10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ	ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2007
o	TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	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	16-0338330
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.	)
815 South Main Street Grapevine, Texas	76051 (Zip Code	)
(Address of principal executive offices)

(817) 329-1600

(Registrant’s telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act:

Title of Each Class Name of Each Exchange on Which Registered

None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, Par Value $1.00 Per Share

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes o     No þ

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained in this form, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

As of June 16, 2008, 1,568,516 shares of Common Stock, $1.00 par value per share, were outstanding. The aggregate market value of the Common Stock held by non-affiliates was $4,140,677 based on the $3.02 price at which the Common Stock was last sold on June 11, 2008. Shares of Common Stock known by the Registrant to be beneficially owned by directors and officers of the Registrant and other persons known the Registrant to have beneficial ownership of 5% or more of the outstanding Common Stock are not included in the computation. The Registrant, however, has made no determination that such persons are “affiliates” within the meaning of Rule 12b-2 under the Securities Exchange Act of 1934.

DOCUMENTS INCORPORATED BY REFERENCE

None

TABLE OF CONTENTS

PART I
	Item 1. Business.
	Item 1A. Risk Factors.
	Item 1B. Unresolved Staff Comments.
	Item 2. Properties.
	Item 3. Legal Proceedings.
	Item 4. Submission of Matters to a Vote of Security Holders.
PART II
	Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
	Item 6. Selected Financial Data.
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
	Item 8. Financial Statements and Supplementary Data.
	Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
	Item 9A(T). Controls and Procedures
	Item 9B. Other Information
PART III
	Item 10. Directors, Executive Officers and Corporate Governance
	Item 11. Executive Compensation.
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
	Item 13. Certain Relationships and Related Transactions, and Director Independence
	Item 14. Principal Accountant Fees and Services.
PART IV
	Item 15. Exhibits, Financial Statement Schedules.

FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K 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 1. Business,” “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” When used in this Annual Report on Form 10-K, the words “anticipates,” “plans,” “believes,” “estimates,” “intends,” “expects,” “projects,” “will” and similar expressions may identify forward-looking statements, although not all forward-looking statements contain such words. Such statements, including, but not limited to, the Company’s statements regarding business strategy, implementation of its restructuring plan, competition, new product development and liquidity and capital resources are based on management’s beliefs, as well as on assumptions made by, and information currently available to, management, and involve various risks and uncertainties, some of which are beyond the Company’s control. The Company’s actual results could differ materially from those expressed in any forward-looking statement made by or on the Company’s behalf. In light of these risks and uncertainties, there can be no assurance that the forward-looking information will in fact prove to be accurate. The Company has undertaken no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I

Item 1.   Business.

Overview

American Locker Group Incorporated (the “Company”) is a leading manufacturer and distributor of lockers, locks and keys with a wide-range of applications for use in numerous industries. The Company is best known for manufacturing and servicing the widely-utilized key and lock system with the iconic plastic orange cap. The Company serves customers in a variety of industries in all 50 states, Canada, Mexico, Europe, India and South America.

The Company’s lockers can be categorized as either postal lockers or non-postal lockers. Postal lockers are used for the delivery of mail, packages and other parcels. Non-postal lockers are used for applications other than mail delivery, though most of our non-postal lockers are key controlled checking lockers.

The following table sets forth selected products of the Company, the primary industries we serve and some of our representative customers:

Selected products/service:

Recreation lockers — stainless steel, painted steel or aluminum and plastic lockers typically secured by a coin operated lock for storage by patrons of amusement parks, water parks, ski resorts and swimming pools.

Coin operated keys and locks — manufactured in the Company’s Ellicottville, New York facility for use in new lockers or for replacement in existing lockers.

USPS approved multi-tenant mail distribution lockers — lockers are typically installed in apartment and commercial buildings and consist of the USPS-approved Horizontal 4c and Horizontal 4b+ models. The Horizontal 4c provides for lay flat mail delivery and was mandated by the USPS to replace the 4b+ for use in new construction after October 5, 2006.

Private mail delivery lockers — used for the internal distribution of mail in colleges and universities as well as large corporate offices.

Electronic distribution lockers — used to distribute items such as industrial supplies and library books using an electronic locking mechanism.

Evidence lockers — used by law enforcement agencies to securely store evidence.

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Laptop lockers — used by large corporations, libraries and schools to recharge laptop computers in secure storage environment.

Mini-check lockers — used by health clubs, law enforcement, the military and intelligence agencies to securely store small items such as cell phones, wallets and keys.

Selected end user types:	Amusement parks
	Water parks
	Apartment buildings
	Law enforcement
	Health clubs
	Ski resorts
	Colleges and Universities
	Military
	Post Offices
Selected customers:	Walt Disney World
	Sea World
	Vail Associates
	University of Colorado
	United States Air Force
	Busch Gardens
	AT&T
	United States Postal Service
	The UPS Store

The Company was incorporated as the Automated Voting Machine Corporation on December 15, 1958, as a subsidiary of Rockwell Manufacturing Company (“Rockwell”). In April 1964, the Company’s shares were distributed to the stockholders of Rockwell, and it thereby became a publicly held corporation. From 1965 to 1989, the Company acquired and disposed of a number of businesses, including the disposition of its original voting machine business. In 1985, the Company’s name was changed to American Locker Group Incorporated.

In July 2001, the Company acquired Security Manufacturing Corporation (“SMC”). SMC manufactures aluminum multi-tenant mail lockers, which historically have been sold to the United States Postal Service (“USPS”) and private markets. The Company made this acquisition to increase its product offerings to existing customers, provide additional products to attract new customers and to increase its market share in the postal market.

On February 8, 2005, the Company announced that it was notified that its contract with the USPS for polycarbonate and aluminum cluster box units (“CBUs”) would not be renewed, and the contract expired on May 31, 2005. From May 31, 2005 through September 2007, the Company continued selling its aluminum CBU model (Model E) to the private market. On May 8, 2007, the USPS notified the Company that, effective September 8, 2007, the USPS would decertify the Company’s Model E CBU. Beginning in September 2007, the Company’s revenues and profitability were and continue to be adversely affected by this decertification. During 2007, 2006 and 2005, sales to the USPS accounted for 3.7%, 3.2%, and 21.4%, respectively, of the Company’s net sales. In addition, sales of the current model polycarbonate and aluminum CBUs to the private market in 2007, 2006 and 2005 accounted for an additional 28.4%, 35.6%, and 32.5% of the Company’s sales, respectively.

On November 30, 2007, the Company announced that the USPS had rejected the Company’s application to manufacture the USPS-B-1118 CBU. In rejecting the Company’s application, the USPS cited weaknesses in the Company’s financial and inventory controls that existed in 2005 and 2006. Although the Company had remedied many of these weaknesses during the 2007 fiscal year, the USPS noted that such remedies had not been in place long enough to be subjected to review as part of the Company’s annual audit. Please see Management’s Annual Report on Internal Control over Financial Reporting included in this Annual Report on Form 10-K under Item 9a(T). However, the USPS did advise the Company that it could resubmit its application within a reasonable period of time. Accordingly, the Company intends to evaluate the feasibility of reapplying to manufacture the USPS-B-1118 CBU at a later time.

As a result of the decertification of the Model E CBU and the USPS rejection of the Company’s application to manufacture the USPS-B-1118 CBU, the Company has implemented a series of operational changes for the purpose

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of streamlining operations and lowering costs. These changes include the adoption of lean manufacturing processes and a reduction of administrative costs. These changes will be augmented by an increased focus on selling value-added niche products (which have higher margins than the USPS licensed CBUs) and improving the Company’s sales and distribution efforts.

Edward Ruttenberg resigned from his positions as Chairman, Chief Executive Officer, Chief Operating Officer and Treasurer effective January 31, 2008. Mr. Ruttenberg continues to serve as a member of Board of Directors. In connection with Mr. Ruttenberg’s resignation, John E. Harris, a current member of the Company’s Board of Directors, was appointed as non-executive Chairman of the Board of Directors on January 11, 2008. Also on January 11, 2008, Allen D. Tilley, who is also a current member of the Company’s Board of Directors, was appointed as Chief Executive Officer of the Company, and Paul M. Zaidins, the Company’s current Chief Financial Officer, was appointed as President and Chief Operating Officer of the Company. Mr. Zaidins will continue to perform his duties as Chief Financial Officer, and, as President and Chief Operating Officer, now oversees the Company’s day-to-day business operations.

Business Segment Financial Information

The Company, including its foreign subsidiary, is engaged primarily in one business: the sale of lockers, including coin, key-only and electronically controlled checking lockers and related locks and aluminum centralized mail and parcel distribution lockers. Please see the Company’s consolidated financial statements included in this Annual Report on Form 10-K under Item 8.

Competition

While the Company is not aware of any reliable trade statistics, it believes that its wholly-owned subsidiaries, American Locker Security Systems, Inc. and Canadian Locker Co., Ltd. are the dominant suppliers of key/coin controlled checking lockers in the United States and Canada. The Company faces active competition from several manufacturers of postal locker products sold in the private market. USPS specifications limit the Company’s ability to develop Postal Lockers which have significant product performance differentiation from competitors. As a result, the Company differentiates itself in the Postal Locker market by offering a higher level of quality and service coupled with competitive prices. To the Company’s knowledge, it is the only company that manufactures both the lock and locker components featured in the products the Company sells in the non-postal locker markets in which the Company competes. Additionally, the Company believes that its recreation lockers possess a reputation in the marketplace of high quality and reliability. The Company believes this integrated secured storage solution, when combined with the Company’s high level of service, quality and the reliability of its products, is a competitive advantage that differentiates the Company from its competitors in the non-postal locker markets.

Raw Materials

Present sources of supplies and raw materials incorporated into the Company’s metal, aluminum and plastic lockers and locks are generally considered to be adequate and are currently available in the marketplace.

Inflation in raw material and other prices has become an increasing factor in the general economy, and the Company continues to seek ways to mitigate its impact. For example, the Company experienced significant increases in steel and aluminum prices in 2007, 2006 and 2005, the two primary raw materials utilized in the Company’s operations. The average cost per pound of aluminum based on the three month buyer contract on the London Metals Exchange was $1.2077, $1.1752, and $.8613 in 2007, 2006 and 2005, respectively, representing increases of 2.8% from 2006 to 2007 and 36.4% from 2005 to 2006. To the extent permitted by competition, the Company passes increased costs on to its customers by increasing sales prices over time.

The Company intends to seek additional ways to control the administrative costs necessary to successfully run the business. By controlling these costs, the Company can continue to competitively price its products with other top quality locker manufacturers and distributors.

The Company’s metal coin operated and electronic lockers were manufactured through mid-year 2006 by Signore, Inc. pursuant to a manufacturing agreement that terminated effective May 24, 2006. From May 2006

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through the second quarter of 2008, the Company’s metal lockers were manufactured by contract manufacturers. Beginning in the second quarter of 2008, the Company’s wholly-owned subsidiary, SMC, began manufacturing painted steel and stainless steel coin operated lockers. The Company’s aluminum mailboxes are manufactured and sold by SMC.

Patents

The Company owns a number of patents, none of which it considers to be material to the conduct of its business.

Employees

The Company and its subsidiaries actively employed 126 individuals on a full-time basis as of December 31, 2007, 9 of whom were based in Canada. The Company considers its relations with its employees to be satisfactory. None of the Company’s employees are represented by a union.

Dependence on Material Customer

During 2007, 2006 and 2005, sales to one customer, the USPS, accounted for 3.7%, 3.2% and 21.4%, respectively, of net sales. In addition, sales of polycarbonate and aluminum CBUs to the private market accounted for an additional 28.4%, 35.6% and 32.5% of the Company’s sales in 2007, 2006 and 2005, respectively. In February 2005, the Company was notified that its contract with the USPS for polycarbonate and aluminum CBUs would not be renewed, and the contract expired on May 31, 2005. On May 8, 2007, the USPS notified the Company that, effective September 8, 2007, the USPS would decertify the Company’s Model E CBU.

The Company did not have any customer that was responsible for greater than 10% of consolidated revenue in 2007 and 2006. The Company sells lockers to foreign countries including Brazil, Canada, Chile, Greece, India, and the United Kingdom. During 2007, 2006 and 2005, sales to foreign countries accounted for 13.2%, 14.3% and 9.3%, respectively of consolidated net sales.

Research and Development

The Company engages in research and development activities relating to new and improved products. It expended $309,038, $324,835 and $31,930, in 2007, 2006 and 2005, respectively, for such activity in its continuing businesses.

Compliance with Environmental Laws and Regulations

The Company’s facilities and operations are subject to various federal, state and local laws and regulations relating to environmental protection and human health and safety. Some of these laws and regulations may impose strict, joint and several liability on certain persons for the cost of investigation or remediation of contaminated properties. These persons may include former, current or future owners or operators of properties and persons who arranged for the disposal of hazardous substances. The Company’s owned and leased real property may give rise to such investigation, remediation and monitoring liabilities under applicable environmental laws. In addition, anyone disposing of hazardous substances on such sites must comply with applicable environmental laws. Based on the information available to it, the Company believes that, with respect to its currently owned and leased properties, it is in material compliance with applicable federal, state and local environmental laws and regulations. See “Item 3. Legal Proceedings” and Note 16 to the Company’s consolidated financial statements included under “Item 8. Financial Statements and Supplementary Data” for further discussion with respect to the settlement of certain environmental litigation.

Backlog and Seasonality

Backlog of orders is not significant in the Company’s business, as shipments usually are made shortly after orders are received. The Company’s sales do not have marked seasonal variations.

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Available Information

The Company files with the U.S. Securities and Exchange Commission (the “SEC”) quarterly and annual reports on Forms 10-Q and 10-K, respectively, current reports on Form 8-K, and proxy statements pursuant to the Securities Exchange Act of 1934, in addition to other information as required. The public may read and copy any materials that the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580 Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at (800) SEC-0330. The Company files this information with the SEC electronically, and the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. The Company also maintains a website at http://www.americanlocker.com. The contents of the Company’s website are not part of this Annual Report on Form 10-K.

Also, copies of the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Exchange Act will be made available, free of charge, as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC, upon written request to the Company.

Item 1A.   Risk Factors.

The Company’s results from continuing operations and its financial position could be adversely affected in the future by known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control. Some of these factors are described in more detail in this Annual Report on Form 10-K and in the Company’s other filings with the SEC. Additional risks and uncertainties not presently known to the Company or that the Company currently deems immaterial may also impair its business operations. Should one or more of any of these risks or uncertainties materialize, the Company’s business, financial condition or results of operations could be materially adversely affected.

The Company has recently implemented a series of operational changes intended to reduce operating expenses. If the changes do not have the intended effects, the Company’s ability to remain in business may be adversely affected.

As a result of the decertification of the Model E CBU and the USPS rejection of the Company’s application to manufacture the USPS-B-1118 CBU, the Company has implemented a series of operational changes for the purpose of streamlining operations and lowering costs. These changes include the adoption of lean manufacturing processes and a reduction of administrative costs. These changes will be augmented by a shift in the Company’s business focus to selling value-added niche products (which have higher margins than the USPS licensed CBUs) and improving the Company’s sales and distribution efforts.

The operational changes implemented by management assume that certain material changes in the operations of the Company will be sufficient to allow the Company to continue in operation despite the decertification of the Model E CBU by the USPS, the sales of which provided over 30% of the Company’s sales revenues in each of 2006 and 2005. If the operational changes do not adequately reduce the Company’s expenses, the Company’s ability to remain in business would be adversely affected.

The Company may not obtain USPS approval to manufacture the new USPS-B-1118 CBU. If approval to manufacture the new CBU is not received, the Company’s results of operations and its business and financial condition could be materially adversely affected.

On May 8, 2007, the USPS notified the Company that, effective September 8, 2007, the USPS would decertify the Company’s Model E CBU. Sales to the private market of the Model E CBU accounted for 28.4%, 35.6%, and 32.5% of the Company’s sales in 2007, 2006 and 2005, respectively. On November 30, 2007, the Company announced that the USPS had rejected the Company’s application to manufacture the USPS-B-1118 CBU. In rejecting the Company’s application, the USPS cited weaknesses in the Company’s financial and inventory controls that existed in 2005 and 2006. Although the Company remedied most of these weaknesses during the 2007 fiscal year, the USPS noted remedies had not been in place long enough to be subjected to review as part of the Company’s

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annual audit. Please see Management’s Annual Report on Internal Control over Financial Reporting included in this Annual Report on Form 10-K under Item 9a(T) . However, the USPS did advise the Company that it could resubmit its application within a reasonable period of time. Accordingly, the Company intends to evaluate the feasibility of reapplying to manufacture the USPS-B-1118 CBU at a later time. While the Company intends to shift its business plan to increase its focus on its higher-margin niche products to offset the loss of revenues from the USPS, failure to obtain USPS approval to manufacture the USPS-B-1118 CBU, the Company’s results of operations, business and financial condition may be materially adversely affected.

The Company has experienced rising raw materials costs, which it may not be able to successfully mitigate.

Inflation in raw material and other prices has become an increasing factor in the general economy, and the Company continues to seek ways to mitigate its impact. For example, the Company experienced significant increases in steel and aluminum prices in 2007 and 2006. To the extent permitted by competition, the Company seeks to mitigate the adverse impact of rising costs of sales through price increases. The Company’s ability to implement price increases is dependent on market conditions, economic factors, raw material costs and availability, competitive factors, operating costs and other factors, some of which are beyond the Company’s control. Further, the benefits of any implemented price increases may be delayed due to manufacturing lead times and the terms of existing contracts. If the Company is not able to successfully mitigate the effects of rising raw materials costs, the Company’s results of operations, business and financial condition may be materially adversely affected.

The Company’s business is materially impacted by general economic conditions and the threat of terrorist activity.

The Company’s business depends, in part, upon private sales to customers in the housing, travel and other recreational industries. Any decline in general economic conditions in the United States or any heightened threat of terrorist and military actions could adversely affect the Company’s ability (and the ability of its suppliers and customers) to accurately forecast and plan future business activities, as these conditions particularly impact customers of the Company that operate theme parks, resorts and other travel-dependent businesses. As a result, customers could reduce their purchases of the Company’s products or delay the timing of their purchases from the Company, either of which may have a material adverse effect on the Company’s results of operations, business and financial condition.

The Company’s future success will depend, in large part, upon its ability to successfully introduce new products.

The Company believes that its future success will depend in part upon its ability to develop, manufacture and successfully introduce new products, particularly the USPS-B-1118 CBU. The Company’s ability to successfully develop, introduce and sell new products depends upon a variety of factors, including new product selection, timely and efficient completion of product design and development, timely and efficient implementation of manufacturing and assembly processes and effective sales and marketing initiatives related to the new products. Given the Company’s current financial position, the Company may not have enough capital on hand to develop, manufacture and successfully introduce new products, and a failure to do so or to obtain the necessary capital in order to do so would have a material adverse effect on the Company.

Item 1B.   Unresolved Staff Comments.

None.

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Item 2.   Properties.

The location and approximate floor space of the Company’s principal plants, warehouses and office facilities are as follows (* indicates leased facility):

		Approximate
		Floor Space
Location	Subsidiary	In Sq. Ft.			Use
Ellicottville, NY	American Locker Security Systems, Inc.—Lock Shop		12,800		Lock manufacturing, service and repair
Toronto, Ontario	Canadian Locker Company, Ltd.		4,000	*	Sales, service and repair of coin-operated lockers and locks
Toronto, Ontario	Canadian Locker Company, Ltd.		3,000	*	Warehouse
Grapevine, TX	Altreco, Inc. (Operated by Security Manufacturing Corporation)		70,000		Manufacturing and corporate headquarters
TOTAL			89,800

The Company believes that its facilities, which are of varying ages and types of construction, and the machinery and equipment utilized in such facilities, are in good condition and are adequate for the Company’s presently contemplated needs.

Item 3.   Legal Proceedings.

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 and continuing through the date of filing of this Annual Report on Form 10-K, the Company has been named as an additional defendant in approximately 165 cases pending in state court in Massachusetts. 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 20 cases with funds authorized and provided by the Company’s insurance carrier. Further, over 100 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 May 9, 2008 is approximately 45 cases.

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While the Company cannot estimate potential damages or predict what the ultimate resolution of these asbestos cases may be because 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 case, 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 routine 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 4.   Submission of Matters to a Vote of Security Holders.

The 2007 Annual Meeting of the stockholders of the Company (the “Annual Meeting”) was held on December 6, 2007. At the Annual Meeting, the following persons were elected to serve as directors until the annual meeting of the Company’s stockholders following the fiscal year ending December 31, 2007 and until his or her respective successor is elected and qualified, or until his or her earlier death, resignation or removal from office, by the votes indicated:

					Abstain/Broker
	For		Against		Non-Votes
Edward F. Ruttenberg		1,294,287		12,656		N/A
Craig R. Frank		1,246,685		60,258		N/A
John E. Harris		1,101,875		205,068		N/A
Allen E. Tilley		1,248,685		58,258		N/A
James T. Vanasek		1,092,219		214,724		N/A
Anthony B. Johnston		1,246,697		60,246		N/A
Mary A. Stanford		1,247,189		59,754		N/A

During the Annual Meeting, the stockholders also ratified the appointment of Travis, Wolff & Company, L.L.P. as the Company’s auditors for 2008, by the votes indicated below:

					Abstain/Broker
	For		Against		Non-Votes
Appointment of Travis, Wolff & Company, L.L.P.		1,157,179		146,508		3,256

No other matters were voted on during the Annual Meeting. For further information with respect to the matters presented to the stockholders for approval at the Annual Meeting, please refer to our Definitive Proxy Statement on Schedule 14A, filed with the SEC on November 2, 2007.

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PART II

Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Prices and Dividends

The Company’s common stock, par value $1.00 per share, is not currently listed on any exchange. As of the opening of business on April 3, 2006, the Company voluntarily delisted its common stock from the Nasdaq Stock Market. The last trading day for the Company’s common stock on the Nasdaq National Market was Friday, March 31, 2006. The Company’s common stock currently is quoted on The Pink Sheets under the symbol “ALGI.PK”. The following table shows the range of the low and high sale prices and bid information, as applicable, for the Company’s common stock in each of the calendar quarters indicated. Such information reflects inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.

Market Price
Per Common Share

2007	High		Low
Quarter ended December 31, 2007	$	5.40	$	3.60
Quarter ended September 30, 2007		5.65		3.90
Quarter ended June 30, 2007		4.50		4.00
Quarter ended March 31, 2007		4.82		3.20

2006	High		Low
Quarter ended December 31, 2006	$	4.55	$	4.00
Quarter ended September 30, 2006		5.00		4.10
Quarter ended June 30, 2006		7.00		4.10
Quarter ended March 31, 2006		5.74		4.37

The last reported sales price of our common stock as of December 31, 2007 was $3.75. The Company had 1,281 security holders of record as of that date.

The Company has not paid dividends on its common stock in the two most recent fiscal years, or since then, and does not presently plan to pay dividends in the foreseeable future. The Company currently expects that earnings will be retained and reinvested to support either business growth or debt reduction.

Equity Compensation Plan Information

The following table summarizes as of December 31, 2007, the shares of common stock authorized for issuance under our equity compensation plans:

					Number of Securities
	Number of Securities to be		Weighted-Average		Remaining Available
	Issued Upon Exercise of		Exercise Price of		for Future Issuance
	Outstanding Options,		Outstanding Options,		Under Equity
	Warrants and Rights		Warrants and Rights		Compensation Plans
Equity compensation plans approved by security holders(1)		64,000	$	6.12		37,000
Equity compensation plans not approved by security holders		—		—		—
Total		64,000	$	6.12		37,000

(1) Includes the American Locker Group Incorporated 1999 Stock Incentive Plan. Please see Note 10 “Stock-Based Compensation” to the Company’s consolidated financial statements for further information.

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Item 6.   Selected Financial Data.

The following table sets forth selected historical financial data of the Company as of, and for the years ended December 31, 2007, 2006, 2005, 2004 and 2003. The historical selected financial information derived from the Company’s audited financial information may not be indicative of the Company’s future performance and should be read in conjunction with the information contained in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Item 8. Financial Statements and Supplementary Data,” “Item 1. Description of Business,” and Note 17 to the Company’s consolidated financial statements in this Annual Report on Form 10-K.

	For the Years Ended December 31,
	2007			2006		2005			2004		2003
Sales	$	20,242,803		$	25,065,090	$	32,303,689		$	49,653,129	$	39,738,702
Income (loss) before income taxes		(2,749,743	)		845,224		(9,512,121	)		4,682,147		3,406,707
Income taxes		(845,626	)		300,904		(1,272,006	)		1,874,567		1,339,899
Net income (loss)		(1,904,117	)		544,320		(8,240,115	)		2,807,580		2,066,808
Earnings (loss) per share — basic		(1.23	)		0.35		(5.35	)		1.83		1.36
Earnings (loss) per share — diluted		(1.23	)		0.35		(5.35	)		1.80		1.33
Weighted average common shares outstanding — basic		1,549,516			1,547,392		1,540,179			1,534,146		1,523,429
Weighted average common shares outstanding — diluted		1,549,516			1,547,392		1,540,179			1,557,931		1,554,328
Dividends declared		0.00			0.00		0.00			0.00		0.00
Interest expense		195,280			184,257		333,389			456,865		529,642
Depreciation and amortization expense		386,430			396,304		562,078			706,929		893,236
Expenditures for property, plant and equipment		818,646			98,591		475,775			280,562		543,146
YEAR-END POSITION
Total assets		12,416,042			14,517,522		15,241,854			29,152,613		26,037,617
Long-term debt, including current portion		2,143,765			2,178,042		2,316,210			6,668,596		8,305,487
Stockholders’ equity		7,758,161			9,302,162		8,614,629			16,840,232		14,148,546
Stockholders’ equity per share(1)		5.01			6.00		5.57			10.98		9.22
Common shares outstanding at year-end		1,549,516			1,549,516		1,546,146			1,534,146		1,534,146
Number of employees		126			147		132			149		154

Certain prior year amounts have been restated to reflect the change in method of accounting for inventory from last-in, first-out (“LIFO”) to first-in, first-out (“FIFO”).

(1) Based on shares outstanding at December 31, 2007.

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Critical Accounting Policies and Estimates

The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and the accompanying notes. On an on-going basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, intangible assets, income taxes, pensions and other post-retirement benefits, and contingencies and litigation. The Company bases its estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments

10

about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The Company believes that the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue Recognition

The Company recognizes revenue at the point of passage of title, which occurs at the time of shipment to the customer. The Company derived approximately 46.7% of its revenue in 2007 from sales to distributors. These distributors do not have a right to return unsold products; however, returns may be permitted in specific situations. Historically, returns have not had a significant impact on the Company’s results of operations.

Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management uses judgmental factors such as customer’s payment history and the general economic climate, as well as considering the age of and past due status of invoices, in assessing collectability and establishing the allowance for doubtful accounts. If the financial condition of the Company’s customers were to deteriorate, resulting in an inability to make payments, an increase in the allowance resulting in a charge to expense would be required.

Inventories

Inventories are stated at the lower of cost or market value and are categorized as raw materials, work-in-progress or finished goods. Beginning in the first quarter of 2007, we changed the method of accounting for inventories from a combination of the use of FIFO and LIFO methods to the FIFO method. The Company believes this change is preferable as the FIFO method: better reflects the current value of inventories on the Consolidated Balance Sheet; provides uniformity across our operations with the respect to the method of inventory accounting; and reduces complexity in accounting for inventories.

