UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

|ý | Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2006                          
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|o | Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period
from                to                .

Commission file number 0-439

American Locker Group Incorporated(Exact Name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization)         |  | 16-0338330(I.R.S. Employer Identification No.)
|------------------------------------------------------------------------------ |  | ----------------------------------------------
|815 South Main Street
Grapevine, Texas(Address of principal executive offices) |  | 76051(Zip Code)                               
|(817) 329-1600(Registrant's telephone number, including area code)            
|Securities registered under Section 12(b) of the Exchange Act:                
|Title of each class                                                            |  | Name of each exchange on which registered     
|None                                                                          
|Securities registered under Section 12(g) of the Exchange Act:                
|Common Stock, Par Value $1.00 Per Share(Title of class)                       

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

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained in this form, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.    o

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

Large accelerated filer o                Accelerated
filer o                Non-accelerated filer ý

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

As of August 31, 2007, 1,549,516 shares of Common Stock, $1.00 par value per share, were
outstanding. The aggregate market value of the Common Stock held by non-affiliates as of June 30, 2007 was $5,484,340 based on the closing price per share of Common Stock on that
date of $4.00 as quoted by The Pink Sheets. Shares of Common Stock known by the Registrant to be beneficially owned by directors and officers of the Registrant and other persons known the Registrant
to have beneficial ownership of 5% or more of the outstanding Common Stock are not included in the computation. The Registrant, however, has made no determination that such persons are "affiliates"
within the meaning of Rule 12b-2 under the Securities Exchange Act of 1934.

DOCUMENTS INCORPORATED BY REFERENCE

None



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FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K contains various "forward-looking statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. These statements involve certain known and unknown risks and uncertainties, including, among others, those contained in "Item 1. Business," "Item 1A. Risk Factors" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations." When used in this Annual Report on Form 10-K, the words "anticipates," "plans," "believes,"
"estimates," "intends," "expects," "projects," "will" and similar expressions may identify forward-looking statements, although not all forward-looking statements contain such words. Such statements,
including, but not limited to, the Company's statements regarding business strategy, implementation of its restructuring plan, competition, new product development and liquidity and capital resources
are based on management's beliefs, as well as on assumptions made by, and information currently available to, management, and involve various risks and uncertainties, some of which are beyond the
Company's control. The Company's actual results could differ materially from those expressed in any forward-looking statement made by or on the Company's behalf. In light of these risks and
uncertainties, there can be no assurance that the forward-looking information will in fact prove to be accurate. The Company has undertaken no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise.

PART I

Item 1. Business.

Overview

American Locker Group Incorporated (the "Company") is an engineering, assembling, manufacturing and marketing enterprise engaged primarily in the sale of lockers.
This includes coin operated, key-only and electronically controlled checking lockers and related locks and aluminum centralized mail and parcel distribution systems. The key controlled
checking lockers are sold to the recreation industry, bookstores, military posts, law enforcement agencies, libraries and for export. The electronically controlled lockers are sold for use as secure
storage in the business environment, and the coin operated lockers are sold or leased for use in the recreation industry and other uses. The aluminum centralized mail and parcel distribution lockers
historically have been sold to the United States Postal Service ("USPS") and to distributors and resellers for use in centralized mail and parcel delivery in new housing and industrial developments,
inside postal lobbies and apartment buildings and for replacement of older style lockers in existing locations.

The
Company was incorporated on December 15, 1958, as a subsidiary of its former publicly-owned parent. In April 1964, the Company's shares were distributed to the
stockholders of its former parent, and it became a publicly held corporation. From 1965 to 1989, the Company acquired and disposed of a number of businesses, including the disposition of its original
voting machine business.

In
July 2001, the Company acquired Security Manufacturing Corporation ("SMC"). SMC manufactures aluminum cluster box units, which historically have been sold to the USPS and
private markets, as well as other mail delivery receptacles. The Company made this acquisition to increase its product offerings to existing customers, provide additional products to attract new
customers and to increase its market share in the postal market.

On
February 8, 2005, the Company announced that it was notified that its contract with the USPS for polycarbonate and aluminum cluster box units ("CBUs") would not be renewed, and
the contract expired on May 31, 2005. During 2006, 2005 and 2004, sales to the USPS accounted for 3.2%, 21.4%, and 53.9%, respectively, of the Company's net sales. In addition, sales of the
current model polycarbonate and aluminum CBUs to the private market accounted for an additional 35.6%, 32.5%, and 18.6% of the Company's sales in 2006, 2005 and 2004, respectively. Since
May 31, 2005, the

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Company
has experienced continuing sales of its current aluminum CBU model (Model E) to the private market. On May 8, 2007, the USPS notified the Company that, effective
September 8, 2007, the USPS would no longer install its "arrow locks" on the Company's Model E CBU. The USPS decertification of the Company's Model E CBU has occurred in conjunction with the
USPS making available technical specifications of its successor USPS-B-1118 CBU. Accordingly, the Company is preparing its application to the USPS to become a licensed
manufacturer of the USPS-B-1118, and will conduct a concurrent and ongoing internal cost analysis to determine whether it can manufacture that successor model profitably. The
Company believes that it will ultimately be approved by the USPS as a licensed manufacturer of the USPS-B-1118, although it could take between 6-8 months for
the Company to produce the USPS-B-1118 at required levels. The Company will continue to sell existing inventories of the Model E CBU through September 2007. After
August 2007, the Company's revenues will be adversely affected by this decertification until such time as the Company has received USPS approval to manufacture the
USPS-B-1118 and has commenced manufacture and sale of those units.

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

The
restructuring plan adopted by the Company's Board of Directors assumed that certain material changes in the operations of the Company will be sufficient to allow the Company to
continue in operation despite the loss of its CBU contract with the USPS, which provided over 50% of the Company's annual sales revenues in fiscal 2004 and 2003. The Company recorded a provision of
$2,329,000 in fiscal year 2005 to cover the costs of the restructuring plan. The restructuring plan allowed the Company to significantly reduce annual selling, general and administrative expenses.

The
Company received a notice of default and reservation of rights letter in March 2005 from its lender regarding its term loan as a result of the non-renewal of the
Company's CBU contract with the USPS. After discussions with its lender following the notice of the non-renewal of the USPS contract, the Company agreed to accelerate repayment of its term
loan and repaid the term loan in full. The Company also was verbally advised by this lender that its revolving line of credit was no longer available and that the outstanding mortgage loan would not
be renewed upon maturity. On March 5, 2007, the Company entered into a credit agreement with a new lender. The new credit agreement established a $2,200,000 mortgage loan as well as a $750,000
revolving line of credit. The Company used borrowings under the new mortgage loan to refinance its prior mortgage loan.

Business Segment Financial Information

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

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Competition

While the Company is not aware of any reliable trade statistics, it believes that its wholly-owned subsidiaries, American Locker Security Systems, Inc.
("ALSSI") and Canadian Locker Co., are the dominant suppliers of key/coin controlled checking lockers in the United States and Canada. As a result of the introduction of the new specification and
design for CBUs, the Company faces active competition from one or more manufacturers of postal locker products sold in the private market.

Raw Materials

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

The
Company's metal coin operated and electronic lockers have been manufactured through mid-year 2006 by Signore pursuant to a manufacturing agreement that terminated
effective May 24, 2006, except for the locks, which are manufactured by ALSSI. The Company's aluminum CBUs and mailboxes are manufactured and sold by the Company's wholly-owned subsidiary, SMC.

Patents

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

Employees

The Company and its subsidiaries actively employed 147 individuals on a full-time basis as of December 31, 2006, 11 of whom were based in
Canada. The Company considers its relations with its employees to be satisfactory. None of the Company's employees are represented by a union.

Dependence on Material Customer

During 2006, 2005 and 2004, sales to one customer, the USPS, accounted for 3.2%, 21.4% and 53.9%, respectively, of net sales. In addition, sales of the current
model polycarbonate and aluminum CBUs to the private market accounted for an additional 35.6%, 32.5% and 18.9% of the Company's sales in 2006, 2005 and 2004, respectively. In February 2005, the
Company was notified that its contract with the USPS for polycarbonate and aluminum CBUs would not be renewed, and the contract expired on May 31, 2005.

Research and Development

The Company engages in research and development activities relating to new and improved products. It expended $325,000, $32,000 and $153,000, in 2006, 2005 and
2004, respectively, for such activity in its continuing businesses.

Compliance with Environmental Laws and Regulations

The Company's facilities and operations are subject to various federal, state and local laws and regulations relating to environmental protection and human health
and safety. Some of these laws and regulations may impose strict, joint and several liability on certain persons for the cost of investigation or remediation of contaminated properties. These persons
may include former, current or future owners or operators of properties and persons who arranged for the disposal of hazardous substances. The Company's owned and leased real property may give rise to
such investigation, remediation and monitoring liabilities under applicable environmental laws. In addition, anyone disposing of hazardous substances on such sites must comply with applicable
environmental laws. Based on the information

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available
to it, the Company believes that, with respect to its currently owned and leased properties, it is in material compliance with applicable federal, state and local environmental laws and
regulations. See "Item 3. Legal Proceedings," and Note 17 to the Company's consolidated financial statements included under Item 8 for further discussion with respect to the settlement of
certain environmental litigation.

Backlog and Seasonality

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

Available Information

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

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

Item 1A. Risk Factors.

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

The Company has recently implemented a restructuring plan intended to reduce operating expenses. If the restructuring plan does not have the intended
effects, the Company's ability to remain in business may be adversely affected.

The restructuring plan adopted by the Company's Board of Directors assumes that certain material changes in the operations of the Company will be sufficient to
allow the Company to continue in operation despite the loss of its CBU contract with the USPS, which provided over 50% of the Company's sales revenues in each of 2004 and 2003. Restructuring costs
were substantially greater in 2005 than originally estimated at the time the restructuring plan was adopted by the Board of Directors. If the restructuring plan, as it may be modified by the Company's
Board of Directors from time to time to reflect changing conditions and circumstances, does not adequately reduce the Company's expenses, the Company's ability to remain in business would be adversely
affected.

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The success of the Company's restructuring plan is based, in part, upon the Company commencing sales of the new USPS-B-1118 CBU.
If approval to manufacture the new CBU is not timely received or if the Company otherwise experiences a delay in commencing sales, the Company's results of operations and its business and financial
condition could be materially adversely affected.

The Company's restructuring plan contemplates that it will develop and commence sales of USPS-B-1118 CBU to the private market. Sales to
the private market accounted for 35.6%, 32.5%, and 18.9% of the Company's sales in 2006, 2005 and 2004, respectively. On May 8, 2007, the USPS notified the Company that, effective
September 8, 2007, the USPS would no longer install its "arrow locks" on the Company's Model E CBU. The decertification of the Company's Model E CBU has occurred in conjunction with the USPS
making available technical specifications of its successor USPS-B-1118 CBU. Accordingly, the Company is preparing its application to the USPS to become a licensed manufacturer
of the USPS-B-1118, and will conduct a concurrent and ongoing internal cost analysis to determine whether it can manufacture that successor model profitably. The Company
believes it will ultimately be approved by the USPS as a licensed manufacturer of the USPS-B-1118, although it could take between 6-8 months for the Company
to be producing the USPS-B-1118 at current levels. If the Company is not able to timely obtain USPS approval, or determines not to pursue the manufacture of
USPS-B-1118 CBU or otherwise experiences a delay that prevents it from being able to develop and commence sales of a replacement CBU in 2007, the Company's results of
operations and its business and financial condition could be materially adversely affected. In particular, a further round of cost-cutting measures may become necessary if the Company
determines not to pursue the manufacture of USPS-B-1118 CBU, the Company fails to receive approval from the USPS or the Company's development and commencement of sales of
USPS-B-1118 CBU are significantly delayed beyond the currently contemplated estimates.

The Company has identified weaknesses in its internal controls and accounting systems.

The Company has identified weaknesses in its internal controls and accounting systems and has proposed remedies, including changes in its accounting systems and
the hiring of qualified accounting personnel to implement such remedies (see "Item 9A. Controls and Procedures"). If the Company is not able to effectively implement these remedies, the Company
may be subject to regulatory scrutiny and a loss of public confidence in its internal controls, which could affect the Company's business, financial condition and results of operations.

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

Inflation in raw material and other prices has become an increasing factor in the general economy, and the Company continues to seek ways to mitigate its impact.
For example, the Company experienced
significant increases in steel and aluminum prices in 2005 and 2006. To the extent permitted by competition, the Company seeks to mitigate the adverse impact of rising costs of sales through price
increases. The Company's ability to implement price increases is dependent on market conditions, economic factors, raw material costs and availability, competitive factors, operating costs and other
factors, some of which are beyond the Company's control. Further, the benefits of any implemented price increases may be delayed due to manufacturing lead times and the terms of existing contracts.

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

The Company's business depends, in part, upon private sales to customers in the housing, travel and other recreational industries. Any decline in general economic
conditions in the United States or any heightened threat of terrorist and military actions could adversely affect the Company's ability (and the ability of its suppliers and customers) to accurately
forecast and plan future business activities, as

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these
conditions particularly impact customers of the Company that operate theme parks, resorts and other travel-dependent businesses. As a result, customers could reduce their purchases of the
Company's products or delay the timing of their purchases from the Company, either of which may have a material adverse effect on the Company's results of operations, business and financial condition.

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

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

We are heavily dependent upon our senior management, and a loss of any of our key managers could adversely affect our business and results of
operations.

The Company's future success will depend, to a substantial degree, upon the continued service of the key members of the Company's management team. Although the
Company is not aware that any key personnel is planning to retire or leave in the near future, the loss of the services of any key member of the Company's management team, or their inability to
perform services on the Company's behalf, could have a material adverse effect on the Company's results of operations, business and financial condition.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

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

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

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

Item 3. Legal Proceedings.

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

Beginning
in September 1998 and continuing through the date of filing of this Annual Report on Form 10-K, the Company has been named as an additional defendant
in approximately 160 cases pending in state court in Massachusetts. The plaintiffs in each case assert that a division of the Company manufactured and furnished components containing asbestos to a
shipyard during the period from 1948 to 1972 and that injury resulted from exposure to such products. The assets of this division were sold by the Company in 1973. During the process of discovery in
certain of these actions, documents from sources outside the Company have been produced which indicate that the Company appears to have been included in the chain of title for certain wall panels
which contained asbestos and which were delivered to the Massachusetts shipyards. Defense of these cases has been assumed by the Company's insurance carrier, subject to a reservation of rights.
Settlement agreements have been entered in approximately 20 cases with funds authorized and provided by the Company's insurance carrier. Further, over 100 cases have been terminated as to the Company
without liability to the Company under Massachusetts procedural rules. Therefore, the balance of unresolved cases against the Company as of June 18, 2007 is approximately 40 cases.

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

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

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Item 4. Submission of Matters to a Vote of Security Holders.

No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders.

PART II

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

Market Prices and Dividends

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

Market PricePer Common Share

2006

High

LowQuarter ended December 31, 2006

$
4.55

$
4.00Quarter ended September 30, 2006


5.00


4.10Quarter ended June 30, 2006


7.00


4.10Quarter ended March 31, 2006


5.74


4.37


2005

High

LowQuarter ended December 31, 2005

$
5.95

$
3.75Quarter ended September 30, 2005


6.15


4.00Quarter ended June 30, 2005


6.50


3.62Quarter ended March 31, 2005


14.99


5.13


The
closing price of our common stock as of June 30, 2007, was $4.00. The Company had 902 security holders of record as of that date.

