10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)      

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

For the quarterly period ended June 30, 2014

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

For the transition period from ____________ to ____________

Commission File Number: 0-439

American Locker Group Incorporated

(Exact name of registrant as specified in its charter)

Delaware	16-0338330
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2701 Regent Blvd., Suite 200 DFW Airport, TX	75261
(Address of principal executive offices)	(Zip code)

(817) 329-1600

(Registrant’s telephone number, including area code)

None

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

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

Indicated by a check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for a shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

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

Large accelerated filer [  ]	Accelerated filer [  ]	Non-accelerated filer [  ]	Smaller Reporting Company [ X ]
	(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 [  ] No [ X ]

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:  1,687,319 shares of common stock, par value $1.00, issued and outstanding as of August 14, 2014.

TABLE OF CONTENTS

	Page No.
FORWARD-LOOKING INFORMATION	3
PART I — FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Consolidated Balance Sheets as of June 30, 2014 (Unaudited) and December 31, 2013	4
Consolidated Statements of Operations (Unaudited) for the Six Months Ended June 30, 2014 and 2013	6
Consolidated Statements of Operations (Unaudited) for the Three Months Ended June 30, 2014 and 2013	7
Consolidated Statements of Comprehensive Loss (Unaudited) for the Six and Three Months Ended June 30, 2014 and 2013	8
Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2014 and 2013	9
Notes to Consolidated Financial Statements	10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3. Quantitative and Qualitative Disclosures About Market Risk	20
Item 4. Controls and Procedures	21
PART II — OTHER INFORMATION	21
Item 1. Legal Proceedings	21
Item 1A. Risk Factors	21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3. Defaults Upon Senior Securities	21
Item 4. Mine Safety Disclosure	21
Item 5. Other Information	22
Item 6. Exhibits	23
SIGNATURES	24
EX-3.1
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

2

FORWARD-LOOKING INFORMATION

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

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

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

The interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements, and notes thereto, for the year ended December 31, 2013 presented in the Company’s Annual Report on Form 10-K that was filed with the Securities and Exchange Commission (the “SEC”) on April 10, 2014.

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

3

American Locker Group Incorporated and Subsidiaries

Consolidated Balance Sheets 

	June 30,			December 31,
	2014 (Unaudited)			2013
Assets
Current assets:
Cash and cash equivalents	$	129,238		$	279,288
Accounts receivable, less allowance for doubtful accounts of approximately $145,000 in 2014 and $199,000 in 2013		2,361,199			2,097,644
Inventories, net		3,353,030			2,738,813
Prepaid expenses		491,225			299,730
Total current assets		6,334,692			5,415,475
Property, plant and equipment:
Buildings and leasehold improvements		456,333			552,561
Machinery and equipment		10,521,425			12,089,799
		10,977,758			12,642,360
Less allowance for depreciation and amortization		(8,452,428	)		(9,226,076	)
		2,525,330			3,416,284
Other noncurrent assets		191,465			123,856
Total assets	$	9,051,487		$	8,955,615

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

4

American Locker Group Incorporated and Subsidiaries

Consolidated Balance Sheets (continued)

	June 30,			December 31,
	2014 (Unaudited)			2013
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	2,943,024		$	2,496,331
Customer deposits		280,206			216,107
Commissions, salaries, wages, and taxes thereon		160,684			77,101
Income taxes payable		4,011			5,326
Revolving line of credit		2,164,569			1,580,611
Current portion of long-term debt		240,000			240,000
Note payable to related party		200,000			200,000
Current portion of capital lease obligation		14,287			13,883
Accrued settlement, current portion		-			156,000
Other accrued expenses		982,421			660,771
Total current liabilities		6,989,202			5,646,130
Long-term liabilities:
Long-term debt, net of current portion		680,000			920,000
Capital lease obligation, net of current portion		52,522			59,768
Accrued settlement, net of current portion		-			130,000
Pension and other benefits		1,192,372			1,274,173
		1,924,894			2,383,941
Total liabilities		8,914,096			8,030,071
Commitments and contingencies (Note 9)
Stockholders’ equity:
Series C redeemable, convertible preferred stock, $1.00 par value: Liquidation preference of $5 per share Authorized shares - 100,000 Issued and outstanding shares - 60,000 in 2014 and 60,000 in 2013		300,000			300,000
Common stock, $1.00 par value: Authorized shares – 4,000,000 Issued shares – 1,879,319 in 2014 and 1,879,319 in 2013; Outstanding shares – 1,687,319 in 2014 and 1,687,319 in 2013		1,879,319			1,879,319
Other capital		271,381			271,381
Retained earnings		765,953			1,565,134
Treasury stock at cost, 192,000 shares		(2,112,000	)		(2,112,000	)
Accumulated other comprehensive loss		(967,262	)		(978,290	)
Total stockholders’ equity		137,391			925,544
Total liabilities and stockholders’ equity	$	9,051,487		$	8,955,615

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

5

American Locker Group Incorporated and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

	Six months ended June 30,
	2014			2013
Net sales	$	6,172,263		$	7,242,772
Cost of products sold		5,363,515			5,488,321
Gross profit		808,748			1,754,451
Selling, general and administrative expenses		2,132,204			2,518,784
Settlement expense		-			441,583
Total operating loss		(1,323,456	)		(1,205,916	)
Other income (expense):
Gain on sale of property		703,439			-
Interest income		-			18,747
Other expense – net		(18,007	)		(22,254	)
Interest expense		(146,607	)		(54,806	)
Total other income (expense)		538,825			(58,313	)
Loss before income taxes		(784,631	)		(1,264,229	)
Income tax expense		(9,211	)		(12,385	)
Net loss		(793,842	)		(1,276,614	)
Provision for preferred stock dividends		(8,926	)		-
Net loss applicable to common shareholders	$	(802,768	)	$	(1,276,614	)
Weighted average common shares:
Basic		1,687,319			1,687,319
Diluted		1,687,319			1,687,319
Net loss per share applicable to common shareholders:
Basic	$	(0.48	)	$	(0.76	)
Diluted	$	(0.48	)	$	(0.76	)

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

6

American Locker Group Incorporated and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

	Three months ended June 30,
	2014			2013
Net sales	$	3,338,054		$	4,088,285
Cost of products sold		2,863,561			2,931,050
Gross profit		474,493			1,157,235
Selling, general and administrative expenses		1,126,978			1,363,289
Total operating loss		(652,485	)		(206,054	)
Other income (expense):
Other income (expense) – net		(9,161	)		(20,402	)
Interest expense		(77,554	)		(28,083	)
Total other income		(86,715	)		(48,485	)
Net loss before income taxes		(739,200	)		(254,539	)
Income tax expense		(4,722	)		(8,445	)
Net loss		(743,922	)		(262,984	)
Provision for preferred stock dividends		(4,488	)		-
Net loss applicable to common shareholders	$	(748,410	)	$	(262,984	)
Weighted average common shares:
Basic		1,687,319			1,687,319
Diluted		1,687,319			1,687,319
Net loss per share applicable to common shareholders:
Basic	$	(0.44	)	$	(0.16	)
Diluted	$	(0.44	)	$	(0.16	)

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

7

American Locker Group Incorporated and Subsidiaries

Consolidated Statements of Comprehensive Loss

(Unaudited)

	Six months ended June 30,
	2014			2013
Net loss	$	(793,842	)	$	(1,276,614	)
Other comprehensive income (loss):
Foreign currency translation adjustment		11,896			(45,357	)
Adjustment to minimum pension liability, net of tax effect of $0 in 2014 and $8,970 in 2013		(868	)		22,782
Other comprehensive income (loss)		11,028			(22,575	)
Total comprehensive loss	$	(782,814	)	$	(1,299,189	)

	Three months ended June 30,
	2014			2013
Net loss	$	(743,922	)	$	(262,984	)
Other comprehensive income (loss):
Foreign currency translation adjustment		8,389			(22,262	)
Adjustment to minimum pension liability, net of tax effect of $0 in 2014 and $5,546 in 2013		(13,111	)		13,858
Other comprehensive income (loss):		(4,722	)		(8,404	)
Total comprehensive loss	$	(748,644	)	$	(271,388	)

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

8

American Locker Group Incorporated and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	Six months ended June 30,
	2014			2013
Operating activities:
Net loss	$	(793,842	)	$	(1,276,614	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		319,555			398,955
Gain on sale of property		(703,439	)		-
Provision for uncollectible accounts		51,956			2,145
Changes in assets and liabilities:
Accounts receivable		(314,748	)		106,635
Inventories		(613,826	)		16,631
Prepaid expenses and other assets		(168,944	)		(218,006	)
Accounts payable, customer deposits, accrued legal settlement (current and long-term) and accrued expenses		753,436			652,664
Pension and other benefits		(81,424	)		12,152
Income taxes		(1,315	)		7,184
Net cash used in operating activities		(1,552,591	)		(298,254	)
Investing activities:
Purchase of property, plant and equipment		(68,984	)		(50,604	)
Proceeds from sale of property		1,128,075			-
Net cash provided by (used in) investing activities		1,059,091			(50,604	)
Financing activities:
Long-term debt payments to Bank of America Merrill Lynch		-			(100,000	)
Long-term debt borrowings from Bank of America Merrill Lynch		-			150,000
Long-term debt payments to Triumph Commercial Finance		(240,000	)		-
Borrowings on line of credit with Bank of America Merrill Lynch		-			220,000
Borrowings on line of credit with Triumph Commercial Finance		583,958			-
Payment of capital lease obligation		(6,842	)		-
Payment of preferred stock dividends		(5,339	)		-
Net cash provided by financing activities		331,777			270,000
Effect of exchange rate changes on cash		11,673			(16,214	)
Net decrease in cash and cash equivalents		(150,050	)		(95,072	)
Cash and cash equivalents at beginning of period		279,288			413,353
Cash and cash equivalents at end of period	$	129,238		$	318,281
Supplemental cash flow information:
Cash paid for:
Interest	$	115,248		$	54,766
Income taxes	$	10,241		$	5,606

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

9

American Locker Group Incorporated and Subsidiaries

Notes to Consolidated Financial Statements

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of American Locker Group Incorporated (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, the financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company’s management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of such consolidated financial statements, have been included. Operating results for the six and three months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ended December 31, 2014.

The consolidated balance sheet at December 31, 2013 has been derived from the Company’s audited financial statements at that date, but does not include all of the financial information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the Company’s consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Annual Report”).

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As a result of the Company’s recurring losses from operations and working capital deficiency at December 31, 2013, the Report of Independent Registered Public Accounting Firm on the financial statements of the Company as of and for the year ended December 31, 2013 included in the 2013 Annual Report contained an explanatory paragraph expressing substantial doubt about the Company’s ability to continue as a going concern. Management’s plans to address the liquidity and working capital needs of the Company were included in Note 1 of the Notes to Consolidated Financial Statements presented in the 2013 Annual Report. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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.

Effect of New Accounting Guidance

In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. Under this guidance, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward.  This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Adoption of this new guidance did not have a significant impact on the Company’s consolidated financial statements.

In May 2014, as part of its ongoing efforts to assist in the convergence of U.S. GAAP and International Financial Reporting Standards, FASB issued ASU 2014-09, Revenue from Contracts with Customers. The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. ASU 2014-09 provides alternative methods of initial adoption and is effective for annual and interim periods beginning after December 15, 2016. We are currently evaluating the impact that this standard will have on our consolidated financial statements.

2. Concession Agreement and Disposition of Assets

In 2010, the Company entered into a five-year agreement with a large theme-park operator to provide approximately 4,300 lockers under a locker concession arrangement. The Company retained ownership of the lockers and received a portion of the revenue generated by the locker operations. Under appropriate accounting guidance, the Company capitalized its costs related to the concession agreement and was depreciating such costs over the five-year term of the agreement. The Company recognized its portion of the revenue as it was collected.

10

In February 2014, the Company sold the lockers, kiosks and other assets related to that locker concession arrangement to a third party and entered into a subcontract agreement pursuant to which the third party agreed to perform the locker concession and management services previously performed by the Company for the theme-park operator in exchange for the right to receive all of the payments owed to the Company under such arrangement. The Company received $1,218,075 in total consideration for the disposition of these assets. Net of a holdback amount of $90,000, the Company received proceeds of $1,128,075 at closing of which $120,000 was used to make a principal payment on the Company’s outstanding term loan (see Note 8) and the remainder was used for working capital and general corporate purposes. Additionally, in connection with the sale of these assets, the Company and the third party agreed to an amendment to a settlement agreement previously executed between the two parties (see Note 9) whereby payments the Company had been making to the third party pursuant to the settlement agreement were eliminated. Accordingly, the Company wrote-off the outstanding balance of its accrued settlement of $273,000 and recorded a gain, net of selling costs, of $703,439 in February 2014 in connection with the sale of the locker concession assets and amendment to the settlement agreement.

3. Inventories

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

Inventories consist of the following:

	June 30, 2014		December 31, 2013
Finished products	$	428,066	$	373,281
Work-in-process		859,839		817,456
Raw materials		2,065,125		1,548,076
Net Inventories	$	3,353,030	$	2,738,813

4. Income Taxes

Provision for income taxes is based upon the estimated annual effective income tax rate. The Company’s effective income tax rate was approximately (1.2)% and (1.0)% for the six months ended June 30, 2014 and 2013, respectively. For the six months ended June 30, 2014, the effective income tax rate differs significantly from the statutory rate primarily due to an increase in the deferred tax asset valuation allowance of approximately $158,000, as well as permanent timing differences between expenses recorded for financial and tax reporting. For the six months ended June 30, 2013, the effective income tax rate differs significantly from the statutory rate primarily due to an increase in the deferred tax asset valuation allowance of approximately $464,000, as well as permanent timing differences between expenses recorded for financial and tax reporting. Although the Company reported a pre-tax loss in the six months ended June 30, 2014 and 2013, it was unable to record a tax benefit in either period due to corresponding changes in the deferred tax asset valuation allowance, causing the effective income tax rate to be negative.

5. Stockholders’ Equity

The Company did not issue any shares of common stock or preferred stock in the first six months of 2014 or in the first six months of 2013.

6. Pension Benefits

The following sets forth the components of net periodic employee benefit cost of the Company’s defined benefit pension plans for the six months and three months ended June 30, 2014 and 2013:

	Six months ended June 30,
	Pension Benefits
	U.S. Plan						Canadian Plan
	2014			2013			2014			2013
Service Cost	$	-		$	-		$	-		$	-
Interest Cost		(76,231	)		116,343			28,319			26,189
Expected return on plan assets		77,850			(125,410	)		(33,700	)		(35,219	)
Net actuarial loss		22,890			-			15,368			18,764
Amortizations		-			79,218			-			-
Net periodic benefit cost	$	24,509		$	70,151		$	9,987		$	9,734

11

	Three months ended June 30,
	Pension Benefits
	U.S. Plan						Canadian Plan
	2014			2013			2014			2013
Service Cost	$	-		$	-		$	-		$	-
Interest Cost		(38,116	)		53,237			14,233			12,588
Expected return on plan assets		38,925			(57,386	)		(16,938	)		(16,929	)
Net actuarial loss		11,445			-			7,724			9,019
Amortizations		-			36,249			-			-
Net periodic benefit cost	$	12,254		$	32,100		$	5,019		$	4,678

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

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

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

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

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

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

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

		June 30, 2014
		US Plan		Canadian Plan
Cash and cash equivalents	Level 1	$	68,534	$	22,351
Mutual funds	Level 1		235,903		1,052,498
Corporate/Government Bonds	Level 1		623,364		-
Equities	Level 1		1,105,218		-
Total		$	2,033,019	$	1,074,849

US pension plan assets are invested solely in pooled separate account funds. The net asset values of the pooled separate account funds are based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of units outstanding. The unit prices of the pooled separate account funds are not quoted on any market; however, the unit price is based on the underlying investments which are traded in an active market and are priced by independent providers. There have been no significant transfers in or out of Level 1 fair value measurements.

For additional information on the defined benefit pension plans, please refer to Note 10 of the consolidated financial statements included in the 2013 Annual Report.

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7. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per common share for the six and three months ended June 30, 2014 and 2013:

	Six months ended June 30,
	2014			2013
Numerator:
Net loss applicable to common shareholders	$	(802,768	)	$	(1,276,614	)
Denominator:
Denominator for earnings per share (basic and diluted) ― weighted average shares		1,687,319			1,687,319
Net loss per share applicable to common shareholders (basic and diluted):	$	(0.48	)	$	(0.76	)

	Three months ended June 30,
	2014			2013
Numerator:
Net loss applicable to common shareholders	$	(748,410	)	$	(262,984	)
Denominator:
Denominator for earnings per share (basic and diluted) ― weighted average shares		1,687,319			1,687,319
Net loss per share applicable to common shareholders (basic and diluted):	$	(0.44	)	$	(0.16	)

The Company had 12,000 stock options outstanding at June 30, 2013 which were not included in the weighted average shares computation for loss per share, as the common stock equivalents were anti-dilutive. The weighted average shares computation for loss per share at June 30, 2014 excludes preferred stock convertible into 150,752 shares of common stock because those common stock equivalents were anti-dilutive.

