BOSS HOLDINGS INC (Form: 10-K, Received: 03/26/2010 16:57:01)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

[ X ]	ANNUAL REPORT PURSUANT TO SECTION 13 OR
	15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 26, 2009

or

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR
	15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-23204

BOSS HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware	58-1972066
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

1221 Page Street, Kewanee, Illinois	61443
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (309) 852-2131

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT : None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of Class Common Stock $ 0.25 Par Value

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

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 [ ] No [X]

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 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 such shorter period that the registrant was required to submit and post such files).

Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, 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. [X]

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

Large accelerated filer [ ]	Accelerated filer [ ]

Non-accelerated filer [ ]	Smaller Reporting Company [X]

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

The aggregate market value of the voting and non-voting stock held by non-affiliates as of June 27, 2009 was approximately $4,594,250.

There were 2,124,047 shares of the Registrant’s common stock outstanding as of March 15, 2010.

DOCUMENTS INCORPORATED BY REFERENCE

Specified portions of the registrant’s proxy statement for its 2010 Annual Meeting of Stockholders are incorporated by reference in Part III hereof.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains certain forward-looking statements concerning, among other things, our anticipated results, and future plans and objectives that are or may be considered to be “forward-looking statements”. The words “believe”, “expect”, “anticipate”, “should”, “could” and other expressions that indicate future events and trends identify forward-looking statements. These expectations are based upon many assumptions that we believe to be reasonable, but such assumptions ultimately may prove to be materially inaccurate or incomplete, in whole or in part and, therefore, undue reliance should not be placed on them. Several factors which could cause actual results to differ materially from those discussed in such forward-looking statements include, but are not limited to: continuing effects of the current global financial crisis on demand for both consumer and industrial products, pricing and availability of goods purchased from international suppliers, unusual weather patterns which could affect domestic demand for our products and curtail imprinting operations, pricing policies of competitors, the ability to attract and retain employees in key positions, trends in the advertising specialties industry and other uncertainties and changes in general economic conditions. In light of the uncertainty inherent in our forward-looking statements, you should not consider their inclusion to be a representation that the forward-looking matters will be achieved. In evaluating forward-looking statements, you should consider all these risks and uncertainties, together with any other risks described in our other reports and documents furnished or filed with the SEC, and you should not place undue reliance on those statements. We assume no obligation for updating any forward-looking statements, whether as a result of new information, future events, or otherwise; however, to the extent that there are any material changes in the information contained in this Annual Report we promptly will disclose the changes as and to the extent required by applicable law and the rules and regulations of the SEC.

PART I

Item 1. Business

As used in this report, the terms “Boss” and “Company” refer to Boss Holdings, Inc. (the Registrant), a Delaware corporation, and its operating subsidiaries. The Company’s primary operating subsidiary is Boss Manufacturing Company, a Delaware corporation (“BMC”), originally established in 1893.

The Company operates primarily in the work gloves and protective wear business segment. In addition, the Company conducts operations in the pet supplies business segment and promotional and specialty products segments. As described below, the Company acquired certain assets of a balloon supplier for its promotional products segment in November 2009.

Work Gloves and Protective Wear

Through BMC, the Company imports, markets and distributes gloves, boots and rainwear products serving two primary markets – consumer and industrial. The consumer market represents approximately 59% of BMC domestic gross product sales and consists of retailers ranging from convenience stores to mass merchandisers as well as hardware and grocery stores. The industrial market, which accounts for the balance of sales in this segment, includes various commercial users of gloves and protective wear. These end-users include companies in the agricultural, automotive, energy, lumber, mining and construction industries.

BMC primarily markets its products through distributors and manufacturer representatives. In addition, the Company sells directly through its own sales force to certain major retail customers. BMC products are sold predominantly to customers in the United States, with the Company’s Boss Canada subsidiary generating approximately 7% of the sales in this segment.

The markets served by the work gloves and protective wear segment are intensely competitive with a high degree of price competition. In addition, many retailers have begun to import products directly in recent years. BMC competes on the basis of distribution service capabilities, selection, quality and price. Having participated in this segment for over 100 years, BMC and the Boss trade name are well known in the industry. The market for work gloves and protective wear is highly fragmented and served by a large number of domestic and foreign competitors ranging in size from small sole proprietorships to several companies substantially larger than BMC.

Sales in the work gloves and protective wear segment have historically exhibited seasonal fluctuations. Cold weather months generally provide increased sales while warm weather results in reduced sales activity. Because of this seasonality, work gloves and protective wear sales tend to be higher in the Company’s first and fourth quarters while lower during the second and third quarters.

BMC sells to a broad customer base approximating three thousand active accounts. Accordingly, BMC has relatively little dependence on any one customer. At the end of 2009, BMC had an open order backlog of approximately $1,098,000 down about $346,000 from the previous year.

The Company ceased domestic manufacturing operations during 2000 and is now primarily an importer and marketer. Finished goods in this segment are generally widely available from a number of suppliers in various countries. The Company has occasionally experienced short-term limitations in the supply of certain imported products, generally due to raw material shortages. Availability of imported goods is further subject to interruptions in shipping as well as import/export documentation and clearing. The Company does not anticipate any significant shortages of purchased goods for resale in 2010.

The Company is party to a long-term agreement with Caterpillar Inc. under which the Company markets work gloves, safety items and other products under the CAT ® trademark. Sales of CAT ® products in 2009 totaled $2,097,000 representing 6% of domestic sales in the work gloves and protective wear segment. The Company believes that the CAT ® trademark will continue to provide additional sales growth opportunities, both foreign and domestic, while allowing the Company to introduce new products that are less sensitive to market pricing pressures. The Company will continue to expand product offerings under the CAT ® trademark in categories that have proven to be successful.

The Boss name and logo are important trademarks of the Company, which it vigorously defends in the market. In addition, BMC has various registered names and trademarks for specific products that the Company believes add substantial value in the sales and marketing efforts associated with this segment. Additional financial information on the work gloves and protective wear segment is included in the “Notes to Consolidated Financial Statements” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Promotional and Specialty Products

Since 2004, the Company has owned Galaxy Balloons, Incorporated (“Galaxy”), a Cleveland, Ohio based company operating in the promotional and specialty products segment. Galaxy provides custom imprinted balloons, mini-sport balls, signature balls, exercise balls, beach balls and other inflatable products. In addition, Galaxy has broadened its product line to include various non-inflatable imprinted items including yo-yos, juggle balls, sport horns, fan-ta-sticks, holiday candles and ornaments. These items are sold exclusively through authorized distributors in the promotional products industry. In the past two years, Galaxy has sold to approximately 10,000 different distributors.

A broad based group of end-users, from banks to hotels to schools, purchase Galaxy’s custom imprinted products for advertising and promotional purposes. Examples include miniature footballs and basketballs thrown into the crowds at sporting events and helium filled balloons given to children at restaurants. The products offered by Galaxy provide end-users with the opportunity to get their name in front of many potential customers for maximum exposure at a relatively small advertising cost.

The promotional products industry is comprised of over 22,000 registered distributors serving a $18 billion market that has experienced substantial growth over the past decade. This market is very competitive and Galaxy competes against companies offering similar products as well as companies offering other custom imprinted goods such as pens, t-shirts and caps. Galaxy competes on the basis of quality, both in terms of the products offered and the printing process, service, with Galaxy offering quick turn-around times (24 and 48 hour rush service) as well as small minimums at competitive prices.

Based on results from prior years, management expects seasonal sales fluctuations in the promotional and specialty products segment. Historically, sales in this segment reach a low point during the first and fourth quarter of the year then build to a peak in late summer and early fall due to the sales of football related products. To reduce the seasonality in the fourth quarter, Galaxy has expanded its product line to include Christmas ornaments, candles and other products that sell well during the fourth quarter.

Due to its broad customer base, Galaxy has little dependence on any one customer. In 2009, Galaxy’s largest customer accounted for only 5% of total sales. Galaxy’s open order backlog was not material at year end due to the seasonal nature of sales in this segment. Typically Galaxy doesn’t have a large back order log because it ships most of its orders in five days or less. Galaxy purchases the finished goods on which it custom imprints products from a number of sources, both domestic and international. Though suppliers are limited in certain product areas, Galaxy has experienced no product shortages in recent years and anticipates an adequate supply of goods in the coming year. Since 2007, this industry has been dealing with a worldwide shortage of helium which negatively affected helium balloon sales and is expected to continue to adversely affect future balloon sales.

In 2009, Galaxy expanded its sport line of products to include a wider array of foam sport balls, full size name brand sport balls (Wilson, Rawlings and Spalding), sport luggage tags, sport and piggy banks, sport ball water bottles, and sport lanyards. Galaxy has increased its line of ornaments to include heart shaped shatter proof ornaments, glass ornaments and picture frame ornaments.

In November 2009, Galaxy acquired certain assets of AGA Balloons in Ashland, OH. AGA Balloon was a direct competitor of Galaxy in the imprinted balloon market. Through AGA, Galaxy has acquired unique decorating equipment which will allow Galaxy to print on larger size balloons - 24" and 36” round balloons. AGA’s equipment and inventory have been moved to Galaxy’s headquarters. Also in 2009, Galaxy won the ASI Distributor Choice Award as the top inflatable company in the promotional products industry for the third year in a row.

Additional financial information on the promotional and specialty products segment is included in the “Notes to Consolidated Financial Statements” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Pet Supplies

The Company’s pet supply segment operates as Boss Pet Products, Inc. (“Boss Pet”), a wholly owned subsidiary of BMC. Boss Pet imports, markets and distributes pet cable restraints, collars and leads, pet toys, rawhide chews, shampoos and other pet specialty products. Boss Pet markets its products primarily to pet supply specialty, hardware and discount retailers under proprietary brand names. In addition, Boss Pet sells products to discount retailers under privately labeled brand names. Essentially all sales in this segment are within the United States.

The pet supplies industry is extremely competitive. The Company competes primarily in selected market niches by focusing on customer service, specialized marketing, unique products and competitive pricing.

Sales in the pet supplies segment have historically exhibited seasonal fluctuations. Spring and summer months tend to generate higher sales at retail as consumers spend time outdoors with their pets during warm weather months. Cold weather months generally produce lower sales at retail. Because of this seasonality, pet supply sales tend to be higher in the Company’s first and second quarters, with sales declining through the third and fourth quarters.

The Company generally has multiple sources of supply for substantially all of its product requirements in this segment. Finished goods in this segment have generally been readily available in sufficient quantities. However, the pet supplies segment is subject to the same potential for product interruptions noted in the work gloves and protective wear segment. Because of the seasonality in this segment, the open order backlog for pet supplies was not material at the end of 2009 or 2008.

Due to the market niches served by Boss Pet, these operations serve a smaller customer base with less diversification than the Company’s operations in other segments. Boss Pet’s largest two customers accounted for 30% and 23% of sales in this segment during 2009.

Additional financial information on the pet supplies segment is included in the “Notes to Consolidated Financial Statements” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Environmental Matters

The Company is subject to various federal, state and local regulations concerning the environment. Efforts to maintain compliance with such regulations have not required expenditures material to the Company’s overall operating performance or financial condition.

Employees

As of December 26, 2009, Boss employed 203 full-time associates, down 20 from the previous year due to the lower employment levels at Boss Manufacturing Company. The Company employed no union employees at the end of 2009. Approximately 193 associates were located in the United States with 10 located in Canada at year end.

The Company believes its employee relations are excellent. However, the Company’s past success in attracting and retaining employees cannot assure attainment of future employment objectives.

Pending Proposal for Termination of SEC Registration

The Company’s Board of Directors has decided that the costs of being an SEC reporting company currently outweigh the benefits and, thus, it is no longer in our best interests or the best interests of our stockholders, including our unaffiliated stockholders, for us to remain an SEC reporting company. Therefore, our Board of Directors has unanimously authorized a 1-for-100 reverse stock split (the “Reverse Stock Split”) of our Common Stock, followed immediately by a 100-for-1 forward stock split (the “Forward Stock Split” and, together with the Reverse Stock Split, the “Transaction”). The Company has called an annual meeting of shareholders to be held April 20, 2010 to consider and approve the Transaction. The Transaction and the scheduled meeting of shareholders are the subject of a Notice of Annual Meeting and Proxy Statement (the “Proxy Statement”) filed by the Company with the SEC on March 5, 2010 and mailed to shareholders on or about March 12, 2010. At the meeting, stockholders are being asked to consider and vote upon proposals to amend our Certificate of Incorporation to effect the Reverse Stock Split and the Forward Stock Split. Please refer to the Proxy Statement for information relating to the Transaction, including a summary term sheet describing the Transaction, questions and answers about the Transaction and the meeting, a description of special factors surrounding the Transaction (including the background and fairness of the Transaction, effects of the Transaction and alternatives considered), information about the Company and other related disclosures. This short summary only briefly highlights certain information about the proposed Transaction and all shareholders are directed to carefully read the entire Proxy Statement and all of its annexes for a full description of the Transaction.