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

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Performance Graph

The graph set forth below shows the cumulative total stockholder return (i.e., price change plus reinvestment of dividends) on the Common Stock from the first day
of trading in the Common Stock for the past five calendar years as compared to the Russell 2000 Index, the Hemscott Group Index and a peer group consisting of a group of business equipment
manufacturers, including HNI Corp., Herman Miller, Inc., Xerox Corporation, Steelcase Inc. and Pitney Bowes, Inc. The graph assumes that $100 was invested on January 1,
2001.

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG AMERICAN LOCKER GROUP INC.
RUSSELL 2000 INDEX AND PEER GROUP INDEX

LOGO

ASSUMES $100 INVESTED ON JAN. 1, 2002
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2006

|                            |  | 2001   |  | 2002  |  | 2003   |  | 2004   |  | 2005   |  | 2006  
|--------------------------- |  | ------ |  | ----- |  | ------ |  | ------ |  | ------ |  | ------
|American Locker Group, Inc. |  | 100.00 |  | 78.53 |  | 65.65  |  | 86.76  |  | 34.82  |  | 28.53 
|Hemscott Group Index        |  | 100.00 |  | 86.15 |  | 126.13 |  | 143.87 |  | 142.30 |  | 164.24
|Russell 2000 Index          |  | 100.00 |  | 78.42 |  | 114.00 |  | 133.94 |  | 138.40 |  | 162.02
|Peer Group                  |  | 100.00 |  | 84.21 |  | 122.59 |  | 142.42 |  | 136.73 |  | 153.07

Item 6. Selected Financial Data.

The following table sets forth selected historical financial data of the Company as of, and for the years ended December 31, 2006, 2005, 2004, 2003 and
2002. The historical selected financial information derived from the Company's audited financial information may not be indicative of the Company's future performance and should be read in conjunction
with the information contained in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations,"

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"Item
8. Financial Statements and Supplementary Data," "Item 1. Description of Business," and Note 18 to the Company's consolidated financial statements in this Annual Report on
Form 10-K.

|                                                   |  | For the Years Ended December 31,
|-------------------------------------------------- |  | --------------------------------
|
|Sales                                              |  | $                               
|Income (loss) before income taxes                  |  |                                 
|Income taxes                                       |  |                                 
|Net income (loss)                                  |  |                                 
|Earnings (loss) per sharebasic                    |  |                                 
|Earnings (loss) per sharediluted                  |  |                                 
|Weighted average common shares outstandingbasic   |  |                                 
|Weighted average common shares outstandingdiluted |  |                                 
|Dividends declared                                 |  |                                 
|Interest expense                                   |  |                                 
|Depreciation and amortization expense              |  |                                 
|Expenditures for property, plant and equipment     |  |                                 
|YEAR-END POSITION                                  |  |                                 
|Total assets                                       |  |                                 
|Long-term debt, including current portion          |  |                                 
|Stockholders' equity                               |  |                                 
|Stockholders' equity per share(1)                  |  |                                 
|Common shares outstanding at year-end              |  |                                 
|Number of employees                                |  |                                 

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

Critical Accounting Policies and Estimates

The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates, assumptions
and judgments that affect the amounts reported in the financial statements and the accompanying notes. On an on-going basis, the Company evaluates its estimates, including those related to
product returns, bad debts, inventories, intangible assets, income taxes, pensions and other post-retirement benefits, and contingencies and litigation. The Company bases its estimates on
experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

10

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

Revenue Recognition

The Company recognizes revenue at the point of passage of title, which occurs at the time of shipment to the customer. The Company derived approximately 54.8% of
its revenue in 2006 from sales to distributors. These distributors do not have a right to return unsold products; however, returns may be permitted in specific situations. Historically, returns have
not been significant.

Allowance for Doubtful Accounts

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

Inventories

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

Goodwill

As discussed in Note 2 to the Company's consolidated financial statements, the Company had recorded Goodwill of $6,155,000 in connection with the
acquisition of SMC in 2001. Beginning in 2002, the Company, in accordance with the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets,
performed the required goodwill impairment tests. These tests were performed annually at the beginning of the fourth calendar quarter. In assessing impairment, the Company made assumptions regarding
future cash flows and other factors to determine the fair value of the respective net assets. Based upon these tests, no impairment was determined to exist through December 31, 2004.

In
February of 2005, the Company was notified that its contract with USPS for polycarbonate and Aluminum CBUs, which accounted for approximately 54% of the Company's net sales in fiscal
2004, would not be renewed. This contract expired May 31, 2005. Due to the significant reduction in business resulting from the loss of the USPS contract, it was determined that the fair value
of the Company had declined significantly. After the loss of the contract, management concluded that the fair value of the Company was not in excess of the carrying value of the underlying tangible
assets, indicating that there is no longer value attributable to goodwill. Accordingly, the Company recorded a goodwill impairment charge of approximately $6,155,000 against its operating results in
the first quarter of 2005.

11

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Property, Plant and Equipment

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

In
accordance with Financial Accounting Standards Board Statement No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets," long-lived
assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of those assets may not be recoverable. The Company uses
undiscounted cash flows to determine whether impairment exists and measures any impairment loss using discounted cash flows. As discussed in Note 1 to the Company's consolidated financial
statements, the Company implemented a restructuring plan in 2005 as a result of the loss of the USPS contract discussed above. As part of the restructuring plan, the Company recorded an impairment
charge of approximately $92,000 in 2005.

Pension Assumptions

The Company maintains a defined benefit plan covering its U.S. employees and a separate defined benefit plan covering its Canadian employees. The accounting for
the plans is based in part on certain assumptions that are uncertain and that could have a material impact on the financial statements if different reasonable assumptions were used. The assumptions
for return on assets reflect the rates of earnings expected on funds invested or to be invested to provide for benefits included in the projected benefit obligation. The assumed rates of return of
7.5% and 7.0% used in 2006 for the U.S. and Canadian plans, respectively, were determined based on a forecasted rate of return for a portfolio invested 50% in equities and 50% in bonds. In addition to
the assumptions related to the expected return on assets, assumptions for the rates of compensation increase and discount rate were also made. The rate of compensation increase used in determining the
2006 pension costs was 2.0% for the Canadian plan and was determined using projections of inflation and real wage increase assumptions. The discount rates used in determining the 2006 pension costs
were 5.50% and 5.0% for the U.S. and Canadian plans, respectively. Consistent with prior years, for both plans the Company uses a discount rate that approximates the average AA corporate bond rate.

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

Deferred Income Tax Assets

The Company had net deferred tax assets of approximately $919,470 at December 31, 2006. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The ultimate realization of the
deferred income tax assets are primarily dependent on generating sufficient future taxable income or being able to carryback any taxable losses and claim refunds against previously paid income taxes.
The Company has historically had taxable income and believes its net deferred income tax assets at December 31, 2006, are realizable. If future operating

12

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

Recoverable Income Taxes

Recoverable income taxes at December 31, 2006 total $579,000 and represent federal and state income tax refund claims the Company has submitted.

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

Overall Results and Outlook

The Company had consolidated net sales of $25,065,000 in 2006, a decrease of $7,239,000, or 22.4%, compared to the prior year sales of $32,304,000. This decrease
was attributable primarily to the loss of the USPS contract discussed below. Pre-tax operating results increased to a pre-tax profit of $1,027,000 in 2006 from a reported
pre-tax loss of $9,274,000 in 2005. Results in 2005 were negatively impacted by one-time charges of $2,329,000 for restructuring charges and $6,155,000 impairment charge
related to the write-down of previously recorded goodwill. After tax operating results increased to a reported net profit of $639,000 in 2006 from a net loss of $8,092,000 in 2005. Net
income per share was $0.41 per share on a diluted basis in 2006, up from a net loss per share of $5.25 in the previous year.

Non-Renewal of USPS Contract and Other Events

On February 8, 2005, the Company announced that it was notified that its contract with the United States Postal Service ("USPS") for polycarbonate and
aluminum cluster box units ("CBUs") would not be renewed, and the contract expired on May 31, 2005. During 2006, 2005 and 2004, sales to the USPS accounted for 3.2%, 21.4% and 53.9%,
respectively, of the Company's net sales. In addition, sales of the current model polycarbonate and aluminum CBUs to the private market accounted for an additional 35.6%, 32.5% and 18.6% of the
Company's sales in 2006, 2005 and 2004, respectively. Since May 31, 2005, the Company has experienced continuing sales of its current aluminum CBU model (Model E) to the private market.
On May 8, 2007, the USPS notified the Company that, effective September 8, 2007, the USPS would no longer install its "arrow locks" on the Company's Model E CBU. The USPS decertification
of the Company's Model E CBU has occurred in conjunction with the USPS making available technical specifications of its successor USPS-B-1118 CBU. Accordingly, the Company is
preparing its application to the USPS to become a licensed manufacturer of the USPS-B-1118, and will conduct a concurrent and ongoing internal cost analysis to determine
whether it can manufacture that successor model profitably. The Company believes that it will ultimately be approved by the USPS as a licensed manufacturer of the USPS-B-1118,
although it could take between 6-8 months for the Company to be producing the USPS-B-1118 at desired levels. The Company will continue to sell existing
inventories of the Model E CBU through August 2007, and it does not presently anticipate that it will incur material inventory write-offs as a result of such decertification. After
August 2007, the Company's revenues will be adversely affected by this decertification until such time as the Company has received USPS approval to manufacture the
USPS-B-1118 and has commenced manufacture and sale of those units.

Following
the Company's announcement that the USPS CBU contract would not be renewed, the Board of Directors formed a Restructuring Committee for the purposes of selecting a financial
advisor and evaluating a restructuring plan. In March 2005, following Board approval, the Company announced that it had retained Compass Advisory Partners, LLC ("Compass") to provide strategic
consulting services to the Company with respect to potential restructuring and cost reductions necessitated by the non-renewal of the USPS CBU contract. The Restructuring Committee, in
consultation with Compass, undertook a review of the Company's financial position and business and operations. In particular, the Restructuring Committee and Compass reviewed: (i) the financial
impact of the loss of the Company's

13

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CBU
contract with the USPS; (ii) the economics of the Signore manufacturing agreement; (iii) the prospects for new product development, including emphasis on the
USPS-B-1118 series aluminum CBUs; and (iv) an emphasis on cash generation and retention during the restructuring phase.

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

In
March of 2007 and in furtherance of the restructuring plan, the Company successfully negotiated a new credit facility with the F&M Bank and Trust Company. The new credit facility
consists of a $2,200,000 term loan, the proceeds of which were used to repay the Company's then existing mortgage loan, and a $750,000 revolving line of credit.

By
entering into a new credit agreement with a new lender, the Company expects to have adequate cash to meet its debt obligations and have sufficient working capital to meet its current
operational needs. The Company's long term working capital needs are contingent upon successful development and sale by the Company to the private market of the new USPS-B-1118
CBU.

Net Sales

Consolidated sales in 2006 amounted to $25,065,000. This decrease from 2005 sales of $32,304,000 was due to the fact that there were no sales of plastic lockers,
which included polycarbonate CBUs and outdoor parcel lockers in 2006. The Company's consolidated sales consisted entirely of sales of metal storage lockers (coin-op, temporary storage,
electronic keyless and service) and metal postal lockers (aluminum CBUs, indoor mailboxes and collection boxes). Sales of these metal locker products increased $1,903,000, or 8.2%, from $23,162,000 in
2005 due primarily to increased sales of postal lockers at SMC.

In
2005, consolidated sales were $32,304,000, of which 28.3% were plastic lockers sold to the USPS and the private market. Sales by general product group for the last two years were as
follows:

2006

2005

Percentage
Increase (Decrease)Plastic Locker Sales



$
9,142,000

n/aMetal Locker Products

25,065,000


23,162,000

8.2
%


Cost of Sales

Consolidated cost of sales as a percentage of sales was 66.3% in 2006 as compared to 74.0% in 2005. In 2005, cost as a percentage of sales was higher due to
one-time expenses of $617,000 to increase the reserve for inventory valuation, the write-off of $615,000 of inventory related to the termination of the manufacturing agreement
with Signore, and expenses associated with the cancellation of the USPS polycarbonate CBU contract.

14

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Selling, General and Administrative Expenses

Selling, general and administrative expenses in 2006 totaled $7,285,000, a decrease of $1,204,000 compared to $8,489,000 in 2005. The decrease in 2006 was
primarily due to a reduction in personnel related expenses as a result of the implementation of the restructuring plan, which were partially offset by an increase of $698,000 in legal, consulting and
accounting fees related to the fiscal year 2005 audit.

Other Income and ExpenseNet

Other expense in excess of other income in 2006 totaled $159,000, a decrease of $294,000 compared to other income in excess of other expenses of $453,000 in 2005.
In 2005, the Company incurred several one-time expenses, including realizing an $84,000 loss on the disposal of certain assets, paying $238,000 in professional fees on income tax recovery
matters and a $40,000 pre-payment penalty to the Company's former principal lender.

Interest Expense

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

Income Taxes

In 2006, the Company recorded an income tax expense of $387,000 compared to income tax benefit of $1,182,000 in 2005. The effective tax rate determined as the
percentage of the tax benefit or expense to the pre-tax loss or pre-tax income was 37.7% in 2006 compared to 12.8% in 2005. The lower effective tax rate in 2005 results
principally from the non-deductible charge for the impairment of goodwill.

Results of OperationsYear Ended December 31, 2005 Compared to Year Ended December 31, 2004

Overall Results and Outlook

In February 2005, the Company was notified that its CBU contract with the USPS, which accounted for 53.9% of the Company's net sales in 2004, would not be
renewed. The Company's loss of the USPS contract had a significant impact on the Company's overall results for 2005. For more detail concerning the loss of the USPS contract, please see "Results of
OperationsYear Ended December 31, 2006 Compared to Year Ended December 31, 2005Non-Renewal of USPS Contract and Other Events" above.

The
Company had consolidated net sales of $32,303,689 in 2005, a decrease of $16,719,728, or 34.1%, compared to the prior year record sales of $49,023,417, due primarily to the loss of
the USPS contract discussed above. As a result, pre-tax operating results declined from a reported pre-tax income of $4,479,024 in 2004 to a pre-tax loss of
$9,274,211 in 2005 after accounting for one-time charges of $2,329,191 for restructuring charges and a $6,155,204 impairment charge related to the write-down of previously
recorded goodwill. After tax operating results declined from a reported net income of $2,681,034 in 2004 to a net loss of $8,091,898 in 2005. Net loss per share on a diluted basis was $5.25 per share
in 2005, down from a net income per share of $1.72 in the previous year.

Net Sales

Consolidated sales in 2005 amounted to $32,303,689, of which 28.3% were plastic lockers which included polycarbonate CBUs and Outdoor Parcel Lockers (OPLs). The
remainder of the Company's

15

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consolidated
sales consisted primarily of sales of metal storage lockers (coin-op, temporary storage, electronic keyless and service) and metal postal lockers (aluminum CBUs, indoor
mailboxes and collection boxes). These Metal Locker Products amounted to 71.7% of total consolidated sales in 2005, an increase of $1,565,000 due primarily to increased sales of aluminum CBUs at SMC
and increased locker sales at Canadian Locker Company and at ALSSI.

In
2004, consolidated sales were $49,653,129, of which 56.5% were plastic lockers sold to the USPS and the private market. Consolidated sales for 2004 include a one-time sale
to the USPS in the third quarter of 2004 of approximately $7,000,000. Sales by general product group for the last two years were as follows:

2005

2004

Percentage
Increase (Decrease)Plastic Locker Sales

$
9,142,000

$
28,056,000

(67.4
)%Metal Locker Products


23,162,000


21,597,000

7.2
%


Cost of Sales

Consolidated
cost of sales as a percentage of sales in 2005 was 74.0% as compared to 69.8% in 2004. The increase in cost as a percentage of sales is a direct result of higher material
costs that were not able to be completely passed through to the customer and increased allocable overhead costs resulting from the lower volume of shipments and production.

