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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

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

For the quarterly period ended: September 30, 2012

 

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

For the transition period from         to         

Commission File Number: 0-439

 

 

American Locker Group Incorporated

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   16-0338330

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

2701 Regent Blvd., Suite 200 DFW Airport, TX   75261
(Address of principal executive offices)   (Zip code)

(817) 329-1600

(Registrant’s telephone number, including area code)

None

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

 

 

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

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

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

 

Large accelerated filer    ¨    Accelerated filer    ¨
Non-accelerated filer    ¨  (Do not check if a smaller reporting company)    Smaller Reporting Company    x

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

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 1,683,985 shares of common stock, par value $1.00, issued and outstanding as of November 14, 2012.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

     Page No.  

FORWARD-LOOKING INFORMATION

     3   

PART I — FINANCIAL INFORMATION

     3   

Item 1. Financial Statements

     3   

Consolidated Balance Sheets (Unaudited) as of September 30, 2012 and December 31, 2011

     4   

Consolidated Statements of Operations (Unaudited) for the Nine Months Ended September  30, 2012 and 2011

     6   

Consolidated Statements of Operations (Unaudited) for the Three Months Ended September  30, 2012 and 2011

     7   

Consolidated Statements of Comprehensive Income (Unaudited) for the Nine and Three Months Ended September 30, 2012 and 2011

     8   

Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September  30, 2012 and 2011

     9   

Notes to Consolidated Financial Statements

     10   

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

     15   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     20   

Item 4. Controls and Procedures

     20   

PART II — OTHER INFORMATION

     21   

Item 6. Exhibits

     21   

SIGNATURES

     22   

 

2


Table of Contents

FORWARD-LOOKING INFORMATION

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

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

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

The interim financial statements should be read in conjunction with the financial statements of American Locker Group Incorporated (the “Company”) and the notes thereto contained in the Company’s audited financial statements for the year ended December 31, 2011 presented in the Company’s Annual Report on Form 10-K that was filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2012.

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

 

3


Table of Contents

American Locker Group Incorporated and Subsidiaries

Consolidated Balance Sheets

 

     September 30,     December 31,  
     2012 (Unaudited)     2011  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 275,907      $ 525,632   

Accounts receivable, less allowance for doubtful accounts of approximately $166,000 in 2012 and $149,000 in 2011

     2,046,314        1,754,959   

Inventories, net

     2,703,780        2,845,563   

Prepaid expenses

     459,626        330,403   

Deferred income taxes

     336,951        278,437   
  

 

 

   

 

 

 

Total current assets

     5,822,578        5,734,994   

Property, plant and equipment:

    

Land

     500        500   

Buildings and leasehold improvements

     953,055        754,922   

Machinery and equipment

     10,989,557        10,891,820   
  

 

 

   

 

 

 
     11,943,112        11,647,242   

Less allowance for depreciation and amortization

     (8,689,152     (8,087,988
  

 

 

   

 

 

 
     3,253,960        3,559,254   

Other noncurrent assets

     47,269        47,259   

Deferred income taxes

     720,620        727,118   
  

 

 

   

 

 

 

Total assets

   $ 9,844,427      $ 10,068,625   
  

 

 

   

 

 

 

 

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

 

4


Table of Contents

American Locker Group Incorporated and Subsidiaries

Consolidated Balance Sheets (continued)

 

     September 30,     December 31,  
     2012 (Unaudited)     2011  

Liabilities and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 1,689,808      $ 1,627,489   

Customer deposits

     202,587        398,167   

Commissions, salaries, wages, and taxes thereon

     111,516        162,507   

Income taxes payable

     3,397        69,718   

Revolving line of credit

     1,050,000        700,000   

Current portion of long-term debt

     200,000        200,000   

Other accrued expenses

     669,143        491,188   
  

 

 

   

 

 

 

Total current liabilities

     3,926,451        3,649,069   

Long-term liabilities:

    

Long-term debt, net of current portion

     450,000        600,000   

Pension and other benefits

     1,937,185        2,051,054   
  

 

 

   

 

 

 
     2,387,185        2,651,054   

Total liabilities

     6,313,636        6,300,123   

Commitments and contingencies (Note 11)

    

Stockholders’ equity:

    

Common stock, $1.00 par value:

    

Authorized shares – 4,000,000

    

Issued shares – 1,875,985 in 2012 and 1,871,999 in 2011; Outstanding shares – 1,683,985 in 2012 and 1,679,999 in 2011

     1,875,985        1,871,999   

Other capital

     285,994        284,478   

Retained earnings

     4,771,254        5,001,097   

Treasury stock at cost, 192,000 shares

     (2,112,000     (2,112,000

Accumulated other comprehensive loss

     (1,290,442     (1,277,072
  

 

 

   

 

 

 

Total stockholders’ equity

     3,530,791        3,768,502   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 9,844,427      $ 10,068,625   
  

 

 

   

 

 

 

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

 

5


Table of Contents

American Locker Group Incorporated and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

 

     Nine Months Ended September 30,  
     2012     2011  

Net sales

   $ 9,937,688      $ 9,775,502   

Cost of products sold

     7,025,060        6,668,041   
  

 