Available Information

Information concerning the Company and its products can be obtained from its primary internet website at www.bossgloves.com. The Company’s public financial reports, insider trading reports and the full text of the Proxy Statement can be accessed under the “About Boss” subsection of the website area titled “Company Information”. In addition, information about products available from subsidiary operations is available at the following websites: www.galaxyballoon.com and www.bosspet.com.

Item 2. Properties

The following table shows the location, general character, square footage, approximate annual rent and lease expiration date of the principal operating facilities owned or leased by the Company as of February 28, 2010. The principal executive offices are located in Kewanee, Illinois.

Location	City	General Character	Square	Annual		Lease
			Feet	Rent		Expiration
Br. Columbia,	Vancouver	Distribution	5,600	$	15,700	Month-to-
Canada						month
Illinois	Kewanee	Distribution	147,000	$	0	Owned
Illinois	Kewanee	Distribution &	70,000	$	0	Owned
		Administration
Illinois	Kewanee	Distribution	19,000	$	0	Owned
Ontario,	Concord	Distribution &	11,150	$	100,000	3/31/2011
Canada		Administration
Ohio	Lakewood	Printing, Distribution &	108,000	$	184,500	12/31/2013
		Administration
Ohio	Maple Hts.	Manufacturing,	58,500	$	175,600	12/31/2012
		Distribution & Admin –
		Pet Supplies

The above properties not designated as used in the pet supplies segment or printing (promotional and specialty products segment) are predominantly used in the work gloves and protective wear segment. Utilization of the various facilities fluctuates significantly during the year based on order and inventory levels. The Company believes its properties provide adequate distribution capacity for anticipated demand and adequate capacity to meet expected business requirements.

Item 3. Legal Proceedings

The Company is a party to various legal actions incident to the normal operations of its business. These lawsuits primarily involve claims for damages arising out of commercial disputes. The Company has been named as a defendant in several lawsuits alleging past exposure to asbestos contained in gloves sold by one of the Company’s predecessors-in-interest, all of which actions are being defended by one or more of the Company’s general liability or products liability insurers. Management believes the ultimate disposition of these matters should not materially impair the Company’s consolidated financial position, operations or liquidity.

Item 4. Reserved

PART II

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

The Company’s common stock is traded on the OTC Bulletin Board under the symbol “BSHI.OB.” The Company’s common stock is not listed on any national stock exchange or on NASDAQ. The OTC Bulletin Board is a regulated quotation service that displays real-time quotes, last-sale prices and volume information for non-listed (over-the-counter) equity securities. The OTC Bulletin Board is a reporting system for participating market makers, not an issuer listing service, and should not be confused with the NASDAQ Stock Market. Participating market makers in the bulletin board system enter quotes and trade reports on a closed computer network and the information is made publicly available through numerous websites and other locations. The OTC Bulletin Board is distinct from the “pink sheets” published by Pink OTC Markets, Inc. that also report on transactions in non-listed equity securities. The following table sets forth the high and low bid prices per share of our common stock for the two most recent fiscal years. The quotations below do not reflect the retail mark-up, markdown or commissions and may not represent actual transactions.

2008	High		Low
First Quarter	$	8.90	$	8.00
Second Quarter	$	8.35	$	7.10
Third Quarter	$	7.03	$	6.10
Fourth Quarter	$	6.47	$	5.00

2009	High		Low
First Quarter	$	5.45	$	5.10
Second Quarter	$	6.90	$	5.10
Third Quarter	$	6.20	$	4.20
Fourth Quarter	$	6.48	$	4.27

The Company has not paid cash dividends on its common stock in the past and currently plans to retain earnings, if any, for business development and expansion. As of February 2, 2010, the Company had approximately 1,462 stockholders of record. There were no repurchases of common stock during the three months ended December 26, 2009.

Item 6. Selected Financial Data

Under SEC regulations, the information called for by this Item is not required because the Company is a smaller reporting company.

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

Contents

This item of the annual report on Form 10K is divided into the following sections:

Executive Summary – Provides a brief overview of the year’s results and known uncertainties expected to have an effect on future results.
Critical Accounting Policies – Discusses the accounting policies which management believes are the most essential to aid in understanding the Company’s financial results.

Results of Operations – Analyzes the Company’s financial results comparing sales, operating margins and expenses to prior periods including management’s expectation of trends and uncertainties on future results.
Liquidity and Capital Resources – Analyzes the Company’s cash flow from operating, investing and financing activities and further discusses the Company’s current and projected liquidity.
Inflation – Reviews the impact of inflation on the Company’s reported results.

Executive Summary

The slowdown in the economy that started in 2008 and continued into 2009 caused a 12.2% or $6,775,000 reduction in the Company’s 2009 sales compared to 2008. Work gloves and protective wear sales were down 18.1% with industrial sales being especially adversely affected by the recession, down 25.4% due to the decline in industrial activity in the United States. Promotional & specialty products’ sales declined 10.4% compared to 2008. The pet supplies segment offset some of these sales loses with a 19.8% increase in sales with the addition of new customers and the continued increase in the overall pet industry.

In order to meet these market conditions, the Company instituted cost-cutting initiatives to conserve cash in the face of decreased demand. The Company reduced its workforce and hourly workers at each of the operating divisions were reduced to 32 hour work weeks during slow order periods. Travel and trade show expenses were curtailed and all expenses were closely monitored.

Overall gross profit declined $905,000 from 2008 to 2009 as a result of the lost volume. Cost reductions and controls put in place at all segments helped to offset the revenue loss and maintain gross margin as much as possible. Boss Pet, with a gross margin improvement of $762,000, was the only operating segment to show an improvement in gross margin during 2009.

The Company generated operating earnings of $1,921,000 in 2009 compared to $1,217,000 in 2008. Operating earnings in 2008 had been adversely affected by recording the $173,000 non-cash donation of the Company’s old corporate office building in Kewanee, Illinois to a local charity and recording both a $757,000 non-cash goodwill impairment loss and a $35,000 patent impairment loss at the work gloves and protective wear segment. Without these non-cash adjustments, operating earnings for 2008 would have been $2,182,000.

Liquidity improved during 2009. As a result of the lower sales volume, tight controls were put on inventory replenishment causing an overall inventory reduction of $3.8 million during 2009. The lower sales volume also contributed to a $751,000 decrease in accounts receivables. Long-term debt decreased by $502,000 and there were no additional borrowings during the year. In addition, the acquisition of certain assets by Galaxy Balloon, of AGA Balloon were paid for with $388,000 of cash on hand. At the end of the year cash on hand was $7,050,000 compared to $803,000 at the end of 2008.

Critical Accounting Policies

The discussion and analysis of 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. Preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Significant accounting policies which management believes are the most critical to aid in fully understanding and evaluating the Company’s reported financial results include the following:

Revenue Recognition

The Company recognizes revenue from product sales at the time of shipment based on standard terms of FOB shipping point, with title passing to the customer at time of shipment. Management records estimated reductions to revenue for various customer programs and incentive offerings primarily in the consumer market of the work gloves and protective wear segment. These programs include the following:

Rebates and other volume-based incentives – the Company records a revenue reduction and associated accrued liability each period based on the estimated rebate total. Rebates paid are then charged to the accrued liability. Each quarter, management compares the accrued liability balance to the estimated rebates payable compiled for all customers and makes adjustments as appropriate to revenues and the accrued rebate liability.
Terms discounts – the Company offers cash discounts to certain customers, recorded as revenue reductions in each period with an associated accounts receivable allowance. Management periodically analyzes this allowance account to ensure its adequacy, adjusting sales and the accounts receivable allowance when appropriate.
Cooperative advertising and marketing allowances – the Company supports certain customer advertising and marketing initiatives to promote product sales at retail. In many cases, customers advertise Company products using mutually agreed specifications such as the Boss logo and trade names, with the Company then reimbursing a portion of the advertising cost incurred by the customer. The Company also supports various other advertising and marketing initiatives to promote sales. All such costs are treated as a reduction of revenues for accounting purposes.
To a lesser extent, the Company occasionally utilizes additional incentives to increase market share such as buying back a competitor’s inventory from a new customer, offering conversion allowances and providing other new customer incentives. Such methods are common in certain retail distribution channels. All such costs are treated as reductions of revenues for accounting purposes.

As of December 26, 2009, the Company’s accrual for customer advertising and promotional activities totaled $890,000. The Company has received no material allowances or credits from any vendors in connection with the purchase or promotion of such vendor’s products.

Accounts Receivable

Management performs ongoing customer credit evaluations and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by review of available credit information. The Company’s estimate for its allowance for doubtful accounts related to trade receivables is based on two methods. The amounts calculated from each of these methods are evaluated to determine the total amount reserved. First, the Company evaluates specific accounts on which available information indicates that the customer may have an inability to meet its financial obligations. In these cases, based on the best available facts and circumstances, the Company records a specific reserve for that customer against amounts due to reduce the receivable to the amount that is expected to be collected. Second, a general reserve is established for all customers based on a range of percentages applied to aging categories. The Company has consistently applied these percentages for a number of years and management believes the results adequately provide for expected unrecoverable accounts. However, should circumstances change, for example an unexpected material adverse change in a major customer’s ability to meet its financial obligation to the Company, management’s estimate of the recoverability of amounts due the Company could be reduced by a material amount. As of December 26, 2009, the Company’s bad debt allowance totaled $280,000.

Inventories

Inventories are stated at the lower of cost or market value. Cost is principally determined by the first-in, first-out method using a standard cost system. To facilitate up-to-date costing in the current rapidly changing environment, standards are updated upon receipt of goods when the cost of the goods received represents a material change from the current standard. Inventory gains and losses associated with these standard cost changes are amortized in an effort to match the impact of such gains and losses with the associated impact on margin recorded in the statement of income. Management periodically reviews inventory quantities on hand and records a provision for excess, slow-moving and obsolete inventory based primarily on forecasted product demand. As of December 26, 2009, the inventory valuation allowance totaled approximately $507,000. Should forecasted product demand prove inaccurate, the Company may be unable to realize the recorded value of certain products included in inventory.

Deferred Taxes

The Company recognizes deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Because of substantial losses in prior years, primarily during 1996 and 1997, the Company has available U.S. Federal NOL carryforwards of $22,483,000 and Canadian NOL carryforwards of $639,000 as of December 26, 2009.

Accounting principles generally accepted in the United States require the recording of a valuation allowance against the net deferred tax asset associated with this NOL and other timing differences if it is “more likely than not” that the Company will not be able to utilize the NOL to offset future taxes. Due to the size of the NOL carryforward in relation to the Company’s taxable income and uncertainties surrounding expected future earnings, management did not recognize any of its net deferred tax asset prior to the third quarter of 2004.

Because of losses in prior years, the Company has available, for U.S. income tax purposes, NOL carryforwards of approximately $22,483,000. During the fourth quarter of 2009, the Company reevaluated its estimates and, based upon its current and projected profitability determined that it was more likely than not that it would be able to utilize an additional $2,206,000 of its remaining NOL carryforwards. Accordingly, at the end of 2009 the Company reduced its valuation allowance and recognized a $750,000 tax benefit. In all subsequent periods, for book purposes, the Company will record income tax expense on earnings at normal rates, approximately 39% currently, and reduce the related deferred tax asset. The tax benefit and tax expenses recorded for book purposes have no effect on the Company’s actual tax liability.

Subsequent revisions to the estimated net realizable value of the deferred tax asset could cause the provision for income taxes to vary significantly from period to period, although the Company’s cash tax payments would remain unaffected until complete utilization of the NOL benefit.

Goodwill

In connection with its purchase of Galaxy during 2004, Head-Lite, LLC. during 2005 and Canadawide during 2007, the Company recorded goodwill of $3,666,000. Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of the business acquired. The Company does not amortize the goodwill associated with these acquisitions since it has an indefinite life. Instead, management tests goodwill for impairment in the fourth quarter of each year, or if certain circumstances indicate the existence of a possible impairment. Management’s impairment test considers the carrying value of the reporting unit for each acquisition, including goodwill, in relation to its fair value based upon earnings generated. Expected earnings are calculated based on a discounted cash flow methodology. The determination of the reporting units is based on the Company’s organizational structure and the financial information that is provided to and reviewed by management. The affected reporting units are the Galaxy, BMC and Boss Canada divisions for the Galaxy, Head-Lite and Canadawide acquisitions, respectively.

The Company’s goodwill impairment evaluation as of December 27, 2008 indicated that the goodwill for the Galaxy acquisition was not impaired, while the goodwill for Head-Lite LLC and Canadawide was found to be impaired. When the carrying value of the net assets assigned to a reporting unit exceeds the fair value of a reporting unit, a second step of the impairment test is performed to determine the implied fair value of a reporting unit’s goodwill. This step requires valuation of a reporting unit’s tangible and intangible assets, and liabilities in a manner similar to the allocation of purchase price in a business combination. Based on that step, management concluded that, no fair value remains for the goodwill of the Head-Lite, LLC. and the Canadawide acquisitions. Therefore, goodwill impairment losses of $527,000 and $230,000 were recognized during 2008 in the Boss Manufacturing Company and the Boss Canada divisions, respectively. These expenses have been recorded in the asset impairment line on the consolidated statements of income, along with an impairment loss of $35,000 for the patent of Head-Lite LLC. After the impairment losses, $2,853,000 in goodwill remained at the end of 2008 related to the Galaxy acquisition.