The
Company also evaluated its inventory for impairment and expected losses and the Company recorded an inventory impairment charge of $147,000 and accrued $125,000 for an anticipated
loss on committed purchase orders. The expense was included in cost of sales for the quarter ended March 31, 2005.

Selling, General and Administrative Expenses

Selling, general and administrative expenses in 2005 totaled $8,488,771, a decrease of $626,674 compared to $9,115,445 in 2004. The decrease in 2005 was primarily
due to a reduction in personnel related expenses as a result of the implementation of the restructuring plan, which was partially offset by an increase of $161,000 in freight charges caused by higher
fuel prices.

Asset ImpairmentGoodwill

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

Restructuring Costs

In May 2005, the Company announced that it would undertake restructuring initiatives to realign its organization in response to the loss of its CBU
contract with the USPS. The Company's plan calls for significant reductions in selling, general and administrative costs. A majority of the cost reductions was realized by relocating the Company's
headquarters, from leased facilities in Jamestown, New York

16

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to
a Company-owned facility on Grapevine, Texas. In addition, savings will be realized by eliminating certain corporate level staff and several satellite sales offices. To implement the restructuring
plan, the Company anticipates incurring aggregate impairment charges (exclusive of goodwill impairment) and costs of approximately $2,329,191. In accordance with Financial Accounting Standards (FAS)
No. 146 "Accounting for Costs Associated with Exit or Disposal Activities," costs associated with an exit or disposal activity are recognized when the associated liabilities are incurred.

Other Income and ExpenseNet

In 2005, other expense in excess of other income totaled $452,620, an increase of $332,396 compared to other income in excess of other expenses of $120,224 in
2004. In 2005, the Company realized an $84,000 loss on the disposal of certain assets, paid $238,000 in professional fees on income tax recovery matters and a $40,000 pre-payment penalty
to the Company's former principal lender.

Interest Expense

Interest expense in 2005 totaled $333,389, a decrease of $123,476 compared to $456,865 in 2004. The decrease is the result of lower average outstanding debt
balances due to the accelerated term loan repayments and scheduled mortgage loan repayments totaling $4,352,386 during 2005. No new debt borrowings were incurred in 2005. Further, during 2005 the
Company did not have any outstanding borrowings under its line of credit.

Income Taxes

In 2005, the Company recorded an income tax benefit of $1,182,314 compared to income tax expense of $1,797,990 in 2004. The effective tax rate determined as the
percentage of the tax benefit or expense to the pre-tax loss or pre-tax income was 12.8% in 2005 compared to 40% in 2004. The lower effective tax rate in 2005 results
principally from the non-deductible charge for the impairment of goodwill.

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 the excess
of current assets over current liabilities. These measures of liquidity were as follows:

As of December 31,2006

2005Current Ratio


4.3 to 1


3.3 to 1Working Capital

$
7,907,000

$
7,362,000


The
increase in working capital of $545,000 relates primarily to the net income for the year ended December 31, 2006 of $639,000 net of capital expenditures of $99,000.

During
2005 and 2006, the Company was in technical default of its long-term debt agreement with its then primary lender, rendering the entire $6,669,000 outstanding balance
due upon demand. During 2005, the Company repaid $4,352,000 of the outstanding debt and in March of 2007, entered into a new long-term debt agreement with a new principal lender.

As
a result of securing the new debt facility, in March 2007, the Company used the proceeds of a new $2,200,000 term loan to repay the then existing mortgage. Accordingly, the
mortgage note balance outstanding at December 31, 2006 and 2005 was classified as to current and long-term under its originally scheduled payment terms.

17

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The new term loan is payable in monthly installments of $22,493 including accrued interest at prime plus .75%.

The
Company's policy is to maintain modern equipment and adequate capacity. During 2006, 2005 and 2004 the Company expended $99,000, $476,000 and $281,000, respectively, for capital
additions. Capital expenditures in all three years were financed principally from operations. The Company expects capital expenditures in 2007 to be at the upper end of the range of expenditures made
in the last three years due to the acquisition of new equipment and tooling in preparation of producing the USPS-B-1118 CBU and other new products. It is expected that capital
expenditures will be funded from cash on hand.

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.

Contractual Obligations

The Company has contractual obligations as of December 31, 2006 relating to long-term and current debt, operating lease arrangements and
purchase obligations. The Company does not guarantee the debt of any third parties. All of the Company's subsidiaries are 100% owned by the Company and are included in its consolidated financial
statements. Total payments to be made under long-term debt, operating leases and purchase obligations are as follows:

|                            |       | Payments due by period
|--------------------------- | ----- | ----------------------
|
|Long-term debt obligations  |       | $                     
|Operating lease obligations |       |                       
|Purchase obligations        |       |                       
|                            |       |                       
|                            | Total |                       
|                            |       |                       

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

The
Company has had continuing obligations under its U.S. and Canadian defined benefit pension plans. These are funded plans under which the Company is required to make contributions to
meet ERISA and Canadian funding requirements. The Company's contributions to the plans have ranged from approximately $100,000 to $400,000 over the last four years. The required funding is based on
actuarial calculations that take into account various actuarial results and certain assumptions. Contributions to the plans for the year ended December 31, 2006 totaled $268,000.

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

Other Agreements

During 2002, the Company entered into agreements to become 5% members of two limited liability companies (LLCs). Third parties formed the LLCs in order to provide
luggage cart services at two U.S. airports. The Company has sold luggage cart products to these LLCs. The Company contemplates a sale of its luggage cart assets and may not be in a position to make
further sales to these LLCs. The governing documents of the LLCs provide that the Company does not share in the distribution of cash flow or profits and losses of the LLCs through 2007, nor is the
Company required to make any capital contribution to the LLCs. Ownership by the Company of a minority interest in the

18

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LLCs
had no impact on the Company's 2006 operating results or financial position, and is not expected to have any material impact in the future.

Impact of Inflation and Changing Prices

Inflation in raw material and other prices has become an increasing factor in the general economy, and the Company continues to seek ways to mitigate its impact.
For example, the Company experienced significant increases in steel and aluminum prices in 2005 and 2006. The average cost per pound of aluminum based on the three month buyer contract on the London
Metals Exchange was $.7802, $.8613, and $1.1752 in 2004, 2005 and 2006, respectively, representing increases of 10.4% from 2004 to 2005 and 36.4% from 2005 to 2006. To the extent permitted by
competition, the Company passes increased costs on to its customers by increasing sales prices over time.

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

The
Company uses the LIFO method of accounting for over 42% of its inventory. This method tends to match current costs with current revenues. During inflationary periods, it reduces
reported income, thereby reducing taxes, which improves cash flow.

Market Risks

Raw Materials

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

Foreign Currency

The Company's Canadian operation subjects the Company to foreign currency risk, though it is not considered a significant risk since the Canadian operation's net
assets represent only 12% of the Company's aggregate net assets at December 31, 2006. Presently, management does not hedge its foreign currency risk.

Interest Rate Risks

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

Effect of New Accounting Guidance

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs". SFAS No. 151 amends guidance in ARB No. 43, Chapter 4, "Inventory
Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). The Statement requires that these items be recognized as
current-period charges. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. The Company adopted SFAS No. 151 on January 1, 2006, and the initial
adoption did not have a material impact on the results of operations.

19

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In
May 2005, the FASB issued SFAS 154, "Accounting Changes and Error Corrections," requiring retrospective application to prior-period financial statements of changes in
accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 also redefines "restatement" as the revising of
previously issued financial statements to reflect correction of errors made. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after
December 15, 2005. The Company adopted this standard in 2006 and the initial adoption did not have a material impact on the results of operations, financial position or cash flows.

In
June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 (FIN48).
FIN48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109. "Accounting for Income Taxes," by
prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. If a tax position
is more likely than not to be sustained upon examination, then an enterprise would be required to recognize in its financial statements the largest amount of benefit that is greater than 50% likely of
being realized upon ultimate settlement. The provisions of FIN 48 will be effective as of the beginning of our 2007 fiscal year, with the cumulative effect of the change in accounting principle
recorded as an adjustment to opening retained earnings. We are currently evaluating the impact, if any, of adopting FIN 48 on the Company's consolidated financial statements.

In
June 2006, the FASB ratified its consensus on EITF Issue No. 06-3, "How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be
Presented in the Income Statement (That Is, Gross versus Net Presentation)" (EITF No. 06-3). The scope of EITF No. 06-3 includes any tax assessed by a
governmental authority that is imposed concurrent with or subsequent to a revenue-producing transaction between a seller and a customer. For taxes within the scope of this issue that are significant
in amount, the consensus requires the following disclosures: (i) the accounting policy elected for these taxes and (ii) the amount of the taxes reflected gross in the income statement on
an interim and annual basis for all periods presented. The disclosure of those taxes can be done on an aggregate basis. The consensus is effective for interim and annual
periods beginning after December 15, 2006, with earlier application permitted. Adoption of EITF No. 06-3 is not expected to affect our financial position or results of
operations.

In
September 2006, the FASB issued Statement No. 157, "Fair Value Measurements." Statement No. 157 defines fair value, established a framework for measuring fair
value under GAAP, and expands disclosures about fair value measures. Statement No. 157 is effective for fiscal years beginning after November 15, 2007, with early adoption encouraged.
The provisions of Statement No. 157 are to be applied on a prospective basis, with the exception of certain financial instruments for which retrospective application is required. The adoption
of Statement No. 157 is not expected to materially affect our financial position or results of operations.

In
September 2006, FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans." This statement requires an employer to
recognize the overfunded or underfunded status of a single-employer defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in the
funded status in the year in which the changes occur through comprehensive income. SFAS No. 158 is effective for years ending after December 15, 2006. There was no impact on our
consolidated financial statements with respect to the adoption of SFAS No. 158.

In
September 2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108 to address diversity in practice in quantifying financial statement misstatements. SAB 108
requires that registrants quantify the impact on the current year's financial statements of correcting all misstatements, including the

20

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carryover
and reversing effects of prior years' misstatements, as well as the effects of errors arising in the current year. SAB 108 is effective as of the first fiscal year ending after
November 15, 2006, allowing a one-time transitional cumulative effect adjustment to retained earnings as of January 1, 2006, for errors that were not previously deemed
material, but are material under the guidance in SAB No. 108. There was no impact on our consolidated financial statements with respect to the adoption of SAB No. 108.

Quotation of Common Stock

As of the opening of business on April 3, 2006, the Company voluntarily delisted its common stock from the NASDAQ Stock Market. The last trading day for
the Company's common stock on the NASDAQ National Market was Friday, March 31, 2006. The Company's common stock currently is quoted on The Pink Sheets under the symbol "ALGI.PK".

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

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

Item 8. Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board
of Directors
American Locker Group Incorporated

We
have audited the accompanying consolidated balance sheets of American Locker Group Incorporated and Subsidiaries (the Company) as of December 31, 2006 and 2005 and the related
consolidated statements of operations, stockholders' equity and cash flows for the years then ended. Our audits also included the financial statement schedule listed in the index at Item 15(a). These
consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule
based on our audits.

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

In
our opinion, the consolidated financial statements referred to above present fairly in all material respects, the consolidated financial position of American Locker Group Incorporated
and Subsidiaries as of December 31, 2006 and 2005 and the consolidated results of their operations and cash flows for the years then ended in conformity with accounting principles generally
accepted in the United States. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements as whole, present fairly in all material
respects the information set forth therein.

As
discussed in Note 2 to the consolidated financial statements, in 2006 the Company adopted Statement of Financial Accounting Standards No. 123(R), Share-Based Paymentsand Statement of

21

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Financial
Accounting Standards No. 158,Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans.

The
selected quarterly financial data for 2006 in Note 15 contains information that we did not audit, and, accordingly, we do not express an opinion on that data. We attempted but
were unable to review the quarterly data in accordance with standards established by the American Institute of Certified Public Accountants because we believe that the company's internal control for
the preparation of interim financial information does not provide an adequate basis to enable us to complete such a review.

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

Dallas,
Texas
August 30, 2007

22

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board
of Directors and Stockholders
American Locker Group Incorporated

We
have audited the accompanying consolidated statements of operations, stockholders' equity, and cash flows of American Locker Group Incorporated and Subsidiaries for the year ended
December 31, 2004. Our audit also included the financial statement schedule listed in the index at Item 15(a). These consolidated financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over
financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects the consolidated results of operations and cash flows of American Locker
Group Incorporated and Subsidiaries for the year ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the
related financial statement
schedule, when considered in relation to the basic financial statements as a whole, presents fairly in all material respects the information set forth therein.

/s/
Schneider Downs & Co., Inc.

Pittsburgh,
Pennsylvania
March 18, 2005, except for Note 1, paragraphs 2 through 9 (now paragraphs 2, 4 and 5), and Note 17 (no longer included herein), as to which the date is May 12, 2005,
and except for Note 2, Note 6 paragraph 4 (both as to 2005, no longer included herein), and Note 20 (now Note 19), as to which the date is August 31, 2007.

23

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American Locker Group Incorporated and Subsidiaries        Consolidated Balance Sheets

|                               |                                                                                                              | December 31, |           
|------------------------------ | ------------------------------------------------------------------------------------------------------------ | ------------ | ----------
|
|Assets                         |                                                                                                              |              |           
|Current assets:                |                                                                                                              |              |           
|                               | Cash and cash equivalents                                                                                    |              | $         
|                               | Accounts and notes receivable, less allowance for doubtful accounts of $198,000 in 2006 and $120,000 in 2005 |              |           
|                               | Inventories, net                                                                                             |              |           
|                               | Prepaid expenses                                                                                             |              |           
|                               | Income tax receivable                                                                                        |              |           
|                               | Deferred income taxes                                                                                        |              |           
|                               |                                                                                                              |              |           
|Total current assets           |                                                                                                              |              | 10,314,535
|Property, plant and equipment: |                                                                                                              |              |           
|                               | Land                                                                                                         |              |           
|                               | Buildings                                                                                                    |              |           
|                               | Machinery and equipment                                                                                      |              |           
|                               |                                                                                                              |              |           
|                               |                                                                                                              |              | 11,029,911
|                               | Less allowance for depreciation                                                                              |              |           
|                               |                                                                                                              |              |           
|                               |                                                                                                              |              | 4,077,886 
|Deferred income taxes          |                                                                                                              |              | 77,781    
|                               |                                                                                                              |              |           
|Total assets                   |                                                                                                              | $            | 14,470,202
|                               |                                                                                                              |              |           