 

   

 

 

 

Gross profit

     2,912,628        3,107,461   

Selling, general and administrative expenses

     2,903,564        3,091,276   

Restructuring costs

     283,924        —     
  

 

 

   

 

 

 

Total operating loss

     (274,860     16,185   

Other income (expense):

    

Interest income

     13,637        82   

Other income (expense) – net

     9,611        129,187   

Interest expense

     (84,945     (46,541
  

 

 

   

 

 

 

Total other income (expense)

     (61,697     82,728   
  

 

 

   

 

 

 

Loss before income taxes

     (336,557     98,913   

Income tax benefit (expense)

     106,713        (45,282
  

 

 

   

 

 

 

Net loss

   $ (229,844   $ 53,631   
  

 

 

   

 

 

 

Weighted average common shares:

    

Basic

     1,682,661        1,652,422   
  

 

 

   

 

 

 

Diluted

     1,682,661        1,652,422   
  

 

 

   

 

 

 

Loss per share of common stock:

    

Basic

   $ (0.14   $ 0.03   
  

 

 

   

 

 

 

Diluted

   $ (0.14   $ 0.03   
  

 

 

   

 

 

 

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

 

6


Table of Contents

American Locker Group Incorporated and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

 

     Three Months Ended September 30,  
     2012     2011  

Net sales

   $ 3,538,830      $ 3,616,451   

Cost of products sold

     2,582,726        2,456,846   
  

 

 

   

 

 

 

Gross profit

     956,104        1,159,605   

Selling, general and administrative expenses

     949,480        1,040,455   

Restructuring costs

     66,185        —     
  

 

 

   

 

 

 

Total operating (loss) profit

     (59,561     119,150   

Other income (expense):

    

Interest income

     13,630        8   

Other income (expense) – net

     24,327        (1,483

Interest expense

     (28,155     (18,680
  

 

 

   

 

 

 

Total other income (expense)

     9,802        (20,155
  

 

 

   

 

 

 

Net (loss) income before income taxes

     (49,759     98,995   

Income tax benefit

     49,737        24,496   
  

 

 

   

 

 

 

Net (loss) income

   $ (22   $ 123,491   
  

 

 

   

 

 

 

Weighted average common shares:

    

Basic

     1,683,985        1,660,440   
  

 

 

   

 

 

 

Diluted

     1,683,985        1,660,440   
  

 

 

   

 

 

 

(Loss) income per share of common stock:

    

Basic

   $ (0.00   $ 0.07   
  

 

 

   

 

 

 

Diluted

   $ (0.00   $ 0.07   
  

 

 

   

 

 

 

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

 

7


Table of Contents

American Locker Group Incorporated and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

 

     Nine Months Ended September 30,  
     2012     2011  

Net loss

   $ (229,844   $ 53,631   

Other comprehensive income:

    

Foreign currency translation adjustment

     976        (23,860

Adjustment to minimum pension liability, net of tax effect of $(5,648) in 2012 and $(2,985) in 2011

     (14,346     5,845   
  

 

 

   

 

 

 

Other comprehensive income

     (13,370     (18,015
  

 

 

   

 

 

 

Total comprehensive loss

   $ (243,214   $ 35,616   
  

 

 

   

 

 

 

 

     Three Months Ended September 30,  
     2012     2011  

Net (loss) income

   $ (22   $ 123,491   

Other comprehensive income:

    

Foreign currency translation adjustment

     (3,574     (37,004

Adjustment to minimum pension liability, net of tax effect of $(6,417) in 2012 and $550 in 2011

     (16,299     10,188   
  

 

 

   

 

 

 

Other comprehensive loss

     (19,873     (26,816
  

 

 

   

 

 

 

Total comprehensive (loss) income

   $ (19,895   $ 96,675   
  

 

 

   

 

 

 

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

 

8


Table of Contents

American Locker Group Incorporated and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 

     Nine Months Ended September 30,  
     2012     2011  

Operating activities

    

Net loss

   $ (229,844   $ 53,631   

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

    

Depreciation and amortization

     553,574        494,003   

Provision for uncollectible accounts

     39,000        31,500   

Equity based compensation

     5,500        37,600   

Deferred income taxes

     (55,383     31,650   

Changes in assets and liabilities:

    

Accounts receivable

     (263,803     691,427   

Inventories

     142,015        (416,887

Prepaid expenses

     (128,363     1,866   

Deferred revenue

     —          (341,000

Accounts payable, customer deposits and accrued expenses

     (67,915     118,768   

Pension and other benefits

     (116,482     (174,358

Income taxes

     (66,321     5,520   
  

 

 

   

 

 

 

Net cash (used in) provided by operating activities

     (188,022     533,720   

Investing activities

    

Purchase of property, plant and equipment

     (241,511     (997,293
  

 

 

   

 

 

 

Net cash used in investing activities

     (241,511     (997,293

Financing activities

    

Long-term debt payments

     (150,000     (150,000

Borrowing on line of credit

     350,000        500,000   
  

 

 

   

 

 

 

Net cash provided by financing activities

     200,000        350,000   

Effect of exchange rate changes on cash

     (20,192     4,531   
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (249,725     (109,042

Cash and cash equivalents at beginning of period

     525,632        649,952   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 275,907      $ 540,910   
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid for:

    

Interest

   $ 74,898      $ 47,036   
  

 

 

   

 

 

 

Income taxes

   $ 15,210      $ 12,241   
  

 

 

   

 

 

 

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

 

9


Table of Contents

American Locker Group Incorporated and Subsidiaries

Notes to Consolidated Financial Statements

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of American Locker Group Incorporated (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q. Accordingly, the financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company’s management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of such consolidated financial statements, have been included. Operating results for the three and nine-month periods ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ended December 31, 2012.

