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

FORM 10-K

|(Mark One)                                                        |                                                                                   
|----------------------------------------------------------------- | ----------------------------------------------------------------------------------
|ý                                                                 | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the Fiscal Year Ended December 31, 2005                      
|o                                                                 | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                                 to

Commission file number 0-439

AMERICAN LOCKER GROUP INCORPORATED(Exact Name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization)          |  | 16-0338330(I.R.S. Employer
Identification No.)
|------------------------------------------------------------------------------- |  | ----------------------------------------------
|815 South Main Street, Grapevine, Texas(Address of principal executive offices) |  | 76051(Zip Code)                               
|1-817-329-1600(Registrant's telephone number, including area code)             

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

Title of each class

Name of each exchange on which registeredNone


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

|Common Stock, Par Value $1.00 Per Share(Title of class)
|-------------------------------------------------------

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

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

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

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

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

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

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

As of August 24, 2007, 1,549,516 shares of Common Stock, $1.00 par value per share, were outstanding. The aggregate market value of the Common Stock held by
non-affiliates as of June 30, 2007 was $5,484,340 based on the closing price per share of Common Stock on that date of $4.00 as quoted by The Pink Sheets. Shares of Common Stock
known by the Registrant to be beneficially owned by directors and officers of the Registrant and other persons known the Registrant to have beneficial ownership of 5% or more of the outstanding Common
Stock are not included in the computation. The Registrant, however, has made no determination that such persons are "affiliates" within the meaning of Rule 12b-2 under the
Securities Exchange Act of 1934, as amended.

DOCUMENTS INCORPORATED BY REFERENCE

None



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RestatementExplanatory Note

American Locker Group Incorporated (the "Company") has restated its previously issued consolidated financial statements for fiscal 2004 and 2003, quarterly
financial data for each of the quarters within fiscal 2005 and 2004, and selected financial data for fiscal 2004, 2003 and 2002, for the matters discussed more fully in Note 2 to the
consolidated financial statements in this Form 10-K. All amounts and commentary included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of
Operations, give effect to the restatement.

As
a result of the implementation of the restructuring plan discussed more fully in Item 1, the Company did not timely file its quarterly reports on Form 10-Q for the
periods ended March 31, 2006, June 30, 2006, September 30, 2006, March 31, 2007 and June 30, 2007 and its annual report on Form 10-K for the years
ended December 31, 2005 and 2006, with the Securities and Exchange Commission ("SEC"). In light of the Company's inability to comply with the minimum stockholders equity requirements, the
Company voluntarily delisted its Common Stock from the NASDAQ Stock Market. The last trading day for the Company's Common Stock on the NASDAQ National Market was Friday, March 31, 2006. The
Company's Common Stock currently is quoted on The Pink Sheets under the symbol "ALGI.PK".

PART I

Item 1. Description of Business

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

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

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

On
February 8, 2005, the Company announced that it was notified that its contract with the United States Postal Service (USPS) for polycarbonate and aluminum cluster box units
(CBUs) would not be renewed, and the contract expired on May 31, 2005. During 2005, 2004 and 2003, sales to the USPS accounted for 21.4%, 53.9%, and 52.7%, respectively, of the Company's net
sales. In addition, sales of the current model polycarbonate and aluminum CBUs to the private market accounted for an additional 32.5%, 18.6%, and 14.6% of the Company's sales in 2005, 2004 and 2003,
respectively. Since May 31, 2005, the Company has experienced continuing sales of its current aluminum CBU model (Model E) to the private market. On May 8, 2007, the USPS notified
the Company that, effective September 8, 2007, the USPS would no longer install its "arrow locks" on the Company's Model E

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CBU.
The USPS decertification of the Company's Model 1118E CBU has occurred in conjunction with the USPS making available technical specifications of its successor USPS-B-1118
CBU. Accordingly, the Company is preparing its application to the USPS to become a licensed manufacturer of the USPS-B-1118, and will conduct a concurrent and ongoing internal
cost analysis to determine whether it can manufacture that successor model profitably. The Company believes that it will ultimately be approved by the USPS as a licensed manufacturer of the
USPS-B-1118, although it could take between 6-8 months for the Company to be producing the USPS-B-1118 at current levels. The Company
will continue to sell existing inventories of the Model E CBU through August 2007, and it does not presently anticipate that it will incur material inventory write-offs as a result
of such decertification. After August 2007, the Company's revenues will be adversely affected by this decertification until such time as the Company has received USPS approval to manufacture
the USPS-B-1118 and has commenced manufacture and sale of those units.

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

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

The
restructuring plan adopted by the Company's Board of Directors assumed that certain material changes in the operations of the Company will be sufficient to allow the Company to
continue in operation despite the loss of its CBU contract with the USPS, which provided over 50% of the Company's annual sales revenues in 2004, and 2003. The Company recorded a provision of
$2,329,000 in fiscal year 2005 to cover the costs of the restructuring plan. As part of this restructuring the Company did not renew its building leases in Jamestown upon their respective expiration
dates in September 2005 and November 2005 and relocated its headquarters to Grapevine, TX. Further, the Company discontinued its Jamestown based assembly operations, eliminated many of
37 salaried and hourly positions in Jamestown and froze benefits under its current pension plan covering employees in the United States. The restructuring plan allowed the Company to significantly
reduce annual selling, general and administrative expenses.

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Business Segment Information

The Company, including its foreign subsidiary, is engaged primarily in one business: the sale of lockers, including coin, key-only and electronically
controlled checking lockers and related locks and aluminum centralized mail and parcel distribution lockers.

Competition

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

Raw Materials

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

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

Patents

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

Employees

The Company and its subsidiaries actively employed 132 individuals on a full-time basis as of December 31, 2005, 10 of whom were based in
Canada. The Company considers its relations with its employees to be satisfactory. None of the Company's employees are represented by a union.

Dependence on Material Customer

During 2005, 2004 and 2003, sales to one customer, the USPS, accounted for 21.4%, 53.9% and 52.7%, respectively, of net sales. In addition, sales of the current
model polycarbonate and aluminum CBUs to the private market accounted for an additional 32.5%, 18.9% and 14.6% of the Company's sales in 2005, 2004 and 2003, respectively. In February 2005, the
Company was notified that its contract with the USPS for polycarbonate and aluminum CBUs would not be renewed, and the contract expired on May 31, 2005.

Research and Development

The Company engages in research and development activities relating to new and improved products. It expended $32,000, $153,000 and $431,000, in 2005, 2004 and
2003, respectively, for such activity in its continuing businesses.

Compliance with Environmental Laws and Regulations

The Company's facilities and operations are subject to various federal, state and local laws and regulations relating to environmental protection and human health
and safety. Some of these laws and

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regulations
may impose strict, joint and several liability on certain persons for the cost of investigation or remediation of contaminated properties. These persons may include former, current or
future owners or operators of properties and persons who arranged for the disposal of hazardous substances. The Company's owned and leased real property may give rise to such investigation,
remediation and monitoring liabilities under applicable environmental laws. In addition, anyone disposing of hazardous substances on such sites must comply with applicable environmental laws. Based on
the information available to it, the Company believes that, with respect to its currently owned and leased properties, it is in material compliance with applicable federal, state and local
environmental laws and regulations. See Item 3, Legal Proceedings, and Note 18Contingencies to the Company's consolidated financial statements for further discussion with respect
to the settlement of certain environmental litigation.

Backlog and Seasonality

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

Forward-Looking Information

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

Available Information

The Company files with the U.S. Securities and Exchange Commission quarterly and annual reports on Forms 10-Q and 10-K, respectively,
current reports on Form 8-K, and proxy statements pursuant to the Securities Exchange Act of 1934, in addition to other information as required. The public may read and copy any
materials that the Company files with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Room 1580 Washington, D.C. 20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1 (800) SEC-0330. The Company files this information with the SEC electronically, and the SEC maintains an Internet site that contains
reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. The Company also maintains a website at
http://www.americanlocker.com. The contents of the Company's website are not part of this Annual Report on Form 10-K.

Also,
copies of the Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Exchange Act will be made available, free of charge, as soon as

5

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reasonably
practicable after the Company electronically files such material with, or furnishes it to, the SEC upon written request.

Item 1A. Risk Factors

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



6

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Item 1B. Unresolved Staff Comments

Not applicable.

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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):

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

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

Item 3. Legal Proceedings

In April 2005, the Company entered into a settlement with plaintiffs in a lawsuit titledRoberta Raiport, et al. v. Gowanda
Electronics Corp. and American Locker Group, Inc.which was pending in the State of New York Supreme Court, County of Cattaraugus. The suit involved property located in
Gowanda, New York, which was sold by the Company to Gowanda Electronics Corp. prior to 1980. The plaintiffs, who are current or former property owners in Gowanda, New York, asserted that the
defendants each operated machine shops at the site during their respective periods of ownership and that, as a result of such operations, soil and groundwater contamination occurred which has
adversely affected the plaintiffs and the value of the plaintiffs' properties. According to the terms of the settlement agreement, the Company paid an aggregate of $1,225,000 to the plaintiffs who own
property adjacent to the site and to the current owner of the property, Gowanda Electronics Corporation. Of this amount, $825,000 was paid in April 2005, $200,000 was paid in June 2005,
and $200,000 was paid in August 2005. The Company's primary insurance carrier during the period of the ownership of the Gowanda property reimbursed the Company in the amount of $122,500 in
return for a release of coverage against the underlying lawsuit. This settlement, less of anticipated insurance proceeds, resulted in a charge to pre-tax operating results in the fourth
quarter of 2004 of $1,102,500. This settlement does not resolve the Company's potential liability described below with respect to remediation of offsite contamination which allegedly migrated from
this site.

In
July 2001, the Company received a letter from the New York State Department of Environmental Conservation (the NYSDEC) advising the Company that it is a potentially responsible
party (PRP) with respect to environmental contamination at and alleged migration from the site located in Gowanda, New York which was sold by the Company to Gowanda Electronics Corporation prior to
1980. In March 2001, the NYSDEC issued a Record of Decision with respect to the Gowanda site in which it set forth a remedy including continued operation of an existing extraction well and air
stripper, installation of groundwater pumping wells and a collection trench, construction of a treatment system in a separate building on the site, installation of a reactive iron wall covering 250
linear feet, which is intended to intercept any contaminates and implementation of an on-going monitoring system. The NYSDEC has estimated that its selected remediation plan will cost
approximately $688,000 for

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initial
construction and a total of $1,997,000 with respect to expected operation and maintenance expenses over a 30-year period after completion of initial construction. The Company has
not conceded to the NYSDEC that the Company is liable with respect to this matter and has not agreed with the NYSDEC that the remediation plan selected by NYSDEC is the most appropriate plan. This
matter has not been litigated, and at the present time the Company has only been identified as a PRP. The Company also believes that other parties may have been identified by the NYSDEC as PRPs, and
the allocation of financial responsibility of such parties has not been litigated. Based upon currently available information, the Company is unable to estimate timing with respect to the resolution
of this matter. The NYSDEC has not commenced implementation of the remedial plan and has not indicated when construction will start, if ever. The Company's primary insurance carrier has assumed the
cost of the Company's defense in this matter, subject to a reservation of rights.

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

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

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

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

The Company's Annual Meeting of Stockholders was held on December 15, 2005. The only matter voted upon was the election of six directors. No other business
came before the meeting. The result of the voting in the election of directors was as follows:

For

WithheldElection of directors:Edward F. Ruttenberg

1,404,301

57,686Alan H. Finegold

1,369,051

92,936John E. Harris

1,414,499

47,488Harold S. Rabin

1,368,451

93,536Mary A. Stanford

1,409,811

52,176James T. Vanasek

1,452,949

9,038


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PART II

Item 5. Market for Common Equity and Related Stockholder Matters

The Company's common stock, par value $1.00 per share, is not listed on any exchange. As of the opening of business on April 3, 2006, the Company
voluntarily delisted its Common Stock from the Nasdaq Stock Market. The last trading day for the Company's Common Stock on the Nasdaq National Market was Friday, March 31, 2006. The Company's
Common Stock currently is quoted on The Pink Sheets under the symbol "ALGI.PK". The following table shows the range of the low and high sale prices for the Company's common stock in each of the
calendar quarters indicated.

Per Common Share
Market Price

2005

High

LowFirst Quarter

$
14.99

$
5.13Second Quarter


6.50


3.62Third Quarter


6.15


4.00Fourth Quarter


5.95


3.75




2004

High

LowFirst Quarter

$
12.00

$
10.26Second Quarter


12.17


10.63Third Quarter


10.00


9.48Fourth Quarter


16.37


10.00


The
closing price of our common stock as of June 29, 2007, was $4.00. The Company had 902 security holders of record as of that date.