The Company’s goodwill impairment evaluation as of December 26, 2009 indicated that the goodwill for the Galaxy acquisition was not impaired. (See Note 9 of the Notes to the Consolidated Financial Statements).

Results of Operations

Net Sales

Sales by Segment $(000)	2009	2008	2007
Work Gloves & Protective Wear	$31,356	$38,283	$37,689
Pet Supplies	7,817	6,525	6,693
Promotional & Specialty Products	9,784	10,924	10,815
Total Sales	$48,957	$55,732	$55,197

2009 Compared to 2008

Consolidated sales decreased 12.2% in 2009 compared to the prior year. The majority of this decrease was in the work gloves and protective wear segment, down 18.1% over the previous year. Promotional and specialty products decreased 10.4%, while sales of pet products were up 19.8%.

Sales in the work gloves and protective wear segment decreased $6,927,000 with reductions in all product lines as a result of the slowdown in the economy.

Consumer sales were down 8.1% compared to 2008. Decreased consumer spending as a result of the recession caused a $1,270,000 reduction in sales compared to 2008. Sales were down to all major accounts and more than offset the sales increases from new customers and promotional programs.

Industrial sales of the work gloves and protective wear segment have been hit the hardest by the recession. Caused by a decline in industrial activity in the United States, industrial sales decreased $4,294,000 in 2009 or 25.4% compared to 2008. Management anticipates that a portion of the Company’s industrial sales base is not likely to regenerate even if the economy rebounds.

Reduced industrial activity in Canada, mainly from the auto and steel industries, have caused a decline in sales at Boss Canada. Sales in Canada for 2009 were down $520,000 compared to 2008. An influx of low margin competitors in the Canadian market also has driven margins down.

Sales of CAT ® branded products declined $843,000 in 2009, a decrease over the previous year of 28.7%. The weak economy has definitely affected the sales of these premium-priced products. Sales of CAT ® branded products into Europe, the Middle East and Australia continues, representing 14% of the total CAT ® branded product sales during 2009.

The pet supply segment grew substantially during 2009 as sales increased 19.8% or $1,292,000 over 2008. Even in a down economy the pet industry continues to grow. The addition of new accounts, combined with expanded sales to existing accounts and increased pet toy sales generated by the Company’s new proprietary line of plush toys, the “Fat Hedz”, allowed the pet supplies segment to surpass last year’s volume.

Sales in the promotional and specialty products segment decreased $1,140,000, or 10.4%, compared to the prior year. Promotional items sold to schools and banks have declined with the economy along with real estate/construction and automotive promotions. Traditionally these have been significant end markets for the promotional and specialty products segment.

2008 Compared to 2007

Consolidated sales increased 1.0% in 2008 compared to the prior year. The majority of this increase was in the work gloves and protective wear segment, up 1.6% over the previous year. Promotional and specialty products increased 1.0%, while 2008 sales of pet products were down 2.5%.

Sales in the work gloves and protective wear segment during 2008 increased $594,000 with improvements over 2007 coming from industrial products, CAT ® branded sales and Boss Canada, which benefited from the addition of Canadawide Safety during the second quarter of 2007.

Consumer sales of work gloves and protective wear in 2008 were down 1.6% compared to 2007. Additional discounts and advertising allowances were granted to remain competitive and consumer sales were also affected by management’s termination of certain accounts which did not meet minimum profitability criteria. These items more than offset the sales increases from new customers and increased retail business.

Industrial sales of work gloves and protective wear increased 2.9% during 2008. The Company grew this portion of the work gloves and protective wear segment by broadening its industrial distributor customer base, offering more specialized products and expanding into newer markets such as mining and ethanol production. During 2008, industrial sales increased $481,000.

Sales of CAT ® branded products totaled $2,940,000 in 2008, an increase over the previous year of 6.8%. Expansion of the CAT ® branded products into Europe, the Middle East and Australia continued and represented 13% of the total CAT ® branded product sales in 2008.

Pet supply segment sales decreased 2.5% in 2008 or $168,000 compared to 2007. This loss in sales primarily was attributable to one major customer that started its own direct import program at the end of 2007. During the second half of 2008, most of the sales loss associated with this customer was offset by sales to new customers and increased sales to existing customers.

2008 sales in the promotional and specialty products segment increased 1.0% or $109,000 over 2007. New products in Galaxy’s line of sport balls and sport related items accounted for most of this increase.

Gross Margin

Gross Margin by Segment $(000)	2009		2008		2007
	$	%	$	%	$	%
Work Gloves & Protective Wear	7,652	24.4%	9,021	23.6%	9,338	24.8%
Pet Supplies	2,094	26.8%	1,332	20.4%	1,617	24.2%
Promotional & Specialty Products	3,120	31.9%	3,418	31.3%	3,425	31.7%
Total Gross Margin	12,866	26.3%	13,771	24.7%	14,380	26.1%

2009 Compared to 2008

Overall gross margin dollars fell during 2009 as a result of the significant sales volume loss compared to 2008. Cost reductions and cost savings programs were initiated early in 2009 and along with better pricing from suppliers allowed the Company to increase its gross margin percentage to 26.3% from 24.7% in 2008.

Gross margin dollars in the work gloves and protective wear segment declined $1,369,000 as a result of the sales volume decline. This gross margin loss was favorably impacted by better pricing from suppliers and cost reduction plans put in place during the 1 st quarter of 2009. As a result of the worldwide recession, pricing from suppliers with excess manufacturing capacity improved. Better freight rates were negotiated with shipping companies and warehousing labor and supply costs were reduced.

Gross margins at the pet supplies segment improved 6.4 percentage points (20.4% in 2008 to 26.8% in 2009) as a result of increased sales volume and better pricing from suppliers. This was especially applicable for Boss Pet’s primary line of pet cables and tie outs where the old supplier was replaced with a more cost effective one. Boss Pet’s additional volume also provided better utilization of fixed costs.

Gross margin for the promotional and specialty products segment declined $298,000 for 2009 compared to 2008. Cost savings at the factory/warehouse offset a portion of the margin loss created by the 10.4% reduction in the sales volume during 2009.

2008 Compared to 2007

In total, margins decreased as a percentage of sales during 2008 compared to 2007. Margins decreased at all three segments as all were affected by cost increases from suppliers and the inability to pass these increases along to customers quickly enough.

Gross margin in the work gloves and protective wear segment declined 1.2 percentage points (24.8% in 2007 to 23.6% in 2008) during 2008. Costs in the work gloves and protective wear segment remained volatile throughout 2008 with the Company experiencing significant cost increases on all products because of the weakness of the U.S. dollar relative to the Chinese RMB, along with increases in labor and material costs. In addition, increased discounts and advertising allowances also contributed to the decreased margins. Management attempted to pass cost increases on to customers to maintain margins, but competitive pressures made this difficult.

Margins at the pet supplies segment during 2008 decreased 3.8 percentage points (24.2% in 2007 to 20.4% in 2008) as a result of price increases from suppliers, especially in pet cable and tie outs. Reduction in freight and warehouse expenses offset a portion of these increases.

The promotional and specialty products gross margin declined 0.4 percentage points (31.7% in 2007 to 31.3% in 2008) as savings received from alternative suppliers helped offset the increases in freight and labor costs.

Operating Expenses

Operating Expense by Segment $(000)	2009		2008		2007
	$	%	$	%	$	%
Work Gloves & Protective Wear	6,345	20.2%	8,514	22.2%	7,836	20.8%
Pet Supplies	1,276	16.3%	872	13.4%	982	14.7%
Promotional & Specialty Products	2,117	21.6%	2,271	20.8%	2,197	20.3%
Corporate & Other	1,207	----	897	----	1,005	----
Total Operating Expense	10,945	22.4%	12,554	22.5%	12,020	21.8%

2009 Compared to 2008

On a consolidated basis, operating expenses decreased $1,609,000 in 2009 compared to the prior year. Cost saving programs put in place during the first quarter of 2009 to bring spending in line with sales activity at the work gloves and protective wear and promotional and specialty products segments generated savings in wages, benefits, shows, travel and supply costs. Pet supplies operating expenses have increased as a result of having a full administrative staff and costs related to its increased sales volume. Corporate expenses have increased in legal and consulting costs associated with the Company’s “going dark” process.

In 2008 operating expenses were affected unfavorably by two non-cash adjustments at the work gloves and protective wear segment. During the third quarter of 2008 the Company moved out of its nearly century - old corporate office building in downtown Kewanee, Illinois and into renovated office space in one of the Company’s newer warehouses on the outskirts of Kewanee. The former corporate headquarters building was donated to a local charitable organization resulting in a non-cash expense of $173,000. In addition the Company recorded a $757,000 non-cash goodwill impairment loss associated with the Head-Lite product line which was acquired in 2005 and with the Canadawide product line which was acquired in 2007. The Company also experienced a $35,000 patent impairment loss associated with Head-Lite.

2008 Compared to 2007

Operating expenses for 2008 less the non-cash adjustments mentioned in the preceding paragraph were $11,589,000 or $431,000 below 2007. Of this decline in spending, $294,000 came from the work gloves and protective wear segment, with savings in advertising, shows, travel and bonuses.

Operating expenses decreased $110,000 at the pet supplies segment in 2008 as a result of savings in display racking and commission expense.

At the promotional and safety products segment, operating expenses were up $74,000 with increases in commissions, advertising and shows.

The corporate and other segment decreased spending by $108,000 in 2008 compared to 2007. Expense savings came from insurance expense, legal and consulting.

Operating Income

Operating Income (Loss) by Segment $(000)	2009		2008		2007
	$	%	$	%	$	%
Work Gloves & Protective Wear	1,307	4.2%	507	1.3%	1,502	4.0%
Pet Supplies	818	10.5%	460	7.0%	635	9.5%
Promotional & Specialty Products	1,003	10.3%	1,147	10.5%	1,228	11.4%
Corporate & Other	(1,207)	----	(897)	----	(1,005)	----
Total Operating Income	1,921	3.9%	1,217	2.2%	2,360	4.3%

2009 Compared to 2008

The Company generated operating income of $1,921,000, which is an improvement over last year’s earnings by $704,000. In 2008 this number was unfavorably affected by the non-cash adjustments in the work gloves and protective wear segment discussed previously. Without those non-cash adjustments in 2008 operating income would have been $2,182,000.

The 2009 earnings at the work gloves and protective wear segment and the promotional and specialty products were directly affected by the worldwide recession causing sales declines of 18.1% and 10.4% respectively. Cost reductions and savings initiatives put in place during the first quarter of 2009 at both the U.S. and Canadian locations partially offset the volume loses.

Earnings increased during 2009 at the pet supplies segment from the increase in sales volume and the better pricing received from suppliers.

2008 Compared to 2007

The Company generated 2008 operating income of $1,217,000, which was a decline of $1,143,000 from 2007 earnings. 2008 operating results were unfavorably affected by non-cash adjustments in the work gloves and protective wear segment discussed previously. Without those non-cash adjustments 2008 operating income would have been $2,182,000 or $178,000 below 2007. Without non-cash adjustments, the work gloves and protective wear segment generated 2008 operating income of $1,472,000, $30,000 below 2007. 2008 earnings decreased $175,000 in the pet supply segment due to supplier cost increases. Promotional and specialty product’s earnings declined $81,000 from 2007, as a result of increased freight and labor costs.

Other Income (Expense)

2009 Compared to 2008

As a result of decreased bank borrowings in 2009, interest expense decreased $89,000 compared to 2008. The Company’s primary line of credit was not used at all during 2009 and excess cash generated $18,000 of interest income.

2008 Compared to 2007

2008 interest expense had decreased from $213,000 to $210,000 compared to 2007. Interest earned on excess cash during 2008 was $40,000.

Income Tax Expense

Because of losses in prior years, the Company has available, for U.S. income tax purposes, NOL carryforwards of approximately $22,483,000. During the fourth quarter of 2009, the Company reevaluated its estimates and, based upon its current and projected profitability, determined that it was more likely than not that it would be able to utilize an additional $2,206,000 of its remaining NOL carryforwards. Accordingly, at the end of 2009 the Company reduced its valuation allowance and recognized a $750,000 tax benefit. In all subsequent periods, for book purposes, the Company will record income tax expense on earnings at normal rates, approximately 39% currently, and reduce the related deferred tax asset. The tax benefit and tax expenses recorded for book purposes have no effect on the Company’s actual tax liability.

Shareholders and other users of the Company’s financial statements should carefully consider the effect of non-cash tax entries (such as the tax benefits recognized in 2004, 2006 and 2009) when comparing current results with past or future financial statements of the Company.