The consolidated balance sheet at December 31, 2011 has been derived from the Company’s audited financial statements at that date, but does not include all of the financial information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the Company’s consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

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.

Certain 2011 financial statement line items have been reclassified to conform to the current year’s presentation.

2. Sale of Property

During May 2011, the Company relocated its corporate headquarters and Texas manufacturing facility from Grapevine, Texas to a new 100,500 sq. ft. building in DFW Airport, Texas. The Company sold its prior location to the City of Grapevine (the “City”) in 2009 and, as part of that transaction, the City provided a $341,000 relocation allowance to offset the moving costs. This relocation allowance was recorded as “Deferred revenue” in the Company’s consolidated balance sheet as of December 31, 2010. The Company offset $211,768 of moving expense against such deferred revenue in the second quarter of 2011 and the remaining $129,232 in relocation allowance was recorded as “Other income” in the second quarter of 2011. Proceeds of the sale were used to pay off the $2 million mortgage secured by the property and for general working capital purposes.

The Company invested approximately $875,000 during 2011 for leasehold improvements and machinery and equipment related to relocating.

3. Disneyland Concession Agreement

On September 24, 2010, the Company entered into an agreement (the “Disney Agreement”) with Disneyland Resort, a division of Walt Disney Parks and Resorts U.S., Inc., and Hong Kong International Theme Parks Limited, (collectively referred to as “Disney”) to provide locker services under a concession arrangement. Under the Disney Agreement, the Company installed, operates and maintains electronic lockers at Disneyland Park and Disney’s California Adventure Park in Anaheim, California and at Hong Kong Disneyland Park in Hong Kong.

The Company installed approximately 4,300 electronic lockers under the Disney Agreement. The Company retains ownership of the lockers and receives a portion of the revenue generated by the locker operations. The term of the Disney Agreement is five years, with an option to renew for one year at Disney’s option, and operations began in late November 2010. The Agreement contains a buyout option at the end of each contract year and a provision to compensate the Company in the event Disney terminates the Agreement without cause.

Under appropriate accounting guidance, the Company capitalized its costs related to the Disney Agreement and the Company is depreciating such costs over the five year term of the agreement. The Company recognizes revenue for its portion of the revenue as it is collected.

 

10


Table of Contents

4. Inventories

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

Inventories consist of the following:

 

     September 30, 2012      December 31, 2011  

Finished products

   $ 482,221       $ 321,378   

Work-in-process

     699,359         862,000   

Raw materials

     1,522,200         1,662,185   
  

 

 

    

 

 

 

Net inventories

   $ 2,703,780       $ 2,845,563   
  

 

 

    

 

 

 

5. Income Taxes

Provision for income taxes is based upon the estimated annual effective tax rate. The effective tax rate for the nine months ended September 30, 2012 and 2011 was (31.7%) and 45.8%, respectively. The difference in the effective rate from the statutory rate is primarily due to permanent timing differences between expenses recorded for financial and tax reporting, increases in the valuation allowance of approximately $178,000 and $39,000 for the nine months ended September 30, 2012 and 2011, respectively, and the reversal of a previously accrued tax provision. During the first nine months of 2012, certain statutes of limitations expired. As a result, in the first nine months of 2012, the Company reduced its income tax payable and tax provision by a net favorable amount of $69,791.

6. Stockholders’ Equity

On March 31, 2012, the Company issued 3,986 shares of common stock to non-employee directors and increased other capital by $1,516, which represents a compensation expense of $5,500.

Effective May 25, 2012, the board of directors will no longer have the option of receiving common stock in lieu of cash compensation as director’s fees. As a result, the Company did not issue any shares of common stock to directors in the second or third quarter of 2012.

7. Pension Benefits

The following sets forth the components of net periodic employee benefit cost of the Company’s defined benefit pension plans for the three and nine months ended September 30, 2012 and 2011:

 

     Nine Months Ended September 30,  
     Pension Benefits  
     U.S. Plan     Canadian Plan  
     2012     2011     2012     2011  

Service cost

   $ 15,750      $ 15,825      $ —        $ —     

Interest cost

     127,500        129,150        56,789        58,309   

Expected return on plan assets

     (120,750     (106,575     (62,319     (63,987

Net actuarial loss

     —          —          10,312        10,588   

Amortization

     70,500        38,475        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 93,000      $ 76,875      $ 4,782      $ 4,910   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     Three Months Ended September 30,  
     Pension Benefits  
     U.S. Plan     Canadian Plan  
     2012     2011     2012     2011  

