U. S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

            [X]  ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
                 SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

            For the fiscal year ended December 31, 1998

            [ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
                 SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

              For the transition period from ________ to __________
                          Commission file number 0-439

                       American Locker Group Incorporated
--------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)

               Delaware                               16-0338330
--------------------------------------------------------------------------------
       (State or other jurisdiction of            (I.R.S. Employer
       incorporation or organization)             Identification No.)

    608 Allen Street, Jamestown, New York                      14701-3966
--------------------------------------------------------------------------------
    Address of principal executive offices)                     (Zip Code)

Issuer's  telephone number  1-716-664-9600
                           -----------------------------------------------------
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)

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

                                     - 1 -
<PAGE>

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of Regulation S-B is not contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements  incorporated by reference in Part III of the Form 10-KSB
or any amendment to this Form 10-KSB. [X]

     State issuer's revenues for its most recent fiscal year. $45,011,327.

     Issuers  aggregate market value of the voting stock held by  non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked prices of such stock, as of March 11, 1999: $19,020,798.

     State the number of shares  outstanding of each of the issuer's  classes of
common equity, as of the latest practicable date:  2,498,772 shares common stock
($1.00 par value) as of March 11, 1998.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the  definitive  Proxy  Statement for the Annual  Stockholders'
Meeting to be held May 13, 1999, are incorporated by reference into Part III.

     Transitional Small Business Disclosure Form (check one): / / Yes /X/ No



                                     - 2 -
<PAGE>


PART I

ITEM 1.  DESCRIPTION OF BUSINESS

American Locker Group  Incorporated  (the "Company") is engaged primarily in the
sale  and  rental  of  lockers.  This  includes  coin,  key  and  electronically
controlled  checking lockers and related locks and plastic  centralized mail and
parcel distribution lockers. The key controlled checking lockers are sold to the
recreational  and  transportation  industries,  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
electronically   controlled,   coin  operated   lockers  are  sold  for  use  in
transportation  industry and other uses. The plastic centralized mail and parcel
distribution  lockers are sold to the United States Postal Service  ("USPS") for
use in  centralized  mail and parcel  delivery  in new  housing  and  industrial
developments,  as well  as  replacement  of  older  style  lockers  in  existing
locations.

The Company is an engineering,  assembling and marketing  enterprise  which also
manufactures its own mechanical locks for use in its products.

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.

One of the Company's  subsidiaries is a party to a Manufacturing  Agreement with
Signore,  Inc.,  formerly a wholly owned  subsidiary of the Company,  to furnish
fabricating,  assembly  and  shipping  services.  The  Agreement,  which  became
effective January 1, 1990, has been extended and now is for a term expiring June
30, 2000. The Agreement provides that the cost to the Company for these services
be equal to Signore's standard cost divided by 80%.

BUSINESS SEGMENT INFORMATION

The Company,  including its foreign subsidiary, is engaged in one business: sale
and rental of coin and key or  electronically  controlled  checking  lockers and
locks and the sale of plastic centralized mail and parcel distribution lockers.

The Company has  developed a  polycarbonate  all-weather  parcel  locker for the
United  States  Postal  Service,  and has shipped over 151,000 of the units from
March 1989 through March 5, 1999.  Cluster Box Units, i.e.  (combination  letter
box - CBU),  are plastic  parcel and letter units for the United  States  Postal
Service which have been approved and field tested. In November 1994, the Company
negotiated  a contract to sell Type Three CBUs in quantity to the United  States
Postal  Service.  Type One and Type Two CBUs are  approved  and  included in the
current contract.  As of March 5, 1999, Cluster Box Units with aggregate invoice
prices in excess of  $70,000,000  have been shipped to the United  States Postal
Service  pursuant to the 1994 contract and subsequent  contracts.  Components of
these  units are made by  outside  vendors  and the units are  assembled  by The
Company's  wholly-owned  subsidiary,  American  Locker  Security  Systems,  Inc.
(ALSSI).  The units  are sold  directly  by ALSSI to the  United  States  Postal
Service.

                                     - 3 -
<PAGE>

The  checking  lockers are  fabricated  by Signore  Inc. and are marketed in the
United  States by ALSSI.  Lockers for the Canadian  market are  manufactured  by
Signore Inc. with locks  supplied from ALSSI.  Lockers are marketed in Canada by
the  Canadian  Locker  Company,   Ltd.  ("Canadian   Locker"),   a  wholly-owned
subsidiary.  These  sales are made  outright,  through  salaried  employees  and
distributors,   to  customers  who  need  storage  facilities  requiring  a  key
controlled lock system in the recreational,  governmental and institutional type
industries. Canadian Locker also owns and operates coin operated lockers in air,
bus and rail terminals and retail  locations in Canada.  ALSSI  manufactures the
lock system,  which is coin or key controlled  and operated,  for use in lockers
sold by ALSSI and Canadian Locker.  ALSSI also provides  nationwide and Canadian
maintenance and repair services with respect to coin operated lockers previously
sold by ALSSI. The Company has developed a coin operated baggage cart system and
is operating the system at one major Canadian airport, and has sold several cart
systems for use in American airports.

Additional   information  with  respect  to  business  segment  data,  including
significant  customers,  is  disclosed  in Note 10 of the  financial  statements
included in Item 7 of this Form 10-KSB.

COMPETITION

While the Company is not aware of any  reliable  trade  statistics,  it believes
that its subsidiaries,  ALSSI and Canadian Locker are the dominant  suppliers of
key controlled  checking lockers in the United States and Canada.  However,  the
Company faces more active competition from several other manufacturers of locker
products sold to the United States Postal Service and other purchasers.

RAW MATERIALS

Present  sources of supplies and raw materials  incorporated  into the Company's
metal and plastic lockers and locks are generally  considered to be adequate and
are  currently  available  in  the  market  place.  The  Company's  supplier  of
polycarbonate  plastic which is used in the parcel lockers and CBUs entered this
market in March 1992 and is presently  supplying  this raw material  which meets
strict specifications  imposed by the United States Postal Service. In the event
the present supplier  declines to continue to supply this material,  the Company
would be required to seek an alternate source of supply.

The Company's  metal lockers are  manufactured  by Signore Inc.  pursuant to the
Manufacturing Agreement, except for the locks which are manufactured by ALSSI.

PATENTS

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


                                     - 4 -
<PAGE>

EMPLOYEES

The Company  actively  employed 135  individuals as of December 31, 1998, in its
businesses of whom 47 are in Canada.  The Company  considers its relations  with
its  employees  to  be  satisfactory.   None  of  the  Company's  employees  are
represented by a union.

RESEARCH AND DEVELOPMENT

The Company engages in research and development  activities  relating to new and
improved  products  as an  incident of its normal  manufacturing  operations  in
conjunction with the continuing  operations.  It expended $17,081,  $48,735, and
$44,634  in  1998,  1997  and  1996,  respectively,  for  such  activity  in its
continuing businesses, which does not include new product development costs.

COMPLIANCE WITH ENVIRONMENTAL LAWS AND REGULATIONS

Based on the  information  available to it, the Company  believes  that it is in
compliance  with  present  federal,  state  and  local  environmental  laws  and
regulations.

In December  1998,  the Company  was named as a  defendant  in a lawsuit  titled
"ROBERTA RAIPORT, ET AL. V. GOWANDA ELECTRONICS CORP. AND AMERICAN LOCKER GROUP,
INC." pending in the State of New York Supreme Court, County of Cattaragus.  The
suit  involves  property  located  in  Gowanda,  New York  which was sold by the
Company to Gowanda  Electronics Corp. prior to 1980. The plaintiffs,  current or
former  property  owners in  Gowanda,  New York,  assert  that  defendants  each
operated machine shops at the site during their respective  periods of ownership
and that as a  result  of such  operation  soil  and  groundwater  contamination
occurred  which  has  adversely   affected  the  plaintiffs  and  the  value  of
plaintiffs'  properties.  The plaintiffs assert a number of causes of action and
seek  compensatory  damages  of  $5,000,000  related to  alleged  diminution  of
property  values,  $3,000,000 for economic losses and "disruption to plaintiffs'
lives," $10,000,000 for "nuisance,  inconveniences and disruption to plaintiffs'
lives,"  $25,000,000 in punitive damages,  and $15,000,000 to establish a "trust
account"  for  monitoring  indoor air quality and other  remedies."  The Company
believes  that its  potential  liability  with respect to this site,  if any, is
diminimus.  Therefore, based on the information currently available,  management
does not believe the outcome of this suit will have a substantial  impact on the
Company's  operations  or  financial  condition.  Defense  of this case has been
assumed by the Company's insurance carrier,  subject to a customary  reservation
of rights.

GENERAL

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.

During 1998,  1997 and 1996,  one customer,  the United  States Postal  Service,
accounted  for 76.9%,  69.2% and 61.8% of net sales,  respectively.  The loss of
this  customer,  or a  reduction  in its  orders,  could  adversely  affect  the
Company's operations and financial results.


                                     - 5 -
<PAGE>

EXECUTIVE OFFICERS OF THE COMPANY

                                                                  YEAR FIRST
                                                                    ASSUMED
    NAME                  AGE     OFFICE HELD WITH COMPANY         POSITION
--------------------------------------------------------------------------------

Edward F. Ruttenberg        52    Chairman of the Board and          1998
                                  Chief Executive Officer

Roy J. Glosser              38    President, Chief Operating         1996
                                  Officer and Treasurer

Mr. E.F.  Ruttenberg has been employed in his positions since  September,  1998.
Prior to that  date he served  as Vice  Chairman  of the  Company.  Mr.  Glosser
assumed his position as President  and Chief  Operating  Officer in May 1996 and
became  Treasurer in September  1998.  Prior to that date, Mr. Glosser served as
Vice  President - Operations  of the Company since 1995 and has been employed by
the Company since 1992 in operations and product development.