8. Debt

The Company had previously entered into a credit agreement with Bank of America Merrill Lynch (“BAML”), pursuant to which it obtained a $1 million term loan, a $2.5 million revolving line of credit and a $500,000 draw note. The credit agreement contained certain covenants with which the Company was required to comply, including a debt service coverage ratio and a funded debt-to-EBITDA ratio. For the quarters ended March 31, 2013 and June 30, 2013, the Company was not in compliance with either covenant. On September 13, 2013, the Company entered into a Forbearance Agreement with BAML pursuant to which BAML agreed to waive the Company’s obligation to meet these financial covenants and forbear from enforcing its remedies against the Company with respect to such failure through November 30, 2013. On September 30, 2013, the Company terminated the credit agreement with BAML and repaid in full all of the borrowings under these credit facilities.

On September 30, 2013, the Company and its subsidiaries, Security Manufacturing Corporation and American Locker Security Systems, Inc., entered into a Loan Agreement (the “Loan Agreement”) with Triumph Savings Bank, SSB (d/b/a Triumph Commercial Finance) (the “Lender”). The Loan Agreement provides for a $2.8 million revolving credit facility (the “Revolver”) and a $1.2 million term loan facility (the “Term Loan”). The Company initially borrowed approximately $1.7 million on the Revolver and $1.2 million on the Term Loan. The Company used these proceeds to repay in full the outstanding indebtedness under the Company’s prior credit facilities and equipment leases with BAML and for working capital and general corporate purposes.

The Revolver matures on September 30, 2016 and the Lender may, in its sole discretion, extend the maturity of the Revolver for a period of one year, and may further extend the Revolver for one-year periods thereafter. Available borrowings under the Revolver are limited to a borrowing base of 85% of eligible trade receivables plus 50% of eligible inventory (capped at $1,000,000) less any availability reserves established by the Lender. The interest rate on the Revolver is 3.50% plus the greater of (a) the U.S. prime rate as published in The Wall Street Journal or (b) 3.25%.

The Term Loan is payable in equal monthly installments based on a 60-month amortization schedule. All unpaid principal on the Term Loan is due and payable on September 30, 2016, the maturity date. The interest rate on the Term Loan is 4.00% plus the greater of (a) the U.S. prime rate as published in The Wall Street Journal or (b) 3.25%. In the event of a default under the Loan Agreement, the Revolver and the Term Loan will each bear interest at the applicable rate plus an additional 2.00%.

The Company will pay the Lender an annual facility fee of $30,000 in the first year and, thereafter, an annual facility fee of 0.75% of the Revolver amount. In addition, the Company will pay the Lender a monthly unused line fee equal to 0.50% per annum of the average daily unused portion of the Revolver for the preceding month. In the event the Company desires to terminate the Loan Agreement and prepay in full the amounts outstanding under the Revolver and the Term Loan, it will pay a termination fee equal to $120,000 if terminated before September 30, 2014, $80,000 if terminated after September 30, 2014 but before September 30, 2015, and $40,000 if terminated after September 30, 2015 but before September 30, 2016.

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The credit facilities under the Loan Agreement are secured by a security interest in substantially all of the assets of the Company, and its subsidiaries Security Manufacturing Corporation and American Locker Security Systems, Inc., including a pledge of a portion of the stock of Canadian Locker Company Limited, a subsidiary of American Locker Security Systems, Inc., and each is jointly and severally liable for all borrowings under the Loan Agreement. Unless otherwise approved by the Lender, the Company is required to use the net cash proceeds from any asset disposition or the issuance of equity securities (excluding issuances to employees or another borrower) or debt securities to prepay, first, the Term Loan and, if any proceeds remain, to pay down the Revolver. The Company received approval from the Lender to use net proceeds from a preferred stock issuance completed subsequent to June 30, 2014 to pay down the Revolver (see Note 10 for further disclosure of the preferred stock issuance).

The Loan Agreement includes various representations, warranties, affirmative and negative covenants, events of default, remedies and other provisions customary for a transaction of this nature. In addition, the Company is required to comply with certain financial covenants on a monthly basis, including a maximum debt to tangible net worth ratio, a minimum fixed charge ratio and a minimum tangible net worth. For the months ended December 31, 2013, January 31, 2014, February 28, 2014, and March 31, 2014, the Company was not in compliance withthese financial covenants. On April 7, 2014, the Lender waived the Company’s failure to meet these financial covenants and the parties amended the Loan Agreement to modify the ratio of debt to tangible net worth covenant, the fixed charge ratio covenant and the tangible net worth covenant. For the months ended April 30, 2014, May 31, 2014 and June 30, 2014, the Company was not in compliance with the amended financial covenants. On June 11, 2014, the Lender issued to the Company a notice of default and reservation of rights letter in which the Lender notified the Company that it reserves any and all of the rights, privileges and remedies available to it under the Loan Agreement. We can give no assurances that we will be able to comply with the financial covenants, as amended, in future periods and cure the event of default that has occurred as a result of noncompliance with these covenants. If we continue to violate these covenants in future periods and the Lender does not waive the violations or amend the Loan Agreement to reflect covenants with which we could comply, the Lender could demand payment of all balances outstanding under the Loan Agreement. Such action by the Lender would have a material adverse effect on the Company’s ability to continue operations.

On December 10, 2013, the Company executed a Promissory Note (the “Note”), effective as of November 13, 2013, in favor of Anthony B. Johnston, the Company’s Chairman and Chief Executive Officer, in the principal amount of $200,000 to evidence a loan by Mr. Johnston to the Company. The principal balance of the Note, together with accrued but unpaid interest, is due and payable on November 30, 2014. The interest rate on the Note is 6.00% and the Company may prepay the Note at any time and from time to time without premium or penalty. The Note is unsecured and contains event of default provisions that are customary for a transaction of this nature. The Company used the proceeds from the Note for working capital and general corporate purposes.

9. Commitments and Contingencies

In July 2001, the Company received a letter from the New York State Department of Environmental Conservation (the “NYSDEC”) advising the Company that it is a potentially responsible party (“PRP”) with respect to environmental contamination at, and alleged migration from, property located in Gowanda, New York which was sold by the Company to Gowanda Electronics Corporation prior to 1980. In March 2001, the NYSDEC issued a Record of Decision with respect to the Gowanda site in which it set forth a remedy including continued operation of an existing extraction well and air stripper, installation of groundwater pumping wells and a collection trench, construction of a treatment system in a separate building on the site, installation of a reactive iron wall covering 250 linear feet, which is intended to intercept any contaminates and implementation of an on-going monitoring system. The NYSDEC has estimated that its selected remediation plan will cost approximately $688,000 for initial construction and a total of $1,997,000 with respect to expected operation and maintenance expenses over a 30-year period after completion of initial construction. The Company has not conceded to the NYSDEC that the Company is liable with respect to this matter and has not agreed with the NYSDEC that the remediation plan selected by NYSDEC is the most appropriate plan. This matter has not been litigated, and at the present time the Company has only been identified as a PRP. The Company also believes that other parties may have been identified by the NYSDEC as PRPs, and the allocation of financial responsibility of such parties has not been litigated. To the Company’s knowledge, the NYSDEC has not commenced implementation of the remediation plan and has not indicated when construction will start, if ever. Based upon currently available information, the Company is unable to estimate timing with respect to the resolution of this matter. 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 Quarterly Report on Form 10-Q, the Company has been named as an additional defendant in approximately 241 cases pending in state court in Massachusetts and one in the state of Washington. The plaintiffs in each case assert that a division of the Company manufactured and furnished components containing asbestos to a shipyard during the period from 1948 to 1972 and that injury resulted from exposure to such products. The assets of this division were sold by the Company in 1973. During the process of discovery in certain of these actions, documents from sources outside the Company have been produced that indicate the Company appears to have been included in the chain of title for certain wall panels that contained asbestos and 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 40 cases with funds authorized and provided by the Company’s insurance carrier. Further, over 185 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 June 30, 2014, the most recent date for which information is available, is approximately 16 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 cases, at the present time, the Company does not believe that the outcome of these cases will have a significant adverse impact on the Company’s operations or financial condition.

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On February 5, 2013, the Company was notified by one of its customers that certain product purchased by that customer had quality issues. On March 11, 2013, the Company and the customer entered into an agreement whereby the Company agreed to reimburse the customer for reasonable costs and expenses incurred on or before December 31, 2013 by the customer in its efforts to resolve the quality issue. In 2012 and 2013, the Company recorded expense of $50,000 and approximately $114,000, respectively, for costs to be reimbursed to the customer pursuant to the terms of the agreement. In June, 2014, the Company recorded expense of approximately $51,000 for additional expenses incurred by the customer prior to December 31, 2013 that were reimbursed by the Company. As of June 30, 2014, all reimbursements of claims by the customer had been paid.

In February 2013, a customer brought legal action against the Company alleging the Company defaulted on its obligations and failed to perform pursuant to the terms of a written agreement entered into with the Company in February 2012. In April 2013, the customer and the Company agreed to a settlement of the customer’s claims pursuant to which the Company paid the customer an aggregate amount of $30,000. At March 31, 2013, the Company recorded expense of $30,000 related to this settlement.

In March 2012, the Company was named as a defendant in a legal action brought by a competitor (which was also a former customer and supplier) who alleged that the Company and certain other third-party defendants profited improperly from the use of intellectual property developed by such competitor. The Company believed the asserted claims were without merit and that its chances of prevailing without material liability were high. However, due largely to the increasing costs of the ongoing litigation, the Company and the plaintiff entered into a settlement agreement effective as of June 12, 2013. Under the settlement agreement, the Company agreed to pay all outstanding invoices due to the plaintiff from the Company as of the date of the settlement, net of existing amounts due to the Company from the plaintiff, and further to pay license, service and other fees to the plaintiff in return for the plaintiff’s providing maintenance services on lockers distributed to certain of the Company’s customers. At March 31, 2013, the Company recorded an expense of approximately $412,000 related to the settlement, with approximately $377,000 recorded as accrued settlement and approximately $35,000 included in other accrued expenses. The Company was to pay amounts due to the plaintiff under the terms of the settlement agreement over a minimum period of 29 months which began June 1, 2013. In connection with an asset purchase agreement the Company entered into with the plaintiff on February 14, 2014 (see Note 2), the settlement agreement was amended such that, effective as of that date, the Company is no longer required to make monthly settlement payments and will pay only maintenance fees to the plaintiff on a monthly basis over the remainder of the 29-month period which began June 1, 2013.

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.

10. Subsequent Event

On August 11, 2014, the Company filed a Certificate of Designation with the Secretary of State of the State of Delaware to authorize the issuance of up to 100,000 shares of Series D Preferred Stock and to establish the relative rights, preferences, qualifications, limitations and restrictions of such Series D Preferred Stock. The Certificate of Designation became effective upon such filing. On August 12, 2014, the Company issued 40,000 shares of its newly authorized Series D Preferred Stock to certain accredited investors pursuant to a Purchase Agreement executed with those investors for aggregate consideration of $200,000. Net proceeds from the offering will be used by the Company to fund working capital and for general corporate purposes. Paul Luber and Graeme Jack, each a member of the Company’s board of directors, purchased 5,000 shares each of Series D Preferred Stock for aggregate consideration of $50,000. Anthony Johnston, the Company’s Chairman and Chief Executive Officer, purchased 6,000 shares of Series D Preferred Stock for total consideration of $30,000. A description of the rights, preferences and limitations of the Series D Preferred Stock is set forth in “Part II – Item 5 – Other Information – Amendment to Articles of Incorporation; Material Modifications to Rights of Security Holders” in this Quarterly Report on Form 10-Q.

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

Business Overview

The Company is a leading manufacturer of lockers and lock and key systems 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 and in Canada, Mexico, Europe, Asia and South America.

The Company’s products can be categorized as lockers, mailboxes or contract manufacturing services. Most of the Company’s lockers systems are key-controlled checking lockers and these locker systems have occasionally been provided under a concession arrangement in which the Company retains ownership of the lockers and receives a portion of the revenue generated by the locker operations.

The Company also manufactures United States Postal Service approved multi-tenant mailboxes used for the delivery of mail, packages and other parcels to multi-tenant facilities. These mailboxes are typically installed in apartment and commercial buildings.

In addition to its mailbox and locker system operations, the Company offers contract manufacturing services for customers. Contract manufacturing includes precision fabricated sheet metal parts and enclosures provided to original equipment manufacturers and other third-party customers.

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Comparison of Results of Operations for the Six Months Ended June 30, 2014 and 2013

Overall Results and Outlook

Consolidated net sales for the first six months of 2014 decreased by $1,070,509 to $6,172,263 as compared to the first six months of 2013, representing a 14.8% decrease. This decrease was primarily attributable to decreases in locker and mailbox revenue partially offset by an increase in contract manufacturing revenue. Pre-tax operating results improved to a pre-tax loss of $784,631 for the first six months of 2014 from pre-tax loss of $1,264,229 for the first six months of 2013. After-tax operating results improved to a net loss of $793,842 for the first six months of 2014 from a net loss of $1,276,614 for the first six months of 2013. Net loss per share (basic and diluted) was $0.48 for the first six months of 2014, a $0.28 improvement from a net loss per share (basic and diluted) of $0.76 for the first six months of 2013.

Net Sales

Consolidated net sales for the six months ended June 30, 2014 were $6,172,263, a decrease of $1,070,509, or 14.8%, compared to net sales of $7,242,772 for the same period of 2013. Sales of lockers for the six months ended June 30, 2014 were $3,640,570, a decrease of $543,750, or 13.0%, compared to locker sales of $4,184,320 for the same period of 2013. The decrease is primarily attributable to the Company’s fulfillment of two large sales orders to an international customer in the first six months of 2013. No such large sales were completed in the first six months of 2014. Also contributing to the decrease were lower locker sales in Canada in the first six months of 2014 as compared to the first six months of 2013.

Sales of mailboxes were $875,526 for the six months ended June 30, 2014, a decrease of $716,507, or 45.0%, compared to mailbox sales of $1,592,033 for the same period of 2013. Decreased mailbox sales in the first six months of 2014 were attributable to the Company’s fulfillment of a large Series 2900 order to the U.S. Postal Service in the first six months of 2013 as well as decreased sales of Horizontal and Horizontal 4C units in the first six months of 2014 as compared to the first six months of 2013.

Sales of contract manufacturing services were $1,381,211 for the six months ended June 30, 2014 compared to $810,904 for the same period of 2013, representing an increase of $570,307, or 70.3%. Contract manufacturing includes precision sheet metal fabrication of metal furniture, electrical enclosures and other metal products for third party customers. The Company has focused its recent contract manufacturing efforts on selling electrical enclosures and components to Fortune 1000 customers, allowing it to benefit from the trend of bringing the manufacture of such items, previously manufactured overseas, back to the U.S. The increase in contract manufacturing revenues through the first six months of 2014 is directly attributable to the Company’s efforts to aggressively grow this segment of our business.

Concession revenues for the six months ended June 30, 2014 were $274,956, a decrease of $380,559 or 58.1% from concession revenues of $655,515 for the same period of 2013. In February 2014, the Company sold to a third party the lockers, kiosks and other assets related to a locker concession arrangement with a theme-park operator and entered into a subcontract agreement pursuant to which the third party agreed to perform the locker concession and management services previously performed by the Company for the theme-park operator in exchange for the right to receive all of the payments owed to the Company under such arrangement. The decrease in concession revenue in 2014 is directly attributable to this sale and subcontract agreement.

	Six months ended June 30,				Dollar			Percentage
	2014		2013		Increase/(Decrease)			Increase/(Decrease)
Lockers	$	3,640,570	$	4,184,320	$	(543,750	)		(13.0%	)
Mailboxes		875,526		1,592,033		(716,507	)		(45.0%	)
Contract manufacturing		1,381,211		810,904		570,307			70.3	%
Concession revenues		274,956		655,515		(380,559	)		(58.1%	)
Total	$	6,172,263	$	7,242,772	$	(1,070,509	)		(14.8%	)

Gross Margin

Consolidated gross margin for the six months ended June 30, 2014 was $808,748, or 13.1% of net sales, compared to $1,754,451, or 24.2% of net sales, for the same period of 2013. The decrease in gross margin as a percentage of net sales was primarily due to increased labor and overhead costs related to the Company’s growing contract manufacturing business. Additionally, a certain portion of expenses included in cost of products sold are fixed and do not vary with the fluctuation in sales from period to period. With an overall decrease in net sales of 14.8% in the first six months of 2014 compared to the first six months of 2013, these fixed costs became a larger portion of the cost of sales, contributing to a lower gross margin percentage in the first six months of 2014.       