Liquidity and Capital Resources

Cash Flow - 2009 Compared to 2008

Operating activities generated cash of $7,081,000 during 2009 compared with $680,000 of cash utilized by operating activities in 2008. This favorable cash performance in 2009 was attributable primarily to reduced inventory in the work gloves, boots and rainwear segment and accounts receivable. Inventory levels were reduced to remain in line with sales demand. The Company’s 2009 reduction in accounts receivable is a result of the 12.2% decline in sales during 2009.

Investing activities used $614,000 in 2009 consisting of $226,000 for purchases of property and equipment and $388,000 for certain assets of AGA Balloon by Galaxy. Purchases of property and equipment for the year included $163,000 spent on a new shipping software system at the work gloves and protective wear segment, material handling and testing equipment at the pet supplies segment and technology enhancements at the promotional and specialty products segment.

Financing activities utilized $397,000 of cash in 2009. Pay down of long-term debt used $502,000 and Boss Canada used $35,000 for repayment on its revolving line of credit. These amounts were partially offset by proceeds from exercised stock options of $140,000. As of December 31, 2009 there were outstanding options for 221,000 shares of the Company’s common stock. There are currently no borrowings against the Company’s primary line of credit.

At December 26, 2009 the Company had $7,050,000 in cash with zero borrowings against its $7,000,000 revolving line of credit. The Company was in full compliance with its credit facility loan covenants as of December 26, 2009. Management believes the Company’s cash on hand and availability under the credit facility should provide ample liquidity for the Company’s expected working capital and operating needs.

As set forth in detail in the Company’s proxy statement dated March 5, 2010 (the “Proxy Statement”), relating to its proposed corporate transaction to terminate the Company’s registration with the SEC, the Company anticipates total costs of approximately $640,000 to complete the transaction. Prior to December 26, 2009, the Company had incurred approximately $166,000 of the transaction costs, with the remainder to be paid from the Company’s existing cash balance during 2010. Shareholders and other users of the Company’s financial statements should carefully review the Proxy Statement and all of its annexes in their entirety for a full description of the transaction and its potential effects on the Company and its shareholders.

Cash Flow - 2008 Compared to 2007

Operating activities utilized cash of $680,000 during 2008 compared with $2,533,000 of cash provided by operating activities in 2007. The large part of cash utilized in 2008 was the inventory increase of $3,156,000, which was only partially offset by net income. $2,900,000 of the inventory increase was in the work gloves and protective wear segment. The increase in inventory was partially a result of additional inventory for new products and higher costs per item from cost increases. Also, aggressive inventory reductions over the prior two years left the work gloves and protective wear segment out-of-stock on some items. During 2008 the Company replenished safety stocks in an effort to reduce out-of-stock situations. The Company also experienced a decrease in accounts payable in 2008, compared to 2007.

Investing activities used $380,000 in 2008 for purchases of property and equipment compared with $1,230,000 utilized in 2007. $227,000 was utilized at the work gloves and protective wear segment, primarily for renovation of the new corporate office facility and information technology enhancements. The pet supply segment invested $21,000 on material handling equipment at the warehouse. The promotional and specialty segment utilized $132,000 on three new production machines and information technology enhancements. The large cash utilization during 2007 was primarily due to the investment of $887,000 for the Canadawide and Dipcraft acquisitions.

Financing activities utilized cash of $426,000 in 2008. $477,000 was used to pay down existing long-term debt and $51,000 was collected in cash from the exercise of stock options.

Inflation

The Company does not believe that the moderate rates of inflation experienced in the United States over the last four years have had a material effect on its net sales or profitability. The Company obtains finished goods from various foreign countries to minimize the impact of inflation in any region, though costs of certain goods have increased over the past two years and are expected to rise further in the coming year. Such cost increases may have a negative impact on future profitability.

Off Balance-Sheet Arrangements

The Company has no material off-balance sheet arrangements other than lease commitments as disclosed in Note 4 of the Company’s Consolidated Financial Statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Under SEC regulations, the information called for by this Item is not required because the Company is a smaller reporting company.

Item 8. Financial Statements and Supplementary Data

The following consolidated financial statements and schedules of the Company and its Accountants’ Opinion are set forth in Part IV, Item 15, of this Report:

	(i)		Report of Independent Registered Public Accounting Firm.

	(ii)		Consolidated Balance Sheets – as of December 26, 2009 and December 27, 2008.

	(iii)		Consolidated Statements of Income, Cash Flows and Stockholders’ Equity for the years ended December 26, 2009, December 27, 2008 and December 29, 2007.

	(iv)		Notes to the Consolidated Financial Statements.

	(v)		Schedule II – Valuation and Qualifying Accounts.

Item 9. Changes in And Disagreements With Auditors on Accounting And Financial Disclosures

Not applicable.

Item 9A(T). Controls and Procedures

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rule 240.13a-15(e)). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's current disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms.

There were no changes in the Company's internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Management’s Annual Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial and accounting officers and effected by the Company’s board of directors and management to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 26, 2009. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control Over Financial Reporting – Guidance for Smaller Public Companies. Based on our assessment, the Company’s management concluded that, as of December 26, 2009, our internal control over financial reporting was effective. This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report. Accordingly, the Company’s management assessment of the effectiveness of our internal control over financial reporting as of December 26, 2009 has not been audited by our auditors, McGladrey & Pullen, LLP or any other independent registered public accounting firm.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information appearing in the Company’s Definitive Proxy Statement prepared in connection with its 2010 Annual Meeting of Stockholders (the “2010 Proxy”) under the captions “Election of Directors”, “Executive Officers”, “Compliance with Section 16(a) of the Exchange Act”, “Code of Ethics” and “Corporate Governance” is incorporated herein by reference. The 2010 Proxy is to be filed no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Item 11. Executive Compensation

The information appearing in the 2010 Proxy under the caption “Executive Compensation” is incorporated herein by reference.

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

The information appearing in the 2010 Proxy under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance under Equity Compensation Plans” is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions and Director Independence

The information appearing in the 2010 Proxy under the captions “Certain Relationships and Related Transactions” and “Director Independence” is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

The information appearing in the 2010 Proxy under the caption “Principal Accountant Fees and Services” is incorporated herein by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)	List the following documents filed as a part of the report:

	(1)	All financial statements, as follows:

		Report of Independent Registered Public Accounting Firm attached as page F-1 to this report.

		Financial Statements attached as pages F-2 through F-27 to this report: Consolidated Balance Sheets – as of December 26, 2009 and December 27, 2008; Consolidated Statements of Income, Cash Flows and Stockholders’ Equity for the years ended December 26, 2009, December 27, 2008 and December 29, 2007; and Notes to the Consolidated Financial Statements.

	(2)	Schedule II – Valuation and Qualifying Accounts attached as page F-27 to this report.

(b)	Exhibits:

	The exhibits filed with or incorporated into this report are listed in the Index to Exhibits which follows.

SIGNATURES

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

(Registrant)	Boss Holdings, Inc.

By (Signature and Title)	/s/ Steven G. Pont
	Steven G. Pont, Vice President of Finance
	Principal Financial Officer and Chief Accounting Officer
	Date: March 26, 2010

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.

By (Signature and Title)	/s/ G. Louis Graziadio III
	G. Louis Graziadio III
	Chairman of the Board and President,
	Principal Executive Officer
	Date: March 26, 2010

By (Signature and Title)	/s/ Perry A. Lerner
	Perry A. Lerner, Director
	Date: March 26, 2010

By (Signature and Title)	/s/ Lee E. Mikles
	Lee E. Mikles, Director
	Date: March 26, 2010

By (Signature and Title)	/s/ Paul A. Novelly
	Paul A. Novelly, Director
	Date: March 26, 2010

By (Signature and Title)	/s/ William R. Lang
	William R. Lang, Director
	Date: March 26, 2010

INDEX TO EXHIBITS

(3)(i)		Articles of Incorporation

3.1		Certificate of Incorporation (incorporated by reference from the Company’s Registration Statement on Form SB-2 - Registration No. 33-73118-A)

3.1.1		Amendment to Certificate of Incorporation, dated December 7, 1998 (incorporated by reference from the Company’s Form 10-K for the year ended December 26, 1998)

3.1.2		Amendment to Certificate of Incorporation, dated June 30, 2000 (incorporated by reference from the Company’s Form 10-Q for the quarter ended July 1, 2000)

(3)(ii)		By-Laws

3.2		By-Laws (incorporated by reference from the Company’s Registration Statement on Form SB-2 - Registration No. 33-73118-A)

(10)		Material Contracts

10.1		1998 Incentive Stock Option Plan, as amended (incorporated by reference from the Company’s Registration Statement on Form S-8 dated February 1, 2001)

10.2		1998 Non-Employee Director Stock Option Plan, as amended (incorporated by reference from the Company’s Registration Statement on Form S-8 dated February 1, 2001)

10.3		Loan and Security Agreement among Boss Holdings, Inc., Boss Manufacturing Company and American National Bank and Trust Company of Chicago, dated June 16, 2000 (incorporated by reference from the Company’s Form 10-Q for the quarter ended July 1, 2000)

10.3.1		First Amendment to Loan and Security Agreement among Boss Holdings, Inc., Boss Manufacturing Company and American National Bank and Trust Company of Chicago, dated May 28, 2002 (incorporated by reference from the Company’s Form 10-Q for the quarter ended June 29, 2002)

10.3.2		Second Amendment to Loan and Security Agreement among Boss Holdings, Inc., Boss Manufacturing Company and Bank One, N.A., dated April 15, 2003 (incorporated by reference from the Company’s Form 10-Q for the quarter ended June 28, 2003)

10.3.3		Third Amendment to Loan Agreement among Boss Holdings, Inc., Boss Manufacturing Company and Bank One, N.A., dated October 13, 2003 (incorporated by reference from the Company’s Form 10-K for the year ended December 27, 2003)

10.3.4		Fourth Amendment to Loan Agreement among Boss Holdings, Inc., Boss Manufacturing Company and Bank One, N.A., dated March 17, 2004 (incorporated by reference from the Company’s Form 10-Q for the quarter ended March 27, 2004)

10.3.5		Fifth Amendment to Loan Agreement among Boss Holdings, Inc., Boss Manufacturing Company and Bank One, N.A., dated July 30, 2004 (incorporated by reference from the Company’s Form 10-K for the year ended December 25, 2004)

10.3.6		Sixth Amendment to Loan Agreement among Boss Holdings, Inc., Boss Manufacturing Company and JP Morgan Chase Bank, N.A., dated January 30, 2006 (incorporated by reference from the Company’s Form 10-Q for the quarter ended April 1, 2006)

10.3.7		Seventh Amendment to Loan Agreement among Boss Holdings, Inc., Boss Manufacturing Company and JP Morgan Chase Bank, N.A., dated June 1, 2008 (incorporated by reference from the Company’s Form 10-K for the year ended December 27, 2008)

10.3.8		Eighth Amendment to Loan Agreement among Boss Holdings, Inc., Boss Manufacturing Company and JP Morgan Chase Bank, N.A., dated January 4, 2010

10.4		Boss Holdings, Inc. 2004 Stock Incentive Plan (incorporated by reference from the Company’s definitive Proxy Statement filed April 30, 2004)

10.5		Stock Purchase Agreement dated July 30, 2004 between Boss Holdings, Inc. and Terrence J. Brizz regarding Galaxy Balloons, Incorporated (incorporated by reference from the Company’s Form 8-K dated July 30, 2004)

14.1		Code of Ethics for Senior Executive and Financial Officers (incorporated by reference from the Company’s Form 10-K for the year ended December 25, 2004)

21.1		Subsidiaries of the Registrant

31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

EXHIBIT 10.3.8

AMENDMENT TO

$7,000,000 LINE OF CREDIT

FROM

JPMORGAN CHASE BANK, NA

BOSS HOLDINGS, INC.

AND BOSS MANUFACTURING COMPANY

1. Eighth Amendment to Loan Agreement

E-1

EIGHTH AMENDMENT TO LOAN AGREEMENT

This Eighth Amendment to Loan Agreement, dated as of January 4, 2010 ("Amendment"), amends the Loan Agreement dated June 16, 2000, as amended by a First Amendment dated as of May 28, 2002, a Second Amendment dated as of April 15, 2003, a Third Amendment dated as of October 13, 2003, a Fourth Amendment dated as of March 17, 2004, a Fifth Amendment dated as of July 30, 2004, a Sixth Amendment dated as of January 30, 2006 and a Seventh Amendment dated as of June 1, 2008 (collectively, "Agreement"), both between JP Morgan Chase Bank, NA, successor to American National Bank and Trust Company of Chicago ("Bank"), Boss Holdings, Inc. and Boss Manufacturing Company (collectively, "Borrowers").

The parties agree that the Agreement shall be amended as follows:

1. The definition of "Base Rate" set forth in Section 1.1 of the Agreement shall be deleted in its entirety and the following definition shall be substituted in its place:

" Base Rate " means the CB Floating Rate.