There  are no  arrangements  or  understandings  pursuant  to  which  any of the
officers were elected as officers, except for an employment contract between the
Company and Roy J. Glosser.  Except as provided in such employment contract, all
officers  hold  office for one year and until their  successors  are elected and
qualified;  provided,  however,  that any officer is subject to removal  with or
without cause, at any time, by a vote of the majority of the Board of Directors.

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.





                                     - 6 -
<PAGE>


ITEM 2.  DESCRIPTION OF PROPERTY

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

<TABLE>
<CAPTION>
                                                       APPROXIMATE
                                                       FLOOR SPACE
LOCATION             SUBSIDIARY                        IN SQ. FT.      PRODUCTS
--------             ---------                         -----------     --------
<S>                  <C>                               <C>           <C> 
                    
Jamestown, NY        Principal Executive Office        37,000*       Office space/
                     American Locker Company, Inc.                   Assembly and
                     and American Locker Security                    Warehouse
                       Systems, Inc.
                    
Jamestown, NY        American Locker Security          30,200*       Assembly and
                       Systems, Inc.                                  Warehouse
                    
Pittsburgh, PA       Executive Office                     500*       Office space
                    
Ellicottville, NY    American Locker Security          12,800        Lock manufactur-
                       Systems, Inc. - Lock Shop                      ing 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
                    
                                                       ------
                                     TOTAL             87,500
                                                       ======
</TABLE>
                                     
The Company  believes that its facilities which are of varying ages and types of
construction and the machinery and equipment utilized in such plants are in good
condition and are adequate for its presently  contemplated needs. All facilities
are leased except for the Ellicottville facility. The leases on these properties
terminate at various times from 1999 through 2001.

ITEM 3.  LEGAL PROCEEDINGS

As previously  reported,  four female former employees of the Company alleged in
suits entitled Derr et al. v. American Locker Group, Inc.,  94-CV-0515S(M),  (US
District  Court for Western  District of New York) that they were the victims of
sex discrimination in their terminations


                                     - 7 -
<PAGE>

and/or compensation and sought unspecified damages. As previously disclosed, the
Court granted summary judgement in favor of the Company and dismissed the claims
of three of the four  plaintiffs on March 25, 1998. On June 4, 1998, the Company
entered into a settlement with the remaining  plaintiff whereby the Company paid
a monetary  sum of $400,000 in full  settlement  of all claims of the  remaining
plaintiff. The amount of the settlement had previously been accrued on the books
of the Company

In September 1998 and subsequent  months, the Company was named as an additional
defendant in 32 cases pending in state court in Massachusetts. The plaintiffs in
each such case assert that the Company  manufactured  and  furnished  to various
shipyards components containing asbestos during the period from 1948 to 1972 and
that  injuries  resulted  from  exposure  to such  products.  The assets of this
division were sold by the Company in 1973. Based upon  investigations  conducted
by the Company to date,  the Company has  discovered no evidence that the former
division  manufactured or supplied any products containing asbestos.  Therefore,
barring the discovery of contrary evidence, the Company does not anticipate that
these actions will have any  substantial  impact on the Company's  operations or
financial  condition.  Defense of these cases has been assumed by the  Company's
insurance carrier, subject to a customary reservation of rights.

See "Item 1.  Business - Compliance with Environmental Laws and Regulations."


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of the security  holders,  by means of
solicitation of proxies or otherwise, during the fourth quarter of 1998.




                                     - 8 -
<PAGE>

PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's  shares of Common Stock (Par Value $1.00 per share) are not listed
on any exchange,  but are traded on the  over-the-counter  market and quotations
are reported by the National Association of Security Dealers, Inc. through their
Automated  Quotation System (NASDAQ) on the National Market System.  The trading
symbol is ALGI.  The  following  table  shows the range of the low and high sale
prices for each of the calendar quarters indicated.

<TABLE>
                                PER COMMON SHARE
                                  MARKET PRICE

<CAPTION>
                                                             DIVIDEND
     1997                  HIGH             LOW              DECLARED
     ----                  ----             ----             --------

<S>                      <C>              <C>                  <C> 
First Quarter            $  3.50          $ 3.25               $0.00
Second Quarter              3.56            2.8125              0.00
Third Quarter               6.00            3.00                0.00
Fourth Quarter              7.00            4.57                0.00
                                                               -----
Total                                                          $0.00 
                                                              ======   

                                                             DIVIDEND
     1998                  HIGH             LOW              DECLARED
     ----                  ----             ----             --------

First Quarter            $12.75           $ 6.188              $0.00
Second Quarter            39.00           11.50                 0.00
Third Quarter             37.75           10.50                 0.00
Fourth Quarter            30.75           18.00                 0.00
                                                               -----
Total                                                          $0.00    
                                                              ======
</TABLE>

As of March 12, 1999, the Company had 1,386 security holders of record.

By agreement with its principal lender,  the Company's ability to declare future
dividends is restricted. See Note 4 to the financial statements included in Item
7 of this Form 10-KSB.


                                     - 9 -
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS - 1998 COMPARED TO 1997

In 1998,  consolidated  sales of  $45,011,327  increased  54% over 1997 sales of
$29,295,327.  Income  before  income taxes rose 106% to  $7,103,364  compared to
$3,454,508 in 1997. Sales of the Company's  plastic lockers to the United States
Postal Service (USPS)  increased 76% from  $19,112,209 in 1997 to $33,610,788 in
1998.  Revenues from the Company's other non-plastic  locker products  increased
12% from $10,183,324 in 1997 to $11,400,539 in 1998.

Consolidated  cost of sales as  percentage  of sales  remained  at 70.0% in 1998
compared to 70.0% in 1997. Gross margin gains due to higher volume  efficiencies
on Cluster Box Units (CBUs) were offset by price concessions to the USPS.

The Company's  present contract with the USPS covers all three types of CBUs and
the Outdoor Parcel Locker (OPL).  The contract was originally  awarded March 27,
1996,  for a period of one year.  The USPS  exercised  two  one-year  options to
extend the contract to mid-April  1998 and mid-April 1999  respectively.  During
1998 the Company delivered  approximately 34,000 CBUs (all three types combined)
and  approximately  8,000  OPLs.  The  USPS  has  instituted  and  maintained  a
procurement  policy since October 1997 that strictly  limits  purchase of NDCBUs
(the steel predecessor to plastic or aluminum CBUs) in relation to the new CBUs.
Shipments of CBUs increased dramatically in 1998 due to execution of this policy
and the Company's ability to maintain its market share position.

The USPS has  advised the Company  that it will  exercise  the third of four one
year options  extending the contract to mid-April  2000.  Prices and  quantities
under  the  contract  renewal  have  not  been  finalized  and  are  subject  to
negotiation.  The USPS has also notified its procurement offices nationwide that
effective  mid-September  1999 all NDCBUs will be decertified.  This policy when
instituted will eliminate the purchase and  installation of NDCBUs.  This notice
was also sent to all three CBU vendors,  including our two competitors,  both of
whom produce NDCBUs and CBUs. The Company does not produce  NDCBUs.  The Company
believes  its CBU product line  continues  to represent  the best value when all
factors  including  price,   quality  of  design  and  construction,   long-term
durability and service are considered.

Selling, administrative and general expenses of $6,608,376 during 1998 increased
29% from the $5,119,905 in 1997. Two unusual items  accounted for  approximately
$727,000  of the  $1,488,471  increase in  selling,  administrative  and general
expenses. On July 1, 1998, Roy J. Glosser, President and Chief Operating Officer
was granted and exercised  stock  appreciation  rights (SARs) which  resulted in
$327,000 of additional  compensation expense. The Company also expensed $400,000
to provide  for the full  valuation  of the  supplemental  executive  retirement
program (SERP) for Harold J.  Ruttenberg,  former  Chairman and Chief  Executive
Officer.  The remainder of the increase in selling,  administrative  and general
expense includes  increased costs for compensation,  selling expenses,  freight,
and legal  expenses.  The  previously  disclosed  settlement  with the remaining
plaintiff of Derr et al v.  American  Locker Group Inc.,  94-CV-05155(M),  for a
monetary sum of $400,000 was fully  reserved and had no effect on the  Company's
results of operations in 1998.


                                     - 10 -
<PAGE>

Interest income increased to $102,826 in 1998 compared to $51,270 in 1997 due to
improvements in daily cash management  procedures and higher balances  available
for overnight investment. Total other income was $322,742 in 1998 as compared to
other expense of $56,762 in 1997.

Interest expense  increased to $231,875 in 1998 from $181,678  recorded in 1997.
The increase in interest  expense relates to higher average  outstanding debt in
1998. However, in October 1998 the Company retired $1,813,421 of debt related to
the repurchase of a large block of Company stock in 1997.

RESULTS OF OPERATIONS - 1997 COMPARED TO 1996

In 1997  consolidated  sales of  $29,295,533  increased  30% over 1996  sales of
$22,517,589.  Income  before  income  taxes rose 90% to  $3,454,508  compared to
$1,819,184 in 1996. Sales of the Company's  plastic lockers to the United States
Postal Service (USPS)  increased 51% from  $12,658,767 in 1996 to $19,112,209 in
1997. Revenues from the Company's other non-plastic locker products increased 3%
from $9,858,822 in 1996 to $10,183,324 in 1997.

Consolidated cost of sales as a percentage of sales decreased  slightly to 70.0%
in 1997 from 70.1% in 1996. Gross margin gains due to higher volume efficiencies
on Cluster Box Units (CBUs) were mostly offset by price concessions to the USPS.