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

24

---



|                                           |                                                | December 31,                                                                                                                                 |           
|------------------------------------------ | ---------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------- | ----------
|
|Liabilities and stockholders' equity       |                                                |                                                                                                                                              |           
|Current liabilities:                       |                                                |                                                                                                                                              |           
|                                           | Current portion of long-term debt              |                                                                                                                                              | $         
|                                           | Accounts payable                               |                                                                                                                                              |           
|                                           | Commissions, salaries, wages and taxes thereon |                                                                                                                                              |           
|                                           | Other accrued expenses and current liabilities |                                                                                                                                              |           
|                                           |                                                |                                                                                                                                              |           
|Total current liabilities                  |                                                |                                                                                                                                              | 2,407,506 
|Long-term liabilities:                     |                                                |                                                                                                                                              |           
|                                           | Long-term debt                                 |                                                                                                                                              |           
|                                           | Pension and other benefits                     |                                                                                                                                              |           
|                                           |                                                |                                                                                                                                              |           
|                                           |                                                |                                                                                                                                              | 2,807,854 
|Total liabilities                          |                                                |                                                                                                                                              | 5,215,360 
|Commitments and contingencies              |                                                |                                                                                                                                              |           
|Stockholders' equity:                      |                                                |                                                                                                                                              |           
|                                           | Common stock, $1 par value:                    |                                                                                                                                              |           
|                                           |                                                | Authorized shares4,000,000
Issued shares1,741,516 in 2006 and 1,738,146 in 2005
Outstanding shares1,549,516 in 2006 and 1,546,146 in 2005 |           
|                                           | Other capital                                  |                                                                                                                                              |           
|                                           | Retained earnings                              |                                                                                                                                              |           
|                                           | Treasury stock at cost (192,000) shares        |                                                                                                                                              |           
|                                           | Accumulated other comprehensive loss           |                                                                                                                                              |           
|                                           |                                                |                                                                                                                                              |           
|Total stockholders' equity                 |                                                |                                                                                                                                              | 9,254,842 
|                                           |                                                |                                                                                                                                              |           
|Total liabilities and stockholders' equity |                                                | $                                                                                                                                            | 14,470,202
|                                           |                                                |                                                                                                                                              |           

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

25

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American Locker Group Incorporated and Subsidiaries        Consolidated Statements of Operations

|                                             |              | Year ended December 31, |           
|-------------------------------------------- | ------------ | ----------------------- | ----------
|
|Net sales                                    |              | $                       | 25,065,090
|Cost of products sold                        |              |                         | 16,438,344
|                                             |              |                         |           
|                                             | Gross profit |                         |           
|Asset impairmentgoodwill                    |              |                         |          
|Selling, administrative and general expenses |              |                         | 7,285,212 
|Restructuring costs                          |              |                         |          
|Environmental settlement                     |              |                         |          
|                                             |              |                         |           
|                                             |              |                         | 1,341,534 
|Interest income                              |              |                         | 29,070    
|Other income (expense)net                   |              |                         | (159,733  
|Interest expense                             |              |                         | (184,257  
|                                             |              |                         |           
|Income (loss) before income taxes            |              |                         | 1,026,614 
|Income taxes                                 |              |                         | 387,148   
|                                             |              |                         |           
|Net income (loss)                            |              | $                       | 639,466   
|                                             |              |                         |           
|Earnings (loss) per share of common stock:   |              |                         |           
|                                             | Basic        |                         | $         
|                                             |              |                         |           
|                                             | Diluted      |                         | $         
|                                             |              |                         |           
|Dividends per share of common stock:         |              | $                       | 0.00      
|                                             |              |                         |           

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

26

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American Locker Group Incorporated and Subsidiaries        Consolidated Statements of Stockholders' Equity

|                                       |                                    | Common Stock                                                         |           | Other Capital |   | Retained Earnings |   | Treasury Stock |            | Accumulated Other Comprehensive Income (Loss) |   | Total Stockholders' Equity |  
|-------------------------------------- | ---------------------------------- | -------------------------------------------------------------------- | --------- | ------------- | - | ----------------- | - | -------------- | ---------- | --------------------------------------------- | - | -------------------------- | -
|Balance at January 1, 2004             |                                    | $                                                                    | 1,726,146 |               | $ | 97,812            |   | $              | 14,646,649 |                                               | $ | (2,112,000                 | )
|Comprehensive income:                  |                                    |                                                                      |           |               |   |                   |   |                |            |                                               |   |                            |  
|                                       | Net income                         |                                                                      |           |              |   |                   |  |                |            | 2,681,034                                     |   |                            | 
|                                       | Other comprehensive income:        |                                                                      |           |               |   |                   |   |                |            |                                               |   |                            |  
|                                       |                                    | Foreign currency translation                                         |           |               |  |                   |   |               |            |                                               |  |                            |  
|                                       |                                    | Minimum pension liability adjustment, net of tax benefit of $109,676 |           |               |  |                   |   |               |            |                                               |  |                            |  
|                                       |                                    |                                                                      |           |               |   |                   |   |                |            |                                               |   |                            |  
|Total comprehensive income             |                                    |                                                                      |           |               |   |                   |   |                |            |                                               |   |                            |  
|Balance at December 31, 2004           |                                    | $                                                                    | 1,726,146 |               | $ | 97,812            |   | $              | 17,327,683 |                                               | $ | (2,112,000                 | )
|                                       |                                    |                                                                      |           |               |   |                   |   |                |            |                                               |   |                            |  
|Comprehensive income:                  |                                    |                                                                      |           |               |   |                   |   |                |            |                                               |   |                            |  
|                                       | Net income (loss)                  |                                                                      |           |              |   |                   |  |                |            | (8,091,898                                    | ) |                            | 
|                                       | Other comprehensive income (loss): |                                                                      |           |               |   |                   |   |                |            |                                               |   |                            |  
|                                       |                                    | Foreign currency translation                                         |           |               |  |                   |   |               |            |                                               |  |                            |  
|                                       |                                    | Minimum pension liability adjustment, net of tax benefit of $1,649   |           |               |  |                   |   |               |            |                                               |  |                            |  
|                                       |                                    |                                                                      |           |               |   |                   |   |                |            |                                               |   |                            |  
|Total comprehensive income             |                                    |                                                                      |           |               |   |                   |   |                |            |                                               |   |                            |  
|Common stock issued (12,000 shares)    |                                    |                                                                      | 12,000    |               |   | 21,750            |   |                |           |                                               |   |                           |  
|Tax benefit of exercised stock options |                                    |                                                                      |          |               |   | 12,509            |   |                |           |                                               |   |                           |  
|                                       |                                    |                                                                      |           |               |   |                   |   |                |            |                                               |   |                            |  
|Balance at December 31, 2005           |                                    | $                                                                    | 1,738,146 |               | $ | 132,071           |   | $              | 9,235,785  |                                               | $ | (2,112,000                 | )
|Comprehensive income:                  |                                    |                                                                      |           |               |   |                   |   |                |            |                                               |   |                            |  
|                                       | Net income (loss)                  |                                                                      |           |              |   |                   |  |                |            | 639,466                                       |   |                            | 
|                                       | Other comprehensive income (loss): |                                                                      |           |               |   |                   |   |                |            |                                               |   |                            |  
|                                       |                                    | Foreign currency translation                                         |           |               |  |                   |   |               |            |                                               |  |                            |  
|                                       |                                    | Minimum pension liability adjustment, net of tax benefit of $80,091  |           |               |  |                   |   |               |            |                                               |  |                            |  
|                                       |                                    |                                                                      |           |               |   |                   |   |                |            |                                               |   |                            |  
|Total comprehensive income             |                                    |                                                                      |           |               |   |                   |   |                |            |                                               |   |                            |  
|Common stock issued (3,370 shares)     |                                    |                                                                      | 3,370     |               |   | 12,344            |   |                |           |                                               |   |                           |  
|                                       |                                    |                                                                      |           |               |   |                   |   |                |            |                                               |   |                            |  
|Balance at December 31, 2006           |                                    | $                                                                    | 1,741,516 |               | $ | 144,415           |   | $              | 9,875,251  |                                               | $ | (2,112,000                 | )
|                                       |                                    |                                                                      |           |               |   |                   |   |                |            |                                               |   |                            |  

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

27

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American Locker Group Incorporated and Subsidiaries        Consolidated Statements of Cash Flows

|                                                                                         |                                      | Year ended December 31,               |          
|---------------------------------------------------------------------------------------- | ------------------------------------ | ------------------------------------- | ---------
|
|Operating activities                                                                     |                                      |                                       |          
|Net income (loss)                                                                        |                                      | $                                     | 639,466  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                      |                                       |          
|                                                                                         | Depreciation and amortization        |                                       |          
|                                                                                         | Provision for uncollectible accounts |                                       |          
|                                                                                         | Loss on disposal of assets           |                                       |          
|                                                                                         | Deferred income taxes (credits)      |                                       |          
|                                                                                         | Impairment of goodwill               |                                       |          
|                                                                                         | Changes in assets and liabilities:   |                                       |          
|                                                                                         |                                      | Accounts and other receivables        |          
|                                                                                         |                                      | Inventories                           |          
|                                                                                         |                                      | Prepaid expenses                      |          
|                                                                                         |                                      | Accounts payable and accrued expenses |          
|                                                                                         |                                      | Income taxes                          |          
|                                                                                         |                                      | Pension and other benefits            |          
|                                                                                         |                                      |                                       |          
|Net cash provided by operating activities                                                |                                      |                                       | 1,443,757
|Investing activities                                                                     |                                      |                                       |          
|Purchase of property, plant and equipment                                                |                                      |                                       | (98,591  
|Proceeds from sale of property, plant and equipment                                      |                                      |                                       |         
|                                                                                         |                                      |                                       |          
|Net cash used in investing activities                                                    |                                      |                                       | (98,591  
|Financing activities                                                                     |                                      |                                       |          
|Long-term debt payments                                                                  |                                      |                                       | (138,168 
|Common stock issued                                                                      |                                      |                                       | 15,714   
|                                                                                         |                                      |                                       |          
|Net cash used in financing activities                                                    |                                      |                                       | (122,454 
|                                                                                         |                                      |                                       |          
|Effect of exchange rate changes on cash                                                  |                                      |                                       | 7,497    
|                                                                                         |                                      |                                       |          
|Net increase (decrease) in cash and cash equivalents                                     |                                      |                                       | 1,230,209
|Cash and cash equivalents at beginning of year                                           |                                      |                                       | 1,278,015
|                                                                                         |                                      |                                       |          
|Cash and cash equivalents at end of year                                                 |                                      | $                                     | 2,508,224
|                                                                                         |                                      |                                       |          
|Supplemental cash flow information:                                                      |                                      |                                       |          
|                                                                                         | Cash paid during the year for:       |                                       |          
|                                                                                         |                                      | Interest                              |          
|                                                                                         |                                      |                                       |          
|                                                                                         |                                      | Income taxes                          |          
|                                                                                         |                                      |                                       |          

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

28

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Notes to Consolidated Financial Statements  American Locker Group Incorporated and Subsidiaries  December 31, 2006

1.     Basis of Presentation

Consolidation, Business Description and Current Operating Condition

The consolidated financial statements include the accounts of American Locker Group Incorporated and its subsidiaries (the "Company"), all of which are wholly
owned. Intercompany accounts and transactions have been eliminated in consolidation. The Company is primarily engaged in one business, the sale of lockers. This includes coin, key-only and
electronically controlled checking lockers and locks and sale of plastic and aluminum centralized mail and parcel distribution lockers. The Company sells to customers throughout North America as well
as internationally.

On
February 8, 2005, the Company announced that it was notified that its contract with the United States Postal Service ("USPS") for polycarbonate and aluminum cluster box units
("CBUs") would not be renewed, and the contract expired on May 31, 2005. During 2006, 2005 and 2004, sales to the USPS accounted for 3.2%, 21.4% and 53.9%, respectively, of the Company's net
sales. In addition, sales of the current model polycarbonate and aluminum CBUs to the private market accounted for an additional 35.6%, 32.5% and 18.9% of the Company's sales in 2006, 2005 and 2004,
respectively. Since May 31, 2005, the Company has experienced continuing sales of its current aluminum CBU model (Model E) to the private market.

On
May 8, 2007, the USPS notified the Company that, effective September 8, 2007, the USPS would no longer install its "arrow locks" on the Company's Model E CBU. The USPS
decertification of the Company's Model E CBU has occurred in conjunction with the USPS making available technical specifications of its successor USPS-B-1118 CBU. Accordingly,
the Company is preparing its application to the USPS to become a licensed manufacturer of the USPS-B-1118, and will conduct a concurrent and ongoing internal cost analysis to
determine whether it can manufacture that successor model profitably. The Company believes that it will ultimately be approved by the USPS as a licensed manufacturer of the
USPS-B-1118, although it could take between 6-8 months for the Company to be producing the USPS-B-1118 at current levels. The Company
will continue to sell existing inventories of the Model E CBU through August 2007, and it does not presently anticipate that it will incur material inventory write-offs as a result
of such decertification. After August 2007, the Company's revenues will be adversely affected by this decertification until such time as the Company has received USPS approval to manufacture
the USPS-B-1118 and has commenced manufacture and sale of those units.

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

As
discussed in Note 5, the Company received a notice of default and reservation of rights letter in March 2005 from its lender regarding its term loan as a result of the
non-renewal of the Company's

29

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CBU
contract with the USPS. After discussions with its lender following the notice of the non-renewal of the USPS contract, the Company agreed to accelerate repayment of its term loan and
subsequent to year end has repaid the term loan in full. On March 5, 2007, the Company entered into a new credit agreement as discussed in Notes 5 and 19.

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

2.     Summary of Significant Accounting Policies

Cash and Cash Equivalents

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

Accounts and Notes Receivable

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

Estimated
losses for bad debts are provided for in the consolidated financial statements through a charge to expense of approximately $87,000, $332,000 and $155,000 for 2006, 2005, and
2004, respectively. The net charge-off of bad debts was approximately $9,000, $444,000 and $294,000 for 2006, 2005, and 2004, respectively.

Inventories

Inventories are valued principally at the lower of cost or market. Cost is determined by the last-in, first-out method (LIFO) for
approximately 42% and 60% of the Company's inventories at December 31, 2006 and 2005, respectively. For the remaining inventories, cost
is determined by the first-in, first out method (FIFO). At December 31, 2006 and 2005, inventories were $47,000 and $229,000, respectively, lower than the amounts that would have
been reported using the FIFO method. The LIFO charge (credit) was ($182,000), ($238,000) and $203,000 for fiscal years 2006, 2005, and 2004, respectively.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is computed by the straight-line and declining-balance methods for financial reporting
purposes and by accelerated methods for income tax purposes. Estimated useful lives for financial reporting purposes are 30 years for buildings and three to 12 years for machinery and
equipment. Expenditures for repairs and maintenance are expensed as incurred. Gains and losses resulting from the sale or disposal of property and equipment are included in other income.

Long-lived
assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of those assets may
not be recoverable.

30

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The
Company uses undiscounted cash flows to determine whether impairment exists and measures any impairment loss using discounted cash flows. There was no impairment recorded with respect to property,
plant and equipment as of December 31, 2006 and 2005.

Depreciation
expense was $396,000 in 2006, of which $253,000 was included in cost of products sold, and $143,000 was included in selling, administrative and general expenses.

Goodwill and Other Intangible Assets

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

Revenue Recognition

Revenue is recognized at the point of passage of title, which is at the time of shipment to the customer. The Company does derive revenue from sales to
distributors; however no distributor has the right to return product to the Company.

Shipping and Handling Costs

Shipping and handling costs are expensed as incurred and are included in selling, administrative and general expenses in the accompanying consolidated statements
of income. These costs were approximately $1,340,000, $1,356,000 and $1,195,000 during 2006, 2005 and 2004, respectively.

Advertising Expense

The cost of advertising is generally expensed as incurred. The cost of catalogs and brochures are recorded as a prepaid cost and expensed over their useful lives,
generally one year. The Company incurred $238,000, $194,000 and $253,000 in advertising costs during 2006, 2005 and 2004, respectively.

Income Taxes

The Company and its domestic subsidiaries file a consolidated U.S. income tax return. Canadian operations file income tax returns in Canada. The Company
accounts for income taxes using the liability method in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered
or settled.

Research and Development

The Company engages in research and development activities relating to new and improved products. It expended $325,000, $32,000 and $153,000 in 2006, 2005 and
2004, respectively, for such activity in its continuing businesses. Research and development costs are included in selling, general and administrative expenses.