The change in accounting method to the FIFO method was completed in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 154 “Accounting Changes and Error Corrections.” The Company applied this change in accounting principal by retrospectively restating prior years’ financial statements. Refer to Note 2, “Summary of Significant Accounting Policies,” to the Company’s consolidated financial statements included under Item 8 to this Annual Report on Form 10-K for further information.

The Company records reserves for estimated obsolescence or unmarketable inventory equal to the difference between the actual cost of inventory and the estimated market value based upon assumptions about future demand and market conditions and management’s review of existing inventory. If actual demand and market conditions are less favorable than those projected by management, additional inventory reserves resulting in a charge to expense would be required.

Goodwill

As discussed in Note 2 to the Company’s consolidated financial statements included under Item 8 to this Annual Report on Form 10-K, the Company had recorded Goodwill of $6,155,000 in connection with the acquisition of SMC in 2001. Beginning in 2002, the Company, in accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets”, performed the required goodwill impairment tests. These tests were performed annually at the beginning of the fourth calendar quarter. In assessing impairment, the Company made assumptions regarding future cash flows and other factors to determine the fair value of the respective net assets. Based upon these tests, no impairment was determined to exist through December 31, 2004.

In February of 2005, the Company was notified that its contract with USPS for polycarbonate and Aluminum CBUs, which accounted for approximately 54% of the Company’s net sales in fiscal 2004, would not be renewed. This contract expired May 31, 2005. Due to the significant reduction in business resulting from the Company’s loss of the USPS contract, it was determined that the fair value of the Company had declined significantly. After the loss

11

of the contract, management concluded that the fair value of the Company was not in excess of the carrying value of the underlying tangible assets, indicating that there is no longer value attributable to goodwill. Accordingly, the Company recorded a goodwill impairment charge of approximately $6,155,000 against its operating results in the first quarter of 2005.

Property, Plant and Equipment

Property, plant and equipment is stated at historical cost. Depreciation is computed by the straight-line and declining balance methods for financial reporting purposes and by accelerated methods for income tax purposes. Estimated useful lives for financial reporting purposes are 20 to 40 years for buildings and 3 to 12 years for machinery and equipment. Leasehold improvements are amortized over the shorter of the life of the building or the lease term. Expenditures for repairs and maintenance are expensed as incurred. Gains and losses resulting from the sale or disposal of property and equipment are included in other income.

In accordance with Financial Accounting Standards Board Statement No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of those assets may not be recoverable. The Company uses undiscounted cash flows to determine whether impairment exists and measures any impairment loss using discounted cash flows. As discussed in Note 17 to the Company’s consolidated financial statements included under Item 8 to this Annual Report on Form 10-K, the Company implemented a restructuring plan in 2005 as a result of the loss of the USPS contract discussed above. As part of the restructuring plan, the Company recorded an impairment charge of approximately $92,000 in 2005.

Pension Assumptions

The Company maintains a defined benefit plan covering its U.S. employees and a separate defined benefit plan covering its Canadian employees. The accounting for the plans is based in part on certain assumptions that are uncertain and that could have a material impact on the financial statements if different reasonable assumptions were used. The assumptions for return on assets reflect the rates of earnings expected on funds invested or to be invested to provide for benefits included in the projected benefit obligation. The assumed rates of return of 7.5% and 7.0% used in 2007 for the U.S. and Canadian plans, respectively, were determined based on a forecasted rate of return for a portfolio invested 50% in equities and 50% in bonds. In addition to the assumptions related to the expected return on assets, assumptions for the rates of compensation increase and discount rate were also made. The rate of compensation increase used in determining the 2007 pension costs was 2.0% for the Canadian plan and was determined using projections of inflation and real wage increase assumptions. The discount rates used in determining the 2007 pension costs were 5.75% and 5.0% for the U.S. and Canadian plans, respectively. Consistent with prior years, for both plans the Company uses a discount rate that approximates the average AA corporate bond rate.

Effective July 15, 2005, the Company froze the accrual of any additional benefits under the U.S. plan. In addition to the freeze, the Company also made a partial settlement of certain benefit obligations. The settlement resulted in a reduction of plan assets and an equal reduction of the projected benefit obligation of $1,128,693. The impact of freezing the plan was a settlement loss of $239,000 and a curtailment loss of $14,000 recognized in the fiscal year ended December 31, 2005.

Deferred Income Tax Assets

The Company had net deferred tax assets of approximately $1,445,000 at December 31, 2007. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The ultimate realization of the deferred income tax assets are primarily dependent on generating sufficient future taxable income or being able to carryback any taxable losses and claim refunds against previously paid income taxes. The Company has historically had taxable income and believes its net deferred income tax assets at December 31, 2007, are realizable. If future operating results

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continue to generate taxable losses, it may be necessary to provide valuation allowances to reduce the amount of the deferred income tax assets to realizable value.

Results of Operations — Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Change in Accounting Method

On January 1, 2007, the Company changed the method of accounting for inventories from a combination of the use of FIFO and LIFO methods to solely the FIFO method. The Company believes this change is preferable as the FIFO method: better reflects the current value of inventories on the Consolidated Balance Sheet; provides uniformity across our operations with the respect to the method of inventory accounting; and reduces complexity in accounting for inventories. See note 2 “Summary of Significant Accounting Policies” to the Company’s consolidated financial statements for further information. As a result of this accounting change, the discussions which follow reflect our restated results for the accounting change.

Overall Results and Outlook

Overall results in 2007 were negatively impacted by the USPS decertification of the Model E CBU. The Company had consolidated net sales of $20,242,803 in 2007, a decrease of $4,822,287, or 19.2%, compared to the prior year net sales of $25,065,090. This decrease was attributable primarily to the USPS decision to decertify the Company’s Model E CBU in September 2007. From May 31, 2005, when the USPS polycarbonate CBU contract expired, until the USPS decertification of the Model E CBU, the Company had been selling the Model E CBU to the private market for use as USPS approved mail delivery. Once the Model E CBU was decertified, the Company was no longer allowed by the USPS to sell this model to the private market for USPS approved mail delivery. Pre-tax operating results decreased to a pre-tax loss of $2,749,743 in 2007 from a reported pre-tax profit of $845,224 in 2006. After tax operating results decreased to a reported net loss of $1,904,117 in 2007 from a net profit of $544,320 in 2006. Net loss per share was $(1.23) per share (basic and diluted) in 2007, down from net income per share of $.35 (basic and diluted) in the previous year.

Decertification of the Model E CBU

On May 8, 2007, the USPS notified the Company that, effective September 8, 2007, the USPS would decertify the Company’s Model E CBU. This decertification prevented the Company from selling this model to the private market for USPS approved mail delivery. Beginning in September 2007, the Company’s revenues and profitability have been adversely affected by this decertification. Sales of the Model E aluminum CBU to the private market accounted for an additional 28.4% and 35.6% of the Company’s sales in 2007 and 2006, respectively.

As a result of the decertification of the Model E CBU and the USPS rejection of the Company’s application to manufacture the USPS-B-1118 CBU, the Company has implemented a series of operational changes for the purpose of streamlining operations and lowering costs. These changes include the adoption of lean manufacturing processes and a reduction of administrative costs. These changes will be augmented by a shift in the Company’s business focus to selling value-added niche products (which have higher margins than the USPS licensed CBUs) and improving the Company’s sales and distribution efforts.

Net Sales

Consolidated net sales in 2007 amounted to $20,242,803, a decrease of $4,822,287 from net sales of $25,065,090 in 2006. Sales of the Model E CBU decreased $3,399,556 to $5,759,245 in 2007 as compared to $9,158,801 in 2006 due to its decertification by the USPS in September 2007. Sales of postal lockers, excluding the CBU, decreased $1,004,912 to $5,331,601 in 2007 from $6,336,513 in 2006 due primarily to lower sales of the Horizontal 4b+ mailbox. The Horizontal 4b+ mailbox was replaced by the new Horizontal 4c standard for use in new construction of apartment and commercial buildings after October 5, 2006. The Company did not obtain approval for a Horizontal 4c mailbox until the second half of 2007.

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Sales by general product group for the last two years were as follows:

					Percentage
	2007		2006		Increase (Decrease)
Postal Lockers, excluding CBUs	$	5,331,601	$	6,336,513		(15.9	)%
CBUs		5,759,245		9,158,801		(37.1	)%
Non-Postal Lockers		9,151,957		9,569,776		(4.4	)%

Cost of Sales

Consolidated cost of sales as a percentage of sales was 75.7% in 2007 as compared to 66.3% in 2006. In 2007, cost as a percentage of sales was higher due to one-time expenses of $165,000 to increase the reserve for inventory valuation following the decertification of the Model E CBU, increased raw material prices, and excess fixed overhead costs following the decertification of the Model E CBU.

Selling, Administrative and General Expenses

Selling, administrative and general expenses in 2007 totaled $7,464,087, an increase of $178,875 compared to $7,285,212 in 2006. The increase in 2007 was primarily due to an increase in advertising expenses of $360,036 and severance expenses of $200,000, which were partially offset by lower selling and freight expenses resulting from decreased sales.

Other Income and Expense — Net

Other expense in excess of other income in 2007 totaled $61,943, a decrease of $97,790 compared to other expense in excess of other income of $159,733 in 2006.

Interest Expense

Interest expense in 2007 totaled $195,280, an increase of $11,023 compared to $184,257 in 2006. The increase is due to higher interest rates associated with the Company’s new credit facility with F&M Bank and Trust Company.

Income Taxes

In 2007, the Company recorded an income tax benefit of $845,626 compared to income tax expense of $300,904 in 2006. The effective tax rate determined as the percentage of the tax benefit or expense to the pre-tax loss or pre-tax income was 30.8% in 2007 compared to 35.6% in 2006. The decrease in 2007 was primarily due to the increase in the deferred tax valuation allowance which accounted for a 10.8 percentage point decrease in the effective tax rate.

Results of Operations — Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

Overall Results

The Company had consolidated net sales of $25,065,090 in 2006, a decrease of $7,238,599, or 22.4%, compared to the prior year net sales of $32,303,689. This decrease was attributable primarily to the loss of the USPS contract discussed below. Pre-tax operating results increased to a pre-tax profit of $845,224 in 2006 from a reported pre-tax loss of $9,512,121 in 2005. Results in 2005 were negatively impacted by one-time charges of $2,329,191 for restructuring charges and $6,155,204 impairment charge related to the write-down of previously recorded goodwill. After tax operating results increased to a reported net profit of $544,320 in 2006 from a net loss of $8,240,115 in 2005. Net income per share was $0.35 per share on a diluted basis in 2006, up from a net loss per share of $5.35 on a diluted basis in the previous year.

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Non-Renewal of USPS Contract and Other Events

On February 8, 2005, the Company announced that it was notified that its contract with the USPS for polycarbonate and aluminum CBUs would not be renewed, and the contract expired on May 31, 2005. During 2006 and 2005, sales to the USPS accounted for 3.2% and 21.4%, respectively, of the Company’s net sales. In addition, sales of the current model polycarbonate and aluminum CBUs to the private market accounted for an additional 35.6% and 32.5% of the Company’s sales in 2006 and 2005, respectively.

Following the Company’s announcement that the USPS CBU contract would not be renewed, the Board of Directors formed a Restructuring Committee for the purposes of selecting a financial advisor and evaluating a restructuring plan. In March 2005, following Board approval, the Company announced that it had retained Compass Advisory Partners, LLC (“Compass”) to provide strategic consulting services to the Company with respect to potential restructuring and cost reductions necessitated by the non-renewal of the USPS CBU contract. The Restructuring Committee, in consultation with Compass, undertook a review of the Company’s financial position and business and operations. In particular, the Restructuring Committee and Compass reviewed: (i) the financial impact of the loss of the Company’s CBU contract with the USPS; (ii) the economics of the Signore manufacturing agreement; (iii) the prospects for new product development, including emphasis on the USPS-B-1118 series aluminum CBUs; and (iv) an emphasis on cash generation and retention during the restructuring phase.

The loss of revenues resulting from the non-renewal of the Company’s CBU contract with the USPS, in addition to the potential loss of sales of CBUs in the private market during the transition to the USPS-B-1118 design, make the Company’s future uncertain. On May 18, 2005, after the USPS notification of non-renewal of the CBU contract, the Company’s Board of Directors announced a restructuring plan to significantly reduce annual selling, general and administrative expenses. Most of these savings were achieved by the Company not renewing its building leases in Jamestown, New York upon their respective expiration dates in September 2005 and November 2005 and relocating Company headquarters from the leased facilities in Jamestown, New York to company-owned facilities in Grapevine, Texas. Further, the Company discontinued its Jamestown-based assembly operations, eliminated many of its 37 salaried and hourly positions in Jamestown and froze benefits under its current pension plan covering employees in the United States. Due to the non-renewal of the CBU contract, all polycarbonate CBU assembly operations in Jamestown ceased in the fall of 2005.

Net Sales

Consolidated net sales in 2006 decreased $7,238,599 to $25,065,090 as compared to net sales of $32,303,689 in 2005. This decrease was due to the fact that there were no sales of polycarbonate CBUs and outdoor parcel lockers in 2006. Due to the closure of the Jamestown manufacturing facility that assembled the outdoor parcel lockers in 2005, the Company was unable to manufacture any outdoor parcel lockers in 2006. The Company’s consolidated net sales consisted entirely of sales of metal storage lockers (coin-op, temporary storage, electronic keyless and service) and metal postal lockers (aluminum CBUs, indoor mailboxes and collection boxes). Sales of CBUs decreased by 43.3% to $9,158,801 in 2006 due to the loss of the USPS polycarbonate CBU contract in 2005. The model E CBU accounted for the entire $9,158,801 of CBU sales in 2006.

In 2005, consolidated net sales were $32,303,689, of which 28.3% were plastic lockers sold to the USPS and the private market. Sales by general product group for the last two years were as follows:

					Percentage
	2006		2005		Increase (Decrease)
Postal Lockers, excluding CBUs	$	6,336,513	$	6,424,373		(1.4	)%
CBUs		9,158,801		16,159,106		(43.3	)%
Non-Postal Lockers		9,569,776		9,720,210		(1.5	)%

Cost of Sales

Consolidated cost of sales as a percentage of sales was 66.3% in 2006 as compared to 74.7% in 2005. Cost as a percentage of sales was higher in 2005 due to one-time expenses of $617,000 to increase the reserve for inventory

15

valuation, the write-off of $615,000 of inventory related to the termination of the manufacturing agreement with Signore, and expenses associated with the cancellation of the USPS polycarbonate CBU contract.

Selling, Administrative and General Expenses

Selling, administrative and general expenses in 2006 totaled $7,285,212, a decrease of $1,203,559 compared to $8,488,771 in 2005. The decrease in 2006 was primarily due to a reduction in personnel related expenses as a result of the implementation of the restructuring plan, which were partially offset by an increase of $698,000 in legal, consulting and accounting fees related to the fiscal year 2005 audit.

Other Income and Expense — Net

Other expense in excess of other income in 2006 totaled $159,733, a decrease of $292,888 compared to other income in excess of other expenses of $452,621 in 2005. In 2005, the Company incurred several one-time expenses, including realizing an $84,000 loss on the disposal of certain assets, paying $238,000 in professional fees on income tax recovery matters and a $40,000 pre-payment penalty to the Company’s former principal lender.

Interest Expense

Interest expense in 2006 totaled $184,257, a decrease of $149,132 compared to $333,389 in 2005. The decrease is the result of lower average outstanding debt balances due to the accelerated term loan repayments and scheduled mortgage loan repayments totaling $4,352,000 during 2005. No new debt borrowings were incurred in 2006. Further, during 2006 the Company did not have any outstanding borrowings under its line of credit.

Income Taxes

In 2006, the Company recorded an income tax expense of $300,904 compared to income tax benefit of $1,272,006 in 2005. The effective tax rate determined as the percentage of the tax benefit or expense to the pre-tax loss or pre-tax income was 35.6% in 2006 compared to 13.4% in 2005. The lower effective tax rate in 2005 results principally from the non-deductible charge for the impairment of goodwill.

Liquidity and Sources of Capital

Cash Flows Summary

	Year Ended December 31,
	2007			2006			2005
Net cash (used in) provided by:
Operating activities	$	(294,669	)	$	1,443,757		$	246,201
Investing activities		(818,646	)		(98,591	)		(437,906	)
Financing activities		(34,277	)		(122,454	)		(4,318,636	)
Effect of exchange rate changes on cash		201,319			7,497			8,141
Increase (Decrease) in cash and cash equivalents	$	(946,273	)	$	1,230,209		$	(4,502,200	)

Operating Activities

In 2007, the Company used net cash in operating activities of $294,669 compared with net cash provided by operating activities of $1,443,757 in 2006. The change was due primarily to the net loss of $1,904,117 in 2007 partially offset by a reduction in accounts receivable of $1,343,848 compared with net income of $544,320 in 2006.

In 2006, the Company generated net cash in operating activities of $1,443,757 compared with net cash provided by operating activities of $246,201 in 2005. In 2005, the Company had a net loss of $8,240,115 coupled with a decrease in inventories of $3,634,630 which was partially offset by a non-cash goodwill impairment charge of $6,155,204, an increase in accounts payable and accrued expenses of $1,186,035 and an increase in income taxes

16

receivable and decrease of income taxes payable of $1,457,844. In 2006, net cash from operating activities exceeded net income primarily due to a $986,803 reduction in accounts receivable.

Investing Activities

Net cash used in investing activities was $818,646 in 2007 compared with net cash used in financing activities of $98,591 in 2006. The change was due to increased capital expenditures in 2007 as the Company invested in new machinery and equipment in their Grapevine, Texas manufacturing facility as part of the launch of the Horizontal 4c product and to support the lean manufacturing initiative.

Net cash used in investing activities was $98,591 in 2006 compared with net cash used in financing activities of $437,906 in 2005. The change was due to cash conservation efforts related to the restructuring plan.

Financing Activities

Net cash used in financing activities was $34,277 in 2007 compared with net cash used in financing activities of $122,454 in 2006. The change is due to the longer amortization period in the Company’s current mortgage payable as compared to the previous mortgage payable and the increase in mortgage debt as a result of the F&M Bank and Trust mortgage.

Net cash used in financing activities was $122,454 in 2006 compared with net cash used in financing activities of $4,318,636 in 2005. The change is due to the Company agreeing to accelerate the scheduled repayment of its then outstanding term loans, repaying it in full ($4,225,000).

On December 31, 2007, outstanding debt totaled $2,143,765 compared with $2,178,042 at December 31, 2006 and $2,316,210 at December 31, 2005. The decrease in debt reflects the repayment of the Company’s mortgage loans.

On March 5, 2008, the Company renewed its $750,000 revolving line of credit with F&M Bank and Trust Company. The loan bears interest at prime plus 75 basis points (0.75%). The revolving line of credit matures on March 5, 2009. The line of credit is secured by all accounts receivable, inventory and equipment as well as a Deed of Trust covering the primary manufacturing and headquarters facility in Grapevine, Texas. The credit agreement underlying the revolving line of credit requires compliance with certain covenants.

On December 31, 2007, the Company had no borrowings, leaving $750,000 available for borrowings under the revolving line of credit.

On March 28, 2008, April 28, 2008 and June 13, 2008, the Company received waivers from The F&M Bank and Trust Company under its credit facility with respect to, among other things, waiver of any default or event of default arising under the Credit Facility as a result of our failure to comply with certain reporting covenants requiring the delivery of the Company’s 2007 Annual Report on Form 10-K as well as the delivery of financial statements for the first quarter of 2008. Additionally, the covenant requiring the maintenance of a certain debt service coverage ratio was waived through January 1, 2009.

On March 6, 2007, the Company obtained a $750,000 revolving line of credit (the “Line of Credit”) and a $2,200,000 term loan (the “Term Loan”) from The F&M Bank and Trust Company (the “Lender”). The Line of Credit was established under a Loan Agreement between the Company, the Lender and Altreco, Incorporated, a wholly-owned subsidiary of the Company, as Guarantor (“Altreco”), and the Term Loan was established under a separate Loan Agreement between the Company, the Lender and Altreco, as Guarantor.

The proceeds of the Term Loan were used to satisfy the outstanding principal balance and related costs of the Company’s existing mortgage loan with Manufacturers and Traders Trust Company, under which the Company had been in default since March 2005. The proceeds of the Line of Credit have been used primarily for working capital needs in the ordinary course of business and for general corporate purposes.

During 2005 and 2006, the Company was in technical default of its long-term debt agreement with Manufacturers and Traders Trust Company, its then primary lender, rendering the entire $6,669,000 outstanding balance due upon demand. During 2005, the Company repaid $4,352,000 of the outstanding debt.

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Effect of Exchange Rate Changes on Cash

Net cash provided by the effect of exchange rate changes on cash was $201,319 in 2007 as compared to $7,497 in 2006. The change was primarily due to the increase in value of the Canadian Dollar (“CAD”) as compared to the United States Dollar (“USD”) which caused an increase in the value of the Company’s Canadian operation’s net assets. The CAD to USD exchange rate increased 18.8% from $0.8581 to $1.0194 between December 31, 2006 and 2007.

Net cash provided by the effect of exchange rate changes on cash was $7,497 in 2006 as compared to $8,141 in 2005 due to a relatively stable CAD to USD exchange rate over this period.

Cash and Cash Equivalents

On December 31, 2007, the Company had cash and cash equivalents of $1,561,951 compared with $2,508,224 on December 31, 2006. The year-over-year decrease was driven primarily by the net loss of $1,904,117 and a decrease in accounts receivable of $1,343,848.

Liquidity

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 December 31,
	2007	2006
Current Ratio	3.5 to 1	4.3 to 1
Working Capital	$5,318,126	$7,954,349

The Company’s primary sources of liquidity include available cash and cash equivalents and borrowing under our line of credit facility.

Expected uses of cash in fiscal 2008 include funds required to support our operating activities, capital expenditures, and contributions to the Company’s defined benefit pension plans. The Company expects capital expenditures in 2008 to be less than in 2007.

The Company has taken steps to enhance our liquidity position with the renewal of our revolving line of credit which included the waiver of certain covenants as well as the addition of inventory to our borrowing base. The Company’s plans to manage our liquidity position in 2008 include maintaining an intense focus on controlling expenses, reducing capital expenditures, continuing our implementation of lean manufacturing processes and reducing inventory levels.

The Company has considered the impact of the financial outlook on our liquidity and have performed an analysis of the key assumptions in our forecast. Based upon these analyses and evaluations, we expect that our anticipated sources of liquidity will be sufficient to meet our obligations without disposition of assets outside of the ordinary course of business or significant revisions of our planned operations through 2008.

Subsequent Events

On March 5, 2008, the Company renewed its $750,000 revolving line of credit with F&M Bank and Trust Company. The loan bears interest at prime plus 75 basis points (0.75%). The revolving line of credit matures on March 5, 2009. The line of credit is secured by all accounts receivable, inventory and equipment as well as a Deed of Trust covering the primary manufacturing and headquarters facility in Grapevine, Texas. The credit agreement underlying the revolving line of credit requires compliance with certain covenants.

On March 28, 2008, April 28, 2008 and June 13, 2008, the Company received waivers from The F&M Bank and Trust Company under its credit facility with respect to, among other things, waiver of any default or event of default arising under the Credit Facility as a result of our failure to comply with certain reporting covenants requiring the delivery of the Company’s 2007 10-K as well as the delivery of financial statements for the first quarter

18

of 2008. Additionally, the covenant requiring the maintenance of a certain debt service coverage ratio was waived through January 1, 2009.

On March 27, 2008, the Company issued 19,000 shares of common stock to members of the Board of Directors as part of their compensation. The shares issued to members of the Board of Directors vested immediately. On March 27, 2008, an additional 10,000 shares of common stock were issued to the President, Chief Operating Officer and Chief Financial Officer which will vest in three annual installments beginning December 31, 2008.

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’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Contractual Obligations

The Company has contractual obligations as of December 31, 2007 relating to long-term and current debt, operating lease arrangements and purchase obligations. The Company does not guarantee the debt of any third parties. All of the Company’s subsidiaries are 100% owned by the Company and are included in its consolidated financial statements. Total payments to be made under long-term debt, operating leases and purchase obligations are as follows:

	Payments Due by Period
			Less Than						More Than
	Total		1 Year		1-3 Years		3-5 Years		5 Years
Long-term debt obligations	$	2,143,765	$	96,530	$	342,535	$	1,704,700	$	—
Operating lease obligations		138,832		96,937		41,895		—		—
Total	$	2,282,597	$	193,467	$	384,430	$	1,704,700	$	—

The above amounts for long-term debt do not include interest.

The Company has had continuing obligations under its U.S. and Canadian defined benefit pension plans. These are funded plans under which the Company is required to make contributions to meet ERISA and Canadian funding requirements. The Company’s contributions to the plans have ranged from approximately $100,000 to $400,000 over the last four years. The required funding is based on actuarial calculations that take into account various actuarial results and certain assumptions. Contributions to the plans for the year ended December 31, 2007 totaled $276,000.

As part of its restructuring plan necessitated by the non-renewal of the USPS contract discussed above, the Company froze its obligations under the U.S. defined benefit plan such that after July 15, 2005, benefits will no longer accrue under this plan.

Other Agreements

During 2002, the Company entered into agreements to become 5% members of two limited liability companies (“LLCs”). Third parties formed the LLCs in order to provide luggage cart services at two U.S. airports. The Company has sold luggage cart products to these LLCs. The Company contemplates a sale of its luggage cart assets and may not be in a position to make further sales to these LLCs. The governing documents of the LLCs provide that the Company does not share in the distribution of cash flow or profits and losses of the LLCs through 2007, nor is the Company required to make any capital contribution to the LLCs. Ownership by the Company of a minority interest in the LLCs had no impact on the Company’s 2007 operating results or financial position, and is not expected to have any material impact in the future.

Impact of Inflation and Changing Prices

Inflation in raw material and other prices has become an increasing factor in the general economy, and the Company continues to seek ways to mitigate its impact. For example, the Company experienced significant

19

increases in steel and aluminum prices in 2007, 2006 and 2005, the two primary raw materials utilized in the Company’s operations. The average cost per pound of aluminum based on the three month buyer contract on the London Metals Exchange was $1.2077, $1.1752 and $.8613, and in 2007, 2006 and 2005, respectively, representing increases of 2.8% from 2006 to 2007 and 36.4% from 2005 to 2006. To the extent permitted by competition, the Company passes increased costs on to its customers by increasing sales prices over time.

The Company intends to seek additional ways to control the administrative costs necessary to successfully run the business. By controlling these costs, such as pension costs discussed above, the Company can continue to competitively price its products with other top quality locker manufacturers and distributors.

Market Risks

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, aluminum and plastic, the Company expects that any raw material price changes would be reflected in adjusted sales prices and passed on to customers. 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 represent only 13% of the Company’s aggregate net assets at December 31, 2007. Presently, management does not hedge its foreign currency risk.

Interest Rate Risks

The Company had an 8.04% fixed interest rate on its outstanding mortgage loan at December 31, 2006. On March 5, 2007, the Company entered into a new credit agreement which provided a $2,200,000 term loan, the proceeds of which were used to repay the then outstanding mortgage balance, and a $750,000 line of credit. These loans bear interest at the Bank’s prime rate plus .75% (8% on December 31, 2007).

Effect of New Accounting Guidance

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109. “Accounting for Income Taxes,” by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. If a tax position is more likely than not to be sustained upon examination, then an enterprise would be required to recognize in its financial statements the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company adopted FIN 48 on January 1, 2007 and the impact on the Company’s consolidated financial statements was immaterial.