As stated earlier, the Company's present contract with the USPS covers all three
types of CBUs and the Outdoor  Parcel  Locker  (OPL).  The  contract was awarded
March 27, 1996 for a period of one year  expiring  April 14, 1997.  On April 16,
1997 the USPS  exercised  the  first of four  one-year  options  to  extend  the
contract to April 14,  1998.  During 1997 the  Company  delivered  approximately
16,000  CBUs (all three  types  combined)  and  approximately  16,000  OPLs.  As
previously  announced,  the USPS  instituted  procurement  policy that  strictly
limits purchase of NDCBUs (the steel predecessor to plastic or aluminum CBUs) in
relation  to  the  new  CBUs.  Fourth  quarter  1997  CBU  shipments   increased
dramatically  due to  execution  of this  policy  and the  Company's  ability to
maintain its dominant market share position.

Selling, administrative and general expenses of $5,119,905 during 1997 increased
2.6% from the  $4,989,497 in 1996. The increase in selling,  administrative  and
general  expenses relates to increased  freight and selling expenses  associated
with the increased shipment volume.

Interest income  increased to $51,270 in 1997 compared to $43,270 in 1996 due to
improvements in daily cash management  procedures and higher balances  available
for overnight investment. Total other expense was $56,762 in 1997 as compared to
other income of $248,605 in 1996.

Interest expense decreased to $181,678 in 1997 from $208,827 recorded in 1996.



                                     - 11 -
<PAGE>

LIQUIDITY AND SOURCES OF CAPITAL

The Company's  liquidity is reflected in the ratio of current  assets to current
liabilities or current ratio and its working capital. The current ratio was 3.94
to 1 and 2.90 to 1 at the end of 1998 and 1997,  respectively.  Working capital,
or the excess of current  assets over current  liabilities,  was  $9,117,071  at
December  1998 and  $6,558,095  at December  31,  1997.  The increase in working
capital resulted  primarily from the increased  business activity with the USPS.
In 1998 the Company's  operations  generated  $3,787,098  of cash.  Principally,
operating cash was utilized,  to retire  long-term  debt of $1,813,421,  to meet
scheduled  debt  payments,  to pay  down  the  line of  credit  and to  purchase
equipment. The Company also has a $3,000,000  line-of-credit available to assist
in satisfying  future  operating cash needs, if required.  However,  the Company
anticipates that it will generate positive cash flow from operations in 1999.

At December 31, 1998,  the  outstanding  balance of the remaining  term loan was
$733,333, payable at $16,667 per month plus interest.

The Company's  policy is to maintain  modern  equipment  and adequate  capacity.
During  1998,  1997 and 1996,  the  Company  expended  $537,000,  $520,000,  and
$234,000, respectively, for capital additions. Capital expenditures in all three
years were  financed  principally  from  operations.  In addition,  1999 capital
expenditures are also expected to be financed from operations.

IMPACT OF INFLATION AND CHANGING PRICES

Although  inflation  has  slowed  in recent  years,  it is still a factor in the
economy and the Company  continues to seek ways to mitigate  its impact.  To the
extent  permitted by competition,  the Company passes  increased costs on to its
customers by  increasing  sales prices over time.  The Company will  continue to
find ways to control the  administrative  overhead necessary to successfully run
the  business.  By  controlling  these  costs,  the Company  can  continue to be
competitively   priced  with  other  top  quality   locker   manufacturers   and
distributors.

The Company has used the LIFO method of  accounting  for its  inventories  since
1974.  This method  matches  current  costs with current  revenues and during an
inflationary  period,  reduces  reported  income but improves cash flow due to a
reduction of taxes based on income.

EFFECT OF NEW ACCOUNTING PRONOUNCEMENT

In June 1998, the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
133,  "Accounting for Derivative  Instruments and Hedging  Activities." SFAS No.
133 establishes  accounting and reporting standards for derivative  instruments,
including certain derivative  instruments  embedded in other contracts,  and for
hedging  activities.  It requires that an entity  recognize all  derivatives  as
either assets or liabilities in the statement of financial  position and measure
those  instruments  at fair value.  The intended use of the  derivative  and its
designation  as either (1) a hedge of the  exposure to changes in the fair value
of a recognized  asset or liability or a firm  commitment  (a fair value hedge),
(2) a hedge of the exposure to variable  cash flows of a forecasted  transaction
(a cash flow hedge),  or (3) a hedge of the foreign  currency  exposure of a net
investment in a foreign  operation (a foreign  currency  hedge),  will determine
when the gains 

                                     - 12 -
<PAGE>

or losses on the derivatives are to be reported in earnings and when they are to
be reported as a component of other comprehensive income. This new standard must
be adopted for year 2000 financial reporting.  At this time, management does not
believe that the pronouncement will impact the Company's financial statements.

YEAR 2000 PROJECT UPDATE

The Year 2000  (Y2K)  issue  relates to the fact that many  computers,  computer
programs,  and embedded  microchips support only two digits to specify a year in
the date field.  Therefore,  if not corrected,  these systems may fail or create
erroneous  results in dealing with matters  which refer to dates after  December
31, 1999. The Company is aware of the issues and has actively pursued corrective
action since late 1996.  Following is a project status update as of December 31,
1998.

A.   Assessment

     Assessment  of  the  Company's  Information  Technology  (IT)  systems  was
     completed  in  1997.  Based  on  results  of the  assessment,  the  Company
     determined  that complete  replacement of its IT system was the best course
     of action.

     Assessment  of  the  Company's  non-IT  systems  with  embedded  microchips
     (security systems, telephones, etc.) began in the first quarter of 1998 and
     is now complete.  No systems  required  renovation and none are critical to
     the Company's production process.

B.   Renovation

     Renovation  by  replacement  of the  Company's IT system is  proceeding  on
     schedule.  New IT  software  that  is  certified  Y2K  compliant  has  been
     purchased,  installed,  and modeled using actual  Company data.  The new IT
     system is running on a new Novell  network of  personal  computers  that is
     also certified Y2K compliant.

     Total  project  expenditures  through  December 31, 1998 were  $150,000 for
     hardware,  software,  and  implementation  consulting fees. This represents
     over 60% of the total projected project cost.

C.   Validation

     Validation  and final  testing  of the new IT  system  has  commenced  with
     full-scale  Company data starting January 1, 1999 and will continue through
     the first quarter of 1999.

D.   Implementation

     Final  implementation  of the new IT system  is  scheduled  for the  second
     quarter 1999,  depending on  validation  results.  However,  our current IT
     system will run parallel until the new system is completely validated.


                                     - 13 -
<PAGE>

E.   Third Party Assessment

     The Company  surveyed  its entire  vendor base during the third  quarter of
     1998.  Final results were  compiled  during the fourth  quarter  1998.  The
     Company  has  verified  that its major  vendors  are  working  towards  Y2K
     compliance and that reasonable  contingency plans are in place to allow the
     Company's  production  of its  products to continue.  Also,  the Company as
     normal policy,  maintains  adequate inventory of all but the most expensive
     components  (those  supplied by vendors  noted above) to safeguard  against
     short term  interruptions.  The Company has also built and will  maintain a
     large inventory of completed CBUs in order to ensure on-time  deliveries to
     the USPS in spite of any Y2K related interruptions in production. No single
     customer's  failure to address the Y2K issue,  other than the United States
     Postal Service (USPS), would have a material effect on the Company.

WORST CASE RISKS AND CONTINGENCY PLANS

In 1998,  the Company's  contract with the United States Postal  Service  (USPS)
accounted for over 70% of the Company's revenues. Any interruption or slowing of
USPS orders or payments as a result of Y2K related  issues would have a material
adverse  effect  on the  Company's  results  of  operations,  liquidity,  and/or
financial condition. However, through communication with the USPS and assessment
of USPS  representations  related to their Y2K project status,  the Company does
not anticipate Y2K related interruptions in USPS orders or payments.

In the event that a Y2K related  slowdown or stoppage in USPS orders does occur,
the Company has a contingency plan whereby CBU inventory levels would be reduced
and orders for incoming materials would be delayed or cancelled in order to free
working  cash.  The  Company's  $3,000,000  line of  credit,  as  well as  other
financial instruments, may be utilized if necessary.

The forward looking statements  contained in the Year 2000 Project Update should
be read in conjunction  with the Company's  disclosures  under the heading "Safe
Harbor Statement under the Private Securities Litigation Reform Act of 1995."

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Forward-looking   statements  in  this  report,  including  without  limitation,
statements   relating   to  the   Company's   plans,   strategies,   objectives,
expectations,  intentions  and adequacy of  resources,  are made pursuant to the
Safe Harbor Provisions of the Private Securities  Litigation Reform Act of 1995.
Investors are cautioned that such  forward-looking  statements involve risks and
uncertainties  including  without  limitation the  following:  (i) the Company's
plans,  strategies,  objectives,  expectations,  and  intentions  are subject to
change at any time at the  discretion of the Company,  (ii) the Company's  plans
and results of operations  will be affected by the  Company's  ability to manage
its growth and inventory, and (iii) other risks and uncertainties indicated from
time  to  time  in the  Company's  filings  with  the  Securities  and  Exchange
Commission.


                                     - 14 -
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



Report of Independent Auditors


Board of Directors and Stockholders
American Locker Group Incorporated and Subsidiaries

We have audited the accompanying  consolidated balance sheets of American Locker
Group  Incorporated  and  Subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income,  stockholders' equity, and cash flows
for each of the  three  years in the  period  ended  December  31,  1998.  These
financial  statements are the  responsibility  of the management of the Company.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  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 examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial position of American Locker
Group  Incorporated  and  Subsidiaries  at December  31, 1998 and 1997,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity  with generally
accepted accounting principles.