The
Company has not paid dividends on its common stock in the 2004 and 2005 fiscal years, or since then, and does not presently plan to pay dividends in the foreseeable future. The
Company currently expects that earnings will be retained and reinvested to support either business growth or debt reduction.

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Item 6. Selected Financial Data

The following table sets forth selected historical financial data of the Company as of, and for the years ended December 31, 2005, 2004, 2003, 2002 and
2001. The historical selected financial information derived from the Company's audited financial information may not be indicative of the Company's future performance and should be read in conjunction
with the information contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Item 8, Financial Statements and Supplementary Data, of this Annual
Report on Form 10-K. The below amounts include the results of SMC since its acquisition by the Company on July 6, 2001.

|                                                   |  | 2005 |            | 2004 |   | 2003       |  | 2002 |            | 2001
|-------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | ---- | ---------- | ----
|
|Sales                                              |  | $    | 32,303,689 |      | $ | 49,653,129 |  | $    | 39,738,702 |     
|Income (loss) before income taxes                  |  |      | (9,274,212 | )    |   | 4,479,024  |  |      | 3,561,477  |     
|Income taxes                                       |  |      | (1,182,314 | )    |   | 1,797,990  |  |      | 1,398,247  |     
|Net income (loss)                                  |  |      | (8,091,898 | )    |   | 2,681,034  |  |      | 2,163,230  |     
|Earnings (loss) per sharebasic                    |  |      | (5.25      | )    |   | 1.75       |  |      | 1.42       |     
|Earnings (loss) per sharediluted                  |  |      | (5.25      | )    |   | 1.72       |  |      | 1.39       |     
|Weighted average common shares outstandingbasic   |  |      | 1,540,179  |      |   | 1,534,146  |  |      | 1,523,429  |     
|Weighted average common shares outstandingdiluted |  |      | 1,540,179  |      |   | 1,557,931  |  |      | 1,554,328  |     
|Dividends declared                                 |  |      | 0.00       |      |   | 0.00       |  |      | 0.00       |     
|Interest expense                                   |  |      | 333,389    |      |   | 456,865    |  |      | 529,642    |     
|Depreciation and amortization expense              |  |      | 562,078    |      |   | 706,929    |  |      | 893,236    |     
|Expenditures for property, plant and equipment     |  |      | 475,775    |      |   | 280,562    |  |      | 543,146    |     
|YEAR-END POSITION                                  |  |      |            |      |   |            |  |      |            |     
|Total assets                                       |  |      | 15,099,389 |      |   | 28,861,930 |  |      | 25,873,480 |     
|Long-term debt, including current portion(1)       |  |      | 2,316,210  |      |   | 6,668,596  |  |      | 8,305,487  |     
|Stockholders' equity                               |  |      | 8,472,164  |      |   | 16,549,549 |  |      | 13,984,409 |     
|Stockholders' equity per share (2)                 |  |      | 5.48       |      |   | 10.79      |  |      | 9.12       |     
|Common shares outstanding at year-end              |  |      | 1,546,146  |      |   | 1,534,146  |  |      | 1,534,146  |     
|Number of employees                                |  |      | 132        |      |   | 149        |  |      | 154        |     

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

Critical Accounting Policies and Estimates

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

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

Revenue Recognition

The Company recognizes revenue at the point of passage of title, which is at the time of shipment to the customer. The Company derived approximately 34.0% of its
revenue in 2005 from sales to distributors. These distributors do not have a right to return unsold products, however returns may be permitted in specific situations. Historically returns have not
been significant.

Allowance for Doubtful Accounts

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

Inventories

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

Goodwill

As discussed in Note 3Summary of Significant Accounting Policies to the Company's financial statements, the Company had recorded Goodwill of
$6,155,000, in connection with the acquisition of SMC in 2001. Beginning in 2002, the Company, in accordance with the provisions of Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets, performed the required goodwill impairment tests. These tests were performed annually at the beginning of the fourth calendar quarter. In assessing impairment, the Company
made assumptions regarding future cash flows and other factors to determine the fair value of the respective net assets. Based upon these tests, no impairment was determined to exist through
December 31, 2004.

12

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

Property, Plant and Equipment

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

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

Pension Assumptions

The Company maintains a defined benefit plan covering its U.S. employees and a separate defined benefit plan covering its Canadian employees. The accounting for
the plans is based in part on certain assumptions that are uncertain and that could have a material impact on the financial statements if different reasonable assumptions were used. The assumptions
for return on assets reflect the rates of earnings expected on funds invested or to be invested to provide for benefits included in the projected benefit obligation. The assumed rates of return of
7.5% and 7.0% used in 2005 for the U.S. and Canadian plans, respectively, were determined based on a forecasted rate of return for a portfolio invested 50% in equities and 50% in bonds. In addition to
the assumptions related to the expected return on assets, assumptions for the rates of compensation increase and discount rate were also made. The rates of compensation increase used in determining
the 2005 pension costs were 4.0% and 2.0% for the U.S. and Canadian plans, respectively, and were determined using projections of inflation and real wage increase assumptions. The discount rates used
in determining the 2005 pension costs were 5.75% and 6.0% for the U.S. and Canadian plans, respectively. Consistent with prior years, for both plans the Company uses a discount rate that approximates
the average AA corporate bond rate.

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

13

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Deferred Income Tax Assets

The Company had net deferred tax assets of approximately $1,323,009 at December 31, 2005. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The ultimate realization of the
deferred income tax assets are primarily dependent on generating sufficient future taxable income or being able to carryback any taxable losses and claim refunds against previously paid income taxes.
The Company has historically had taxable income and believes its net deferred income tax assets at December 31, 2005, are realizable. If future operating results continue to generate taxable
losses, it may be necessary to provide valuation allowances to reduce the amount of the deferred income tax assets to realizable value.

Recoverable Income Taxes

Recoverable income taxes at December 31, 2005 total $1,039,000 and represent refund claims. In 2006, the Company amended certain prior year tax filings,
and generated a claim in 2005 for refundable research and development tax credits, these refund claims totaled $411,000 at December 31, 2005. In addition, the recoverable income taxes at
December 31, 2005 also include estimated tax payments made in 2005 in excess of the 2005 income taxes estimated to be currently payable, totaling $77,000.

Results of Operations2005 Compared to 2004

Overall Results and Outlook

The Company had consolidated net sales of $32,303,689 in 2005, a decrease of $16,719,728, or 34.1%, compared to the prior year record sales of $49,023,417. This
decrease was attributable primarily to the loss of the USPS contract discussed above. As a result, pre-tax operating results declined from a reported pre-tax income of
$4,479,024 in 2004 to a pre-tax loss of $9,274,212 in 2005 after accounting for one-time charges of $2,329,191 for restructuring charges and $6,155,204 impairment charge
related to the write-down of previously recorded goodwill. After tax operating results declined from a reported net income of $2,681,034 in 2004 to a net loss of $8,091,898 in 2005. Net
loss per share on a diluted basis was $5.25 per share in 2005, down from a net income per share of $1.72 in the previous year.

Non-Renewal of USPS Contract

On February 8, 2005, the Company announced that it was notified that its contract with the United States Postal Service (USPS) for polycarbonate and
aluminum cluster box units (CBUs) would not be renewed, and the contract expired on May 31, 2005. During 2005, 2004 and 2003, sales to the USPS accounted for 21.4%, 53.9%, and 52.7%,
respectively, of the Company's net sales. In addition, sales of the current model polycarbonate and aluminum CBUs to the private market accounted for an additional 32.5%, 18.6%, and 14.6% of the
Company's sales in 2005, 2004 and 2003, respectively. Since May 31, 2005, the Company has experienced continuing sales of its current aluminum CBU model (Model E) to the private market.
On May 8, 2007, the USPS notified the Company that, effective September 8, 2007, the USPS would no longer install its "arrow locks" on the Company's Model E CBU. The USPS decertification
of the Company's Model 1118E CBU has occurred in conjunction with the USPS making available technical specifications of its successor USPS-B-1118 CBU. Accordingly, the Company
is preparing its application to the USPS to become a licensed manufacturer of the USPS-B-1118, and will conduct a concurrent and ongoing internal cost analysis to determine
whether it can manufacture that successor model profitably. The Company believes that it will ultimately be approved by the USPS as a licensed manufacturer of the USPS-B-1118,
although it could take between

14

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6-8 months
for the Company to be producing the USPS-B-1118 at current levels. The Company will continue to sell existing inventories of the Model E CBU
through August 2007, and it does not presently anticipate that it will incur material inventory write-offs as a result of such decertification. After August 2007, the
Company's revenues will be adversely affected by this decertification until such time as the Company has received USPS approval to manufacture the USPS-B-1118 and has commenced
manufacture and sale of those units.

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

Restructuring Plan

The Board of Directors formed a Restructuring Committee for the purposes of selecting a financial advisor and evaluating a restructuring plan. In
March 2005, following Board approval, the Company announced that it had retained Compass Advisory Partners, LLC ("Compass") to provide strategic consulting services to the Company with respect
to potential restructuring and cost reductions necessitated by the non-renewal of the USPS CBU contract. The Restructuring Committee, in consultation with Compass, undertook a review of
the Company's financial position and business and operations. In particular, the Restructuring Committee and Compass reviewed (i) the financial impact of the loss of the Company's CBU contract
with the USPS; (ii) the economics of the Signore manufacturing agreement; (iii) the prospects for new product development, including emphasis on the 1118F series aluminum CBUs;
(iv) an emphasis on cash generation and retention during the restructuring phase.

The
loss of revenues resulting from the non-renewal of the Company's CBU contract with the USPS, the potential loss of sales of CBUs in the private market during the
transition to the USPS-B-1118 design and the status of the 1118 CBU design and drawing package make the Company's future uncertain. In May 2005, after the USPS
notification of non-renewal of the CBU contract, the Company's Board of Directors announced a restructuring plan designed to significantly reduce annual selling, general and administrative
expenses. Most of these savings are to be achieved by the relocation of the Company headquarters from leased facilities in Jamestown, NY to company-owned facilities in Grapevine, TX. As part of this
restructuring the Company did not renew its building leases in Jamestown upon their respective expiration dates in September 2005 and November 2005 and relocated its headquarters to
Grapevine, TX. Further, the Company discontinued its Jamestown-based assembly operations, eliminated many of 37 salaried and hourly positions in Jamestown. Further, the Company froze certain
retirement benefits under its current defined benefit pension plan. Due to the non-renewal of the CBU contract, all polycarbonate CBU assembly operations in Jamestown ceased in the fall of
2005.

The
restructuring plan also addressed the Company's existing debt structure and future working capital needs. In March of 2005, as a result of the non-renewal of the USPS
contract, the Company received from its primary lender a notice of default and reservation of rights letter. As a result, the

15

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Company
agreed to accelerate its scheduled repayments on its then outstanding term loan, repaying it in full ($3,150,000) during 2005. At the same time, the Company was advised by the lender that its
revolving line of credit would no longer be available.

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

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

Net Sales

Consolidated sales in 2005 amounted to $32,303,689, of which 28.3% were plastic lockers which included polycarbonate CBU's and Outdoor Parcel Lockers (OPLs). The
remainder of the Company's consolidated sales consisted primarily of sales of metal storage lockers (coin-op, temporary storage, electronic keyless and service) and metal postal lockers
(aluminum CBUs, indoor mailboxes and collection boxes). These Metal Locker Products amounted to 71.7% of total consolidated sales in 2005; an increase of $1,565,000 due primarily to increased sales of
aluminum CBUs at SMC and increased locker sales at Canadian Locker Company and at ALSSI.

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

2005

(Restated)
2004

Percentage
Increase (Decrease)Plastic Locker Sales

$
9,142,000

$
28,056,000

(67.4
)%Metal Locker Products


23,162,000


21,597,000

7.2
%


Cost of Sales

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

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

Selling, General and Administrative Expenses

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

16

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Asset ImpairmentGoodwill

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

Restructuring Costs

In May 2005, the Company announced that it would undertake restructuring initiatives to realign its organization in response to the loss of its CBU
contract with the USPS. The Company's plan calls for significant reductions in selling, general and administrative costs. A majority of the cost reductions was realized by relocating the Company's
headquarters, from leased facilities in Jamestown, NY to a Company-owned facility on Grapevine, TX. In addition, savings will be realized by eliminating certain corporate level staff and several
satellite sales offices. To implement the restructuring plan the Company incurring aggregate impairment charges (exclusive of goodwill impairment) and costs of approximately $2,329,191. In accordance
with Financial Accounting Standards (FAS) No. 146 "Accounting for Costs Associated with Exit or Disposal Activities", costs associated with an exit or disposal activity are recognized when the
associated liabilities are incurred.