Service cost

   $ 5,250      $ 5,275      $ —        $ —     

Interest cost

     42,500        43,050        18,949        19,426   

Expected return on plan assets

     (40,250     (35,525     (20,794     (21,317

Net actuarial loss

     —          —          3,441        3,527   

Amortization

     23,500        12,825        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 31,000      $ 25,625      $ 1,596      $ 1,636   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

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

 

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

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

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

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

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

 

            September 30, 2012  
            US Plan      Canadian Plan  

Cash and cash equivalents

     Level 1       $ 306,742       $ 59,343   

Mutual funds

     Level 1         268,290         1,259,339   

Corporate/Government Bonds

     Level 1         682,731         —     

Equities

     Level 1         1,039,299         —     
     

 

 

    

 

 

 

Total

      $ 2,297,062       $ 1,318,682   
     

 

 

    

 

 

 

On April 15, 2012, the Company transferred its US pension plan assets to Bank of America Merrill Lynch (“BAML”). It was previously being managed by Metlife. As a result of this change, $2,203,978 of Level 2 assets were transferred to Level 1.

For additional information on the defined benefit pension plans, please refer to Note 10 of the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

8. Earnings Per Share

The Company reports earnings per share in accordance with appropriate accounting guidance. The following table sets forth the computation of basic and diluted earnings per common share:

 

     Nine Months Ended September 30,  
     2012     2011  

Numerator:

    

Net (loss) income

   $ (229,844   $ 53,361   
  

 

 

   

 

 

 

Denominator:

    

Denominator for earnings per share (basic and diluted) — weighted average shares

     1,682,661        1,652,422   
  

 

 

   

 

 

 

(Loss) income per common share (basic and diluted):

   $ (0.14   $ 0.03   
  

 

 

   

 

 

 

 

     Three Months Ended September 30,  
     2012     2011  

Numerator:

    

Net(loss) income

   $ (22   $ 123,491   
  

 

 

   

 

 

 

Denominator:

    

Denominator for earnings per share (basic and diluted) — weighted average shares

     1,683,985        1,660,440   
  

 

 

   

 

 

 

(Loss) income per common share (basic and diluted):

   $ (0.00   $ 0.07   
  

 

 

   

 

 

 

The Company had 12,000 stock options outstanding at September 30, 2012 and at September 30, 2011. These options were not included in the common share computation for loss per share, as the common stock equivalents were anti-dilutive.

 

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9. Debt

On December 8, 2010, the Company entered into a credit agreement (the “Loan Agreement”) with BAML, pursuant to which the Company obtained a $1 million term loan (the “Term Loan”) and a $2.5 million revolving line of credit (the “Line of Credit”). On November 4, 2011, the Company entered into an amendment to the Loan Agreement (the “Amendment”) that extended the maturity date of the Line of Credit through December 8, 2012. The Amendment also included the addition of a $500,000 draw note (the “Draw Note”).

On November 9, 2012, the Company entered into a second amendment to the Loan Agreement, which extended availability under the Draw Note, and the maturity date of the Line of Credit, to October 31, 2013.

The Draw Note is to be used to fund the Company’s investment in future concession contracts. The Company can draw up to $500,000 on the Draw Note before October 31, 2013. The Company will pay interest only on the Draw Note through November 26, 2013, after which the Company will pay interest and principal so that the balance will be paid in full as of October 27, 2016. As of September 30, 2012, there were no borrowings on the Draw Note.

The proceeds of the Term Loan were used to fund the Company’s investment in lockers used in the Disney Agreement. The proceeds of the Line of Credit will be used primarily for working capital needs in the ordinary course of business and for general corporate purposes.

The Company can borrow, repay and re-borrow principal under the Line of Credit from time to time during its term, but the outstanding principal balance of the Line of Credit may not exceed the lesser of the borrowing base or $2,500,000. For purposes of the Line of Credit, “borrowing base” is calculated by multiplying eligible accounts receivable of the Company by 80% and eligible raw material and finished goods by 50%. As of September 30, 2012, there was $1,050,000 outstanding on the Line of Credit.

The outstanding principal balances of the Line of Credit, the Draw Note and the Term Loan bear interest at the one-month LIBOR rate plus 375 basis points (3.75%). Accrued interest payments on the outstanding principal balance of the Line of Credit are due monthly, and all outstanding principal payments under the Line of Credit, together with all accrued but unpaid interest, is due at maturity, or October 31, 2013. Payments on the Term Loan, consisting of $16,667 in principal plus accrued interest, began in 2011. The entire outstanding balance of the Term Loan is due on December 8, 2015.

The Loan Agreement is secured by a first priority lien on all of the Company’s accounts receivable, inventory and equipment pursuant to a Security Agreement between the Company and BAML (the “Credit Security Agreement”).

The Credit Security Agreement and Loan Agreement contain covenants, including financial covenants, with which the Company must comply, including a debt service coverage ratio and a funded debt to EBITDA ratio. Subject to the Lender’s consent, the Company is prohibited under the Credit Security Agreement and the Loan Agreement, except under certain circumstances, from incurring or assuming additional debt and from permitting liens to be placed upon any of its property, assets or revenues. Additionally, the Company is prohibited from entering into certain transactions, including a merger or consolidation, without the Lender’s consent.