                                          /s/Ernst & Young, LLP



Buffalo, New York
February 17, 1999




                                     - 15 -
<PAGE>

<TABLE>

               American Locker Group Incorporated and Subsidiaries

                           Consolidated Balance Sheets


<CAPTION>
                                                                  DECEMBER 31,
                                                             1998              1997
                                                         ------------------------------
<S>                                                       <C>              <C>

ASSETS                                            
Current assets:
  Cash and cash equivalents                               $ 1,188,007      $ 1,154,045
  Accounts and notes receivable, less allowance
   for doubtful accounts of $216,062 in 1998 and
   $438,784 in 1997                                         4,062,802        4,519,710
  Inventories                                               6,312,131        3,636,528
  Prepaid expenses                                            150,808           89,656
  Prepaid federal, state and foreign                                0           32,515
   income taxes
  Deferred income taxes                                       501,477          576,861
                                                          -----------      -----------
Total current assets                                       12,215,225       10,009,315

Property, plant and equipment:
  Land                                                            500              500
  Buildings                                                   388,795          511,649
  Machinery and equipment                                   8,408,983        8,004,338
                                                          -----------      -----------
                                                            8,798,278        8,516,487
  Less allowances for depreciation and
   amortization
                                                            7,681,632        7,267,199
                                                          -----------      -----------
                                                            1,116,646        1,249,288

Deferred income taxes                                         137,645            5,122
                                                          -----------      -----------

Total assets                                             $ 13,469,516     $ 11,263,725
                                                          ===========      ===========


</TABLE>


                                     - 16 -
<PAGE>


<TABLE>
<CAPTION>
                                                                          DECEMBER 31
                                                                    1998              1997
                                                               -------------------------------

<S>                                                            <C>                <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Demand note payable                                          $          0       $    850,000
  Accounts payable                                                1,574,809          1,172,032
  Commissions, salaries, wages and taxes thereon                    639,822            330,956
  Other accrued expenses                                            600,582            435,232
  Federal, state and foreign income taxes payable                    82,941                  0
  Current portion of long-term debt                                 200,000            663,000
                                                               ------------       ------------
Total current liabilities                                         3,098,154          3,451,220

Long-term obligations:
  Long-term debt                                                    533,333          2,431,000
  Pension  and other benefits                                       573,973            462,360
                                                               ------------       ------------                                    
                                                                  1,107,306          2,893,360

Stockholders' equity:
  Common stock, $1 par value:
    Authorized shares --- 4,000,000
    Issued and outstanding shares --- 2,422,772
    in 1998 and 2,405,780 in 1997                                 2,422,772          2,405,780
  Other capital                                                      74,867                  0
  Retained earnings                                               6,976,987          2,662,445
  Foreign currency translation adjustment                          (210,570)          (149,080)
                                                               ------------       ------------                  
Total stockholders' equity                                        9,264,056          4,919,145
                                                               ------------       ------------



Total liabilities and stockholders' equity                     $ 13,469,516       $ 11,263,725
                                                               ============       ============


SEE ACCOMPANYING NOTES.

</TABLE>


                                     - 17 -
<PAGE>

<TABLE>

               American Locker Group Incorporated and Subsidiaries

                        Consolidated Statements of Income

<CAPTION>
                                                        YEAR ENDED DECEMBER 31
                                                1998            1997              1996
                                           -----------------------------------------------
<S>                                        <C>              <C>                 <C>

Net sales                                  $ 45,011,327     $ 29,295,533      $ 22,517,589
Cost of products sold                        31,493,280       20,533,950        15,791,956
                                           -----------------------------------------------
                                             13,518,047        8,761,583         6,725,633
Selling, administrative and                  
  general expenses                            6,608,376        5,119,905         4,989,497
                                           -----------------------------------------------                                       
                                              6,909,671        3,641,678         1,736,136

Interest income                                 102,826           51,270            43,270
Other (expense) income - net                    322,742          (56,762)          248,605
Interest expense                               (231,875)        (181,678)         (208,827)
                                           -----------------------------------------------
Income before income taxes                    7,103,364        3,454,508         1,819,184
Income taxes                                  2,788,822        1,342,033           674,352
                                           -----------------------------------------------
Net income                                 $  4,314,542     $  2,112,475      $  1,144,832
                                           ===============================================



Earnings per share of common stock:
  Basic                                          $ 1.78           $  .72           $  .35
                                           ==============================================
  Diluted                                        $ 1.70           $  .70           $  .35
                                           ==============================================

Dividends per share of common stock:             $ 0.00           $ 0.00           $ 0.00
                                           ==============================================


SEE ACCOMPANYING NOTES.

</TABLE>


                                     - 18 -
<PAGE>

<TABLE>
                                        American Locker Group Incorporated and Subsidiaries

                                          Consolidated Statements of Stockholders' Equity

<CAPTION>
                                                                                                ACCUMULATED
                                                                                                   OTHER            TOTAL
                                               COMMON            OTHER           RETAINED      COMPREHENSIVE     STOCKHOLDERS'
                                                STOCK           CAPITAL          EARNINGS          INCOME           EQUITY
                                            ----------------------------------------------------------------------------------
<S>                                          <C>              <C>              <C>              <C>              <C>    
Balance at January 1, 1996                   $ 3,274,500      $ 1,258,805      $    44,476      $  (113,715)     $ 4,464,066
  Comprehensive income:
      Net income                                                        -        1,144,832                -        1,144,832
      Other comprehensive income:
      Foreign currency translation                                      -                -             (872)            (872)
                                                                                                                  ----------    
  Total comprehensive income                                                                                       1,143,960
  Common stock purchased
      and retired (74,404 shares)                (74,404)        (175,475)               -                -         (249,879)
                                             --------------------------------------------------------------------------------
Balance at December 31, 1996                   3,200,096        1,083,330        1,189,308         (114,587)       5,358,147
  Comprehensive income:
      Net income                                       -                -        2,112,475                -        2,112,475
      Other comprehensive income:
      Foreign currency translation                                                                  (34,493)         (34,493)
                                                                                                                  ----------
  Total comprehensive income                                                                                       2,077,982
  Common stock purchased
      and retired (794,316 shares)             (794,316)       (1,083,330)        (639,338)               -       (2,516,984)
                                             --------------------------------------------------------------------------------
Balance at December 31, 1997                  2,405,780                 -        2,662,445         (149,080)       4,919,145
  Comprehensive income:
      Net income                                      -                 -        4,314,542                -        4,314,542
      Other comprehensive income:
      Foreign currency translation                    -                 -                -          (61,490)         (61,490)
                                                                                                                  ----------
  Total comprehensive income                                                                                       4,253,052
  Common stock issued (17,000 shares)            17,000             8,063                -                -           25,063
  Tax benefit of exercised
      stock options                                   -            66,894                -                -           66,894
  Common stock purchased and retired
   (8 shares)                                        (8)              (90)               -                -              (98)
                                             --------------------------------------------------------------------------------
Balance at December 31, 1998                $ 2,422,772       $    74,867      $ 6,976,987      $  (210,570)     $ 9,264,056
                                             ================================================================================
                                            
                                                   
SEE ACCOMPANYING NOTES.                            

</TABLE>
                                                

                                     - 19 -
<PAGE>


<TABLE>

                         American Locker Group Incorporated and Subsidiaries

                                Consolidated Statements of Cash Flows


<CAPTION>
                                                                YEAR ENDED DECEMBER 31
                                                       1998              1997              1996
                                                   -----------------------------------------------

<S>                                                <C>               <C>               <C>    
OPERATING ACTIVITIES                         
Net income                                         $ 4,314,542       $ 2,112,475       $ 1,144,832
Adjustments to reconcile net income to
  net cash provided by operating
  activities:
   Depreciation and amortization                       646,379           600,632           622,392
   Loss (gain) on disposition of
     property, plant and equipment                       1,265               490           (20,224)
   Deferred income tax credits                         (57,139)           (7,467)         (124,245)
   Pension and other benefits                          311,613            58,040            46,106
   Change in assets and liabilities:
     Accounts and notes receivable                     438,478        (1,164,644)          461,028
     Inventories                                    (2,675,794)         (296,860)         (564,015)
     Prepaid expenses                                  (62,058)            7,603            46,090
     Accounts payable and accrued expenses             687,462           154,526          (280,424)
     Income taxes                                      182,350            (3,529)         (859,005)
                                                   -----------------------------------------------
Net cash provided by operating activities            3,787,098         1,461,266           472,535

INVESTING ACTIVITIES
Purchase of property, plant and equipment             (536,819)         (520,358)         (234,621)
Proceeds from sale of property, plant and  
equipment                                                9,426             3,702            43,104
                                                   -----------------------------------------------
Net cash used in investing activities                 (527,393)         (516,656)         (191,517)

FINANCING ACTIVITIES
Net repayment under line of credit                    (850,000)         (275,000)         (275,000)
Long-term debt borrowings                                    -         3,315,000         1,000,000
Long-term debt repayments                           (2,360,667)         (600,000)
Common stock issued                                     25,063                 -                 -
Common stock purchased and retired                         (98)         (249,879)
                                                   -----------------------------------------------
Net cash used in financing activities               (3,185,702)         (997,984)         (124,879)
Effect of exchange rate changes on cash                (40,041)          (21,803)           (7,404)
                                                   -----------------------------------------------
Net (decrease) increase in cash                         33,962           (75,177)          148,735
Cash and cash equivalents at beginning 
  of year                                            1,154,045         1,229,222         1,080,487
                                                   -----------------------------------------------
Cash and cash equivalents at end of year           $ 1,188,007       $ 1,154,045       $ 1,229,222
                                                   ===============================================
Supplemental cash flow information:
  Cash paid during the year for:
   Interest                                        $   240,600       $   172,953       $   208,827
                                                   ===============================================

   Income taxes paid                               $ 2,665,587       $ 1,345,562       $ 1,650,823
                                                   ===============================================             

SEE ACCOMPANYING NOTES.