31

---



Earnings Per Share

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

Foreign Currency

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

Fair Value of Financial Instruments

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

Stock-Based Compensation

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 123R, "Share-Based Payments" on a
modified-prospective-transition method. Under this method, the Company's prior periods do not reflect any restated amounts. The Company recognized no compensation expense related to stock options
during the year ended December 31, 2006, as a result of the adoption of Statement 123R. Prior to January 1, 2006, the Company had applied the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25 and had adopted the disclosure requirements of SFAS No. 123, as amended by SFAS No. 148. Accordingly, the compensation expense of any
employee stock options granted was the excess, if any, of the quoted market price of the Company's common stock at the grant date over the amount the employee must pay to acquire the stock. All
options issued in prior period have fully vested, thus no compensation expense is required to be recognized during the year ended December 31, 2006.

Comprehensive Income

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

Use of Estimates

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

32

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New Accounting Pronouncements

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs." SFAS No. 151 amends guidance in ARB No. 43, Chapter 4, "Inventory
Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). The Statement requires that these items be recognized as
current-period charges. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. The Company adopted SFAS No. 151 on January 1, 2006 and the initial
adoption did not have a material impact on the results of operations.

In
May 2005, the FASB issued SFAS 154, "Accounting Changes and Error Corrections", requiring retrospective application to prior-period financial statements of changes in
accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 also redefines "restatement" as the revising of
previously issued financial statements to reflect correction of errors made. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after
December 15, 2005. The Company adopted this standard in 2006 and the initial adoption did not have a material impact on the results of operations, financial position or cash flows.

In
June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 (FIN 48).
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109. "Accounting for Income Taxes," by
prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. If a tax position
is more likely than not to be sustained upon examination, then an enterprise would be required to recognize in its financial statements the largest amount of benefit that is greater than 50% likely of
being realized upon ultimate settlement. The provisions of FIN 48 will be effective as of the beginning of our 2007 fiscal year, with the cumulative effect of the change in accounting principle
recorded as an adjustment to opening retained earnings. We are currently evaluating the impact, if any, of adopting FIN 48 on the Company's consolidated financial statements.

In
June 2006, the FASB ratified its consensus on EITF Issue No. 06-3, "How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be
Presented in the Income Statement (That Is, Gross versus Net Presentation)" (EITF No. 06-3). The scope of EITF No. 06-3 includes any tax assessed by a
governmental authority that is imposed concurrent with or subsequent to a revenue-producing transaction between a seller and a customer. For taxes within the scope of this issue that are significant
in amount, the consensus requires the following disclosures: (i) the accounting policy elected for these taxes and (ii) the amount of the taxes reflected gross in the income statement on
an interim and annual basis for all periods presented. The disclosure of those taxes can be done on an aggregate basis. The consensus is effective for interim and annual periods beginning after
December 15, 2006, with earlier application permitted. Adoption of EITF No. 06-3 is not expected to affect our financial position or results of operations.

In
September 2006, the FASB issued Statement No. 157, "Fair Value Measurements." Statement No. 157 defines fair value, established a framework for measuring fair
value under GAAP, and expands disclosures about fair value measures. Statement No. 157 is effective for fiscal years beginning after November 15, 2007, with early adoption encouraged.
The provisions of Statement No. 157 are to be applied on a prospective basis, with the exception of certain financial instruments for which retrospective application is required. The adoption
of Statement No. 157 is not expected to materially affect our financial position or results of operations.

33

---



In September 2006, FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans." This statement requires an employer to
recognize the overfunded or underfunded status of a single-employer defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in the
funded status in the year in which the changes occur through comprehensive income. SFAS No. 158 is effective for years ending after December 15, 2006. There was no impact on our
consolidated financial statements with respect to the adoption of SFAS No. 158.

In
September 2006, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin (SAB) No. 108 to address diversity in practice in quantifying financial
statement misstatements. SAB 108 requires that registrants quantify the impact on the current year's financial statements of correcting all misstatements, including the carryover and reversing effects
of prior years' misstatements, as well as the effects of errors arising in the current year. SAB 108 is effective as of the first fiscal year ending after November 15, 2006, allowing a
one-time transitional cumulative effect adjustment to retained earnings as of January 1, 2006, for errors that were not previously deemed material, but are material under the
guidance in SAB No. 108. There was no impact on our consolidated financial statements with respect to the adoption of SAB No. 108.

3.     Inventories

Inventories consist of the following:

December 31,2006

2005Finished products

$
442,777

$
610,759Work-in-process


1,243,362


774,190Raw materials


1,701,590


1,910,0483,387,729


3,294,997Less LIFO reserve


(47,320
)

(228,710
)Net inventories

$
3,340,409

$
3,066,287


4.     Other Accrued Expenses and Current Liabilities

Accrued expenses consisted of the following at December 31:

December 31,2006

2005Short-term pension liability

$
215,878

$
231,627Restructuring liability


11,941


133,348Accrued expenses, other


192,535


345,746Total accrued expenses

$
420,354

$
710,721


34

---



5.     Debt

Debt consists of the following:

December 31,2006

2005Mortgage payable to bank through July 2006 at $26,823 monthly including interest at 8.04% with payment for remaining balance due August 1, 2006, collateralized by real estate


2,178,042


2,316,210Total long-term debt


2,178,042


2,316,210Less current portion


(152,192
)

(138,168
)Long-term portion

$
2,025,850

$
2,178,042


Subsequent
to year end the mortgage payable was refinanced on March 5, 2007 with a new financial institution. See Note 19.

6.     Operating Leases

The Company leases several operating facilities and vehicles under noncancelable operating leases. Future minimum lease payments consist of the following at
December 31, 2006:

2007

$
112,0002008


62,0002009


28,0002010


7,0002011


3,000Total

$
212,000


Rent
expense amounted to approximately $150,000, $287,000 and $326,000 in 2006, 2005 and 2004, respectively.

7.     Income Taxes

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

|                            |  | 2006 |           | 2005 |   | 2004       |  
|--------------------------- |  | ---- | --------- | ---- | - | ---------- | -
|United States income (loss) |  | $    | 858,786   |      | $ | (9,193,519 | )
|Foreign income (loss)       |  |      | 167,828   |      |   | (80,693    | )
|                            |  |      |           |      |   |            |  
|                            |  | $    | 1,026,614 |      | $ | (9,274,212 | )
|                            |  |      |           |      |   |            |  

35

---



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

|              |         | 2006 |         | 2005    |   | 2004       |           
|------------- | ------- | ---- | ------- | ------- | - | ---------- | ----------
|Current:      |         |      |         |         |   |            |           
|              | Federal |      | $       | 977     |   | $          | (1,108,342
|              | State   |      |         | 139     |   |            | (94,513   
|              | Foreign |      |         | 65,453  |   |            | 1,536     
|              |         |      |         |         |   |            |           
|Total current |         |      | 66,569  |         |   | (1,201,319 | )         
|Deferred:     |         |      |         |         |   |            |           
|              | Federal |      |         | 268,970 |   |            | 38,240    
|              | State   |      |         | 27,876  |   |            | 5,172     
|              | Foreign |      |         | 23,733  |   |            | (24,407   
|              |         |      |         |         |   |            |           
|              |         |      | 320,579 |         |   | 19,005     |           
|              |         |      |         |         |   |            |           
|              |         | $    | 387,148 |         | $ | (1,182,314 | )         
|              |         |      |         |         |   |            |           

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

|                                                       |  | 2006 |   | 2005 |    | 2004 |  
|------------------------------------------------------ |  | ---- | - | ---- | -- | ---- | -
|Statutory income tax rate                              |  | 34   | % | (34  | %) | 34   | %
|State and foreign income taxes, net of federal benefit |  | 3    |   | (3   | )  | 4    |  
|Repatriation dividend                                  |  |     |   | 4    |    |     |  
|Research and development credits                       |  |     |   | (5   | )  |     |  
|Non-deductible goodwill impairment                     |  |     |   | 25   |    |     |  
|Other permanent differences                            |  | 1    |   | 1    |    | 2    |  
|                                                       |  |      |   |      |    |      |  
|                                                       |  | 38   | % | (13  | %) | 40   | %
|                                                       |  |      |   |      |    |      |  

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

|                               |                                 | 2006 |           | 2005   
|------------------------------ | ------------------------------- | ---- | --------- | -------
|Deferred tax liabilities:      |                                 |      |           |        
|                               | Prepaid expenses and other      |      | $         | 80,794 
|                               |                                 |      |           |        
|Total deferred tax liabilities |                                 |      | 80,794    |        
|Deferred tax assets:           |                                 |      |           |        
|                               | Property, plant and equipment   |      |           | 30,337 
|                               | Postretirement benefits         |      |           | 27,095 
|                               | Pension costs                   |      |           | 351,248
|                               | Allowance for doubtful accounts |      |           | 66,600 
|                               | Other assets                    |      |           | 20,349 
|                               | Accrued expenses                |      |           | 4,418  
|                               | Other employee benefits         |      |           | 915    
|                               | Inventory costs                 |      |           | 499,302
|                               |                                 |      |           |        
|Total deferred tax assets      |                                 |      | 1,000,264 |        
|                               |                                 |      |           |        
|Net deferred tax assets        |                                 | $    | 919,470   |        
|                               |                                 |      |           |        
|Current deferred tax asset     |                                 | $    | 841,689   |        
|Long-term deferred tax asset   |                                 |      | 77,781    |        
|                               |                                 |      |           |        
|                               |                                 | $    | 919,470   |        
|                               |                                 |      |           |        

36

---



The
Company has not provided deferred taxes for taxes that could result from the remittance of undistributed earnings of the Company's foreign subsidiary since it has generally been the
Company's intention to reinvest these earnings indefinitely. Undistributed earnings that could be subject to additional income taxes if remitted were approximately $833,000 at December 31,
2006.

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

8.     Pension and Other Postretirement Benefits

U.S. Pension Plan

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

The
plan's assets are invested in a balanced index fund (the "Fund") where the assets were invested during 2004, 2005 and 2006. The principal investment objective of the Fund is to
provide an incremental risk adjusted return compared to a portfolio invested 50% in stocks and 50% in bonds over a full market cycle. Under normal market conditions, the average asset allocation for
the Fund is expected to be approximately 50% in stocks and 50% in bonds. This benchmark allocation may be adjusted by up to 20% based on economic or market conditions and liquidity needs.

Therefore,
the stock allocation may fluctuate from 30% to 70% of the total portfolio, with a corresponding bond allocation of from 70% to 30%. Fund reallocation may take place at any
time.

Canadian Pension Plan

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

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

37

---



The following table sets forth the changes in the projected benefit obligation, changes in plan assets, the funded status, the accrued benefit cost recognized in the consolidated balance
sheets at December 31, 2006 and 2005, and the net periodic cost and assumptions. The measurement date for all presented assets and liabilities is December 31. Contributions to be made to
the plan in 2007 are expected to approximate $91,500 for the U.S. plan and $134,000 for the Canadian plan.

|                                                                      |                                                   | Pension Benefits |          
|--------------------------------------------------------------------- | ------------------------------------------------- | ---------------- | ---------
|
|
|Change in projected benefit obligation                                |                                                   |                  |          
|                                                                      | Projected benefit obligation at beginning of year |                  | $        
|                                                                      | Service cost                                      |                  |          
|                                                                      | Interest cost                                     |                  |          
|                                                                      | Benefit payments                                  |                  |          
|                                                                      | Administrative expenses                           |                  |          
|                                                                      | Settlement                                        |                  |          
|                                                                      | Actuarial (gain) loss                             |                  |          
|                                                                      | Currency translation adjustment                   |                  |          
|                                                                      | Curtailment gain                                  |                  |          
|                                                                      |                                                   |                  |          
|                                                                      | Projected benefit obligation at end of year       |                  |          
|Change in plan assets                                                 |                                                   |                  |          
|                                                                      | Fair value of plan assets as beginning of year    |                  |          
|                                                                      | Actual return on plan assets                      |                  |          
|                                                                      | Benefit payments                                  |                  |          
|                                                                      | Settlement                                        |                  |          
|                                                                      | Employer contribution                             |                  |          
|                                                                      | Administrative expenses                           |                  |          
|                                                                      | Currency translation adjustment                   |                  |          
|                                                                      |                                                   |                  |          
|Fair value of plan assets at end of year                              |                                                   |                  | 2,639,553
|                                                                      |                                                   |                  |          
|Plan assets less than benefit obligation                              |                                                   |                  | (730,121 
|Amounts recognized in the statement of financial position consist of: |                                                   |                  |          
|Current liabilities                                                   |                                                   |                  | (81,500  
|Non-current liabilities                                               |                                                   |                  | (648,621 
|                                                                      |                                                   |                  |          
|Net amount recognized                                                 |                                                   | $                | (730,121 
|                                                                      |                                                   |                  |          

As
part of its restructuring plan necessitated by the non-renewal of the USPS contract discussed above, the Company decided in May 2005 to freeze its obligations under
the U.S. Plan such that after July 15, 2005 no benefits will accrue under this plan. Accordingly, there is no assumed rate of compensation increase associated with current and future plan
calculations.

38

---



Amounts
are recognized in accumulated other comprehensive income (loss) at year end, consist of:

|                      |  | U.S. Plan |         | Canadian Plan
|--------------------- |  | --------- | ------- | -------------
|
|Unrecognized net loss |  | $         | 450,043 |              
|                      |  |           |         |              
|                      |  | $         | 450,043 |              
|                      |  |           |         |              

|                                        |  | U.S. Plan |          | Canadian Plan |  
|--------------------------------------- |  | --------- | -------- | ------------- | -
|
|Components of net periodic benefit cost |  |           |          |               |  
|Service cost                            |  | $         | 30,487   |               | $
|Interest cost                           |  |           | 184,377  |               |  
|Expected return on plan assets          |  |           | (178,868 | )             |  
|Net actuarial loss                      |  |           | 29,916   |               |  
|Amortization of prior service cost      |  |           |         |               |  
|                                        |  |           |          |               |  
|Net periodic benefit cost               |  | $         | 65,912   |               | $
|                                        |  |           |          |               |  

The
estimated net loss that will be amortized from accumulated other comprehensive income net periodic pension cost over the next fiscal year is $9,000 and $3,000 for the U.S. Plan and
Canadian Plan, respectively.

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

|                  |  | U.S. Plan |         | Canadian Plan
|----------------- |  | --------- | ------- | -------------
|2007              |  | $         | 75,000  |              
|2008              |  |           | 89,000  |              
|2009              |  |           | 103,000 |              
|2010              |  |           | 101,000 |              
|2011              |  |           | 109,000 |              
|2012 through 2016 |  | $         | 857,000 |              

|                                               |  | U.S. Plan |   | Canadian Plan |  
|---------------------------------------------- |  | --------- | - | ------------- | -
|
|Weighted average assumptions as of December 31 |  |           |   |               |  
|Discount rate                                  |  | 5.75      | % | 5.75          | %
|Expected return on plan assets                 |  | 7.5       | % | 7.5           | %
|Rate of compensation increase                  |  |          |   |              |  

The
expected return on plan assets is based upon anticipated returns generated by the investment vehicle. Any shortfall in the actual return has the effect of increasing the benefit
obligation. The benefit obligation represents the actuarial present value of benefits attributed to employee service rendered, assuming future compensation levels are used to measure the obligation.
FASB Statement No. 87 Employers' Accounting for Pensions requires the Company to recognize a minimum pension liability equal to the actuarial present value of the accumulated benefit obligation
in excess of plan assets. The accumulated benefit obligation for the U.S. Plan was $3,369,674 and $3,430,740 at December 31, 2006 and 2005, respectively. The accumulated benefit obligation for
the Canadian Plan was $1,107,550 and $1,015,014 at December 31, 2006 and 2005, respectively. In prior years an intangible asset was recorded for the U.S. Plan to the extent that the excess of
the accumulated benefit obligation over the plan assets relates to prior service costs. As a result of the freezing of the U.S. Plan, the intangible asset of

39

---



$14,435
was written-off and included in the amortization of prior service costs during the second quarter of 2005.