10. Restructuring

In 2009, the Company restructured its business operations to rationalize its cost structure in an uncertain economic environment. The restructuring included plans for the relocation and consolidation of its Ellicottville, New York operations into its Texas facility. This planned relocation resulted in severance and payroll charges during the year ended December 31, 2009 of $264,000. At December 31, 2011 the balance remaining of such payments was $123,000 and the Company expects to make such payment before December 31, 2012.

During the second quarter of 2012, the Company commenced the Ellicottville relocation, resulting in the realization of expense for discontinued inventory, severance and professional fees to complete the move. As a result, the Company recorded a restructuring charge in June 2012 of approximately $174,000. Additionally, in the nine months ended September 30, 2012, the Company expensed approximately $109,900 of related moving expense, bringing the total expense recorded in 2012 to approximately $283,900.

The Company incurred approximately $66,200 in relocation expenses during the third quarter of 2012, which was not accrued at June 30, 2012.

When completed, the restructuring and relocation is expected to result in approximately $240,000 in annual savings. Accrued restructuring expenses of $130,800 are included in “Other accrued expenses” in the Company’s consolidated balance sheet, while the $89,000 increase to inventory obsolescence is included in “Inventory reserve.”

The following table analyzes the changes in the Company’s reserve with respect to the restructuring plan for the nine months ended September 30, 2012:

 

     December 31, 2011      2012 Expense      Payment     September 30, 2012  

Severance

   $ 111,000       $ 64,000       $ (56,200   $ 118,800   

Professional fees

     —           42,000         (42,000     —     

Inventory

     —           89,000         —          89,000   

Other

     12,000         88,900         (88,900     12,000   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 123,000       $ 283,900       $ (187,100   $ 219,800   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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The following table analyzes the changes in the Company’s reserve with respect to the restructuring plan for the three months ended September 30, 2012:

 

     June 30, 2012      2012 Expense      Payment     September 30, 2012  

Severance

   $ 138,700       $ 21,000       $ (40,900   $ 118,800   

Professional fees

     42,000         —           (42,000     —     

Inventory

     89,000         —             89,000   

Other

     55,700         45,200         (88,900     12,000   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 325,400       $ 66,200       $ (171,800   $ 219,800   
  

 

 

    

 

 

    

 

 

   

 

 

 

11. Commitments and Contingencies

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

Beginning in September 1998 and continuing through the date of filing of this Annual Report on Form 10-K, the Company has been named as an additional defendant in approximately 191 cases pending in state court in Massachusetts and 1 in the state of Washington. The plaintiffs in each case assert that a division of the Company manufactured and furnished components containing asbestos to a shipyard during the period from 1948 to 1972 and that injury resulted from exposure to such products. The assets of this division were sold by the Company in 1973. During the process of discovery in certain of these actions, documents from sources outside the Company have been produced 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 33 cases with funds authorized and provided by the Company’s insurance carrier. Further, over 120 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 March 8, 2012, the most recent date information is available, is approximately 38 cases.

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

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

 

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

Effect of New Accounting Guidance

In June 2011, the FASB issued amendments to guidance regarding the presentation of comprehensive income. The amendments eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments require that comprehensive income be presented in either a single continuous statement or in two separate but consecutive statements. In a single continuous statement, the entity would present the components of net income and total net income, the components of other comprehensive income and a total of other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, the entity would present components of net income and total net income in the statement of net income and a statement of other comprehensive income would immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. The amendments also require the entity to present on the face of the financial statements any reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The amendments do not change the items that must be reported in other comprehensive income, when an item of other comprehensive income must be re-classed to net income or the option to present components of other comprehensive income either net of related tax effects or before related tax effects. The amendments, excluding the specific requirement to present on the face of the financial statements any reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented which was deferred by the FASB in December 2011, are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and are to be applied retrospectively. The Company adopted ASU 2011-05 in the first quarter of 2012. Upon adoption, the Company elected the two-statement approach and presents a separate consolidated statement of comprehensive loss.

Results of Operations — the Nine Months Ended September 30, 2012 Compared to the Nine Months Ended September 30, 2011

Overall Results

Consolidated net sales for the first nine months of 2012 reflect an increase of $162,186, as compared to 2011, to $9,937,688, representing a 1.7% increase. This increase was primarily attributable to increases in contract manufacturing revenue as well as increased concession revenue. Pre-tax operating results declined to a pre-tax loss of $(336,557) for the first nine months of 2012 from pre-tax income of $98,913 for the first nine months of 2011. After tax operating results declined to a net loss of $(229,844) for the first nine months of 2012 from a net income of $53,631 for the first nine months of 2011. Net loss per share (basic and diluted) was $0.14 in the first nine months of 2012, a $0.17 decline from a net income per share (basic and diluted) of $0.03 for the first nine months of 2011.

Net Sales

Consolidated net sales for the nine months ended September 30, 2012 were $9,937,688, an increase of $162,186, or 1.7%, compared to net sales of $9,775,502 for the same period of 2011. Sales of lockers for the nine months ended September 30, 2012 were $6,169,950, a decrease of $851,638, or 12.1%, compared to locker sales of $7,021,588 for the same period of 2011. The decrease was primarily driven by decreased sales of Ambassador and Mini-Check lockers.