</TABLE>

                                     - 20 -
<PAGE>


               American Locker Group Incorporated and Subsidiaries
                         Notes to Consolidated Financial

                                December 31, 1998


1. BASIS OF PRESENTATION

CONSOLIDATION AND BUSINESS DESCRIPTION

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  engaged  in  one  business:  coin  and  key or
electronically   controlled  metal  and  plastic  centralized  mail  and  parcel
distribution  lockers and locks. The Company sells to customers throughout North
America as well as internationally.

The Company  instituted a  four-for-one  stock  distribution  whereby  three new
shares were distributed on June 25, 1998 for every one share  outstanding on the
June 4, 1998 record date.  All share and per-share  amounts in the  accompanying
unaudited  consolidated financial statements have been retroactively adjusted to
reflect this  distribution  as have the total shares now outstanding and subject
to option.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

Cash 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.

INVENTORIES

Inventories  are  valued  principally  at the  lower  of  cost or  market,  cost
determined by the last-in, first-out method.

PROPERTIES AND DEPRECIATION

Property,  plant and equipment are stated at cost.  Provisions for  depreciation
have  been  computed  for   accounting   purposes  by  the   straight-line   and
declining-balance  methods  based on  estimated  useful  lives.  Provisions  for
depreciation have been computed for tax purposes under accelerated tax methods.




                                     - 21 -
<PAGE>


               American Locker Group Incorporated and Subsidiaries
             Notes to Consolidated Financial Statements (Continued)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

REVENUE RECOGNITION

Revenue is recognized at the point of passage of title,  which is at the time of
shipment to the customer.  Less than five percent of the Company's  revenues are
derived from sales to distributors.  No distributor  stocks a material inventory
of the Company's products and no distributor has the right of return.

INCOME TAXES

The Company  accounts for income taxes in accordance with Statement of Financial
Accounting  Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
SFAS 109,  deferred  income taxes are  recognized  for the tax  consequences  of
temporary  differences by applying enacted  statutory rates applicable to future
years to differences  between the financial  statement  carrying amounts and the
tax basis of  existing  assets  and  liabilities.  The effect of a change in tax
rates is recognized in the period that includes the enactment date.

EARNINGS PER SHARE

The Company reports earnings per share in accordance with Statement of Financial
Accounting  Standards  No. 128,  "Earnings  per Share"  ("SFAS  128").  SFAS 128
replaced the  calculation  of primary and fully diluted  earnings per share with
basic and diluted earnings per share.  Unlike primary earnings per share,  under
SFAS 128 basic  earnings  per  share  excludes  any  dilutive  effects  of stock
options,  whereas diluted  earnings per share assumes  exercise of stock options
resulting in an increase in outstanding shares.

FOREIGN CURRENCY

The assets and liabilities of the Company's foreign subsidiary are translated to
U.S.  dollars at current  exchange  rates.  Revenue  and  expense  accounts  are
translated at weighted average  exchange rates  prevailing  during the year. The
gains and losses  resulting from the changes in exchange rates from year to year
have been reported in other  comprehensive  income. The effect on the statements
of  income  of  transaction  gains and  losses  is  insignificant  for all years
presented.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The  carrying  amounts  of  cash  and  cash  equivalents,   accounts  and  notes
receivable, accounts payable, and accrued liabilities approximate fair value due
to the short-term maturities of these assets and liabilities. The interest rates
on the Company's bank borrowings are adjusted regularly



                                     - 22 -
<PAGE>

to reflect  current  market  rates.  Accordingly,  the  carrying  amounts of the
Company's borrowings also approximate fair value.

               American Locker Group Incorporated and Subsidiaries
             Notes to Consolidated Financial Statements (Continued)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

STOCK-BASED COMPENSATION

The  Company   accounts  for  stock  options   granted  under  its   stock-based
compensation  plan in  accordance  with the  intrinsic  value  based  method  of
accounting  as  prescribed  by  Accounting  Principles  Board  Opinion  No.  25,
"Accounting  for  Stock  Issued to  Employees"  ("APB  25"),  as  allowed  under
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation" ("SFAS 123"). Accordingly,  no compensation cost for stock options
is recognized  because the exercise price of the stock options equals the market
price of the underlying stock on the date of the grant.

USE OF ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts  reported in the financial  statements  and the  accompanying
notes. Actual results could differ from those estimates.

RECLASSIFICATION

Certain  items  in  the  December  31,  1997  financial   statements  have  been
reclassified to conform to the December 31, 1998 presentation.


3. INVENTORIES

Inventories consist of the following:
<TABLE>
<CAPTION>
                                                              DECEMBER 31
                                                          1998          1997
                                                     --------------------------

<S>                                                  <C>            <C>
Finished products                                    $  1,763,210   $ 1,041,732
Work-in-process                                         2,023,542     1,559,037
Raw materials                                           2,985,888     1,869,576
                                                     --------------------------
                                                        6,772,640     4,470,345
Less allowance to reduce to LIFO basis                   (460,509)     (833,817)
                                                     --------------------------
Net inventories                                      $  6,312,131   $ 3,636,528
                                                     ==========================


</TABLE>


                                     - 23 -
<PAGE>

               American Locker Group Incorporated and Subsidiaries
             Notes to Consolidated Financial Statements (Continued)


4. DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                              DECEMBER 31
                                                          1998          1997
                                                      --------------------------
<S>                                                   <C>            <C> 
Note payable to bank, unsecured, payable through 
  August 31, 2002 at $16,667 per month plus 
  interest at prime plus .15% (7.90% at 
  December 31, 1998)                                  $  733,333     $  933,333
Note payable to bank, unsecured, with interest at
  prime plus .25%                                              -      2,160,667
                                                      --------------------------
Total long-term debt                                     733,333      3,094,000
Less current portion                                     200,000        663,000
                                                      --------------------------
Long-term portion                                     $  533,333     $2,431,000
                                                      ==========================
</TABLE>

The  credit  agreement   underlying  the  note  payable  to  bank  requires  the
maintenance of certain levels of net worth and working  capital and requires the
maintenance of a certain current ratio and ratio of liabilities to net worth. In
addition, the credit agreement has restrictions on the payment of dividends. The
Company was in compliance with these covenants at December 31, 1998.

Required  principal  payments  on  long-term  obligations  in each of the  years
through final maturity are as follows:
                           1999           $ 200,000
                           2000             200,000
                           2001             200,000
                           2002             133,333

The Company has a $3,000,000 unsecured line of credit agreement with a bank with
interest at the prime rate. There were no borrowings  outstanding under the line
of credit at December 31, 1998. The weighted average interest rate on short-term
borrowings  outstanding  during the year was 8.5%, 8.5%, and 8.3%, in 1998, 1997
and 1996, respectively.

5. OPERATING LEASES

The  Company   leases   several   operating   facilities   and  vehicles   under
non-cancelable  operating  leases.  Future minimum lease payments consist of the
following at December 31, 1998:

                    1999                  $  291,000
                    2000                     282,000
                    2001                     254,000
                                          ----------
                                          $  827,000
                                          ==========


                                     - 24 -
<PAGE>

               American Locker Group Incorporated and Subsidiaries
             Notes to Consolidated Financial Statements (Continued)


5. OPERATING LEASES (CONTINUED)

Rent expense  amounted to approximately  $252,000,  $360,000,  and $351,000,  in
1998, 1997 and 1996, respectively.


6. INCOME TAXES

For  financial  reporting  purposes,  income  before  income taxes  includes the
following components:

<TABLE>
<CAPTION>
                                         1998           1997            1996
                                    --------------------------------------------
<S>                                  <C>             <C>            <C>  

United States                        $ 7,055,116     $ 3,475,062    $ 1,802,858
Foreign income (loss)                     48,248         (20,554)        16,326
                                    --------------------------------------------
                                     $ 7,103,364     $ 3,454,508    $ 1,819,184
                                    ============================================
</TABLE>

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

<TABLE>
<CAPTION>
                                         1998           1997            1996
                                    --------------------------------------------
<S>                                  <C>            <C>            <C>
Current:
  Federal                            $ 2,431,419    $ 1,162,327    $   670,960
  State                                  390,548        199,227        118,437
  Foreign                                 23,954        (12,054)         9,200
                                    --------------------------------------------
Total current                        $ 2,845,921      1,349,500        798,597

Deferred:
  Federal                                (48,569)        (6,347)      (105,608)
  State                                   (8,570)        (1,120)       (18,637)
                                    --------------------------------------------
                                         (57,139)        (7,467)      (124,245)
                                    ============================================
                                     $ 2,788,782    $ 1,342,033    $   674,352
                                    ============================================

</TABLE>

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

<TABLE>
<CAPTION>
                                                1998        1997        1996
                                            ------------------------------------
<S>                                              <C>         <C>         <C>

Statutory income tax rate                        34%         34%         34%
State and foreign income taxes                    4           3           4
Other permanent differences                       1           2          (1)
                                            ------------------------------------
                                                 39%         39%         37%
                                            ====================================

</TABLE>


                                     - 25 -
<PAGE>


               American Locker Group Incorporated and Subsidiaries
             Notes to Consolidated Financial Statements (Continued)


6. INCOME TAXES (CONTINUED)

Differences  between accounting rules 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:

<TABLE>
<CAPTION>
                                                             1998        1997
                                                          ----------------------

<S>                                                       <C>         <C>
Deferred tax liabilities:
  Property, plant and equipment                           $ 139,422   $ 161,203
  Prepaid expenses and other                                 91,036      28,899
                                                          ----------------------
  Total deferred tax liabilities                            230,458     190,102

Deferred tax assets:
  Postretirement benefits                                    61,936      62,336
  Pension costs                                             253,654     129,009
  Allowance for doubtful accounts                            84,360     173,278
  Accrued expenses                                          105,102      71,094
  Other employee benefits                                    34,256      47,205
  Inventory costs                                           330,272     274,303
  Other                                                           -      14,860
                                                          ----------------------
Total deferred tax assets                                   869,580     772,085
                                                          ----------------------
Net deferred tax assets                                   $ 639,122   $ 581,983
                                                          ======================

Current deferred tax asset                                $ 501,477   $ 576,861
Long-term deferred tax asset (liability)                    137,645       5,122
                                                          ----------------------
                                                          $ 639,122   $ 581,983
                                                          ======================
</TABLE>

The Company does not provide  deferred  taxes for amounts that could result from
the remittance of  undistributed  earnings of the Company's  foreign  subsidiary
since it is  generally  the  Company's  intention  to  reinvest  these  earnings
indefinitely.  Undistributed earnings that could be subject to additional income
taxes if remitted  was  approximately  $750,000 at December  31,  1998.  If such
dividends were to be remitted,  foreign tax credits  available under present law
would reduce the amount of U.S. taxes payable.