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the six months ended June 30, 2014 were $2,132,204 or 34.5% of net sales, compared to $2,518,784 or 34.8% of net sales for the same period of 2013, a decrease of $386,580, or 15.3%. The decrease in 2014 was primarily due to (1) a decrease in legal expenses of approximately $226,000, (2) a decrease in general expenses of approximately $51,000 relating to the reimbursement by the Company of certain costs incurred by a customer to resolve a quality issue, (more fully described in Note 9 to the accompanying consolidated financial statements), (3) a decrease in public company expenses of approximately $66,000 related primarily to decreased SEC filing expenses, and (4) a decrease in pension plan costs of approximately $24,000.

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Settlement Expense

In February 2013, a customer brought legal action against the Company alleging the Company defaulted on its obligations and failed to perform pursuant to the terms of a written agreement entered into with the Company in February 2012. In April 2013, the customer and the Company agreed to a settlement of the customer’s claims in which the Company will pay to the customer an aggregate amount of $30,000. At March 31, 2013, the Company recorded expense of $30,000 related to this settlement. In March 2012, the Company was named as a defendant in a legal action brought by a competitor (which was also a former customer and supplier). In May 2013, the Company and the plaintiff agreed to a settlement of the plaintiff’s claims. At June 30, 2013, the Company recorded an expense of approximately $412,000 related to the settlement. These settlements are more fully described in Note 9 to the accompanying consolidated financial statements.

Gain on Sale of Property

In February 2014, the Company sold to a third party the lockers, kiosks and other assets related to a locker concession arrangement with a theme-park operator and entered into a subcontract agreement pursuant to which the third party agreed to perform the locker concession and management services previously performed by the Company for the theme-park operator in exchange for the right to receive all of the payments owed to the Company under such arrangement. The Company received $1,218,075 in total consideration for the disposition of these assets. Additionally, in connection with the sale of these assets, the Company and the third party agreed to an amendment to a settlement agreement previously executed between the two parties whereby payments the Company was making to the third party pursuant to the settlement agreement were eliminated. The Company wrote-off the outstanding balance of its accrued settlement of $273,000 and recorded a gain, net of selling costs, of $703,439 in February 2014 in connection with the sale of the locker concession assets and amendment to the settlement agreement.

Interest Expense

Interest expense for the six months ended June 30, 2014 was $146,607, an increase of $91,801 compared to interest expense of $54,806 for the same period of 2013. This increase in interest expense was the result of higher debt balances and higher interest rates associated with the new Loan Agreement the Company entered into with the Lender on September 30, 2013.

Income Taxes

For the six months ended June 30, 2014, the Company recorded income tax expense of $9,211, compared to income tax expense of $12,385 for the same period of 2013. The Company’s effective income tax rate was approximately (1.2)% and (1.0)% for the six months ended June 30, 2014 and 2013, respectively. In the first six months of 2014, the effective income tax rate differs significantly from the statutory rate primarily due to an increase in the deferred tax asset valuation allowance of approximately $158,000, as well as permanent timing differences between expenses recorded for financial and tax reporting. In the first six months of 2013, the effective income tax rate differs significantly from the statutory rate primarily due to an increase in the deferred tax asset valuation allowance of approximately $464,000, as well as permanent timing differences between expenses recorded for financial and tax reporting. Although the Company reported a pre-tax loss in the six months ended June 30, 2014 and 2013, it was unable to record a tax benefit in either period due to corresponding changes in the deferred tax asset valuation allowance, causing the effective income tax rate to be negative.

Comparison of Results of Operations for the Three Months Ended June 30, 2014 and 2013

Overall Results

Consolidated net sales for the second quarter of 2014 decreased 18.4%, or $750,231, to $3,338,054 when compared to net sales of $4,088,285 for the same period of 2013. Pre-tax operating losses increased to a pre-tax loss of $739,200 for the second quarter of 2014 as compared to a pre-tax loss of $254,539 for the second quarter of 2013. After-tax operating losses, including a provision for preferred stock dividends of $4,488, increased to a net loss applicable to common shareholders of $748,410 for the second quarter of 2014 from a net loss of $262,984 for the second quarter of 2013. Net loss per share (basic and diluted) was $0.44 for the second quarter of 2014, an increase from a net loss per share (basic and diluted) of $0.16 for the second quarter of 2013.

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Net Sales

Consolidated net sales for the three months ended June 30, 2014 were $3,338,054, a decrease of $750,231, or 18.4%, compared to net sales of $4,088,285 for the same period of 2013. Sales of lockers for the three months ended June 30, 2014 were $1,960,749, a decrease of $341,660, or 14.8%, compared to sales of $2,302,409 for the same period of 2013. The decrease is primarily attributable to a decrease in sales of parcel packaging locker systems and lower locker sales in Canada in the second quarter of 2014 as compared to the second quarter of 2013.

Sales of mailboxes were $490,954 for the three months ended June 30, 2014, a decrease of $324,343, or 39.8%, compared to sales of $815,297 for the same period of 2013. Decreased mailbox sales were primarily driven by decreased sales of Horizontal and Horizontal 4C units in the second quarter of 2014 as compared to the second quarter of 2013.

Sales of contract manufacturing services were $806,163 for the three months ended June 30, 2014, an increase of $160,324, or 24.8%, from sales of $645,839 for the same period of 2013. The Company has focused its recent contract manufacturing efforts on selling electrical enclosures and components to Fortune 1000 customers, allowing it to benefit from the trend of bringing the manufacture of such items, previously manufactured overseas, back to the U.S. The increase in contract manufacturing revenues in the second quarter of 2014 is directly attributable to the Company’s efforts to grow this segment of our business.

Concession revenue for the three months ended June 30, 2014 was $80,187, a decrease of $244,553 or 75.3% from concession revenue of $324,740 for the same period of 2013. In February 2014, the Company sold to a third party the lockers, kiosks and other assets related to a locker concession arrangement with a theme-park operator and entered into a subcontract agreement pursuant to which the third party agreed to perform the locker concession and management services previously performed by the Company for the theme-park operator in exchange for the right to receive all of the payments owed to the Company under such arrangement. The decrease in concession revenue in the second quarter of 2014 is directly attributable to this sale and subcontract agreement.

	Three months ended June 30,				Dollar			Percentage
	2014		2013		Increase/(Decrease)			Increase/(Decrease)
Lockers	$	1,960,750	$	2,302,409	$	(341,659	)		(14.8%	)
Mailboxes		490,954		815,297		(324,343	)		(39.8%	)
Contract manufacturing		806,163		645,839		160,324			24.8	%
Concession revenues		80,187		324,740		(244,553	)		(75.3%	)
Total	$	3,338,054	$	4,088,285	$	(750,231	)		(18.4%	)

Gross Margin

Consolidated gross margin for the three months ended June 30, 2014 was $474,493, or 14.2% of net sales, compared to $1,157,235, or 28.3% of net sales, for the same period of 2013, a decrease of $682,742, or 59.0%. The decrease in gross margin as a percentage of net sales was primarily due to increased labor and overhead costs related to the Company’s growing contract manufacturing business. Additionally, a certain portion of expenses included in cost of products sold are fixed and do not vary with the fluctuation in sales from period to period. With an overall decrease in net sales of 18.4% in the second quarter of 2014 compared to the second quarter of 2013, these fixed costs became a larger portion of the cost of sales, contributing to a lower gross margin percentage in the second quarter of 2014.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended June 30, 2014 decreased $236,311, or 17.3%, to $1,126,978 compared to $1,363,289 in the same period of 2013. The decrease in 2014 was primarily due to (1) a decrease in legal expenses of approximately $77,000, (2) a decrease in general expenses of approximately $51,000 relating to the reimbursement by the Company of certain costs incurred by a customer to resolve a quality issue, (more fully described in Note 9 to the accompanying consolidated financial statements), (3) a decrease in public company expenses of approximately $45,000 related primarily to decreased SEC filing expenses, and (4) a decrease in pension plan costs of approximately $25,000.

Settlement Expense

In February 2013, a customer brought legal action against the Company alleging the Company defaulted on its obligations and failed to perform pursuant to the terms of a written agreement entered into with the Company in February 2012. In April 2013, the customer and the Company agreed to a settlement of the customer’s claims in which the Company paid the customer an aggregate amount of $30,000. At March 31, 2013, the Company recorded expense of $30,000 related to this settlement. In March 2012, the Company was named as a defendant in a legal action brought by a competitor (which was also a former customer and supplier). In May 2013, the Company and the plaintiff agreed to a settlement of the plaintiff’s claims. At March 31, 2013, the Company recorded an expense of approximately $412,000 related to the settlement. These settlements are more fully described in Note 9 to the accompanying consolidated financial statements.

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Interest Expense

Interest expense for the three months ended June 30, 2014 was $77,554, an increase of $49,471 compared to interest expense of $28,083 for the same period of 2013. This increase in interest expense was the result of higher debt balances and higher interest rates associated with the new Loan Agreement the Company entered into with the Lender on September 30, 2013.

Income Taxes

For the second quarter of 2014, the Company recorded income tax expense of $4,722 compared to income tax expense of $8,445 for the same period of 2013. The Company’s effective income tax rate was approximately (0.6%) and (3.3%) in the second quarter of 2014 and 2013, respectively. In both periods, the difference in the effective income tax rate from the statutory rate is primarily due to an increase in the deferred tax asset valuation allowance and permanent timing differences between expenses recorded for financial and tax reporting. Although the Company reported a pre-tax loss in the second quarters of 2014 and 2013, it was unable to record a tax benefit in either period due to corresponding changes in the deferred tax asset valuation allowance, causing the effective income tax rate to be negative.

Liquidity and Sources of Capital

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

	As of June 30, 2014			As of December 31, 2013
Current ratio		0.91			0.96
Working capital deficit	$	(654,510	)	$	(230,655	)

We have incurred substantial losses in each of the last two fiscal years and in the first six months of 2014 and over this period of time our working capital has decreased substantially. These circumstances raise doubt as to the Company’s ability to continue as a going concern. Further, we are dependent on our ability to obtain short term financing and ultimately to generate sufficient cash flow to meet our obligations on a timely basis, as well as successfully obtain financing on favorable terms to fund our long term plans. The independent auditor’s report on our consolidated financial statements for the years ended December 31, 2013 and 2012 included an explanatory paragraph that describes substantial doubt about our ability to continue as a going concern. Management’s plans in regard to the factors prompting the explanatory paragraph are discussed in Note 1 of the Notes to Consolidated Financial Statements presented in the 2013 Annual Report and below.

On February 14, 2014, we sold to a third party the lockers, kiosks and other assets related to locker concession services we provided under a concession arrangement with a theme-park operator and entered into a subcontract agreement pursuant to which the third party agreed to perform the locker concession and management services relating to such concession arrangement. The purchase price was $1,218,075. Net of a holdback amount of $90,000, we received proceeds of $1,128,075 at closing. While this transaction improved our short-term liquidity and working capital needs, continued cost containment and revenue increases are essential for the Company to achieve sustained profitability and strengthen our liquidity and working capital position in the long-term.

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On August 11, 2014, the Company filed a Certificate of Designation with the Secretary of State of the State of Delaware to authorize 100,000 shares of Series D Preferred Stock. The Certificate of Designation became effective upon such filing. On August 12, 2014, the Company issued 40,000 shares of its newly authorized Series D Preferred Stock to certain accredited investors pursuant to a purchase agreement executed with those investors. The purchase price was $5.00 per share for aggregate consideration of $200,000. Net proceeds from the offering will be used by the Company to fund working capital and for general corporate purposes. A description of the rights, preferences and limitations of the Series D Preferred Stock is set forth in “Part II – Item 5 – Other Information – Amendment to Articles of Incorporation; Material Modifications to Rights of Security Holders.”

Management has focused efforts to increase core locker sales in future periods through new product development and to increase contract manufacturing revenues by continuing its efforts to grow this segment of our business. We expect continued growth in our contract manufacturing business during the remainder of 2014 as a result of these efforts. In conjunction with its focus on increasing revenues, management has taken steps to improve overall margins and profits in 2014 through cost containment, including better management of labor costs and discretionary expenditures. While these efforts resulted in minimal improvements in the second quarter of 2014, management believes its efforts will result in more substantial improvements in margins and profits in future periods. Although we expect margins and profits to improve in future periods, our operating losses in recent periods, and the negative impact these losses have had on cash flow and working capital, will likely require us to seek additional financing or other strategic alternatives to support the working capital and capital expenditure needs of our operations during the remainder of 2014. In the second quarter of 2014, our Board of Directors formed a committee to independently assess the strategic alternatives that might be available to the Company and beneficial to our shareholders.  While we will consider and pursue, where feasible, such strategic options, there can be no assurance that the actions of the Company or the committee will result in improved operating performance or improve our cash flow and working capital positions or that the Company will be able to continue operations in its current form.

Under terms of our Loan Agreement, the Company is required to comply with certain financial covenants on a monthly basis, including a maximum debt to tangible net worth ratio, a minimum fixed charge ratio and a minimum tangible net worth. For the months ended December 31, 2013, January 31, 2014, February 28, 2014, and March 31, 2014, the Company was not in compliance with these financial covenants. On April 7, 2014, the Lender waived the Company’s failure to meet these financial covenants and the parties amended the Loan Agreement to modify the ratio of debt to tangible net worth covenant, the fixed charge ratio covenant and the tangible net worth covenant. For the months ended April 30, 2014, May 31, 2014 and June 30, 2014, the Company was not in compliance with the amended financial covenants. On June 11, 2014, the Lender issued to the Company a notice of default and reservation of rights letter in which the Lender notified the Company that it reserves any and all of the rights, privileges and remedies available to it under the Loan Agreement. We can give no assurances that we will be able to cure the event of default that has occurred as a result of noncompliance with these covenants or comply with the financial covenants in future periods. If we continue to violate these covenants in future periods and the Lender does not waive the violations or amend the Loan Agreement to reflect covenants with which we could comply, the Lender could demand payment of all balances outstanding under the Loan Agreement. Such action by the Lender would have a material adverse effect on the Company’s ability to continue operations.

The Company’s capital expenditures were approximately $69,000 and $51,000 for the six months ended June 30, 2014 and 2013, respectively.

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.

Effect of New Accounting Guidance

In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. Under this guidance, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward.  This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Adoption of this new guidance did not have a significant impact on the Company’s consolidated financial statements.

In May 2014, as part of its ongoing efforts to assist in the convergence of U.S. GAAP and International Financial Reporting Standards, FASB issued ASU 2014-09, Revenue from Contracts with Customers. The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. ASU 2014-09 provides alternative methods of initial adoption and is effective for annual and interim periods beginning after December 15, 2016. We are currently evaluating the impact that this standard will have on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not required of a smaller reporting company.

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Item 4. Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, of the effectiveness of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 30, 2014. These disclosure controls and procedures are designed to provide reasonable assurance to the Company’s management and board of directors that information required to be disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to its management as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, the principal executive officer and principal financial officer of the Company have concluded that the Company’s disclosure controls and procedures as of June 30, 2014 were effective, at the reasonable assurance level, to ensure that material information relating to the Company (a) is accumulated and made known to the Company’s management, including its principal executive officer and principal financial officer, in a manner that allows timely decisions regarding required disclosure and (b) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The information required by this item is incorporated herein by reference to the information set forth under the caption “Commitments and Contingencies” in Note 9 of the Notes to the Consolidated Financial Statements included in “Part I - Item 1 - Financial Statements.”

Item 1A. Risk Factors

Not required of a smaller reporting company.

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

On August 12, 2014, the Company issued 40,000 shares of its newly authorized Series D Preferred Stock to certain accredited investors pursuant to a Purchase Agreement executed with those investors. The purchase price was $5.00 per share for aggregate consideration of $200,000. Net proceeds from the offering will be used by the Company to fund working capital and for general corporate purposes. A description of the rights, preferences and limitations of the Series D Preferred Stock is set forth in “Part II – Item 5 – Other Information – Amendment to Articles of Incorporation; Material Modifications to Rights of Security Holders.” The Purchase Agreement contains customary representations and warranties made by the Company and by each investor. Under the terms of the Purchase Agreement, the Company has agreed to sell to each investor his pro rata portion of 192,000 shares of common stock held in treasury for a purchase price of $0.01 per share upon the conversion by such investor of his Series D Preferred Stock into shares of common stock. The Company has also granted the holders of the Series D Preferred Stock a demand registration right exercisable at any time after the Series D Preferred Stock is convertible into shares of common stock. This description of the Purchase Agreement is qualified in its entirety by reference to the complete text of the Purchase Agreement, which is attached hereto as Exhibit 10.2.

The issuance and sale of the Series D Preferred Stock was made in reliance on Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended. The recipients of the Series D Preferred Stock, each of whom is an accredited investor, represented their intentions to acquire the stock for investment only and not with a view to or for sale in connection with any distribution thereof.

Item 3. Defaults Upon Senior Securities

On September 30, 2013, the Company entered into the Loan Agreement with the Lender for a $2.8 million revolving credit facility and a $1.2 million term loan facility. The Company used these proceeds to repay in full the outstanding indebtedness under the Company’s prior credit facilities and equipment leases with BAML and for working capital and general corporate purposes.