In June 2006, the FASB ratified its consensus on EITF Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation)” (EITF No. 06-3). The scope of EITF No. 06-3 includes any tax assessed by a governmental authority that is imposed concurrent with or subsequent to a revenue producing transaction between a seller and a customer. For taxes within the scope of this issue that are significant in amount, the consensus requires the following disclosures: (i) the accounting policy elected for these taxes and (ii) the amount of the taxes reflected gross in the income statement on an interim and annual basis for all periods presented. The disclosure of those taxes can be done on an aggregate basis. The consensus is effective for interim and annual periods beginning after December 15, 2006, with earlier application permitted. There was no impact on the Company’s consolidated financial statements with respect to the adoption of EITF No. 06-3.

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In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 provides guidance for measuring the fair value of assets and liabilities. It requires additional disclosures related to the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 is effective for fiscal years beginning after November 15, 2007. Subsequent to the issuance of SFAS 157, the FASB issued FASB Staff Position (FSP) FAS 157-1 amending SFAS 157 to exclude FASB Statement No. 13, Accounting for Leases, and other accounting pronouncements that address fair value measurements for purposes of lease classifications or measurement under Statement 13, and FSP FAS 157-2 deferring the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The Company is currently evaluating the impact adoption of SFAS No. 157 may have on the financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115 (“SFAS 159”). SFAS 159 permits entities to measure many financial instruments and certain other items at fair value to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting. Most of the provisions in SFAS 159 are elective. This statement is effective for fiscal years beginning after November 15, 2008, and it may be applied prospectively. Early adoption is permitted, provided the Company also elects to apply the provisions of SFAS 157. The Company does not intend to adopt the elective provisions of SFAS 159. The Company is currently evaluating the impact adoption of SFAS No. 159 may have on the financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), Business Combinations (“SFAS 141(R)”). SFAS 141(R) changes the requirements for an acquiring entity’s recognition and measurement of the assets acquired and liabilities assumed in a business combination. This statement is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the impact adoption of SFAS No. 141(R) may have on the financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51 (“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The Company is currently evaluating the impact adoption of SFAS No. 160 may have on the financial statements.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk.

The information required is reported under the “Impact of Inflation and Changing Prices” and “Market Risks” headings under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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Item 8.   Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
American Locker Group Incorporated

We have audited the accompanying consolidated balance sheets of American Locker Group Incorporated and Subsidiaries (the Company) as of December 31, 2007 and 2006 and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period then ended. Our audits also included the financial statement schedule listed in the index at Item 15(a). These consolidated financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the consolidated financial position of American Locker Group Incorporated and Subsidiaries as of December 31, 2007 and 2006 and the consolidated results of their operations and cash flows for each of the three years in the period then ended in conformity with accounting principles generally accepted in the United States.

As discussed in Note 2 to the consolidated financial statements, in 2007 the Company changed the method of accounting for inventories from a combination of the use of FIFO and LIFO methods to the FIFO method. The change in accounting method was completed in accordance with Statement of Financial Accounting Standards (SFAS) No. 154 “Accounting for Changes and Error Corrections.” The Company applied this change in accounting principal by retrospectively restating prior years’ financial statements.

As discussed in Note 2 to the consolidated financial statements effective January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”.

/s/ Travis, Wolff & Company, L.L.P.

Dallas, Texas

June 16, 2008

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American Locker Group Incorporated and Subsidiaries

Consolidated Balance Sheets

	December 31,
	2007			2006
				(Restated)
ASSETS
Current assets:
Cash and cash equivalents	$	1,561,951		$	2,508,224
Accounts receivable, less allowance for doubtful accounts of $233,000 in 2007 and $198,000 in 2006		1,568,464			2,902,079
Inventories, net		3,060,341			3,387,729
Prepaid expenses		223,068			143,481
Income tax receivable		44,467			578,653
Deferred income taxes		987,538			841,689
Total current assets		7,445,829			10,361,855
Property, plant and equipment:
Land		500,500			500,500
Buildings and leasehold improvements		3,509,891			3,430,162
Machinery and equipment		8,045,859			7,099,249
		12,056,250			11,029,911
Less allowance for depreciation and amortization		(7,543,465	)		(6,952,025	)
		4,512,785			4,077,886
Deferred income taxes		457,428			77,781
Total assets	$	12,416,042		$	14,517,522
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	96,530		$	152,192
Accounts payable		1,236,316			1,574,098
Commissions, salaries, wages and taxes thereon		285,759			260,862
Income taxes payable		72,146			—
Other accrued expenses and current liabilities		436,952			420,354
Total current liabilities		2,127,703			2,407,506
Long-term liabilities:
Long-term debt		2,047,235			2,025,850
Pension and other benefits		482,943			782,004
		2,530,178			2,807,854
Total liabilities		4,657,881			5,215,360
Commitments and contingencies
Stockholders’ equity:
Common stock, $1 par value:
Authorized shares — 4,000,000 Issued shares — 1,741,516 in 2007 and 2006 Outstanding shares — 1,549,516 in 2007 and 2006		1,741,516			1,741,516
Other capital		184,988			144,415
Retained earnings		8,018,454			9,922,571
Treasury stock at cost (192,000 shares)		(2,112,000	)		(2,112,000	)
Accumulated other comprehensive loss		(74,797	)		(394,340	)
Total stockholders’ equity		7,758,161			9,302,162
Total liabilities and stockholders’ equity	$	12,416,042		$	14,517,522

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

	Year Ended December 31,
	2007			2006			2005
				(Restated)			(Restated)
Net sales	$	20,242,803		$	25,065,090		$	32,303,689
Cost of products sold		15,321,106			16,619,734			24,141,999
Gross profit		4,921,697			8,445,356			8,161,690
Asset impairment — goodwill		—			—			6,155,204
Selling, administrative and general expenses		7,464,087			7,285,212			8,488,771
Restructuring costs		—			—			2,329,191
		(2,542,390	)		1,160,144			(8,811,476	)
Interest income		49,870			29,070			85,365
Other income (expense) — net		(61,943	)		(159,733	)		(452,621	)
Interest expense		(195,280	)		(184,257	)		(333,389	)
Income (loss) before income taxes		(2,749,743	)		845,224			(9,512,121	)
Income tax expense (benefit)		(845,626	)		300,904			(1,272,006	)
Net income (loss)		(1,904,117	)	$	544,320		$	(8,240,115	)
Weighted average common shares:
Basic		1,549,516			1,547,392			1,540,179
Diluted		1,549,516			1,547,392			1,540,179
Earnings (loss) per share of common stock:
Basic	$	(1.23	)	$	0.35		$	(5.35	)
Diluted	$	(1.23	)	$	0.35		$	(5.35	)
Dividends per share of common stock	$	0.00		$	0.00		$	0.00

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

24

American Locker Group Incorporated and Subsidiaries

Consolidated Statements of Stockholders’ Equity

											Accumulated
											Other			Total
	Common		Other		Retained			Treasury			Comprehensive			Stockholders’
	Stock		Capital		Earnings			Stock			Income (Loss)			Equity
					(Restated)									(Restated)
Balance at January 1, 2005, as previously stated	$	1,726,146	$	97,812	$	17,327,683		$	(2,112,000	)	$	(490,092	)	$	16,549,549
Change in inventory accounting		—		—		290,683			—			—			290,683
Balance at January 1, 2005, as restated		1,726,146		97,812		17,618,366			(2,112,000	)		(490,092	)		16,840,232
Comprehensive income:
Net income (loss) (Restated)		—		—		(8,240,115	)		—			—			(8,240,115	)
Other comprehensive income (loss):
Foreign currency translation		—		—		—			—			(34,219	)		(34,219	)
Minimum pension liability adjustment, net of tax benefit of $1,649		—		—		—			—			2,473			2,473
Total comprehensive (loss) (Restated)															(8,271,861	)
Common stock issued (12,000 shares)		12,000		21,750		—			—			—			33,750
Tax benefit of exercised stock options		—		12,509		—			—			—			12,509
Balance at December 31, 2005, as restated	$	1,738,146	$	132,071	$	9,378,251		$	(2,112,000	)	$	(521,838	)	$	8,614,630
Net income (loss) (Restated)		—		—		544,320			—			—			544,320
Other comprehensive income (loss):
Foreign currency translation		—		—		—			—			7,361			7,361
Minimum pension liability adjustment, net of tax benefit of $80,091		—		—		—			—			120,137			120,137
Total comprehensive income (restated)															671,818
Common stock issued (3,370 shares)		3,370		12,344		—			—			—			15,714
Balance at December 31, 2006, as restated	$	1,741,516	$	144,415	$	9,922,571		$	(2,112,000	)	$	(394,340	)	$	9,302,162
Net income (loss)						(1,904,117	)								(1,904,117	)
Other comprehensive income (loss):
Foreign currency translation		—		—		—			—			249,491			249,491
Minimum pension liability adjustment, net of tax benefit of $46,707		—		—		—			—			70,052			70,052
Total comprehensive (loss)															(1,584,574	)
Stock-based compensation		—		40,573		—			—			—			40,573
Balance at December 31, 2007	$	1,741,516	$	184,988	$	8,018,454		$	(2,112,000	)	$	(74,797	)	$	7,758,161

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

25

American Locker Group Incorporated and Subsidiaries

Consolidated Statements of Cash Flows

	Year Ended December 31,
	2007			2006			2005
				(Restated)			(Restated)
Operating activities
Net income (loss)	$	(1,904,117	)	$	544,320		$	(8,240,115	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		386,430			396,304			562,078
Provision for uncollectible accounts		61,000			77,939			(112,048	)
Equity based compensation		40,573			—			—
Loss on disposal of assets		—			—			84,379
Deferred income taxes (credits)		(488,728	)		400,251			(120,291	)
Impairment of goodwill		—			—			6,155,204
Changes in assets and liabilities:
Accounts and other receivables		1,343,848			986,803			523,891
Inventories		341,078			(92,738	)		3,634,630
Prepaid expenses		(78,110	)		(92,610	)		85,149
Accounts payable and accrued expenses		(363,602	)		(928,210	)		(1,186,035	)
Income taxes		602,857			476,772			(1,457,844	)
Pension and other benefits		(235,898	)		(325,074	)		317,203
Net cash provided by (used in) operating activities		(294,669	)		1,443,757			246,201
Investing activities
Purchase of property, plant and equipment		(818,646	)		(98,591	)		(475,775	)
Proceeds from sale of property, plant and equipment		—			—			37,869
Net cash used in investing activities		(818,646	)		(98,591	)		(437,906	)
Financing activities
Long-term debt payments		(2,234,277	)		(138,168	)		(4,352,386	)
Long-term debt borrowings		2,200,000			—			—
Common stock issued		—			15,714			33,750
Net cash used in financing activities		(34,277	)		(122,454	)		(4,318,636	)
Effect of exchange rate changes on cash		201,319			7,497			8,141
Net increase (decrease) in cash and cash equivalents		(946,273	)		1,230,209			(4,502,200	)
Cash and cash equivalents at beginning of year		2,508,224			1,278,015			5,780,215
Cash and cash equivalents at end of year		1,561,951		$	2,508,224		$	1,278,015
Supplemental cash flow information:
Cash paid during the year for:
Interest	$	195,502		$	183,708		$	292,160
Income taxes	$	15,898		$	—		$	934,954

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

26

Notes to Consolidated Financial Statements

American Locker Group Incorporated and Subsidiaries

December 31, 2007

1.   Basis of Presentation

Consolidation, Business Description and Current Operating Condition

The consolidated financial statements include the accounts of American Locker Group Incorporated and its subsidiaries (the “Company”), all of which are wholly owned. Intercompany accounts and transactions have been eliminated in consolidation. The Company is a leading manufacturer and distributor of lockers, locks and keys. The Company’s lockers can be categorized as either postal lockers or non-postal lockers. Postal lockers are used for the delivery of mail. Most non-postal lockers are key controlled checking lockers. The Company is best known for manufacturing and servicing the key and lock system with the plastic orange cap. The Company serves customers in a variety of industries in all 50 states, Canada, Mexico, Europe, India and South America.

On February 8, 2005, the Company announced that it was notified that its contract with the USPS for polycarbonate and aluminum cluster box units (“CBUs”) would not be renewed, and the contract expired on May 31, 2005. From May 31, 2005 through September 2007, the Company continued selling its aluminum CBU model (Model E) to the private market. On May 8, 2007, the USPS notified the Company that, effective September 8, 2007, the USPS would decertify the Company’s Model E CBU. Beginning in September 2007, the Company’s revenues and profitability were and continue to be adversely affected by this decertification. During 2007, 2006 and 2005, sales to the USPS accounted for 3.7%, 3.2%, and 21.4%, respectively, of the Company’s net sales. In addition, sales of the current model polycarbonate and aluminum CBUs to the private market accounted for an additional 28.4%, 35.6%, and 32.5% of the Company’s sales in 2007, 2006 and 2005, respectively.

On November 30, 2007, the Company announced that the USPS had rejected the Company’s application to manufacture the USPS-B-1118 CBU. In rejecting the Company’s application, the USPS cited weaknesses in the Company’s financial and inventory controls that existed in 2005 and 2006. Although the Company remedied many of these weaknesses during the 2007 fiscal year, the USPS noted that such remedies had not been in place long enough to be subjected to review as part of the Company’s annual audit. However, the USPS did advise the Company that it could resubmit its application within a reasonable period of time. Accordingly, the Company intends to evaluate the feasibility of reapplying to manufacture the USPS-B-1118 CBU at a later time.

As a result of the decertification of the Model E CBU and the USPS rejection of the Company’s application to manufacture the USPS-B-1118 CBU, the Company has implemented a series of operational changes for the purpose of streamlining operations and lowering costs. These changes include the adoption of lean manufacturing processes and a reduction of administrative costs. These changes will be augmented by an increased focus on selling value-added niche products (which have higher margins than the USPS licensed CBUs) and improving the Company’s sales and distribution efforts.

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.   Summary of Significant Accounting Policies

Change in Accounting Method

On January 1, 2007, the Company changed the method of accounting for inventories from a combination of the use of FIFO and LIFO methods to the FIFO method. The Company believes this change is preferable as the FIFO method: better reflects the current value of inventories on the Consolidated Balance Sheet; provides uniformity across our operations with the respect to the method of inventory accounting; and reduces complexity in accounting for inventories.

27

Notes to Consolidated Financial Statements

American Locker Group Incorporated and Subsidiaries — (Continued)

The change in accounting method to the FIFO method was completed in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 154 “Accounting Changes and Error Corrections.” The Company applied this change in accounting principal by retrospectively restating prior years’ financial statements.

The effect of the change in accounting method on previously reported consolidated operating results for the years ended December 31, 2006 and 2005 was as follows:

	2006				2005
	As Originally		As Adjusted for		As Originally			As Adjusted for
	Reported		Accounting Change		Reported			Accounting Change
Consolidated statements of operations
Cost of products sold	$	16,438,344	$	16,619,734	$	23,904,090		$	24,141,999
Tax provision		387,148		300,904		(1,182,314	)		(1,272,006	)
Net earnings		639,466		544,320		(8,091,898	)		(8,240,115	)
Basic earnings (loss) per share		0.41		0.35		(5.25	)		(5.35	)
Diluted earnings (loss) per share		0.41		0.35		(5.25	)		(5.35	)

The effect of the change in accounting method on our previously reported consolidated balance sheet for the year ended December 31, 2006 was as follows:

	2006
	As Originally		As Adjusted for
	Reported		Accounting Change
Consolidated balance sheets
Inventories	$	3,340,409	$	3,387,729
Retained earnings		9,875,251		9,922,571

Cash and Cash Equivalents

Cash and cash equivalents includes currency on hand and demand deposits with financial institutions. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains cash and cash equivalents on deposit in amounts in excess of federally insured limits. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant risk.

Accounts Receivable

The Company grants credit to its customers and generally does not require collateral. Accounts receivable are reported at net realizable value and do not accrue interest. Management uses judgmental factors such as customer’s payment history and the general economic climate, as well as considering the age of and past due status of invoices in assessing collectability and establishing allowances for doubtful accounts. Accounts receivable are written off after all collection efforts have been exhausted.

Estimated losses for bad debts are provided for in the consolidated financial statements through a charge to expense of approximately $61,000, $87,000 and $332,000 for 2007, 2006 and 2005, respectively. The net charge-off of bad debts was approximately $41,000, $9,000 and $444,000 for 2007, 2006 and 2005, respectively.

28

Notes to Consolidated Financial Statements

American Locker Group Incorporated and Subsidiaries — (Continued)

Inventories

Inventories are valued principally at the lower of cost or market value. Cost is determined using the FIFO method.

Property, Plant and Equipment

Property, plant and equipment are stated at historical cost. Depreciation is computed by the straight-line and declining-balance methods for financial reporting purposes and by accelerated methods for income tax purposes. Estimated useful lives for financial reporting purposes are 20 to 40 years for buildings and 3 to 12 years for machinery and equipment. Leasehold improvements are amortized over the shorter of the life of the building or the lease term. Expenditures for repairs and maintenance are expensed as incurred. Gains and losses resulting from the sale or disposal of property and equipment are included in other income.

Long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of those assets may not be recoverable. The Company uses undiscounted cash flows to determine whether impairment exists and measures any impairment loss using discounted cash flows. As part of the restructuring plan, the Company recorded an impairment charge of approximately $92,000 in 2005. Please refer to Note 17 “Restructuring” for further information. There was no impairment recorded with respect to property, plant and equipment as of December 31, 2007 and 2006.

Depreciation expense was $386,430 in 2007, of which $239,887 was included in cost of products sold, and $146,543 was included in selling, administrative and general expenses. Depreciation expense was $396,304 in 2006, of which $252,648 was included in cost of products sold, and $143,656 was included in selling, administrative and general expenses. Depreciation expense was $562,078 in 2005, of which $319,766 was included in cost of products sold, and $242,312 was included in selling, administrative and general expenses.

Goodwill and Other Intangible Assets

Due to the significance of the reduction in business volume resulting from the loss of the USPS contract, which expired May 31, 2005, management determined that the fair value of the Company had declined significantly. In accordance with FAS No. 142, “Goodwill and Other Intangible Assets”, the carrying value of goodwill is tested for impairment when such events occur and a charge to earnings is required for any identified impairments. This charge to earnings is to be recorded in the period in which the events causing impairment occurred. Based on management’s analysis, the fair value of the Company, after learning of the loss of the USPS contract on February 8, 2005, was no longer in excess of the carrying value of the net underlying assets, including goodwill. Accordingly, the Company recorded an impairment charge of $6,155,204 in 2005.

Pensions and Postretirement Benefits

The Company has two defined benefit plans which recognize a net liability or asset and an offsetting adjustment to accumulated other comprehensive income (loss) to report the funded status of the plans. The plan assets and obligations are measured at their year-end balance sheet date. Refer to Note 8 ’Pensions and Other Postretirement Benefits,” for further detail on the plans.

Revenue Recognition

Revenue is recognized at the point of passage of title, which is at the time of shipment to the customer. The Company does derive revenue from sales to distributors; however, no distributor has the right to return product to the Company. The Company’s revenues are reported net of discounts and returns and net of sales tax.

29

Notes to Consolidated Financial Statements

American Locker Group Incorporated and Subsidiaries — (Continued)

Shipping and Handling Costs

Shipping and handling costs are expensed as incurred and are included in selling, administrative and general expenses in the accompanying consolidated statements of operations. These costs were approximately $1,209,000, $1,340,000 and $1,356,000 during 2007, 2006 and 2005, respectively.

Advertising Expense

The cost of advertising is generally expensed as incurred. The cost of catalogs and brochures are recorded as a prepaid cost and expensed over their useful lives, generally one year. The Company incurred approximately $598,000, $238,000 and $194,000 in advertising costs during 2007, 2006 and 2005, respectively.

Income Taxes

The Company and its domestic subsidiaries file a consolidated U.S. income tax return. Canadian operations file income tax returns in Canada. The Company accounts for income taxes using the liability method in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (“SFAS 109”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recorded to reduce the Company’s deferred tax assets to the amount that is more likely than not to be realized.

Pursuant to SFAS No. 109, “Accounting for Income Taxes,” when establishing a valuation allowance, the Company considers future sources of taxable income such as “future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards” and “tax planning strategies.” SFAS No. 109 defines a tax planning strategy as “an action that: is prudent and feasible; an enterprise ordinarily might not take, but would take to prevent an operating loss or tax credit carryforward from expiring unused; and would result in realization of deferred tax assets.” In the event the Company determines that the deferred tax assets will not be realized in the future, the valuation adjustment to the deferred tax assets is charged to earnings in the period in which the Company makes such a determination. If it is later determined that it is more likely than not that the deferred tax assets will be realized, the Company will release the valuation allowance to current earnings or adjust the purchase price allocation, consistent with the manner of origination.

The amount of income taxes the Company pays is subject to ongoing audits by federal, state and foreign tax authorities. The Company’s estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time, pursuant to Financial Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109.” FIN 48 requires a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The Company records a liability for the difference between the benefit recognized and measured pursuant to FIN 48 and tax position taken or expected to be taken on the tax return. To the extent that the Company’s assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. The Company reports tax-related interest and penalties as a component of income tax expense.

Research and Development

The Company engages in research and development activities relating to new and improved products. It expended approximately $309,000, $325,000 and $32,000 in 2007, 2006 and 2005, respectively, for such activity in its continuing businesses. Research and development costs are included in selling, administrative and general expenses.

30

Notes to Consolidated Financial Statements

American Locker Group Incorporated and Subsidiaries — (Continued)

Earnings Per Share

The Company reports earnings per share in accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share (“SFAS 128”). Under SFAS No. 128 basic earnings per share excludes any dilutive effects of stock options, whereas diluted earnings per share assumes exercise of stock options, when dilutive, resulting in an increase in outstanding shares.

Foreign Currency

In accordance with Statement of Financial Accounting Standards No. 52, Foreign Currency Translation (SFAS No. 52), the Company translates the financial statements of the Canadian subsidiary from its functional currency into the U.S. dollar. Assets and liabilities are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Income statement amounts are translated using the average exchange rate for the year. All translation gains and losses resulting from the changes in exchange rates from year to year have been reported in other comprehensive income. Foreign currency gains and losses resulting from current year exchange rate transactions are insignificant for all years presented.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and long-term debt approximate fair value.

Stock-Based Compensation

On January 1, 2006, the Company adopted SFAS No. 123R, “Share-Based Payments” on a modified-prospective-transition method. Under this method, the Company’s prior periods do not reflect any restated amounts. The Company recognized no compensation expense related to stock options during the year ended December 31, 2006, as a result of the adoption of Statement 123R. Prior to January 1, 2006, the Company had applied the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25 and had adopted the disclosure requirements of SFAS No. 123, as amended by SFAS No. 148. Accordingly, the compensation expense of any employee stock options granted was the excess, if any, of the quoted market price of the Company’s common stock at the grant date over the amount the employee must pay to acquire the stock. Net income for 2007, 2006 and 2005 include pretax stock option expense of $40,573, $0 and $0, respectively. These expenses were included in selling, administrative and general expense.

Comprehensive Income

Comprehensive income consists of net income, foreign currency translation and minimum pension liability adjustments and is reported in the consolidated statements of stockholders’ equity.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include allowance for doubtful accounts, inventory obsolescence, product returns, intangible assets, pension, post-retirement benefits, contingencies, litigation and deferred tax asset valuation allowance. Actual results could differ from those estimates.

New Accounting Pronouncements

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income

31

Notes to Consolidated Financial Statements

American Locker Group Incorporated and Subsidiaries — (Continued)

taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109. “Accounting for Income Taxes,” by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. If a tax position is more likely than not to be sustained upon examination, then an enterprise would be required to recognize in its financial statements the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company adopted FIN 48 on January 1, 2007 and the impact on the Company’s consolidated financial statements was immaterial.

In June 2006, the FASB ratified its consensus on EITF Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation)” (EITF No. 06-3). The scope of EITF No. 06-3 includes any tax assessed by a governmental authority that is imposed concurrent with or subsequent to a revenue-producing transaction between a seller and a customer. For taxes within the scope of this issue that are significant in amount, the consensus requires the following disclosures: (i) the accounting policy elected for these taxes and (ii) the amount of the taxes reflected gross in the income statement on an interim and annual basis for all periods presented. The disclosure of those taxes can be done on an aggregate basis. The consensus is effective for interim and annual periods beginning after December 15, 2006, with earlier application permitted. There was no impact on the Company’s consolidated financial statements with respect to the adoption of EITF No. 06-3.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 provides guidance for measuring the fair value of assets and liabilities. It requires additional disclosures related to the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 is effective for fiscal years beginning after November 15, 2007. Subsequent to the issuance of SFAS 157, the FASB issued FASB Staff Position (FSP) FAS 157-1 amending SFAS 157 to exclude FASB Statement No. 13, Accounting for Leases, and other accounting pronouncements that address fair value measurements for purposes of lease classifications or measurement under Statement 13, and FSP FAS 157-2 deferring the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The Company is currently evaluating the impact adoption of SFAS No. 157 may have on the financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115 (“SFAS 159”). SFAS 159 permits entities to measure many financial instruments and certain other items at fair value to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting. Most of the provisions in SFAS 159 are elective. This statement is effective for fiscal years beginning after November 15, 2008, and it may be applied prospectively. Early adoption is permitted, provided the Company also elects to apply the provisions of SFAS 157. The Company does not intend to adopt the elective provisions of SFAS 159. The Company is currently evaluating the impact adoption of SFAS No. 159 may have on the financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), Business Combinations (“SFAS 141(R)”). SFAS 141(R) changes the requirements for an acquiring entity’s recognition and measurement of the assets acquired and liabilities assumed in a business combination. This statement is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the impact adoption of SFAS No. 141(R) may have on the financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51 (“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The Company is currently evaluating the impact adoption of SFAS No. 160 may have on the financial statements.

32

Notes to Consolidated Financial Statements

American Locker Group Incorporated and Subsidiaries — (Continued)

3.   Inventories

Inventories consist of the following:

	December 31,
	2007		2006
Finished products	$	333,653	$	442,777
Work-in-process		898,620		1,243,362
Raw materials		1,828,068		1,701,590
Net inventories	$	3,060,341	$	3,387,729

4.   Other Accrued Expenses and Current Liabilities

Accrued expenses consisted of the following at December 31:

	December 31,
	2007		2006
Short-term pension liability	$	177,987	$	215,878
Restructuring liability		11,941		11,941
Accrued severance		200,000		0
Accrued expenses, other		47,024		192,535
Total accrued expenses	$	436,952	$	420,354

5.   Debt

Debt consists of the following:

	December 31,
	2007			2006
Mortgage payable to bank through January 2012 at $22,493 monthly including interest at prime plus 75 basis points (8% at December 31, 2007) with payment for remaining balance due February 1, 2012, collateralized by real estate		2,143,765			—
Mortgage payable to bank through July 2006 at $26,823 monthly including interest at 8.04% with payment for remaining balance due August 1, 2006, collateralized by real estate		—			2,178,042
Total long-term debt		2,143,765			2,178,042
Less current portion		(96,530	)		(152,192	)
Long-term portion	$	2,047,235		$	2,025,850

On March 5, 2008, the Company renewed its $750,000 revolving line of credit with F&M Bank and Trust Company. The loan bears interest at prime plus 75 basis points (0.75%). The revolving line of credit matures on March 5, 2009. The line of credit is secured by all accounts receivable, inventory and equipment as well as a Deed of Trust covering the primary manufacturing and headquarters facility in Grapevine, Texas. The credit agreement underlying the revolving line of credit requires compliance with certain covenants.

At December 31, 2007, the Company had no borrowings under the revolving line of credit leaving $750,000 available for borrowing based upon the borrowing base as amended March 5, 2008.