2. The definition of "Revolving Credit Termination Date" set forth in Section 1.1 of the Agreement shall be deleted in its entirety and the following definition shall be substituted in its place:

" Revolving Credit Termination Date " means January 4, 2011, as such date may be amended upon the written consent of all of the parties hereto.

3. The following definitions shall be added to Section 1.1 of the Agreement:

" Adjusted One Month LIBOR Rate " means, with respect to a CB Floating Rate Advance for any day, the sum of (i) 2.50% per annum plus (ii) the quotient of (a) the interest rate determined by the Bank by reference to the Page to be the rate at approximately 11 :00 a.m. London time, on such date or, if such date is not a Business Day, on the immediately preceding Business Day for dollar deposits with a maturity equal to one (1) month, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to dollar deposits in the London interbank market with a maturity equal to one (1) month.

" CB Floating Rate " means the Prime Rate; provided that the CB Floating Rate shall, on any day, not be less than the Adjusted One Month LIBOR Rate. The CB Floating Rate is a variable rate and any change in the CB Floating Rate due to any change in the Prime Rate or the Adjusted One Month LIBOR Rate is effective from and including the effective date of such change in the Prime Rate or the Adjusted One Month LIBOR Rate, respectively.

" Prime Rate " means the rate of interest per annum announced from time to time by the Bank as its prime rate. The Prime Rate is a variable rate and each change in the Prime Rate is effective from and including the date the change is announced as being effective. THE PRIME RATE IS A REFERENCE RATE AND MAY NOT BE THE BANK'S LOWEST RATE.

E-2

" Page " means Reuters Screen LIBOR01, formerly known as Page 3750 of the Moneyline Telerate Service (together with any successor or substitute, the "Service") or any successor or substitute page of the Service, providing rate quotations comparable to those currently provided on such page of the Service, as determined by the Bank from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market.

" Reserve Requirement " means the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D.

4. Section 7.2(d)(x) of the Agreement, requiring a quarterly accounts receivable aging report, shall be deleted in its entirety.

5. The definition of "Debt Service Coverage Ratio" in Section 1.1 of the Agreement shall be deleted in its entirety, and the following definition shall be substituted in its place:

" Debt Service Coverage Ratio " means the ratio, calculated on a consolidated basis of the Parent as of the end of each calendar quarter for the previous four (4) calendar quarters, of net income before taxes, plus interest expense, plus depreciation expense, plus amortization expense, minus Capital Expenditures which were not financed with long term debt, minus taxes paid, minus Distributions, for the calendar quarter then ending, to principal payments made on long term debt, plus capitalized lease payments made, plus scheduled principal and interest payments on Subordinated Debt (whether or not made), plus interest expense, for said calendar quarter.

6. Except as specifically amended herein the Agreement shall continue in full force and effect in accordance with its original terms. Reference to this specific Amendment need not be made in any note, document, letter, certificate, the Agreement itself, or any communication issued or made pursuant to or with respect to the Agreement, any reference to the Agreement being sufficient to refer to the Agreement as amended hereby. All terms used herein which are defined in the Agreement shall have the same meaning herein as in the Agreement. In the event of any conflict between the terms of the Agreement and the terms of this Amendment, this Amendment shall control.

[SIGNATURE PAGE FOLLOWS]

E-3

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the day and year first above written.

JP MORGAN CHASE BANK, NA			BOSS HOLDINGS, INC.

By:	/s/ Wendy Williams		By:	/s/ Steven G. Pont
	Its:	Vice President		Its:	VP/Finance & Treasurer

			BOSS MANUFACTURING COMPANY

			By:	/s/ Steven G. Pont
				Its:	VP/Finance & Treasurer

E-4

The undersigned Guarantors of the obligations of Borrowers under the Agreement consent to this Amendment, acknowledge and agree that the Guaranty Agreement between them and Bank dated as of June 16, 2000 shall remain in full force and effect and apply to the obligations of Borrowers as amended by this Amendment. Guarantors further agree that the term "Guaranteed Obligations" as used in the above-described Guaranty Agreement shall mean, among other things, obligations of Borrowers under the Agreement as amended by this Amendment.

BOSS MANUFACTURING HOLDINGS, INC.			BOSS BALLOON COMPANY

By:	/s/ Steven G. Pont		By:	/s/ Steven G. Pont
	Its:	VP/Finance & Treasurer		Its:	VP/Finance & Treasurer

Date: February 8, 2010			Date: February 8, 2010

The undersigned Guarantor of the obligations of Borrowers under the Agreement consents to this Amendment, acknowledges and agrees that the Guaranty between it and Bank dated as of March 17, 2004 shall remain in full force and effect and apply to the obligations of Borrowers as amended by this Amendment. The undersigned Guarantor further agrees that the term "Obligations" as used in the above-described Guaranty shall mean, among other things, obligations of Borrowers under the Agreement as amended by this Amendment.

BOSS PET PRODUCTS, INC.

By:	/s/ Steven G. Pont
	Its:	VP/Finance & Treasurer

Date: February 8, 2010

The undersigned Guarantor of the obligations of Borrowers under the Agreement consents to this Amendment, acknowledges and agrees that the Guaranty between it and Bank dated as of July 30, 2004 shall remain in full force and effect and apply to the obligations of Borrowers as amended by this Amendment. The undersigned Guarantor further agrees that the term "Obligations" as used in the above-described Guaranty shall mean, among other things, obligations of Borrowers under the Agreement as amended by this Amendment.

GALAXY BALLOONS, INCORPORATED

By:	/s/ Steven G. Pont
	Its:	VP/Finance & Treasurer

Date: February 8, 2010

E-5

The undersigned Guarantors of the obligations of Borrowers under the Agreement consent to this Amendment, acknowledge and agree that the Guaranty Agreements between them and Bank dated as of May 7, 2007 shall remain in full force and effect and apply to the obligations of Borrowers as amended by this Amendment. Guarantors further agree that the term "Guaranteed Obligations" as used in the above-described Guaranty Agreements shall mean, among other things, obligations of Borrowers under the Agreement as amended by this Amendment.

BOSS CANADA INC.			CANADAWIDE SAFETY INC.

By:	/s/ Steven G. Pont		By:	/s/ Steven G. Pont

	Its:	VP/Finance & Treasurer		Its:	VP/Finance & Treasurer

Date: February 8, 2010			Date: February 8, 2010

E-6

EXHIBIT 21.1

SUBSIDIARIES OF REGISTRANT

Boss Manufacturing Holdings, Inc., a Delaware corporation
Boss Manufacturing Company, a Delaware corporation
Boss Balloon Company, an Illinois corporation
Boss Canada, Inc., a foreign corporation
Boss Pet Products, Inc., a Delaware corporation
Canadawide Safety Inc., a foreign corporation
Galaxy Balloons, Incorporated, an Ohio corporation

E-7

EXHIBIT 31.1

CERTIFICATION

I, G. Louis Graziadio III, certify that:

1.	I have reviewed this annual report on Form 10-K of Boss Holdings, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 26, 2010

By:	/s/ G. Louis Graziadio III
	G. Louis Graziadio III, Chairman of the Board and President
	Principal Executive Officer

E-8

EXHIBIT 31.2

CERTIFICATION

I, Steven G. Pont, certify that:

1.	I have reviewed this annual report on Form 10-K of Boss Holdings, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) for the registrant and we have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 26, 2010

By:	/s/ Steven G. Pont
	Steven G. Pont, Vice President of Finance
	Principal Financial Officer and Chief Accounting Officer

E-9

EXHIBIT 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Boss Holdings, Inc. (the "Company") on Form 10-K for the fiscal year ended December 26, 2009 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, G. Louis Graziadio III, Chairman and Chief Executive Officer of the Company, and I, Steven G. Pont, Vice President of Finance and Principal Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

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

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

Dated: March 26, 2010

	/s/ G. Louis Graziadio III
	G. Louis Graziadio III, Chairman of the Board and President
	Principal Executive Officer


	/s/ Steven G. Pont
	Steven G. Pont, Vice President of Finance
	Principal Financial Officer

E-10

Boss Holdings, Inc.
and Subsidiaries

Consolidated Financial Statements

December 26, 2009

Report of Independent Registered Public Accounting Firm

To the Board of Directors
Boss Holdings, Inc.

We have audited the accompanying consolidated balance sheets of Boss Holdings, Inc. and subsidiaries as of December 26, 2009 and December 27, 2008, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 26, 2009. Our audits also included the financial statement schedule listed in the index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provided 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 Boss Holdings, Inc. and subsidiaries as of December 26, 2009 and December 27, 2008 and the results of their operations and their cash flows for each of the three years in the period ended December 26, 2009 in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.

We were not engaged to examine management’s assertion about the effectiveness of Boss Holdings, Inc.’s internal control over financial reporting as of December 26, 2009 included in the accompanying management’s annual report on internal control over financial reporting in Item 9A(T) Controls and Procedures and, accordingly, we do not express an opinion thereon.

/s/ McGladrey & Pullen, LLP

Davenport, Iowa
March 26, 2010

McGladrey & Pullen, LLP is a member firm of RSM International –
an affiliation of separate and independent legal entities.

F-1

Boss Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets
(Dollars in Thousands, Except Per Share Data)

	December 26,			December 27,
Assets	2009			2008
Current Assets:
Cash and cash equivalents	$	7,050		$	803
Accounts receivable, net of allowance for doubtful accounts and
returns 2009 $280; 2008 $240		7,573			8,256
Inventories		15,227			18,929
Deferred tax asset		1,554			1,141
Prepaid expenses and other		403			523
Total current assets		31,807			29,652
Property and Equipment, net		3,176			3,340
Other Assets		150			48
Intangibles, net of accumulated amortization		623			457
Goodwill		2,853			2,853
Deferred tax asset		1,813			2,078
	$	40,422		$	38,428
Liabilities and Stockholders' Equity
Current Liabilities:
Current portion of long-term debt	$	1,091		$	496
Accounts payable		2,217			1,860
Accrued payroll and related expenses		1,095			1,123
Accrued promotional expenses		890			991
Other accrued liabilities		624			495
Total current liabilities		5,917			4,965
Long-Term Debt		522			1,607
Deferred Compensation		151			146
Commitments and Contingencies (Note 4)
Stockholders' Equity:
Common stock, $.25 par value; authorized 10,000,000 shares;
issued and outstanding 2,116,047 and 2,036,047 shares
in 2009 and 2008, respectively		529			509
Additional paid-in capital		66,727			66,521
Accumulated (deficit)		(33,504	)		(35,271	)
Accumulated other comprehensive income (loss)		80			(49	)
Total stockholders' equity		33,832			31,710
	$	40,422		$	38,428

See Notes to Consolidated Financial Statements.

F-2

Boss Holdings, Inc. and Subsidiaries

Consolidated Statements of Income
Years Ended December 26, 2009, December 27, 2008 and December 29, 2007
(Dollars in Thousands, Except Per Share Data)

	2009			2008			2007
Net sales	$	48,957		$	55,732		$	55,197

Cost of sales		36,091			41,961			40,817

Gross profit		12,866			13,771			14,380

Operating expenses		10,945			11,762			12,020
Asset impairment losses		-			792			-

Operating income		1,921			1,217			2,360

Other income and (expenses):
Interest income		18			40			110
Interest expense		(121	)		(210	)		(213	)
Other		(4	)		22			20
		(107	)		(148	)		(83	)

Income before income tax expense		1,814			1,069			2,277

Income tax expense (note 10)		797			531			911
Change in deferred tax asset valuation (note 10)		(750	)		-			-
Net income	$	1,767		$	538		$	1,366

Basic earnings per common share	$	0.84		$	0.27		$	0.68
Diluted earnings per common share	$	0.80		$	0.24		$	0.62

See Notes to Consolidated Financial Statements.

F-3

Boss Holdings, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity
Years Ended December 26, 2009, December 27, 2008 and December 29, 2007
(Dollars and Shares In Thousands)

									Accumulated
				Additional					Other			Total
	Common Stock			Paid-In		Accumulated			Comprehensive			Stockholders'
	Shares	Dollars		Capital		(Deficit)			Income (Loss)			Equity
Balance, December 30, 2006	1,981	$	495	$	66,324	$	(37,175	)	$	52		$	29,696
Exercise of stock options	37		10		103		-			-			113
Comprehensive income:													-
Net income	-		-		-		1,366			-			1,366
Other comprehensive income (Note 11)	-		-		-		-			191			191
Comprehensive income													1,557
Stock based compensation	-		-		36		-			-			36
Balance, December 29, 2007	2,018		505		66,463		(35,809	)		243			31,402
Exercise of stock options	18		4		50		-			-			54
Comprehensive income:													-
Net income	-		-		-		538			-			538
Other comprehensive (loss) (Note 11)	-		-		-		-			(292	)		(292	)
Comprehensive income													246
Stock based compensation	-		-		8		-			-			8
Balance, December 27, 2008	2,036		509		66,521		(35,271	)		(49	)		31,710
Exercise of stock options	80		20		120		-			-			140
Comprehensive income:													-
Net income	-		-		-		1,767			-			1,767
Other comprehensive income (Note 11)	-		-		-		-			129			129
Comprehensive income													1,896
Stock based compensation	-		-		86		-			-			86
Balance, December 26, 2009	2,116	$	529	$	66,727	$	(33,504	)	$	80		$	33,832

See Notes to Consolidated Financial Statements.