                                     - 26 -
<PAGE>

               American Locker Group Incorporated and Subsidiaries
             Notes to Consolidated Financial Statements (Continued)


7. PENSION PLAN

The Company and its  subsidiaries  have a defined  benefit pension plan covering
substantially  all employees.  Benefits for the salaried  employees are based on
specified  percentages of the employees  annual  compensation.  The benefits for
hourly  employees  are based on stated  amounts  for each year of  service.  The
plan's assets are invested in fixed  interest rate group annuity  contracts with
an insurance company.

In addition to the Company's  defined benefit plan, the Company  provides a life
insurance  benefit to  substantially  all employees  upon  retirement.  Retirees
eligible to participate in this plan have their life insurance  premiums paid on
their behalf by the Company.  The  insurance  premiums  related to this plan are
paid annually.

The following table sets forth the changes in benefit obligation, changes in net
assets,  and the funded status  recognized in the consolidated  balance sheet at
December 1998 and 1997.

<TABLE>
<CAPTION>
                                        PENSION BENEFITS               OTHER BENEFITS
                                      1998           1997           1998           1997    
                                  --------------------------------------------------------
<S>                               <C>            <C>             <C>            <C> 

CHANGE IN BENEFIT OBLIGATION     
  Benefit obligation at          
   beginning of year              $ 2,089,481    $ 1,764,414     $  133,302     $  126,430
  Service cost                        142,888        155,750          1,332          1,517
  Interest cost                       134,961        129,881          4,594          7,180
  Actuarial loss (gain)                92,463        135,313        (61,644)         1,825
  Benefits paid                      (336,007)       (95,877)        (5,300)        (3,650)
                                  --------------------------------------------------------
Benefit obligation at end                                                      
  of year                           2,123,786      2,089,481         72,284        133,302
                                                                               
CHANGE IN PLAN ASSETS                                                          
  Fair value of plan assets                                                    
   at beginning of year             1,911,849      1,876,393              -              -
  Actual return on plan assets        126,330        131,333              -              -
  Employer contribution               123,037              -          5,300          3,650
  Benefits paid                      (336,007)       (95,877)        (5,300)        (3,650)
                                  --------------------------------------------------------
Fair value of plan assets at                                                   
  end of year                       1,825,209      1,911,849              -              -
                                                                               
Funded status                        (298,577)      (177,632)       (72,284)      (133,302)
                                                                               
Unrecognized net transition                                                    
  asset                              (423,015)      (529,056)             -              -
Unrecognized net actuarial                                                     
  loss (gain)                         457,665        381,049        (64,350)        (6,537)
Unrecognized prior service                                                     
  cost                                  2,693          3,118              -              -
                                  --------------------------------------------------------
Accrued benefit cost              $  (261,234)    $ (322,521)    $ (136,634)    $ (139,839)
                                  ========================================================
                                                                              
</TABLE>


                                     - 27 -
<PAGE>

               American Locker Group Incorporated and Subsidiaries
             Notes to Consolidated Financial Statements (Continued)

7. PENSION PLAN (CONTINUED)

COMPONENTS OF NET PERIODIC BENEFIT COST

<TABLE>
<CAPTION>
                                            PENSION BENEFITS           OTHER BENEFITS
                                           1998          1997         1998        1997    
                                      ---------------------------------------------------
<S>                                   <C>            <C>           <C>          <C> 
Service cost                          $   142,888    $  155,750    $   1,332    $  1,517
Interest cost                             134,961       129,881        4,594       7,180
Expected return on plan assets           (121,896)     (133,645)           -           -
Amortization of unrecognized net
  transition asset                       (106,041)     (106,041)           -           -
Net actuarial loss (gain)                  11,413         4,461       (3,830)     (1,488)
Amortization of prior service cost            425           425            -           -
                                      ---------------------------------------------------

Net periodic benefit cost             $    61,750    $   50,831    $   2,096    $  7,209
                                      ===================================================

WEIGHTED AVERAGE ASSUMPTIONS
  AS OF DECEMBER 31
   Discount rate                            6.75%         7.00%        6.75%       7.00%
   Expected return on plan assets           7.00%         7.25%        7.00%       7.25%
   Rate of compensation increase            4.75%         5.00%        4.75%       8.00%

</TABLE>
The  changes in the  actuarial  assumptions  in 1998  resulted in an increase of
approximately $80,000 to the benefit obligation at December 31, 1998.

Effective  January 1, 1998,  the Company  implemented a  Supplemental  Executive
Retirement Plan. During 1998, the Company, as a result of the death of its chief
executive officer, recorded expense of approximately $400,000 in accordance with
the  plan  provisions,  which  provides  for  monthly  payments  to  the  former
executive's   widow  for  the  remainder  of  her  life.  Based  upon  actuarial
calculations,  the projected liability under the plan is approximately  $376,000
at December 31, 1998 and is recorded as other  accrued  expenses and pension and
other benefits in the consolidated balance sheets.


8. CAPITAL STOCK AND STOCK OPTIONS

The Certificate of Incorporation authorizes 4,000,000 shares of common stock and
1,000,000 shares of convertible preferred stock.



                                     - 28 -
<PAGE>

               American Locker Group Incorporated and Subsidiaries
             Notes to Consolidated Financial Statements (Continued)


8. CAPITAL STOCK AND STOCK OPTIONS (CONTINUED)

In 1988, the Company adopted the American Locker Group  Incorporated  1988 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 be not 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  option,  the
option price shall be payable to the Company in cash,  or at the  discretion  of
the committee,  in shares of common stock valued at the fair market value on the
date of payment, or a combination thereof. 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.  During  1998,  the Company  recorded
approximately $327,000 of expense related to stock appreciation rights that were
granted and exercised.  At December 31, 1998, 1997 and 1996, there were no stock
appreciation rights outstanding under this plan.

Pro forma information regarding net income and earnings per share is required by
Statement of Financial  Accounting Standards No. 123 "Accounting for Stock-Based
Compensation"  ("SFAS  123"),  and has been  determined  as if the  Company  had
accounted  for its employee  stock  options  under the fair value method of SFAS
123. The fair value for these options was estimated at the date of grant using a
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions:   risk-free  interest  rates  of  6.0%;  dividend  yields  of  0.0;
volatility factors of the expected market price of the Company's common stock of
 .37; and a weighted-average  expected life of the option of 5 years. If the fair
value based method accounting  provisions of Statement 123 had been adopted, net
income for 1997 would have been  $2,069,635  and basic and diluted  earnings per
share would have been $.71 and $.69,  respectively  per share. The 1998 and 1996
net income and earnings per share would not have been  impacted,  since no stock
options were granted in either of those years,  and the options granted in 1997,
vested immediately.

The per share fair value of the options granted in 1997 using these  assumptions
was $1.19.

A summary of the  activity  in the  Company's  Employee  Option Plan and related
information for the years ended December 31 follows:


                                     - 29 -
<PAGE>

               American Locker Group Incorporated and Subsidiaries
              Notes to Consolidate Financial Statements (Continued)

8. CAPITAL STOCK AND STOCK OPTIONS (CONTINUED)

<TABLE>
<CAPTION>
                               1998               1997               1996
                       ---------------------------------------------------------
                                  Weighted           Weighted           Weighted
                                  Average            Average            Average
                                  Exercise           Exercise           Exercise
                        Options    Price    Options  Price     Options    Price
                       ---------------------------------------------------------
<S>                     <C>       <C>       <C>      <C>       <C>      <C>

Outstanding -                                                           
  beginning of year     162,000   $1.55     102,000  $ .81     102,000  $ .81

Exercised and                                                           
  Surrendered          (29,000)    2.03           -      -           -      -
Granted                       -       -      60,000   2.81           -      -
                       =========================================================
Outstanding -
  end of year           133,000   $1.45     162,000  $1.55     102,000  $ .81
                       =========================================================

</TABLE>

The  exercise  prices for options  outstanding  as of December  31, 1998 were as
follows:  $0.719 - 76,000 shares,  $1.063 - 13,000  shares,  and $2.813 - 44,000
shares. The weighted-average remaining contractual life of those options is 3.19
years.


9. EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                             1998          1997          1996
                                       -----------------------------------------
<S>                                      <C>           <C>           <C>

Numerator:
   Net income                            $4,314,542    $ 2,112,475   $ 1,144,832
Denominator:
  Denominator for basic earnings per
   share - weighted average shares                       
   outstanding                            2,420,078      2,909,788     3,232,408

  Effect of dilutive securities:
   Employee stock options                   122,606         90,340        75,468
                                       -----------------------------------------

  Denominator for diluted earnings
   per share - weighted average
   shares out- standing and assumed       
   conversions                            2,542,684      3,000,128     3,307,876
                                       =========================================
Basic earnings per share                 $     1.78      3,000,128     3,307.876
                                       =========================================
Diluted earnings per share               $     1.70    $       .70   $       .35
                                       =========================================

</TABLE>

                                     - 30 -
<PAGE>

               American Locker Group Incorporated and Subsidiaries
             Notes to Consolidated Financial Statements (Continued)


10. GEOGRAPHIC AND CUSTOMER CONCENTRATION DATA

The Company  adopted SFAS No. 131  "Disclosures  About Segments of an Enterprise
and Related  Information," ("SFAS No. 131") in 1998. In accordance with SFAS No.
131, the Company  operates in one line of business,  sale and rental of lockers.
This includes coin and key electronically  controlled checking lockers and 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 from external customers are as follows:

                                1998               1997                  1996
                          ------------------------------------------------------
United States customers      $41,735,153       $26,170,616           $19,707,039
Foreign customers              3,276,174         3,124,917             2,810,550
                          ------------------------------------------------------
                             $45,011,327       $29,295,533           $22,517,589
                          ======================================================

Sales to the U.S. Postal Service represented 76.9%, 69.2% and 61.8% of net sales
in 1998, 1997 and 1996, respectively.

At  December  31,  1998 and 1997,  the  Company  had  secured  receivables  from
customers  under  time  payment  arrangements  totaling  $76,000  and  $181,000,
respectively.  At December 31, 1998, the Company had unsecured trade receivables
from customers  considered to be  distributors  of $330,000  (including a United
Kingdom  distributor of $231,000) and from governmental  agencies of $2,290,000.
At December 31, 1997, the Company had unsecured trade receivables from customers
considered  to  be  distributors   of  $311,000   (including  a  United  Kingdom
distributor of $188,000) and from governmental agencies of $2,381,000.

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 different industries.


                                     - 31 -
<PAGE>

               American Locker Group Incorporated and Subsidiaries
             Notes to Consolidated Financial Statements (Continued)


11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a tabulation of the unaudited  quarterly  results of operations
for the years ended December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                     1998
                              --------------------------------------------------
                                              THREE MONTHS ENDED
                                MARCH 31     JUNE 30    SEPTEMBER    DECEMBER 31
                                                           30
                              --------------------------------------------------
<S>                            <C>         <C>          <C>           <C>

Net sales                      $9,789,657  $11,604,876  $15,422,935   $8,913,859
                              ==================================================

Gross profit                   $3,046,600  $ 3,646,128  $ 4,105,444   $2,719,875
                              ==================================================

Net income                     $ 9 29,896  $ 1,246,408  $ 1,233,507   $  904,536
                              ==================================================

Earnings per share - Basic     $      .38  $      .52   $       .51   $      .37
                              ==================================================
Earnings per share - Diluted   $      .37  $      .49   $       .48   $      .36
                              ==================================================

</TABLE>

<TABLE>
<CAPTION>
                                                     1997
                              --------------------------------------------------
                                              THREE MONTHS ENDED
                                 MARCH 31     JUNE 30    SEPTEMBER   DECEMBER 31
                                                            30
                              --------------------------------------------------
<S>                            <C>         <C>          <C>           <C>

Net sales                      $5,283,597  $7,722,976   $6,906,402    $9,382,558
                              ==================================================

Gross profit                   $1,617,925  $2,333,741   $2,044,312    $2,765,545
                              ==================================================

Net income                     $  223,806  $  553,973   $  423,887    $  910,809
                              ==================================================

Earnings per share - Basic     $      .07  $      .17   $      .15    $      .33
                              ==================================================
Earnings per share - Diluted   $      .07  $      .17   $      .14    $      .32
                              ==================================================

</TABLE>

The  Company's  accounting  practice for interim  periods  provides for possible
accounting  adjustments  at year  end.  In 1998  such  adjustments  resulted  in
increasing  fourth  quarter  pretax  income by  $240,000  for  inventory  costs,
decreasing  fourth  quarter  pretax  income by $150,000 for accounts  receivable
allowances,  increasing  fourth  quarter  pretax income by $74,000 for liability
reserves and  decreasing  net income by $98,000 for income tax expense.  In 1997
such adjustments resulted in increasing fourth quarter pretax income by $177,000
for inventory  costs,  increasing  net income by $58,000 for income tax expense,
and decreasing  fourth  quarter  pretax income by $58,000 for pension costs.  In
1996 such  adjustments  resulted in increasing  fourth  quarter pretax income by
$104,000 for inventory  costs,  increasing net income by $159,000 for income tax
expense,  and  decreasing  fourth  quarter  pretax income by $48,000 for pension
costs and receivable reserves.


                                     - 32 -
<PAGE>

               American Locker Group Incorporated and Subsidiaries
             Notes to Consolidated Financial Statements (Continued)


12. RELATED PARTIES

One  Director  of the  Company is a  Stockholder  and  Director  of  Rollform of
Jamestown  Inc.,  a  rollforming  company.  One  of the  Company's  subsidiaries
purchased  $235,000,  $114,000 and $90,000 of fabricated  parts from Rollform of
Jamestown, Inc. in 1998, 1997 and 1996, respectively, at prices that the Company
believes are at arms length.

13. CONTINGENCIES

During  1998,   the  Company  was  named  a  defendant  in  two  separate  legal
proceedings.

In December  1998,  the Company  was named as a  defendant  in a lawsuit  titled
"ROBERTA RAIPORT, ET AL. V. GOWANDA ELECTRONICS CORP. AND AMERICAN LOCKER GROUP,
INC." pending in the State of New York Supreme Court, County of Cattaragus.  The
suit  involves  property  located  in  Gowanda,  New York  which was sold by the
Company to Gowanda  Electronics Corp. prior to 1980. The plaintiffs,  current or
former  property  owners in  Gowanda,  New York,  assert  that  defendants  each
operated machine shops at the site during their respective  periods of ownership
and that as a  result  of such  operation  soil  and  groundwater  contamination
occurred  which  has  adversely   affected  the  plaintiffs  and  the  value  of
plaintiffs'  properties.  The plaintiffs assert a number of causes of action and
seek  compensatory  damages  of  $5,000,000  related to  alleged  diminution  of
property  values,  $3,000,000 for economic losses and "disruption to plaintiffs'
lives," $10,000,000 for "nuisance,  inconveniences and disruption to plaintiffs'
lives,"  $25,000,000 in punitive damages,  and $15,000,000 to establish a "trust
account"  for  monitoring  indoor air quality and other  remedies."  The Company
believes  that its  potential  liability  with respect to this site,  if any, is
diminimus.  Therefore, based on the information currently available,  management
does not believe the outcome of this suit will have a substantial  impact on the
Company's  operations  or  financial  condition.  Defense  of this case has been
assumed by the Company's insurance carrier,  subject to a customary  reservation
of rights.

In September 1998 and subsequent  months, the Company was named as an additional
defendant in 32 cases pending in state court in Massachusetts. The plaintiffs in
each such case assert that the Company  manufactured  and  furnished  to various
shipyards components containing asbestos during the period from 1948 to 1972 and
that  injuries  resulted  from  exposure  to such  products.  The assets of this
division were sold by the Company in 1973. Based upon  investigations  conducted
by the Company to date,  the Company has  discovered no evidence that the former
division  manufactured or supplied any products containing asbestos.  Therefore,
barring the discovery of contrary evidence, the Company does not anticipate that
these actions will have any  substantial  impact on the Company's  operations or
financial  condition.  Defense of these cases has been assumed by the  Company's
insurance carrier, subject to a customary reservation of rights.


                                     - 33 -
<PAGE>

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

There have been no changes in or  disagreements  with  accountants on accounting
and financial disclosures during 1998 or 1997.


PART III

Item 9, 10, 11, and 12 will be contained in American Locker Group Incorporated's
Annual Proxy Statement,  incorporated  herein by reference,  which will be filed
within 120 days after year-end.


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-KSB

           (a) Exhibits - Exhibits required  by Item 601 of  Regulation S-B  are
               submitted as a separate section herein  immediately following the
               "Exhibit Index".

           (b) Reports on Form 8-KSB filed in the fourth quarter of 1998 - None.






                                     - 34 -
<PAGE>


In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                       AMERICAN LOCKER GROUP INCORPORATED


                            /s/Edward F. Ruttenberg
                       -----------------------------------
                              Edward F. Ruttenberg
                          Chairman and Chief Executive
                                     Officer

                               /s/Wayne L. Nelson
                       -----------------------------------
                                 Wayne L. Nelson
              Principal Accounting Officer and Assistant Secretary

                                 March 18, 1999

In  accordance  with the Exchange  Act, 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. Ruttenberg               Chairman, Chief             March 18, 1999
-----------------------------         Executive Officer and
Edward F. Ruttenber                   Director

/s/Roy J. Glosser                     President, Chief            March 18, 1999
-----------------------------         Operating Officer,
Roy J. Glosser                        Treasurer and Director

/s/Alan H. Finegold                   Director                    March 18, 1999
-----------------------------
Alan H. Finegold

/s/Thomas Lynch IV                    Director                    March 18, 1999
-----------------------------
Thomas Lynch, IV

/s/James E. ruttenberg                Director                    March 18, 1999
-----------------------------
James E. Ruttenberg

/s/Jeffrey C. Swoveland               Director                    March 18, 1999
-----------------------------
Jeffrey C. Swoveland

/s/Donald I. Dussing, Jr.             Director                    March 18, 1999
----------------------------
Donald I. Dussing, Jr.