33

Notes to Consolidated Financial Statements

American Locker Group Incorporated and Subsidiaries — (Continued)

On March 28, 2008, April 28, 2008 and June 13, 2008, the Company received waivers from The F&M Bank and Trust Company under its credit facility with respect to, among other things, waiver of any default or event of default arising under the Credit Facility as a result of our failure to comply with certain reporting covenants requiring the delivery of the Company’s 2007 Annual Report on Form 10-K as well as the delivery of financial statements for the first quarter of 2008. Additionally, the covenant requiring the maintenance of a certain debt service coverage ratio was waived through January 1, 2009.

6.   Operating Leases

The Company leases several operating facilities, vehicles and equipment under non-cancelable operating leases. Future minimum lease payments consist of the following at December 31, 2007:

2008	$	97,000
2009		32,000
2010		7,000
2011		3,000
2012		—
Total	$	139,000

Rent expense amounted to approximately $136,000, $150,000 and $287,000 in 2007, 2006 and 2005, respectively.

7.   Income Taxes

For financial reporting purposes, income before income taxes includes the following during the years ended December 31:

	2007			2006		2005
				(Restated)		(Restated)
United States income (loss)	$	(2,881,400	)	$	677,396	$	(9,431,428	)
Foreign income (loss)		131,657			167,828		(80,693	)
	$	(2,749,743	)	$	845,224	$	(9,512,121	)

Significant components of the provision for income taxes are as follows:

	2007			2006		2005
				(Restated)		(Restated)
Current:
Federal	$	(217,023	)	$	977	$	(1,108,342	)
State		(105,590	)		139		(94,513	)
Foreign		49,192			65,453		1,536
Total current		(273,421	)		66,569		(1,201,319	)
Deferred:
Federal		(529,628	)		182,726		(51,452	)
State		(36,346	)		27,876		5,172
Foreign		(6,231	)		23,733		(24,407	)
		(572,205	)		234,335		(70,687	)
	$	(845,626	)	$	300,904	$	(1,272,006	)

34

Notes to Consolidated Financial Statements

American Locker Group Incorporated and Subsidiaries — (Continued)

The differences between the federal statutory rate and the effective tax rate as a percentage of income before taxes are as follows:

	2007			2006			2005
				(Restated)			(Restated)
Statutory income tax rate		(34	)%		34	%		(34	)%
State and foreign income taxes, net of federal benefit		(1	)		3			(3	)
Change in valuation allowance		11			—			—
Foreign earnings taxed at different rate		(4	)		—			—
Change in estimated credits and refunds		(4	)		—			—
Repatriation dividend		—			—			4
Research and development credits		—			—			(5	)
Non-deductible goodwill impairment		—			—			24
Other permanent differences		1			(1	)		1
		(31	)%		36	%		(13	)%

Differences between the application of accounting principles and tax laws cause differences between the bases of certain assets and liabilities for financial reporting purposes and tax purposes. The tax effects of these differences, to the extent they are temporary, are recorded as deferred tax assets and liabilities. Significant components of the Company’s deferred tax assets and liabilities at December 31 are as follows:

	2007			2006
Deferred tax liabilities:
Prepaid expenses and other	$	4,609		$	80,794
Total deferred tax liabilities		4,609			80,794
Deferred tax assets:
Property, plant and equipment		9,332			30,337
Operating loss carryforwards		703,651			—
Postretirement benefits		23,471			27,095
Pension costs		257,401			351,248
Allowance for doubtful accounts		73,194			66,600
Other assets		16,626			20,349
Accrued expenses		65,828			4,418
Other employee benefits		31,381			915
Inventory costs		564,342			499,302
Total deferred tax assets		1,745,226			1,000,264
Net		1,740,617		$	919,470
Valuation allowance		(295,651	)		—
Net	$	1,444,966		$	919,470
Current deferred tax asset	$	987,538		$	841,689
Long-term deferred tax asset		457,428			77,781
	$	1,444,966		$	919,470

As of December 31, 2007 and 2006, the Company’s gross deferred tax assets are reduced by a valuation allowance of $295,651 and $0, respectively, due to negative evidence indicating that a valuation allowance is

35

Notes to Consolidated Financial Statements

American Locker Group Incorporated and Subsidiaries — (Continued)

required under SFAS No. 109. The valuation allowance was created during 2007, principally due to the Company’s net operating loss incurred during 2007.

As of December 31, 2007, the Company had U.S. net operating loss carryforwards for federal and state income tax purposes of approximately $2,043,000 and $2,053,000, respectively. These net operating losses are available to offset future federal and state income, if any, through 2027.

The Company has not provided deferred taxes for taxes that could result from the remittance of undistributed earnings of the Company’s foreign subsidiary since it has generally been the Company’s intention to reinvest these earnings indefinitely. Undistributed earnings that could be subject to additional income taxes if remitted were approximately $1,187,000 at December 31, 2007.

In May 2005, the Company received a repatriation dividend from its Canadian subsidiary of CDN$800,000, an amount equivalent to US$604,000. The amount is net of Canadian withholding taxes of CDN$40,000.

The Company files an income tax return in the U.S. federal jurisdiction and Texas. Tax returns for the years 2004 through 2006 remain open for examination in various tax jurisdictions in which it operates. The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109, Accounting for Income Taxes” (“FIN 48”), on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized no material adjustment in the liability for unrecognized income tax benefits. At the adoption date of January 1, 2007, and at December 31, 2007, there were no unrecognized tax benefits. Interest and penalties related to uncertain tax positions will be recognized in income tax expense. As of December 31, 2007, no interest related to uncertain tax positions had been accrued.

8.   Pension and Other Postretirement Benefits

U.S. Pension Plan

The Company maintains a noncontributory defined benefit pension plan (the “U.S. Plan”) for its domestic employees, which was frozen effective July 15, 2005. Accordingly, no new benefits are being accrued under the U.S. Plan. Participant accounts are credited with interest at the federally mandated rates. Company contributions are based on computations by independent actuaries. The impact of freezing the plan was a settlement loss of $239,000 and a curtailment loss of $14,000 in the fiscal year ended December 31, 2005.

The plan’s assets are invested in a balanced index fund (the “Fund”) where the assets were invested during 2005, 2006 and 2007. The principal investment objective of the Fund is to provide an incremental risk adjusted return compared to a portfolio invested 50% in stocks and 50% in bonds over a full market cycle. Under normal market conditions, the average asset allocation for the Fund is expected to be approximately 50% in stocks and 50% in bonds. This benchmark allocation may be adjusted by up to 20% based on economic or market conditions and liquidity needs. Therefore, the stock allocation may fluctuate from 30% to 70% of the total portfolio, with a corresponding bond allocation of from 70% to 30%. Fund reallocation may take place at any time.

Canadian Pension Plan

The Company maintains a noncontributory defined benefit pension plan (the “Canadian Plan”) for its Canadian employees. Benefits for the salaried employees are based on specified percentages of the employees’ monthly compensation.

The Canadian Plan’s assets are invested in various pooled funds (the “Canadian Funds”) managed by a third party fund manager. The principal investment objective of the Canadian Funds is to provide an incremental risk adjusted return compared to a portfolio invested 50% in stocks and 50% in bonds over a full market cycle. Under normal market conditions, the average asset allocation for the Canadian Funds is expected to be approximately 50% in stocks and 50% in bonds. This benchmark allocation may be adjusted based on economic or market conditions and liquidity needs.

36

Notes to Consolidated Financial Statements

American Locker Group Incorporated and Subsidiaries — (Continued)

In August 2006, the Pension Protection Act of 2006 was signed into law. The major provisions of the statute have taken effect January 1, 2008. Among other things, the statue is designed to ensure timely and adequate funding of pension plans by shortening the time period within which employers must fully fund pension benefits. Contributions to be made to the plan in 2008 are expected to approximate $75,000 for the U.S. plan and $170,000 for the Canadian plan. However, contributions for 2009 and beyond have not been quantified at this time.

On December 31, 2006, the Company adopted the recognition and disclosure provisions of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R).” SFAS No. 158 requires the company to recognize the funded status of its pension plans in its balance sheets and recognize the changes in a plan’s funded status in accumulated other comprehensive income in the year in which the changes occur. The Company uses December 31, the last day of its fiscal year, as a measurement date for determining pension plan assets and obligations.

The change in projected benefit obligation, change in plan assets and reconciliation of funded status for the plans were as follows:

	Pension Benefits
	U.S. Plan						Canadian Plan
	2007			2006			2007			2006
Change in projected benefit obligation
Projected benefit obligation at beginning of year	$	3,369,674		$	3,430,740		$	1,122,137		$	1,028,399
Service cost		29,610			30,487			31,627			29,198
Interest cost		191,828			184,377			60,727			57,954
Benefit payments		(166,287	)		(57,217	)		(82,903	)		(66,863	)
Administrative expenses		(18,174	)		(28,898	)		—			—
Actuarial (gain) loss		(383,650	)		(189,815	)		17,591			75,949
Currency translation adjustment		—			—			213,351			(2,499	)
Curtailment gain		—			—			—			—
Projected benefit obligation at end of year		3,023,001			3,369,674			1,362,530			1,122,138
Change in plan assets
Fair value of plan assets at beginning of year		2,639,553			2,363,904			927,607			778,978
Actual return on plan assets		52,447			236,233			(5,428	)		76,656
Benefit payments		(166,287	)		(57,217	)		(82,903	)		(66,863	)
Employer contribution		100,749			125,531			164,122			142,900
Administrative expenses		(18,174	)		(28,898	)		—			—
Currency translation adjustment		—			—			181,145			(4,064	)
Fair value of plan assets at end of year		2,608,288			2,639,553			1,184,543			927,607
Plan assets less than benefit obligation	$	(414,713	)	$	(730,121	)	$	(177,987	)	$	(194,531	)

37

Notes to Consolidated Financial Statements

American Locker Group Incorporated and Subsidiaries — (Continued)

The net amounts recognized on the consolidated balance sheets were as follows:

	U.S. Plan						Canadian Plan
	2007			2006			2007			2006
Current liabilities	$	—		$	(81,500	)	$	(177,987	)	$	(134,378	)
Non-current liabilities		(414,713	)		(648,621	)		—			(60,153	)
Net amount recognized	$	(414,713	)	$	(730,121	)	$	(177,987	)	$	(194,531	)

Amounts in accumulated other comprehensive loss at year end, consist of:

	U.S. Plan				Canadian Plan
	2007		2006		2007		2006
Unrecognized net loss	$	202,150	$	450,043	$	290,733	$	159,607
	$	202,150	$	450,043	$	290,733	$	159,607

The estimated net loss that will be amortized from accumulated other comprehensive income net periodic pension cost over the next fiscal year is $9,000 and $10,000 for the U.S. Plan and Canadian Plan, respectively.

Net pension expense is included in selling, administrative and general expenses on the consolidated statements of operations. The components of net pension expense for the plans were as follows:

	U.S. Plan									Canadian Plan
	2007			2006			2005			2007			2006			2005
Components of net periodic benefit cost:
Service cost	$	29,610		$	30,487		$	201,506		$	31,627		$	29,198		$	32,470
Interest cost		191,828			184,377			233,381			60,727			57,954			50,233
Expected return on plan assets		(197,588	)		(178,868	)		(214,822	)		(73,078	)		(68,980	)		(48,085	)
Net actuarial loss		—			29,916			51,231			—			—			—
Amortization of prior service cost		9,384			—			879			3,275			3,087			—
Net periodic benefit cost	$	33,234		$	65,912		$	272,175		$	22,551		$	21,259		$	34,618

Expected benefits to be paid by the plan during the next five years and in the aggregate for the five fiscal years thereafter, are as follows:

	U.S. Plan		Canadian Plan
2008	$	92,000	$	92,000
2009		106,000		89,000
2010		104,000		87,000
2011		111,000		84,000
2012		137,000		81,000
2013 through 2017		907,000		347,000

38

Notes to Consolidated Financial Statements

American Locker Group Incorporated and Subsidiaries — (Continued)

Benefit obligations are determined using assumptions at the end of each fiscal year and are not impacted by expected rate of return on plan assets. The weighted average assumptions used in computing the benefit obligations for the plans were as follows:

	U.S. Plan						Canadian Plan
	2007			2006			2007			2006
Weighted average assumptions as of December 31:
Discount rate		6.50	%		5.75	%		5.00	%		5.00	%
Rate of compensation increase		—			—			2.00	%		2.00	%

The weighted average assumptions used in computing net pension expense for the plans were as follows:

	U.S. Plan						Canadian Plan
	2007			2006			2007			2006
Weighted average assumptions as of December 31:
Discount rate		5.75	%		5.50	%		5.00	%		5.50	%
Expected return on plan assets		7.50	%		7.50	%		7.00	%		7.00	%
Rate of compensation increase		—			—			2.00	%		2.00	%

The expected return on plan assets is based upon anticipated returns generated by the investment vehicle. Any shortfall in the actual return has the effect of increasing the benefit obligation. The benefit obligation represents the actuarial present value of benefits attributed to employee service rendered; assuming future compensation levels are used to measure the obligation. The accumulated benefit obligation for the U.S. Plan was $3,023,001 and $3,369,674 at December 31, 2007 and 2006, respectively. The accumulated benefit obligation for the Canadian Plan was $1,305,342 and $1,107,550 at December 31, 2007 and 2006, respectively.

Death Benefit Plan

The Company also provides a death benefit for retired former employees of the Company. Effective in 2000, the Company discontinued this benefit for active employees. The death benefit is not a funded plan. The Company pays the benefit upon the death of the retiree. The Company has fully recorded its liability in connection with this plan. The liability was approximately $68,000 and $73,000 at December 31, 2007 and 2006, respectively, and is recorded as long-term pension and other benefits in the accompanying balance sheets. No expense was recorded in 2007, 2006 or 2005 related to the death benefit, as the Plan is closed to new participants.

Defined Contribution Plan

During 1999, the Company established a 401(k) plan for the benefit of its U.S. full-time employees. Under the Company’s 401(k) plan, the Company makes an employer matching contribution equal to $0.10 for each $1.00 of an employee’s salary contributions up to a total of 10% of that employee’s compensation. The Company’s contributions vest over a period of five years. The Company recorded expense of approximately $14,000, $14,000 and $19,000 in connection with its contribution to the plan during 2007, 2006 and 2005, respectively.

9.   Capital Stock

The Company’s Certificate of Incorporation, as amended, authorizes 4,000,000 shares of common stock and 1,000,000 shares of preferred stock, and 200,000 shares of preferred stock have been designated as Series A Junior Participating Preferred Stock. During 2006, the Company issued 3,370 shares of common stock as compensation to the non-employee directors (see “Item 11. Executive Compensation” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007). As of December 31, 2007, 1,741,516 shares of common stock had been issued, of which 1,549,516 were outstanding, and zero shares of preferred stock were outstanding

39

Notes to Consolidated Financial Statements

American Locker Group Incorporated and Subsidiaries — (Continued)

10.   Stock-Based Compensation

In 1999, the Company adopted the American Locker Group Incorporated 1999 Stock Incentive Plan, permitting the Company to provide incentive compensation of the types commonly known as incentive stock options, stock options and stock appreciation rights. The price of option shares or appreciation rights granted under the Plan shall not be less than the fair market value of common stock on the date of grant, and the term of the stock option or appreciation right shall not exceed ten years from date of grant. Upon exercise of a stock appreciation right granted in connection with a stock option, the optionee shall surrender the option and receive payment from the Company of an amount equal to the difference between the option price and the fair market value of the shares applicable to the options surrendered on the date of surrender. Such payment may be in shares, cash or both at the discretion of the Company’s Stock Option-Executive Compensation Committee.

At December 31, 2007 and 2006, there were no stock appreciation rights outstanding.

The Company estimates the fair value of stock options using the Black-Scholes valuation model, consistent with the provisions of SFAS No. 123(R) and SEC Staff Accounting Bulletin No. 107 (“SAB No. 107”). Key inputs and assumptions used to estimate the fair value of stock options include the grant price of the award, the expected option term, volatility of the company’s stock, the risk-free rate and the company’s dividend yield. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the company.

The following table presents the weighted-average assumptions used in the valuation and the resulting weighted-average fair value per option granted for the years ended December 31:

	2007			2006		2005
Option term (years)		10			—		—
Volatility		77.0	%		—		—
Risk-free interest rate		4.5	%		—		—
Dividend yield		0.0	%		—		—
Termination rate		10.0	%		—		—
Weighted average fair value per option granted	$	4.08			—		—

Net income for 2007 and 2006 include pretax stock option expense of $40,573 and $0, respectively. These expenses were included in selling, administrative and general expense.

The following table sets forth the activity related to the Company’s stock options for the years ended December 31:

	2007					2006					2005
				Weighted					Weighted					Weighted
				Average					Average					Average
				Exercise					Exercise					Exercise
	Options			Price		Options			Price		Options			Price
Outstanding — beginning of year		31,000		$	7.51		33,600		$	7.43		80,600		$	6.34
Exercised		—			—		—			—		(12,000	)		2.81
Granted		36,000			4.95		—			—		—			—
Expired or forfeited		(3,000	)		6.50		(2,600	)		6.50		(35,000	)		6.50
Outstanding — end of year		64,000		$	6.12		31,000		$	7.51		33,600		$	7.43
Exercisable — end of year		32,000					31,000					33,600

40

Notes to Consolidated Financial Statements

American Locker Group Incorporated and Subsidiaries — (Continued)

The following tables summarize information about stock options vested and unvested as of December 31, 2007:

Vested							Unvested
Exercise	Number of		Intrinsic		Remaining Years of		Exercise		Number of		Intrinsic		Remaining Years of
Price	Options		Value		Contractual Life		Price		Options		Value		Contractual Life
$4.95		4,000		—		9.7	$	4.95		32,000		—		9.7
$6.50		8,000		—		1.9
$7.25		10,000		—		2.2
$8.88		10,000		—		1.4
		32,000		—

At December 31, 2007, the total unrecognized compensation cost related to stock options expected to vest was approximately $106,000 and is expected to be recognized over a weighted average period of 1.3 years. At December 31, 2007, 37,000 options remain available for future issuance under the Plan.

11.   Shareholder Rights Plan

In November 1999, the Company adopted a Shareholder Rights Agreement and declared a dividend distribution of one right for each outstanding share of common stock. Under certain conditions, each right may be exercised to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock at a price of $40 (“Purchase Price”), subject to adjustment. The right will be exercisable only if a person or group (an “Acquiring Person”) has acquired beneficial ownership of 20% or more of the outstanding common stock, or following the commencement of a tender or exchange offer for 20% or more of such outstanding common stock. The Rights Plan includes certain exceptions from the definitions of Acquiring Person and beneficial ownership to take into account the existing ownership of common shares by members of one family. If any person becomes an Acquiring Person, each right will entitle its holder to receive, upon exercise of the right, such number of common shares determined by (A) multiplying the current purchase price by the number of one one-hundredths of a preferred share for which a right is now exercisable and dividing that product by (B) 50% of the current market price of the common shares.

In addition, if the Company is acquired in a merger or other business combination transaction, each right will entitle its holder to receive, upon exercise, that number of the acquiring Company’s common shares having a market value of twice the exercise price of the right. The Company will be entitled to redeem the rights at $.01 per right at any time prior to the earlier of the expiration of the rights in November 2009 or the time that a person becomes an Acquiring Person. The rights do not have voting or dividend rights, and until they become exercisable, have no dilutive effect on the Company’s earnings.

41

Notes to Consolidated Financial Statements

American Locker Group Incorporated and Subsidiaries — (Continued)

12.   Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31:

	2007			2006		2005
				(Restated)		(Restated)
Numerator:
Net income (loss)	$	(1,904,117	)	$	544,320	$	(8,240,115	)
Denominator:
Denominator for basic earnings per share — weighted average shares outstanding		1,549,516			1,547,392		1,540,179
Effect of dilutive securities:
Employee stock options		—			—		—
Denominator for diluted earnings per share — weighted average shares outstanding and assumed conversions		1,549,516			1,547,392		1,540,179
Basic earnings (loss) per share	$	(1.23	)	$	0.35	$	(5.35	)
Diluted earnings (loss) per share	$	(1.23	)	$	0.35	$	(5.35	)

For the year ended December 31, 2007 and 2006, 64,000 and 31,000 shares, respectively, attributable to outstanding stock options were excluded from the calculation of diluted earnings (loss) per share because the effect was antidilutive.

13.   Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss for the years ended December 31 are as follows:

	2007			2006
Foreign currency translation adjustment	$	220,932		$	(28,559	)
Minimum pension liability adjustment, net of tax effect of $197,154 in 2007 and $243,861 in 2006		(295,729	)		(365,781	)
	$	(74,797	)	$	(394,340	)

14.   Geographical and Customer Concentration Data

The Company is primarily engaged in one business, sale and rental of lockers. This includes coin, key-only and electronically controlled checking lockers and related locks and sale of plastic centralized mail and parcel distribution lockers. The Company sells to customers in the United States, Canada and other foreign locations. Net sales to external customers for the years ended December 31 are as follows:

	2007		2006		2005
United States customers	$	17,574,065	$	21,476,311	$	29,295,544
Canadian and other foreign customers		2,668,738		3,588,779		3,008,145
		20,242,803	$	25,065,090	$	32,303,689

Sales to the U.S. Postal Service represented 3.7%, 3.2% and 21.4% of net sales in 2007, 2006 and 2005, respectively. The Company did not have any customers that accounted for more than 10% of consolidated sales in 2007 and 2006.

42

Notes to Consolidated Financial Statements

American Locker Group Incorporated and Subsidiaries — (Continued)

At December 31, 2007 and 2006, the Company had unsecured trade receivables from governmental agencies of approximately $84,000 and $17,000, respectively. At December 31, 2007 and 2006, the Company had trade receivables from customers considered to be distributors of approximately $561,000 and $1,597,000, respectively.

At December 31, 2007, the Company had one customer that accounted for 15.3% of accounts receivable. Other concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities comprising the Company’s customer base and their dispersion across many industries.

15.   Related Parties

Edward Ruttenberg, a director of the Company, is a stockholder and director of Rollform of Jamestown, Inc. (“Rollform”), a rollforming company. One of the Company’s subsidiaries paid rent of approximately $3,600, $1,900, and $0 to Rollform in 2007, 2006 and 2005, respectively. One of the Companies subsidiaries purchased approximately $90,000 of fabricated parts from Rollform in 2005. There were no purchases from Rollform in 2007 and 2006.

Alan H. Finegold, a director of the Company through January 2, 2007, was paid approximately $22,000, $280,000, and $197,000 for consulting and legal services to the Company in 2007, 2006 and 2005, respectively. Consulting services were provided pursuant to a consulting arrangement which was terminated in 2005. Amounts due Mr. Finegold and included in accounts payable at December 31, 2007 and 2006 totaled approximately $1,500 and $28,000, respectively. Mr. Finegold resigned as a director of the Company effective January 2, 2007.

Roy J. Glosser, a former director and officer of the Company, is related to the Chairman of the Board of Signore, Inc., a vendor that supplied metal lockers to the Company through June 2006. Purchases from Signore, Inc. totaled approximately $0, $939,000, and $3,310,000 in 2007, 2006 and 2005, respectively. The Company terminated its relationship with Signore, Inc. in 2006.

16.   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 165 cases pending in state court in Massachusetts. 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.

43

Notes to Consolidated Financial Statements

American Locker Group Incorporated and Subsidiaries — (Continued)

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 20 cases with funds authorized and provided by the Company’s insurance carrier. Further, over 100 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 May 9, 2008 is approximately 45 cases.

While the Company cannot estimate potential damages or predict what the ultimate resolution of these asbestos cases may be because 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 case, 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.

17.   Restructuring

In May 2005, the Company announced that it would undertake restructuring initiatives to realign its organization in response to the loss of its CBU contract with USPS. The Company’s plan called for significant reductions in selling, administrative and general costs. A majority of the cost reductions were realized by relocating the Company’s headquarters from leased facilities in Jamestown, New York to a Company-owned facility in Grapevine, Texas. In addition, the Company eliminated certain corporate level staff and several satellite sales offices.

To implement the restructuring plan, management incurred aggregate impairments charges (exclusive of goodwill impairment) and costs of approximately $2,329,000 during 2005. In accordance with Financial Accounting Standards (FAS) No. 146 “Accounting for Costs Associated with Exit or Disposal Activities”, costs associated with an exit or disposal activity are recognized when the associated liabilities are incurred.

The following table summarized restructuring and related costs incurred by the Company in the year ended December 31, 2005:

Cost of Sales:
Equipment impairment	$	92,000
Inventory impairment		160,000
Purchase order commitments		108,000
Subtotal		360,000
Selling, administrative and general:
Severance		641,000
Professional fees		1,328,000
Subtotal		1,969,000
	$	2,329,000

44

Notes to Consolidated Financial Statements

American Locker Group Incorporated and Subsidiaries — (Continued)

The following table analyzes the changes in the Company’s reserve with respect to the restructuring plan from December 31, 2007, 2006 and 2005:

					Payments/						Payments/
	2005		Expense		Charges		2006		Expense		Charges		2007
Purchase order commitments		—		—		—		—		—		—		—
Severance		133,000		—		121,000		12,000		—		—		12,000
Professional fees		—		—		—		—		—		—		—
Total	$	133,000	$	—	$	121,000	$	12,000	$	—	$	—	$	12,000

18.   Post Employment Arrangements

Upon Mr. Ruttenberg’s retirement on January 31, 2008, his employment agreement entitled him to payment of his base salary for a period of 12 months commencing on August 1, 2008. The liability for these retirement payments was accrued in the selling, administrative and general expenses at December 31, 2007. Additionally, the Company entered into a consulting agreement with Mr. Ruttenberg beginning February 1, 2008. The consulting agreement’s terms include payments of $8,000 per month for a term of six months.

45

Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A(T).   Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer, the Company’s principal executive officer (“CEO”), and our President, Chief Operating Officer and Chief Financial Officer, the Company’s principal financial officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) as of December 31, 2007. Based on that evaluation, our CEO and CFO concluded that, as of that date, our disclosure controls and procedures required by paragraph (b) of Rules 13a-15 or 15d-15 of the Exchange Act were not effective at the reasonable assurance level because of the identification of material weaknesses in our internal control over financial reporting, which we view as an integral part of our disclosure controls and procedures.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting. This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.

Our internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

Our management performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2007, utilizing the criteria described in the “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The objective of this assessment was to determine whether our internal control over financial reporting was effective as of December 31, 2007.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. In our assessment of the effectiveness of internal control over financial reporting as of December 31, 2007, we identified the following material weaknesses:

Material weaknesses previously identified as of December 31, 2006 that continue to exist as of December 31, 2007:

•  Perpetual Inventory System — The Company’s 2006 Annual Report on Form 10-K reported a material weakness due to the Company’s failure to routinely maintain the Company’s perpetual inventory system. As a result of this failure, the Company’s independent registered public accounting firm proposed numerous material adjustments in the Company’s financial statements as of and for the year ended December 31, 2006. Although the Company’s independent registered public accounting firm did not propose any material

46

adjustments in 2007 related to this weakness, the Company was required to record adjustments as part of their annual closing process to adjust the perpetual inventory to the amounts determined by the Company’s physical count. Effective controls were not maintained to ensure that the Company’s inventory systems completely and accurately processed and accounted for inventory movements on an interim basis within the Company’s manufacturing facilities and adjustments were necessary to adjust interim financial statements. If not remediated, it is reasonably possible that our consolidated financial statements will contain a material misstatement or that we will miss a filing deadline in the future.