F-4

Boss Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows
Years Ended December 26, 2009, December 27, 2008 and December 29, 2007
(Dollars in Thousands)

	2009			2008			2007
Cash Flows from Operating Activities:
Net income	$	1,767		$	538		$	1,366
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization		640			654			534
Stock based compensation		86			8			36
Deferred tax expense (benefit note 10)		(158	)		414			772
Goodwill Impairment		-			757			-
Patent Impairment		-			35			-
Non-Cash Asset Donation		-			173			-
Changes in assets and liabilities net of acquisitions:
(Increase) decrease in:
Accounts receivable		751			(84	)		48
Inventories		3,843			(3,156	)		(1,100	)
Prepaid expenses and other		35			12			40
Other assets		(9	)		59			12
Increase (decrease) in:
Accounts payable		135			(206	)		579
Accrued liabilities		(9	)		116			246
Net cash provided by (used in) operating
activities		7,081			(680	)		2,533

Cash Flows from Investing Activities:
Purchases of property and equipment		(226	)		(380	)		(343	)
Acquisitions		(388	)		-			(887	)
Net cash used in investing
activities		(614	)		(380	)		(1,230	)

Cash Flows from Financing Activities:
Net payments on revolving line of credit		(35	)		-			-
Borrowing on long-term obligations		-			-			405
Repayment of long-term obligations		(502	)		(477	)		(427	)
Proceeds from exercise of stock options		140			51			86
Net cash provided by (used in) financing
activities		(397	)		(426	)		64
Effect of exchange rate changes on cash	$	177		$	(268	)	$	188
Increase (decrease) in cash and
cash equivalents	$	6,247		$	(1,754	)	$	1,555

(Continued)

F-5

Boss Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Continued)

Years Ended December 26, 2009, December 27, 2008 and December 29, 2007

(Dollars in Thousands)

	2009		2008		2007
Cash and cash equivalents:
Beginning		803		2,557		1,002
Ending	$	7,050	$	803	$	2,557

Supplemental Disclosures of Cash Flows Information,
cash payments for:
Interest paid	$	121	$	210	$	213
Income taxes paid, net		121		239		236

Supplemental Disclosures of Noncash Investing and
Financing Activities:
Reduction in net operating loss carryover due to excess tax
benefits from the exercise of stock options,
under the tax-law ordering approach		82		3		27
Fixed assets acquired by entering into capital lease		-		103		-

See Notes to Consolidated Financial Statements.

F-6

Boss Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Per Share Data)

Note 1. Nature of Business and Summary of Significant Accounting Policies

Nature of business:

Boss Holdings, Inc. and its subsidiaries are engaged in the import, marketing, and distribution of gloves, boots, rainwear, pet supplies and specialty lighting products, as well as custom imprinting of inflatable and other products for the advertising specialties industry. Customers, located throughout the world, include retailers ranging from convenience stores to mass merchandisers and various commercial users. The Company sells its products primarily through distributors and manufacturer’s representatives.

Significant accounting policies:

Principles of consolidation : The accompanying consolidated financial statements include the accounts of Boss Holdings, Inc. (“BHI”), and its wholly owned subsidiary, Boss Manufacturing Holdings, Inc. and subsidiaries (“BMHI”) (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.

Fiscal year : The Company maintains a 52/53-week year ending on the last Saturday of the calendar year. Each of fiscal years 2009, 2008 and 2007 contained 52 weeks.

Use of estimates in the preparation of financial statements : The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Cash and cash equivalents : Cash and cash equivalents consist of cash on hand, time deposits, and liquid debt instruments such as commercial paper with maturities of three months or less from the date of purchase.

Accounts receivable : Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Accounts receivable are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received.

An account is considered to be past due if any portion of the receivable balance is past due more than 60 days. The provision for bad debts charged to expense was $76, $96 and $65 for the years ended 2009, 2008 and 2007, respectively.

Marketable securities : The Company classifies marketable equity securities as trading or available for sale securities, as defined by the FASB Accounting Standards Codification (ASC) Topic 320. In accordance with the provisions of the codification, marketable securities are stated at fair value with net unrealized gains and losses included in operations for trading securities and in accumulated other comprehensive income (loss) for available for sale securities.

The Company’s marketable equity securities, classified as trading, are held in trust under a deferred compensation arrangement, and are included in other assets on the consolidated balance sheets for all periods presented.

F-7

Boss Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Per Share Data)

Note 1. Nature of Business and Summary of Significant Accounting Policies (Continued)

Revenue recognition : The Company recognizes revenue from product sales at the time of shipment based on standard terms of FOB shipping point, with title passing to the customer at time of shipment. Management records estimated reductions to revenue for various customer programs and incentive offerings primarily in the consumer market of the work gloves and protective wear segment. These programs include the following:

Rebates and other volume-based incentives – The Company records a revenue reduction and associated accrued liability each period based on the estimated rebate total. Rebates paid are then charged to the accrued liability. Each quarter, management compares the accrued liability balance to the estimated rebates payable compiled for all customers and makes adjustments as appropriate to revenues and the accrued rebate liability.
Terms discounts – the Company offers cash discounts to certain customers, recorded as revenue reductions in each period with an associated accounts receivable allowance. Management periodically analyzes this allowance account to ensure its adequacy, adjusting sales and the accounts receivable allowance when appropriate.
Cooperative advertising and marketing allowances – the Company supports certain customer advertising and marketing initiatives to promote product sales at retail. In many cases, customers advertise Company products using mutually agreed specifications such as the Boss logo and trade names, with the Company then reimbursing a portion of the advertising cost incurred by the customer. The Company also supports various other advertising and marketing initiatives to promote sales. All such costs are treated as a reduction of revenues for accounting purposes.
To a lesser extent, the Company occasionally utilizes additional incentives to increase market share such as buying back a competitor’s inventory from a new customer, offering conversion allowances and providing other new customer incentives. Such methods are common in certain retail industry channels. All such costs are treated as a reduction of revenues for accounting purposes.

As of December 26, 2009, the Company’s accrual for customer advertising and promotional activities totaled $890. The Company has received no material allowances or credits from any vendors in connection with the purchase or promotion of such vendor’s products.

Cost of sales : The Company’s cost of sales expense includes all costs incident to purchasing goods for sale, transporting them from the supplier to Company facilities, warehousing and shipping goods to the customer. Such costs include product cost, inbound freight, duty, brokerage fees and storage costs as well as shipping and handling costs associated with outbound shipments to customers.

Warranty costs and returns : The Company provides for estimated warranty costs and returns at the time of sale. Accrued costs of warranty obligations and returns are classified as accrued liabilities and are immaterial to the financial statements as a whole.

Inventories : Inventories are valued at the lower of cost or market using primarily the first-in, first-out (“FIFO”) method. The Company provides estimated inventory allowances for excess, slow moving and obsolete inventory whose carrying value is in excess of net realizable value. Inventories consist of finished goods for the periods presented.

F-8

Boss Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Per Share Data)

Note 1. Nature of Business and Summary of Significant Accounting Policies (Continued)

Property and equipment and depreciation : Property and equipment is recorded at historical cost. The Company provides for depreciation generally using the straight-line method over the following estimated useful lives:

		Years
	Machinery and equipment	10
	Office furniture and equipment	3 - 10
	Buildings and improvements	10 - 39

Depreciation expense was $482, $491 and $492 for 2009, 2008 and 2007, respectively.

Goodwill and other intangibles : Goodwill represents the excess of purchase price over the fair value of the identifiable net assets acquired. In accordance with FASB ASC Topic 350, goodwill is not amortized and, instead, is evaluated for impairment at least annually. The Company performs its impairment test in December each year. Other intangible assets are recorded at cost and amortized over their estimated useful life (see Note 9).

Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The estimated future cash flows are based upon, among other things, assumptions about expected future operating performance, and may differ from actual cash flows. If the sum of the projected undiscounted cash flows (excluding interest) is less than the carrying value of the assets, the assets will be written down to the estimated fair value in the period in which the determination is made (see Note 9).

F-9

Boss Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Per Share Data)

Note 1. Nature of Business and Summary of Significant Accounting Policies (Continued)

The cost and accumulated amortization of other intangible assets as of December 26, 2009 and December 27, 2008 is as follows:

	Estimated			Accumulated			Net Book
	Life		Cost	Amortization			Value
	2009
Customer Lists / Non-Compete
Canadawide Safety	4 Years	$	105	$	69	$	36
Dipcraft	5 Years		343		146		196
Galaxy	7.5 Years		170		122		48
AGA	5 Years		300		10		290
Trademarks	5 Years		164		111		53
Patents	10 Years		15		15		-
		$	1,097	$	473	$	623

	2008
Customer Lists / Non-Compete
Canadawide Safety	4 Years	$	90	$	37	$	53
Dipcraft	5 Years		343		77		266
Galaxy	7.5 Years		170		100		70
Trademarks	5 Years		209		141		68
Patents	10 Years		15		15		0
		$	827	$	370	$	457

Amortization of intangible assets is expected to be approximately $201 in 2010, $179 in 2011, $130 in 2012, $63 in 2013 and $50 in 2014. The 2008 patent cost was reduced by $35 of impairment charges.

Changes in goodwill during the year ended December 27, 2008 are as follows:

	Book Value		Effect Of						Book Value
	As of		Exchange						As Of
	12/29/2007		Rate			Impairment			12/27/2008
Headlite	$	527	$	-		$	(527	)	$	-
Canadawide		286		(56	)		(230	)		-
Galaxy		2,853		-			-			2,853

Total	$	3,666	$	(56	)	$	(757	)	$	2,853

The Company’s goodwill impairment evaluation as of December 26, 2009 indicated that the goodwill for the Galaxy acquisition was not impaired.

F-10

Boss Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Per Share Data)

Note 1. Nature of Business and Summary of Significant Accounting Policies (Continued)

Fair value of financial instruments: Accounting principles generally accepted in the United States of America define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. Additionally the inputs used to measure fair value are prioritized based on a three-level hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1 -- Quoted market prices in an active market for identical assets or liabilities.
Level 2 – Market data or inputs, other than quoted prices included in Level 1, that are observable either directly or indirectly; quoted market prices for similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Unobservable inputs that are supported by little or no market activity.

Accounting principles generally accepted in the United States of America also permit companies to irrevocably choose to measure certain financial instruments and other items at fair value. These standards have also established presentation and disclosure requirements designed to facilitate comparison between entities that choose different measurement attributes for similar types of assets and liabilities. Except for those assets and liabilities which are required by authoritative accounting guidance to be recorded at fair value in our Consolidated Balance Sheets, the Company has elected not to record any other assets or liabilities at fair value.

The following table provides information on those assets and liabilities measured at fair value on a recurring basis.

	Carrying Amount
	In Consolidated
	Balance Sheets			Fair Value			Fair Value Measurements Using
	December 26, 2009			December 26, 2009			Level 1		Level 2			Level 3
Marketable Securities (included in other assets)	$	151		$	151		$	151	$	-		$	-
Interest rate swap liability	$	(21	)	$	(21	)	$	-	$	(21	)	$	-

The valuation of the interest rate swap liability shown in the table above was provided by the Company’s primary lender and is based on mid-market levels as of the close of business on the dates indicated above.

F-11

Boss Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Per Share Data)

Note 1. Nature of Business and Summary of Significant Accounting Policies (Continued)

Concentrations of credit risk : The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable.

The Company places its cash and temporary cash investments with high credit quality financial institutions. The Federal Deposit Insurance Corporation (“F.D.I.C.”) has temporarily expanded its insurance of cash balances up to $250 per bank. The combined account balances at each institution periodically exceed the F.D.I.C. coverage resulting in a concentration of credit risk for the amounts on deposit in excess of $250. The Company’s management does not believe this credit risk is significant, as they do not anticipate non-performance of the financial institutions.

Concentrations of credit risk with respect to accounts receivable are limited due to the diversity of the Company’s customer base. The Company’s management has established certain credit requirements that its customers must meet before sales credit is extended. The Company generally does not require collateral, but monitors the financial condition of its customers to help ensure collections and to minimize losses. Historically, the Company has not experienced significant losses related to accounts receivable from individual customers or from groups of customers in any geographic area.

Foreign currency translation : Financial statements of the Company’s Canadian subsidiary are translated into U.S. dollars using fiscal year-end exchange rates for assets and liabilities, and average exchange rates during the year for the results of operations. Translation adjustments of the Canadian accounts are reported as a separate component of other comprehensive earnings within stockholders’ equity. Exchange rate adjustments related to foreign currency transactions are recognized in comprehensive income.

Income taxes : The Company accounts for income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates applied to taxable income. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company accounts for stock options using the tax-law-ordering approach which recognizes an excess tax benefit when a stock option deduction is used on the company’s tax return, before an NOL or another tax attribute. A valuation allowance is provided for deferred income tax assets when it is more likely than not that the asset will not be realized.