Under the terms of the Loan Agreement, the Company is required to comply with certain financial covenants on a monthly basis, including a maximum debt to tangible net worth ratio, a minimum fixed charge ratio and a minimum tangible net worth. For the months ended December 31, 2013, January 31, 2014, February 28, 2014, and March 31, 2014, the Company was not in compliance with these financial covenants. On April 7, 2014, the Lender waived the Company’s failure to meet these financial covenants and the parties amended the Loan Agreement to modify the ratio of debt to tangible net worth covenant, the fixed charge ratio covenant and the tangible net worth covenant. For the months ended April 30, 2014, May 31, 2014 and June 30, 2014, the Company was not in compliance with the amended financial covenants. On June 11, 2014, the Lender issued a notice of default and reservation of rights letter to the Company in which the Lender notified the Company that it reserves any and all of the rights, privileges and remedies available to it under the Loan Agreement. As a result of the defaults, the Lender may accelerate the amounts outstanding under the loan facilities. As of the date of this report, the Lender has not accelerated the repayment of the amounts outstanding under the loan facilities but may do so in the future.

We can give no assurances that we will be able to cure the events of default that have occurred as a result of noncompliance with these covenants or that we will be able to comply with the financial covenants in future periods. If we continue to violate these covenants in future periods and the Lender does not waive the violations or amend the Loan Agreement to reflect covenants with which we could comply, the Lender could demand payment of all balances outstanding under the Loan Agreement. Such action by the Lender would have a material adverse effect on the Company’s ability to continue operations.

Item 4. Mine Safety Disclosure

Not applicable.

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Item 5. Other Information

Amendment to Articles of Incorporation; Material Modifications to Rights of Security Holders

On August 11, 2014, the Company filed the Certificate of Designation of Preferences, Rights and Limitations of Series D Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of Delaware setting forth the terms of its newly authorized Series D Preferred Stock. The Series D Preferred Stock ranks senior to all of the Company’s other classes and series of capital stock, including its common stock. The rights, preferences and privileges of the Series D Preferred Stock are as follows:

● Dividends. Holders of Series D Preferred Stock are entitled to receive cash dividends at the annual rate of 6% per share and will be paid in preference to the holders of any other class or series of capital stock. Such dividends will begin accruing on the date of issuance and will be paid only when and if a dividend payment is declared by the Board of Directors. If the dividend has not been paid or set apart in full, the Company cannot purchase or redeem any other class of capital stock unless the persons holding more than 60% of the outstanding shares of Series D Preferred Stock (the “Majority of Holders”) have given their consent.

● Redemption. The Company may redeem the Series D Preferred Stock at any time, in whole or in part, for $5.00 per share, plus accrued and unpaid dividends.

● Amendment of Certificate of Designation. Without the consent of a Majority of Holders, the Company may not: amend or change the Certificate of Designation in a manner that affects adversely the rights and preferences of the holders of Series D Preferred Stock; authorize or issue any class of stock ranking senior to, or on a parity with, the Series D Preferred Stock with respect to payment of dividends or distribution of assets; or authorize the merger or consolidation of the Company or the sale of all or substantially all of its assets.

● Voting Rights. Holders of Series D Preferred Stock have no voting rights, except upon matters for which a class vote is specifically required by law or as provided in the Certificate of Designation.

● Conversion. Any time after December 8, 2014, a holder of Series D Preferred Stock may convert each share of its Series D Preferred Stock into five shares of the Company’s common stock. Such conversion ratio may be adjusted from time to time as set forth in the Certificate of Designation.

● Liquidation Preference. In the event of a “liquidation event,” the holders of Series D Preferred Stock are entitled to receive, in cash, a liquidating distribution of $5.00 per share, plus all accrued but unpaid dividends, before any distribution or payment may be made to the holders of shares of any other classes of capital stock. A “liquidation event” means a sale or other disposition of all or substantially all of the assets of the Company, a voluntary or involuntary liquidation or dissolution; the merger or consolidation of the Company in which the Company’s stockholders own less than 50% of the outstanding voting securities of the surviving entity; or any transaction involving the transfer of shares of capital stock of the Company in which the stockholders immediately prior to the transaction own less than 50% of the voting securities.

This description is qualified in its entirety by reference to the copy of the Certificate of Designation, which is attached hereto as Exhibit 3.1.

Entry Into a Material Definitive Agreement; Unregistered Sales of Equity Securities.

The information set forth in “Part II, Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds” is incorporated into this Item 5 by reference.

Triggering Event that Accelerate or Increase a Direct Financial Obligation.

The information set forth in “Part II, Item 3 – Defaults Upon Senior Securities” is incorporated into this Item 5 by reference.

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Item 6. Exhibits.

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

Exhibit

Number Description

3.1 Certificate of Designation of Preferences, Rights and Limitations of Series D Preferred Stock filed with Delaware Secretary of State on August 11, 2014 (filed herewith)

10.1 Amendment to Loan Agreement dated April 7, 2014 by and among American Locker Group Incorporated, Security Manufacturing Corporation, American Locker Security Systems, Inc. and Triumph Savings Bank, SSB, d/b/a Triumph Commercial Finance (incorporated by reference to the Company’s annual report on Form 10-K, filed with the SEC on April 10, 2014)

10.2 Purchase Agreement dated August 12, 2014 by and among American Locker Group Incorporated and certain accredited investors (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.

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

32.1	Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS *	XBRL Instance Document
101.SCH *	XBRL Taxonomy Extension Schema Document
101.CAL *	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB *	XBRL Taxonomy Extension Label Linkbase Document
101.DEF *	XBRL Taxonomy Extension Definition Linkbase Document
101.PRE *	XBRL Taxonomy Extension Presentation Linkbase Document

* In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

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SIGNATURES

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

	AMERICAN LOCKER GROUP INCORPORATED
August 14, 2014	By:	/s/ ANTHONY B. JOHNSTON
	Anthony B. Johnston
	President and Chief Executive Officer

August 14, 2014	By:	/s/ STEPHEN P. SLAY
	Stephen P. Slay
	Chief Financial Officer

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EX-3

Exhibit 3.1

AMERICAN LOCKER GROUP INCORPORATED

CERTIFICATE OF DESIGNATION OF PREFERENCES,

RIGHTS AND LIMITATIONS

OF

SERIES D PREFERRED STOCK

Pursuant to Section 151 of the

General Corporation Law of the State of Delaware

American Locker Group Incorporated, a Delaware corporation (the “Corporation”), in accordance with the provisions of Sections 103 and 151 of the Delaware General Corporation Law (the “DGLC”) does hereby certify that pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation, as amended, of the Corporation, the following resolution creating a series of 100,000 shares of Preferred Stock designated as “Series D Preferred Stock” was adopted by the Board of Directors at a meeting duly convened on August 9, 2014:

RESOLVED, that the officers of the Corporation be and hereby are authorized and directed to prepare and file this Certificate of Designation of Preferences, Rights and Limitations in accordance with the following resolution and the provisions of the DGLC; and

FURTHER RESOLVED, that pursuant to the authority vested in the Board of Directors of the Corporation in accordance with the provisions of the Certificate of Incorporation, a series of Preferred Stock of the Corporation be and it hereby is created, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows:

A.     Designation and Amount.     A series of Preferred Stock is established and given the distinctive designation “Series D Preferred.” This series is to consist of 100,000 shares, of which the relative rights and preferences, and the qualifications, limitations or restrictions of such rights and preferences, shall be as follows:

B.     Definitions. As used in herein, unless the context otherwise requires, the following terms have the respective meanings set forth below:

“Common Stock” shall mean the common stock of the Corporation, $1.00 par value per share.

“Conversion Date” shall mean December 8, 2014.

“Conversion Price” shall mean $1.00.

“Liquidating Event” shall mean any (i) sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all of the assets of the Corporation and its subsidiaries taken as a whole, or the sale or disposition (whether by merger or otherwise) of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation; (ii) any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation; (iii) any merger, consolidation, share exchange, or reorganization of the Corporation in which the persons who are stockholders of the Corporation, immediately before such merger, consolidation, share exchange, or reorganization own less than 50% of the outstanding voting securities of the surviving entity in such merger, consolidation, share exchange, or reorganization; or (iv) any transaction or series of related transactions to which the Corporation is a party involving the transfer of shares of capital stock of the Corporation if, as a result of such transfer, the persons who are stockholders of the Corporation immediately before such transfer, own less than 50% of the aggregate shares of capital stock of the Corporation entitled to vote on matters submitted to the holders of Common Stock of the Corporation; provided, however, that a Liquidating Event shall not include any transaction or series of transactions principally for bona fide equity financing purposes in which cash or other property is received by the Corporation or any successor or indebtedness of the Corporation is cancelled or converted or a combination thereof.

“Majority of the Holders” shall mean persons holding more than 60% of the outstanding shares of Series D Preferred.

“Series D Original Issuance Price” shall mean $5.00 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalizations with respect to the Series D Preferred.

“Series D Redemption Price” shall mean the sum of $5.00 per share of Series D Preferred.

C.     Dividends. The holders of Series D Preferred shall be entitled to receive, out of the funds of the Corporation legally available therefor, and the Corporation shall be bound to pay thereon, in preference to the holders of any other class of capital stock, or series thereof, of the Corporation, including, without limitation, the Common Stock, cash dividends at the annual rate of 6% per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series D Preferred). Whether or not declared, such dividends shall commence to accrue on the date any shares of the Series D Preferred are first issued and become outstanding; provided, however, that except as set forth in Section C or Section F, such accruing Dividends shall be payable only when and if declared by the Board of Directors, and the Corporation shall be under no obligation to pay such accruing Dividends. Dividends shall be cumulative, so that if, at any time, dividends upon the outstanding Series D Preferred shall not have been paid and a sum sufficient for the payment thereof set apart for such payment, the amount of the deficiency shall accrue and the aggregate deficiency shall be fully paid, or dividends in such amount declared and a sum sufficient for the payment thereof set apart for such payment, for all prior periods before any sum or sums shall be paid or set aside as dividends for any other class, or series thereof, of capital stock of the Corporation. If the dividend on the Series D Preferred for any dividend period shall not have been paid or set apart in full, no asset which is by law available for the payment of dividends shall be paid or set aside for the purchase or redemption of any class of capital stock (except the Series D Preferred), or any series thereof, of the Corporation, unless a Majority of the Holders give their written consent. Notwithstanding the foregoing, nothing contained herein shall restrict the ability of the Corporation to purchase or redeem shares of Series D Preferred.

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D.     Redemption.

1.     Optional Redemption. Subject to the provisions of this Section D, and applicable law, the Company shall have the right, but not the obligation, to redeem the Series D Preferred at any time, in whole or in part, at a price per share equal to the Redemption Price plus accrued and unpaid dividends. The redemptions made pursuant to this Section D shall be made from each holder of record on the date of the notice of redemption, on a pro rata basis, at the Redemption Price.

2.     Redemption Procedure.

(a)     Notice of every redemption of Series D Preferred shall be given by mailing such notice not less than twenty (20) nor more than fifty (50) days prior to the date on which such redemption is to occur (the “Redemption Date”) to each holder of record of shares of Series D Preferred to be so redeemed, and shall be sufficiently given if the Corporation shall cause a copy thereof to be mailed to such holders of record at their respective addresses as the same shall appear on the books of the Corporation, by first class mail, postage prepaid; provided, however, that the failure to mail such notice to one or more of such holders shall not affect the validity of such redemption as to the holders to whom the notice was mailed. If less than all of the outstanding Series D Preferred is to be redeemed, the redemption may be made pro rata, by lot or in such other equitable manner as may be prescribed by resolution of the Board of Directors.

(b)     Subject to the foregoing and to the provisions contained in this Section D, the Board of Directors shall have full power and authority to prescribe the terms and conditions upon which Series D Preferred shall be redeemed from time to time.

(c)     If any such notice of redemption shall have been duly given or if the Corporation shall have granted to a bank or trust company an irrevocable written authorization promptly to give or complete such notice and pay all amounts due to holders of shares (as evidenced by a list of holders of such shares certified by the president or a vice president and by the secretary or an assistant secretary of the Corporation) called for redemption and if, on or before the Redemption Date specified therein, all funds necessary for such redemption (including an amount equal to any accrued but unpaid dividends thereon to the Redemption Date) shall have been deposited by the Corporation with such bank or trust company designated in such notice, in trust for the pro rata benefit of the holders of the shares so called for redemption, then, notwithstanding that any certificate for shares so called for redemption shall not have been surrendered for cancellation, from and after the time of such deposit (or from and after the redemption date if such notice shall fail to state that the holders of the shares called for redemption may receive their redemption price at any time after such deposit), all shares with respect to which such deposit shall have been made shall no longer be deemed to be outstanding and all rights with respect to such shares shall cease and terminate, except for the right of the holders of the certificates, upon surrender thereof, to receive the Series D Redemption Price, plus all accumulated but unpaid dividends, out of the funds so deposited, without interest. Any interest accrued on such funds shall be paid to the Corporation from time to time.

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(d)     Any funds so set aside or deposited, as the case may be, and unclaimed at the end of six years from such Redemption Date shall be released or repaid to the Corporation to be held for the benefit of such holder, after which the holders of the shares so called for redemptions shall look only to the Corporation for the payment thereof.

3.     Cancellation of Redeemed Shares. Any shares of Series D Preferred redeemed, purchased or otherwise acquired by the Corporation shall be deemed canceled and may not under any circumstances thereafter be reissued as Series D Preferred or any other class of capital stock, or otherwise disposed of by the Corporation, and the Corporation shall from time to time and at least once each year cause all such shares to be canceled in the manner provided by law.

E.     Voting Rights.

1.     Class Voting. So long as any shares of Series D Preferred shall be outstanding, the Corporation shall not, without the affirmative vote of a Majority of the Holders, voting as a class, amend, alter or change the powers, preferences or rights given to the holders of any of the Series D Preferred so as to affect adversely the preferences, special rights or powers of any of the Series D Preferred, or authorize, create or issue any class of stock ranking, either as to payment of dividends or distribution of assets, senior to, or on a parity with, any of the Series D Preferred outstanding or authorize the merger or consolidation of the Corporation or the sale of all or substantially all of its assets.

2.     Matters Submitted to Holders of Common Stock. The holders of Series D Preferred shall have no voting rights, except upon matters for which a class vote is specifically required by law or as provided in this Section E.

F.     Conversion

1.     Optional Conversion. After the Conversion Date, the registered holders (or their permitted assignees or transferees) of the Series D Preferred shall have the option to convert each share of Series D Preferred into that number of shares of Common Stock as is determined by dividing (i) the Series D Original Issuance Price by (ii) the Conversion Price. The shares into which each share of Series D Preferred shall be convertible (the “Underlying Shares”), and the Conversion Price, shall be subject to adjustment from time to time, as provided herein.

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2.     Exercise of Optional Conversion Privilege. To exercise the conversion privilege, the registered holder (or his permitted assignees) hereof shall surrender to the Corporation the certificates evidencing the shares of Series D Preferred to be converted, accompanied by duly executed instruments of assignment and transfer in blank, if required by the Corporation. In addition, the shares of Series D Preferred surrendered for conversion shall be accompanied by a written letter of instruction, executed by the holder of such shares, which requests such conversion and states the name, address and taxpayer identification number of the person in whose name certificates of Common Stock are to be issued and registered. Upon such surrender, the Corporation shall issue and deliver to the holder of the shares of Series D Preferred surrendered for conversion a certificate or certificates for the full number of Underlying Shares issuable hereunder. The person in whose name the certificate(s) for Common Stock is to be issued shall be deemed to have become a holder of record of such Common Stock on the date of surrender. Such conversion shall be deemed to have been made as of the close of business on the date that shares of Series D Preferred shall have been surrendered for conversion. The rights of the holder of such shares of Series D Preferred surrendered for conversion, as a holder thereof, shall cease at such time, and the person or persons entitled to receive shares of Common Stock upon conversion shall be treated for all purposes as having become the record holder or holders of such shares of Common Stock as of the close of business on such date.

If any shares of Series D Preferred are surrendered for conversion on a date when the stock record and transfer books of the Corporation shall be closed, the person in whose name the certificate or certificates of Common Stock for such shares are to be issued shall be deemed the record holder thereof for all purposes immediately prior to the close of business on the next succeeding day on which such stock record and transfer book are open, and the Shares of Series D Preferred surrendered shall not be deemed to have been converted into Common Stock until such time for purposes of determining whether any rights attach or dividends are payable thereon.

3.     Adjustment of Underlying Shares Following Adjustment in Conversion Price. The Conversion Price shall be subject to adjustment from time to time as provided in Section F(4). Upon each adjustment of the Conversion Price, except pursuant to Section F(4)(c) and F(4)(d), holders of Series D Preferred shall thereafter be entitled to convert each share of Series D Preferred into the number of shares of Common Stock (calculated to the nearest whole shares pursuant to Section F(4)(d)) determined by dividing the Series D Original Issuance Price by the Conversion Price resulting from such adjustment.