•  Entity Level Controls — The Company’s 2006 Annual Report on Form 10-K identified a material weakness due to the Company’s insufficient entity level controls, as defined by COSO, to ensure that the Company meets it disclosure and reporting obligations. Specifically, certain key financial accounting and reporting personnel had an expansive scope of duties without the oversight of the board of directors or audit committee that allowed for the creation, review, approval and processing of financial data and authorization for the preparation of consolidation schedules and resulting financial statements without independent review. Certain documents lacked physical documentation of management review and approval where such review and approval was required. Additionally, due to the dynamic and evolving nature of our business, the Company lacked sufficiently documented policies and procedures reflecting management’s expectations. While this control deficiency did not result in audit adjustments in 2007, if not remediated, it is reasonably possible that our consolidated financial statements will contain a material misstatement or that we will miss a filing deadline in the future.

Material weakness initially identified as of December 31, 2007:

•  Information Technology — The Company did not maintain effective controls over the segregation of duties and access to financial reporting systems. Specifically, key financial reporting systems were not appropriately configured to ensure that certain transactions were properly processed with segregate duties amongst personnel and to ensure that unauthorized individuals did not have access to add or change key financial data. Additionally, the Company lacked adequate personnel with relevant expertise to maintain effective controls over information technology. Although the Company did not find any instances of unauthorized transactions in fiscal 2007, it is reasonably possible that our consolidated financial statements will contain a material misstatement if this deficiency is not remediated.

•  Timeliness of Financial Reporting — The Company did not maintain adequate staffing levels throughout 2007 to rebuild its accounting function and file in a timely manner the large number of delinquent interim and annual reports that existed during that time. Additionally, the Company did not maintain effective written policies, procedures and documentation to ensure the timely filing of required interim and annual financial reports with the SEC. The Company relocated its headquarters from Jamestown, New York to Grapevine, Texas in mid-2005. As a result of this relocation, the Company experienced the turnover of its’ entire accounting department. The rebuilding of the accounting function has taken longer than anticipated due to the lack of sufficient written policies and procedures and inadequate staffing levels that existed during 2007 as noted above. As a consequence of the foregoing, the Company has been unable to file its required interim and annual reports with the SEC in a timely manner.

Based on management’s assessment, and because of the material weaknesses described above, we have concluded that our internal control over financial reporting was not effective as of December 31, 2007.

This Annual Report on Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation requirements by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this Annual Report on Form 10-K for the year ended December 31, 2007.

47

Changes in Internal Control over Financial Reporting

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

Actions to address previously reported material weaknesses that no longer exist as of December 31, 2007:

•  Accounting Personnel — The Company’s 2006 Annual Report on Form 10-K identified a material weakness due to a lack of adequate accounting personnel to oversee the financial accounting and reporting responsibilities of an SEC registrant and maintain internal control over financial reporting to produce financial statements in accordance with U.S. generally accepted accounting principles. In particular, the Company’s accounting and finance personnel did not possess the necessary experience and expertise to oversee the financial accounting and reporting responsibilities of an SEC registrant prior to hiring the current CFO. To address this matter the Company hired the following additional accounting personnel: our current Chief Financial Officer in November 2006; our current Controller in March 2007; a Staff Accountant in June 2007; and a Cost Accountant in October 2007. The Company now believes a sufficient complement of personnel is in place with an appropriate level of technical accounting knowledge such that it is no longer reasonably possible that our consolidated financial statements will be materially misstated as a result of lack of adequate accounting personnel.

•  Purchase and Sale Transactions — The Company’s 2005 and 2006 Annual Reports on Form 10-K identified a material weakness due to inadequate procedures in place to ensure that purchases or sale transactions are recorded in the appropriate accounting period. During fiscal 2007 we implemented additional policies and procedures to ensure that purchase or sale transactions are recorded in the appropriate accounting period. The Company now believes sufficient policies and procedures are in place such that it is no longer reasonably possible that our consolidated financial statements will be materially misstated as a result of inadequate procedures in place to ensure that purchases or sale transactions are recorded in the appropriate accounting period.

Actions implemented or initiated in 2008 to address the material weaknesses described above that exist as of December 31, 2007:

•  Actions to strengthen controls over the Company’s perpetual inventory include:  (i) appointing a Manager of Supply Chain with responsibility for day-to-day oversight of inventory control; (ii) reorganizing and restructuring the inventory control function; (iii) implementing new policies and procedures related to cycle counting, including performing root cause analysis of discrepancies; (iv) implementing new policies and procedures to ensure inventory movements are completely and accurately processed in a timely manner; and (v) detailed reviewing of bills of materials by personal possessing relevant expertise to ensure the accuracy of information contained therein.

•  Actions to strengthen the Company’s entity level controls include:  (i) reducing the scope of duties of key accounting and financial personnel so that the person creating and processing financial data is separate from the person performing the review and approval of the same financial data; (ii) requiring the physical sign-off of accounting and financial personnel on review and approval of documents where such review and approval is required; (iii) developing written documentation of policies and procedures to document management’s expectations; and (iv) requiring key employees to periodically certify their compliance with the Company’s code of conduct.

•  Actions to strengthen controls over the Company’s information technologies include:  (i) the Company has replaced its information technology personnel with persons possessing relevant expertise to maintain control over information technology; (ii) information technology systems will be configured to ensure appropriate access controls; and (iii) key financial reporting systems will be configured to ensure unauthorized individuals do not have access to add or change key financial data.

•  Actions to strengthen controls over financial reporting to ensure the timely filing of required interim and annual financial reporting with the SEC include;  (i) effective written policies and procedures to ensure the

48

timely close of the financial reporting process are being developed, (ii) the change in accounting principles from LIFO to FIFO will eliminate the time required to calculate the LIFO reserve, (iii) the reduction of outsourced manufacturing activities will reduce the time and complexity of the procedures performed to ensure that purchase and sales transactions are recorded in the appropriate accounting period, (iv) the filing of late interim and annual financial reports with the SEC will reduce time spent by accounting and finance personnel on these matters.

Item 9B.   Other Information

None.

PART III

Item 10.   Directors, Executive Officers and Corporate Governance

Directors and Executive Officers

The following sets forth certain information concerning the Company’s current directors and executive officers. There are no family relationships between any directors and executive officers other than as indicated below.

Name	Age		Position
John E. Harris(1)		47	Non-Executive Chairman of the Board
Allen D. Tilley(2)		70	Chief Executive Officer and Director
Paul M. Zaidins(3)		40	President, Chief Operating Officer and Chief Financial Officer
Craig R. Frank		47	Director
Anthony B. Johnston		47	Director
Edward F. Ruttenberg(4)		61	Director
Mary A. Stanford		47	Director
James T. Vanasek		38	Director

(1)	Mr. Harris was appointed Non-Executive Chairman in February 2008.
(2)	Mr. Tilley was appointed Chief Executive Officer in February 2008.
(3)	Mr. Zaidins was appointed to the additional positions of President and Chief Operating Officer in February 2008.
(4)	Mr. Ruttenberg retired as Chairman, Chief Executive Officer, Chief Operating Officer and Treasurer in January 2008.

John E. Harris.  Mr. Harris, 47, was named the Company’s Non-Executive Chairman on February 1, 2008. He has been a Director since July 2005 and is a member of the Stock Option — Executive Compensation and the Nominating and Governance Committees. Mr. Harris was a Vice President of United States Trust Company, an investment management company, from August 2006 until February, 2008. Mr. Harris has served as Principal of Harris Capital Advisors, a consulting, investment analysis and private equity financing firm, from 2001 through August 2006. Mr. Harris also served as Vice President of Emerson Partners, a real estate private equity fund, from 2001 to 2003. Mr. Harris is a Chartered Financial Analyst charterholder and holds a Masters of Business Administration from Southern Methodist University.

Allen D. Tilley.  Mr. Tilley, 70, was appointed as a director of the Company in September 2007 and was appointed Chief Executive Officer in February 2008. From September 2006 through the present, Mr. Tilley has served as an adjunct professor at Southern Methodist University’s School of Engineering. From 1998 through December 2006, Mr. Tilley was the President and CEO of Schubert Packaging Systems (“SPS”), a subsidiary of a German-based packaging machine manufacturer and from 1997 served as a consultant to the packaging machine manufacturer prior to starting SPS. Prior to that, Mr. Tilley spent more than 20 years in various executive positions

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with Frito Lay and Pepsi Foods International (“PFI”), divisions of PepsiCo, last serving as Vice President of Operations for PFI . Mr. Tilley holds a BS in Engineering from Kansas State University and an MBA from Southern Methodist University.

Paul M. Zaidins.  Mr. Zaidins, 40, was named the Company’s President, Chief Operating Officer and Chief Financial Officer on February 1, 2008. Prior to that he was named the Company’s Chief Financial Officer in August 2007 and prior to that served as Controller since November 2006. Prior to joining the Company, he was a Managing Director for the investment banking firm Lane-Link Group from 2004 to 2006. Prior to 2004, he owned and operated specialty retail stores and was Managing Director for the investment banking firm ECDI Capital. He has been a certified public accountant since 1992.

Craig R. Frank.  Mr. Frank, 47, has been a Director since March 2006 and is a member of Stock Option — Executive Compensation and the Nominating and Governance Committees. From 2000 to 2002, Mr. Frank was the Chief Executive Officer of Tudog Creative Business Consulting, a business consulting firm. Mr. Frank has served as Chief Executive Officer of Tudog International Consulting, also a business consulting firm, since 2002.

Anthony B. Johnston.  Mr. Johnston, 47, was appointed as a director of the Company on February 13, 2007. Mr. Johnston is a member of Audit and the Nominating and Governance Committees. Mr. Johnston has over 20 years of public company experience in both the manufacturing and service sectors. From October 1996 until November 2007, Mr. Johnston has been a Senior Vice President with The Westaim Corporation located in Calgary, Alberta, Canada. Prior to joining Westaim, Mr. Johnston was a Vice President with a major international airline.

Edward F. Ruttenberg.  Mr. Ruttenberg, 61, has been a director since 1996 and was the Company’s Chairman and Chief Executive Officer from September 1998 and Chief Operating Officer and Treasurer from May 2005 until his retirement on January 31, 2008. Mr. Ruttenberg has been the President and major shareholder of Rollform of Jamestown, Inc., a privately owned rollforming company in Jamestown, New York, since 1988.

Mary A. Stanford.  Dr. Stanford, 47, has been a Director since July 2005 and is a member of the Audit and Nominating and Governance Committees. Dr. Stanford has been a Professor of Accounting at the Neeley School of Business at Texas Christian University since 2002. Dr. Stanford previously was an Associate Professor of Accounting at Syracuse University from 1999 to 2002.

James T. Vanasek.  Mr. Vanasek, 38, has been a Director since July 2005 and is a member of the Audit Committee. Mr. Vanasek has served as Principal of VN Capital Management, LLC, a private hedge fund, since 2002. Prior to that, Mr. Vanasek was an investment banking associate at JPMorgan.

There have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any executive officer during the past five years.

Audit Committee

The Company has a standing Audit Committee. The Audit Committee consists of three directors: Mary A. Stanford, James T. Vanasek and Anthony B. Johnston. The Company’s Board of Directors has determined that Dr. Stanford qualifies as an “audit committee financial expert” as defined by SEC regulations, and she, along with the other Audit Committee members, is “independent” as defined under NASDAQ rules.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely upon the Company’s review of the reports and representations provided to it by persons required to file reports under Section 16(a) of the Exchange Act, the Company believes that all of the Section 16(a) filing requirements applicable to the Company’s reporting officers and directors were properly and timely satisfied during 2007.

Code of Ethics

The Company has adopted a Code of Ethics which is applicable to all employees, officers and directors of the Company. The Code of Ethics is intended to address conflicts of interest, corporate opportunities, confidentiality, fair dealing, protection and proper use of Company assets and compliance with laws, rules and regulations

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(including inside trading and reporting requirements). The Code of Ethics establishes special ethical rules with respect to the Chief Executive Officer and senior financial officials of the Company. It also establishes compliance procedures and mechanisms for reporting suspected violations. The Code of Ethics is available on the Company’s website (www.americanlocker.com). The Company intends to disclose amendments to, or waivers from, provisions of the Code of Ethics that apply to the Chief Executive Officer and senior financial officials by posting such information on its website. The contents of the Company’s website are not part of this Annual Report on Form 10-K.

Nominating and Governance Committee

The Nominating and Governance Committee consists of four directors: Craig R. Frank, John E. Harris, Anthony B. Johnston and Mary A. Stanford. The Nominating and Governance Committee actively seeks and identifies individuals qualified to become members of the Board of Directors, consistent with criteria approved by the Board of Directors, and selects the nominees for Director. The Nominating and Governance Committee also selects the membership composition of the committees of the Board of Directors. Only Directors who meet the independence standards set by the SEC and by NASDAQ are permitted to serve on the Nominating and Governance Committee. The Nominating and Governance Committee has a written charter that describes its duties and powers.

The Nominating and Governance Committee reviews with the full Board of Directors at least annually the qualifications of new and existing members of the Board of Directors, considering the level of independence of individual members, together with such other factors as the Board of Directors deems appropriate, including overall skills and excellence, to ensure the Company’s ongoing compliance with the independence and other standards set by the SEC and by NASDAQ.

There have been no material changes to the procedures by which security holders may recommend nominees to the Board of Directors.

Item 11.   Executive Compensation.

Summary Compensation Table

The following table and the accompanying explanatory footnotes set forth the cash and non-cash compensation awarded to, earned by and paid by the Company to its principal executive officer and other executive officers who were the most highly compensated executive officers for services rendered in all capacities during the fiscal years ended December 31, 2007 and 2006 (the “named executive officers”).

									Other
							Option		Annual
Name and			Salary		Bonus		Awards		Compensation
Principal Positions	Year		($)		($)		($)(5)		($)			Total
Paul M. Zaidins		2006		16,740		—		—		—		$	16,740
President, Chief Financial Officer and		2007		140,400		20,000		48,960		—		$	209,360
Chief Operating Officer(2)
Edward F. Ruttenberg		2006		160,000		—		—		480	(4)	$	160,480
Director(1)		2007		160,000		—		32,640		160	(4)	$	192,800
Allen D. Tilley		2006				—		—		—			—
Chief Executive Officer and Director(3)		2007		1,840		—		—		—			1,840

(1)	Prior to January 31, 2008, Mr. Ruttenberg served as Chief Executive Officer, Chief Operating Officer and Treasurer of the Company. Mr. Ruttenberg did not receive any separate compensation for his services as a member of the Board of Directors.
(2)	Mr. Zaidins served as the Company’s controller before becoming the Company’s Chief Financial Officer in August 2007, and in February 2008 he was named the Company’s President and Chief Operating Officer.
(3)	Mr. Tilley was appointed as a director of the Company in October 2007 and was appointed as Chief Executive Officer in February 2008. Amounts presented for 2007 represent fees received by Mr. Tilley for his services of a member of the Board of Directors.
(4)	Consists of the Company’s employer matching contribution to the 401(k) plan.

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(5) The valuation of stock option awards in this column represents the compensation cost of awards recognized for financial statement purposes under Statement of Financial Accounting Standards No. 123, as revised. The amounts include portions of stock option grants in 2007 that were expensed in 2007 based on the amortization schedule. See discussion under Note 10, Stock-Based Compensation in the notes to the Company’s consolidated financial statements under Item 8 of this Annual Report on Form 10-K for a discussion of all assumptions made in connection with determining the fair value of the awards.

Employment Arrangements

Mr. Zaidins and the Company have entered into a separation agreement that will govern the terms of certain circumstances in the event that Mr. Zaidins’ relationship with the Company is ended. Pursuant to his separation agreement, Mr. Zaidins is entitled to receive, upon termination of his employment for any reason, other than death or disability, separation payments in an amount equal to his then current base salary for a specified period, computed as one month for each full year during which he has been employed by the Company (not to be shorter than two months nor longer than 12 months). However, if termination of employment arises as a result of a change of control, the period during which he is entitled to receive separation payments shall be computed as two months for each full year during which he has been employed by the Company (not to be shorter than four months nor longer than 24 months). All separation payments are payable in accordance with the Company’s regular payroll procedures over the length of the separation period.

Upon Mr. Ruttenberg’s retirement on January 31, 2008, his employment agreement entitled him to payment of his base salary for a period of 12 months commencing on August 1, 2008. The liability for these retirement payments was accrued in the selling, administrative and general expenses at December 31, 2007. Additionally, the Company entered into a consulting agreement with Mr. Ruttenberg beginning February 1, 2008. The consulting agreement’s terms include payments of $8,000 per month for a term of six months.

Mr. Tilley’s compensation is determined annually by the Board of Directors. Beginning, February 1, 2008, Mr. Tilley’s annual salary is $35,000 plus a per diem of $800 on days when he provides services beyond the scope of his defined duties.

1999 Stock Incentive Plan

In May 1999, the stockholders of the Company approved the American Locker Group Incorporated 1999 Stock Incentive Plan (the “1999 Plan”).

Administration.  The 1999 Plan is administered by the Stock Option — Executive Compensation Committee of the Board of Directors (the “Committee”). The Committee has the sole discretion to interpret the 1999 Plan, establish and modify administrative rules, impose conditions and restrictions on awards, and take such other actions as it deems necessary or advisable. In addition, the full Board of Directors of the Company can perform any of the functions of the Committee under the 1999 Plan.

Amount of Stock.  The 1999 Plan provides for awards of up to 150,000 shares of Common Stock. The number and kind of shares subject to outstanding awards, the purchase price for such shares and the number and kind of shares available for issuance under the 1999 Plan is subject to adjustments, in the sole discretion of the Committee, in connection with the occurrence of mergers, recapitalizations and other significant corporate events involving the Company. The shares to be offered under the 1999 Plan will be either authorized and unissued shares or issued shares which have been reacquired by the Company.

Eligibility and Participation.  The participants under the 1999 Plan will be those employees and consultants of the Company or any subsidiary who are selected by the Committee to receive awards, including officers who are also directors of the Company or its subsidiaries. Approximately five persons will initially be eligible to participate. No participant can receive awards under the 1999 Plan in any calendar year in respect of more than 15,000 shares of Common Stock.

Amendment or Termination.  The 1999 Plan has no fixed expiration date. The Committee will establish expiration and exercise dates on an award-by-award basis. However, for the purpose of awarding incentive stock

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options under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) (“incentive stock options”), the 1999 Plan will expire ten years from its effective date of May 13, 1999.

Stock Options.  The Committee may grant to a participant incentive stock options, options which do not qualify as incentive stock options (“non-qualified stock options”) or a combination thereof. The terms and conditions of stock option grants including the quantity, price, vesting periods, and other conditions on exercise will be determined by the Committee. Incentive stock option grants shall be made in accordance with Section 422 of the Code.

The exercise price for stock options will be determined by the Committee at its discretion, provided that the exercise price per share for each stock option shall be at least equal to 100% of the fair market value of one share of Common Stock on the date when the stock option is granted.

Upon a participant’s termination of employment for any reason, any stock options which were not exercisable on the participant’s termination date will expire, unless otherwise determined by the Committee.

Upon a participant’s termination of employment for reasons other than death, disability or retirement, the participant’s stock options will expire on the date of termination, unless the right to exercise the options is extended by the Committee at its discretion. In general, upon a participant’s termination by reason of death or disability, stock options which were exercisable on the participant’s termination date (or which are otherwise determined to be exercisable by the Committee) may continue to be exercised by the participant (or the participant’s beneficiary) for a period of twelve months from the date of the participant’s termination of employment, unless extended by the Committee. Upon a participant’s termination by reason of retirement, stock options which were exercisable upon the participant’s termination date (or which are otherwise determined to be exercisable by the Committee) may continue to be exercised by the participant for a period of three months from the date of the participant’s termination of employment, unless extended by the Committee. If upon the disability or retirement of the participant, the participant’s age plus years of continuous service with the company and its affiliates and predecessors (as combined and rounded to the nearest month) equals 65 or more, then all of the participant’s options will be exercisable on the date of such disability or retirement for the exercise period stated above. In no event, however, may the options be exercised after the scheduled expiration date of the options.

Subject to the Committee’s discretion, payment for shares of Common Stock on the exercise of stock options may be made in cash, by the delivery (actually or by attestation) of shares of Common Stock held by the participant for at least six months prior to the date of exercise, a combination of cash and shares of Common Stock, or in any other form of consideration acceptable to the Committee (including one or more “cashless” exercise forms).

Stock Appreciation Rights.  Stock appreciation rights (“SARs”) may be granted by the Committee to a participant either separate from or in tandem with non-qualified stock options or incentive stock options. SARs may be granted at the time of the stock option grant or, with respect to non-qualified stock options, at any time prior to the exercise of the stock option. A SAR entitled the participant to receive, upon its exercise, a payment equal to (i) the excess of the fair market value of a share of Common Stock on the exercise date over the SAR exercise price, times (ii) the number of shares of Common Stock with respect to which the SAR is exercised.

The exercise price of a SAR is determined by the Committee, but in the case of SARs granted in tandem with stock options, may not be less than the exercise price of the related stock option. Upon exercise of a SAR, payment will be made in cash or shares of Common Stock, or a combination thereof, as determined at the discretion of the Committee.

Change in Control.  In the event of a change in control of the Company, all stock options and SARs will immediately vest and become exercisable. In general, events which constitute a change in control include: (i) acquisition by a person of beneficial ownership of shares representing 30% or more of the voting power of all classes of stock of the Company; (ii) during any year or period of two consecutive years, the individuals who at the beginning of such period constitute the Board no longer constitute at least a majority of the Board; (iii) a reorganization, merger or consolidation; or (iv) approval by the stockholders of the Company of a plan of complete liquidation of the Company.

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Outstanding Equity Awards at Fiscal Year-End

The following table shows certain information regarding outstanding equity awards as of December 31, 2007 for our named executive officers:

					Equity Incentive
					Plan Awards:
					Number of
	Number of Securities				Securities
	Underlying				Underlying		Option		Option
	Unexercised Options (#)				Unexercised		Exercise		Expiration
Name	Exercisable		Unexercisable		Unearned Options		Price ($)		Date
Edward F. Ruttenberg		10,000		—		—		8.875		05/13/09
		5,000		—		—		6.50		11/18/09
		10,000		—		—		7.25		03/02/10
		—		8,000		—		4.95		09/06/17
Paul M. Zaidins		4,000		8,000		—		4.95		09/06/17
Allen D. Tilley		—		—		—		—		—

Pension Benefits

The Company’s pension plans for salaried employees (U.S. and Canadian) provide for an annual pension upon normal retirement computed under a career average formula, presently equal to 2% of an employee’s eligible lifetime earnings, which includes salaries, commissions and bonuses. The following table sets forth certain benefits information applicable to our named executive officers under our pension plans. See Note 8 to the Company’s consolidated financial statements under Item 8 of this Annual Report on Form 10-K for additional information about the Company’s decision in May 2005 to freeze its obligations under the defined benefit plan for United States employees such that after July 15, 2006 no benefits will accrue under this plan.

					Present Value of
			Number of Years		Accumulated		Payments During
Name	Plan Name		Credited Service (#)		Benefit ($)		Last Fiscal Year
Edward F. Ruttenberg		U.S. Pension Plan		6.75		223,128		—
Paul M. Zaidins		—		—		—		—
Allen D. Tilley		—		—		—		—

(1) Pension benefit amounts listed in the table are not subject to deduction for Social Security benefits.

Effective February 1, 1999, the Company established a 401(K) Plan under which it matches employee contributions at the rate of $.10 per $1.00 of employee contributions up to 10% of employee’s wages.

Compensation of Directors

The following table sets forth certain information with respect to the compensation of all members of our board of directors for the year ended December 31, 2007. Information with respect to Mr. Ruttenberg and Mr. Tilley is set forth above under “Summary Compensation Table”:

	Fees Earned
	or Paid in
Name	Cash ($)		Total
Craig R. Frank		10,500		10,500
John E. Harris		11,000		11,000
Anthony Johnston(1)		9,167		9,167
Mary A. Stanford		14,500		14,500
James T. Vanasek		11,000		11,000

(1) Mr. Johnston was appointed as a director in February 2007.

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During the year ended December 31, 2007, each director, other than the Chair of the Audit Committee, who was not a salaried employee of the Company, was paid an annual base director fee of $8,000, payable quarterly at the end of each calendar quarter. In recognition of the additional responsibilities and time commitment associated with the position, the Chair of the Audit Committee will receive an additional fee of $3,500 on an annual basis, payable in cash quarterly at the end of each calendar quarter. Each director will continue to receive $500 for each meeting of the Board of Directors attended in person or by conference telephone, payable in cash quarterly at the end of each calendar quarter. No director will receive additional compensation for attendance at any meeting of any committee of the Board of Directors.

Effective January 1, 2008, each director, other than the Non-Executive Chairman, Chief Executive Officer and Chair of the Audit Committee, who was not a salaried employee of the Company, will be paid an annual base director fee of $10,000, payable quarterly at the end of each calendar quarter. In recognition of the additional responsibilities and time commitment associated with their positions, the Non-Executive Chairman, and Chair of the Audit Committee will receive an additional fee of $20,000, and $3,500, respectively, on an annual basis, payable in cash quarterly at the end of each calendar quarter. Each director will continue to receive $500 for each meeting of the Board of Directors attended in person or by conference telephone, payable in cash quarterly at the end of each calendar quarter. No director will receive additional compensation for attendance at any meeting of any committee of the Board of Directors.

On March 27, 2008, the Company issued 19,000 shares of common stock to members of the Board of Directors as part of their compensation. The 19,000 shares were issued as follows; 6,000 shares for the Non-Executive Chairman, 6,000 shares for the Chief Executive Officer, 3,000 shares for the Audit Committee Chairperson and 1,000 shares each to Mr. Frank, Mr. Johnston, Mr. Ruttenberg and Mr. Vanasek. These common shares vested immediately.

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Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The table below sets forth certain information regarding the beneficial ownership, as of June 16, 2008, of the Company’s common stock by (i) all persons or groups known by the Company to be the owner of record or beneficially of more than 5% of our outstanding common stock, (ii) each director of the Company, (iii) each of our named executive officers (identified above under the heading “Summary Compensation Table” in Item 11) and (iv) all of our directors and executive officers as a group. Except as otherwise indicated, each stockholder identified in the table possesses sole voting and investment power with respect to the shares. Unless otherwise noted, each owner’s mailing address is c/o American Locker Group Incorporated, 815 Main Street, Grapevine, TX 76051.

	Amount and
	Nature of
	Beneficial		Percent of
Name and Address of Beneficial Owner	Ownership(1)		Class(2)
Santa Monica Partners, L.P.(3)		126,978		8.1	%
1865 Palmer Avenue,
Larchmont, New York 10538
VN Capital Fund I, L.P.(4)		121,508		7.8	%
198 Broadway, Suite 406,
New York, New York 10038
Paul B. Luber 704 Tenth Avenue Grafton, Wisconsin 53024		84,227		5.4	%
Edward F. Ruttenberg(5)		80,841		5.2	%
Paul M. Zaidins(6)		4,000		*
Craig R. Frank		1,150		*
John E. Harris		6,644		*
Anthony B. Johnston		1,000		*
Mary A. Stanford		3,644		*
Allen D. Tilley		6,000		*
James T. Vanasek(7)		123,152		7.9	%
All directors and executive officers as a group (8 persons)(8)		226,431		14.4	%

*	Less than 1%
(1)	Beneficial ownership has been determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934 and, unless otherwise indicated, represents securities for which the beneficial owner has sole voting and investment power. Any securities held in the name of, and under, the voting and investment power of a spouse of an executive officer or director have been excluded.
(2)	Calculated based on 1,568,516 shares of common stock outstanding on June 16, 2008, plus, for each person or group, any securities that person or group has the right to acquire within 60 days pursuant to options, warrants, conversion privileges or other rights.
(3)	The general partner of Santa Monica Partners, L.P. is SMP Asset Management LLC. Lawrence J. Goldstein is the President and sole owner of SMP Asset Management, and may be deemed to beneficially own these shares. Mr. Goldstein disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein. The amount listed does not include 4,288 shares owned directly by Mr. Goldstein and 5,600 shares owned by Lawrence J. Goldstein IRA account (shares were rolled over from the L.J. Goldstein Company Incorporated Pension Plan).
(4)	The general partners of VN Capital Fund I, L.P. are VN Capital Management, LLC and Joinville Capital Management, LLC. VN Capital Management, LLC and Joinville Capital Management, LLC are Delaware limited liability companies formed to be the general partners of VN Capital Fund I, L.P. James T. Vanasek, a member of the Company’s board of directors, and Patrick Donnell Noone are the Managing Members of VN Capital Management, LLC and Joinville Capital Management, LLC.