Advertising costs : The Company generally expenses the cost of advertising the first time advertising takes place. Costs of trade shows and developing advertising materials are expensed at the time of the trade shows or as the advertising materials are produced and distributed to customers. Advertising expense for 2009, 2008 and 2007 was $459, $789 and $818, respectively.

Stock based compensation: The Company calculates stock-based compensation by estimating the fair value of each option using the Black-Scholes option pricing model. The Company’s determination of fair value of share-based payment awards is made as of their respective dates of grant using that option pricing model and is affected by the Company’s stock price as well as a number of subjective assumptions. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behavior. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free rate selected to value any particular grant is based on the U.S. Treasury rate that corresponds to the pricing term of the grant effective as of the date of the grant. The expected volatility is based on the historical volatility of the Company’s stock price. These factors, as they pertain to future grants, could change in the future, affecting the determination of stock-based compensation expense in future periods.

F-12

Boss Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Per Share Data)

Note 1. Nature of Business and Summary of Significant Accounting Policies (Continued)

Earnings per share : Basic net earnings per common share is based upon the weighted average number of common shares outstanding during the period. Diluted net earnings per common share is based upon the weighted average number of common shares outstanding plus dilutive potential common shares, including options outstanding during the period.

Recent accounting pronouncements:

In June 2009 the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 168 “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Standard No. 162” (“SFAS 168”). SFAS168 replaces the Generally Accepted Accounting Principles (“GAAP”) with two levels of GAAP: authoritative and non-authoritative. On July 1, 2009, the FASB Accounting Standards Codification (“ASC”) became the single source of authoritative nongovernmental GAAP, except for rules and interpretive releases of the Securities and Exchange Commission. All other non-grandfathered accounting literature became non-authoritative. The adoption of SFAS 168 did not have a material impact on our consolidated financial statements. As a result of the adoption of SFAS 168, all references to GAAP now refer to the codified ASC topic.

In September 2006, ASC Topic 820 was issued which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. ASC Topic 820 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. We adopted the provisions of ASC Topic 820 on January 1, 2009. The adoption of ASC Topic 820 did not have a significant impact on our consolidated financial statements.

In April 2009, ASC Topic 855 was issued which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. We adopted ASC Topic 855 for the quarter ending June 30, 2009. The adoption did not have a material impact on our consolidated financial statements.

Reclassifications : Certain items on the consolidated statements of income for the years ended December 27, 2008 and December 29, 2007 have been reclassified to be consistent with classifications adopted during the year ended December 26, 2009. The reclassifications had no effect on net income of the Company.

F-13

Boss Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Per Share Data)

Note 2. Property and Equipment

Property and equipment as of December 26, 2009 and December 27, 2008 are as follows:

	2009		2008
Land	$	410	$	410
Machinery and equipment		1,973		1,754
Buildings and improvements		2,505		2,496
Office furniture and equipment		2,623		2,526
		7,511		7,186
Less accumulated depreciation		4,335		3,846
	$	3,176	$	3,340

Note 3. Long-Term Obligations

Long-term debt as of December 26, 2009 and December 27, 2008 is as follows:

	2009		2008
BHI revolving line of credit (A)	$	-	$	-

Boss Canada Inc revolving line of credit (B)		-		33

Boss Holdings, Inc. term note payable to a lender. Requires monthly principal payments through July 2011 of $21 plus interest at LIBOR plus 2.1%, adjusted monthly (effective rate of 2.33% as of December 26, 2009). The Company has entered into an interest rate swap agreement related to this note. The swap effectively fixes the interest rate on approximately 57% of the note at 6.32%. Collateralized by all assets of Galaxy Balloons, Inc., in addition to accounts receivable and inventory of Boss Manufacturing Company and subsidiaries.		417		667

Boss Manufacturing Company mortgage note payable to a lender. Requires monthly principal payments of $4. Interest is at LIBOR plus 2.1%, adjusted monthly. The Company has entered into an interest rate swap agreement related to this mortgage note. The swap effectively fixes the interest rate on the debt at 5.83%. The final payment is a balloon payment of $667 due in July 2010. Collateralized by certain real property of Boss Manufacturing Company located in Kewanee, Illinois.		693		745

Subtotal Forward	$	1,110	$	1,445

(Continued)

F-14

Boss Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Per Share Data)

Note 3. Long-Term Obligations (Continued)

Subtotal Forwarded	$	1,110	$	1,445

Boss Canada Inc. term note payable to a lender. Requires monthly payment of $7 Canadian Dollar ($6 US Dollar), using December 26, 2010 exchange rate of .9534, at 6.3% from June 2008 through May 2014. Interest only monthly payments from June 2007 through May 2008. Collateralized by accounts receivable and inventory of Boss Canada Inc.		294		302

Boss Manufacturing Company loan agreement with a local governmental agency. Requires monthly payments of $8, including interest at 3%, through April 2010. Collateralized by certain real property of Boss Manufacturing Company's Kewanee, Illinois facilities.		32		124

Boss Manufacturing Company loan agreement with a local governmental agency. Requires monthly payments of $3, including interest at 3%, through October 2012. Collateralized by certain real property of Boss Manufacturing Company's Kewanee, Illinois facilities.		107		143

Capital lease obligations		70		89
		1,613		2,103
Less current maturities		1,091		496
	$	522	$	1,607

Scheduled principal payments of long-term debt are as follows:

Year ending:
December 25, 2010	$	1,091
December 31, 2011		286
December 29, 2012		112
December 28, 2013		93
December 27, 2014		31
	$	1,613

(A)		Effective January 4, 2010, the Company modified its loan and security agreement (the “Credit Agreement”) with a commercial bank. The revised Credit Agreement expires in January 2011 and provides a revolving credit facility up to $7,000 based on a formula that includes eligible accounts receivable and inventories. Interest is payable monthly at the bank’s prime rate less 1.25% or, at the Company’s option, LIBOR plus 1.25% (effective rate of 2.0% as of December 26, 2009). The Company incurs an unused line fee of 1/8% per annum on the unused portion of the credit facility. As of December 26, 2009, the Company had no borrowings on the revolving credit facility. Availability under this credit agreement was $7,000 as of December 26, 2009.

		The Credit Agreement includes certain restrictive covenants and requires maintenance of certain financial ratios including current ratio, minimum tangible net worth, debt service coverage, and debt to tangible net worth. The Company’s accounts receivable and inventories secure the credit facility.

F-15

Boss Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Per Share Data)

Note 3. Long-Term Obligations (Continued)

(B)		Effective Jan. 4, 2009, the Company modified its loan and security agreement (the “Credit Agreement”) with a commercial bank for Boss Canada. The revised Credit Agreement expires in January 2011 and provides a revolving credit facility up to $100 Canadian based on a formula that includes eligible accounts receivable and inventories. Interest is payable monthly at the bank’s Canadian prime rate (effective rate of 2.25% as of December 26, 2009). As of December 26, 2009, there were no borrowings on the Canadian revolving credit facility. Availability under this credit agreement was $100 Canadian as of December 26, 2009.

		The Credit Agreement includes certain restrictive covenants and requires maintenance of certain financial ratios including current ratio, minimum tangible net worth, debt service coverage, and debt to tangible net worth. The Company’s accounts receivable and inventories secure the credit facility.

Deferred compensation plan:

Effective September 1, 2002, the Company adopted a nonqualified deferred compensation plan that allows executives to defer any portion of their compensation, and non-employee directors, consultants and counsel to defer any portion of their fees. The Company provides no matching contributions to the plan. Each plan participant is fully vested in all deferred compensation and earnings credited to his or her account, which the plan holds in an investment trust. The assets and liabilities under the plan totaled $151 and $146 as of December 26, 2009 and December 27, 2008, respectively.

Note 4. Commitments and Contingencies

Leases:

The Company leases certain office and operating facilities and certain equipment under operating lease agreements that expire on various dates through 2013 and require the Company to pay all maintenance costs. Rent expense under these leases was $561, $616 and $629 for 2009, 2008 and 2007, respectively.

The following is a schedule by year of future minimum payments under the operating lease agreements:

Year ending:
December 25, 2010	$	488
December 31, 2011		410
December 29, 2012		374
December 28, 2013		197
Total minimum lease payments	$	1,469

F-16

Boss Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Per Share Data)

Note 4. Commitments and Contingencies (Continued)

Licensing:

During 2002, the Company entered into a license agreement for the use of certain trademarks in its products which requires the payment of guaranteed or minimum royalties. The Company incurred royalties of $329, $341 and $306 in 2009, 2008 and 2007, respectively. The Company has extended the agreement with provisions for the payment of guaranteed or minimum royalties of $250 in 2010.

Litigation:

The Company is a party to various legal actions incident to the normal operation of its business. These lawsuits primarily involve claims for damages arising out of commercial disputes. The Company has been named as a defendant in several lawsuits alleging past exposure to asbestos contained in gloves manufactured or sold by one of the Company’s predecessors-in-interest, all of which actions are being defended by one or more of the Company’s products liability insurers. Management believes the ultimate disposition of these matters should not materially impact the Company’s consolidated financial position, operations or liquidity.

Note 5. Stock Options

The Company adopted two stock option plans in 1998 providing for the issuance of options covering up to 425,000 shares of common stock to be issued to officers, directors, or consultants to the Company. In 2004, an equity-based incentive program was adopted allowing the issuance of up to 150,000 shares of common stock in the form of any of the following: stock options, stock appreciation rights, performance based stock awards and restricted stock units. Various vesting conditions apply to these options, based on either tenure or certain performance criteria. Stock option transactions are summarized as follows:

	Year Ended
	December 26, 2009				December 27, 2008				December 29, 2007
			Weighted				Weighted				Weighted
			Average				Average				Average
			Exercise				Exercise				Exercise
	Shares		Price		Shares		Price		Shares		Price
Outstanding, beginning	316,000		$	3.34	336,000		$	3.33	381,000		$	3.31
Granted	-			-	-			-	10,000			6.21
Exercised	(80,000	)		1.75	(20,000	)		3.16	(45,000	)		3.02
Expired	(5,000	)		1.75	-			-	(10,000	)		7.00
Outstanding, ending	231,000		$	3.92	316,000		$	3.34	336,000		$	3.33

Options exercisable,
end of year	231,000		$	3.92	314,540		$	3.34	329,333		$	3.27

Weighted average fair
value per option of
options granted				N/A				N/A			$	2.70

F-17

Boss Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Per Share Data)

Note 5. Stock Options (Continued)

The Company’s management estimated fair values of the 2007 stock options using the Black-Scholes options-pricing model using the following weighted-average assumptions, expected volatility of 42%; expected dividend yield of 0.0%; weighted average risk-free rate of return of 4.5%; and expected lives of 5 years. Compensation expense related to stock options was $86, $8 and $36 for 2009, 2008 and 2007, respectively.

As of December 26, 2009, all stock option awards are vested. The intrinsic value of outstanding and vested options was $560 as of December 26, 2009. The intrinsic value of options exercised was $281 in 2009, $39 in 2008 and $168 in 2007.

Note 6. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

	Year Ended
	December 26,		December 27,		December 29,
	2009		2008		2007
Numerator, earnings attributable to
common stockholders	$	1,767	$	538	$	1,366

Denominator:
Basic-weighted average common
shares outstanding		2,101,102		2,022,758		2,010,449
Dilutive effect of employee stock options		103,112		183,413		194,563
Diluted outstanding shares		2,204,214		2,206,171		2,205,012

Basic earnings, per common share	$	0.84	$	0.27	$	0.68
Diluted earnings, per common share	$	0.80	$	0.24	$	0.62

Note 7. Related Party Transactions

During 2009, 2008 and 2007, compensation, fees, and expense reimbursements paid to directors or their affiliates totaled $435, $392 and $412, respectively.

F-18

Boss Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Per Share Data)

Note 8. Acquisitions

Canadawide Safety, Inc:

On May 18, 2007, Boss Canada Inc. (“Boss Canada”), an indirect subsidiary of Boss Holdings, Inc. (“BHI”), purchased all outstanding shares of privately held Navillus Group Inc., an Ontario corporation. Through its wholly owned subsidiary, Canadawide Safety Inc. (“Canadawide”), the acquired company imports and distributes safety goods and industrial work wear, including gloves, protective eyewear, face and respiratory protection, as well as first aid and industrial supplies. Immediately following the closing, Canadawide and Navillus Group Inc. were merged with Canadawide as the surviving entity.

The base purchase price was $400 Canadian dollars (approximately US$364), with $350 Canadian dollars due on closing and $50 Canadian dollars due on May 18, 2008. Boss Canada utilized a term loan of $400 Canadian dollars provided through the Canadian branch of BHI’s primary lender to acquire the shares and pay down $50 Canadian dollars of assumed debt. At the same time, Boss Canada entered into a $100 Canadian dollars line of credit for working capital requirements.