Sales of mailboxes were $1,647,121 for the nine months ended September 30, 2012, a decrease of $64,603, or 3.8%, compared to mailbox sales of $1,711,724 for the same period of 2011. Decreased mailbox sales were the result of decreased sales of Horizontal 4c and 2b+ mailboxes to distributors.

Sales of contract manufacturing services were $1,209,726 for the nine months ended September 30, 2012, an increase of $975,833, or 417.2%, compared to $233,893 for the same period of 2011. This increase was primarily due to increased sales of electrical enclosures and fabricated parts to existing and new customers.

 

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Concession revenue for the nine months ended September 30, 2012 was $910,891, an increase of $102,594 or 12.7% from concession revenue of $808,297 for the same period of 2011. The concession revenue increase was driven by the inception of the Ocean Park concession contract in November 2011.

 

     Nine Months Ended September 30,      Dollar     Percentage  
     2012      2011      Increase/(Decrease)     Increase/(Decrease)  

Lockers

   $ 6,169,950       $ 7,021,588         (851,638     (12.1 )% 

Mailboxes

     1,647,121         1,711,724         (64,603     (3.8 )% 

Contract manufacturing

     1,209,726         233,893         975,833        417.2

Concession revenues

     910,891         808,297         102,954        12.7
  

 

 

    

 

 

    

 

 

   

Total

   $ 9,937,688       $ 9,775,502         (162,186     1.7
  

 

 

    

 

 

    

 

 

   

Gross Margin

Consolidated gross margin for the nine months ended September 30, 2012 was $2,912,628, or 29.3% of net sales, compared to $3,107,461, or 31.8% of net sales, for the same period of 2011, a decrease of $194,833, or 6.3%. Gross margin as a percentage of net sales decreased by 250 basis points from 2011 due to higher material costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the nine months ended September 30, 2012 were $2,903,564 or 29.2% of net sales, compared to $3,091,276 or 31.6% of net sales for the same period of 2011, a decrease of $187,712, or 6.1%. The decrease was primarily due to decreases in marketing, travel, bonus accrual and audit expenses of approximately $43,000, $58,000, $58,000 and $32,000 respectively for the nine months ended September 30, 2012, as compared to the same period in 2011.

Restructuring Costs

During the first nine months of 2012, the Company commenced the Ellicottville relocation, resulting in expenses related to discontinued inventory, severance and professional fee expenses to complete the move and recognize the anticipated cost savings. As a result, the Company recorded a restructuring charge of approximately $283,900. See Note 10, Restructuring.

Interest Expense

Interest expense for the nine months ended September 30, 2012 was $84,945, an increase of $38,404, or 82.5%, compared to interest expense of $46,541 for the same period of 2011. This increase is due to a larger average outstanding balance on the line of credit with Bank of America Merrill Lynch compared to the same period in 2011.

Other Income (expense) - net

During May 2011 the Company relocated its corporate headquarters and Texas manufacturing facility from Grapevine, TX to a new 100,500 sq. ft. building in DFW Airport, TX.

The Company sold its prior location to the City of Grapevine (“the City”) in 2009, and as part of the transaction, the City provided a $341,000 relocation allowance to offset the moving costs. This relocation allowance was recorded as “Deferred revenue” in the Company’s consolidated balance sheet as of December 31, 2010. The Company offset $211,768 of moving expense against deferred revenue in 2011 and the remaining $129,232 was recorded as an increase to “Other Income”. See Note 2 to the consolidated financial statements.

Income Taxes

For the nine months ended September 30, 2012, the Company recorded an income tax benefit of $106,713, compared to an income tax expense of $45,282 for the same period of 2011. The Company’s effective tax rate differs from the statutory rate primarily due to an increase in the valuation allowance of approximately $178,000 in 2012 and a decrease of $39,000 in 2011, as well as permanent timing differences between expenses recorded for financial and tax reporting. In addition, during the first quarter of 2012, certain statutes of limitations expired resulting in a decrease in income tax payable and a favorable tax provision of $69,791.

Non-GAAP Financial Measure – Adjusted EBITDA

The Company presents the non-GAAP financial performance measure of Adjusted EBITDA because management uses this measure to monitor and evaluate the performance of the business and believes the presentation of this measure will enhance investors’ ability to analyze trends in the Company’s business, evaluate the Company’s performance relative to other companies, and evaluate the Company’s ability to service debt.

Adjusted EBITDA is not a presentation made in accordance with GAAP and our computation of Adjusted EBITDA may vary from other companies. Adjusted EBITDA should not be considered as an alternative to operating earnings or net income as a measure of

 

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operating performance. In addition, Adjusted EBITDA is not presented as and should not be considered as an alternative to cash flows as a measure of liquidity. Adjusted EBITDA has important limitations as an analytical tool and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. For example, Adjusted EBITDA:

 

   

Does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

 

   

Does not reflect changes in, or cash requirements for, our working capital needs;

 

   

Does not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

 

   

Excludes tax payments that represent a reduction in available cash;

 

   

Excludes non-cash equity based compensation;

 

   

Excludes one-time restructuring costs and pension settlement costs; and

 

   

Does not reflect any cash requirements for assets being depreciated and amortized that may have to be replaced in the future.