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(5)	Includes 25,000 shares which Mr. Ruttenberg has the right to acquire under stock options at an exercise price of $7.25 (10,000), $6.50 (5,000) and $8.875 (10,000). Also includes 5,332 shares held by Rollform of Jamestown, Inc., a company in which Mr. Ruttenberg and his immediate family own a 97% interest.
(6)	Includes 4,000 shares which Mr. Zaidins has the right to acquire under stock options at an exercise price of $4.95.
(7)	Includes 1,644 shares held directly in Mr. Vanasek’s name and 121,508 shares held by VN Capital Management, LLC and Joinville Capital Management, LLC, of which Mr. Vanasek is a Principal, with respect to which Mr. Vanasek disclaims beneficial ownership except to the extent of his pecuniary interest, if any.
(8)	Includes 29,000 shares of common stock that may be acquired by the persons included in this group within 60 days pursuant to options, warrants, conversion privileges or other rights. Please see notes (5) and (6) above.

Item 13.   Certain Relationships and Related Transactions, and Director Independence

Edward Ruttenberg, a director of the Company, is a stockholder and director of Rollform of Jamestown, Inc. (“Rollform”), a rollforming company. One of the Company’s subsidiaries paid rent of approximately $3,600, $1,900, and $0 to Rollform in 2007, 2006 and 2005, respectively. One of the Companies subsidiaries purchased approximately $90,000 of fabricated parts from Rollform in 2005. There were no purchases from Rollform in 2007 and 2006.

Item 14.   Principal Accountant Fees and Services.

The Audit Committee of the Board of Directors of the Company appointed Travis, Wolff & Company, LLP as the independent registered public accounting firm to audit the financial statements of the Company and its subsidiaries for the fiscal years ended December 31, 2007, 2006 and 2005.

The following table presents approximate aggregate fees and other expenses for professional services rendered by Travis, Wolff & Company, LLP for the audit of the Company’s annual financial statements for the years ended December 31, 2007 and 2006 and fees and other expenses for other services rendered during those periods.

	2007		2006
Audit fees	$	269,000	$	170,000
Audit-related fees		36,000		—
Tax fees		69,000		30,000
All other fees		—		—
Total	$	374,000	$	200,000

Audit Fees

Audit fees in 2007 and 2006 relate to services rendered in connection with the audit of the Company’s consolidated financial statements. Audit fees in 2007 include the quarterly review of the financial statements to be included in the Company’s Form 10-Qs for 2006 and 2007.

Audit-Related Fees

Audit-related fees in 2007 and 2006 include fees for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements and that are not reported under the caption “Audit Fees” above. Audit-related fees in 2007 relate to services rendered in connection with the audits of the Company’s employee benefit plans.

Tax Fees

Tax fees in 2007 and 2006 include fees for services with respect to tax compliance, tax advice and tax planning.

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Other Fees

There were no other fees in 2007 or 2006.

Pre-Approval Policies and Procedures

The Audit Committee considered whether the provision of all of the services described above were compatible with the Company’s policies and maintaining the auditor’s independence, and has determined that such services for 2007 and 2006 were compatible with the Company’s policies and maintaining the auditor’s independence. All services described above were pre-approved by the Audit Committee.

PART IV

Item 15.   Exhibits, Financial Statement Schedules.

The following documents are filed as part of this Annual Report on Form 10-K:

1. The financial statements together with the report of Travis, Wolff & Company, LLP dated June 16, 2008 are included in Item 8. Financial Statements and Supplementary Data in this Annual Report on Form 10-K.

2. Schedule II — Valuation and Qualifying Accounts is included in this Annual Report on Form 10-K. All other consolidated financial schedules are omitted because they are inapplicable, not required or the information is included elsewhere in the consolidated financial statements or the notes thereto.

3. The following documents are filed or incorporated by reference as exhibits to this Annual Report on Form 10-K:

EXHIBIT INDEX

Exhibit				Prior Filing or
No.			Document Description	Notation of Filing Herewith
	3	.1	Certificate of Incorporation of American Locker Group Incorporated	Exhibit to Form 10-K for Year ended December 31, 1980
	3	.2	Amendment to Certificate of Incorporation	Form 10-C filed May 6, 1985
	3	.3	Amendment to Certificate of Incorporation	Exhibit to Form 10-K for year ended December 31, 1987
	3	.4	By-laws of American Locker Group Incorporated as amended and restated	Filed herewith
	4	.1	Certificate of Designations of Series A Junior Participating Preferred Stock	Exhibit to Form 10-K for year ended December 31, 1999
	10	.1	Form of Indemnification Agreement between American Locker Group Incorporated and its directors and officers	Exhibit to Form 8-K filed May 18, 2005
	10	.2	American Locker Group Incorporated 1999 Stock Incentive Plan	Exhibit to Form 10-Q for the quarter ended June 30, 1999
	10	.3	Rights Agreement dated November 19, 1999 between American Locker Group Incorporated and Chase Mellon Shareholder Services LLC	Exhibit to Form 8-K filed November 18, 1999
	10	.4	Employment Agreement dated January 3, 2006 between American Locker Group Incorporated and Edward F. Ruttenberg	Exhibit to Form 8-K filed January 4, 2006
	10	.5	Form of Option Agreement under 1999 Stock Incentive Plan	Exhibit to Form 10-K for year ended December 31, 1999

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Exhibit				Prior Filing or
No.			Document Description	Notation of Filing Herewith
	10	.6	Loan Agreement dated March 6, 2007 between American Locker Group, F&M Bank and Trust Company and Altreco, Inc., as Guarantor (Line of Credit)	Exhibit to Form 10-K for year ended December 31, 2005
	10	.7	First Amended and Restated Loan Agreement dated March 5, 2008 between American Locker Group, F&M Bank and Trust Company and Altreco, Inc., as Guarantor (Line of Credit)	Filed herewith
	10	.8	Loan Agreement dated March 6, 2007 between American Locker Group, F&M Bank and Trust Company and Altreco, Inc., as Guarantor (Term Loan)	Exhibit to Form 10-K for year ended December 31, 2005
	18	.1	Travis, Wolff & Company, LLP letter dated June 16, 2008 related to changes in accounting principals	Filed herewith
	21	.1	List of Subsidiaries	Filed herewith
	23	.1	Consent of Travis, Wolff & Company, LLP	Filed herewith
	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	Filed herewith
	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	Filed herewith
	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.	Filed herewith

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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

By:  /s/ ALLEN D. TILLEY

Allen D. Tilley

Chief Executive Officer

June 19, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/  JOHN E. HARRISJohn E. Harris	Non-Executive Chairman	June 19, 2008
/s/  Allen D. Tilley Allen D. Tilley	Chief Executive Officer (Principal Executive Officer)	June 19, 2008
/s/  Paul M. Zaidins Paul M. Zaidins	President, Chief Operating Officer and Chief Financial Officer (Principal Financial and Accounting Officer)	June 19, 2008
/s/  Craig R. Frank Craig R. Frank	Director	June 19, 2008
/s/  Anthony B. Johnston Anthony B. Johnston	Director	June 19, 2008
/s/  Edward F. Ruttenberg Edward F. Ruttenberg	Director	June 19, 2008
/s/  Mary A. Stanford Mary A. Stanford	Director	June 19, 2008
/s/  James T. Vanasek James T. Vanasek	Director	June 19, 2008

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Schedule II

American Locker Group Incorporated

Valuation and Qualifying Accounts

			Additions
			Charged to
	Balance at the		Costs and					Balance at
Year          Description	Beginning of Year		Expense		Deductions			End of Year
Year ended 2007
Allowance for Doubtful Accounts	$	198,000	$	61,000	$	(26,000	)	$	233,000
Reserve for Inventory Valuation		1,250,000		185,000		—			1,435,000
Year ended 2006
Allowance for Doubtful Accounts	$	120,000	$	87,000	$	(9,000	)	$	198,000
Reserve for Inventory Valuation		1,003,000		247,000		—			1,250,000
Year ended 2005
Allowance for Doubtful Accounts	$	232,000	$	332,000	$	(444,000	)	$	120,000
Reserve for Inventory Valuation		386,000		617,000		—			1,003,000

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EX-3.4

Exhibit 3.4

AMENDED AND RESTATED BYLAWS
OF
AMERICAN LOCKER GROUP INCORPORATED (the “Bylaws”)

(as of March 27, 2008)

(a Delaware Corporation)

ARTICLE I — STOCKHOLDERS

     1. Annual Meeting. An annual meeting of the stockholders (the “Stockholders”) of American Locker Group Incorporated, a Delaware Corporation (the “Corporation”), for the election of members of the board of directors (each a “Director” and collectively the “Board”) to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, on a date in May of each year, and at such time as the Board shall each year fix.

     2. Special Meetings. Special meetings of the Stockholders, for any purpose or purposes prescribed in the notice of the meeting, may be called by the Board, the Chairman or the President of the Corporation, or at the request in writing of the Stockholders holding a majority of the entire voting capital stock of the Corporation, and shall be held at such place, on such date, and at such time as the person or persons calling the special meeting shall fix.

     3. Notice of Meetings.

          (a) Time. Notice of the place, date and time of all meetings of the Stockholders shall be given in writing or by electronic transmission, not less than five (5) nor more than sixty (60) days before the date on which the meeting is to be held, to each Stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law (the “DGCL”) or the Certificate of Incorporation of the Corporation).

          (b) Adjournment. When a meeting is adjourned to another place, date or time, notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, notice of the place, date and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting.

     4. Quorum.

          (a) Majority of Stockholders Constitutes Quorum. At any meeting of the Stockholders, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law.

          (b) Lack of Quorum. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of the stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date or time.

     5. Organization. Such person as the Board may have designated or, in the absence of such a person, the President of the Corporation or, in his absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the Stockholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman of the meeting appoints.

     6. Conduct of Business. The chairman of any meeting of Stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to the chairman in order.

     7. Proxies and Voting.

          (a) Person or Proxy. At any meeting of the Stockholders, every Stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing, if authorized by the Board, or by electronic transmission and presented in accordance with the procedure established for the meeting.

          (b) One Vote. Each Stockholder shall have one (1) vote for every share of stock entitled to vote which is registered in such Stockholder’s name on the record date for the meeting, except as otherwise provided herein or required by law. However, no proxy shall be voted on after three (3) years from its date, unless the proxy provides for a longer period, and, except where the transfer books of the Corporation have been closed or a date has been fixed as a record date for the determination of its Stockholders entitled to vote, no share of stock shall be voted on at any election for Directors which has been transferred on the books of the Corporation within twenty (20) days preceding such election of Directors.

          (c) Voice or Ballot. All voting, including on the election of Directors, but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by a Stockholder (or a person acting as proxy for a Stockholder) entitled to vote, a stock vote shall be taken. Every stock vote shall be taken by ballot. Each ballot shall state the name of the Stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballot shall be counted by an inspector or inspectors appointed by the chairman of the meeting.

          (d) Determined by Plurality. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law, all other matters shall be determined by a majority of the votes cast.

     8. Stock List. The Corporation shall prepare, at least ten (10) days before every meeting of Stockholders, a complete list of Stockholders entitled to vote at any meeting of Stockholders, arranged in alphabetical order for each class of stock (if applicable) and showing the address of each such Stockholder and the number of shares registered in such Stockholder’s name. This list shall presumptively determine the identity of the Stockholders entitled to vote at the meeting and the number of shares held by each of them, and the Corporation shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the DGCL. The Corporation shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any Stockholder, for any purpose germane to the meeting for a period of at least ten (10) days prior to the meeting: (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting; or (b) during ordinary business hours, at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take

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reasonable steps to ensure that such information is available only to Stockholders. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any Stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any Stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.

     9. Consent of Stockholders in Lieu of Meeting. Any action required to be taken at any annual or special meeting of Stockholders, or any action which may be taken at any annual or special meeting of the Stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, and shall be delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of Stockholders are recorded. Delivery to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested, provided that the Board may in its discretion permit another form of delivery for consents given by electronic transmission. Every written consent shall bear the date of signature of each Stockholder who signs the consent.

ARTICLE II — BOARD OF DIRECTORS

     1. Number and Term of Office.

          (a) Number of Directors. The number of Directors who shall constitute the whole Board shall be not less than three (3) nor more than thirteen (13). A Director whose term has expired, and whose directorship has not been eliminated by a decrease in the number of Directors effective upon the expiration of the Director’s one (1) year term, shall continue in office until such Director’s successor is elected and qualified, except as otherwise provided herein or required by law. This Article II(1)(a) may be changed by an amendment which has been approved by: (i) the resolution of the Board; or (ii) the Stockholders at their annual meeting. Directors need not be Stockholders.

          (b) Increase in Directors. Whenever the authorized number of Directors is increased between annual meetings of the Stockholders, a majority of the Directors then in office may elect persons to serve in such newly-created directorships for the balance of a term and until their successors are elected and qualified. Any decrease in the authorized number of Directors shall not become effective until the expiration of the term of the Directors then in office unless, at the time of such decrease, there shall be vacancies on the Board which are being eliminated by the decrease.

     2. Resignation or Removal.

          (a) Resignation. A Director may resign at any time upon written notice to the Corporation. Such resignation shall become effective on the date that such notice of resignation is given.

          (b) Removal. Any Director may be removed either for or without cause at any annual or special meeting of stockholders by the affirmative vote of a majority in number of shares of the stockholders present in person or by proxy at such meeting and entitled to vote for the election of such Director, if notice of the intention to act upon such matters shall have been given in the notice calling such meeting.

     3. Vacancies and New Directorships. Vacancies and newly created directorships resulting

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from any increase in the authorized number of Directors may be filled by a majority of the Directors then in office, though less than a quorum, and the Directors so chosen shall hold office until the next annual meeting and until their successors are duly elected and shall qualify, unless sooner replaced.

     4. Regular Meetings. Regular meetings of the Board shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board and publicized in writing among all Directors. A separate notice of each such regular meeting shall not be required.

     5. Special Meetings. Special meetings of the Board may be called by the Chairman, President or Secretary of the Corporation, or on the written request of two (2) members of the Board, and shall be held at such place, on such date, and at such time as the person or persons calling the special meeting shall fix. Notice of the place, date, and time of each such special meeting shall be given each Director by whom it is not waived by mailing written notice not less than two (2) days before the meeting or by transmitting the same by facsimile or other means of electronic transmission not less than twenty-four (24) hours before the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting.

     6. Business of the Corporation. The business of the Corporation shall be managed by its Board, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or these Bylaws directed or required to be exercised or done by the Stockholders. At any meeting of the Board, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the Directors present, except as otherwise provided herein or required by law.

     7. Annual Statement. The Board shall present at such annual meeting, and at any special meeting of the Stockholders when called for by a vote of the Stockholders, a full and clear statement of the business and condition of the Corporation.

     8. Quorum. At any meeting of the Board, a majority of the total number of Directors then in office shall constitute a quorum for all purposes, and the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to any place, date, or time, without further notice or waiver thereof.

     9. Participation in Meetings by Conference Telephone or other Communications Equipment. Members of the Board, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear and be heard by each other, and such participation shall constitute presence in person at such meeting.

     10. Written Consent in Lieu of Meeting. Action may be taken by the Board without a meeting if all members thereof consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

     11. Powers. The Board may, except as otherwise required by law, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.

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     12. Compensation of Directors. The Directors may be paid their expenses, if any, of attendance at each meeting of the Board and may be granted compensation for attendance at each meeting of the Board and for their roles as Directors, including a fixed sum for attendance at each meeting of the Board, or a stated salary as a Director. No such compensation shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Similarly, members of special or standing committees may be paid their expenses, if any, of attendance at each committee meeting and may be granted compensation for attendance at committee meetings or in their roles as committee members.

     13. Indemnification of Officers and Directors. Every person who was or is a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a Director or officer of the Corporation or is or was serving at the request of the Corporation as a Director or officer of another corporation, or as its representative in a partnership, joint venture, trust or other enterprise, whether the basis of such action, suit or proceeding is any alleged action in an official capacity as Director, officer or representative, or in any other capacity while serving as a Director, officer or representative, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended, against all expenses, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; provided, however, that the Corporation shall indemnify any such person in connection with any action, suit or proceeding (or part thereof) initiated by such person only if such action, suit or proceeding (or part thereof) was authorized by the Board. Such right shall be a contract right and shall include the right to be paid by the Corporation those expenses incurred in defending any action, suit or proceeding in advance of its final disposition upon delivery to the Corporation of an undertaking, by or on behalf of such person, to repay all amounts so advanced unless it should be determined ultimately that such person is entitled to be indemnified under this Article II(13) or otherwise. The rights conferred by this Article II(13) shall not be exclusive of any other right to indemnification or advancement of expenses which a person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of Stockholders, Directors or otherwise.

ARTICLE III — COMMITTEES

     1. Committees of the Board of Directors. The Board may from time to time, by resolution passed by a majority of the Board, designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect at least two (2) Directors to serve as the members, designating, if it desires, other Directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. One (1) or more members of the Board, or any committee thereof, may participate in the meeting of the Board or committee by telecommunication.

     2. Conduct of Business. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of the proceedings of such committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

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ARTICLE IV — OFFICERS

     1. Generally. The officers of the Corporation shall be chosen by the Board and shall consist of a Chairman of the Board, a Chief Executive Officer, a President, one (1) or more Vice Presidents, a Secretary, a Treasurer and such other officers (including a Vice Chairman, one (1) or more Assistant Secretaries and one (1) or more Assistant Treasurers), as may from time to time be appointed by the Board. Officers shall be elected by the Board, which shall consider that subject at its first meeting after every annual meeting of Stockholders. Each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any officer elected or appointed by the Board may be removed at any time by the affirmative vote of a majority of the Board. Any vacancy occurring in any office of the Corporation shall be filled by the Board. Any number of offices may be held by the same person. The salaries of all officers and agents of the Corporation shall be fixed by the Board.

     2. Chairman of the Board. The Board of Directors may elect a Chairman of the Board (the “Chairman”) to preside at all meetings of the Board and of the Stockholders, and to perform such other duties as the Board of Directors may from time to time assign to him. The Chairman shall be ex officio a member of all standing committees of the Corporation and shall see that all orders and resolutions of the Board are carried into effect.

     3. Vice Chairman. In the absence of the Chairman of the Board, the Vice Chairman shall perform the duties of the Chairman.

     4. Chief Executive Officer. The Chief Executive Officer shall have overall responsibility for the management and direction of the business and affairs of the Corporation and shall exercise such duties as customarily pertain to the office of Chief Executive Officer and such other duties as may be prescribed from time to time by the Board. He shall be the senior officer of the Corporation and in case of the inability or failure of the President to perform his duties, he shall perform the duties of the President. He may appoint and terminate the appointment or election of officers, agents, or employees other than those appointed or elected by the Board. The Chief Executive may sign, execute and deliver, in the name of the Corporation, powers of attorney, contracts, bonds and other obligations which implement policies established by the Board. The Chief Executive shall perform such other duties as may be prescribed from time to by the Board or these Bylaws.

     5. President. The President shall be responsible for the active direction of the daily business of the Corporation and shall exercise such duties as customarily pertain to the office of President and such other duties as may be prescribed from time to by the Board. The President may sign, execute and deliver, in the name the Corporation, powers of attorney, contracts, bonds and other obligations which implement policies established by the Board. In the absence or disability of the Chief Executive Officer, the President shall perform the duties and exercise the powers of the Chief Executive Officer. The President shall have power to sign all stock certificates, contracts and other instruments of the Corporation which are authorized (except where the signing and execution thereof shall be expressly delegated by the Board to some other officer or agent of the Corporation), and shall have general supervision and direction of all of subordinate officers, employees and agents of the Corporation.

     6. Vice Presidents. Each Vice President shall have such powers and duties as may be delegated to him or her by the Board or the President. One (1) vice president shall be designated by the Board to perform the duties and exercise the powers of the President in the event of the President’s absence or disability.

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     7. Treasurer and Assistant Treasurers. The Treasurer shall have the responsibility for maintaining the financial records of the Corporation and shall have custody of all moneys and securities of the Corporation. The Treasurer shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions and of the financial condition of the Corporation. The Treasurer shall also perform such other duties as the Board or President may from time to time prescribe. If required by the Corporation, the Treasurer shall give the Corporation a bond (which shall be renewed every six (6) years) in such sum and with such surety or sureties as shall be satisfactory to the Board for the faithful performance of the duties of the office of Treasurer and for the restoration to the Corporation, in case of his death, resignation or retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. The Assistant Treasurer, or if there be more than one (1), the Assistant Treasurers in the order determined by the Board, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board or President may from time to prescribe.

     8. Secretary and Assistant Secretaries. The Secretary shall issue all authorized notices for, and shall keep minutes of, all meetings of the Stockholders and the Board. The Secretary shall have charge of the corporate books and shall perform such other duties as the Board or the President may from time to time prescribe. The Assistant Secretary, or if there be more than one (1), the Assistant Secretaries in the order determined by the Board, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board or President may from time to prescribe.

     9. Delegation of Authority. The Board may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any other provision of these Bylaws.

     10. Removal. Any officer of the Corporation may be removed at any time, with or without cause, by the Board.

     11. Action with Respect to Securities of Other Corporations. Unless otherwise directed by the Board, the President shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of Stockholders of or with respect to any action of Stockholders of any other Corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other Corporation.

ARTICLE V — STOCK

     1. Certificates of Stock. Each Stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by, the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of shares owned by such Stockholder.

     2. Transfers of Stock. Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Article V(4) of these Bylaws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor.

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     3. Record Date.

          (a) For Notice. In order that the Corporation may determine the Stockholders entitled to notice of or to vote at any meeting of Stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting.

          (b) For Consent. In order that the Corporation may determine the Stockholders entitled to consent to corporate action without a meeting, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which date shall not be more than sixty (60) nor less than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board.

          (c) For Exercise of Rights. In order that the Corporation may determine the Stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the Stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action.

     4. Lost, Stolen or Destroyed Certificates. In the event of the loss, theft or destruction of any certificate of stock, another certificate of stock may be issued in its place pursuant to such regulations as the Board may establish (or in the absence of such regulations, pursuant to a resolution adopted by the Board) concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity.

     5. Regulations. The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board may by resolution establish from time to time.

     ARTICLE VI — NOTICES

     1. Notices. Except as otherwise specifically provided herein or required by law, all notices required by these Bylaws to be given to any Stockholder, Director, officer, employee or agent, shall be in writing or by electronic transmission and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, by sending such notice by prepaid telegram or mailgram, by transmitting such notice by facsimile or other means of electronic transmission or by sending such notice by Federal Express or other similar private carrier providing evidence of delivery. Any such notice shall be addressed to such Stockholder, Director, officer, employee, or agent at his or her last known address as the same appears on the books of the Corporation, or in the case of notice by electronic transmission, to a number or electronic mail address at which such person has consented to receive notice. The time when such notice is received, if hand delivered, or dispatched, if delivered through the mails, by telegram or mailgram or by private carrier, shall be the time of the giving of the notice. Any notice to Stockholders given by the Corporation shall be effective if given by a form of electronic transmission consented to by the Stockholder to whom the notice is given. Any such consent shall be revocable by the Stockholder by written notice to the Corporation. Any such consent shall be deemed revoked if: (a) the Corporation is unable to deliver by electronic transmission two (2) consecutive notices given by the Corporation in accordance with such consent; and (b) such inability becomes known to the Secretary or an Assistant Secretary of the Corporation or to the transfer agent, or other person responsible for the giving of notice; provided, however, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Notice given pursuant

8

to the preceding sentence shall be deemed given: (c) if by facsimile telecommunication, when directed to a number at which the Stockholder has consented to receive notice; (d) if by electronic mail, when directed to an electronic mail address at which the Stockholder has consented to receive notice; (e) if by a posting on an electronic network together with separate notice to the Stockholder of such specific posting, upon the later of: (i) such posting; or (ii) the giving of such separate notice; and (f) if by any other form of electronic transmission, when directed to the Stockholder. An affidavit of the Secretary or an Assistant Secretary or of the transfer agent or other agent of the Corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated herein.

     2. Waivers. A written waiver or waiver by electronic transmission of any notice, signed by a Stockholder, Director, officer, employee or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such Stockholder, Director, officer, employee or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver.

ARTICLE VII — MISCELLANEOUS

     1. Registered Office and Agent. The registered office shall be in the City of [Wilmington, County of New Castle, State of Delaware, and CT Corporation shall be the registered agent of the Corporation.

     2. Principal Office. The principal office of the Corporation shall be at 815 South Main Street, Grapevine, Texas 76051.

     3. Other Offices. The Corporation may establish other offices, within or outside the State of Delaware, at such place or places as the Board from time to time may designate or the business of the Corporation may require.

     4. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the Board at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board, from time to time, in its absolute discretion, deems proper as a reserve to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purposes as the Board deems conducive to the best interest of the Corporation, and the Board may modify or establish any such reserve in the manner in which it was created.

     5. Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures, or the use of portable document format (pdf), of any officer or officers of the Corporation may be used whenever and as authorized by the Board or a committee thereof.

     6. Corporate Seal. The Board shall approve and adopt a suitable seal, containing the name of the Corporation, the year of its incorporation and the words “Corporate Seal, Delaware”, which seal shall be in the charge of the Secretary. If and when so directed by the Board or a committee thereof, duplicates of the seal may be kept and used by the Secretary or Treasurer, or by an Assistant Secretary or Assistant Treasurer.

     7. Checks. All checks or demands for money and notes of the Corporation shall be signed

9

by the Treasurer, or such officer or person as the Board may from time to time designate.

     8. Reliance upon Books, Reports and Records. Each Director, each member of any committee designated by the Board, and each officer of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation, and upon such information, opinions, reports and statements made to the Corporation by any of its officers, employees, or committees of the Board, or by any other person as to matters reasonably believed to be within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.

     9. Fiscal Year. The fiscal year of the Corporation shall begin on the first day of January of each year.

     10. Time Periods. In applying any provision of these Bylaws which requires that an act be done or not done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included.

     11. Amendments. These Bylaws may be amended or repealed by the affirmative vote of the Board at any regular meeting of the Board or Stockholders or at any special meeting of the Board or Stockholders if notice of such alteration or repeal be contained in the notice of such special meeting. No change of the time or place of the meeting for the election of Directors shall be made within sixty (60) days prior to the day on which such meeting is to be held, and in case of any change in such time or place, notice thereof shall be given to each Stockholder in person or by letter mailed to such Stockholder’s last known address at least twenty (20) days before such meeting is held.

     12. Business Combinations with Interested Stockholders. The Corporation shall not be governed by the provisions of Section 203 of the DGCL concerning “Business Combinations with Interested Stockholders.” Additionally, this provision of the Bylaws shall not be subject to further amendment by the Board, but may be amended only by action of the Stockholders.