Other Income and ExpenseNet

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

Interest Expense

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

Income Taxes

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

17

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Results of Operations2004 Compared to 2003

Net Sales

Consolidated sales in 2004 amounted to $49,653,129, of which 56.5% were plastic lockers which included polycarbonate CBUs and OPLs sold to the USPS and the
private market. Consolidated sales for 2004 include the results of an approximately $7 million bulk order for CBUs delivered to the USPS in the third quarter of 2004. The remainder of the
Company's consolidated sales consisted primarily of sales of metal storage lockers (coin-op, temporary storage, electronic keyless and service) and metal postal lockers (aluminum CBUs,
indoor mailboxes and collection boxes). This metal product group amounted to 43.5% of total consolidated sales in 2004; its increase in sales of $3,972,000 was due primarily to increased sales of
aluminum CBUs at SMC and locker sales at Canadian Locker Company offset by a decrease of $955,000 in sales at ALSSI. Sales by general product group for the last two years were as follows:

(Restated)
2004

(Restated)
2003

Percentage
Increase (Decrease)Plastic Locker Sales

$
28,056,000

$
22,114,000

26.9
%Metal Product Group


21,597,000


17,625,000

22.5
%


Cost of Sales

Consolidated cost of sales as a percentage of sales was 69.8% in 2004 compared to 68.6% in 2003. The increase in 2004 was the result of raw material price
increases for steel and aluminum, depending on the type and grade, which were offset by increased overhead absorption resulting from the higher volume in USPS shipments.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $563,000 in 2004 over 2003, due primarily to increases in freight charges of $324,000 for fuel
surcharges, pension expenses of $70,000 and bad debt expenses of $50,000, as well as increased sales activity.

Interest Expense

Interest expense decreased by $73,000 in 2004 over 2003 as a result of lower outstanding debt as the Company continued to make scheduled payments on its
outstanding debt. No new debt was incurred in 2004.

Income Taxes

Income taxes increased by $400,000 in 2004 over 2003 due to an increase in income before taxes. The effective tax rates in 2004 and 2003 were 40% and 39%,
respectively.

Liquidity and Sources of Capital

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

As of December 31,2005

2004Current Ratio


3.2 to 1


1.6 to 1Working Capital

$
7,361,525

$
6,608,787


18

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The increase in working capital relates primarily to the restructuring of the Company's long-term debt agreements. At December 31, 2005, the Company was in technical
default of its long-term debt agreement with its then primary lender, rendering the entire $6,668,596 outstanding balance due upon demand. During 2005, the Company repaid $4,352,386 of the
outstanding debt and in March of 2007, entered into a new long-term debt agreement with a new principal lender.

As
a result of securing the new debt facility, in March 2007, the Company used the proceeds of a new $2,200,000 term loan to repay the then existing mortgage. Accordingly, the
mortgage note balance outstanding at December 31, 2005 was classified as to current and long-term under its originally scheduled payment terms. In 2004, the entire mortgage balance
was considered as a current liability as it was in technical default and the Company had no known plans to remedy the default.

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

The
Company's policy is to maintain modern equipment and adequate capacity. During 2005, 2004 and 2003 the Company expended $476,000, $281,000 and $543,000, respectively, for capital
additions. Capital expenditures in all three years were financed principally from operations. The Company expects capital expenditures in 2006 to fall within the range of expenditures made in the last
three years. It is expected that capital expenditures will be funded from cash on hand.

Contractual Obligations

The Company has contractual obligations as of December 31, 2005 relating to long-term and current debt, operating lease arrangements and
purchase obligations. The Company does not guarantee the debt of any third parties. All of the Company's subsidiaries are 100% owned by the Company and are included in its consolidated financial
statements. Total payments to be made under long-term debt, operating leases and purchase obligations are as follows:

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

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

The
Company has had continuing obligations under its U.S. and Canadian defined benefit pension plans. This is a funded plan under which the Company is required to make contributions to
meet ERISA and Canadian funding requirements. The Company's contributions to the plans have ranged from approximately $100,000 to $400,000 over the last four years. The required funding is based on
actuarial calculations that take into account various actuarial results and certain assumptions. Contributions to the plans for the year ended December 31, 2005 totaled $408,000.

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

The
Company does not have any off-balance sheet arrangements with unconsolidated entities or other persons.

19

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Related Party Transactions

The Chairman and Chief Executive Officer of the Company is a stockholder and director of Rollform of Jamestown Inc., a rollforming company. One of the
Company's subsidiaries purchased $90,000, $245,000 and $151,000 of fabricated parts from Rollform of Jamestown, Inc. in 2005, 2004 and 2003, respectively.

Alan
H. Finegold, a director of the Company through 2007, was paid $197,000, $20,000 and $55,000 for consulting and legal services to the Company in 2005, 2004 and 2003, respectively.
Consulting services were provided pursuant to a consulting arrangement which was terminated in 2005. Amounts due Mr. Finegold and included in accounts payable at December 31, 2005 and
2004 totaled $32,000 and $0, respectively. Mr. Finegold resigned as a director of the Company effective January 2, 2007.

Roy J.
Glosser, a former director and officer of the Company is related to the Chairman of the Board of Signore, Inc., a vendor that supplies metal lockers. Purchases from
Signore, Inc. totaled $3,310,000, $2,990,000, and $2,751,000 in 2005, 2004 and 2003, respectively. Amounts due Signore, Inc. and included in accounts payable at December 31, 2005
and 2004 totaled $263,000 and $230,000, respectively. The Company terminated its relationship with Signore, Inc. in 2006. See Note 19 to the consolidated financial statements.

Other Agreements

During 2002, the Company entered into agreements to become 5% members of two limited liability companies (LLCs). Third parties formed the LLCs in order to provide
luggage cart services at two U.S. airports. The Company has sold luggage cart products to these LLCs. The Company contemplates a
sale of its luggage cart assets and may not be in a position to make further sales to these LLCs. The governing documents of the LLCs provide that the Company does not share in the distribution of
cash flow or profits and losses of the LLCs through 2007, nor is the Company required to make any capital contribution to the LLCs. Ownership by the Company of a minority interest in the LLCs had no
impact on the Company's 2005 operating results or financial position, and is not expected to have any material impact in the future.

Impact of Inflation and Changing Prices

Inflation in raw material and other prices has become an increasing factor in the general economy, and the Company continues to seek ways to mitigate its impact.
For example, the Company experienced significant increases in steel and aluminum prices in 2005. To the extent permitted by competition, the Company passes increased costs on to its customers by
increasing sales prices over time.

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

The
Company uses the LIFO method of accounting for over 60% of its inventory. This method tends to match current costs with current revenues. During inflationary periods, it reduces
reported income, thereby reducing taxes, which improves cash flow.

20

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Market Risks

Raw Materials

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

Foreign Currency

The Company's Canadian operation subjects the Company to foreign currency risk, though it is not considered a significant risk since the Canadian operation's net
assets represent 10% of the Company's aggregate net assets at December 31, 2005. Presently, management does not hedge its foreign currency risk.

Interest Rate Risks

The Company had an 8.04% fixed interest rate on its outstanding mortgage loan at December 31, 2005. On March 5, 2007, the Company entered into a new
credit agreement which provided a $2,200,000 term loan, the proceeds of which were used to repay the then outstanding mortgage balance, and a $750,000 line of credit. These loans bear interest at the
Bank's prime rate plus .75%.

Effect of New Accounting Guidance

The Financial Accounting Standards Board (FASB) issued SFAS No. 123(R)"Share Based Payment" during December 2004. SFAS 123(R) is
effective for fiscal years beginning after June 15, 2005 and will require the Company to recognize compensation expense in an amount equal to the fair value of share based payments. The impact
of SFAS 123(R) will not have a material impact on stock options currently issued, but may in the future if additional stock options are issued (See Note 11Stock Options).

The
FASB has also issued SFAS No. 151"Inventory CostsAn Amendment to ARB No. 43, Chapter 4" effective for fiscal years beginning after
June 15, 2005. SFAS 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current period charges.
The adoption of SFAS No. 151 is not expected to materially affect our financial position or results of operations.

In
June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109" (FIN 48).
FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in an income tax return. The
Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN 48 are effective for the
company beginning with the first quarter of fiscal 2007. The Company is in the process of evaluating the impact of implementing FIN 48.

In
September 2006, the FASB issued SFAS NO. 157, "Fair Value Measurements." SFAS 157 defines fair value, establishes a framework for measuring fair value and requires
additional disclosures about fair value measurements. The provisions of SFAS 157 are effective for the company beginning with the first quarter of fiscal 2008. The Company is in the process of
evaluating the impact of implementing SFAS 157.

21

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In
September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of FASB
Statements No. 87, 88, 106, and 132(R)." This pronouncement requires an employer to make certain recognitions, measurements, and disclosures regarding defined benefit postretirement plans. The
provisions of SFAS 158 are effective for the Company beginning with fiscal year ending December 31, 2006. The adoption of SFAS No. 158 is not expected to materially affect our
financial position or results of operations.

In
September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 108, "Considering the Effects of Prior Year Misstatements in Current
Year Financial Statements ("SAB 108"). SAB 108 provides guidance on consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality
assessment. SAB 108 is effective for the Company beginning with fiscal year ending December 31, 2006. The adoption of SAB No. 108 is not expected to materially affect our financial
position or results of operations.

Quotation of Common Stock

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

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

22

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Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board
of Directors
American Locker Group Incorporated

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

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

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

As
discussed in Note 2 to the consolidated financial statements, the 2004 and 2003 financial statements have been restated to correct errors for a Canadian defined benefit pension
plan and freight billed to customers.

We
have also audited the adjustments described in Note 2 that were applied to restate the 2003 consolidated financial statements for the errors described in the preceding
paragraph. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review or apply any procedures to the 2003 consolidated financial statements
and, accordingly, we do not express an opinion or any other form of assurance on the 2003 consolidated financial statements as a whole.

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

Dallas,
Texas
August 30, 2007

23

---



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board
of Directors and Stockholders
American Locker Group Incorporated

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

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

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

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

As
discussed in Note 2 to the consolidated financial statements, the 2004 financial statements have been restated to correct errors in accounting for a Canadian defined benefit
pension plan and freight billed to customers.

Our
original report dated March 18, 2005 and May 12, 2005 included an explanatory paragraph which addressed circumstances that raised substantial doubt about the Company's
ability to continue as a going concern. As discussed further in paragraph 4 of Note 6 and in Note 20, the Company agreed to accelerate repayment of its term loan and subsequent to
year end has repaid the term loan in full and on March 5, 2007 the Company entered into new credit agreements. The resolution of the event of default has resolved the uncertainty which gave
rise to the original explanatory paragraph.

|/s/ Schneider Downs & Co., Inc. |  |  | 
|------------------------------- |  |  | 

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

24

---



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The
Board of Directors and Stockholders
American Locker Group Incorporated:

We
have audited, before the effects of the adjustments for the correction of the errors described in Note 2 to the financial statements, the consolidated statements of operations,
stockholders' equity and cash flows of American Locker Group Incorporated and Subsidiaries for the year ended December 31, 2003 (the 2003 financial statements before the effects of the
adjustments discussed in Note 2 are not presented herein). Our audit also includes the financial statement schedule listed in the Index at Item 15(a). The financial statements and
schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

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

In
our opinion, except for the errors described in Note 2, the 2003 financial statements present fairly, in all material respects, the consolidated results of operations and cash
flows of American Locker Group Incorporated and Subsidiaries for the year ended December 31, 2003, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We
were not engaged to audit, review, or apply any procedures to the adjustments for the correction of the errors described in Note 2 and, accordingly, we do not express an
opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by Travis, Wolff & Company, LLP.

|/s/ Ernst & Young LLP |  |  | 
|--------------------- |  |  | 

Buffalo,
New York
February 24, 2004

25

---



American Locker Group Incorporated and Subsidiaries

Consolidated
Balance Sheets

|                               |                                                                                                              | December 31 |           
|------------------------------ | ------------------------------------------------------------------------------------------------------------ | ----------- | ----------
|
|Assets                         |                                                                                                              |             |           
|Current assets:                |                                                                                                              |             |           
|                               | Cash and cash equivalents                                                                                    |             | $         
|                               | Accounts and notes receivable, less allowance for doubtful accounts of $120,000 in 2005 and $232,000 in 2004 |             |           
|                               | Inventories, net                                                                                             |             |           
|                               | Prepaid expenses                                                                                             |             |           
|                               | Income tax receivable                                                                                        |             |           
|                               | Deferred income taxes                                                                                        |             |           
|                               |                                                                                                              |             |           
|Total current assets           |                                                                                                              |             | 10,666,463
|Property, plant and equipment: |                                                                                                              |             |           
|                               | Land                                                                                                         |             |           
|                               | Buildings                                                                                                    |             |           
|                               | Machinery and equipment                                                                                      |             |           
|                               |                                                                                                              |             |           
|                               |                                                                                                              |             | 10,937,152
|                               | Less allowance for depreciation                                                                              |             |           
|                               |                                                                                                              |             |           
|                               |                                                                                                              |             | 4,375,600 
|Deferred income taxes          |                                                                                                              |             | 57,326    
|Goodwill                       |                                                                                                              |             |          
|Other assets                   |                                                                                                              |             |          
|                               |                                                                                                              |             |           
|Total assets                   |                                                                                                              | $           | 15,099,389
|                               |                                                                                                              |             |           