4.     Conversion Price Adjustments. The Conversion Price shall be subject to adjustment from time to time as set forth below.

(a)     Stock Dividends, Etc. If the number of shares of Common Stock outstanding at any time after the date of issuance of the Series D Preferred is increased by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then immediately after the record date fixed for the determination of holders of Common Stock entitled to receive such stock dividend or the effective date of such subdivision or split-up, as the case may be, the Conversion Price shall be appropriately adjusted to reflect such actions (unless the Conversion Price already reflects such action).

(b)     Combination of Stock. If the number of shares of Common Stock outstanding at any time after the date of issuance of the Series D Preferred is decreased by a combination of the outstanding shares of Common Stock, then, immediately after the effective date of such combination, the Conversion Price shall be appropriately adjusted to reflect such actions (unless the Conversion Price already reflects such action).

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(c)     Reorganizations, etc. Subject to the provisions of Section G, in case of any capital reorganization of the Corporation, or of any reclassification of the Common Stock, or in case of the consolidation of the Corporation with or the merger of the Corporation with any other person or of the sale, lease or other transfer of all or substantially all of the assets of the Corporation to any other person, the Series D Preferred shall, after such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer, be convertible into the number of shares of stock or other securities or property to which the Common Stock issuable (at the time of such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer) upon conversion of the Series D Preferred would have been entitled to receive upon such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer if such exercise had taken place; and in any such case, if necessary, the provisions set forth herein with respect to the rights and interests thereafter of the holder of the Series D Preferred shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares of stock or other securities or property thereafter deliverable on the conversion of the Series D Preferred. The subdivision or combination of shares of Common Stock issuable upon conversion of the Series D Preferred at any time outstanding into a greater or lesser number of shares of Common Stock (whether with or without par value) shall not be deemed to be a reclassification of the Common Stock of the Corporation for the purposes of this clause (c).

(d)     Rounding of Calculations; Minimum Adjustment. All calculations under this Section F shall be made to the nearest cent or to the nearest whole share, as the case may be. Any provision of this Section F(4) to the contrary notwithstanding, no adjustment in the Conversion Price shall be made if the amount of such adjustment would be less than $0.01, but any such amount shall be carried forward and an adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate $0.01 or more. In case the Corporation shall at any time issue shares of Common Stock in any transaction described in Section F(4)(a) or F(4)(b), such amount of $0.01 per share (as theretofore increased or decreased, if such amount shall have been adjusted in accordance with the provisions of this Section F(4)(d)) shall forthwith be proportionately increased in the case of a transaction described in Section F(4)(b) or decreased in the case of a transaction described in Section F(4)(a) so as appropriately to reflect such transaction.

(e)     Timing of Issuance of Additional Common Stock Upon Certain Adjustments. In any case in which the provisions of this Section F(4) shall require that an adjustment shall become effective immediately after a record date for an event, the Corporation may defer until the occurrence of such event the issuance of additional shares of Common Stock or other property issuable or deliverable upon exercise by reason of the adjustment required by such event over and above the shares of Common Stock or other property issuable or deliverable upon such exercise before giving effect to such adjustment; provided, however, that the Corporation upon request shall deliver to such holder a due bill or other appropriate instrument evidencing such holder’s right to receive such additional shares or other property, and such cash, upon the occurrence of the event requiring such adjustment.

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(f)     Information Regarding Adjustments. Whenever the Conversion Price shall be adjusted as provided in Section F(4), the Corporation shall forthwith file at the offices of the Corporation a statement showing in detail the facts requiring such adjustment and stating whether the adjustment was made in the Conversion Price, the amount of both the Conversion Price, and the new number of Underlying Shares issuable that shall be in effect after such adjustment, and the Corporation shall also cause a copy of such statement to be given to the holders of the Series D Preferred. Each such statement shall be signed by the Corporation’s chief financial or accounting officer. Where appropriate, such copy may be given in advance and may be included as part of a notice required to be mailed under the provisions of Section F(4)(g).

(g)     Notice to Holders. In the event the Corporation shall propose to take any action of the type described in clause (c) of Section F(4), the Corporation shall give notice to the holders of the Series D Preferred, which notice shall specify the record date, if any, with respect to any such action and the approximate date on which such action is to take place. Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Conversion Price and the number, kind or class of shares or other securities or property that shall be deliverable upon conversion of the Series D Preferred. In the case of any action which would require the fixing of a record date, such notice shall be given at least 10 days prior to the date so fixed, and in case of all other action, such notice shall be given at least 15 days prior to the taking of such proposed action.

G.     Liquidation Preference.

Subject to the remaining provisions of this Section G, in the event of any Liquidating Event, after payment or provision for payment of the debts and other liabilities of the Corporation, the holders of shares of Series D Preferred shall be entitled to receive, out of the remaining net assets of the Corporation, an amount per share equal to the Series D Redemption Price, plus all accrued but unpaid dividends thereon, in cash for each outstanding Released Share, before any distribution or payment shall be made to the holders of shares of any other classes of capital stock of the Corporation. Upon the occurrence of a Liquidating Event, and after payment or provision for payment of the debts and other liabilities of the Corporation, if the assets of the Corporation available for distribution to the stockholders shall be insufficient to permit the payment to the holders of shares of Series D Preferred of an amount equal to the Series D Redemption Price, plus all accrued but unpaid dividends, then the entire assets of the Corporation shall be distributed ratably among the holders of Series D Preferred then outstanding and entitled to a distribution according to the numbers of shares held by each. After payment in full to the holders of Series D Preferred, the holders of Common Stock shall be entitled, to the exclusion of the holder of Series D Preferred, to share ratably in the remaining assets of the Corporation in accordance with the numbers of shares held by each (determined on an as-converted basis).

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In the event of any Liquidating Event, if any portion of the consideration payable to the stockholders of the Corporation is placed into escrow and/or is payable to the stockholders of the Corporation subject to contingencies, the definitive transaction agreement entered into in connection with the Liquidating Event shall provide that (a) the portion of such consideration that is not placed in escrow and not subject to any contingencies (the “Initial Consideration”) shall be allocated among the holders of capital stock of the Corporation in accordance with Section G as if the Initial Consideration were the only consideration payable in connection with such Liquidating Event and (b) any additional consideration that becomes payable to the stockholders of the Corporation upon release from escrow or satisfaction of contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with Section G after taking into account the previous payment of the Initial Consideration as part of the same transaction.

No provision of this Section G shall in any manner, prior to any sale of all or substantially all of the assets of the Corporation or any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, create or be considered or deemed to create any restriction upon the surplus of the Corporation or prohibit the payment of dividends on the capital stock of the Corporation out of the funds of the Corporation legally available therefor, nor shall any such restriction or prohibition be in any manner implied from the provisions of this Section G.

IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the 9^th day of August, 2014.

AMERICAN LOCKER GROUP INCORPORATED 

/s/ Anthony B. Johnston 

Name: Anthony B. Johnston 

Title: Chief Executive Officer 

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EX-10

Exhibit 10.2

PURCHASE AGREEMENT

OF

AMERICAN LOCKER GROUP INCORPORATED

This PURCHASE AGREEMENT (this “Agreement”), dated as of August 12, 2014, is made and entered into by and among American Locker Group Incorporated, a Delaware corporation, and the persons identified on Schedule 2.1 hereto.

In consideration of the mutual promises and conditions contained herein, the parties hereto hereby agree and covenant as follows:

ARTICLE I.

DEFINITIONS

1.1          The terms defined in this Section 1.1 shall have for all purposes of this Agreement the respective meanings specified in this Section 1.1.

“Agreement” shall mean this Purchase Agreement as originally executed or as it may be amended from time to time.

“Board” shall mean the Board of Directors of the Company.

“Certificate of Designation” means that certain Certificate of Designation of Preferences, Rights and Limitations Of Series D Preferred Stock in the form of Exhibit A hereto.

“Closing” shall mean the consummation of the purchase and sale of the Preferred Shares.

“Closing Date” shall mean August 12, 2014.

“Common Stock” shall mean the common stock, $1.00 par value per share, of the Company.

“Company” shall mean American Locker Group Incorporated, a Delaware corporation, and its successors and assigns.

“Conversion Date” shall have the meaning set forth in the Certificate of Designation.

“Majority of the Holders” shall mean a vote of the holders of greater than 60% of the outstanding Preferred Shares; provided, however, that, if some or all of the Preferred Shares have been converted into Shares, Majority of the Holders shall mean a vote of the holders of greater than 60% of the Shares, giving pro forma effect to the conversion of all outstanding shares of Preferred Stock, whether or not actually issued and outstanding.

“Person” shall have the meaning attributed to it in the Securities Act.

“Preferred Stock” shall mean the Series D Preferred Stock, $1.00 par value per share, of the Company, with the rights and privileges set forth in the Certificate of Designation.

“Preferred Shares” shall mean the 40,000 shares of Preferred Stock that shall be issued by the Company to Purchasers at the Closing pursuant to this Agreement.

“Purchasers” shall mean the persons named on Schedule 2.1 hereto, and “Purchaser” means any one of the Purchasers.

“Registration” shall mean a registration described in Section 6.2(a) 

“SEC” shall mean the Securities and Exchange Commission of the United States or any governmental department, bureau, commission or agency succeeding to the functions of the SEC.

“Securities Act” shall mean the Securities Act of 1933, as amended.

“Shares” shall mean those shares of Common Stock issuable by the Company to Purchasers upon conversion of the Preferred Shares, subject to adjustment upon certain events.

“Treasury Stock” shall mean 192,000 shares of Common Stock that are held by the Company in its treasury as of the date hereof and that shall be sold to the Purchasers pursuant to Section 2.2 concurrently with their conversion of the Preferred Shares

“1934 Act” shall mean the Securities Exchange Act of 1934, as amended.

ARTICLE II.

AGREEMENT OF PURCHASE AND SALE

2.1          Purchase and Sale of Preferred Stock. At the Closing, the Company shall issue and sell to each Purchaser and, subject to the terms and conditions hereof and in reliance upon the representations and warranties of the Company contained herein, each Purchaser, severally and not jointly, agrees to purchase from the Company, the shares of Preferred Stock at a price of $5.00 per share of Preferred Stock. The aggregate purchase price payable to each Purchaser is set forth opposite his name on Schedule 2.1 hereto.

2.2          Purchase and Sale of Treasury Stock. Simultaneously with each Purchaser’s conversion of Preferred Shares into Shares, pursuant to the Certificate, the Company will sell to such Purchaser that number of shares of Treasury Stock as is equal to (x) 192,000 multiplied by (y) a fraction, the numerator of which is the number of Preferred Shares being converted at such time and the denominator of which is 40,000. [By way of example, if a Purchaser converts 1,000 Preferred Shares into Shares, the Company shall sell to such Purchaser 4,800 shares of Treasury Stock.] The purchase price for shares of Treasury Stock sold by the Company to a Purchaser pursuant to this Section 2.2 shall be $.01 per share. The Company’s obligation to sell shares of Treasury Stock to any Purchaser shall terminate, as to such Purchaser, upon the redemption by the Company of the Preferred Stock held by such Purchaser.

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ARTICLE III.

CLOSING

3.1          Closing. The Closing shall be held on the Closing Date at 10:00 a.m. at the offices of Hallett & Perrin, P.C., 1445 Ross Avenue, Suite 2400, Dallas, Texas 75202, or at such other place as may be mutually agreed to by the Company and Purchasers. At the Closing, each party also shall execute and deliver such other appropriate and customary documents as the other parties reasonably may request for the purpose of consummating the transactions contemplated by this Agreement. All actions taken at Closing shall be deemed to have been taken simultaneously.

3.2          Delivery of Certificates; Payment. At the Closing, the Company will issue, execute and deliver to Purchasers share certificates evidencing the Preferred Shares against payment of the aggregate purchase price specified in Section 2.1 in immediately available funds payable to the Company.

3.3          Further Assurances. The parties hereto shall execute and deliver such additional documents and take such additional actions as any party reasonably may deem to be practical and necessary in order to consummate the transactions contemplated by this Agreement and to vest more fully in Purchasers’ ownership of the Preferred Shares.

3.4          Separate Sales. The sales hereunder to Purchasers are to be separate sales, and no Purchaser is to be responsible for the acts or defaults of any of the other Purchasers. Each Purchaser agrees that neither any Purchaser nor the respective controlling Persons, officers, directors, partners, agents, or employees of any Purchaser shall be liable to any other Purchaser for any action heretofore taken or omitted to be taken by any of them in connection with the purchase of the Preferred Shares.

ARTICLE IV.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to Purchasers as of the Closing Date as follows:

4.1          Organization and Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has all requisite power and authority (corporate and other) to enter into and perform this Agreement, to issue the Preferred Shares and to carry out the terms hereof.

4.2          Authorization. This Agreement has been duly authorized, has been duly and validly executed and delivered at the Closing and is the legal, valid and binding obligation of the Company, enforceable in accordance with its terms. The issuance of the Preferred Shares, the sale of Treasury Stock pursuant to Section 2.2, and the issuance of the Shares has been duly and validly authorized and, the Preferred Shares and the Shares, when issued and delivered upon conversion of the Preferred Shares, will be validly issued, fully paid and nonassessable and free of the preemptive rights (statutory or contractual) of stockholders other than the Purchasers.

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4.3          Power and Authority. The Company has the power and authority (corporate and other), and possess all licenses and permits, required by governmental authorities, to own, lease and operate its properties and assets and to carry on its business as currently being conducted.

4.4          Compliance with Other Instruments. Neither the execution and delivery by the Company of this Agreement, nor the consummation by the Company of the transactions contemplated hereby, will violate, breach, be in conflict with, or constitute a default under, or permit the termination or the acceleration of maturity of, or result in the imposition of any lien, claim, or encumbrance upon any property or asset of the Company, or any note, bond, indenture, mortgage, deed of trust, evidence of indebtedness, lease agreement, loan agreement, other agreement or instrument or any judgment, order, injunction, or decree by which the Company, is bound, to which any of them is a party, or to which any of their assets is subject.

4.5          Necessary Approvals and Consents. No authorization, consent, permit or license or approval of, or declaration, registration, or filing with, any person or governmental or regulatory authority or agency is necessary for the execution and delivery by the Company of this Agreement and the other agreements executed or required to be executed by it in connection with this Agreement, the consummation by the Company of the transactions contemplated by this Agreement, or the valid execution, issuance and sale of the Preferred Shares or the valid issuance and delivery of the Shares.

ARTICLE V.

REPRESENTATIONS AND WARRANTIES OF PURCHASERS

Each Purchaser, severally and not jointly, represents and warrants to the Company as of the Closing Date as follows:

5.1         Acquired for Investment. The Purchaser is acquiring the Preferred Shares and will acquire the Treasury Stock for its own account and not with a view to, or for sale in connection with, a distribution, as that term is used in the Securities Act, of the Preferred Shares or the Treasury Stock, as the case may be. The Purchaser may transfer all or any portion of the Preferred Shares to another person or entity that is an “accredited investor” within the meaning of the Securities Act, and the rules promulgated thereunder.

5.2          Restrictive Legend. The Purchaser has been informed and understands that certificates evidencing the Preferred Stock issued pursuant to this Agreement, the Treasury Stock sold pursuant to Section 2.2 and the Shares issued upon conversion of the Preferred Shares, if such issuances are not registered under the Securities Act, shall bear a restrictive legend substantially as follows:

The shares represented by this Certificate have not been registered under the Securities Act of 1933 or under any applicable state securities laws. The shares may not be offered for sale, sold, assigned, transferred or pledged without registration under the Securities Act of 1933 and any applicable state securities laws or without an opinion of counsel satisfactory to the Company that registration is not required.

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5.3          Organization and Standing. Such Purchaser, if not a natural person, is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has all requisite power and authority (corporate and other) to enter into and perform this Agreement and to carry out the terms hereof.

5.4          Authorization. This Agreement has been duly and validly authorized, executed and delivered by such Purchaser and is the legal, valid and binding obligation of such Purchaser, enforceable against such Purchaser in accordance with its terms.

5.5          Investment Representations.

(a)     The Purchaser, if not a natural person, was not formed for the purpose of purchasing the Preferred Shares or the Treasury Stock.

(b)     The Purchaser is an “accredited investor” as defined in Rule 501(a) promulgated under the Act.

(c)     The Purchaser acknowledges that the sale of the Preferred Shares by the Company has not been, and the sale of the Treasury stock will not be, registered under the Securities Act or qualified under applicable state securities laws and understands the restrictions on resale of such securities imposed by the Securities Act. The Purchaser also acknowledges that the Company has no obligation to register the Preferred Shares, the Treasury Stock or the Shares, except as otherwise contemplated herein. The Purchaser also understands that there is no public market for the Preferred Shares and that there may never be a public market therefor, and that even if such a market develops, the Purchaser may never be able to sell or dispose of such securities and may thus have to bear the risk of investment in such securities for a substantial period of time or forever.

ARTICLE VI.