                                     - 35 -
<PAGE>


                                  EXHIBIT INDEX
                                                       PRIOR FILING OR
                                                       SEQUENTIAL PAGE
EXHIBIT NO.                                            NO. HEREIN
-----------                                            ----------------  
 3.1              Certificate of Incorporation of      Exhibits to Form 10-K
                  American Locker Group Incorporated   for Year ended
                                                       December 31, 1980

 3.2              Amendment to Certificate of          Form 10-C filed May 6,
                  Incorporation changing name of       1985
                  company
 3.3              Amendment to Certificate of          Exhibit to Form 10-K for
                  Incorporation limiting liability     year ended December 31,
                  of Directors and Officers            1987

 3.4              By-laws of American Locker Group     Exhibit to Form 10-K for
                  Incorporated as amended and          year ended December 31,
                  restated                             1985

 3.5              Amendment to By-laws of American     Exhibit to Form 10-K for
                  Locker Group Incorporated dated      year ended December 31,
                  January 15, 1992                     1991

 3.6              Amendment to Bylaws dated            Page
                  March 3, 1999                             -------

10.1              American Locker Group                Exhibit to Form 10-K for
                  Incorporated 1988 Stock Incentive    year ended December 31,
                  Plan                                 1988

10.2              First Amendment dated March 28,      Exhibit to Form 10-K for
                  1990 to American Locker Group        year ended December 31,
                  Incorporated  1988 Stock             1989
                  Incentive Plan

10.3              Form of Indemnification Agreement    Exhibit to Form 10-K for
                  between American Locker Group        year ended December 31,
                  Incorporated  and its directors      1987
                  and officers

10.4              Corporate Term Loan Agreement        Exhibit to Form 10-K for
                  between American Locker Group        year ended December 31,
                  Incorporated and Manufacturers       1991
                  and Traders Trust Company
                  covering $2,400,000 loan

10.5              Approved Line of Credit from         Exhibit to Form 10-K for
                  Manufacturers and Traders Trust      year ended December 31,
                  Company to American Locker Group     1990
                  Incorporated in the amount of
                  $1,000,000


                                     - 36 -
<PAGE>


10.6              Amendment Agreement dated May 1,     Exhibit to Form 10-KSB
                  1994 between Manufacturing and       for year ended
                  Traders Trust Company and            December 31, 1994
                  American Locker Group
                  Incorporated [Increase in Term
                  Loan to $1,850,000]

10.7              Amendment Agreement dated            Exhibit to Form 10-KSB
                  March 12, 1996 between               for year ended
                  Manufacturing and Traders Trust      December 31, 1995
                  Company and American Locker Group
                  Incorporated [Increase in Term
                  Loan to $1,800,000]

10.8              Employment Agreement between         Exhibit to Form 10-GSB
                  American Locker Group                for quarter ended June
                  Incorporated and  Roy J. Glosser     30, 1996

10.8              Amendment dated as of March 3,       Page
                  1999 to Employment Agreement              -----
                  between American Locker Group
                  Incorporated and Roy J. Glosser

10.9              Manufacturing Agreement dated as     Exhibit to Form 8-K
                  of December 29, 1989 between         dated January 11, 1990
                  American Locker Security Systems
                  Inc. and Signore, Inc.

10.10             First Amendment dated May 3, 1995    Exhibit to Form 10-KSB
                  to Manufacturing Agreement dated     for year ended December
                  as of December 29, 1989 between      31, 1995
                  American Locker Security Systems
                  Inc. and Signore Inc.

10.11             Second Amendment dated March 15,     Exhibit to Form 10-KSB
                  1996 to Manufacturing Agreement      for the year ended
                  dated as of December 29, 1989        December 31, 1995
                  between American Locker Security
                  Systems Inc. and Signore Inc.

10.12             Third Amendment dated May 21,        Exhibit to Form 10-QSB
                  1996 to Manufacturing Agreement      for the quarter ended
                  dated as of December 29, 1989        June 30, 1996
                  between American Locker Security
                  Systems Inc. and Signore Inc.

10.14             Contract dated March 27, 1996        Exhibit to Form 10-QSB
                  between the U.S. Postal Service      for the quarter ended
                  and American Locker Security         March 31, 1996
                  Systems, Inc.


                                     - 37 -
<PAGE>


10.15             Modification #MO3 to USPS            Exhibits to Form 10QSB
                  Contract #072368-96-B-0741 dated     for the quarter ended
                  April 16, 1997                       March 31, 1997

10.17             Fourth Amendment to Manufacturing    Exhibits to Form 10QSB
                  Agreement dated as of May 20,        for the quarter ended
                  1997 between American Locker         June 30, 1997
                  Security Systems, Inc. and
                  Signore, Inc.

10.18             Fifth Amendment to Manufacturing     Exhibit to Form 10-QSB
                  Agreement dated May 19, 1998         for quarter ended
                  between American Locker Security     June 30, 1998
                  Systems, Inc. and Signore, Inc.

10.18             Amendment dated August 22, 1997      Exhibit to Form 10QSB
                  to Corporate Term Loan Agreement     for the quarter ended
                  dated August 30, 1991 between        September 30, 1997
                  American Locker Group
                  Incorporated and Manufacturers
                  and Traders Trust Company

10.19             Modification M05 to USPS Contract    Exhibit to Form 10QSB
                  #072368-96-B-0741, dated             for the quarter ended
                  October 9, 1997, which replaces      September 30, 1997
                  steel pedestals with aluminum
                  pedestals for American Locker
                  Outdoor Parcel Lockers

10.20             Modification M06 to USPS Contract    Exhibit to Form 10QSB
                  #072368-96-B-0741, dated             for the quarter ended
                  October 23, 1997 regarding prices    September 30, 1997
                  and minimum quantities through
                  April 14, 1998

10.20             Modification MO7 to USPS Contract    Exhibit to Form 10-QSB
                  #072368-96-B-0741, dated             for quarter ended
                  April 14, 1998 regarding prices      March 31, 1998
                  and minimum quantities

10.21             Form of American Locker Group        Exhibit 10.21 to Form
                  Incorporated Supplemental            10QSB for year ending
                  Executive Retirement Benefit Plan    December 31, 1998

22.1              List of Subsidiaries                 Page 
                                                            ------
27.1              1998 Financial Data Schedule         Page              
                                                            ------
27.2              1997 Financial Data Schedule         Page
                  (Restated)                                ------
27.3              1996 Financial Data Schedule         Page 
                  (Restated)                                ------


                                     - 38 -
<PAGE>

                                   EXHIBIT 3.6



Article  II,  Section 2 of the  Bylaws of the  Company is has been  amended  and
restated as follows:

                  Section 2. The Annual Meetings of  Stockholders  shall be held
            on a date in May each year designated by the Board of Directors,  at
            which they shall elect by a plurality  vote a Board of Directors and
            transact such other  business as may properly be brought  before the
            meeting.










                                     - 39 -
<PAGE>


                                  EXHIBIT 10.6

                          FIRST AMENDMENT TO AGREEMENT


            This  First  Amendment  made as of this 3rd day of March,  1999,  to
Employment  Agreement dated May 21, 1996, is made between  American Locker Group
Incorporated,  a Delaware  corporation  (the  "Company") and ROY J. GLOSSER,  an
individual residing in Jamestown, New York (the "Executive").

                                   WITNESSETH:

            WHEREAS,  the Company and the Executive are parties to an Employment
Agreement dated May 21, 1996 (the "Agreement").

            WHEREAS,  the parties  hereto wish to amend the  Agreement to extend
the term of the Agreement and to make certain other changes as set forth herein.

            NOW THEREFORE,  for good and valuable consideration and intending to
be bound hereby, the parties hereto agree as follows:

                  1.    Section 2   of   the  Agreement  is  amended  to  delete
                        "June 30, 1999"   and   to   insert  in   lieu   thereof
                        "June 30, 2002";

                  2.    Section 3(a) is amended to delete "$8,334" and to insert
                        in lieu thereof "$13,125";

                  3.    Section  9 of  the  Agreement  is  amended  to  add  the
                        following sentence at the end of Section 9:

                              For   purposes   of  the   immediately   preceding
                              sentence,  transfers  by the  Estate  of Harold J.
                              Ruttenberg   to   members   of   Mr.   Harold   J.
                              Ruttenberg's  family or trusts for the  benefit of
                              Mr.  Harold J.  Ruttenberg's  family  shall not be
                              considered in determining if a sale or exchange of
                              a  majority  of  the  outstanding  shares  of  the
                              Company  entitled  to  vote  in  the  election  of
                              directors has occurred.

                  4.    Except as  expressly  set forth  herein,  the  Agreement
                        shall remain unamended and in full force and effect.



                                     - 40 -
<PAGE>

            WITNESS the due execution hereof.


                                    COMPANY:

                                    AMERICAN LOCKER GROUP INCORPORATED

                                    By:    /s/Edward F. Ruttenberg
                                        ---------------------------------------
                                    Title: Chairman and Chief Executive Officer


                                    EXECUTIVE:

                                    /s/Roy J. Glosser
                                    -----------------------------
                                    Roy J. Glosser








                                     - 41 -
<PAGE>


                        EXHIBIT 22.1 LIST OF SUBSIDIARIES

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

                                                               Percentage of
NAME                                 JURISDICTION OF           Voting SECURITIES
                                     ORGANIZATION              OWNED
----                                 ---------------           -----------------

American Locker Security Systems,    Delaware                  100%
Inc.
American Locker Company, Inc.        Delaware                  100%
American Locker Company of Canada,   Dominion of Canada        100% (1)
Ltd.
Canadian Locker Company, Ltd.        Dominion of Canada        100% (2)
American Locker Security Systems     Virgin Islands            100% (1)
International

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








                                     - 42 -