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

26

---



|                                           |                                                | December 31                                                |           
|------------------------------------------ | ---------------------------------------------- | ---------------------------------------------------------- | ----------
|
|Liabilities and stockholders' equity       |                                                |                                                            |           
|Current liabilities:                       |                                                |                                                            |           
|                                           | Current portion of long-term debt              |                                                            | $         
|                                           | Accounts payable                               |                                                            |           
|                                           | Commissions, salaries, wages and taxes thereon |                                                            |           
|                                           | Accrued environmental settlement               |                                                            |           
|                                           | Other accrued expenses and current liabilities |                                                            |           
|                                           | Income taxes payable                           |                                                            |           
|                                           |                                                |                                                            |           
|Total current liabilities                  |                                                |                                                            | 3,304,938 
|Long-term liabilities:                     |                                                |                                                            |           
|                                           | Long-term debt                                 |                                                            |           
|                                           | Pension and other benefits                     |                                                            |           
|                                           |                                                |                                                            |           
|                                           |                                                |                                                            | 3,322,287 
|Total liabilities                          |                                                |                                                            | 6,627,225 
|Commitments and contingencies              |                                                |                                                            |           
|Stockholders' equity:                      |                                                |                                                            |           
|                                           | Common stock, $1 par value:                    |                                                            |           
|                                           |                                                | Authorized shares4,000,000                                |           
|                                           |                                                | Issued shares1,738,146 in 2005 and 1,726,146 in 2004      |           
|                                           |                                                | Outstanding shares1,546,146 in 2005 and 1,534,146 in 2004 |           
|                                           | Other capital                                  |                                                            |           
|                                           | Retained earnings                              |                                                            |           
|                                           | Treasury stock at cost (192,000) shares        |                                                            |           
|                                           | Accumulated other comprehensive loss           |                                                            |           
|                                           |                                                |                                                            |           
|Total stockholders' equity                 |                                                |                                                            | 8,472,164 
|                                           |                                                |                                                            |           
|Total liabilities and stockholders' equity |                                                | $                                                          | 15,099,389
|                                           |                                                |                                                            |           

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

27

---



American Locker Group Incorporated and Subsidiaries

Consolidated
Statements of Operations

|                                             |              | Year ended December 31 |           
|-------------------------------------------- | ------------ | ---------------------- | ----------
|
|Net sales                                    |              | $                      | 32,303,689
|Cost of products sold                        |              |                        | 23,904,090
|                                             |              |                        |           
|                                             | Gross profit |                        |           
|Asset impairmentgoodwill                    |              |                        | 6,155,204 
|Selling, administrative and general expenses |              |                        | 8,488,771 
|Restructuring costs                          |              |                        | 2,329,191 
|Environmental settlement                     |              |                        |          
|                                             |              |                        |           
|                                             |              |                        | (8,573,567
|Interest income                              |              |                        | 85,365    
|Other income (expense)net                   |              |                        | (452,621  
|Interest expense                             |              |                        | (333,389  
|                                             |              |                        |           
|Income (loss) before income taxes            |              |                        | (9,274,212
|Income taxes                                 |              |                        | (1,182,314
|                                             |              |                        |           
|Net income (loss)                            |              | $                      | (8,091,898
|                                             |              |                        |           
|Earnings (loss) per share of common stock:   |              |                        |           
|                                             | Basic        |                        | $         
|                                             |              |                        |           
|                                             | Diluted      |                        | $         
|                                             |              |                        |           
|Dividends per share of common stock:         |              | $                      | 0.00      
|                                             |              |                        |           

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

28

---



American Locker Group Incorporated and Subsidiaries

Consolidated
Statements of Stockholders' Equity

|                                                    |                                    | Common
Stock                                                                    |           | Other
Capital |   | Retained
Earnings |   | Treasury
Stock |            | Accumulated
Other
Comprehensive
Income (Loss) |   | Total
Stockholders'
Equity |  
|--------------------------------------------------- | ---------------------------------- | ------------------------------------------------------------------------------- | --------- | ------------- | - | ----------------- | - | -------------- | ---------- | --------------------------------------------- | - | -------------------------- | -
|Balance at January 1, 2003 (as previously reported) |                                    | $                                                                               | 1,709,146 |               |   |                  |   | $              | 12,670,948 |                                               | $ | (2,112,000                 | )
|Restatement                                         |                                    |                                                                                 |          |               |   |                  |   |                | (187,529   | )                                             |   |                           |  
|                                                    |                                    |                                                                                 |           |               |   |                   |   |                |            |                                               |   |                            |  
|Balance at January 1, 2003 (restated)               |                                    | $                                                                               | 1,709,146 |               |   |                  |   | $              | 12,483,419 |                                               | $ | (2,112,000                 | )
|Comprehensive income:                               |                                    |                                                                                 |           |               |   |                   |   |                |            |                                               |   |                            |  
|                                                    | Net income (restated)              |                                                                                 |           |              |   |                   |  |                |            | 2,163,230                                     |   |                            | 
|                                                    | Other comprehensive income:        |                                                                                 |           |               |   |                   |   |                |            |                                               |   |                            |  
|                                                    |                                    | Foreign currency translation (restated)                                         |           |               |  |                   |   |               |            |                                               |  |                            |  
|                                                    |                                    | Minimum pension liability adjustment, net of tax benefit of $105,296 (restated) |           |               |  |                   |   |               |            |                                               |  |                            |  
|                                                    |                                    |                                                                                 |           |               |   |                   |   |                |            |                                               |   |                            |  
|Total comprehensive income (restated)               |                                    |                                                                                 |           |               |   |                   |   |                |            |                                               |   |                            |  
|Common stock issued (17,000 shares)                 |                                    |                                                                                 | 17,000    |               |   | 30,812            |   |                |           |                                               |   |                           |  
|Tax benefit of exercised stock options              |                                    |                                                                                 |          |               |   | 67,000            |   |                |           |                                               |   |                           |  
|                                                    |                                    |                                                                                 |           |               |   |                   |   |                |            |                                               |   |                            |  
|Balance at December 31, 2003 (restated)             |                                    | $                                                                               | 1,726,146 |               | $ | 97,812            |   | $              | 14,646,649 |                                               | $ | (2,112,000                 | )
|Comprehensive income:                               |                                    |                                                                                 |           |               |   |                   |   |                |            |                                               |   |                            |  
|                                                    | Net income (restated)              |                                                                                 |           |              |   |                   |  |                |            | 2,681,034                                     |   |                            | 
|                                                    | Other comprehensive income:        |                                                                                 |           |               |   |                   |   |                |            |                                               |   |                            |  
|                                                    |                                    | Foreign currency translation (restated)                                         |           |               |  |                   |   |               |            |                                               |  |                            |  
|                                                    |                                    | Minimum pension liability adjustment, net of tax benefit of $109,676 (restated) |           |               |  |                   |   |               |            |                                               |  |                            |  
|                                                    |                                    |                                                                                 |           |               |   |                   |   |                |            |                                               |   |                            |  
|Total comprehensive income (restated)               |                                    |                                                                                 |           |               |   |                   |   |                |            |                                               |   |                            |  
|                                                    |                                    |                                                                                 |           |               |   |                   |   |                |            |                                               |   |                            |  
|Balance at December 31, 2004 (restated)             |                                    | $                                                                               | 1,726,146 |               | $ | 97,812            |   | $              | 17,327,683 |                                               | $ | (2,112,000                 | )
|Comprehensive income:                               |                                    |                                                                                 |           |               |   |                   |   |                |            |                                               |   |                            |  
|                                                    | Net income (loss)                  |                                                                                 |           |               |   |                   |   |                |            | (8,091,898                                    | ) |                            |  
|                                                    | Other comprehensive income (loss): |                                                                                 |           |               |   |                   |   |                |            |                                               |   |                            |  
|                                                    |                                    | Foreign currency translation                                                    |           |               |   |                   |   |                |            |                                               |   |                            |  
|                                                    |                                    | Minimum pension liability adjustment,                                           |           |               |   |                   |   |                |            |                                               |   |                            |  
|                                                    |                                    |                                                                                 |           |               |   |                   |   |                |            |                                               |   |                            |  
|Total comprehensive income                          |                                    |                                                                                 |           |               |   |                   |   |                |            |                                               |   |                            |  
|Common stock issued (12,000 shares)                 |                                    |                                                                                 | 12,000    |               |   | 21,750            |   |                |            |                                               |   |                           |  
|Tax benefit of exercised stock options              |                                    |                                                                                 |           |               |   | 12,509            |   |                |            |                                               |   |                            |  
|                                                    |                                    |                                                                                 |           |               |   |                   |   |                |            |                                               |   |                            |  
|Balance at December 31, 2005                        |                                    | $                                                                               | 1,738,146 |               | $ | 132,071           |   | $              | 9,235,785  |                                               | $ | (2,112,000                 | )
|                                                    |                                    |                                                                                 |           |               |   |                   |   |                |            |                                               |   |                            |  

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

29

---



American Locker Group Incorporated and Subsidiaries

Consolidated
Statements of Cash Flows

|                                                                                         |                                      | Year ended December 31                |           
|---------------------------------------------------------------------------------------- | ------------------------------------ | ------------------------------------- | ----------
|
|Operating activities                                                                     |                                      |                                       |           
|Net income (loss)                                                                        |                                      | $                                     | (8,091,898
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                      |                                       |           
|                                                                                         | Depreciation and amortization        |                                       |           
|                                                                                         | Provision for uncollectible accounts |                                       |           
|                                                                                         | Loss/(gain) on disposal of assets    |                                       |           
|                                                                                         | Deferred income taxes (credits)      |                                       |           
|                                                                                         | Impairment of goodwill               |                                       |           
|                                                                                         | Changes in assets and liabilities:   |                                       |           
|                                                                                         |                                      | Accounts and other receivables        |           
|                                                                                         |                                      | Inventories                           |           
|                                                                                         |                                      | Prepaid expenses                      |           
|                                                                                         |                                      | Accounts payable and accrued expenses |           
|                                                                                         |                                      | Income taxes                          |           
|                                                                                         |                                      | Pension and other benefits            |           
|                                                                                         |                                      |                                       |           
|Net cash provided by operating activities                                                |                                      |                                       | 246,201   
|Investing activities                                                                     |                                      |                                       |           
|Purchase of property, plant and equipment                                                |                                      |                                       | (475,775  
|Proceeds from sale of property, plant and equipment                                      |                                      |                                       | 37,869    
|                                                                                         |                                      |                                       |           
|Net cash used in investing activities                                                    |                                      |                                       | (437,906  
|Financing activities                                                                     |                                      |                                       |           
|Long-term debt payments                                                                  |                                      |                                       | (4,352,386
|(Repayments) borrowings on line of credit                                                |                                      |                                       |          
|Common stock issued                                                                      |                                      |                                       | 33,750    
|                                                                                         |                                      |                                       |           
|Net cash used in financing activities                                                    |                                      |                                       | (4,318,636
|                                                                                         |                                      |                                       |           
|Effect of exchange rate changes on cash                                                  |                                      |                                       | 8,141     
|                                                                                         |                                      |                                       |           
|Net increase (decrease) in cash                                                          |                                      |                                       | (4,502,200
|Cash and cash equivalents at beginning of year                                           |                                      |                                       | 5,780,215 
|                                                                                         |                                      |                                       |           
|Cash and cash equivalents at end of year                                                 |                                      | $                                     | 1,278,015 
|                                                                                         |                                      |                                       |           
|Supplemental cash flow information:                                                      |                                      |                                       |           
|                                                                                         | Cash paid during the year for:       |                                       |           
|                                                                                         |                                      | Interest                              |           
|                                                                                         |                                      |                                       |           
|                                                                                         |                                      | Income taxes                          |           
|                                                                                         |                                      |                                       |           

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

30

---



Notes to Consolidated Financial StatementsAmerican Locker Group Incorporated and Subsidiaries
December 31, 2005

1.     Basis of Presentation

Consolidation, Business Description and Current Operating Condition

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

On
February 8, 2005, the Company announced that it was notified that its contract with the United States Postal Service (USPS) for polycarbonate and aluminum cluster box units
(CBUs) would not be renewed, and the contract expired on May 31, 2005. During 2005, 2004 and 2003, sales to the USPS accounted for 21.4%, 53.9%, and 52.7%, respectively, of the Company's net
sales. In addition, sales of the current model polycarbonate and aluminum CBUs to the private market accounted for an additional 32.5%, 18.9%, and 14.6% of the Company's sales in 2005, 2004 and 2003,
respectively. Since May 31, 2005, the Company has experienced continuing sales of its current aluminum CBU model (Model E) to the private market.