Death Benefit Plan

The Company also provides a death benefit for retired former employees of the Company. Effective in 2000, the Company discontinued this benefit for active
employees. The death benefit is not a funded plan. The Company pays the benefit upon the death of the retiree. The Company has fully recorded its liability in connection with this plan. The liability
was approximately $73,000 at both December 31, 2006 and 2005, and is recorded as long-term pension and other benefits in the accompanying balance sheets. No expense was recorded in
2006, 2005 or 2004 related to the death, benefit as the Plan is closed to new participants.

Defined Contribution Plan

During 1999, the Company established a 401(k) plan for the benefit of its U.S. full-time employees. Under the Company's 401(k) plan, the Company makes
an employer matching contribution
equal to $0.10 for each $1.00 of an employee's salary contributions up to a total of 10% of that employee's compensation. The Company's contributions vest over a period of five years. The Company
recorded expense of approximately $14,000, $19,000 and $21,000 in connection with its contribution to the plan during 2006, 2005 and 2004, respectively.

9.     Capital Stock

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

10.   Stock Options

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

At
December 31, 2006 and 2005, there were no stock appreciation rights outstanding.

On
January 1, 2006, the Company adopted SFAS No. 123R, "Share-Based Payments" on a modified-prospective-transition method. Under this method, the Company's prior periods do
not reflect any restated amounts. The Company recognized no compensation expense related to stock options during the year ended December 31, 2006, as a result of the adoption of Statement 123R.
Prior to January 1, 2006, the Company had applied the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25 and had adopted the disclosure requirements of SFAS
No. 123, as amended by SFAS No. 148. Accordingly, the compensation expense of any employee stock options

40

---



granted
was the excess, if any, of the quoted market price of the Company's common stock at the grant date over the amount the employee must pay to acquire the stock. All options issued in prior
period have fully vested, thus no compensation expense is required to be recognized during the year ended December 31, 2006.

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

|                              |  | 2006   |   | 2005 |      | 2004
|----------------------------- |  | ------ | - | ---- | ---- | ----
|
|Outstandingbeginning of year |  | 33,600 |   | $    | 7.43 |     
|Exercised                     |  |       |   |      |     |     
|Granted                       |  |       |   |      |     |     
|Expired or forfeited          |  | (2,600 | ) |      | 6.50 |     
|                              |  |        |   |      |      |     
|Outstandingend of year       |  | 31,000 |   | $    | 7.51 |     
|                              |  |        |   |      |      |     
|Exercisableend of year       |  | 31,000 |   |      |      |     
|                              |  |        |   |      |      |     

The
exercise prices for options outstanding and exercisable as of December 31, 2006 were as follows: $6.50 - 11,000 shares,
$7.25 - 10,000 shares and $8.88 - 10,000 shares. The weighted-average remaining contractual life of those options is 2.8 years. The intrinsic
value of the options outstanding and exercisable as of December 31, 2006 was $0.

At
December 31, 2006, all share based awards were fully vested and there is no unrecognized compensation cost related to these awards.

At
December 31, 2006, 73,000 options remain available for future issuance under the 1999 Plan.

11.   Shareholder Rights Plan

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

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

41

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12.   Earnings Per Share

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

|                                                                                                       |                        | 2006 |           | 2005    |   | 2004     
|------------------------------------------------------------------------------------------------------ | ---------------------- | ---- | --------- | ------- | - | ---------
|Numerator:                                                                                             |                        |      |           |         |   |          
|                                                                                                       | Net income             |      | $         | 639,466 |   | $        
|Denominator:                                                                                           |                        |      |           |         |   |          
|Denominator for basic earnings per shareweighted average shares outstanding                           |                        |      | 1,547,392 |         |   | 1,540,228
|Effect of dilutive securities:                                                                         |                        |      |           |         |   |          
|                                                                                                       | Employee stock options |      |           |        |   |          
|                                                                                                       |                        |      |           |         |   |          
|Denominator for diluted earnings per shareweighted average shares outstanding and assumed conversions |                        |      | 1,547,392 |         |   | 1,540,228
|                                                                                                       |                        |      |           |         |   |          
|Basic earnings per share                                                                               |                        | $    | 0.41      |         | $ | (5.25    
|                                                                                                       |                        |      |           |         |   |          
|Diluted earnings per share                                                                             |                        | $    | 0.41      |         | $ | (5.25    
|                                                                                                       |                        |      |           |         |   |          

For
the year ended December 31, 2006 and 2005, 31,000 and 33,600 shares, respectively, attributable to outstanding stock options were excluded from the calculation of diluted
earnings per share because the effect was antidilutive.

13.   Accumulated Other Comprehensive Loss

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

2006

2005Foreign currency translation adjustment

$
(28,559
)
$
(35,920
)Minimum pension liability adjustment, net of tax effect of $243,861 in 2006 and $331,139 in 2005


(365,781
)

(485,918
)$
(394,340
)
$
(521,838
)


14.   Geographical and Customer Concentration Data

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

|                                     |  | 2006 |            | 2005 |   | 2004      
|------------------------------------ |  | ---- | ---------- | ---- | - | ----------
|United States customers              |  | $    | 21,476,311 |      | $ | 29,295,544
|Canadian and other foreign customers |  |      | 3,588,779  |      |   | 3,008,145 
|                                     |  |      |            |      |   |           
|                                     |  | $    | 25,065,090 |      | $ | 32,303,689
|                                     |  |      |            |      |   |           

42

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Sales to the U.S. Postal Service represented 3.2%, 21.4% and 53.9% of net sales in 2006, 2005 and 2004, respectively.

At
December 31, 2006 and 2005, the Company had unsecured trade receivables from governmental agencies of $17,000 and $190,000, respectively. At December 31, 2006 and 2005,
the Company had trade receivables from customers considered to be distributors of $1,597,000 and $1,995,000, respectively.

Other
concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities comprising the Company's customer base and their dispersion
across many industries.

15.   Quarterly Results of Operations (Unaudited)

The following is a tabulation of the unaudited quarterly results of operations for the years ended December 31, 2006 and 2005:

|                                  |  | 2006 |          
|--------------------------------- |  | ---- | ---------
|
|
|Net sales                         |  | $    | 6,378,364
|                                  |  |      |          
|Gross profit                      |  | $    | 2,172,388
|                                  |  |      |          
|Net income (loss)                 |  | $    | 326,787  
|                                  |  |      |          
|Earnings (loss) per shareBasic   |  | $    | 0.21     
|                                  |  |      |          
|Earnings (loss) per shareDiluted |  | $    | 0.21     
|                                  |  |      |          

|                                  |  | 2005 |           
|--------------------------------- |  | ---- | ----------
|
|
|Net sales                         |  | $    | 9,323,627 
|                                  |  |      |           
|Gross profit                      |  | $    | 2,862,334 
|                                  |  |      |           
|Net income (loss)                 |  | $    | (5,697,031
|                                  |  |      |           
|Earnings (loss) per shareBasic   |  | $    | (3.71     
|                                  |  |      |           
|Earnings (loss) per shareDiluted |  | $    | (3.71     
|                                  |  |      |           

The
Company's accounting practice for interim periods provides for possible accounting adjustments in the fourth quarter or at year-end. In 2006, adjustments to inventory
resulted in an increase to the fourth quarter pre-tax loss of approximately $250,000. In 2005, adjustments to write off uncollectible accounts resulted in an increase to the fourth quarter
pre-tax loss of approximately $300,000, adjustments to inventory resulted in an increase to the fourth quarter pre-tax loss of approximately $950,000 and adjustments to accrued
expenses resulted in an increase to the fourth quarter pre-tax loss of approximately $360,000.

16.   Related Parties

Edward Ruttenberg, the Chairman and Chief Executive Officer of the Company is a stockholder and director of Rollform of Jamestown, Inc., a rollforming
company. One of the Company's subsidiaries purchased $1,900, $90,000, and $245,000 of fabricated parts from Rollform of Jamestown, Inc. in 2006, 2005 and 2004, respectively.

43

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Alan
H. Finegold, a director of the Company through 2007, was paid $280,000, $197,000, and $20,000 for consulting and legal services to the Company in 2006, 2005 and 2004, respectively.
Consulting services were provided pursuant to a consulting arrangement which was terminated in 2005. Amounts due Mr. Finegold and included in accounts payable at December 31, 2006 and
2005 totaled $28,000 and $32,000, respectively. Mr. Finegold resigned as a director of the Company effective January 2, 2007.

Roy
J. Glosser, a former director and officer of the Company, is related to the Chairman of the Board of Signore, Inc., a vendor that supplied metal lockers to the Company through
June 2006. Purchases from Signore, Inc. totaled $939,000, $3,310,000, and $2,990,000 in 2006, 2005 and 2004, respectively. Amounts due Signore, Inc. and included in accounts
payable at December 31, 2006 and 2005 totaled $0
and $263,000, respectively. The Company terminated its relationship with Signore, Inc. in 2006. See Note 18.

17.   Contingencies

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

Beginning
in September 1998 and continuing through the date of filing of this Annual Report on Form 10-K, the Company has been named as an additional defendant
in approximately 160 cases pending in state court in Massachusetts. The plaintiffs in each case assert that a division of the Company manufactured and furnished components containing asbestos to a
shipyard during the period from 1948 to 1972 and that injury resulted from exposure to such products. The assets of this division were sold by the Company in 1973. During the process of discovery in
certain of these actions, documents from sources outside the Company have been produced which indicate that the Company appears to have been included in the chain of title for certain wall panels
which contained asbestos and which were delivered to the Massachusetts shipyards. Defense of these cases has been assumed by the Company's insurance carrier, subject to a reservation of rights.
Settlement agreements have been entered in approximately 20 cases with funds authorized and provided by the Company's insurance carrier. Further, over 100 cases have been terminated as to the Company
without liability to the Company under Massachusetts procedural rules. Therefore, the balance of unresolved cases against the Company as of June 18, 2007 is approximately 40 cases.

44

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

The
Company is involved in other 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.

18.   Restructuring

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

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

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

Cost of Sales:Equipment depreciation

$
92,000Inventory impairment


160,000Purchase order commitments


108,000Subtotal


360,000Sales, General and Administrative:Severance


641,000Professional fees


1,328,000Subtotal


1,969,000$
2,329,000


The
following table analyzes the changes in the Company's reserve with respect to the restructuring plan from December 31, 2006, 2005 and 2004:

|                           |  | 2004 |   | Expense |   | Payments/
Charges |  | 2005 |           | Expense |   | Payments/
Charges |  | 2006
|-------------------------- |  | ---- | - | ------- | - | ----------------- |  | ---- | --------- | ------- | - | ----------------- |  | ----
|Purchase order commitments |  |      |  |         | $ | 108,000           |  | $    | 108,000   |         |   |                  |  |     
|Severance                  |  |      |  |         |   | 641,000           |  |      | 508,000   |         |   | 133,000           |  |     
|Professional fees          |  |      |  |         |   | 1,328,000         |  |      | 1,328,000 |         |   |                  |  |     
|                           |  |      |   |         |   |                   |  |      |           |         |   |                   |  |     
|Total                      |  | $    |  |         | $ | 2,077,000         |  | $    | 1,944,000 |         | $ | 133,000           |  | $   
|                           |  |      |   |         |   |                   |  |      |           |         |   |                   |  |     

45

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19.   Subsequent Events

Prior to March 5, 2007, the Company had a $2,316,210 mortgage loan that was in default and had matured on August 1, 2006 with Manufacturers and
Traders Trust Company ("M&T"). On March 5, 2007, the Company entered into a new credit facility with The F&M Bank and Trust Company which was used to repay the existing mortgage loan. The new
credit facility consists of a $2,200,000 term loan and a $750,000 revolving line of credit. The loan bears interest at prime plus 75 basis points (0.75%). The revolving line of credit matures on
March 5, 2008 and the term loan matures on March 5, 2012. The Term loan is payable in monthly installments of $22,493 in principal and accrued interest (subject to upward adjustment
based upon the current interest rate in effect). The line of credit is secured by all accounts receivable, inventory and equipment. The term loan is secured by a Deed of Trust covering the primary
manufacturing and headquarters facility in Grapevine, Texas. The credit agreement underlying the bank notes payable requires compliance with certain covenants.

On
July 24, 2007, the Company received a waiver from The F&M Bank and Trust Company under its credit facility with respect to, among other things, waiver of any default or event
of default arising
under the Credit Facility as a result of our failure to comply with certain reporting covenants requiring the delivery of the Company's 2005 and 2006 10-Ks as well as the delivery of financial
statements for the first and second quarter of 2007.

46

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

None.

Item 9A. Controls and Procedures.

The Company carried out an evaluation, under the supervision and with the participation of its management, including its principal executive officer and principal
accounting officer, of the effectiveness of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of
December 31, 2006. These disclosure controls and procedures are designed to provide reasonable assurance to the Company's management and board of directors that information required to be
disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to its management as appropriate to allow timely decisions regarding required disclosure.
Based on that evaluation, including all matters discussed in the paragraphs below, the principal executive officer and principal accounting officer of the Company have concluded that the Company's
disclosure controls and procedures as of December 31, 2006 were not effective, at the reasonable assurance level, to ensure that (a) material information relating to the Company is
accumulated and made known to the Company's management, including its principal executive officer and principal accounting officer, to allow timely decisions regarding required disclosure and
(b) is recorded, processed, summarized and reported within the time periods specified in SEC's rules and forms. There were no changes in the Company's internal control over financial reporting
during the fourth quarter of 2006.

A
material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. Taking into account the communications dated August 30, 2007 by the Company's independent registered public accounting firm to the Audit
Committee of the Board of Directors, management has identified the following material weaknesses in the Company's internal control over financial reporting:

Management
has endeavored to address the material weaknesses noted above and is committed to effectively remediating known weaknesses. Although the Company's remediation efforts are
currently on-going, control weaknesses will not be considered remediated until new internal controls over financial reporting are implemented and operational for a period of time and are
tested, and management concludes that these controls are operating effectively. However, management has taken the following remedial measures:



47

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In
addition management is considering implementing entity level controls such as: (i) a detailed policy and procedures manual; (ii) a strategic plan and business model;
(iii) a budgeting/forecasting control activity; (iv) formalized and enhanced management reporting procedures, including reports to the audit committee; and (v) implement formal
self-monitoring procedures.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Directors and Executive Officers

The following sets forth certain information concerning the Company's directors and executive officers as of December 31, 2006. There are no family
relationships between any directors and executive officers other than as indicated below.

|Name                  |  | Age |  | Position                                                                
|--------------------- |  | --- |  | ------------------------------------------------------------------------
|Edward F. Ruttenberg  |  | 60  |  | Chairman, Chief Executive Officer, Chief Operating Officer and Treasurer
|Paul M. Zaidins(1)    |  | 39  |  | Chief Financial Officer                                                 
|Alan H. Finegold(2)   |  | 64  |  | Director                                                                
|Craig R. Frank        |  | 47  |  | Director                                                                
|John E. Harris        |  | 46  |  | Director                                                                
|Harold S. Rabin(2)    |  | 60  |  | Director                                                                
|Mary A. Stanford      |  | 47  |  | Director                                                                
|James T. Vanasek      |  | 37  |  | Director                                                                
|Anthony B. Johnson(3) |  | 47  |  | Director                                                                

---

Edward F. Ruttenberg.Mr. Ruttenberg, 60, has been a director since 1996 and has been the Company's Chairman and Chief
Executive Officer since September 1998 and Chief Operating Officer and Treasurer since May 2005.

