and $(4,440) in 2009		2,642		(6,658	)
Total comprehensive income (loss)	$	132,189	$	40,933

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 nine and three months ended September 30, 2010 and 2009:

	Nine Months Ended September 30,
	Pension Benefits
	U.S. Plan						Canadian Plan
	2010			2009			2010			2009
Service cost	$	15,750		$	15,570		$	—		$	—
Interest cost		131,250			126,750			51,872			39,238
Expected return on plan assets		(99,000	)		(101,250	)		(55,417	)		(47,473	)
Net actuarial loss		21,000			41,250			—			3,743
Pension Settlement Charge		—			—			—			209,807
Net periodic benefit cost	$	69,000		$	82,320		$	(3,545	)	$	205,315

	Three Months Ended September 30,
	Pension Benefits
	U.S. Plan					Canadian Plan
	2010		2009			2010			2009
Service cost	$	5,250	$	5,250		$	—		$	—
Interest cost		43,750		42,250			17,308			13,495
Expected return on plan assets		(33,000)		(33,750	)		(18,491	)		(16,327	)
Net actuarial loss		7,000		13,750			—			1,287
Net periodic benefit cost	$	23,000	$	27,500		$	(1,183	)	$	(1,545	)

10

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 requires 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.

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:

		September 30, 2010
		US Plan		Canadian Plan
Cash and cash equivalents	Level 1		—	$	18,083
Mutual funds	Level 1		—		1,128,251
Pooled separate accounts	Level 2	$	1,827,008		—
Total		$	1,827,008	$	1,146,334

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 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:

	Nine Months Ended September 30,
	2010		2009
Numerator:
Net income (loss)	$	67,903	$	(429,934	)
Denominator:
Denominator for earnings per share (basic and diluted) — weighted average shares		1,600,439		1,571,849
Loss per common share (basic and diluted):	$	0.04	$	(0.27	)

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	Three Months Ended September 30,
	2010		2009
Numerator:
Net income (loss)	$	122,322	$	32,011
Denominator:
Denominator for earnings per share (basic and diluted) — weighted average shares		1,611,343		1,571,849
Income (loss) per common share (basic and diluted):	$	0.08	$	0.02

The Company had 12,000 and 15,000 stock options outstanding at September 30, 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.

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 $9,799 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 September 30, 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 resulted in severance and payroll tax charges during the three and nine months ended September 30, 2009 of approximately $36,000 and $264,000, respectively. As of September 30, 2010, the remaining balance of these payments is expected to be made over the next three 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 during 2011. The relocation is expected to result in approximately $240,000 in annual savings when completed. To implement the restructuring plan, management anticipates incurring aggregate restructuring charges and costs of $396,000. Accrued restructuring expenses of $149,000 are included in “Other accrued expenses” 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 September 30, 2010:

	December 31, 2009		Expense		Payment/Charges			September 30, 2010
Severance	$	157,000		—	$	(20,000	)	$	137,000
Other		12,000		—		—			12,000
Total	$	169,000		—	$	(20,000	)	$	149,000

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The following table analyzes the changes in the Company’s reserve with respect to the restructuring for the three months ended September 30, 2010:

	June 30, 2010		Expense		Payment/Charges		September 30, 2010
Severance	$	137,000		—	$	—	$	137,000
Other		12,000		—		—		12,000
Total	$	149,000		—	$	—	$	149,000

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 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.

13

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 on the Company’s disclosures for reporting 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 Nine Months Ended September 30, 2010 Compared to the Nine Months Ended September 30, 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 the Company’s 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 nine months of 2010 reflect an increase of $145,713, as compared to 2009, to $8,800,340 primarily due 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 profit of $144,725 for the first nine months of 2010 from a pre-tax loss of $517,654 for the first nine months of 2009. After-tax operating results improved to a net profit of $67,903 for the first nine months of 2010 compared to a net loss of $429,934 for the first nine months of 2009. Net income was $0.04 per share (basic and diluted) for the first nine months of 2010, an improvement from a net loss of $0.27 per share (basic and diluted) for the same period in 2009.