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

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

31

---



As
discussed in Note 6, the Company received a notice of default and reservation of rights letter in March 2005 from its lender regarding its term loan as a result of the
non-renewal of the Company's CBU contract with the USPS. After discussions with its lender following the notice of the non-renewal of the USPS contract, the Company agreed to
accelerate repayment of its term loan and subsequent to year end has repaid the term loan in full. On March 5, 2007, the Company entered into a new credit agreement as discussed in Notes 6 and
20.

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

The
restructuring plan adopted by the Company's Board of Directors assumes that certain material changes in the operations of the Company will be sufficient to allow the Company to
continue in
operation despite the loss of its CBU contract with the USPS, which provided over 50% of the Company's annual sales revenues in 2004, and 2003. If the restructuring plan, as it may be modified by the
Company's Board of Directors from time to time to reflect changing conditions and circumstances, does not adequately reduce expenses, the Company's ability to remain in business would be adversely
affected and the Company may not be able to continue operations. In addition, the restructuring plan assumes that the cost reductions would occur in accordance with the time line set forth in the
restructuring plan. A failure by the Company to adhere to the time line or to incur greater than anticipated restructuring expenses as set forth in the restructuring plan also would adversely affect
the Company.

2.     Restatement of Prior Years' Consolidated Financial Statements

Subsequent to the issuance of the Company's consolidated financial statements for the quarter ended September 30, 2005, management determined that certain
accounting errors, as described below, were included in its previously issued consolidated financial statements. As a result, the Company restated the accompanying 2004 and 2003 consolidated financial
statements to correct the accounting errors described below. The following table presents the impact of the restatement on the 2004 and 2003 net income/(loss) and earnings per share:

|                                         |  | For the years ended December 31,
|---------------------------------------- |  | --------------------------------
|
|
|Net income, as originally reported       |  | $                               
|Freight billed to customers(1)           |  |                                 
|Canadian defined benefit pension plan(2) |  |                                 
|                                         |  |                                 
|Net income, as restated                  |  | $                               
|                                         |  |                                 

The
following table presents the effects of the adjustments on our previously issued consolidated statement of income for the year ended December 31, 2004:

For the year ended December 31, 2004As previously
reported

Adjustments

As restatedNet sales(1)

$
49,023,417

$
629,712

$
49,653,129Selling, administrative and general expenses(1) and (2)

$
8,463,819

$
651,626

$
9,115,445


32

---



The
following table presents the effects of the adjustments on our previously issued consolidated statement of income for the year ended December 31, 2003:

For the year ended December 31, 2003As previously
reported

Adjustments

As restatedNet sales(1)

$
39,256,438

$
482,264

$
39,738,702Selling, administrative and general expenses(1) and (2)

$
8,086,610

$
466,166

$
8,552,776


The
following table presents the effects of the adjustments on our previously issued consolidated balance sheet for the year ended December 31, 2004:

For the year ended December 31, 2004As previously
reported

Adjustments

As restatedOther accrued expenses and current liabilities(2)

$
565,477

$
106,415

$
671,892Pension and other benefits(2)

$
707,465

$
130,606

$
838,071Retained earnings(2)

$
17,521,028

$
(193,345
)
$
17,327,683Accumulated other comprehensive loss(2)

$
(446,416
)
$
(43,676
)
$
(490,092
)


---

The
Company's accompanying 2004 and 2003 consolidated financial statements are being restated to correct the following errors:

3.     Summary of Significant Accounting Policies

Cash and Cash Equivalents

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

Accounts and Notes Receivable

The Company grants credit to its customers and generally does not require collateral. Accounts receivable are reported at net realizable value and do not accrue
interest. Management uses judgmental factors such as customer's payment history and the general economic climate, as well as considering the

33

---



age
of and past due status of invoices in assessing collectibility and establishing allowances for doubtful accounts. Accounts receivable are written off after all collection efforts have been
exhausted.

Estimated
losses for bad debts are provided for in the consolidated financial statements through a charge to expense of approximately $332,000, $155,000, and $94,000 for the years 2005,
2004, and 2003, respectively. The net charge-off of bad debts was approximately $444,000, $294,000, and $56,000 for the years 2005, 2004, and 2003, respectively.

Inventories

Inventories are valued principally at the lower of cost or market. Cost is determined by the last-in, first-out method (LIFO) for
approximately 60% and 78% of the Company's inventories at December 31, 2005 and 2004, respectively. For the remaining inventories, cost is determined by the first-in, first out
method (FIFO). At December 31, 2005 and 2004, inventories were $229,000 and $467,000, respectively, lower than the amounts that would have been reported using the FIFO method. The LIFO charge
(credit) was ($238,000), $203,000, and $(155,000) for fiscal years 2005, 2004, and 2003, respectively.

Property, Plant and Equipment

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

Long-lived
assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of those assets may
not be recoverable. The Company uses undiscounted cash flows to determine whether impairment exists and measures any impairment loss using discounted cash flows. There is no impairment recorded with
respect to property, plant and equipment as of December 31, 2005 and 2004.

Goodwill and Other Intangible Assets

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

Revenue Recognition

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

34

---



Shipping and Handling Costs (Restated)

Shipping and handling costs are expensed as incurred and are included in selling, administrative and general expenses in the accompanying consolidated statements
of income. These costs were approximately $1,356,000, $1,195,000 and $871,000 during 2005, 2004, and 2003, respectively.

Advertising Expense

The cost of advertising is generally expensed as incurred. The cost of catalogs and brochures are recorded as a prepaid cost and expensed over their useful lives,
generally one year. The Company incurred $194,000, $253,000 and $239,000 in advertising costs during 2005, 2004, and 2003, respectively.

Income Taxes

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

Research and Development

The Company engages in research and development activities relating to new and improved products. It expended $32,000, $153,000 and $431,000 in 2005, 2004 and
2003, respectively, for such activity in its continuing businesses. Research and development costs are included in selling, general and administrative expenses.

Earnings Per Share

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

Foreign Currency

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

Fair Value of Financial Instruments

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

35

---



Stock-Based Compensation

In accordance with the provisions of SFAS No. 123 the Company has elected to continue applying the provisions of Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for its stock-based compensation plans. Accordingly, the Company does not recognize compensation expense for stock options when the stock option
price at the grant date is equal to or greater than the fair market value of the stock at that date.

No
stock options have been granted since 2000. All options granted in 2000 or in prior years were fully vested as of December 31, 2000, as such there was no proforma impact in
2005, 2004, or 2003 for stock options as required by SFAS No. 123.

Comprehensive Income

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

Use of Estimates

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

New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R)"Share Based Payment". SFAS 123(R) is
effective for fiscal years beginning after June 15, 2005 and will require the Company to recognize compensation expense in an amount equal to the fair value of share based payments. The impact
of SFAS 123(R) will not have a material impact on stock options currently issued and outstanding, but may in the future if additional stock options are issued (See
Note 11Stock Options).

In
November 2004, the FASB issued SFAS No. 151"Inventory CostsAn Amendment to ARB No. 43, Chapter 4" effective for fiscal years beginning
after June 15, 2005. SFAS 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current period
charges. The adoption of SFAS No. 151 is not expected to materially affect our financial position or results of operations.

In
June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109" (FIN 48).
FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in an income tax return. The
Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN 48 are effective for the
company beginning with the first quarter of fiscal 2007. The Company is in the process of evaluating the impact of implementing FIN 48.

In
September 2006, the FASB issued SFAS NO. 157, "Fair Value Measurements." SFAS 157 defines fair value, establishes a framework for measuring fair value and requires
additional disclosures about fair value measurements. The provisions of SFAS 157 are effective for the company beginning

36

---



with
the first quarter of fiscal 2008. The Company is in the process of evaluating the impact of implementing SFAS 157.

In
September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of FASB
Statements No. 87, 88, 106, and 132(R)." This pronouncement requires an employer to make certain recognitions, measurements, and disclosures regarding defined benefit postretirement plans. The
provisions of SFAS 158 are effective for the Company beginning with fiscal ending December 31, 2006. The adoption of SFAS No. 158 is not expected to materially affect our
financial position or results of operations.

In
September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 108, "Considering the Effects of Prior Year Misstatements in Current
Year Financial Statements ("SAB 108"). SAB 108 provides guidance on consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality
assessment. SAB 108 is effective for the Company beginning with fiscal year ending December 31, 2006. The adoption of SAB No. 108 is not expected to materially affect our financial
position or results of operations.

4.     Inventories

Inventories consist of the following:

December 312005

2004Finished products

$
610,759

$
913,415Work-in-process


774,190


2,388,049Raw materials


1,910,048


3,628,6513,294,997


6,930,115Less LIFO reserve


(228,710
)

(466,619
)Net inventories

$
3,066,287

$
6,463,496


5.     Other Accrued Expenses and Current Liabilities

Accrued expenses consisted of the following at December 31:

December 312005

(restated)
2004Short-term pension liability

$
231,627

$
380,061Restructuring liability


133,348


Accrued expenses, other


345,746


291,831710,721


671,892


37

---



6.     Debt

Debt consists of the following:

December 312005

2004Bank note payable through July 6, 2008 at $225,000 quarterly plus interest at the 3-month LIBOR rate plus 2%

$


$
3,150,000Bank note payable through July 6, 2008 at $25,000 monthly plus interest at 8.07%





1,075,000Mortgage payable to bank through July 2006 at $26,823 monthly including interest at 8.04% with payment for remaining balance due August 1, 2006


2,316,210


2,443,596Total long-term debt


2,316,210


6,668,596Less current portion


(138,168
)

(6,668,596
)Long-term portion

$
2,178,042

$



The
bank notes were secured by all equipment, accounts receivable, inventories and general intangibles. The mortgage loan is secured by real estate. The credit agreement underlying the
bank notes payable requires compliance with certain covenants and has restrictions on the payment of dividends.

On
March 18, 2005, the Company received a notice of default and reservation of rights letter from its lender regarding its bank notes as a result of the non-renewal of
the Company's CBU contract with the USPS. After discussions with its lender following the notice of the non-renewal of the USPS contract, the Company agreed to accelerate repayment of its
bank notes and has repaid them in full.

Subsequent
to year end the mortgage payable was refinanced on March 5, 2007 with a new financial institution. See Note 20.

7.     Operating Leases

The Company leases several operating facilities and vehicles under noncancelable operating leases. Future minimum lease payments consist of the following at
December 31, 2005:

2006

$
78,0002007


44,0002008


14,0002009


5,0002010


2,000Total

$
143,000


Rent
expense amounted to approximately $287,000, $326,000 and $340,000 in 2005, 2004, and 2003, respectively.

38

---



8.     Income Taxes

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

2005

(Restated)
2004

(Restated)
2003United States income (loss)

$
(9,193,519
)
$
4,525,323

$
3,610,159Foreign income (loss)


(80,693
)

(46,299
)

(48,682
)$
(9,274,212
)
$
4,479,024

$
3,561,477


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

2005

2004

2003Current:Federal

$
(1,108,342
)
$
1,897,403

$
1,273,089State


(94,513
)

323,340


221,690Foreign


1,536


19,857


(15,056
)Total current


(1,201,319
)

2,240,600


1,479,723Deferred:Federal


38,240


(376,219
)

(69,256
)State


5,172


(66,391
)

(12,220
)Foreign


(24,407
)




19,005


(442,610
)

(81,476
)$
(1,182,314
)
$
1,797,990

$
1,398,247


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

2005

2004

2003Statutory income tax rate

(34
)%
34
%
34
%State and foreign income taxes, net of federal benefit

(3
)
4

4Repatriation dividend

4



Research and development credits

(6
)


Non-deductible goodwill impairment

25



Other permanent differences

1

2

1(13
)%
40
%
39
%


Differences
between the application of accounting principles and tax laws cause differences between the bases of certain assets and liabilities for financial reporting purposes and tax
purposes. The tax effects of these differences, to the extent they are temporary, are recorded as deferred tax assets

39

---



and
liabilities. Significant components of the Company's deferred tax assets and liabilities at December 31 are as follows:

2005

2004Deferred tax liabilities:Property, plant and equipment

$


$
33,266Prepaid expenses and other


93,551


113,661Total deferred tax liabilities


93,551


146,927Deferred tax assets:Property, plant and equipment


7,364Postretirement benefits


27,121


30,492Pension costs


457,256


400,192Allowance for doubtful accounts


41,055


70,556Other assets


22,838


27,333Accrued expenses


66,051


477,347Other employee benefits


8,393


61,712Inventory costs


786,483


404,083Total deferred tax assets


1,416,561


1,471,715Net deferred tax assets

$
1,323,010

$
1,324,788Current deferred tax asset

$
1,265,684

$
1,300,230Long-term deferred tax asset


57,326


24,558$
1,323,010

$
1,324,788


The
Company has not provided deferred taxes for taxes that could result from the remittance of undistributed earnings of the Company's foreign subsidiary since it has generally been the
Company's intention to reinvest these earnings indefinitely. Undistributed earnings that could be subject to additional income taxes if remitted were approximately $704,000 at December 31,
2005.