The following table reconciles earnings as reflected in our condensed consolidated statements of operations prepared in accordance with GAAP to Adjusted EBITDA:

 

     Nine Months Ended September 30,  
     2012     2011  

Net loss

   $ (229,844   $ 53,631   

Income tax expense (benefit)

     (106,713     45,282   

Interest expense

     84,945        46,541   

Other income (move allowance in excess of expense)

     —          (129,232

Restructuring costs

     283,924        —     

Depreciation and amortization expense

     553,574        494,003   

Equity based compensation

     5,500        37,600   
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 591,386      $ 547,825   

Adjusted EBITDA as a percentage of revenues

     6.0     5.6

Results of Operations — Three Months Ended September 30, 2012 Compared to the Three Months Ended September 30, 2011

Overall Results

Consolidated net sales for the third quarter of 2012 reflect a decrease in net sales of $77,621 to $3,538,830 when compared to net sales of $3,616,451 for the same period of 2011, representing a 2.1% decrease. Pre-tax operating results declined to a pre-tax loss of $(49,759) for the third quarter of 2012 from a pre-tax profit of $98,995 for the third quarter of 2011. After tax operating results declined to a net loss of $(22) for the third quarter of 2012 from a net income of $123,491 for the third quarter of 2011. Net loss per share (basic and diluted) was $0.00 in the third quarter of 2012, a decline from a net income per share (basic and diluted) of $0.07 for the second quarter of 2011.

Net Sales

Consolidated net sales for the three months ended September 30, 2012 were $3,538,830, a decrease of $77,621, or 2.1%, compared to net sales of $3,616,451 for the same period of 2011. This was primarily due to a decrease in locker sales.

Sales of lockers for the three months ended September 30, 2012 were $1,866,736, a decrease of $756,147, or 28.8%, compared to sales of $2,622,883 for the same period of 2011.

 

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Sales of mailboxes were $730,093 for the three months ended September 30, 2012, an increase of $80,870, or 12.5%, compared to sales of $649,223 for the same period of 2011.

Sales of contract manufacturing services were $683,174 for the three months ended September 30, 2012 compared to $97,275 for the same period of 2011. This increase was primarily due to increased sales of electrical enclosures and fabricated parts to existing and new customers. The Company began to see much larger revenue growth this quarter in the contract manufacturing sector, as evidenced by the fact that third quarter sales of $683,174 accounts for 56.45% of year-to-date revenue for that product line.

Concession revenue for the three months ended September 30, 2012 was $258,827, an increase of $11,757 or 4.8% from concession revenue of $247,070 for the same period of 2011. The concession revenue increase was driven by the inception of Ocean Park in November 2011.

 

     Three Months Ended September 30,      Dollar     Percentage  
     2012      2011      Increase/Decrease     Increase/(Decrease)  

Lockers

   $ 1,866,736       $ 2,622,883         (756,147     (28.8 )% 

Mailboxes

     730,093         649,223         80,870        12.5

Contract Manufacturing

     683,174         97,275         585,899        602.3

Concession Revenues

     258,827         247,070         11,757        4.8
  

 

 

    

 

 

    

 

 

   

Total

   $ 3,538,830       $ 3,616,451         (77,621     (2.1 )% 
  

 

 

    

 

 

    

 

 

   

Gross Margin

Consolidated gross margin for the three months ended September 30, 2012 was $956,104, or 27.0% of net sales, compared to $1,159,605, or 32.1% of net sales, for the same period of 2011, a decrease of $203,501, or 17.5%. The decrease in gross margin as a percentage of sales was primarily due to increased labor costs, as well as increased material costs as a percentage of revenues. Gross margin as a percentage of sales decreased by 510 basis points.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended September 30, 2012 were $949,480 or 26.8% of net sales, compared to $1,040,455, or 28.8% of net sales for the same period of 2011, a decrease of $90,975, or 8.7%. The decrease in SG&A as a percentage of sales is primarily a result of decreased audit expense and bonus accrual of approximately $12,000 and $40,000, respectively.

Restructuring Costs

During the second quarter of 2012, the Company commenced the Ellicottville relocation, resulting in expenses related to discontinued inventory, severance and professional fee expenses to complete the move. As a result, the Company recorded a restructuring charge of approximately $217,700 in the second quarter, with an additional approximately $66,200 being recorded in the third quarter. See Note 10, Restructuring.

Interest Expense

Interest expense for the three month period ended September 30, 2012 was $28,155, an increase of $9,475, or 50.7%, compared to interest expense of $18,680 for the same period of 2011. This increase is due to larger average borrowings on the line of credit with Bank of America Merrill Lynch.

Other Income (expense) - net

As a result of the relocation and consolidation of the Ellicottville location, the Company disposed of obsolete inventory and equipment resulting in a gain of approximately $19,000, which was recorded as an increase to “Other Income” in the third quarter.