COVENANTS

6.1          Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the SEC, which may permit the sale of the Shares to the public without registration, the Company agrees to:

(a)          Make and keep public information available as those terms are understood and defined in Rule 144 promulgated by the SEC under the Securities Act, at all times after ninety (90) days after the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public;

(b)          File with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the 1934 Act at any time after it has become subject to the reporting requirements thereunder;

(c)     So long as a Person owns any Shares, furnish to such Persons promptly upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time after 90 days after the effective date of the first registration statement under the Securities Act filed by the Company for an offering of its securities to the general public), and of the Securities Act and the 1934 Act (at any time after it has become subject to the reporting requirements thereunder), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as any holder of Shares may reasonably request in availing itself of any rule or regulation of the SEC allowing a Person to sell any such securities without registration.

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6.2          Registration.

(a)     If, at any time after the Conversion Date, and only on one occasion, the Company shall receive, from a Majority of the Holders (the “Requesting Holders”) a written request to register at least 50% of the Shares issuable as of the date of such request, then the Company will give notice of such request to all Purchasers and shall effect as soon thereafter as practicable, and in any event within 90 days of the receipt of such request, the registration under the Securities Act of all Shares which any Purchaser requests to be registered. (Purchasers whose Shares are covered by any such registration are referred to herein as “Participating Purchasers”). The Company shall not be obligated to effect, or to take any action to effect, or may suspend, any such registration pursuant to this Section 6.2 if in the good faith judgment of the Board, such registration would be seriously detrimental to the Company and the Board concludes, as a result, that it is essential to defer the filing of such registration statement at such time. In such event, the Company shall have the right to defer such filing (except as provided in clause (i) above) for a period of not more than 180 days after receipt of the request of the Holders, provided that the Company shall not defer its obligation in this manner more than once in any 12-month period.

(b)     If and whenever the Company is required to register Shares, the Company will use its best efforts to effect such registration to permit the sale of such Shares in accordance with the intended plan of distribution thereof, and pursuant thereto.

(c)     The expenses of such registration shall be borne by the Company. The Participating Purchasers will bear all incremental selling expenses relating to the sale of the Shares, such as underwriters' commissions and discounts, brokerage fees, underwriter marketing costs and fees and expenses of counsel to such Purchasers.

(d)     The obligation of the Company to effect such Registration shall terminate at such time as all of the Shares held by Participating Purchasers are eligible to be sold by them without any volume or manner of sale restrictions under the Securities Act pursuant to Rule 144 thereunder.

(e)     The Company’s obligation to effect a Registration pursuant to this Section 6.2 shall be conditioned upon the agreement of each Participating Purchaser to provide customary indemnification for the Company with respect to information provided by such Purchaser in respect to such registration.

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ARTICLE VII.

WAIVER; AMENDMENTS

Upon the written consent of a Majority of the Holders, compliance with any of the provisions, covenants and conditions set forth in this Agreement may be waived or any of such provisions, covenants or conditions may be modified. No course of dealing between any Purchasers and any other party hereto, or any failure or delay on the part of a Purchaser in exercising any rights or remedies under this Agreement, shall operate as a waiver of any rights or remedies of any Purchasers. No single or partial exercise of any rights or remedies under this Agreement shall operate as a waiver or preclude the exercise of any other rights or remedies hereunder or thereunder.

ARTICLE VIII.

MISCELLANEOUS PROVISIONS

8.1          Survival of Covenants; Successors and Assigns.

(a)     All representations and warranties of the Company contained herein, in the Schedules hereto, or in any exhibit, certificate, document or instrument delivered pursuant to this Agreement, shall survive the Closing and shall continue in full force and effect for one (1) year after the Closing Date.

(b)     The parties hereto understand and agree that this Agreement contains obligations, agreements and covenants that are intended to and shall continue after the Closing and except as otherwise provided herein, all covenants, agreements and obligations made herein, and in instrument, documents or certificates delivered in connection herewith or on behalf of the Company, shall survive the execution and delivery of this Agreement and the purchase of the Preferred Shares and shall bind and inure to the benefit of the Company and its successors and assigns and the holders of the Preferred Stock and the Shares from time to time.

8.2          Notices. Any notice or communication under this Agreement must be in writing and given by (a) deposit in the United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested, (b) delivery in person or by courier service providing evidence of delivery, or (c) transmission by telecopy. Each notice or communication that is mailed, delivered or transmitted in the manner described above shall be deemed sufficiently given, served, sent and received, in the case of mailed notices, on the third business day following the date on which it is mailed and, in the case of notices delivered by hand, courier service or telecopy, at such time as it is delivered to the addressee (with the delivery receipt or the affidavit of messenger) or at such time as delivery is refused by the addressee upon presentation. Any notice or communication under this Agreement must be addressed as follows:

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If to the Company:
	(a)	For delivery:	American Locker Group Incorporated
			2701 Regent Blvd
			Suite 200
			DFW Airport, Texas 75261
			Attn: President
			Telephone No.: (817) 329-1600
	(b)	For mail:	American Locker Group Incorporated
			PO Box 169
			Coppell, Texas 75019-0169
			Attn: President
If to a Purchaser:			To the address set forth on Schedule 2.1 hereto

Any party may change its address for notice by written notice to the other parties hereto.

8.3          Descriptive Headings. The descriptive headings herein have been inserted for convenience only and shall not be deemed to limit or otherwise affect the construction of any provisions hereof.

8.4          Further Documents. The Company agrees to execute and deliver to the Purchasers, promptly upon a request, all such further instruments as it may reasonably deem necessary or appropriate in order to effectuate the purpose of this Agreement.

8.5          Governing Law. This Agreement and the other documents and instruments executed hereunder are performable in Dallas County, Texas, and shall be interpreted and construed in accordance with, under and governed by, the laws of the State of Delaware.

8.6          Counterparts. This Agreement may be executed in one or more counterparts, including by facsimile or portable document format (pdf), each of which shall for all purposes be deemed an original and all of which shall constitute the same instrument but only one of which need be produced.

8.7          Binding Effect. This Agreement, including, but not limited to, the rights and conditions contained herein in connection with disposition of the Shares, shall be binding upon the parties hereto, together with their respective executors, administrators, successors, personal representatives, heirs and assigns.

8.8          Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof, and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as part of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.

8.9          Entire Agreement. This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to the subject matter hereof.

8.10        Changes, Modifications or Waivers. No change or modification of this Agreement shall be valid or binding upon the parties hereto, nor shall any waiver of any term or condition in the future be so binding, unless such change or modification or waiver shall be in writing and signed by the parties hereto.

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IN WITNESS WHEREOF, the Company and the Purchasers have caused this Agreement to be executed as of the date first above written.

COMPANY:
AMERICAN LOCKER GROUP INCORPORATED,
a Delaware corporation
By:	/s/ Stephen P. Slay
Name:	Stephen P. Slay
Title:	Chief Financial Officer
PURCHASERS:
/s/ Anthony B. Johnston
Anthony B. Johnston
/s/ Graeme L. Jack
Graeme L. Jack
/s/ Lawrence Goldstein
Lawrence Goldstein
/s/ Paul B. Luber
Paul B. Luber
/s/ Donald L. Dunn
Donald L. Dunn
/s/ Mitchell M. Almy
Mitchell M. Almy
/s/ Kyle S. Packer
Kyle S. Packer

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EXHIBIT A

Certificate of Designation of Preferences, Rights and Limitations Of Series D Preferred Stock

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Schedule 2.1

Purchase Obligation of Investors

Name and Address	Shares of Preferred Stock	Purchase Price
Mitchell and Diana Almy 3930 NE 26th Avenue Portland, OR 97212 Email: mitch7777777@outlook.com	5,000	$25,000
Donald L. Dunn 720 O Street, Lot D Lincoln, NE 68508 Email: ddunn@universalmfgco.com	5,000	$25,000
Lawrence Goldstein 1865 Palmer Avenue Larchmont, NY 10538 Email: ljg@smplp.com	9,000	$45,000
Graeme L. Jack 501 W. Armitage Avenue Unit 3C Chicago, IL 60614 Email: gljack3@gmail.com	5,000	$25,000
Anthony B. Johnston 4700 Mill Spring Ct. Colleyville, TX 76034 Email: tjohnston@americanlocker.com	6,000	$30,000
Paul Luber The Jor-Mac Company 155 East Main Street Lomira, WI  53048 Email: pluber@jor-mac.com	5,000	$25,000
Kyle S. Packer 1482 Aqua Vista Drive Lawrenceburg, IN 47025 Email: kylepacker@gmail.com	5,000	$25,000

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EX-31

Exhibit 31.1

CERTIFICATION

I, Anthony B. Johnston, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date:  August 14, 2014	By:	/s/ ANTHONY B. JOHNSTON
	Anthony B. Johnston
	President and Chief Executive Officer

EX-31

Exhibit 31.2

CERTIFICATION

I, Stephen P. Slay, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date:  August 14, 2014	By:	/s/ STEPHEN P. SLAY
	Stephen P. Slay
	Chief Financial Officer

EX-32

Exhibit 32.1

Certifications Pursuant to 18 U.S.C. Section 1350

as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of American Locker Group Incorporated (the “Company”) on Form 10-Q for the quarter ended June 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the respective capacities and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1)     the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2)     the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:    August 14, 2014

By:	/s/ ANTHONY B. JOHNSTON
Anthony B. Johnston
President and Chief Executive Officer

By:	/s/ STEPHEN P. SLAY
Stephen P. Slay
Chief Financial Officer

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Note 10 - Subsequent Event (Details) (Series D Preferred Stock [Member], Subsequent Event [Member], USD $)	0 Months Ended
	Aug. 12, 2014 Paul Luber and Graeme Jack [Member] Director [Member]	Aug. 12, 2014 Anthony Johnston [Member] Chairman and CEO [Member]	Aug. 12, 2014 Private Placement [Member]	Aug. 11, 2014
Note 10 - Subsequent Event (Details) [Line Items]
Preferred Stock, Shares Authorized				100,000
Preferred Stock, Shares Issued	5,000	6,000	40,000
Proceeds from Issuance of Preferred Stock and Preference Stock (in Dollars)	$ 50,000	$ 30,000	$ 200,000

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Note 5 - Stockholders' Equity (Details)	6 Months Ended
	Jun. 30, 2014 Common Stock [Member]	Jun. 30, 2013 Preferred Stock [Member]
Note 5 - Stockholders' Equity (Details) [Line Items]
Stock Issued During Period, Shares, New Issues	0	0

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Note 2 - Concession Agreement and Disposition of Assets

6 Months Ended

Jun. 30, 2014

Concession Agreement Disclosure [Abstract]

Concession Agreement Disclosure [Text Block]

2. Concession Agreement and Disposition of Assets

In 2010, the Company entered into a five-year agreement with a large theme-park operator to provide approximately 4,300 lockers under a locker concession arrangement. The Company retained ownership of the lockers and received a portion of the revenue generated by the locker operations. Under appropriate accounting guidance, the Company capitalized its costs related to the concession agreement and was depreciating such costs over the five-year term of the agreement. The Company recognized its portion of the revenue as it was collected.

In February 2014, the Company sold the lockers, kiosks and other assets related to that locker concession arrangement to a third party and entered into a subcontract agreement pursuant to which the third party agreed to perform the locker concession and management services previously performed by the Company for the theme-park operator in exchange for the right to receive all of the payments owed to the Company under such arrangement. The Company received $1,218,075 in total consideration for the disposition of these assets. Net of a holdback amount of $90,000, the Company received proceeds of $1,128,075 at closing of which $120,000 was used to make a principal payment on the Company’s outstanding term loan (see Note 8) and the remainder was used for working capital and general corporate purposes. Additionally, in connection with the sale of these assets, the Company and the third party agreed to an amendment to a settlement agreement previously executed between the two parties (see Note 9) whereby payments the Company had been making to the third party pursuant to the settlement agreement were eliminated. Accordingly, the Company wrote-off the outstanding balance of its accrued settlement of $273,000 and recorded a gain, net of selling costs, of $703,439 in February 2014 in connection with the sale of the locker concession assets and amendment to the settlement agreement.

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Note 7 - Earnings Per Share (Details)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Earnings Per Share [Abstract]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	150,752	12,000

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Note 6 - Pension Benefits (Details) - Fair Value Hierarchy of Plan Assets (USD $)	Jun. 30, 2014
Cash and Cash Equivalents [Member] | Fair Value, Inputs, Level 1 [Member] | United States Pension Plan of US Entity [Member]
Note 6 - Pension Benefits (Details) - Fair Value Hierarchy of Plan Assets [Line Items]
Fair Value of Plan Assets	$ 68,534
Cash and Cash Equivalents [Member] | Fair Value, Inputs, Level 1 [Member] | Canadian Plan [Member]
Note 6 - Pension Benefits (Details) - Fair Value Hierarchy of Plan Assets [Line Items]
Fair Value of Plan Assets	22,351
Mutual Funds [Member] | Fair Value, Inputs, Level 1 [Member] | United States Pension Plan of US Entity [Member]
Note 6 - Pension Benefits (Details) - Fair Value Hierarchy of Plan Assets [Line Items]
Fair Value of Plan Assets	235,903
Mutual Funds [Member] | Fair Value, Inputs, Level 1 [Member] | Canadian Plan [Member]
Note 6 - Pension Benefits (Details) - Fair Value Hierarchy of Plan Assets [Line Items]
Fair Value of Plan Assets	1,052,498
Corporate or Government Bonds [Member] | Fair Value, Inputs, Level 1 [Member] | United States Pension Plan of US Entity [Member]
Note 6 - Pension Benefits (Details) - Fair Value Hierarchy of Plan Assets [Line Items]
Fair Value of Plan Assets	623,364
Equities [Member] | Fair Value, Inputs, Level 1 [Member] | United States Pension Plan of US Entity [Member]
Note 6 - Pension Benefits (Details) - Fair Value Hierarchy of Plan Assets [Line Items]
Fair Value of Plan Assets	1,105,218
United States Pension Plan of US Entity [Member]
Note 6 - Pension Benefits (Details) - Fair Value Hierarchy of Plan Assets [Line Items]
Fair Value of Plan Assets	2,033,019
Canadian Plan [Member]
Note 6 - Pension Benefits (Details) - Fair Value Hierarchy of Plan Assets [Line Items]
Fair Value of Plan Assets	$ 1,074,849

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Note 7 - Earnings Per Share (Details) - Computation of Basic and Diluted Earnings Per Share (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Numerator:
Net loss applicable to common shareholders	$ (748,410)	$ (262,984)	$ (802,768)	$ (1,276,614)
Denominator:
Denominator for earnings per share (basic and diluted) ― weighted average shares	1,687,319	1,687,319	1,687,319	1,687,319
Net loss per share applicable to common shareholders (basic and diluted):	$ (0.44)	$ (0.16)	$ (0.48)	$ (0.76)

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Note 8 - Debt (Details) (USD $)	0 Months Ended	6 Months Ended				6 Months Ended	3 Months Ended		1 Months Ended	6 Months Ended		6 Months Ended			33 Months Ended		1 Months Ended
	Dec. 10, 2013 Board of Directors Chairman [Member]	Jun. 30, 2014 Default [Member] The Term Loan [Member] Triumph Commercial Finance [Member]	Jun. 30, 2014 Termination before September 30, 2014 [Member] Triumph Commercial Finance [Member]	Jun. 30, 2014 After September 30, 2014 [Member] Termination before September 30, 2014 [Member]	Jun. 30, 2014 After September 30, 2015 [Member]	Jun. 30, 2014 Revolving Credit Facility [Member] Variable Rate B [Member] Triumph Commercial Finance [Member]	Dec. 31, 2013 Revolving Credit Facility [Member] Eligible Trade Recievables [Member] Triumph Commercial Finance [Member]	Dec. 31, 2013 Revolving Credit Facility [Member] Eligible Inventory [Member] Triumph Commercial Finance [Member]	Sep. 30, 2013 Revolving Credit Facility [Member] Triumph Commercial Finance [Member]	Jun. 30, 2014 Revolving Credit Facility [Member] Triumph Commercial Finance [Member]	Sep. 30, 2013 Revolving Credit Facility [Member] Maximum [Member] Triumph Commercial Finance [Member]	Jun. 30, 2014 The Term Loan [Member] Variable Rate B [Member] Triumph Commercial Finance [Member]	Jun. 30, 2014 The Term Loan [Member] Triumph Commercial Finance [Member]	Sep. 30, 2013 The Term Loan [Member] Triumph Commercial Finance [Member]	Sep. 30, 2013 Bank of America Merrill Lynch [Member]	Dec. 08, 2010 Bank of America Merrill Lynch [Member]	Sep. 30, 2013 Triumph Commercial Finance [Member]
Note 8 - Debt (Details) [Line Items]
Loans Payable to Bank																$ 1,000,000
Long-term Line of Credit									1,700,000					1,200,000		2,500,000
Drawing Of Advances Amount, Maximum															500,000
Balance payment date																	Sep. 30, 2013
Line of Credit Facility, Maximum Borrowing Capacity									2,800,000					1,200,000
Debt Instrument, Maturity Date									Sep. 30, 2016
Line Of Credit Borrowing Base Calculation Percentage							85.00%	50.00%
Available Borrowings under Credit Facility											1,000,000
Line of Credit Facility, Interest Rate During Period										3.50%			4.00%
Debt Instrument, Basis Spread on Variable Rate		2.00%				3.25%						3.25%
Debt Related Commitment Fees and Debt Issuance Costs										30,000
Line of Credit Facility, Commitment Fee Percentage										0.75%
Line of Credit Facility, Unused Capacity, Commitment Fee Percentage										0.50%
Termination Fee			120,000	80,000	40,000
Due to Related Parties, Current	$ 200,000
Related Party Transaction, Rate	6.00%

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Note 1 - Basis of Presentation

6 Months Ended

Jun. 30, 2014

Disclosure Text Block [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of American Locker Group Incorporated (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, the financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company’s management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of such consolidated financial statements, have been included. Operating results for the six and three months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ended December 31, 2014.