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

9.     Pension and Other Postretirement Benefits (Restated)

U.S. Pension Plan

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

The
plan's assets are invested in a balanced index fund (the "Fund") where the assets were invested during 2003, 2004 and 2005. The principal investment objective of the Fund is to
provide an incremental risk adjusted return compared to a portfolio invested 50% in stocks and 50% in bonds over a full market cycle. Under normal market conditions, the average asset allocation for
the Fund is expected to be approximately 50% in stocks and 50% in bonds. This benchmark allocation may be adjusted by up to 20% based on economic or market conditions and liquidity needs.

40

---



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

Canadian Pension Plan

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

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

The
following table sets forth the changes in the projected benefit obligation, changes in plan assets, the funded status, the accrued benefit cost recognized in the consolidated balance
sheets at December 31, 2005 and 2004, and the net periodic cost and assumptions. The measurement date for all presented assets and liabilities is December 31. Contributions to be made to
the plan in 2006 are expected to approximate $93,000 for the U.S. plan and $139,000 for the Canadian plan.

|                                                     |                                                   | Pension Benefits |           
|---------------------------------------------------- | ------------------------------------------------- | ---------------- | ----------
|
|
|Change in projected benefit obligation               |                                                   |                  |           
|                                                     | Projected benefit obligation at beginning of year |                  | $         
|                                                     | Service cost                                      |                  |           
|                                                     | Interest cost                                     |                  |           
|                                                     | Settlement                                        |                  |           
|                                                     | Actuarial loss                                    |                  |           
|                                                     | Benefits and expenses paid                        |                  |           
|                                                     | Currency translation adjustment                   |                  |           
|                                                     | Curtailment gain                                  |                  |           
|                                                     |                                                   |                  |           
|                                                     | Projected benefit obligation at end of year       |                  |           
|Change in plan assets                                |                                                   |                  |           
|                                                     | Fair value of plan assets as beginning of year    |                  |           
|                                                     | Actual return on plan assets                      |                  |           
|                                                     | Settlement                                        |                  |           
|                                                     | Employer contribution                             |                  |           
|                                                     | Benefits and expenses paid                        |                  |           
|                                                     | Currency translation adjustment                   |                  |           
|                                                     |                                                   |                  |           
|Fair value of plan assets at end of year             |                                                   |                  | 2,363,904 
|                                                     |                                                   |                  |           
|Funded status                                        |                                                   |                  | (1,066,836
|Unrecognized net actuarial loss                      |                                                   |                  | 727,139   
|Intangible pension asset recognized                  |                                                   |                  |          
|                                                     |                                                   |                  |           
|Net amount recognized(accrued) prepaid benefit cost |                                                   | $                | (339,697  
|                                                     |                                                   |                  |           

41

---



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

Amounts
are recognized in the consolidated balance sheet as follows:

|                                     |  | U.S. Plan |          | Canadian Plan |  
|------------------------------------ |  | --------- | -------- | ------------- | -
|
|Intangible asset                     |  | $         |         |               | $
|Other accrued expensescurrent       |  |           | (93,111  | )             |  
|Other long-term liabilities          |  |           | (973,725 | )             |  
|Accumulated other comprehensive loss |  |           | 727,139  |               |  
|                                     |  |           |          |               |  
|                                     |  | $         | (339,697 | )             | $
|                                     |  |           |          |               |  



|                                        |  | U.S. Plan |          | Canadian Plan |  
|--------------------------------------- |  | --------- | -------- | ------------- | -
|
|Components of net periodic benefit cost |  |           |          |               |  
|Service cost                            |  | $         | 201,506  |               | $
|Interest cost                           |  |           | 233,381  |               |  
|Expected return on plan assets          |  |           | (214,822 | )             |  
|Net actuarial loss                      |  |           | 51,231   |               |  
|Amortization of prior service cost      |  |           | 879      |               |  
|                                        |  |           |          |               |  
|Net periodic benefit cost               |  | $         | 272,175  |               | $
|                                        |  |           |          |               |  

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

U.S. Plan

Canadian Plan2006

$
83,000

$
55,9172007


134,000


67,4702008


156,000


67,4702009


188,000


67,4702010


184,000


67,4702011 through 2015

$
1,299,000

$
337,348


42

---



U.S. Plan

Canadian Plan2005

2004

2005

2004Weighted average assumptions as of December 31Discount rate

5.75
%
5.75
%
6.0
%
6.0
%Expected return on plan assets

7.5
%
7.5
%
7.0
%
7.0
%Rate of compensation increase

4.0
%
4.0
%
2.0
%
2.0
%


The
expected return on plan assets is based upon anticipated returns generated by the investment vehicle. Any shortfall in the actual return has the effect of increasing the benefit
obligation. The benefit obligation represents the actuarial present value of benefits attributed to employee service rendered; assuming future compensation levels are used to measure the obligation.
FASB Statement No. 87 Employers' Accounting for Pensionsrequires the Company to recognize a minimum pension liability equal to the actuarial present value of the accumulated
benefit obligation in excess of plan assets. The accumulated benefit obligation for the U.S. Plan was $3,430,740 and $4,064,302 at December 31, 2005 and 2004, respectively. The accumulated
benefit obligation for the Canadian Plan was $911,968 and $904,197, respectively. In prior years an intangible asset was recorded for the U.S. Plan to the extent that the excess of the accumulated
benefit obligation over the plan assets relates to prior service costs. As a result of the freezing of the U.S. Plan, the intangible asset of $14,435 was written-off and included in the
amortization of prior service costs during the second quarter of 2005.

Death Benefit Plan

The Company also provides a death benefit for retired former employees of the Company. Effective in 2000, the Company discontinued this benefit for active
employees. The death benefit is not a funded plan. The Company pays the benefit upon the death of the retiree. The Company has fully recorded its liability in connection with this plan. The liability
was approximately $73,000 and $76,000 at December 31, 2005 and 2004, respectively, and is recorded as long-term pension and other benefits in the accompanying balance sheets. No
expense was recorded in 2005, 2004 or 2003 related to the death benefit as the Plan is closed to new participants. The decrease in the calculated liability for benefits under this plan in 2005 is as a
result of the increasing age of the participants, in accordance with the provisions of the plan.

Defined Contribution Plan

During 1999, the Company established a 401(k) plan for the benefit of its U.S. full-time employees. Under the Company's 401(k) plan, the Company makes
an employer matching contribution equal to $0.10 for each $1.00 of an employee's salary contributions up to a total of 10% of that employee's compensation. The Company's contributions vest over a
period of five years. The Company recorded expense of approximately $19,000, $21,000 and $21,000 in connection with its contribution to the plan during 2005, 2004, and 2003, respectively.

10.   Capital Stock

The Certificate of Incorporation, as amended, authorizes 4,000,000 shares of common stock and 1,000,000 shares of preferred stock, 200,000 shares of which have
been designated as Series A Junior Participating Preferred Stock. As of December 31, 2005, 1,738,146 shares of common stock were outstanding and zero shares of preferred stock were
outstanding.

11.   Stock Options

In 1999, the Company adopted the American Locker Group Incorporated Stock Incentive Plan, permitting the Company to provide incentive compensation of the types
commonly known as incentive stock options, stock options and stock appreciation rights. The price of option shares or appreciation

43

---



rights
granted under the Plan shall not be less than the fair market value of common stock on the date of grant, and the term of the stock option or appreciation right shall not exceed ten years from
date of grant. Upon exercise of a stock appreciation right granted in connection with a stock option, the optionee shall surrender the option and receive payment from the Company of an amount equal to
the difference between the option price and the fair market value of the shares applicable to the options surrendered on the date of surrender. Such payment may be in shares, cash or both at the
discretion of the Company's Stock Option-Executive Compensation Committee.

At
December 31, 2005 and 2004, there were no stock appreciation rights outstanding.

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

|                              |  | 2005    |   | 2004 |      | 2003
|----------------------------- |  | ------- | - | ---- | ---- | ----
|
|Outstandingbeginning of year |  | 80,600  |   | $    | 6.34 |     
|Exercised                     |  | (12,000 | ) |      | 2.81 |     
|Granted                       |  |        |   |      |     |     
|Expired or forfeited          |  | (35,000 | ) |      | 6.50 |     
|                              |  |         |   |      |      |     
|Outstandingend of year       |  | 33,600  |   | $    | 7.43 |     
|                              |  |         |   |      |      |     
|Exercisableend of year       |  | 33,600  |   |      |      |     
|                              |  |         |   |      |      |     

The
exercise prices for options outstanding as of December 31, 2005 were as follows: $6.5013,600 shares, $7.2510,000 shares and $8.8810,000
shares. The weighted-average remaining contractual life of those options is 3.8 years.

At
December 31, 2005, 73,000 options remain available for future issuance under the 1999 Plan.

12.   Shareholder Rights Plan

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

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

44

---



13.   Earnings Per Share

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

|                                                                                                       |                                                                              | 2005                   |           | (Restated)
2004 |   | (Restated)
2003
|------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------- | ---------------------- | --------- | --------------- | - | ---------------
|Numerator:                                                                                             |                                                                              |                        |           |                 |   |                
|                                                                                                       | Net income (loss)                                                            |                        | $         | (8,091,898      | ) | $              
|Denominator:                                                                                           |                                                                              |                        |           |                 |   |                
|                                                                                                       | Denominator for basic earnings per shareweighted average shares outstanding |                        |           | 1,540,228       |   |                
|                                                                                                       | Effect of dilutive securities:                                               |                        |           |                 |   |                
|                                                                                                       |                                                                              | Employee stock options |           |                 |  |                
|                                                                                                       |                                                                              |                        |           |                 |   |                
|Denominator for diluted earnings per shareweighted average shares outstanding and assumed conversions |                                                                              |                        | 1,540,228 |                 |   | 1,557,931      
|                                                                                                       |                                                                              |                        |           |                 |   |                
|Basic earnings per share                                                                               |                                                                              | $                      | (5.25     | )               | $ | 1.75           
|                                                                                                       |                                                                              |                        |           |                 |   |                
|Diluted earnings per share                                                                             |                                                                              | $                      | (5.25     | )               | $ | 1.72           
|                                                                                                       |                                                                              |                        |           |                 |   |                

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

14.   Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows:

December 312005

(Restated)
2004Foreign currency translation adjustment

$
(35,920
)
$
(1,701
)Minimum pension liability adjustment, net of tax effect of $331,139 in 2005 and $309,598 in 2004


(485,918
)

(488,391
)$
(521,838
)
$
(490,092
)


15.   Geographical and Customer Concentration Data

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

2005

(Restated)
2004

(Restated)
2003United States customers

$
29,295,544

$
47,506,173

$
38,039,553Foreign customers


3,008,145


2,146,956


1,699,149$
32,303,689

$
49,653,129

$
39,738,702


Sales
to the U.S. Postal Service represented 21.4%, 53.9% and 52.7% of net sales in 2005, 2004, and 2003, respectively.

45

---



At
December 31, 2005 and 2004, the Company had unsecured trade receivables from governmental agencies of $190,000 and $1,692,000 respectively. At December 31, 2005 and
2004, the Company had trade receivables from customers considered to be distributors of $1,995,000 and $2,179,000, respectively.