Income Taxes

For the third quarter of 2012, the Company recorded an income tax benefit of $49,737 compared to an income tax benefit of $24,496 for the same period of 2011. The Company’s effective tax rate on earnings was (100.0)% and (24.7)% in the third quarter of 2012 and 2011, respectively. The Company’s effective tax rate differs from the statutory rate primarily due to a increase in the valuation allowance of approximately $83,000 in the third quarter of 2012 and approximately $85,000 for the same period of 2011.

 

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Non-GAAP Financial Measure – Adjusted EBITDA

The Company presents the non-GAAP financial performance measure of Adjusted EBITDA because management uses this measure to monitor and evaluate the performance of the business and believe the presentation of this measure will enhance investors’ ability to analyze trends in the Company’s business, evaluate the Company’s performance relative to other companies and evaluate the Company’s ability to service debt.

Adjusted EBITDA is not a presentation made in accordance with GAAP and our computation of Adjusted EBITDA may vary from other companies. Adjusted EBITDA should not be considered as an alternative to operating earnings or net income as a measure of operating performance. In addition, Adjusted EBITDA is not presented as and should not be considered as an alternative to cash flows as a measure of liquidity. Adjusted EBITDA has important limitations as an analytical tool and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. For example, Adjusted EBITDA:

 

   

Does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

 

   

Does not reflect changes in, or cash requirements for, our working capital needs;

 

   

Does not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

 

   

Does not reflect any cash requirements for assets being depreciated and amortized that may have to be replaced in the future; and

 

   

Excludes onetime expenses and equity compensation.

The following table reconciles earnings as reflected in our condensed consolidated statements of operations prepared in accordance with GAAP to Adjusted EBITDA:

 

     Three Months Ended September 30,  
     2012     2011  

Net (loss) income

   $ (22   $ 123,491   

Income tax benefit

     (49,737     (24,496

Interest expense

     28,155        18,680   

Other income (move allowance in excess of expense)

     —          (5,549

Restructuring costs

     66,185        —     

Depreciation and amortization expense

     189,949        171,398   

Equity based compensation

     —          7,500   
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 234,530      $ 291,024   

Adjusted EBITDA as a percentage of revenues

     6.6     8.1

Liquidity and Sources of Capital

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

 

     As of September 30,      As of December 31,  
     2012      2011  

Current Ratio

     1.48 to 1         1.57 to 1   

Working Capital

   $ 1,896,127       $  2,085,925   

The Company’s capital expenditures were $241,511 and $997,293 for the nine months ended September 30, 2012 and twelve months ended December 31, 2011, respectively. The significant decrease in capital expenditures was a result of larger 2011 capital expenditures due to the relocation of our headquarters and required equipment to support concession contracts.

In addition to cash flow from operations, the Company’s primary sources of liquidity include available cash and cash equivalents and borrowings available under the Line of Credit.

 

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Expected uses of cash in fiscal 2012 include funds required to support the Company’s operating activities, capital expenditures and contributions to the Company’s defined benefit pension plans.

The Company has considered the impact of the financial outlook on its liquidity and has performed an analysis of the key assumptions in its forecast. Based upon these analyses and evaluations, the Company expects that its anticipated sources of liquidity will be sufficient to meet its obligations without disposition of assets outside of the ordinary course of business or significant revisions of the Company’s planned operations through 2012.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company.

Unregistered Sale of Equity Securities

In March 2012, the Company granted a total of 3,986 shares of common stock to non-employee directors and an officer. The shares were granted in consideration of services, and were valued at the market value on the date of grant. The issuance of the shares was exempt from registration pursuant to Section 4(2) of the Securities Act, as the issuance did not involve a public offering of securities.

The Company did not grant any shares of common stock to non-employee directors in the second or third quarters of 2012.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Raw Materials

The Company does not have any long-term commitments for the purchase of raw materials. With respect to its products that use steel and aluminum, 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 and Hong Kong operations subject the Company to foreign currency risk, though it is not considered a significant risk since the foreign operations’ net assets represented only 10.3% of the Company’s aggregate net assets at September 30, 2012. Presently, management does not hedge its foreign currency risk.

Item 4. Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of its management, including its principal executive officer and principal 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 September 30, 2012. These disclosure controls and procedures are designed to provide reasonable assurance to the Company’s management and board of directors that information required to be disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to its management, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, the principal executive officer and principal accounting officer of the Company have concluded that the Company’s disclosure controls and procedures as of September 30, 2012 were 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 the SEC’s rules and forms. There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

 

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PART II — OTHER INFORMATION

Item 6. Exhibits.

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

 

Exhibit
Number

  

Description

  31.1    Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934.
  31.2    Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934.
  32.1    Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS *    XBRL Instance Document
101.SCH *    XBRL Taxonomy Extension Schema Document
101.CAL *    XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB *    XBRL Taxonomy Extension Label Linkbase Document
101.PRE *    XBRL Taxonomy Extension Presentation Linkbase Document

 

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

 

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SIGNATURES

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

 

    AMERICAN LOCKER GROUP INCORPORATED
November 14, 2012     By:  

/s/ Paul M. Zaidins

      Paul M. Zaidins
      Chief Executive Officer
November 14, 2012     By:  

/s/ David C. Shiring

      David C. Shiring
      Chief Financial Officer

 

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