48

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Paul M. Zaidins.Mr. Zaidins, 39, was named the Company's Chief Financial Officer in August 2007 and prior to
that served as Controller since November 2006. Prior to joining the Company, he was a Managing Director for the investment banking firm Lane-Link Group from 2004 to 2006. Prior to
2004, he owned and operated specialty retail stores and was Managing Director for the investment banking firm ECDI Capital. He has been a certified public accountant since 1992.

Alan H. Finegold.Mr. Finegold, 64, was a director from 1994 until January 2007, at which time he resigned as a
director. Mr. Finegold has been employed with the Law Offices of Alan H. Finegold, LLC, a law firm, and the Alan H. Finegold Company, which provides estate planning services, for
more than five years.

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

John E. Harris.Mr. Harris, 46, has been a Director since July 2005 and is a member of the Stock
OptionExecutive Compensation and the Nominating and Governance Committees. Since August 2006, Mr. Harris has been a Vice President of United States Trust Company, an
investment management company. Mr. Harris has served as Principal of Harris Capital Advisors, a consulting, investment analysis and private equity financing firm, from 2001 through
August 2006. Mr. Harris also served as Vice President of Emerson Partners, a real estate private equity fund, from 2001 to 2003. Prior to that, Mr. Harris was a partner at SunTx
Capital Partners, a private investment firm, from 2000 to 2001.

Harold. S. Rabin.Dr. Rabin, 60, was a Director from July 2005 until January 2007, at which time he
resigned as a director. Dr. Rabin has been a diagnostic radiologist with Quantum Imaging and Therapeutic Associates for over 25 years. Dr. Rabin currently serves as a member of
the group's Finance Committee and previously served as its President. In addition, Dr. Rabin is a member of the Medical Executive Committee of Holy Spirit Hospital in Camp Hill, Pennsylvania.
Dr. Rabin is Mr. Ruttenberg's brother-in-law.

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

James T. Vanasek.Mr. Vanasek, 37, has been a Director since July 2005 and is a member of the Audit and
Nominating and Governance Committees. Mr. Vanasek has served as Principal of VN Capital Management, LLC, a private hedge fund, since 2002. Prior to that, Mr. Vanasek was an
investment banking associate at JPMorgan.

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

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

49

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Audit Committee

The Company has a standing Audit Committee. The Audit Committee consists of two directors: James T. Vanasek and Mary A. Stanford. The Company's Board of Directors
has determined that Mr. Vanasek qualifies as an "audit committee financial expert" as defined by SEC regulations and is "independent" as defined under NASDAQ rules.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely upon the Company's review of the reports and representations provided to it by persons required to file reports under Section 16(a), the
Company believes that all of the Section 16(a) filing requirements applicable to the Company's reporting officers and directors were properly and timely satisfied during 2006.

Code of Ethics

The Company has adopted a Code of Ethics which is applicable to all employees, officers and Directors of the Company. The Code of Ethics is intended to address
conflicts of interest, corporate opportunities, confidentiality, fair dealing, protection and proper use of Company assets and compliance with laws, rules and regulations (including inside trading and
reporting requirements). The Code of Ethics establishes special ethical rules with respect to the Chief Executive Officer and senior financial officials of the Company. It also establishes compliance
procedures and mechanisms for reporting suspected violations. The Code of Ethics is available on the Company's website (www.americanlocker.com). The Company intends to disclose amendments to, or
waivers from, provisions of the Code of Ethics that apply to the Chief Executive Officer and senior financial officials by posting such information on its website. The contents of the Company's
website are not part of this Annual Report on Form 10-K.

Nominating and Governance Committee

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

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

Item 11. Executive Compensation.

Compensation Discussion and Analysis

The Executive CompensationStock Option Committee is responsible for all aspects of executive compensation of the Company. It determines levels of
executive compensation for each of the two principal executive officers of the Company and administers the Company's 1999 Stock Incentive Plan and the Company's 1988 Stock Incentive Plan. Following
its deliberations, the Executive CompensationStock Option Committee makes periodic reports to the entire Board of Directors. The

50

---



following
discussion provides information necessary to an understanding of the compensation decisions made by the Executive CompensationStock Option Committee concerning our named
executive officers.

Compensation PhilosophyThe Company's overall executive compensation objective is to attract and retain qualified executive
officers by compensating them at levels comparable to those at similar businesses. The Company's compensation program for executive officers consists of four components, which the Company believes are
necessary for the achievement of this stated goal:



SalaryThe Committee reviews and, if appropriate, revises salary levels for the two principal executive officers of the
Company annually. Salary adjustments made by the Committee generally become effective January 1 of each fiscal year.

Executive
officer salaries are determined in light of individual performance and how their performance compares to the objectives and goals set forth at the beginning of each year,
corporate performance and corporate salaries of executives at comparable companies. In fixing the Chief Executive Officer's salary, the Committee also considers his effectiveness in achieving
expansion and growth objectives of the Company.

Bonus DistributionThe executive officers, on an annual basis at the end of each fiscal year, allocate discretionary bonuses
to key employees of the Company. These bonuses are drawn from a pool established at the time by the executive officers based on factors including the operating results of the Company for such fiscal
year. The Chief Executive Officer and the President make their determinations known to the Committee for all eligible employees. Decisions as to the amount of any such bonus to the two principal
executive officers is determined by the Committee based on data submitted to it regarding individual performance and how their performance compares to the objectives and goals set forth at the
beginning of each year. The bonuses are paid in cash.

Other PlansThe Company maintains other pension benefit and welfare plans for employees of the Company and its subsidiaries,
including a defined benefit plan, a 401(k) plan, medical, disability and life insurance plans. Executive officers participate in these plans on a non-preferential basis.

1999 Stock Incentive PlanThe Stockholders of the Company adopted the 1999 Stock Incentive Plan in May 1999 to recruit
and retain highly qualified managers, consultants and staff. The Committee administers the Plan which includes directing the amount of stock options awarded, selecting the persons to receive stock
option awards, determining the terms, provisions and exercise prices for the stock options. The actual amount earned by any individual who receives stock options is determined by the performance of
the Company's stock. The Committee uses the level of responsibility of an individual as a guideline to establish the size of stock option awards. Please see the detailed discussion of the 1999 Stock
Incentive Plan in the narrative disclosure under the "Summary Compensation Table" heading below.

Compensation of Chief Executive OfficerMr. Ruttenberg's compensation is based on the same philosophy and policies for
all executive officers and includes the same components as the executive officers. In January 2006, to assure Mr. Ruttenberg's continued service to the Company, he and the Company
entered into an employment agreement with a three year term, subject to termination in

51

---



accordance
with its provisions. For more detail concerning Mr. Ruttenberg's employment agreement, please see the narrative disclosure under the "Summary Compensation Table" heading below. The
Committee believes that Mr. Ruttenberg's compensation is reasonable, competitive and fair.

Deductibility of Executive CompensationSection 162(a) of the Internal Revenue Code imposes limits on tax deductions
for annual compensation paid to a chief executive officer and other highly compensated officers unless the compensation qualifies as "performance-based" or is otherwise exempt under the law. The
current levels of compensation of the executive officers of the Company are substantially below the levels at which the limitations of Section 162 are applicable. In the event that levels of
compensation rise such that Section 162 should become applicable, the Committee intends to comply with the limitations of Section 162 unless such compliance is determined by the
Committee not to be in the best interest of the Company at such time.

Summary Compensation Table

The following information is given for 2006, 2005 and 2004 with respect to the compensation which was paid or accrued for services in such years, or which was
paid in such years for services in prior years
but not included in the remuneration table in prior years' proxy statements, for each of the executive officers of the Company as of December 31, 2006.

|                                                                                              |  | Annual Compensation | 
|--------------------------------------------------------------------------------------------- |  | ------------------- | 
|
|Edward F. Ruttenberg
Chairman, Chief Executive Officer,
Chief Operating Officer and Treasurer |  | 2004
2005
2006      | 
|Paul M. Zaidins
Chief Financial Officer(1)                                                    |  | 2004
2005
2006      | 
|Ronald Cronin
Chief Financial Officer(2)                                                      |  | 2004
2005
2006      | 

---

52

---





Employment Agreements

Mr. Ruttenberg is the only executive officer who has an employment agreement (the "Employment Agreement"). Mr. Ruttenberg's Employment Agreement
provides for a term of three years beginning January 3, 2006, subject to termination in accordance with its terms. Under the Employment Agreement, Mr. Ruttenberg is paid a base annual
salary in an amount of no less than $160,000, plus an annual bonus to the extent authorized by the Company's Board of Directors. Mr. Ruttenberg is entitled to participate in any benefit
programs maintained by the Company for full-time salaried employees generally. The Employment Agreement also contains customary covenants regarding nondisclosure of confidential
information and non-competition restrictions.

If
the Employment Agreement is terminated as a result of Mr. Ruttenberg's death, disability or retirement, Mr. Ruttenberg or his estate, as applicable, will be entitled to
payment of (i) his base salary for the entire calendar month in which the termination takes place and for a period of 12 months commencing with the beginning of the month immediate
following the month in which the termination takes place and (ii) any annual bonus, prorated through the date of the termination. If Mr. Ruttenberg terminates the Employment Agreement
for "good reason", Mr. Ruttenberg will be entitled to payment of (i) his base salary for the entire calendar month in which the termination takes place and for the period thereafter
through December 31, 2008 and (ii) any annual bonus, prorated through the date of the termination. If the Company terminates the Employment Agreement for "cause", Mr. Ruttenberg
will be entitled only to payment of his base salary for the entire calendar month in which the termination takes place. If the Employment Agreement is terminated after December 31, 2008 for any
other reason, Mr. Ruttenberg will be entitled to payment of (i) his base salary for the entire calendar month in which the termination takes place and (ii) any annual bonus,
prorated through the date of the termination.

1999 Stock Incentive Plan

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

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

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

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

Amendment or Termination.The 1999 Plan has no fixed expiration date. The Committee will establish expiration and exercise
dates on an award-by-award basis. However, for the purpose of awarding incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended

53

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(the
"Code") ("incentive stock options"), the 1999 Plan will expire ten years from its effective date of May 13, 1999.

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

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

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

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

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

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

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

54

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

No
options were granted or exercised in 2006 under the 1999 Plan.

Grants of Plan Based Awards

There were no grants of plan based awards to any of our named executive officers during the year ended December 31, 2006.

Outstanding Equity Awards

The following table shows certain information regarding outstanding equity awards as of December 31, 2006 for our named executive officers:

|                     |  |                     |  |       |  | Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned Options |  |                |  |                           
|-------------------- |  | ------------------- |  | ----- |  | ------------------------------------------------------------------------------------------ |  | -------------- |  | --------------------------
|
|
|
|Edward F. Ruttenberg |  | 10,000
5,000
10,000 |  | 

 |  | 

                                                                                      |  | 8.88
6.50
7.25 |  | 05/13/09
11/18/09
03/02/10
|Paul M. Zaidins      |  |                    |  |      |  |                                                                                           |  |               |  |                          
|Ronald Cronin        |  |                    |  |      |  |                                                                                           |  |               |  |                          

Option Exercises and Stock Vested

There were no options exercised by any of our named executive officers during the year ended December 31, 2006. There are no stock awards outstanding.

Pension Benefits

The Company's pension plans for salaried employees (U.S. and Canadian) provide for an annual pension upon normal retirement computed under a career average
formula, presently equal to 2% of an employee's eligible lifetime earnings, which includes salaries, commissions and bonuses. The following table sets forth certain benefits information applicable to
our named executive officers under our pension plans. See Note 9 to the Company's consolidated financial statements under Item 8 for additional information about the Company's decision in
May 2005 to freeze its obligations under the

55

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defined
benefit plan for United States employees such that after July 15, 2006 no benefits will accrue under this plan.

|Name                 |  | Plan Name         |  | Number of Years
Credited Service (#) |  | Present Value of
Accumulated
Benefit ($) |  | Payments During
Last Fiscal Year
|-------------------- |  | ----------------- |  | ------------------------------------ |  | ---------------------------------------- |  | --------------------------------
|Edward F. Ruttenberg |  | U.S. Pension Plan |  | 6.75                                 |  | 228,500                                  |  |                                
|Paul M. Zaidins      |  |                  |  |                                     |  |                                         |  |                                
|Ronald Cronin        |  |                  |  |                                     |  |                                         |  |                                

---

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

Potential Payments upon Termination or Change-in-Control

Mr. Ruttenberg is the only executive officer who has an employment agreement. If his employment agreement is terminated as a result of
Mr. Ruttenberg's death, disability or retirement, Mr. Ruttenberg or his estate, as applicable, will be entitled to payment of (i) his base salary for the entire calendar month in
which the termination takes place and for a period of 12 months commencing with the beginning of the month immediate following the month in which the termination takes place and (ii) any
annual bonus, prorated through the date of the termination. If Mr. Ruttenberg terminates his employment agreement for "good reason", Mr. Ruttenberg will be entitled to payment of
(i) his base salary for the entire calendar month in which the termination takes place and for the period thereafter through December 31, 2008 and (ii) any annual bonus, prorated
through the date of the termination. If the Company terminates his employment agreement for "cause", Mr. Ruttenberg will be entitled only to payment of his base salary for the entire calendar
month in which the termination takes place. If his employment agreement is terminated after December 31, 2008 for any other reason, Mr. Ruttenberg will be entitled to payment of
(i) his base salary for the entire calendar month in which the termination takes place and (ii) any annual bonus, prorated through the date of the termination.

The
following table sets forth the value of the payments and the benefits receivable by Mr. Ruttenberg under his employment agreement in connection with a termination or change in
control:

|Executive Benefits
and Payments |  | Involuntary
Termination
for "Cause" |        | Voluntary
Termination for
"Good Reason" |   | Any Other
Termination |  | Disability |         | Change in
Control
|------------------------------- |  | ----------------------------------- | ------ | --------------------------------------- | - | --------------------- |  | ---------- | ------- | -----------------
|Salary                          |  | $                                   | 13,333 |                                         | $ | 320,000               |  | $          | 320,000 |                  
|Bonus                           |  |                                     |       |                                         |   |                      |  |            |        |                  
|401(K) Match                    |  |                                     |       |                                         |   |                      |  |            |        |                  
|Health Insurance                |  |                                     |       |                                         |   |                      |  |            |        |                  
|Other Benefits                  |  |                                     |       |                                         |   |                      |  |            |        |                  

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

56

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during
which he is entitled to receive separation payments shall be computed as two months for each full year during which he has been employed by the Company (not to be shorter than four months nor
longer than 24 months). All separation payments are payable in accordance with the Company's regular payroll procedures over the length of the separation period.