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

16.   Quarterly Results of Operations (Unaudited)

The following is a tabulation of the unaudited quarterly results of operations for the years ended December 31, 2005 and 2004:

2005Three Months Ended(Restated)
March 31

(Restated)
June 30

(Restated)
September 30

December 31Net sales

$
9,323,627

$
9,173,660

$
6,791,828

$
7,014,574Gross profit

$
2,862,334

$
2,552,445

$
1,657,109

$
1,327,711Net income (loss)

$
(5,697,031
)
$
(375,527
)
$
(539,318
)
$
(1,480,022
)Earnings (loss) per shareBasic

$
(3.71
)
$
(.25
)
$
(.35
)
$
(.94
)Earnings (loss) per shareDiluted

$
(3.71
)
$
(.25
)
$
(.35
)
$
(.94
)




2004Three Months Ended(Restated)
March 31

(Restated)
June 30

(Restated)
September 30

(Restated)
December 31Net sales

$
9,692,088

$
10,415,722

$
18,221,663

$
11,323,656Gross profit

$
3,279,619

$
3,209,385

$
5,385,229

$
3,111,100Net income

$
630,820

$
450,165

$
1,826,751

$
(226,702
)Earnings per shareBasic

$
.41

$
.29

$
1.19

$
(.14
)Earnings per shareDiluted

$
.40

$
.29

$
1.17

$
(.14
)


The
Company's accounting practice for interim periods provides for possible accounting adjustments in the fourth quarter or at year-end. In 2005, adjustments to write off
uncollectible accounts resulted in an increase to the fourth quarter pre-tax loss of approximately $300,000, adjustments to inventory resulted in an increase to the fourth quarter pre-tax loss of
approximately $950,000 and adjustments to accrued expenses resulted in an increase to the fourth quarter pre-tax loss of approximately $360,000. The net loss for the quarter ended December 31,
2004, includes a pre-tax charge against operating results of $1,102,500 as the result of a settlement agreement related to certain environmental claims against the Company (See
Note 18Contingencies). In 2004, adjustments to inventory resulted in an increase to the fourth quarter pre-tax loss of approximately $200,000.

17.   Related Parties

The Chairman and Chief Executive Officer of the Company is a stockholder and director of Rollform of Jamestown Inc., a rollforming company, and is actively
involved in its management. One of

46

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the
Company's subsidiaries purchased $90,000, $245,000 and $151,000 of fabricated parts from Rollform of Jamestown, Inc. in 2005, 2004 and 2003, respectively.

Alan
H. Finegold, a director of the Company through 2007, was paid $197,000, $20,000 and $55,000 for consulting and legal services to the Company in 2005, 2004 and 2003, respectively.
Consulting services were provided pursuant to a consulting arrangement which was terminated in 2005. Amounts due Mr. Finegold and included in accounts payable at December 31, 2005 and
2004 totaled $32,000 and $0, respectively. Mr. Finegold resigned as a director of the Company effective January 2, 2007.

Roy J.
Glosser, a former director and officer of the Company is related to the Chairman of the Board of Signore, Inc., a vendor that supplies metal lockers. Purchases from
Signore, Inc. totaled $3,310,000, $2,990,000, and $2,751,000 in 2005, 2004 and 2003, respectively. Amounts due Signore, Inc. and included in accounts payable at December 31, 2005
and 2004 totaled $263,000 and $230,000, respectively. The Company terminated its relationship with Signore, Inc. in 2006. See Note 19.

18.   Contingencies

In April 2005, the Company entered into a settlement with plaintiffs in a lawsuit titledRoberta Raiport, et al. v. Gowanda
Electronics Corp. and American Locker Group, Inc.which was pending in the State of New York Supreme Court, County of Cattaraugus. The suit involved property located in
Gowanda,
New York, which was sold by the Company to Gowanda Electronics Corp. prior to 1980. The plaintiffs, who are current or former property owners in Gowanda, New York, asserted that the defendants each
operated machine shops at the site during their respective periods of ownership and that, as a result of such operations, soil and groundwater contamination occurred which has adversely affected the
plaintiffs and the value of the plaintiffs' properties. According to the terms of the settlement agreement, the Company paid an aggregate of $1,225,000 to the plaintiffs who own property adjacent to
the site and to the current owner of the property, Gowanda Electronics Corporation. Of this amount, $825,000 was paid in April 2005, $200,000 was paid in June 2005, and $200,000 was paid
in August 2005. The Company's primary insurance carrier during the period of the ownership of the Gowanda property reimbursed the Company in the amount of $122,500 in return for a release of
coverage against the underlying lawsuit. This settlement, less of anticipated insurance proceeds, resulted in a charge to pre-tax operating results in the fourth quarter of 2004 of
$1,102,500. This settlement does not resolve the Company's potential liability described below with respect to remediation of offsite contamination which allegedly migrated from this site.

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

47

---



available
information, the Company is unable to estimate timing with respect to the resolution of this matter. The NYSDEC has not commenced implementation of the remedial plan and has not indicated
when construction will start, if ever. The Company's primary insurance carrier has assumed the cost of the Company's defense in this matter, subject to a reservation of rights.

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

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

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

19.   Restructuring

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

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

48

---



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

Cost Of Sales:Equipment depreciation

$
92,000Inventory impairment


160,000Purchase order commitments


108,000Subtotal


360,000Sales, General and Administrative:Severance


641,000Professional fees


1,328,000Subtotal


1,969,000$
2,329,000


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

2004

Expense

Payments/
Charges

2005Purchase order commitments




$
108,000

$
108,000


Severance





641,000


508,000


133,000Professional fees





1,328,000


1,328,000


Total

$


$
2,077,000

$
1,944,000

$
133,000


20.   Subsequent Events

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

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

49

---



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

On September 19, 2005, the Audit Committee of the Board of Directors of American Locker Group Incorporated (the "Company") engaged as of that date Travis,
Wolff & Company, LLP ("TravisWolff") to serve as Company's independent registered public accounting firm for the fiscal year ending December 31, 2005.

During
the Company's two most recent fiscal years and the subsequent interim periods prior to the engagement of TravisWolff, neither the Company nor anyone on its behalf consulted with
TravisWolff regarding either:



Item 9A. Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of its management, including its principal executive officer and principal
accounting officer, of the effectiveness of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of
December 31, 2005. These disclosure controls and procedures are designed to provide reasonable assurance to the Company's management and board of directors that information required to be
disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to its management as appropriate to allow timely decisions regarding required disclosure.
Based on that evaluation, including all matters discussed in the paragraphs below, the principal executive officer and principal accounting officer of the Company have
concluded that the Company's disclosure controls and procedures as of December 31, 2005 were not effective, at the reasonable assurance level, to ensure that (a) material information
relating to the Company is accumulated and made known to the Company's management, including its principal executive officer and principal accounting officer, to allow timely decisions regarding
required disclosure and (b) is recorded, processed, summarized and reported within the time periods specified in SEC's rules and forms. There were no changes in the Company's internal control
over financial reporting during the fourth quarter of 2005.

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

1)    The
Company lacked adequate accounting personnel to oversee the financial accounting and reporting responsibilities of an SEC registrant and maintain internal control
over financial reporting to produce financial statement in accordance with U.S. generally accepted accounting principles.

50

---



2)    The
Company's independent registered public accounting firm proposed numerous material adjustments as a result of its audit procedures related to the following:



3)    The
Company has insufficient entity level controls, as defined by COSO, to ensure that the Company meets its disclosure and reporting obligations.

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



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

Item 9B. Other Information

None.

51

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PART III

Item 10. Directors and Executive Officers of the Registrant

Directors and Executive Officers

The following sets forth certain information concerning the Company's directors and executive officers as of December 31, 2005. There are no family
relationships between any directors and executive officers other than as indicated below.

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

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

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

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

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

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

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

In
addition, on February 13, 2007, the Company appointed Anthony B. Johnston, 47, as a director of the Company to serve until the next Annual Meeting of Stockholders of the
Company and until his successor is duly elected and qualified. Mr. Johnston has over 20 years of public company experience in both the manufacturing and service sectors. Since
October 1996, Mr. Johnston has been a Senior Vice President with The Westaim Corporation located in Calgary, Alberta, Canada. Prior to joining Westaim, Mr. Johnston was a Vice
President with a major international airline.

52

---



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

Audit Committee

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

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely upon the Company's review of the reports and representations provide to it by persons required to file reports under Section 16(a), the
Company believes that all of the Section 16(a) filing requirements applicable to the Company's reporting officers and directors were properly and timely satisfied during 2005, except for late
Form 3 filings by Harold S. Rabin and Mary A. Stanford.

Code of Ethics

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

Item 11. Executive Compensation

The following information is given for 2005, 2004 and 2003 with respect to the compensation which was paid or accrued for services in such years, or which was
paid in such years for services in prior years but not included in the remuneration table in prior years' proxy statements, for each of the executive officers of the Company as of December 31,
2005.

|                                                                                              |  | Annual Compensation |  | Long-Term Compensation  |  |                        
|--------------------------------------------------------------------------------------------- |  | ------------------- |  | ----------------------- |  | -----------------------
|
|
|
|
|Edward F. Ruttenberg
Chairman, Chief Executive Officer,
Chief Operating Officer and Treasurer |  | 2003
2004
2005      |  | 196,812
196,812
155,812 |  | 120,000
140,000
140,000
|Ronald Cronin
Chief Financial Officer(2)                                                      |  | 2003
2004
2005      |  | 

19,038              |  | 

                  

---

53

---



STOCK OPTIONS

1999 Plan

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

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

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

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

Amendment or Termination.The 1999 Plan has no fixed expiration date. The Committee will establish expiration and exercise
dates on an award-by-award basis. However, for the purpose of awarding incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") ("incentive stock options"), the 1999 Plan will expire ten years from its effective date of May 13, 1999.

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

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

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

Upon
a participant's termination of employment for reasons other than death, disability or retirement, the participant's stock options will expire on the date of termination, unless the
right to exercise the options is extended by the Committee at its discretion. In general, upon a participant's termination by reason of death or disability, stock options which were exercisable on the
participant's termination date (or which are otherwise determined to be exercisable by the Committee) may continue to be exercised by the participant (or the participant's beneficiary) for a period of
twelve months from the date of the participant's termination of employment, unless extended by the Committee. Upon a participant's termination by reason of retirement, stock options which were

54

---



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

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

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

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

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

No
options were granted or exercised in 2005 under the 1999 Plan. The following table sets forth information with respect to the persons named in the Executive Compensation Table
concerning the exercise of options during the last fiscal year and unexercised options held as of December 31, 2005. Share data reflects the four-for-one stock
distribution which was distributed on June 25, 1998.

Aggregated Option/SAR Exercises in Last Fiscal Year
And Fiscal Year-End Option/SAR Values

|                     |  |   |  |   |  | Number of Securities
Underlying Unexercised
Options at 12/31/05 (#) |  | Value of Unexercised
In-The-Money
Options at 12/31/05 ($)(1)
|-------------------- |  | - |  | - |  | ------------------------------------------------------------------- |  | ------------------------------------------------------------
|
|
|Edward F. Ruttenberg |  |  |  |  |  | 25,000                                                              |  |                                                            
|Ronald Cronin        |  |  |  |  |  |                                                                    |  |                                                            

---

55

---



ESTIMATED RETIREMENT BENEFITS

The
Company's pension plans for salaried employees (U.S. and Canadian) provide for an annual pension upon normal retirement computed under a career average formula, presently equal to 2%
of an employee's eligible lifetime earnings, which includes salaries, commissions and bonuses. The following table sets forth the approximate annual benefits payable on normal retirement pursuant to
the provisions of the pension plans for salaried employees to persons in specified lifetime average annual earnings categories and years-of-service classifications. Edward F.
Ruttenberg is credited with eight years of service under this plan. See Note 9 for additional information about the Company's decision in May 2005 to freeze its obligations under the
defined benefit plan for United States employees such that after July 15, 2005 no benefits will accrue under this plan.

Annual Pension Benefits for Years of Credited Service Shown(1)Lifetime Average
Annual Earnings10 Years

20 Years

30 Years50,000

10,000

20,000

30,00075,000

15,000

30,000

45,000100,000

20,000

40,000

60,000125,000

25,000

50,000

75,000150,000

30,000

60,000

90,000


---

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

REPORT
ON EXECUTIVE COMPENSATION

This
Report on Executive Compensation is furnished by the Stock OptionExecutive Compensation Committee of the Board of Directors (referred to as the "Committee").

In
accordance with the rules of the Securities and Exchange Commission, this report is not incorporated by reference into any of the Company's registration statements under the
Securities Act of 1933.

The
Committee consists of three members, Craig R. Frank, John E. Harris and Mary A. Stanford, all of whom are independent non-employee directors.