Net Sales

Consolidated net sales for the nine months ended September 30, 2010 were $8,800,340, an increase of $145,713, or 1.7% compared to net sales of $8,654,627 for the same period of 2009. Sales of non-postal lockers for the nine months ended September 30, 2010 were $6,644,273, an increase of $1,300,010, or 24.3%, compared to sales of $5,344,263 for the same period of 2009. The non-postal locker increase is primarily attributable to increased market share resulting from the Company organizing outside sales efforts to focus on larger projects and inside sales to focus on facilitating smaller orders and servicing distributors. Additionally, the sales of products with the Company’s new electronic access technologies are increasing. Sales of postal lockers were $1,743,239 for the nine months ended September 30, 2010, a decrease of $1,567,125, or 47.3%, compared to sales of $3,310,364 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. Sales of contract manufacturing services were $412,828 for the nine months ended September 30, 2010 compared to $0 for the same period of 2009. Contract manufacturing includes the manufacture of metal furniture, electrical enclosures and other metal products for third party customers. Revenue from contract manufacturing is volatile and should be expected to vary substantially from quarter to quarter.

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	Nine Months Ended September 30,				Percentage
	2010		2009		Increase/(Decrease)
Postal Lockers	$	1,743,239	$	3,310,364		(47.3	)%
Contract Manufacturing		412,828		—		—
Non-Postal Lockers		6,644,273		5,344,263		24.3	%
Total	$	8,800,340	$	8,654,627		1.7	%

Gross Margin

Consolidated gross margin for the nine months ended September 30, 2010 was $3,287,121, or 37.4% of net sales, compared to $3,073,437, or 35.5% of net sales, for the same period of 2009, an increase of $213,684, or 7.0%. The increase in gross margin as a percentage of sales was primarily due to continuing improvement in manufacturing efficiency from the Company’s LEAN manufacturing initiatives, reorganization, select product redesign, cost cutting and improved internal controls.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the nine months ended September 30, 2010 were $3,143,405, or 35.7% of net sales, compared to $2,871,705, or 33.1% of net sales for the same period of 2009, an increase of $271,700, or 9.5%. This increase was primarily due to increased freight expenses of approximately $130,000 for the nine month period ended September 30, 2010, as compared to the same period in 2009, as a result of higher freight rates. Additionally, incentive compensation expenses increased $116,000 due to the adoption of a companywide incentive compensation plan for 2010.

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 (a reduction of approximately 40%) as well as an across the board 10% reduction in wages. These resulted in severance and payroll tax charges during the three and nine months ended September 30, 2009 of approximately $36,000 and $264,000. These payments are expected to be made over the next three months. Additionally, the Company expects to relocate its Ellicottville, New York operations to Texas during 2011. The relocation is expected to result in approximately $240,000 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 detail related to restructuring costs incurred during the first nine 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 nine 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 nine months of 2010.

Interest Expense

Interest expense for the nine month period ended September 30, 2010 was $11,957, a decrease of $232,234, or 95.1%, compared to interest expense of $244,191 for the same period of 2009. This decrease is due to the Company paying off all of its interest bearing debt in the first quarter of 2010.

Income Taxes

For the nine months ended September 30, 2010, the Company recorded an income tax expense of $76,822, compared to an income tax benefit of $87,720 for the same period of 2009. The Company’s effective tax rate on earnings was approximately 53.1% for the first nine months of 2010 and 16.9% in the first nine months of 2009. The effective tax rate for the first nine months of 2010 was higher than the U.S. Federal statutory tax rate due to a change in the valuation allowance of approximately $7,000 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

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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:

• 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:

	Nine Months Ended September 30,
	2010			2009
Net income (loss)	$	67,903		$	(429,934	)
Income tax expense (benefit)		76,822			(87,720	)
Interest expense		11,957			244,191
Depreciation and amortization expense		230,000			275,562
Loss on sale of equipment		—			13,352
Equity based compensation		50,518			4,795
Restructuring costs		—			296,118
Pension settlement costs		—			209,807
Adjusted EBITDA	$	437,200		$	523,171
Adjusted EBITDA as a percentage of revenues		5.0	%		6.0	%

Results of Operations — Three Months Ended September 30, 2010 Compared to the Three Months Ended September 30, 2009

Overall Results and Outlook

The financial market and economic turmoil and related disruption of the credit markets has 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 has 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 third quarter of 2010 reflect an increase in net sales of $57,987 to $2,948,706 when compared to net sales of $2,890,719 for the same period of 2009, representing a 2.0% increase. This increase was primarily attributable to increases in non-postal locker sales offsetting declines in postal locker sales. Pre-tax operating results improved to a pre-tax profit of $114,465 for the third quarter of 2010 from a pre-tax profit of $53,275 for the third quarter of 2009. After tax operating results improved to net income of $122,322 for the third quarter of 2010 from net income of $32,011 for the third quarter of 2009. Net income per share (basic and diluted) was $0.08 in the third quarter of 2010, an increase from a net income per share (basic and diluted) of $0.02 for the third quarter of 2009.