The
following table sets forth the value of the payments and the benefits receivable by Mr. Zaidins under his separation agreement in connection with a termination or change in
control:

|Executive Benefits
and Payments |  | Involuntary
Termination
for "Cause" |        | Voluntary
Termination for
"Good Reason" |   | Any Other
Termination |   | Disability |   | Change in
Control
|------------------------------- |  | ----------------------------------- | ------ | --------------------------------------- | - | --------------------- | - | ---------- | - | -----------------
|Salary                          |  | $                                   | 23,400 |                                         |  |                       |  |            |  |                  
|Bonus                           |  |                                     |       |                                         |  |                       |  |            |  |                  
|401(K) Match                    |  |                                     |       |                                         |  |                       |  |            |  |                  
|Health Insurance                |  |                                     |       |                                         |  |                       |  |            |  |                  
|Other Benefits                  |  |                                     |       |                                         |  |                       |  |            |  |                  

Compensation of Directors

The following table sets forth certain information with respect to the compensation of all members of our board of directors for the year ended
December 31, 2006:

|Name                 |  | Fees Earned
or Paid in
Cash ($) |  | Stock
Awards ($) |  | Option
Awards ($) |  | Non-Equity
Incentive Plan
Compensation
($) |  | All Other
Compensation |  | Total 
|-------------------- |  | ------------------------------- |  | ---------------- |  | ----------------- |  | ------------------------------------------ |  | ---------------------- |  | ------
|Edward F. Ruttenberg |  |                                |  |                 |  |                  |  |                                           |  |                       |  |      
|Alan H. Finegold     |  | 7,007                           |  | 2,993            |  |                  |  |                                           |  |                       |  | 10,000
|Craig R. Frank       |  | 5,750                           |  | 750              |  |                  |  |                                           |  |                       |  | 6,500 
|John E. Harris       |  | 7,007                           |  | 2,993            |  |                  |  |                                           |  |                       |  | 10,000
|Harold S. Rabin      |  | 7,007                           |  | 2,993            |  |                  |  |                                           |  |                       |  | 10,000
|Mary A. Stanford     |  | 10,007                          |  | 2,993            |  |                  |  |                                           |  |                       |  | 13,000
|James T. Vanasek     |  | 7,007                           |  | 2,993            |  |                  |  |                                           |  |                       |  | 10,000

During
the year ended December 31, 2006, each director, other than Dr. Stanford, the Chair of the Audit Committee, who was not a salaried employee of the Company, was paid
an annual base director fee of $8,000, payable quarterly at the end of each calendar quarter. $5,000 of that amount was payable in cash, and the remaining $3,000 was paid in the form of unregistered
shares of the Company's Common Stock, as valued on the basis of the closing price thereof on the last business day of the calendar quarter for which such shares were issued. In recognition of the
additional responsibilities and time commitment associated with the position, the Chair of the Audit Committee received an additional fee of $3,000 on an annual basis, payable in cash quarterly at the
end of each calendar quarter. Each director received $500 for each meeting of the Board of Directors attended in person or by conference telephone, payable in cash quarterly at the end of each
calendar quarter. No director received additional compensation for attendance at any meeting of any committee of the Board of Directors.

Effective
January 1, 2007, each director, other than the Chair of the Audit Committee, who was not a salaried employee of the Company, will be paid an annual base director fee of
$8,000, payable quarterly at the end of each calendar quarter. In recognition of the additional responsibilities and time commitment associated with the position, the Chair of the Audit Committee will
receive an additional fee of $3,500 on an annual basis, payable in cash quarterly at the end of each calendar quarter. Each director will continue to receive $500 for each meeting of the Board of
Directors attended in person or by conference telephone, payable in cash quarterly at the end of each calendar quarter. No director will

57

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receive
additional compensation for attendance at any meeting of any committee of the Board of Directors.

Compensation Committee Interlocks and Insider Participation

Our Executive Compensation-Stock Option Committee consists of three members, Craig R. Frank, John E. Harris and Mary A. Stanford, all of whom are independent
non-employee directors. No member of the Executive Compensation-Stock Option Committee is an officer or employee of the Company. No other member of the Committee has a current or prior
relationship, and no officer who is a statutory insider of the company has a relationship to any other company, required to be described under the SEC's rules relating to disclosure of executive
compensation.

Compensation Committee Report

The Executive Compensation-Stock Option Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained herein. Based on
this review and discussion, the Executive Compensation-Stock Option Committee has recommended to the Company's board of directors that the Compensation Discussion and Analysis be included in this
Annual Report on Form 10-K for the year ended December 31, 2006.

| |  | THE STOCK OPTION-EXECUTIVE
COMPENSATION COMMITTEE          
| |  | -----------------------------------------------------------
| |  | John E. Harris, Chairperson
Craig R. Frank
Mary A. Stanford

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

The table below shows the beneficial ownership, as of August 31, 2007, of the Company's common stock by each person or group know by us to beneficially own
more than 5% of our outstanding common stock, each of the directors and our named executive officers (identified above under the heading "Summary Compensation Table" in Item 11) and all of our
directors and Named Executive Officers as a group. In addition to the 1,549,516 shares of common stock outstanding on August 31,

58

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2007,
this table also gives effect to shares that may be acquired pursuant to options, warrants or convertible securities within 60 days after such date.

|Name and Address of Beneficial Owner(1)                                      |  | Amount and
Nature of
Beneficial
Ownership |     | Percent of Class |  
|---------------------------------------------------------------------------- |  | ----------------------------------------- | --- | ---------------- | -
|Santa Monica Partners, L.P.(2)
1865 Palmer Avenue,
Larchmont, New York 10538 |  | 136,159                                   |     | 8.9              | %
|VN Capital Fund I, L.P.(3)
198 Broadway, Suite 406,
New York, New York 10038 |  | 121,508                                   |     | 7.9              | %
|Edward F. Ruttenberg                                                         |  | 79,841                                    | (4) | 5.2              | %
|Paul M. Zaidins                                                              |  |                                          |     |                 |  
|Craig R. Frank                                                               |  | 150                                       |     | *                |  
|John E. Harris                                                               |  | 644                                       |     | *                |  
|Anthony B. Johnston                                                          |  |                                          |     |                 |  
|Mary A. Stanford                                                             |  | 644                                       |     | *                |  
|James T. Vanasek                                                             |  | 122,152                                   | (5) | 7.9              | %
|All directors and executive officers as a group(7)                           |  | 203,431                                   |     | 13.1             | %

---

59

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Equity Compensation Plans

The following table summarizes as of December 31, 2006, the shares of common stock authorized for issuance under our equity compensation plans:

|                                                           |  | Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights |  | Weighted-average
exercise price of
outstanding options,
warrants and rights |      | Number of securities
remaining available
for future issuance
under equity
compensation plans
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ---- | --------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders     |  | 31,000                                                                                      |  | $                                                                           | 7.51 |                                                                                             
|Equity compensation plans not approved by security holders |  |                                                                                            |  |                                                                             |     |                                                                                             
|                                                           |  |                                                                                             |  |                                                                             |      |                                                                                             
|Total                                                      |  | 31,000                                                                                      |  | $                                                                           | 7.51 |                                                                                             
|                                                           |  |                                                                                             |  |                                                                             |      |                                                                                             

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

Edward Ruttenberg, the Chairman and Chief Executive Officer of the Company, is a stockholder and director of Rollform of Jamestown, Inc., a rollforming
company. ALSSI, one of the Company's subsidiaries, purchased $1,900, $90,000, and $245,000 of fabricated parts from Rollform of Jamestown, Inc. in 2006, 2005 and 2004, respectively.

Alan
H. Finegold, a director of the Company through January 2007, was paid $280,000, $197,000, and $20,000 for consulting and legal services to the Company in 2006, 2005 and 2004,
respectively. Consulting services were provided pursuant to a consulting arrangement that was terminated in 2005. Amounts due Mr. Finegold and included in accounts payable at
December 31, 2006 and 2005 totaled $28,000 and $32,000, respectively. Mr. Finegold resigned as a director of the Company effective January 2, 2007.

Roy
J. Glosser, a former director and officer of the Company, is related to the Chairman of the Board of Signore, Inc., a vendor that supplied metal lockers to the Company through
June 2006. Purchases from Signore, Inc. totaled $939,000, $3,310,000, and $2,990,000 in 2006, 2005 and 2004, respectively. Amounts due Signore, Inc. and included in accounts
payable at December 31, 2006 and 2005 totaled $0 and $263,000, respectively. The Company terminated its relationship with Signore, Inc. in 2006. See Note 18 to the Company's
consolidated financial statements included under Item 8 in this Annual Report on Form 10-K.

Item 14. Principal Accountant Fees and Services.

The Audit Committee of the Board of Directors of the Company appointed Travis, Wolff & Company, LLP as the independent registered public accounting firm to
audit the financial statements of the Company and its subsidiaries for the fiscal year ended December 31, 2006 and 2005. Previously, the Company engaged Schneider Downs &
Co., Inc. as the independent registered public accounting firm to audit the financial statements of the Company and its subsidiaries for the fiscal year ended December 31, 2004.
Schneider Downs & Co., Inc. resigned as the independent registered public accounting firm effective August 26, 2005.

The
following table presents approximate aggregate fees and other expenses for professional services rendered by Travis, Wolff & Company, LLP for the audit of the Company's annual
financial

60

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statements
for the years ended December 31, 2006 and 2005 and fees and other expenses for other services rendered during those periods.

2006

2005Audit fees

$
170,000

$
409,000Audit-related fees





39,000Tax fees


30,000


31,000All other fees





Total

$
200,000

$
479,000


Audit Fees

Audit fees in 2006 and 2005 relate to services rendered in connection with the audit of the Company's consolidated financial statements. Audit fees in 2005
include the quarterly review of the financial statements included in the Company's Form 10-Q for its third fiscal quarter.

Audit-Related Fees

Audit-related fees in 2006 and 2005 include fees for assurance and related services that are reasonably related to the performance of the audit or review of the
Company's financial statements and that are not reported under the caption "Audit Fees" above. Audit-related fees in 2005 relate to services rendered in connection with the audits of the Company's
employee benefit plans.

Tax Fees

Tax fees in 2006 and 2005 include fees for services with respect to tax compliance, tax advice and tax planning.

Other Fees

There were no other fees in 2006.

Pre-Approval Policies and Procedures

The Audit Committee considered whether the provision of all of the services described above were compatible with the Company's policies and maintaining the
auditor's independence, and has determined that such services for 2006 and 2005 were compatible with the Company's policies and maintaining the auditor's independence. All services
described above were pre-approved by the Audit Committee.

61

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PART IV

Item 15. Exhibits, Financial Statement Schedules.

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

EXHIBIT INDEX

|Exhibit
No. |  | Document Description                                                                                        |  | Prior Filing or
Notation of Filing Herewith             
|----------- |  | ----------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------
|3.1         |  | Certificate of Incorporation of American Locker Group Incorporated                                          |  | Exhibit to Form 10-K for Year ended December 31, 1980   
|3.2         |  | Amendment to Certificate of Incorporation                                                                   |  | Form 10-C filed May 6, 1985                             
|3.3         |  | Amendment to Certificate of Incorporation                                                                   |  | Exhibit to Form 10-K for year ended December 31, 1987   
|3.4         |  | By-laws of American Locker Group Incorporated as amended and restated                                       |  | Exhibit to Form 10-K for year ended December 31, 1985   
|3.5         |  | Amendment to By-laws of American Locker Group Incorporated dated January 15, 1992                           |  | Exhibit to Form 10-K for year ended December 31, 1991   
|3.6         |  | Amendment to Bylaws dated March 3, 1999                                                                     |  | Exhibit to Form 10-K for year ended December 31, 1998   
|3.7         |  | Amendment to Bylaws dated November 19, 1999                                                                 |  | Exhibit to Form 10-K for year ended December 31, 1999   
|4.1         |  | Certificate of Designations of Series A Junior Participating Preferred Stock                                |  | Exhibit to Form 10-K for year ended December 31, 1999   
|10.1        |  | Form of Indemnification Agreement between American Locker Group Incorporated and its directors and officers |  | Exhibit to Form 8-K filed May 18, 2005                  
|10.2        |  | American Locker Group Incorporated 1999 Stock Incentive Plan                                                |  | Exhibit to Form 10-Q for the quarter ended June 30, 1999
|            |  |                                                                                                             |  |                                                         

62

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|10.3 |  | Rights Agreement dated November 19, 1999 between American Locker Group Incorporated and Chase Mellon Shareholder Services LLC                                                          |  | Exhibit to Form 8-K filed November 18, 1999          
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------
|10.4 |  | Employment Agreement dated January 3, 2006 between American Locker Group Incorporated and Edward F. Ruttenberg                                                                         |  | Exhibit to Form 8-K filed January 4, 2006            
|10.5 |  | Form of Option Agreement under 1999 Stock Incentive Plan                                                                                                                               |  | Exhibit to Form 10-K for year ended December 31, 1999
|10.6 |  | Loan Agreement dated March 6, 2007 between American Locker Group, F&M Bank and Trust Company and Altreco, Inc., as Guarantor (Line of Credit)                                          |  | Exhibit to Form 10-K for year ended December 31, 2005
|10.7 |  | Loan Agreement dated March 6, 2007 between American Locker Group, F&M Bank and Trust Company and Altreco, Inc., as Guarantor (Term Loan)                                               |  | Exhibit to Form 10-K for year ended December 31, 2005
|21.1 |  | List of Subsidiaries                                                                                                                                                                   |  | Filed herewith                                       
|23.1 |  | Consent of Travis, Wolff & Company, LLP                                                                                                                                                |  | Filed herewith                                       
|23.2 |  | Consent of Schneider Downs & Co., Inc.                                                                                                                                                 |  | Filed herewith                                       
|31.1 |  | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934                                                      |  | Filed herewith                                       
|31.2 |  | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934                                                      |  | Filed herewith                                       
|32.1 |  | Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  | Filed herewith                                       

63

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|                  |  | AMERICAN LOCKER GROUP INCORPORATED
|----------------- |  | ----------------------------------
|September 4, 2007 |  | By:                               

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

|Signature                                   |  | Title                                                                                                  |  | Date             
|------------------------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | -----------------
|                                            |  |                                                                                                        |  |                  
|/s/EDWARD F. RUTTENBERGEdward F. Ruttenberg |  | Chairman, Chief Executive Officer, Chief Operating Officer and Treasurer
(PrinciPal Executive Officer) |  | September 4, 2007
|/s/PAUL M. ZAIDINSPaul M. Zaidins           |  | Chief Financial Officer
(Principal Financial Officer)                                                  |  | September 4, 2007
|/s/CRAIG R. FRANKCraig R. Frank             |  | Director                                                                                               |  | September 4, 2007
|/s/JOHN E. HARRISJohn E. Harris             |  | Director                                                                                               |  | September 4, 2007
|/s/ANTHONY B. JOHNSTONAnthony B. Johnston   |  | Director                                                                                               |  | September 4, 2007
|/s/MARY A. STANFORDMary A. Stanford         |  | Director                                                                                               |  | September 4, 2007
|/s/JAMES T. VANASEKJames T. Vanasek         |  | Director                                                                                               |  | September 4, 2007

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Schedule II

American
Locker Group Incorporated

Valuation and Qualifying Accounts

|Year            |                                 | Description |   | Balance at the Beginning of Year |  | Additions Charged to Costs and Expense |         | Deductions |   | Balance at End of Year
|--------------- | ------------------------------- | ----------- | - | -------------------------------- |  | -------------------------------------- | ------- | ---------- | - | ----------------------
|Year ended 2006 |                                 |             |   |                                  |  |                                        |         |            |   |                       
|                | Allowance for Doubtful Accounts |             | $ | 120,000                          |  |                                        | 87,000  |            |   | (9,000                
|                | Reserve for Inventory Valuation |             |   | 1,003,000                        |  |                                        | 247,000 |            |   |                      
|Year ended 2005 |                                 |             |   |                                  |  |                                        |         |            |   |                       
|                | Allowance for Doubtful Accounts |             | $ | 232,000                          |  | $                                      | 332,000 |            | $ | (444,000              
|                | Reserve for Inventory Valuation |             |   | 386,000                          |  |                                        | 617,000 |            |   |                      
|Year ended 2004 |                                 |             |   |                                  |  |                                        |         |            |   |                       
|                | Allowance for Doubtful Accounts |             | $ | 371,000                          |  | $                                      | 155,000 |            | $ | (294,000              
|                | Reserve for Inventory Valuation |             |   | 457,000                          |  |                                        | 123,000 |            |   | (194,000              

II-1

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