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

Compensation PhilosophyThe Company's overall executive compensation objective is to attract and retain qualified executive
officers by compensating them at levels comparable to those at similar businesses. The Company's compensation program for executive officers consists of five components:



56

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

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

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

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

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

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

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



57

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COMPENSATION
OF DIRECTORS

During
2004 and 2005, each director, other than the Chair of the Audit Committee, who was not a salaried employee of the Company, was paid a base director fee of $2,000 per calendar
quarter and a fee of $500 for each meeting of the Board of Directors or of a Committee of the Board which he attended. In recognition of the additional responsibilities and time commitment associated
with the position, the Chair of the Audit Committee instead received a base director fee of $4,000 per calendar quarter and a fee of $500 for each meeting of the Board of Directors or of a Committee
of the Board which he attended. All payments of compensation to directors were payable on a monthly basis.

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

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

COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No
member of the Executive Compensation-Stock Option Committee is an officer or employee of the Company. No other member of the Committee has a current or prior relationship, and no
officer who is a statutory insider of the company has a relationship to any other company, required to be described under the Securities and Exchange Commission rules relating to disclosure of
executive compensation.

EMPLOYMENT
CONTRACT

On
January 3, 2006, the Company and Mr. Ruttenberg, the Company's Chief Executive Officer, Chief Operating Officer and Treasurer, entered into an Employment Agreement (the
"Employment Agreement") in connection with Mr. Ruttenberg's continued employment with the Company in such capacity

The
Employment Agreement provides for three years, subject to termination in accordance with its terms. Under the Employment Agreement, Mr. Ruttenberg will be paid a base annual
salary in an amount of no less than $160,000, plus an annual bonus to the extent authorized by the Company's Board of Directors. Mr. Ruttenberg will be entitled to participate in any benefit
programs maintained by the Company for full-time salaried employees generally. The Employment Agreement also contains customary covenants regarding nondisclosure of confidential
information and non-competition restrictions.

58

---



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

CUMULATIVE
TOTAL STOCKHOLDER RETURN

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

In
accordance with the rules of the Securities and Exchange Commission, this presentation is not incorporated by reference into any of the Company's registration statements under the
Securities Act of 1933.

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

GRAPHIC

ASSUMES $100 INVESTED ON JAN. 1, 2001
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2005

|                            |  | 2000   |  | 2001   |  | 2002   |  | 2003   |  | 2004   |  | 2005  
|--------------------------- |  | ------ |  | ------ |  | ------ |  | ------ |  | ------ |  | ------
|American Locker Group, Inc. |  | 100.00 |  | 309.09 |  | 242.73 |  | 202.91 |  | 268.16 |  | 107.64
|Hemscott Group Index        |  | 100.00 |  | 133.83 |  | 115.30 |  | 168.80 |  | 192.54 |  | 190.44
|Russell 2000 Index          |  | 100.00 |  | 101.02 |  | 79.22  |  | 115.16 |  | 135.31 |  | 139.81
|Peer Group                  |  | 100.00 |  | 131.03 |  | 110.74 |  | 160.09 |  | 185.56 |  | 178.85

59

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

As of August 24, 2007, the directors and named executive officers of the Company owned the following shares of Common Stock of the Company:

Name and Address of
Beneficial Owner(1)

Amount and
Nature of
Beneficial
Ownership

Percent
of ClassEdward F. Ruttenberg

79,841
(2)
5.2
%Craig R. Frank

150

*John E. Harris

644

*Anthony B. Johnston

0

*Mary A. Stanford

644

*James T. Vanasek

122,152
(3)
7.9
%All 6 directors and executive officers as a group(7)

203,431

13.1
%


---

EQUITY
COMPENSATION PLAN INFORMATION

Information
about its equity compensation plans at December 31, 2005 was as follows:

Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights

Weighted-average
exercise price of
outstanding options,
warrants and rights

Number of securities
remaining available
for future issuance
under equity
compensation plansEquity compensation plans approved by security holders

33,600

$
7.43

73,000Equity compensation plans not approved by security holders






Total

33,600

$
7.43

73,000


Item 13. Certain Relationships and Related Transactions

The Chairman and Chief Executive Officer of the Company is a stockholder and director of Rollform of Jamestown Inc., a rollforming company. One of the
Company's subsidiaries purchased

60

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$90,000,
$245,000 and $151,000 of fabricated parts from Rollform of Jamestown, Inc. in 2005, 2004 and 2003, respectively.

Alan
H. Finegold, a director of the Company through 2007, was paid $197,000, $20,000 and $55,000 for consulting and legal services to the Company in 2005, 2004 and 2003, respectively.
Consulting services
were provided pursuant to a consulting arrangement which was terminated in 2005. Amounts due Mr. Finegold and included in accounts payable at December 31, 2005 and 2004 totaled $32,000
and $0, respectively. Mr. Finegold resigned as a director of the Company effective January 2, 2007.

Roy J.
Glosser, a former director and officer of the Company is related to the Chairman of the Board of Signore, Inc., a vendor that supplies metal lockers. Purchases from
Signore, Inc. totaled $3,310,000, $2,990,000, and $2,751,000 in 2005, 2004 and 2003, respectively. Amounts due Signore, Inc. and included in accounts payable at December 31, 2005
and 2004 totaled $263,000 and $230,000, respectively. The Company terminated its relationship with Signore, Inc. in 2006. See Note 19.

Item 14. Principal Accountant Fees and Services 9(e)

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

The
following table presents fees and other expenses for professional audit services rendered by (i) Travis, Wolff & Company, LLP for the audit of the Company's annual
financial statements for the year ended December 31, 2005 and fees and other expenses for other services rendered during that period and (ii) Schneider Downs & Co., for the audit
of the Company's annual financial statements for the year ended December 31, 2004 and fees and other expenses for other services rendered during that period.

2005

2004Audit fees

$
409,000

$
185,000Audit-related fees


39,000


0Tax fees


31,000


2,600All other fees


0


500Total

$
479,000

$
188,100


AUDIT
FEES

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

AUDIT-RELATED
FEES

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

61

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TAX
FEES

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

OTHER
FEES

There
were no other fees in 2005.

The
Audit Committee considered whether the provision of all services described above was compatible with maintaining the auditor's independence, and has determined that such services for
2005 and 2004 were compatible with maintaining the auditor's independence. All services described above were pre-approved by the Audit Committee.

Part IV

Item 15. Exhibits and Financial Statement Schedules







62

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American Locker Group Incorporated

Index
to Financial Statements and Financial Statement Schedules

The
financial statements together with the reports of Travis, Wolff & Company, LLP dated August 30, 2007, Schneider Downs & Co., Inc. dated March 18,
2005, May 12, 2005 and August 31, 2007 and Ernst & Young LLP dated February 24, 2004 are included in Item 8 Financial Statements and Supplementary Data in the Annual Report
on Form 10-K.

Financial
Schedules for the years 2005, 2004, and 2003:



Schedule II

American Locker Group Incorporated

Valuation and Qualifying Accounts

|Year            |  | Description                     |  | Balance at the
Beginning of
Year |         | Additions
Charged to
Costs and
Expense |   | Deductions |  | Balance at
End of
Year
|--------------- |  | ------------------------------- |  | -------------------------------- | ------- | -------------------------------------- | - | ---------- |  | ----------------------
|Year ended 2005 |  |                                 |  |                                  |         |                                        |   |            |  |                       
|                |  | Allowance for Doubtful Accounts |  | $                                | 232,000 |                                        | $ | 332,000    |  | $                     
|                |  | Reserve for Inventory Valuation |  |                                  | 386,000 |                                        |   | 617,000    |  |                       
|Year ended 2004 |  |                                 |  |                                  |         |                                        |   |            |  |                       
|                |  | Allowance for Doubtful Accounts |  | $                                | 371,000 |                                        | $ | 155,000    |  | $                     
|                |  | Reserve for Inventory Valuation |  |                                  | 457,000 |                                        |   | 123,000    |  |                       
|Year ended 2003 |  |                                 |  |                                  |         |                                        |   |            |  |                       
|                |  | Allowance for Doubtful Accounts |  | $                                | 333,000 |                                        | $ | 94,000     |  | $                     
|                |  | Reserve for Inventory Valuation |  |                                  | 357,000 |                                        |   | 100,000    |  |                       

63

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

AMERICAN LOCKER GROUP INCORPORATED

| |  | /s/EDWARD F. RUTTENBERGEdward F. Ruttenberg
Chairman, Chief Executive Officer,
Chief Operating Officer and Treasurer | 
| |  | -------------------------------------------------------------------------------------------------------------------- | 
| |  | August 31, 2007                                                                                                      | 

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

|Signature                                   |  | Title                                                                                                                        |  | Date           
|------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------- |  | ---------------
|                                            |  |                                                                                                                              |  |                
|/s/EDWARD F. RUTTENBERGEdward F. Ruttenberg |  | Chairman, Chief Executive Officer, Chief Operating Officer, Treasurer, Principal Executive, Financial and Accounting Officer |  | August 31, 2007
|/s/CRAIG R. FRANKCraig R. Frank             |  | Director                                                                                                                     |  | August 31, 2007
|/s/JOHN E. HARRISJohn E. Harris             |  | Director                                                                                                                     |  | August 31, 2007
|/s/ANTHONY B. JOHNSTONAnthony B. Johnston   |  | Director                                                                                                                     |  | August 31, 2007
|/s/MARY A. STANFORDMary A. Stanford         |  | Director                                                                                                                     |  | August 31, 2007
|/s/JAMES T. VANASEKJames T. Vanasek         |  | Director                                                                                                                     |  | August 31, 2007

64

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EXHIBIT INDEX

|Exhibit No. |  |                                                                                                                               |  | Prior Filing or
Notation of Filing Herewith             
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------
|3.1         |  | Certificate of Incorporation of American Locker Group Incorporated                                                            |  | Exhibit to Form 10-K for Year ended December 31, 1980   
|3.2         |  | Amendment to Certificate of Incorporation changing name of company                                                            |  | Form 10-C filed May 6, 1985                             
|3.3         |  | Amendment to Certificate of Incorporation limiting liability of Directors and Officers                                        |  | Exhibit to Form 10-K for year ended December 31, 1987   
|3.4         |  | By-laws of American Locker Group Incorporated as amended and restated                                                         |  | Exhibit to Form 10-K for year ended December 31, 1985   
|3.5         |  | Certificate of Designations of Series A Junior Participating Preferred Stock                                                  |  | Exhibit to Form 10-K for year ended December 31, 1999   
|3.6         |  | Amendment to By-laws of American Locker Group Incorporated dated January 15, 1992                                             |  | Exhibit to Form 10-K for year ended December 31, 1991   
|3.7         |  | Amendment to Bylaws dated March 3, 1999                                                                                       |  | Exhibit to Form 10-K for year ended December 31, 1998   
|3.8         |  | Amendment to Bylaws dated November 19, 1999                                                                                   |  | Exhibit to Form 10-K for year ended December 31, 1999   
|10.1        |  | Form of Indemnification Agreement between American Locker Group Incorporated and its directors and officers                   |  | Exhibit to Form 8-K filed May 18, 2005                  
|10.2        |  | American Locker Group Incorporated 1999 Stock Incentive Plan                                                                  |  | Exhibit to Form 10-Q for the quarter ended June 30, 1999
|10.3        |  | Rights Agreement dated November 19, 1999 between American Locker Group Incorporated and Chase Mellon Shareholder Services LLC |  | Exhibit to Form 8-K filed November 18, 1999             
|10.4        |  | Employment Agreement dated January 3, 2006 between American Locker Group Incorporated and Edward F. Ruttenberg                |  | Exhibit to Form 8-K filed January 4, 2006               
|10.5        |  | Form of Option Agreement under 1999 Stock Incentive Plan                                                                      |  | Exhibit to Form 10-K for year ended December 31, 1999   
|10.6        |  | Loan Agreement dated March 6, 2007 between American Locker Group, F&M Bank and Trust Company and Altreco, Inc.                |  | Filed herewith                                          
|10.7        |  | Loan Agreement dated March 6, 2007 between American Locker Group, F&M Bank and Trust Company and Altreco, Inc., as Guarantor. |  | Filed herewith                                          
|21.1        |  | List of Subsidiaries                                                                                                          |  | Filed herewith                                          
|23.1        |  | Consent of Travis, Wolff & Company, LLP                                                                                       |  | Filed herewith                                          
|23.2        |  | Consent of Schneider Downs & Co., Inc.                                                                                        |  | Filed herewith                                          
|23.3        |  | Consent of Ernst & Young LLP                                                                                                  |  | Filed herewith                                          
|            |  |                                                                                                                               |  |                                                         

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|31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.                                                |  | Filed herewith
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------
|31.2 |  | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.                                            |  | Filed herewith
|32   |  | Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  | Filed herewith

---