Net Sales

Consolidated net sales for the three months ended September 30, 2010 were $2,948,706, an increase of $57,987, or 2.0%, compared to net sales of $2,890,719 for the same period of 2009. Sales of non-postal lockers for the three months ended September 30, 2010 were

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$2,302,339, an increase of $571,574, or 33.0%, compared to sales of $1,730,765 for the same period of 2009. The non-postal locker increase is primarily attributable to increased market share resulting from the Company organizing outside sales efforts to focus on larger projects and inside sales to focus on facilitating smaller orders and servicing distributors. Additionally, the sales of products with the Company’s new electronic access technologies are increasing. Sales of postal lockers were $623,789 for the three months ended September 30, 2010, a decrease of $536,165, or 46.2%, compared to sales of $1,159,954 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 continuing lack of new construction activity continues to limit the overall market for postal lockers. Sales of contract manufacturing services were $22,578 for the three months ended September 30, 2010 compared to $0 for the same period of 2009. Contract manufacturing includes the manufacture of metal furniture, electrical enclosures and other metal products for third party customers. Revenue from contract manufacturing is volatile and should be expected to vary substantially from quarter to quarter.

	Three Months Ended September 30,				Percentage
	2010		2009		Increase/(Decrease)
Postal Lockers	$	623,789	$	1,159,954		(46.2	)%
Contract Manufacturing		22,578		—		—
Non-Postal Lockers		2,302,339		1,730,765		33.0	%
Total	$	2,948,706	$	2,890,719		2.0	%

Gross Margin

Consolidated gross margin for the three months ended September 30, 2010 was $1,146,818, or 38.9% of net sales, compared to $1,075,527, or 37.2% of net sales, for the same period of 2009, an increase of $71,291, or 6.6%. The increase in gross margin as a percentage of sales was primarily due to continuing improvement in manufacturing efficiency from the Company’s LEAN manufacturing initiatives, reorganization, cost cutting and improved internal controls.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended September 30, 2010 were $1,039,251, or 35.2% of net sales, compared to $903,218, or 31.2% of net sales, for the same period of 2009, an increase of $136,033, or 15.1%. This increase was primarily due to incentive compensation expenses increasing $56,000 for the three months ended September 30, 2010, as compared to the same period in 2009. The increase in incentive compensation expense is primarily due to the adoption of a Companywide incentive compensation plan for 2010. Additionally, freight expenses increased approximately $30,000 for the three month period ended September 30, 2010, as compared to the same period in 2009, as a result of increased freight rates.

Interest Expense

Interest expense for the three month period ended September 30, 2010 was $2,158, a decrease of $130,802, or 98.4%, compared to interest expense of $132,960 for the same period of 2009. This decrease is due to the Company paying off all of its interest bearing debt in the first quarter of 2010.

Income Taxes

For the third quarter of 2010, the Company recorded an income tax benefit of $7,857 compared to an income tax expense of $21,264 for the same period of 2009. The Company’s effective tax rate on earnings was approximately 6.9% and 39.9% in the third quarter of 2010 and 2009, respectively. The lower effective tax rate in 2010 was primarily due to a reduction in the valuation allowance of $48,000 due to the Company utilizing its net operating loss to offset earnings.

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 believe 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 the computation used by 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

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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:

• 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; and

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

• Excludes onetime expenses and equity compensation.

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 September 30,
	2010			2009
Net income (loss)	$	122,322		$	32,011
Income tax expense (benefit)		(7,857	)		21,264
Interest expense		2,158			132,960
Depreciation and amortization expense		65,838			85,663
Loss on sale of equipment		—			12,396
Equity based compensation		11,250			1,201
Restructuring costs		—			—
Adjusted EBITDA	$	193,711		$	285,495
Adjusted EBITDA as a percentage of revenues		7.0	%		9.9	%

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 were as follows:

	As of September 30,		As of December 31,
	2010		2009
Current Ratio		2.8 to 1		2.1 to 1
Working Capital	$	4,076,005	$	3,757,669

The increase in working capital of $318,336 relates primarily to the net income for the nine months ended September 30, 2010 of $67,903, adjusted for depreciation of $230,000.

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

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, 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

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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.

Over the last two years, credit markets have 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 13.7% of the Company’s aggregate net assets at September 30, 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 September 30, 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 September 30, 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
November 4, 2010	By:	/s/ Allen D. Tilley
		Allen D. Tilley
		Chief Executive Officer

November 4, 2010	By:	/s/ Paul M. Zaidins
		Paul M. Zaidins
		President, Chief Operating Officer and Chief Financial Officer

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