The consolidated balance sheet at December 31, 2013 has been derived from the Company’s audited financial statements at that date, but does not include all of the financial information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the Company’s consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Annual Report”).

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As a result of the Company’s recurring losses from operations and working capital deficiency at December 31, 2013, the Report of Independent Registered Public Accounting Firm on the financial statements of the Company as of and for the year ended December 31, 2013 included in the 2013 Annual Report contained an explanatory paragraph expressing substantial doubt about the Company’s ability to continue as a going concern. Management’s plans to address the liquidity and working capital needs of the Company were included in Note 1 of the Notes to Consolidated Financial Statements presented in the 2013 Annual Report. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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.

Effect of New Accounting Guidance

In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. Under this guidance, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward.  This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Adoption of this new guidance did not have a significant impact on the Company’s consolidated financial statements.

In May 2014, as part of its ongoing efforts to assist in the convergence of U.S. GAAP and International Financial Reporting Standards, FASB issued ASU 2014-09, Revenue from Contracts with Customers. The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. ASU 2014-09 provides alternative methods of initial adoption and is effective for annual and interim periods beginning after December 15, 2016. We are currently evaluating the impact that this standard will have on our consolidated financial statements.

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Note 9 - Commitments and Contingencies (Details) (USD $)	1 Months Ended		6 Months Ended	12 Months Ended		3 Months Ended			1 Months Ended
	Jun. 30, 2013	Mar. 31, 2013	Jun. 30, 2014 ft	Dec. 31, 2013	Dec. 31, 2012	Mar. 31, 2014 Massachusetts [Member]	Jun. 30, 2014 Massachusetts [Member]	Jun. 30, 2014 Washington [Member]	Apr. 30, 2013 Default on Obligation, Februray 2012 [Member]
Note 9 - Commitments and Contingencies (Details) [Line Items]
Installation of a reactive iron wall covering area (in Feet)			250
Environmental Remediation Estimated Initial Construction Cost			$ 688,000
Environmental Remediation Expense Expected To Be Incurred			1,997,000
Estimated period			30 years
Loss Contingency, Pending Claims, Number							241	1
Loss Contingency, Claims Settled and Dismissed, Number						40
Number of cases terminated						185
Unresolved cases				16
Loss Contingency, Loss in Period		412,000	51,000	114,000	50,000
Loss Contingency, Damages Awarded, Value									30,000
Loss Contingency Accrual		377,000
Other Accrued Liabilities		$ 35,000
Number of monthly payments to pay per damanges value	29

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Consolidated Balance Sheets (Current Period Unaudited) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 129,238	$ 279,288
Accounts receivable, less allowance for doubtful accounts of approximately $145,000 in 2014 and $199,000 in 2013	2,361,199	2,097,644
Inventories, net	3,353,030	2,738,813
Prepaid expenses	491,225	299,730
Total current assets	6,334,692	5,415,475
Property, plant and equipment:
Buildings and leasehold improvements	456,333	552,561
Machinery and equipment	10,521,425	12,089,799
	10,977,758	12,642,360
Less allowance for depreciation and amortization	(8,452,428)	(9,226,076)
	2,525,330	3,416,284
Other noncurrent assets	191,465	123,856
Total assets	9,051,487	8,955,615
Current liabilities:
Accounts payable	2,943,024	2,496,331
Customer deposits	280,206	216,107
Commissions, salaries, wages, and taxes thereon	160,684	77,101
Income taxes payable	4,011	5,326
Revolving line of credit	2,164,569	1,580,611
Current portion of long-term debt	240,000	240,000
Note payable to related party	200,000	200,000
Current portion of capital lease obligation	14,287	13,883
Accrued settlement, current portion		156,000
Other accrued expenses	982,421	660,771
Total current liabilities	6,989,202	5,646,130
Long-term liabilities:
Long-term debt, net of current portion	680,000	920,000
Capital lease obligation, net of current portion	52,522	59,768
Accrued settlement, net of current portion		130,000
Pension and other benefits	1,192,372	1,274,173
	1,924,894	2,383,941
Total liabilities	8,914,096	8,030,071
Stockholders’ equity:
Common stock, $1.00 par value: Authorized shares – 4,000,000 Issued shares – 1,879,319 in 2014 and 1,879,319 in 2013; Outstanding shares – 1,687,319 in 2014 and 1,687,319 in 2013	1,879,319	1,879,319
Other capital	271,381	271,381
Retained earnings	765,953	1,565,134
Treasury stock at cost, 192,000 shares	(2,112,000)	(2,112,000)
Accumulated other comprehensive loss	(967,262)	(978,290)
Total stockholders’ equity	137,391	925,544
Total liabilities and stockholders’ equity	9,051,487	8,955,615
Series C Preferred Stock [Member]
Stockholders’ equity:
Series C redeemable, convertible preferred stock, $1.00 par value: Liquidation preference of $5 per share Authorized shares - 100,000 Issued and outstanding shares - 60,000 in 2014 and 60,000 in 2013	$ 300,000	$ 300,000

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Consolidated Statements of Comprehensive Loss (Unaudited) (Parentheticals) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Adjustment to minimum pension liability, tax effect	$ 0	$ 5,546	$ 0	$ 8,970

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Note 2 - Concession Agreement and Disposition of Assets (Details) (USD $)	0 Months Ended		12 Months Ended	0 Months Ended
	Feb. 14, 2014	Feb. 14, 2014 Holdback [Member] Safemark Systems, Inc. [Member]	Dec. 31, 2010 Disney [Member] Long-term Supply Commitment [Member]	Feb. 14, 2014 Safemark Systems, Inc. [Member]
Note 2 - Concession Agreement and Disposition of Assets (Details) [Line Items]
Duration of agreement			5 years
Number of lockers installed			4,300
Amortization period			5 years
Consideration Received from Sale of Other Assets				$ 1,218,075
Other Receivables		90,000
Proceeds from Sale of Other Assets				1,128,075
Repayments of Long-term Debt	120,000
Accrued Settlement, Write-Off of Outstanding Balance				273,000
Gain (Loss) Related to Litigation Settlement				$ 703,439

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Note 4 - Income Taxes (Details) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Income Tax Disclosure [Abstract]
Effective Income Tax Rate Reconciliation, Percent	(1.20%)	(1.00%)
Valuation Allowance, Deferred Tax Asset, Increase (Decrease), Amount	$ 158,000	$ 464,000

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Consolidated Statements of Cash Flows (Unaudited) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Operating activities:
Net loss	$ (793,842)	$ (1,276,614)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	319,555	398,955
Gain on sale of property	(703,439)
Provision for uncollectible accounts	51,956	2,145
Changes in assets and liabilities:
Accounts receivable	(314,748)	106,635
Inventories	(613,826)	16,631
Prepaid expenses and other assets	(168,944)	(218,006)
Accounts payable, customer deposits, accrued legal settlement (current and long-term) and accrued expenses	753,436	652,664
Pension and other benefits	(81,424)	12,152
Income taxes	(1,315)	7,184
Net cash used in operating activities	(1,552,591)	(298,254)
Investing activities:
Purchase of property, plant and equipment	(68,984)	(50,604)
Proceeds from sale of property	1,128,075
Net cash provided by (used in) investing activities	1,059,091	(50,604)
Financing activities:
Payment of capital lease obligation	(6,842)
Payment of preferred stock dividends	(5,339)
Net cash provided by financing activities	331,777	270,000
Effect of exchange rate changes on cash	11,673	(16,214)
Net decrease in cash and cash equivalents	(150,050)	(95,072)
Cash and cash equivalents at beginning of period	279,288	413,353
Cash and cash equivalents at end of period	129,238	318,281
Cash paid for:
Interest	115,248	54,766
Income taxes	10,241	5,606
Bank of America Merrill Lynch [Member]
Financing activities:
Long-term debt payments		(100,000)
Borrowings on line of credit		220,000
Long-term debt borrowings from Bank of America Merrill Lynch		150,000
Triumph Commercial Finance [Member]
Financing activities:
Long-term debt payments	(240,000)
Borrowings on line of credit	$ 583,958

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Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Allowance for doubtful accounts (in Dollars)	$ 145,000	$ 199,000
Common stock, Par value (in Dollars per share)	$ 1.00	$ 1.00
Common stock, Authorized shares	4,000,000	4,000,000
Common stock, Issued shares	1,879,319	1,879,319
Common stock, Outstanding shares	1,687,319	1,687,319
Treasury stock at cost, shares	192,000	192,000
Series C Preferred Stock [Member]
Series C redeemable, convertible preferred stock, Par value (in Dollars per share)	$ 1.00	$ 1.00
Series C redeemable, convertible preferred stock, Liquidation preference (in Dollars per share)	$ 5.00	$ 5.00
Series C redeemable, convertible preferred stock, Authorized shares	100,000	100,000
Series C redeemable, convertible preferred stock, Issued shares	60,000	60,000
Series C redeemable, convertible preferred stock, Outstanding shares	60,000	60,000

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Note 10 - Subsequent Event

6 Months Ended

Jun. 30, 2014

Subsequent Events [Abstract]

Subsequent Events [Text Block]

10. Subsequent Event

On August 11, 2014, the Company filed a Certificate of Designation with the Secretary of State of the State of Delaware to authorize the issuance of up to 100,000 shares of Series D Preferred Stock and to establish the relative rights, preferences, qualifications, limitations and restrictions of such Series D Preferred Stock. The Certificate of Designation became effective upon such filing. On August 12, 2014, the Company issued 40,000 shares of its newly authorized Series D Preferred Stock to certain accredited investors pursuant to a Purchase Agreement executed with those investors for aggregate consideration of $200,000. Net proceeds from the offering will be used by the Company to fund working capital and for general corporate purposes. Paul Luber and Graeme Jack, each a member of the Company’s board of directors, purchased 5,000 shares each of Series D Preferred Stock for aggregate consideration of $50,000. Anthony Johnston, the Company’s Chairman and Chief Executive Officer, purchased 6,000 shares of Series D Preferred Stock for total consideration of $30,000. A description of the rights, preferences and limitations of the Series D Preferred Stock is set forth in “Part II – Item 5 – Other Information – Amendment to Articles of Incorporation; Material Modifications to Rights of Security Holders” in this Quarterly Report on Form 10-Q.

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Document And Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 14, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	AMERICAN LOCKER GROUP INC
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		1,687,319
Amendment Flag	false
Entity Central Index Key	0000008855
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Jun. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2

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Accounting Policies, by Policy (Policies)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

New Accounting Pronouncements, Policy [Policy Text Block]

Effect of New Accounting Guidance

In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. Under this guidance, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward.  This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Adoption of this new guidance did not have a significant impact on the Company’s consolidated financial statements.

In May 2014, as part of its ongoing efforts to assist in the convergence of U.S. GAAP and International Financial Reporting Standards, FASB issued ASU 2014-09, Revenue from Contracts with Customers. The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. ASU 2014-09 provides alternative methods of initial adoption and is effective for annual and interim periods beginning after December 15, 2016. We are currently evaluating the impact that this standard will have on our consolidated financial statements.

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Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Net sales	$ 3,338,054	$ 4,088,285	$ 6,172,263	$ 7,242,772
Cost of products sold	2,863,561	2,931,050	5,363,515	5,488,321
Gross profit	474,493	1,157,235	808,748	1,754,451
Selling, general and administrative expenses	1,126,978	1,363,289	2,132,204	2,518,784
Settlement expense				441,583
Total operating loss	(652,485)	(206,054)	(1,323,456)	(1,205,916)
Other income (expense):
Gain on sale of property			703,439
Interest income				18,747
Other expense – net	(9,161)	(20,402)	(18,007)	(22,254)
Interest expense	(77,554)	(28,083)	(146,607)	(54,806)
Total other income (expense)	(86,715)	(48,485)	538,825	(58,313)
Loss before income taxes	(739,200)	(254,539)	(784,631)	(1,264,229)
Income tax expense	(4,722)	(8,445)	(9,211)	(12,385)
Net loss	(743,922)	(262,984)	(793,842)	(1,276,614)
Provision for preferred stock dividends	(4,488)		(8,926)
Net loss applicable to common shareholders	$ (748,410)	$ (262,984)	$ (802,768)	$ (1,276,614)
Weighted average common shares:
Basic (in Shares)	1,687,319	1,687,319	1,687,319	1,687,319
Diluted (in Shares)	1,687,319	1,687,319	1,687,319	1,687,319
Net loss per share applicable to common shareholders:
Basic (in Dollars per share)	$ (0.44)	$ (0.16)	$ (0.48)	$ (0.76)
Diluted (in Dollars per share)	$ (0.44)	$ (0.16)	$ (0.48)	$ (0.76)

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Note 5 - Stockholders' Equity

6 Months Ended

Jun. 30, 2014

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

5. Stockholders’ Equity

The Company did not issue any shares of common stock or preferred stock in the first six months of 2014 or in the first six months of 2013.

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Note 4 - Income Taxes

6 Months Ended

Jun. 30, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

4. Income Taxes

Provision for income taxes is based upon the estimated annual effective income tax rate. The Company’s effective income tax rate was approximately (1.2)% and (1.0)% for the six months ended June 30, 2014 and 2013, respectively. For the six months ended June 30, 2014, the effective income tax rate differs significantly from the statutory rate primarily due to an increase in the deferred tax asset valuation allowance of approximately $158,000, as well as permanent timing differences between expenses recorded for financial and tax reporting. For the six months ended June 30, 2013, the effective income tax rate differs significantly from the statutory rate primarily due to an increase in the deferred tax asset valuation allowance of approximately $464,000, as well as permanent timing differences between expenses recorded for financial and tax reporting. Although the Company reported a pre-tax loss in the six months ended June 30, 2014 and 2013, it was unable to record a tax benefit in either period due to corresponding changes in the deferred tax asset valuation allowance, causing the effective income tax rate to be negative.

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Note 3 - Inventories (Details) - Inventories (USD $)	Jun. 30, 2014	Dec. 31, 2013
Inventories [Abstract]
Finished products	$ 428,066	$ 373,281
Work-in-process	859,839	817,456
Raw materials	2,065,125	1,548,076
Net Inventories	$ 3,353,030	$ 2,738,813

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Note 3 - Inventories (Tables)

6 Months Ended

Jun. 30, 2014

Inventory Disclosure [Abstract]

Schedule of Inventory, Current [Table Text Block]

	June 30, 2014		December 31, 2013
Finished products	$	428,066	$	373,281
Work-in-process		859,839		817,456
Raw materials		2,065,125		1,548,076
Net Inventories	$	3,353,030	$	2,738,813

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Note 8 - Debt

6 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

8. Debt

The Company had previously entered into a credit agreement with Bank of America Merrill Lynch (“BAML”), pursuant to which it obtained a $1 million term loan, a $2.5 million revolving line of credit and a $500,000 draw note. The credit agreement contained certain covenants with which the Company was required to comply, including a debt service coverage ratio and a funded debt-to-EBITDA ratio. For the quarters ended March 31, 2013 and June 30, 2013, the Company was not in compliance with either covenant. On September 13, 2013, the Company entered into a Forbearance Agreement with BAML pursuant to which BAML agreed to waive the Company’s obligation to meet these financial covenants and forbear from enforcing its remedies against the Company with respect to such failure through November 30, 2013. On September 30, 2013, the Company terminated the credit agreement with BAML and repaid in full all of the borrowings under these credit facilities.

On September 30, 2013, the Company and its subsidiaries, Security Manufacturing Corporation and American Locker Security Systems, Inc., entered into a Loan Agreement (the “Loan Agreement”) with Triumph Savings Bank, SSB (d/b/a Triumph Commercial Finance) (the “Lender”). The Loan Agreement provides for a $2.8 million revolving credit facility (the “Revolver”) and a $1.2 million term loan facility (the “Term Loan”). The Company initially borrowed approximately $1.7 million on the Revolver and $1.2 million on the Term Loan. The Company used these proceeds to repay in full the outstanding indebtedness under the Company’s prior credit facilities and equipment leases with BAML and for working capital and general corporate purposes.