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EX-10.7

Exhibit 10.7

First Amended and Restated Loan Agreement

     This First Amended and Restated Loan Agreement (“Agreement”) dated as of March 5, 2008, is between The F&M Bank & Trust Company (“Lender”), American Locker Group, Incorporated, a Delaware corporation (“Borrower”), and Altreco, Incorporated, a Delaware corporation (the “Guarantor”).

Recitals

     A. On or about March 5, 2007, at the request of Borrower and Guarantor, Lender extended to Borrower a revolving line of credit loan (the “Loan”) in the principal amount of up to Seven Hundred Fifty Thousand and No/100 Dollars ($750,000.00).

     B. The Loan has matured, and Borrower and Guarantor have requested Lender to renew, modify, and extend the Loan for one additional year.

     C. As an accommodation to Borrower and Guarantor, Lender has agreed to renew, modify, and extend the Loan for one additional year, subject to the following terms and conditions.

Agreements

     Now, Therefore, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows:

1. Article
Definitions

     .1. Definitions. As used in this Agreement, the following terms have the following meanings:

     (1) “Account Receivable” or “Accounts Receivable” means all of Borrower’s now owned and hereafter acquired, accounts, accounts receivable (whether or not earned by performance), right to payment of any kind, proceeds of any letters of credit naming Borrower as beneficiary, contract rights, chattel paper, instruments, documents and all other forms of obligations at any time owing to Borrower, all guaranties and other security therefor, whether secured or unsecured, all merchandise returned to or repossessed by Borrower, and all rights of stoppage in transit and all other rights or remedies of an unpaid vendor, lienor or secured party. Accounts Receivable include all now owned or hereafter acquired accounts, instruments and general intangibles, all rights, remedies, guaranties, security interests and liens, all records and other property evidencing any and all proceeds which relating to or are associated with such Accounts Receivable.

     (2) “Affiliate” means any Person directly or indirectly controlling, controlled by, or under common control with Borrower.

f&m bank 1\119la
First Amended and Restated Loan Agreement — Page 1

     (3) “Borrowing Base” means the sum of eighty percent (80%) of the aggregate amount of Eligible Accounts Receivable, plus fifty percent (50%) of the book value of Inventory as determined by GAAP.

     (4) “Borrowing Base Certificate” means the Borrowing Base Certificate shown on Exhibit “A” attached hereto.

     (5) “Business Day” means a day when Lender is open for business.

     (6) “Collateral” has the meaning specified in Section 4.1.

     (7) “Debt” means for any Person: (i) all indebtedness, whether or not represented by bonds, debentures, notes or other evidences of indebtedness, for the repayment of money borrowed; (ii) all indebtedness representing deferred payment of the purchase price of property or assets; (iii) all indebtedness under any lease which, in conformity with GAAP, is required to be capitalized for balance sheet purposes; (iv) all indebtedness under guaranties, endorsements, assumptions or other contingent obligations, in respect of, or to purchase or otherwise acquire, indebtedness to others; and (v) all indebtedness secured by a Lien existing on property owned, subject to such Lien, whether or not the indebtedness secured thereby shall have been assumed by the owner thereof.

     (8) “Deed of Trust” means the Deed of Trust, Security Agreement and Assignment of Rents, Leases, Incomes and Agreements (Second Lien) executed by Guarantor and Borrower to J. Schaad Titus, Trustee, for the benefit of Lender and encumbering, among other things, the certain real property owned by Guarantor and situated in the City of Grapevine, Tarrant County, Texas, as more particularly described on Exhibit “A” attached to said Deed of Trust, as the same may be amended, supplemented or modified from time to time.

     (9) “Eligible Accounts Receivable” means Accounts Receivable arising in the ordinary course of Borrower’s business from the sale of goods or rendition of services, which Lender, in its Permitted Discretion, shall deem eligible based on such considerations as Lender may from time to time deem appropriate. Without limiting the foregoing, an Account Receivable shall not be deemed to be an Eligible Accounts Receivable if (i) the account debtor has failed to pay the Account Receivable within a period of ninety (90) days after invoice date, to the extent of any amount remaining unpaid after such period; (ii) the account debtor has failed to pay more than 25% of all outstanding Accounts Receivable owed by it to Borrower within ninety (90) days after invoice date; (iii) the account debtor is an Affiliate of Borrower; (iv) the goods relating thereto are placed on consignment, guaranteed sale, “bill and hold,” “COD” or other terms pursuant to which payment by the account debtor may be conditional; (v) the account debtor is not located in the United States or Canada, unless the Account Receivable is supported by a letter of credit or other form of guaranty or security, in each case in form and substance satisfactory to Lender; (vi) Borrower is or may become liable to the account debtor for goods sold or services rendered by the account debtor to Borrower; (vii) the account debtor’s total obligations to Borrower exceed 25% of all Eligible Accounts Receivable, to the extent of such excess; (vii) the account debtor disputes liability or makes any claim with respect thereto (up to the amount of such liability or claim), or is subject to any insolvency or bankruptcy proceeding, or becomes insolvent, fails or goes out of a material portion of its business; (ix) the amount thereof consists of late charges or finance charges; (x) the amount thereof consists of a credit balance more than ninety (90) days past due; ((xi) the invoice constitutes a progress billing on a project not yet completed, except that the final billing at such time as

First Amended and Restated Loan Agreement — Page 2

the matter has been completed and delivered to the customer may be deemed an Eligible Accounts Receivable; (xii) the amount thereof is not yet represented by an invoice or bill issued in the name of the applicable account debtor; (xiii the amount thereof is denominated in or payable with any currency other than U.S. Dollars; or (xiv) such Account Receivable is not at all times subject to Lender’s duly perfected first priority security interest.

     (10) “EBITDA” means the earnings before interest expense, taxes, depreciation and amortization, plus non-recurring professional fees and other non-recurring adjustments as determined by Lender in its sole discretion.

     (11) “Equipment” means any tangible assets used in Borrower’s business including, but not limited to equipment, machinery, electronics and tools.

     (12) “Event of Default” has the meaning specified in Section 9.1.

     (13) “Guaranty” means the Guaranty Agreement executed by Guarantor in favor of Lender, executed in connection with the Loan, as the same may be amended, supplemented, or modified from time to time.

     (14) “Inventory” means all of Borrower’s now owned and hereafter acquired goods, merchandise or other personal property, wherever located, to be furnished under any contract of service or held for sale or lease, all raw materials, work in process, finished goods and materials and supplies of any kind, nature or description which are or might be used or consumed in Borrower’s business or used in connection with the manufacture, packing, shipping, advertising, selling or finishing of such goods, merchandise or other personal property, and all documents of title or other documents representing them.

     (15) “Lien” means any lien, mortgage, security interest, tax lien, pledge, encumbrance, or conditional sale or title retention agreement, or any other interest in property designed to secure the repayment of Debt or any other obligation, whether arising by agreement, operation of law, or otherwise.

     (16) “Loan” means the loan in the original principal amount of up to Seven Hundred Fifty Thousand and No/100 Dollars ($750,000.00), or so much thereof as may be advanced and outstanding and unpaid, to be made by Lender to Borrower pursuant to Article 2.

     (17) “Loan Agreement Rider” means the Loan Agreement Rider executed by Borrower, Guarantor and Lender executed in connection with the Loan, as the same may be amended, supplemented or modified from time to time.

     (18) “Loan Documents” means this Agreement, the Note, the Guaranty, the Security Agreement, the UCC-1 Financing Statement, the Deed of Trust, the Loan Agreement Rider, and all other promissory notes, pledge agreements, guaranties, deeds of trust, security agreements, and other instruments, documents and agreements executed and delivered by Borrower or Guarantor pursuant to or in connection with this Agreement and any future amendments hereto or thereto. All such Loan Documents shall be in form, substance and content in all respects satisfactory to Lender.

     (19) “Lockbox Account” means the bank account established under the Lockbox Agreement.

First Amended and Restated Loan Agreement — Page 3

     (20) “Lockbox Agreement” means an agreement between Lender and Borrower governing the Lockbox Account with Lender titled in the name of Borrower which shall provide Lender with a security interest in and exclusive domain and control over such lockbox (and/or any related depository account) and all cash and other items received or deposited therein.

     (21) “Note” means the Revolving Line of Credit Promissory Note (Renewal) of even date herewith, executed or to be executed by Borrower, payable to the order of Lender in the principal amount of the Loan and all extensions, renewals and modifications thereof.

     (22) “Obligated Party” means Borrower, Guarantor and any Person who is or becomes party to any agreement that guarantees or secures payment and performance of the Obligations or any part thereof.

     (23) “Obligations” means all obligations, indebtedness and liabilities of any Obligated Party to Lender, now existing or hereafter created, acquired or incurred, whether direct, indirect, primary or secondary, related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several, or joint and several, regardless of whether such present or future indebtedness, obligations and liabilities may, prior to their acquisition by any Obligated Party, be or have been in favor of some other person or have been acquired by Obligated Party in a transaction with one or more borrowers, together with any and all renewals and extensions of such indebtedness, obligations and liabilities, including, without limitation, the obligations, indebtedness and liabilities of Borrower and/or Guarantor under this Agreement, the Note, the Term Note, and the other Loan Documents, and all interest accruing thereon and all attorneys’ fees and other expenses incurred in the enforcement or collection thereof.

     (24) “Permitted Discretion” means Lender’s judgment exercised in good faith based upon its consideration of any factor which Lender believes in good faith: (i) will or could materially adversely affect the value of any Collateral, the enforceability or priority of Lender’s liens thereon or the amount which Lender would be likely to receive (after giving consideration to delays in payment and costs of enforcement) in the liquidation of such Collateral; (ii) suggests that any collateral report or financial information delivered to Lender by any Person on behalf of the Borrower is incomplete, inaccurate or misleading in any material respect; (iii) materially increases the likelihood of a bankruptcy, reorganization or other insolvency proceeding involving the Borrower, any Guarantor or any of the Collateral, or (iv) creates or reasonably could be expected to create an Event of Default. In exercising such judgment, Lender may consider such factors already included in or tested by the definition of Eligible Account Receivables or Eligible Inventory, as well as any of the following: (i) the financial and business climate of the Borrower’s industry and general macroeconomic conditions, (ii) changes in collection history and dilution with respect to the Accounts Receivable, (iii) changes in demand for, and pricing of, Inventory, (iv) changes in any concentration of risk with respect to Receivables and/or Inventory, and (v) any other factors that change the credit risk of lending to the Borrower on the security of the Receivables and Inventory. The burden of establishing lack of good faith hereunder shall be on the Borrower

     (25) “Permitted Liens” means (i) security interests securing purchase money debt for the acquisition or lease of equipment used in the ordinary course of Borrower’s business, not to exceed $100,000.00 in the aggregate, and which do not affect any part of the real estate securing the payment

First Amended and Restated Loan Agreement — Page 4

and performance of the Obligations, and (ii) liens or security interests arising for non-delinquent taxes not yet due and payable.

     (26) “Person” means any individual, corporation, business trust, association, company, partnership, joint venture or other entity.

     (27) “Reserves” means as of any date of determination, such amounts as Lender may from time to time establish and revise in its Permitted Discretion reducing the loan limits which would otherwise be available to Borrower: (a) to reflect events, conditions, contingencies or risks which, as determined by Lender in good faith, do or may materially affect either (i) the Collateral or any other property which is security for the Obligations or its value, (ii) the assets, business or prospects of Borrower or any Guarantor or (iii) the security interests and other rights of Lender in the Collateral (including the enforceability, perfection and priority thereof) or (b) to reflect Lender’s good faith belief that any collateral report or financial information furnished by or on behalf of Borrower or any Guarantor to Lender is or may have been materially incomplete, inaccurate or misleading in any material respect or (c) in respect of any state of facts which Lender determines in good faith constitutes an Event of Default or may, with notice or passage of time or both, constitute an Event of Default.

     (28) “Security Agreement” means the Security Agreement executed by the Borrower in favor of Lender in connection with the Loan, as the same may be amended, supplemented or modified from time to time.

     (29) “Subsidiary” or “Subsidiaries” means any corporation, general partnership or limited partnership of which more than fifty percent (50%) of the issued and outstanding securities or partnership interests, as the case may be, having ordinary voting power for the election of a majority of directors or managing partners, as the case may be, is owned or controlled, directly or indirectly, by Borrower, Borrower and one or more other Subsidiaries, or by one or more other Subsidiaries.

     (30) “Term Loan Agreement” means the Loan Agreement Note dated March 7, 2007, by and between Borrower, Guarantor and Lender executed in connection with and pertaining to the Term Note.

     (31) “Term Note” means the Promissory Note dated March 7, 2007, executed by Borrower, payable to the order of Lender in the principal amount of $2,200,000.00, and all extensions, renewals and modifications thereof.

     1..2. Other Definitional Provisions. All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined. The words “hereof,” “herein” and “hereunder” and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise specified, all article and section references pertain to this Agreement. All accounting terms not specifically defined herein shall be construed in accordance with and determined by generally accepted accounting principles (“GAAP”).

Article 2.
Loan

First Amended and Restated Loan Agreement — Page 5

     2..1. Advance Limit and Borrowing Base. Subject to the terms and conditions of this Agreement Lender agrees to extend the Loan to Borrower in one or more advances from time to time from the date hereof. Borrower must comply with all of the provisions in this Agreement, including, without limitation, the provisions of Article 4. prior to Lender making an advance in conjunction with the Loan. The outstanding principal balance of the Loan shall not exceed the lesser of (i) the Borrowing Base or (ii) $750,000.00, subject to any Reserves. In the event the outstanding principal balance of the Loan shall at any one time exceed the lesser of the $750,000.00, or the Borrowing Base, in either case, after accounting for Reserves, Borrower agrees to forthwith reduce the outstanding principal amount of the Note, within five (5) days after demand is made by Lender, to bring such outstanding balance into compliance with the lesser of $750,000.00, or the Borrowing Base. With each draw request Borrower shall execute and deliver to Lender a Borrowing Base Certificate. Notwithstanding the forgoing to the contrary, Lender has the right, but not the obligation, to make advances of principal under the Loan in excess of the limits described above to pay any portion of the Obligations that may be due and owing at any time under the Note or the Term Note.

     2..2. Repayment of Note. The obligation of Borrower to repay the Loan shall be evidenced by the Note executed by Borrower, payable to the order of Lender, in the principal amount of the Loan and dated the date of the making of the Loan.

     2..3. Revolving Indebtedness. It is contemplated that the Loan shall be revolving in nature, in that principal amounts may be advanced thereunder, repaid and readvanced from time to time during the term of the Loan. It is further contemplated by the parties that disbursements will be made for working capital purposes of Borrower, repaid partially and readvanced as deposits are made under the Lockbox Agreement and readvanced under the terms of the Agreement. It is the intent of the parties that this Agreement and the other Loan Documents shall remain in full force and effect and shall govern the agreements of the parties notwithstanding the fact that the Loan may be paid down to a zero principal balance. It is understood and agreed that notwithstanding such release, substitution and replacement of collateral, the Loan Documents shall remain in full force and effect and unchanged.

     2..4. Use of Proceeds of Loan. The proceeds of the Loan shall be used by Borrower as working capital for the Borrower’s business.

Article 3.
Payments

     3..1. Principal Payments. Except where evidenced by notes or other instruments issued or made by Borrower to Lender specifically containing payment provisions which are in conflict with this Section 3..1 (in which event the conflicting provisions of said notes or other instruments shall govern and control), that portion of the Obligations consisting of principal payable on account of the Loan shall be payable by Borrower to Lender immediately upon the earliest of (i) the receipt by Lender or Borrower of any proceeds of or income from any of the Collateral, to the extent of said proceeds, (ii) the occurrence of an Event of Default in consequence of which Lender elects to accelerate the maturity and payment of such loans, (iii) any termination of this Agreement; provided, however, that any overadvance or overline shall be payable on demand pursuant to the provisions of Section 2..1. hereof., or (iv) when called for in the Loan Documents.

First Amended and Restated Loan Agreement — Page 6

     3..2. Interest Payments. Accrued but unpaid interest shall be due and payable as set forth in the Note.

     3..3. Collections. Until Lender notifies Borrower in writing to the contrary, Borrower may collect all Account Receivables directly from all account debtors. If Lender notifies Borrower in writing that Lender requires all Account Receivables to be deposited directly into the LockBox Account, Borrower shall then direct all of its account debtors, payors and other third parties to remit all payments owing to Borrower directly to the Lockbox Account. In the event Borrower shall nevertheless directly receive any payments or other financial proceeds of any Collateral after such written notice from Lender, Borrower shall receive all payments in trust for Lender and immediately deliver all payments to Lender in their original form as set forth below, duly endorsed in blank or cause the same to be deposited into the Lockbox Account. Lender or its designee may, at any time, notify account debtors that the Accounts Receivable have been assigned to Lender and of Lender’s security interest therein, and may collect the Accounts Receivable directly and charge the collection costs and expenses to Borrower’s loan account. Borrower agrees that, in computing the charges under this Agreement, all items of payment shall be deemed applied by Lender on account of the Obligations one (1) Business Day after receipt by Lender of good funds which have been finally credited to Lender’s account, whether such funds are received directly from Borrower or from the Lockbox Account, and this provision shall apply regardless of the amount of the Obligations outstanding or whether any Obligations are outstanding; provided, that if any such good funds are received after 12:00 p.m. noon ine(Dallas time) on any Business Day or at any time on any day not constituting a Business Day, such funds shall be deemed received on the immediately following Business Day. Lender is not, however, required to credit Borrower’s account for the amount of any item of payment which is unsatisfactory to Lender in its Permitted Discretion and Lender may charge Borrower’s loan account for the amount of any item of payment which is returned to Lender unpaid.

Article 4.
Collateral

     4..1. Collateral. To secure full and complete payment and performance of the Obligations of Borrower, Borrower and Guarantor have executed or shall execute and deliver or cause to be executed and delivered the Security Agreement covering the property and collateral described in this Section 4.1. (which, together with any other property and collateral which may now or hereafter secure the Obligations of Borrower or any part thereof, is sometimes herein called the “Collateral”):

     a. All of the Borrower’s right, title and interest in and to all of the Borrower’s Inventory, Equipment, materials, supplies, goods, general intangibles, money, instruments, accounts, chattel paper, contract rights, accounts, Accounts Receivable, purchase orders received and rights to payment of any kind (including, without limitation, such rights of payment arising out of a sale, lease or other disposition of goods by the Borrower, out of a rendering of services by the Borrower, out of a loan by the Borrower, whether such right to payment is or is not already earned by performance, and howsoever such right to payment may be evidenced, together with all of the rights and interest (including all liens and security interests) which the Borrower may at any time have by law or agreement against any account debtor or other obligor obligate to make any such payment or against any of the property of such account debtor

First Amended and Restated Loan Agreement — Page 7

or other obligor contract rights, whether now owned or acquired later; all accessions, additions, replacements and substitutions or any of the foregoing; all records of any kind relating to any of the foregoing; and all proceeds (including insurance and accounts proceeds) and all products and proceeds of any of the foregoing, and wherever located;

     4..2. Setoff. Upon the occurrence of an Event of Default, Lender shall have the right to set off and apply against the Obligations in such manner as Lender may determine, without notice to Borrower, any and all deposits (general or special, time or demand, provisional or final) or other sums at any time credited by or owing from Lender to Borrower. As further security for the Obligations of Borrower, Borrower hereby grants to Lender a security interest in all money, instruments and other property of Borrower now or hereafter held by Lender, including, without limitation, property held in safekeeping. In addition to Lender’s right of setoff and as further security for the Obligations of Borrower, Borrower hereby grants to Lender a security interest in all deposits (general or special, time or demand, provisional or final) and other accounts of Borrower now or hereafter on deposit with or held by Lender and all other sums at any time credited by or owing from Lender to Borrower. The rights and remedies of Lender hereunder are in addition to other rights and remedies (including, without limitation, other rights of setoff) which Lender may have.

     4..3. Guaranty of the Obligations. Contemporaneously with the making of the Loan, Guarantor shall guarantee payment of the Obligations of Borrower by execution and delivery of the Guaranty.

Article 5.
Conditions Precedent

     5..1. Loan. The obligation of Lender to make the Loan is subject to Lender’s receipt or written waiver, on or before the day of the making of the Loan, of each of the following, each dated (unless otherwise indicated) the day of the making of the Loan, in form and substance satisfactory to Lender:

     a. The Certificate of Incorporation of Borrower.

     b. Certificates of the appropriate government officials of the state of formation of the Borrower as to the existence of the Borrower.

     c. The Note executed by Borrower.

     d. The Guaranty executed by Guarantor.

     e. The Security Agreement executed by Borrower.

     f. UCC-1 Financing Statement covering the Collateral executed by Borrower.

     g. The Deed of Trust executed by Guarantor and Borrower.

     h. The Certificate of Secretary of certifying that the Board of Directors of Borrower has passed a resolution, which (i) authorizes the execution, delivery and performance by Borrower of this Agreement and/or the other Loan Documents to which

First Amended and Restated Loan Agreement — Page 8

Borrower is or will be a party hereunder and (ii) sets forth the name of the officers of Borrower authorized to sign this Agreement and/or each of the other Loan Documents to which Borrower is or will be a party (including the certificates contemplated herein).

     i.. The Certificate of Secretary of Guarantor certifying that the Board of Directors of Guarantor has passed a resolution, which (i) authorizes the execution, delivery and performance by Guarantor of this Agreement, the Guaranty and/or the other Loan Documents to which the Borrower are or will be a party hereunder and (ii) sets forth the name of the officers of Guarantor authorized to sign this Agreement and/or each of the other Loan Documents to which Guarantor is or will be a party (including the certificates contemplated herein).

     j. The Loan Agreement Rider executed by the Borrower and Guarantor.

     k. A UCC search report from the Secretary of States of Texas and Delaware revealing no conflicting security interests in the Collateral other than as expressly permitted by Lender in its sole and absolute discretion.

     l. All necessary authorizations, consents, approvals, licenses, filings and registrations with governmental or regulatory authorities or in connection with the execution, delivery or performance by Borrower or Guarantor of this Agreement, the Note and other Loan Documents to which Borrower and Guarantor are a party.

     m. Such documents, instruments, and information as Lender may reasonably request.

     n. Borrower and Guarantor have delivered to Lender its audited financial statements.

     o. All corporate proceedings taken in connection with the transactions contemplated by this Agreement and all documents, instruments and other legal matters incident thereto shall be satisfactory to Lender.

Article 6.
Representations and Warranties

     To induce Lender to enter into this Agreement, Borrower and Guarantor represent and warrant to Lender that:

     6..1. Existence and Authority. The Borrower (a) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) has all requisite power to own assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business in all jurisdictions in which the nature of its business makes such qualification necessary and where failure to so qualify would have a material adverse effect on its business, financial condition, or operations. The Borrower has the power and authority to execute, deliver and perform its obligations under this Agreement and the other Loan Documents to which it is or may become a party.

First Amended and Restated Loan Agreement — Page 9

     6..2. Financial Statements. Borrower has delivered to Lender consolidated financial statements of Borrower and Guarantor, setting forth all financial information regarding the Borrower, all as at and for the last fiscal year of Borrower. The financial statements prepared at the end of the fiscal year of Borrower and, along with the other financial statements referred to above or delivered in connection herewith, are true and correct, and fairly present, on a consolidated basis, if applicable, the financial condition of the Borrower as of the respective dates indicated therein and the results of operations for the respective periods indicated therein. Borrower has no material contingent liabilities, liabilities for taxes, material forward or long-term commitments, or unrealized or anticipated losses from any unfavorable commitments not reflected in such financial statements. There has been no material adverse change in the condition, financial or otherwise, or operations of the Borrower since the effective date of the most recent financial statements referred to in this Section 6.2.

     6..3. Default. Neither Borrower nor Guarantor are in default in any material respect under any loan agreement, indenture, mortgage, pledge agreement or other material agreement or obligation to which it is a party or by which any of their properties may be bound.

     6..4. Authorization and Compliance with Laws and Material Agreements. The execution, delivery and performance by Borrower and Guarantor of this Agreement and the other Loan Documents to which Borrower and Guarantor are or may become parties have been duly authorized by all requisite action on the part of Borrower and Guarantor and do not and will not violate the Certificates of Incorporation of Borrower and Guarantor, or any law or any order of any court, governmental authority or arbitrator, and do not and will not conflict with, result in a breach of, or constitute a default under, or result in the imposition of any Lien (except as provided in Article 4.) upon any assets of Borrower and Guarantor pursuant to the provisions of any indenture, mortgage, deed of trust, pledge agreement, franchise, permit, license or other instrument or agreement by which Borrower or Guarantor or their respective properties is bound.

     6..5. Litigation and Judgments. Except as disclosed under the caption “Legal Proceedings” in the Borrower’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, there is no action, suit or proceeding before any court, governmental authority or arbitrator pending, or to the knowledge of Borrower or Guarantor, threatened against or affecting Borrower or Guarantor that would, if adversely determined, have a material adverse effect on the financial condition or operations of Borrower or Guarantor or the ability of Borrower or Guarantor to pay and perform the Obligations. There are no outstanding judgments against Borrower or Guarantor.

     6..6. Rights in Properties; Liens. Borrower and Guarantor have good and indefeasible title or valid leasehold interests in their respective properties and assets, real and personal, reflected in the financial statements described in Section 6.2., and none of the properties, assets or leasehold interests of Borrower or Guarantor is subject to any Lien, except as permitted by Section 8.2.

     6..7. Title to Collateral. Borrower and Guarantor own, and with respect to Collateral acquired after the date hereof, Borrower and Guarantor will own, legally and beneficially, the Collateral free of any Lien or any right or option on the part of any third person to purchase or otherwise acquire the Collateral or any part thereof, except for the Lien granted pursuant to the Security Agreement executed by the Borrower and the Permitted Liens. Borrower and Guarantor have the unrestricted right to grant a security interest in the Collateral as contemplated hereby. The Collateral is not subject to any restriction on

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transfer or assignment except for compliance with applicable federal and state laws and regulations promulgated thereunder.

     6..8. Enforceability. This Agreement constitutes, and the other Loan Documents to which Borrower and Guarantor are parties, when delivered, shall constitute legal, valid and binding obligations of Borrower and Guarantor, enforceable against Borrower and Guarantor in accordance with their respective terms, except as limited by bankruptcy, insolvency, or other laws of general application relating to the enforcement of creditors’ rights.

     6..9. Approvals. No authorization, approval or consent of, and no filing or registration with, any court, governmental authority or third party is or will be necessary for the execution, delivery or performance by Borrower or Guarantor of this Agreement and the other Loan Documents to which Borrower and Guarantor are or may become a party or the validity or enforceability thereof.

     6..10. Taxes. Borrower and Guarantor have filed all tax returns (federal, state and local) required to be filed, including all income, franchise, employment, property and sales taxes. Except for (a) the existing employment tax dispute with the Internal Revenue Service previously disclosed to Lender in writing by Borrower, for which Borrower has a maximum potential liability of no more the $50,000.00 in the aggregate, and (b) certain existing unpaid sales tax obligations in various states which do not exceed more than $20,000.00 in the aggregate [(a) and (b) being collectively referred to herein as the “Disclosed Outstanding Tax Issues”], Borrower and Guarantors have paid all of their respective tax liabilities, and neither Borrower or Guarantor know of any pending investigation of Borrower or Guarantor by any taxing authority or of any pending but unassessed tax liability of Borrower or Guarantor.