The Revolver matures on September 30, 2016 and the Lender may, in its sole discretion, extend the maturity of the Revolver for a period of one year, and may further extend the Revolver for one-year periods thereafter. Available borrowings under the Revolver are limited to a borrowing base of 85% of eligible trade receivables plus 50% of eligible inventory (capped at $1,000,000) less any availability reserves established by the Lender. The interest rate on the Revolver is 3.50% plus the greater of (a) the U.S. prime rate as published in The Wall Street Journal or (b) 3.25%.

The Term Loan is payable in equal monthly installments based on a 60-month amortization schedule. All unpaid principal on the Term Loan is due and payable on September 30, 2016, the maturity date. The interest rate on the Term Loan is 4.00% plus the greater of (a) the U.S. prime rate as published in The Wall Street Journal or (b) 3.25%. In the event of a default under the Loan Agreement, the Revolver and the Term Loan will each bear interest at the applicable rate plus an additional 2.00%.

The Company will pay the Lender an annual facility fee of $30,000 in the first year and, thereafter, an annual facility fee of 0.75% of the Revolver amount. In addition, the Company will pay the Lender a monthly unused line fee equal to 0.50% per annum of the average daily unused portion of the Revolver for the preceding month. In the event the Company desires to terminate the Loan Agreement and prepay in full the amounts outstanding under the Revolver and the Term Loan, it will pay a termination fee equal to $120,000 if terminated before September 30, 2014, $80,000 if terminated after September 30, 2014 but before September 30, 2015, and $40,000 if terminated after September 30, 2015 but before September 30, 2016.

The credit facilities under the Loan Agreement are secured by a security interest in substantially all of the assets of the Company, and its subsidiaries Security Manufacturing Corporation and American Locker Security Systems, Inc., including a pledge of a portion of the stock of Canadian Locker Company Limited, a subsidiary of American Locker Security Systems, Inc., and each is jointly and severally liable for all borrowings under the Loan Agreement. Unless otherwise approved by the Lender, the Company is required to use the net cash proceeds from any asset disposition or the issuance of equity securities (excluding issuances to employees or another borrower) or debt securities to prepay, first, the Term Loan and, if any proceeds remain, to pay down the Revolver. The Company received approval from the Lender to use net proceeds from a preferred stock issuance completed subsequent to June 30, 2014 to pay down the Revolver (see Note 10 for further disclosure of the preferred stock issuance).

The Loan Agreement includes various representations, warranties, affirmative and negative covenants, events of default, remedies and other provisions customary for a transaction of this nature. In addition, the Company is required to comply with certain financial covenants on a monthly basis, including a maximum debt to tangible net worth ratio, a minimum fixed charge ratio and a minimum tangible net worth. For the months ended December 31, 2013, January 31, 2014, February 28, 2014, and March 31, 2014, the Company was not in compliance with these financial covenants. On April 7, 2014, the Lender waived the Company’s failure to meet these financial covenants and the parties amended the Loan Agreement to modify the ratio of debt to tangible net worth covenant, the fixed charge ratio covenant and the tangible net worth covenant. For the months ended April 30, 2014, May 31, 2014 and June 30, 2014, the Company was not in compliance with the amended financial covenants. On June 11, 2014, the Lender issued to the Company a notice of default and reservation of rights letter in which the Lender notified the Company that it reserves any and all of the rights, privileges and remedies available to it under the Loan Agreement. We can give no assurances that we will be able to comply with the financial covenants, as amended, in future periods and cure the event of default that has occurred as a result of noncompliance with these covenants. If we continue to violate these covenants in future periods and the Lender does not waive the violations or amend the Loan Agreement to reflect covenants with which we could comply, the Lender could demand payment of all balances outstanding under the Loan Agreement. Such action by the Lender would have a material adverse effect on the Company’s ability to continue operations.

On December 10, 2013, the Company executed a Promissory Note (the “Note”), effective as of November 13, 2013, in favor of Anthony B. Johnston, the Company’s Chairman and Chief Executive Officer, in the principal amount of $200,000 to evidence a loan by Mr. Johnston to the Company. The principal balance of the Note, together with accrued but unpaid interest, is due and payable on November 30, 2014. The interest rate on the Note is 6.00% and the Company may prepay the Note at any time and from time to time without premium or penalty. The Note is unsecured and contains event of default provisions that are customary for a transaction of this nature. The Company used the proceeds from the Note for working capital and general corporate purposes.

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Note 6 - Pension Benefits

6 Months Ended

Jun. 30, 2014

Compensation and Retirement Disclosure [Abstract]

Pension and Other Postretirement Benefits Disclosure [Text Block]

6. Pension Benefits

The following sets forth the components of net periodic employee benefit cost of the Company’s defined benefit pension plans for the six months and three months ended June 30, 2014 and 2013:

	Six months ended June 30,
	Pension Benefits
	U.S. Plan						Canadian Plan
	2014			2013			2014			2013
Service Cost	$	-		$	-		$	-		$	-
Interest Cost		(76,231	)		116,343			28,319			26,189
Expected return on plan assets		77,850			(125,410	)		(33,700	)		(35,219	)
Net actuarial loss		22,890			-			15,368			18,764
Amortizations		-			79,218			-			-
Net periodic benefit cost	$	24,509		$	70,151		$	9,987		$	9,734

	Three months ended June 30,
	Pension Benefits
	U.S. Plan						Canadian Plan
	2014			2013			2014			2013
Service Cost	$	-		$	-		$	-		$	-
Interest Cost		(38,116	)		53,237			14,233			12,588
Expected return on plan assets		38,925			(57,386	)		(16,938	)		(16,929	)
Net actuarial loss		11,445			-			7,724			9,019
Amortizations		-			36,249			-			-
Net periodic benefit cost	$	12,254		$	32,100		$	5,019		$	4,678

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

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

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

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

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

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

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

		June 30, 2014
		US Plan		Canadian Plan
Cash and cash equivalents	Level 1	$	68,534	$	22,351
Mutual funds	Level 1		235,903		1,052,498
Corporate/Government Bonds	Level 1		623,364		-
Equities	Level 1		1,105,218		-
Total		$	2,033,019	$	1,074,849

US pension plan assets are invested solely in pooled separate account funds. The net asset values of the pooled separate account funds are based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of units outstanding. The unit prices of the pooled separate account funds are not quoted on any market; however, the unit price is based on the underlying investments which are traded in an active market and are priced by independent providers. There have been no significant transfers in or out of Level 1 fair value measurements.

For additional information on the defined benefit pension plans, please refer to Note 10 of the consolidated financial statements included in the 2013 Annual Report.

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Note 7 - Earnings Per Share

6 Months Ended

Jun. 30, 2014

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

7. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per common share for the six and three months ended June 30, 2014 and 2013:

	Six months ended June 30,
	2014			2013
Numerator:
Net loss applicable to common shareholders	$	(802,768	)	$	(1,276,614	)
Denominator:
Denominator for earnings per share (basic and diluted) ― weighted average shares		1,687,319			1,687,319
Net loss per share applicable to common shareholders (basic and diluted):	$	(0.48	)	$	(0.76	)

	Three months ended June 30,
	2014			2013
Numerator:
Net loss applicable to common shareholders	$	(748,410	)	$	(262,984	)
Denominator:
Denominator for earnings per share (basic and diluted) ― weighted average shares		1,687,319			1,687,319
Net loss per share applicable to common shareholders (basic and diluted):	$	(0.44	)	$	(0.16	)

The Company had 12,000 stock options outstanding at June 30, 2013 which were not included in the weighted average shares computation for loss per share, as the common stock equivalents were anti-dilutive. The weighted average shares computation for loss per share at June 30, 2014 excludes preferred stock convertible into 150,752 shares of common stock because those common stock equivalents were anti-dilutive.

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Note 9 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

9. Commitments and Contingencies

In July 2001, the Company received a letter from the New York State Department of Environmental Conservation (the “NYSDEC”) advising the Company that it is a potentially responsible party (“PRP”) with respect to environmental contamination at, and alleged migration from, property located in Gowanda, New York which was sold by the Company to Gowanda Electronics Corporation prior to 1980. In March 2001, the NYSDEC issued a Record of Decision with respect to the Gowanda site in which it set forth a remedy including continued operation of an existing extraction well and air stripper, installation of groundwater pumping wells and a collection trench, construction of a treatment system in a separate building on the site, installation of a reactive iron wall covering 250 linear feet, which is intended to intercept any contaminates and implementation of an on-going monitoring system. The NYSDEC has estimated that its selected remediation plan will cost approximately $688,000 for initial construction and a total of $1,997,000 with respect to expected operation and maintenance expenses over a 30-year period after completion of initial construction. The Company has not conceded to the NYSDEC that the Company is liable with respect to this matter and has not agreed with the NYSDEC that the remediation plan selected by NYSDEC is the most appropriate plan. This matter has not been litigated, and at the present time the Company has only been identified as a PRP. The Company also believes that other parties may have been identified by the NYSDEC as PRPs, and the allocation of financial responsibility of such parties has not been litigated. To the Company’s knowledge, the NYSDEC has not commenced implementation of the remediation plan and has not indicated when construction will start, if ever. Based upon currently available information, the Company is unable to estimate timing with respect to the resolution of this matter. 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 Quarterly Report on Form 10-Q, the Company has been named as an additional defendant in approximately 241 cases pending in state court in Massachusetts and one in the state of Washington. The plaintiffs in each case assert that a division of the Company manufactured and furnished components containing asbestos to a shipyard during the period from 1948 to 1972 and that injury resulted from exposure to such products. The assets of this division were sold by the Company in 1973. During the process of discovery in certain of these actions, documents from sources outside the Company have been produced that indicate the Company appears to have been included in the chain of title for certain wall panels that contained asbestos and 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 40 cases with funds authorized and provided by the Company’s insurance carrier. Further, over 185 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 June 30, 2014, the most recent date for which information is available, is approximately 16 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 cases, at the present time, the Company does not believe that the outcome of these cases will have a significant adverse impact on the Company’s operations or financial condition.

On February 5, 2013, the Company was notified by one of its customers that certain product purchased by that customer had quality issues. On March 11, 2013, the Company and the customer entered into an agreement whereby the Company agreed to reimburse the customer for reasonable costs and expenses incurred on or before December 31, 2013 by the customer in its efforts to resolve the quality issue. In 2012 and 2013, the Company recorded expense of $50,000 and approximately $114,000, respectively, for costs to be reimbursed to the customer pursuant to the terms of the agreement. In June, 2014, the Company recorded expense of approximately $51,000 for additional expenses incurred by the customer prior to December 31, 2013 that were reimbursed by the Company. As of June 30, 2014, all reimbursements of claims by the customer had been paid.

In February 2013, a customer brought legal action against the Company alleging the Company defaulted on its obligations and failed to perform pursuant to the terms of a written agreement entered into with the Company in February 2012. In April 2013, the customer and the Company agreed to a settlement of the customer’s claims pursuant to which the Company paid the customer an aggregate amount of $30,000. At March 31, 2013, the Company recorded expense of $30,000 related to this settlement.

In March 2012, the Company was named as a defendant in a legal action brought by a competitor (which was also a former customer and supplier) who alleged that the Company and certain other third-party defendants profited improperly from the use of intellectual property developed by such competitor. The Company believed the asserted claims were without merit and that its chances of prevailing without material liability were high. However, due largely to the increasing costs of the ongoing litigation, the Company and the plaintiff entered into a settlement agreement effective as of June 12, 2013. Under the settlement agreement, the Company agreed to pay all outstanding invoices due to the plaintiff from the Company as of the date of the settlement, net of existing amounts due to the Company from the plaintiff, and further to pay license, service and other fees to the plaintiff in return for the plaintiff’s providing maintenance services on lockers distributed to certain of the Company’s customers. At March 31, 2013, the Company recorded an expense of approximately $412,000 related to the settlement, with approximately $377,000 recorded as accrued settlement and approximately $35,000 included in other accrued expenses. The Company was to pay amounts due to the plaintiff under the terms of the settlement agreement over a minimum period of 29 months which began June 1, 2013. In connection with an asset purchase agreement the Company entered into with the plaintiff on February 14, 2014 (see Note 2), the settlement agreement was amended such that, effective as of that date, the Company is no longer required to make monthly settlement payments and will pay only maintenance fees to the plaintiff on a monthly basis over the remainder of the 29-month period which began June 1, 2013.

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.

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Note 7 - Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2014

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Six months ended June 30,
	2014			2013
Numerator:
Net loss applicable to common shareholders	$	(802,768	)	$	(1,276,614	)
Denominator:
Denominator for earnings per share (basic and diluted) ― weighted average shares		1,687,319			1,687,319
Net loss per share applicable to common shareholders (basic and diluted):	$	(0.48	)	$	(0.76	)

	Three months ended June 30,
	2014			2013
Numerator:
Net loss applicable to common shareholders	$	(748,410	)	$	(262,984	)
Denominator:
Denominator for earnings per share (basic and diluted) ― weighted average shares		1,687,319			1,687,319
Net loss per share applicable to common shareholders (basic and diluted):	$	(0.44	)	$	(0.16	)

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Note 6 - Pension Benefits (Details) (Canadian Plan [Member])	6 Months Ended
	Jun. 30, 2014
Canadian Plan [Member]
Note 6 - Pension Benefits (Details) [Line Items]
Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay	3.00%
Defined Contribution Plan Employee Elective Employer Contribution Percent	50.00%
Defined Contribution Plan, Maximum Annual Contributions Per Employee, Percent	5.00%

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Consolidated Statements of Comprehensive Loss (Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Net loss	$ (743,922)	$ (262,984)	$ (793,842)	$ (1,276,614)
Other comprehensive income (loss):
Foreign currency translation adjustment	8,389	(22,262)	11,896	(45,357)
Adjustment to minimum pension liability, net of tax effect of $0 in 2014 and $8,970 in 2013	(13,111)	13,858	(868)	22,782
Other comprehensive income (loss)	(4,722)	(8,404)	11,028	(22,575)
Total comprehensive loss	$ (748,644)	$ (271,388)	$ (782,814)	$ (1,299,189)

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Note 3 - Inventories

6 Months Ended

Jun. 30, 2014

Inventory Disclosure [Abstract]

Inventory Disclosure [Text Block]

3. Inventories

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

Inventories consist of the following:

	June 30, 2014		December 31, 2013
Finished products	$	428,066	$	373,281
Work-in-process		859,839		817,456
Raw materials		2,065,125		1,548,076
Net Inventories	$	3,353,030	$	2,738,813

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Note 6 - Pension Benefits (Details) - Components of Net Periodic Benefit Cost (General and Administrative Expense [Member], USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
United States Pension Plan of US Entity [Member]
Note 6 - Pension Benefits (Details) - Components of Net Periodic Benefit Cost [Line Items]
Interest Cost	$ (38,116)	$ 53,237	$ (76,231)	$ 116,343
Expected return on plan assets	38,925	(57,386)	77,850	(125,410)
Net actuarial loss	11,445		22,890
Amortizations		36,249		79,218
Net periodic benefit cost	12,254	32,100	24,509	70,151
Canadian Plan [Member]
Note 6 - Pension Benefits (Details) - Components of Net Periodic Benefit Cost [Line Items]
Interest Cost	14,233	12,588	28,319	26,189
Expected return on plan assets	(16,938)	(16,929)	(33,700)	(35,219)
Net actuarial loss	7,724	9,019	15,368	18,764
Net periodic benefit cost	$ 5,019	$ 4,678	$ 9,987	$ 9,734

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Note 6 - Pension Benefits (Tables)

6 Months Ended

Jun. 30, 2014

Compensation and Retirement Disclosure [Abstract]

Schedule of Net Benefit Costs [Table Text Block]

	Six months ended June 30,
	Pension Benefits
	U.S. Plan						Canadian Plan
	2014			2013			2014			2013
Service Cost	$	-		$	-		$	-		$	-
Interest Cost		(76,231	)		116,343			28,319			26,189
Expected return on plan assets		77,850			(125,410	)		(33,700	)		(35,219	)
Net actuarial loss		22,890			-			15,368			18,764
Amortizations		-			79,218			-			-
Net periodic benefit cost	$	24,509		$	70,151		$	9,987		$	9,734

	Three months ended June 30,
	Pension Benefits
	U.S. Plan						Canadian Plan
	2014			2013			2014			2013
Service Cost	$	-		$	-		$	-		$	-
Interest Cost		(38,116	)		53,237			14,233			12,588
Expected return on plan assets		38,925			(57,386	)		(16,938	)		(16,929	)
Net actuarial loss		11,445			-			7,724			9,019
Amortizations		-			36,249			-			-
Net periodic benefit cost	$	12,254		$	32,100		$	5,019		$	4,678

Schedule of Allocation of Plan Assets [Table Text Block]

		June 30, 2014
		US Plan		Canadian Plan
Cash and cash equivalents	Level 1	$	68,534	$	22,351
Mutual funds	Level 1		235,903		1,052,498
Corporate/Government Bonds	Level 1		623,364		-
Equities	Level 1		1,105,218		-
Total		$	2,033,019	$	1,074,849