     6..11. Use of Proceeds; Margin Securities. Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations G, T, U of X of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any extension of credit under this Agreement will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying margin stock. Borrower, nor any person acting on Borrower’s behalf, has taken any action that might cause the transactions contemplated by this Agreement or the Note, as to violate Regulations G, T, U or X or to violate the Securities Exchange Act of 1934, as amended.

     6..12. ERISA. The Borrower has complied with all applicable minimum funding requirements and all other applicable and material requirements, if applicable, of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and there are no existing conditions that would give rise to liability thereunder. No Reportable Event (as defined in Section 4043 of ERISA) has occurred in connection with any employee benefit plan that might constitute grounds for the termination thereof by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States District Court of a trustee to administer such plan.

     6..13. Disclosure. No representation or warranty made by Borrower and Guarantor in this Agreement or in any other Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements herein or therein not misleading. Except as otherwise disclosed to Lender in writing, there is no fact known to Borrower or Guarantor which has a material adverse effect, or which could reasonably be expected to have a material adverse effect, on the business, assets, financial condition, or operations of Borrower or Guarantor.

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     6..14. Contracts. Neither Borrower nor Guarantor is a party to, or bound by any agreement, condition, contract or arrangement, which which could reasonably be expected to have a material adverse effect on the business, operations or financial condition of Borrower or Guarantor.

     6..15. Compliance with Law. To the best of its knowledge Borrower and Guarantor are in compliance with all laws, rules, regulations, orders and decrees which are applicable to Borrower or Guarantor or any of their respective properties.

     6..16. Principal Place of Business. The place where the Borrower keeps its books and records is located at the address set forth in Article 10.

Article 7.
Positive Covenants

     Borrower and Guarantor covenant and agree that, as long as the Obligations or any part thereof are outstanding or Lender has any commitment hereunder, Borrower and Guarantor will perform and observe the following positive covenants, unless Lender shall otherwise consent in writing:

     7..1. Financial Statements. Borrower and Guarantor will furnish to Lender:

     a. As soon as available, and in any event within one hundred thirty five (135) days after the end of each fiscal year of Borrower and Guarantor, beginning with the fiscal year most recently ended, a copy of the annual audited consolidated financial report of Borrower and Guarantor for such fiscal year containing, for each of Borrower and Guarantor, balance sheets, statements of income, statements of stockholder’ equity and statements of change in financial position as of the end of such fiscal year and for the 12-month period then ended, in each case setting forth in comparative form the figures for the preceding fiscal year, all in reasonable detail and certified by the chief financial officer of the Borrower and Guarantor, prepared in accordance with GAAP.

     b. As soon as available, and in any event within thirty (30) days after the end of each fiscal quarter of Borrower, commencing at the end of the current fiscal quarter, a copy of the quarterly operating statements of Borrower for such fiscal quarter containing cash flow statements, balance sheets, and statements of income, all in reasonable detail and certified to be true and correct in all material respects by the president or chief financial officer of Borrower.

     c. As soon as available and in any event within ten (10) days after the end of each month of each fiscal year of Borrower, (i) a copy of the accounts receivable aging and sales journal, all in reasonable detail and certified by the chief financial officer of Borrower to fairly present the financial condition and results of operations of Borrower, at the date and for the period indicated therein, and (ii) a current Borrowing Base Certificate. Lender shall have the right to audit at Borrower’s expense the accounts receivable aging and sales journals every three (3) months during the term hereof.

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     d. As soon as available, and in any event within thirty (30) days of filing same with the Internal Revenue Service of each year, a true and correct copy of the consolidated annual federal income tax return of Borrower and Guarantor for the immediately preceding year, signed by Borrower and Guarantor and filed with the Internal Revenue Service.

     e. On or before January 31 of each year, evidence that all ad valorem taxes or other assessments due and owing against the Property have been paid in full.

     f. Promptly, such additional financial information concerning Borrower and Guarantor as Lender may request.

     7..2. Certificates; Other Information. Borrower and Guarantor will furnish to Lender all of the following:

     a. As soon as available, copies of all reports and information made available to directors and shareholders of the Borrower of a material nature which could impair Lender’s prospect of payment or performance of the Obligations or any portion thereof.

     b. Promptly, such additional information concerning the Borrower and Guarantor as Lender may reasonably request.

     7..3. Performance of Obligations. Borrower will duly and punctually pay and perform the Obligations, including without limitation, its obligations under this Agreement and the other Loan Documents.

     7..4. Preservation of Existence and Conduct of Business. Borrower will (i) preserve and maintain its legal existence and all of its leases, privileges, franchises, qualifications and rights that are necessary or desirable in the ordinary conduct of its business, and (ii) conduct its business as presently conducted in an orderly and efficient manner in accordance with good business practices.

     7..5. Maintenance of Properties. Borrower will maintain its respective assets and properties in good condition and repair.

     7..6. Payment of Taxes and Claims. Borrower and Guarantor will pay or discharge at or before maturity or before becoming delinquent (i) all taxes, levies, assessments and governmental charges imposed on them or any of their property, except for the Disclosed Outstanding Tax Issues which Borrower is contesting or resolving in good faith, and (ii) all lawful claims for labor, material and supplies, which, if unpaid, might become a Lien upon any of their property; provided, however, that neither Borrower nor Guarantor shall be required to pay or discharge any tax, levy, assessment or governmental charge which is being contested in good faith by appropriate proceedings diligently pursued, and for which adequate reserves have been established.

     7..7. Insurance. Borrower will maintain with financially sound and reputable insurance companies workmen’s compensation insurance, liability insurance, and insurance on its property, assets

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and business at least in such amounts and against such risks as are usually insured against by Persons engaged in similar businesses and showing Lender as an additional Loss Payee.

     7..8. Inspection Rights. At any reasonable time and from time to time, Borrower will permit representatives of Lender to examine and make copies of the books and records of, and visit and inspect the properties of Borrower, and to discuss the business, operations and financial condition of Borrower with its officers and employees and with its independent certified public accountants.

     7..9. Keeping Books and Records. Borrower will maintain proper books of record and account in which full, true and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its business and activities.

     7..10. Compliance with Laws. Borrower and Guarantor will comply with all applicable laws, rules, regulations and orders of any court, governmental authority or arbitrator.

     7..11. Compliance with Agreements. Borrower and Guarantor will comply, in all material respects, with all agreements, indentures, mortgages, security agreements, pledge agreements, deeds of trust and other documents binding on Borrower or Guarantor or affecting their respective properties or business.

     7..12. Notices. Borrower and Guarantor will promptly notify Lender of (i) the occurrence of an Event of Default, or of any event that with notice or lapse of time, or both, would be an Event of Default, (ii) the commencement of any action, suit or proceeding against Borrower that might have a material adverse effect on the business, financial condition or operations of Borrower and (iii) any other matter that might have a material adverse effect on the business, financial condition or operations of Borrower.

     7..13. Further Assurances. Borrower and Guarantor will execute and deliver such further instruments as may be deemed necessary or desirable by Lender to carry out the provisions and purposes of this Agreement and the other Loan Documents and to preserve and perfect the Lien of Lender in the Collateral.

     7..14. Compliance with ERISA. Borrower will comply with all minimum funding requirements and all other material requirements of ERISA, if applicable, so as not to give rise to any liability thereunder. Promptly after the filing thereof, Borrower shall furnish to Lender with regard to each employee benefit plan of Borrower, copies of each annual report required to be filed pursuant to Section 103 of ERISA in connection with each such plan for each plan year. Borrower will notify Lender immediately of any fact, including, but not limited to, any “Reportable Event” as that term is defined in Section 4043 of ERISA, arising in connection with any such plan which might constitute grounds for the termination thereof by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States District Court of a trustee to administer such plan and furnish to Lender, promptly upon its request therefor, such additional information concerning any such plan as may be reasonably requested.

     7..15. Compliance with Regulations G, T, U and X. Neither Borrower nor any Person acting on its behalf will take any action which might cause this Agreement or any of the Loan Documents to violate, and Borrower will take actions necessary to cause compliance with Regulations G, T, U and X of

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the Board of Governors of the Federal Reserve System and the Securities Exchange Act of 1934, in each case as now in effect or as the same may hereafter be in effect.

     7..16. Operating Account. Except for Borrower’s payroll account and its Canadian bank accounts maintained by Borrower’s Canadian Affiliates, Borrower and Guarantor shall maintain all of its operating accounts with Lender. Transfers of funds between Borrower’s local accounts and the Canadian bank accounts shall be prohibited, unless such transfers are made in the ordinary course of business.

     7..17. Financial Covenants. Borrower and Guarantor covenant and agree that, as long as the Obligations or any part thereof are outstanding or Lender has any commitment hereunder, Borrower and Guarantor will perform, observe and maintain the following financial covenants, unless Lender shall otherwise consent in writing:

     a. Current Ratio. Borrower shall maintain a “Current Ratio” of at least 1.25 to 1. “Current Ratio” means [current assets minus prepaid items] divided by [current liabilities] (as those terms are defined in GAAP).

     b. Debt Service Coverage Ratio. [Intentionally Omitted].

     c. Liabilities to Tangible Net Worth. Borrower shall maintain a maximum ratio of total liabilities to tangible net worth of 2.5 to 1 (as those terms are defined in GAAP).

     The financial covenants set forth herein shall be tested on a quarterly basis in conjunction with the delivery of Borrower’s financial statements. If Borrower shall fail to satisfy a financial covenant, Borrower shall have fifteen (15) days to bring such covenant into compliance after written notice therefore is sent to Borrower, before Lender may claim an Event of Default hereunder.

Article 8.
Negative Covenants

     Borrower and Guarantor covenant and agree that, as long as the Obligations or any part thereof are outstanding or Lender has any commitment hereunder, Borrower and Guarantor will perform and observe the following negative covenants, unless Lender shall otherwise consent in writing:

     8..1. Limitation on Liens. Borrower will not incur, create, assume or permit to exist, any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except Liens in favor of Lender and the Permitted Liens.

     8..2. Mergers, Acquisitions and Dissolutions. Borrower will not, without the prior written consent of Lender, become a party to a merger or consolidation, or purchase or otherwise acquire all or a substantial part of the assets of any Person or any shares or other evidence of beneficial ownership of any Person . Borrower nor any partner of the Borrower shall not dissolve or liquidate.

     8..3. Transactions with Affiliates. Borrower will not enter into any transaction with any director, officer, employee or shareholder of Borrower or any Affiliate, except upon fair and reasonable terms.

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     8..4. Debt. Borrower shall not, without the prior written consent of Lender, incur, create, assume or permit to exist, any Debt, except (i) Debt to Lender; (ii) trade payables incurred in the ordinary course of business with a due date not greater than sixty (60) days from date it is incurred; (iii) purchase money debt for the acquisition or lease of equipment used in the ordinary course of Borrower’s business, not to exceed $100,000.00 in the aggregate.

Article 9.
Default

     9..1. Event of Default. Each of the following shall be deemed an “Event of Default”:

     a. Any Obligated Party shall fail to pay when due the Obligations or any part thereof and such default in payment is not cured within five (5) days after written notice of same is sent to Borrower.

     b. Any representation or warranty made or deemed made by any Obligated Party (or any of their respective officers) in any Loan Document or in any certificate, report, notice or financial statement furnished at any time in connection with this Agreement shall be false, misleading or erroneous in any material respect when made or deemed to have been made.

     c. Any Obligated Party shall fail to perform, observe or comply with any covenant, agreement or term contained in this Agreement or any other Loan Document (which does not involve the payment of monetary Obligations covered by Section 9..1a. Above), and such failure to perform, observe or comply is not fully cured within fifteen (15) days after written notice of same is sent to Borrower; provided, however, that if the default described within this section 8..1c. is of such a nature that it cannot possibly be cured by anyone within such fifteen (15) day period, then such failure shall not constitute an Event of Default hereunder, if Borrower commences the curing of the failure within such fifteen (15) day period, and thereafter diligently prosecutes the curing of the same to completion, and provides to the Lender written evidence of such actions, provided that if such default still remains uncured after thirty (30) days from the date such original notice from Lender was sent, then such failure shall constitute an Event of Default hereunder, notwithstanding..

     d. Any Obligated Party shall commence a voluntary proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or a substantial part of its property or shall consent to any such relief or to the appointment of or taking possession by any such official in such a proceeding commenced against it or shall make a general assignment for the benefit of creditors or shall generally fail to pay its debts as they become due or shall take any corporate action to authorize any of the foregoing.

     e. Any involuntary proceeding shall be commenced against any Obligated Party seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official for it or a substantial part of its property, and such involuntary proceeding shall remain undismissed and unstayed for a period of forty-five (45) days.

First Amended and Restated Loan Agreement — Page 16

     f. Any Obligated Party shall fail to discharge within a period of forty-five (45) days after the commencement thereof any attachment, sequestration or similar proceeding against any of its assets or properties to the extent enforcement would have a material adverse effect on the financial condition of such Obligated Party.

     g. Any Obligated Party shall fail to satisfy and discharge promptly any judgment against it after the judgment becomes final to the extent enforcement would have a material adverse effect on the financial condition of such Obligated Party.

     h. Any Obligated Party shall default in the payment of any of its Debt beyond any applicable grace period, or shall default in the performance of any other agreement binding upon it or its property.

     i. This Agreement or any other Loan Document shall cease to be in full force and effect or shall be declared null and void or the validity or enforceability thereof shall be contested or challenged by any Obligated Party or any of their respective shareholders, or any Obligated Party shall deny that it has any further liability or obligation under any of the Loan Documents.

     j. The sale, encumbrance or other unauthorized transfer of the Collateral without Lender’s prior written consent, that is not made in the ordinary course of business.

     k. Any Obligated Party shall cease to exist.

     l. Borrower shall fail to satisfy any financial covenant as set forth in Section 7..18 hereof and such failure is not cured within fifteen (15) days after written notice of same is sent to Borrower.

     m. The occurrence of any Event of Default as that term is defined in the Term Loan Agreement.

     9..2. Remedies Upon Default. Upon the occurrence of an Event of Default, Lender may without notice terminate its commitment to lend hereunder and declare the Obligations or any part thereof to be immediately due and payable, and the same shall thereupon become immediately due and payable, without demand, presentment, notice of dishonor, notice of acceleration, notice of intent to accelerate, notice of intent to demand, or protest, which are hereby expressly waived; provided, however, that upon the occurrence of an Event of Default under Section 9.1.d. or Section 9.1.e., the commitment of Lender to lend hereunder shall automatically terminate, and the Obligations shall become immediately due and payable without notice, demand, presentment, notice of dishonor, notice of acceleration, notice of intent to accelerate, notice of intent to demand, or protest, which are hereby expressly waived. Upon the occurrence of any Event of Default, Lender may exercise all rights and remedies available to it in law or in equity, under the Loan Documents or otherwise.

Article 10.
Miscellaneous

     10..1. Expenses of Lender. Borrower agrees to pay on demand all costs and expenses incurred by Lender in connection with the preparation, negotiation and execution of this Agreement and the other

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Loan Documents and any and all amendments, modifications and supplements thereto, including, without limitation, the costs and fees of Lender’s legal counsel, and all costs and expenses incurred by Lender in connection with the enforcement or preservation of any rights under this Agreement or any other Loan Document, including, without limitation, the reasonable costs and fees of Lender’s legal counsel. Lender is and shall be authorized to fund these costs directly out of the proceeds of the Loan.

     10..2. Restatement. Except as otherwise disclosed in writing by Borrower, the delivery of each statement, report and certificate to Lender pursuant to this Agreement and the request by Borrower for an advance hereunder shall by virtue of such delivery or request alone constitute a restatement of the representations and warranties contained in Article 6. hereof on and as of the date of delivery or the date requested for the advance, except that the representations and warranties contained in Section 6.2. shall in each instance be deemed to be made with respect to the financial statements most recently furnished to Lender pursuant to Section 6.2. or 7.1., as the case may be. Each such delivery or request shall also constitute a representation and warranty at the time of said delivery or on the date requested for the advance that no Event of Default has occurred and is continuing and that no event has occurred and is continuing that, with the giving of notice or lapse of time or both, would be an Event of Default.

     10..3. No Waiver; Cumulative Remedies. No failure on the part of Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided for in this Agreement and the other Loan Documents are cumulative and not exclusive of any rights and remedies provided by law.

     10..4. Successors and Assigns. This Agreement is binding upon and shall inure to the benefit of Lender, Borrower, Guarantor and their respective successors and assigns, except that Borrower and Guarantor may not, except as expressly provided herein, assign or transfer any of their rights or obligations under this Agreement without the prior written consent of Lender.

     10..5. Survival of Representations and Warranties. All representations and warranties made in this Agreement or any other Loan Document or in any document, statement or certificate furnished in connection with this Agreement shall survive the execution and delivery of this Agreement and the other Loan Documents, and no investigation by Lender or any closing shall affect the representations and warranties or the right of Lender to rely upon them.

     10..6. Entire Agreement; Amendment. This Agreement and the other Loan Documents embody the entire agreement among the parties hereto and supersedes all prior agreements and understandings, if any, relating to the subject matter hereof. The provisions of this Agreement and the other Loan Documents to which Borrower and Guarantor are a party may be amended or waived only by an instrument in writing signed by the parties thereto.

     10..7. Maximum Interest Rate. No provision of this Agreement or Note shall require the payment or the collection of interest in excess of the maximum permitted by applicable law. If any excess of interest in such respect is hereby provided for, or shall be adjudicated to be so provided, in Note or otherwise in connection with this loan transaction, the provisions of this Section 10.7. shall govern and prevail and neither Borrower nor the sureties, Guarantor, successors or assigns of Borrower shall be obligated to pay the excess amount of such interest or any other excess sum paid for use,

First Amended and Restated Loan Agreement — Page 18

forbearance or detention of sums loaned pursuant hereto. In the event Lender ever receives, collects or applies as interest any such sum, such amount which would be in excess of the maximum amount permitted by applicable law shall be applied as a payment and reduction of the principal of the indebtedness evidenced by the Note; and, if the principal of the Note has been paid in full, any remaining excess shall forthwith be paid to Borrower.

     10..8. Notices. Any notice, consent or other communication required or permitted to be given under any of the Loan Documents to Lender, Borrower or Guarantor must be in writing and delivered in person or mailed by registered or certified mail, return receipt requested, postage prepaid, as follows:

To Borrower:	American Locker Group, Incorporated 815 S. Main Street Grapevine, Texas 76051
To Guarantor:	Altreco, Incorporated 815 S. Main Street Grapevine, Texas 76051
In either case, with a copy to:
	Hallett & Perrin, P.C. 2001 Bryan Street, #3900 Dallas, Texas 75201 Attn: Timothy R. Vaughn
To Lender:	The F&M Bank & Trust Company 14185 Dallas Parkway, Suite 140 Dallas, Texas 75254 Attention: David J. Broussard, Senior Vice-President

or such other address as shall be set forth in a notice from the appropriate party given in compliance with this Section 10.8. Any such notice, consent or other communication shall be deemed given when delivered in person or, if mailed, when duly deposited in the mails.

     10..9 .Applicable Law. THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN DALLAS, DALLAS COUNTY, TEXAS, AND SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.

     10..10 Jurisdiction, Venue.

     ANY SUIT, ACTION OR PROCEEDING AGAINST BORROWER OR GUARANTOR WITH RESPECT TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT OF ANY THEREOF WILL BE BROUGHT IN THE DISTRICT COURTS OF DALLAS COUNTY, TEXAS OR THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, AS LENDER (IN ITS SOLE DISCRETION) MAY ELECT, AND BORROWER AND GUARANTOR

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HEREBY ACCEPT THE EXCLUSIVE JURISDICTION OF THOSE COURTS FOR THE PURPOSE OF ANY SUIT, ACTION OR PROCEEDING.

     IN ADDITION, BORROWER AND GUARANTOR HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS BROUGHT IN THE STATE OF TEXAS, AND HEREBY FURTHER IRREVOCABLY WAIVE ANY CLAIM OF ANY SUIT, ACTION OR PROCEEDING BROUGHT IN THE DISTRICT COURTS IN DALLAS COUNTY, TEXAS THAT MAY HAVE BEEN BROUGHT IN THE INCONVENIENT FORUM. SHOULD ANY SUCH SUIT, ACTION OR PROCEEDING BE PENDING IN MORE THAN ONE FORUM, LENDER’S CHOICE OF FORUM SHALL BE CONCLUSIVE.

     10..11 WAIVER OF JURY TRIAL. IN THE EVENT LITIGATION SHOULD ARISE OUT OF THE TRANSACTIONS CONTEMPLATED BY ANY OF THE LOAN DOCUMENTS OR ANY OTHER MATTER RELATED THERETO WHATSOEVER OR IN CONNECTION WITH ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OR INACTIONS BY LENDER, IT IS HEREBY STIPULATED AND AGREED BY BORROWER AND GUARANTOR THAT THEY SHALL WAIVE AND DO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ALL RIGHTS TO DEMAND A TRIAL OF ANY SUCH MATTER BY OR BEFORE A JURY. THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO COMMIT TO MAKE THE LOAN.

     10..12 RELIEF FROM AUTOMATIC STAY. AS A MATERIAL INDUCEMENT AND AS FURTHER CONSIDERATION TO INDUCE LENDER TO MAKE THE LOAN, BORROWER AND GUARANTOR HEREBY STIPULATE, AGREE, CONSENT TO AND ACKNOWLEDGE THAT IN THE EVENT THAT A PROCEEDING UNDER TITLE 11 OF THE U.S. CODE IS COMMENCED, EITHER VOLUNTARY OR INVOLUNTARY, BY OR AGAINST BORROWER OR GUARANTOR, LENDER IS ENTITLED TO IMMEDIATE RELIEF FROM ANY AUTOMATIC STAY IMPOSED UNDER SECTION 362 OF TITLE 11 OF THE U.S. CODE, AS AMENDED, OR OTHERWISE, ON OR AGAINST THE EXERCISE OF THE RIGHTS AND REMEDIES OTHERWISE AVAILABLE TO LENDER, WITHOUT REQUIRING LENDER TO FILE A MOTION FOR RELIEF FROM THE AUTOMATIC STAY. IN ADDITION TO THE FOREGOING, BORROWER AND GUARANTOR FURTHER STIPULATE, AGREE AND ACKNOWLEDGE THAT NEITHER BORROWER NOR GUARANTOR WILL OPPOSE OR OBJECT TO LENDER’S MOTION FOR RELIEF FROM ANY AUTOMATIC STAY OR ANY VALUATION OF THE PROPERTY SUBJECT TO THE AUTOMATIC STAY CONDUCTED BY LENDER.

     10..13. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

     10..14. Severability. Any provision of this Agreement held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Agreement and the effect thereof shall be confined to the provision held to be invalid or illegal.

First Amended and Restated Loan Agreement — Page 20

     10..15. Headings. The headings, captions and arrangements used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.

     10..16. Participations. Lender shall have the right at any time and from time to time to grant participations in the Note and any other Loan Documents. Each participant shall be entitled to receive all information received by Lender regarding the creditworthiness of Borrower and Guarantor.

     10..17. Controlling Interpretation. The other Loan Documents delivered pursuant to or in connection with this Agreement shall supplement and be in addition to the terms and provisions of this Agreement. If an inconsistency of provisions should exist between any of the Loan Documents, the interpretation of such provision most favorable to Lender shall control, determined by Lender in its sole discretion.

     10..18. Amendment and Restatement. This Agreement amends and restates that certain Loan Agreement dated March 5, 2007, by and between Borrower, Guarantor and Lender.

     In Witness Whereof, the parties hereto have duly executed this Agreement as of the day and year first above written.

Borrower: American Locker Group, Incorporated, a Delaware corporation
By:	/S/ PAUL M. ZAIDINS
	Paul Zaidins, President
Guarantor: Altreco, Incorporated, a Delaware corporation
By:	/S/ PAUL M. ZAIDINS
	Paul Zaidins, President
Lender: The F&M Bank & Trust Company
By:	/S/ DAVID BROUSSARD
	(Signature)
	David Broussard, Sr. Vice President
	(Printed Name and Title)

First Amended and Restated Loan Agreement — Page 21

EX-18.1

Exhibit 18.1

June 16, 2008

Mr. Paul Zaidins, CFO
American Locker Group Incorporated
815 South Main Street
Grapevine, Texas 76051

Dear Mr. Zaidins:

As stated in Note 2 to the consolidated financial statements of American Locker Group Incorporated for the year ended December 31, 2007, the Company changed its method of accounting for inventory from LIFO to FIFO and states that the newly adopted accounting principle is preferable in the circumstances because the FIFO method better reflects the current value of inventories on the Consolidated Balance Sheet; provides uniformity across operations with the respect to the method of inventory accounting and reduces complexity in accounting for inventories. In connection with our audit of the above mentioned consolidated financial statements, we have evaluated the circumstances and the business judgment and planning which formulated your basis to make the change in accounting principle.

It should be understood that criteria have not been established by the Financial Accounting Standards Board for selecting from among the alternative accounting principles that exist in this area. Further, the American Institute of Certified Public Accountants has not established the standards by which an auditor can evaluate the preferability of one accounting principle among a series of alternatives. However, for purposes of the Company’s compliance with the requirements of the Securities and Exchange Commission, we are furnishing this letter.

Based on our audit, we concur with management’s judgment that the newly adopted accounting principle described in Note 2 is preferable in the circumstances. In formulating this position, we are relying on management’s business planning and judgment, which we do not find to be unreasonable.

Very truly yours,

/s/ Travis, Wolff & Company, L.L.P.
Travis, Wolff & Company, L.L.P.

EX-21.1

Exhibit 21.1

List of Subsidiaries

     The following companies are subsidiaries of the Company and are included in the consolidated financial statements of the Company:

		Percentage of Voting
NAME	Jurisdiction of Organization	Securities Owned
American Locker Security Systems, Inc.	Delaware		100	%
American Locker Company of Canada, Ltd.	Dominion of Canada		100	%(1)
Canadian Locker Company, Ltd.	Dominion of Canada		100	%(2)
Security Manufacturing Corporation	Delaware		100	%
ALTRECO, Incorporated	Delaware		100	%

(1)	Owned by American Locker Security Systems, Inc.
(2)	Owned by American Locker Company of Canada, Ltd.

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-86494) of American Locker Group Incorporated’s 1999 Stock Incentive Plan of our report dated June 16, 2008 (which reports an unqualified opinion and includes an explanatory paragraph as a result of a change in accounting principle from the LIFO to the FIFO method), with respect to the financial statements and financial statement schedule of American Locker Group Incorporated for the years ended December 31, 2007, 2006, and 2005 included in this Annual Report (Form 10-K) for the year ended December 31, 2007.

/s/ Travis, Wolff & Company, LLP

Dallas, Texas

June 16, 2008

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Allen D. Tilley, certify that:

1. I have reviewed this Annual Report on Form 10-K 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(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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.

By:  /s/ ALLEN D. TILLEY

Allen D. Tilley

Chief Executive Officer

(Principal Executive Officer)

Date: June 19, 2008

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Paul M. Zaidins, certify that:

1. I have reviewed this Annual Report on Form 10-K 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(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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.

By:  /s/ Paul M. Zaidins

Paul M. Zaidins

President, Chief Financial Officer and
Chief Operating Officer

(Principal Financial and Accounting Officer)

Date: June 19, 2008

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 Annual Report on Form 10-K of American Locker Group Incorporated (the “Company”) for the year ended December 31, 2007, 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.

/s/ Allen D. Tilley

Allen D. Tilley

Chief Executive Officer

(Principal Executive Officer)

/s/ Paul M. Zaidins

Paul M. Zaidins

President, Chief Financial Officer and
Chief Operating Officer

(Principal Financial and Accounting Officer)

Dated: June 19, 2008