This transaction was accounted for using purchase accounting and has been included in the Company’s operations since the date of acquisition. The estimated allocation of purchase price is as follows in US dollars:

Aquisition cost:
Base purchase price	$	364
Closing Costs		19
Total	$	383

Allocation of purchase cost:
Current assets	$	216
Property and equipment		14
Customer lists		100
Goodwill		255
Accounts payable and accured expenses		(202	)
		383
Less Acquisition indebtedness		46
	$	337

Dipcraft Balloon Company:

In November of 2007 Galaxy Balloons acquired certain assets of Dipcraft Balloon Company for a total cash consideration of $350. Fixed assets accounted for $7 of the purchase with the remaining $343 assigned to customer list.

F-19

Boss Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Per Share Data)

Note 8. Acquisitions (Continued)

AGA:

In November of 2009, Galaxy Balloons acquired certain assets of AGA Balloons for a total cash consideration of $406. Inventory accounted for $18 of the purchase, fixed assets accounted for $88, customer list accounted for $250 and non-compete accounted for the remaining $50. $388 of the purchase was paid in cash with the remaining balance of $18 to be paid in 2010.

Note 9. Goodwill and Intangible Assets

In connection with its purchases of Galaxy during 2004, Head-Lite, LLC., during 2005, and Canadawide during 2007, the Company recorded goodwill of $3,666. Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of the business acquired. The Company does not amortize the goodwill associated with these acquisitions since it has an indefinite life. Instead, management tests goodwill for impairment in the fourth quarter of each year, or if certain circumstances indicate the existence of a possible impairment. Management’s impairment test considers the carrying value of the reporting unit for each acquisition, including goodwill, in relation to its fair value based upon earnings generated. Expected earnings are calculated based on a discounted cash flow methodology. The determination of the reporting units is based on the Company’s organizational structure and the financial information that is provided to and reviewed by management. The affected reporting units are the Galaxy, BMC and Boss Canada divisions for the Galaxy, Head-Lite and Canadawide acquisitions, respectively.

The Company’s goodwill impairment evaluation as of December 27, 2008 indicated that the goodwill for the Galaxy acquisition was not impaired, while the goodwill for Head-Lite LLC and Canadawide was found to be impaired. When the carrying value of the net assets assigned to a reporting unit exceeds the fair value of a reporting unit, a second step of the impairment test is performed to determine the implied fair value of a reporting unit’s goodwill. This step requires valuation of a reporting unit’s tangible and intangible assets, and liabilities in a manner similar to the allocation of purchase price in a business combination. Based on that step, management concluded that, no fair value remains for the goodwill of the Head-Lite, LLC. and the Canadawide acquisitions. Therefore, goodwill impairment losses of $527 and $230 were recognized during 2008 in the work gloves and protective wear segment. These expenses have been recorded in the asset impairment loss on the consolidated statements of income. After the impairment losses, $2,853 in goodwill remained at year-end 2008 related to the Galaxy acquisition.

In 2008, the Company determined that an impairment evaluation was also required for Head-Lite’s patent, based on a sharp decline in an historical downward trend of sales for the Head-Lite product line. The impairment analysis performed as of December 27, 2008 indicated that the patent was fully impaired, resulting in an impairment loss of $35. This expense was also recorded in the asset impairment loss on the consolidated statements of income.

The Company’s goodwill impairment evaluation as of December 26, 2009 indicated that the goodwill for the Galaxy acquisition was not impaired.

The Company’s evaluations used significant assumptions by reporting unit, which is a company division, including: expected future revenue and expense growth rates, cost of capital, discount rate and forecasted capital expenditures.

F-20

Boss Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Per Share Data)

Note 9. Goodwill and Intangible Assets (Continued)

The projections for the Company’s goodwill impairment evaluation as of December 26, 2009 assume a decline in operating income in 2010 followed by a slow recovery based on the general economic downturn and expectations of the economic recovery. Assumptions and estimates about future cash flows and discount rates are complex and may be subjective. They can be affected by a variety of external and internal factors. Management believes the assumptions and estimates made in these evaluations were reasonable and appropriate, however, different assumptions and estimates could materially impact the projected earnings.

Note 10. Income Taxes

The Company records income taxes based on its consolidated tax return. Current and deferred federal and state tax expense (benefit) is as follows:

	Year Ended
	December 26,			December 27,			December 29,
	2009			2008			2007
Current income tax expense:
Federal	$	96		$	25		$	39
State and local		109			92			100
		205			117			139
Deferred income tax expense (benefit):
Federal		(159	)		435			759
State and local		1			(21	)		13
		(158	)		414			772
Total income tax expense	$	47		$	531		$	911

Income taxes recorded by the Company differ from the amounts computed by applying the statutory U.S. federal income tax rate to net earnings before income taxes. The following schedule reconciles income tax expense (benefit) at the statutory rate and the actual income tax expense as reflected in the consolidated statements of income for the respective periods:

	Year Ended
	December 26,			December 27,		December 29,
	2009			2008		2007
Income tax expense computed
at the U.S. corporate tax rate of 34%	$	617		$	364	$	774
Adjustments attributable to:
State income taxes, net of the federal benefit		73			53		114
Change In deferred tax asset valuation allowance		(750	)		-		-
Effect of foreign operations		100			86		-
Other		7			28		23
Total income tax expense (benefit)	$	47		$	531	$	911

F-21

Boss Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Per Share Data)

Note 10. Income Taxes (Continued)

The temporary differences result in a net deferred income tax asset that is reduced by a related valuation allowance, summarized as follows:

	December 26,		December 27,
	2009		2008
Deferred income tax assets:
Operating loss carryforwards	$	7,644	$	8,258
Accounts receivable		127		111
Accruals		144		133
Compensation related		360		388
Inventories		367		440
Intangibles		167		152
Tax credit carryforwards		495		467
Gross deferred tax assets		9,304		9,949
Deferred tax asset valuation allowance		5,750		6,500
Net deferred tax assets		3,554		3,449

Deferred income tax liabilities:
Intangibles		-		-
Property and equipment		187		230
		187		230
Net deferred income tax assets	$	3,367	$	3,219

Included in the tax credit carryforward is approximately $440 of alternative minimum tax credits which may be carried forward indefinitely and $55 of general business credits which expire in 2011. These credits are available to reduce future income taxes payable.

F-22

Boss Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Per Share Data)

Note 10. Income Taxes (Continued)

Because of losses in prior years, the Company has available, for U.S. income tax purposes, NOL carryforwards of approximately $22,483. During the fourth quarter of 2009, the Company reevaluated its estimates and, based upon its current and projected profitability determined that it was more likely than not that it would be able to utilize an additional $2,206 of its remaining NOL carryforwards. Accordingly, at the end of 2009 the Company reduced its valuation allowance and recognized a $750 tax benefit. As of December 26, 2009, the Company had operating loss carryforwards for U.S. income tax purposes of $22,483 available to reduce future taxable income through the following years:

Year of expiration:
2011	$	11,818
2012		9,197
Thereafter		1,468
	$	22,483

As of December 26, 2009, the Company had operating loss carryforwards for Canadian income tax purposes of approximately $639. The operating losses are available to reduce future taxable income through the following years:

Year of expiration:
2014	$	26
2015		1
Thereafter		612
	$	639

F-23

Boss Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Per Share Data)

Note 10. Income Taxes (Continued)

On December 31, 2006, the Company adopted FASB guidance related to, Accounting for Uncertainty in Income Taxes. This guidance clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s financial statements. The guidance also prescribes a recognition threshold of more- likely- than- not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the financial statements. The adoption had no impact on the Company’s consolidated financial statements.

As of December 26, 2009 the remaining amount of the reserve related to uncertain tax positions was $15. During 2009, approximately $1 was utilized for settlements with state taxing authorities. The Company is generally no longer subject to state, local and foreign income tax examinations by tax authorities for years prior to 2005, and no longer subject to U.S. federal income tax examinations for years prior to 2006. The Company recognizes interest and penalties related to income tax matters in the provision for income taxes. All unrecognized tax benefits, if recognized, would affect the effective tax rate. The liability for unrecognized tax benefits includes accrued interest for tax positions, which either do not meet the more - likely- than- not recognition threshold or where the tax benefit is measured at an amount less than the tax benefit claimed or expected to be claimed on an income tax return.

Note 11. Comprehensive Income (Loss)

FASB ASC Topic 220 , establishes standards for reporting and display of comprehensive income (loss) and its components in a full set of general-purpose financial statements. The guidance requires that all items required to be recognized under accounting standards as components of comprehensive income must be disclosed in the financial statements.

Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events from non-owner sources. Comprehensive income (loss) is the total of net income and other comprehensive income (loss), which for the Company is comprised of foreign currency items and the unrealized gains and losses on the interest rate swap agreements, net of income taxes. Accumulated other comprehensive income (loss) consists of the following:

	Year Ended
	December 26,			December 27,			December 29,
	2009			2008			2007
Foreign currency items:
Beginning balance	$	(21	)	$	244		$	25
Current period change		114			(265	)		219
Ending balance		93			(21	)		244

Interest swap agreements, net of income taxes:
Beginning balance		(28	)		(1	)		27
Current period change		15			(27	)		(28	)
Ending balance		(13	)		(28	)		(1	)
Accumulated other comprehensive income (loss)	$	80		$	(49	)	$	243

F-24

Boss Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Per Share Data)

Note 12. Operating Segments and Related Information

The Company operates in three business segments. In the work gloves and protective wear segment, through its Boss Manufacturing Company subsidiary, the Company imports, markets and distributes gloves, boots, rainwear and specialty lighting products. The Company conducts operations in the pet supplies segment through Boss Pet Products, Inc. In this segment, the Company imports and markets a line of pet supplies including dog and cat toys, collars, leads, chains and rawhide products. Through its Galaxy Balloons subsidiary, the Company provides specialty imprinted balloons, inflatable products and other goods included in the promotional items and specialty products segment.

The following table provides summarized information concerning the Company’s reportable segments. In this table, the Company’s corporate operations are grouped into a miscellaneous column entitled, “Corporate and Other.”

		Work
		Gloves and				Promotional
		Protective		Pet		and Specialty		Corporate
		Wear		Supplies		Products		and Other			Total
2009
	Revenue	$	31,356	$	7,817	$	9,784	$	-		$	48,957
	Operating income (loss)		1,307		818		1,003		(1,207	)		1,921
	Goodwill		-		-		2,853		-			2,853
	Total assets		25,310		5,581		6,192		3,339			40,422
	Capital expenditures		182		18		114		-			314
	Depreciation		298		17		163		-			478
	Amortization		55		6		101		-			162

2008
	Revenue	$	38,283	$	6,525	$	10,924	$	-		$	55,732
	Operating income (loss)		507		459		1,148		(897	)		1,217
	Goodwill		-		-		2,853		-			2,853
	Impairment charges		792		-		-		-			792
	Total assets		25,907		3,257		6,108		3,156			38,428
	Capital expenditures		227		21		132		-			380
	Depreciation		305		40		146		-			491
	Amortization		65		7		91		-			163

	2007
	Revenue		37,689		6,693		10,815		-			55,197
	Operating income (loss)		1,502		635		1,228		(1,005	)		2,360
	Goodwill		813		-		2,853		-			3,666
	Total assets		26,203		3,013		6,087		3,684			38,987
	Capital expenditures		143		118		82		-			343
	Depreciation		322		33		137		-			492
	Amortization		5		-		37		-			42

F-25

Boss Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Per Share Data)

Note 13. Quarterly Consolidated Financial Information (Unaudited)

The following is a summary of the unaudited quarterly results for fiscal 2009 and 2008:

		First			Second			Third		Fourth
		Quarter			Quarter			Quarter		Quarter			Total
2009
	Net sales	$	11,582		$	10,890		$	12,258	$	14,227		$	48,957
	Gross profit		2,723			2,505			3,309		4,329			12,866
	Net income (loss)		(51	)		(315	)		661		1,472			1,767

	Net earnings (loss), per
	common share:
	Basic	$	(0.02	)	$	(0.15	)	$	0.31	$	0.70		$	0.84
	Diluted	$	(0.02	)	$	(0.14	)	$	0.30	$	0.66		$	0.80

	Denominator for net
	earnings (loss), per
	common share:
	Basic		2,056,267			2,116,047			2,116,047		2,116,047			2,101,102
	Diluted		2,056,267			2,210,159			2,207,591		2,213,572			2,204,214

2008
	Net sales	$	13,355		$	13,286		$	14,070	$	15,021		$	55,732
	Gross profit		2,987			3,096			3,679		4,009			13,771
	Net income (loss)		(10	)		125			438		(15	)		538

	Net earnings (loss), per
	common share:
	Basic	$	(0.00	)	$	0.06		$	0.22	$	(0.01	)	$	0.27
	Diluted	$	(0.00	)	$	0.06		$	0.20	$	0.00		$	0.24

	Denominator for net
	earnings (loss), per
	common share:
	Basic		2,018,345			2,018,345			2,018,345		2,036,047			2,022,758
	Diluted		2,018,345			2,215,559			2,196,892		2,188,257			2,206,171

During the fourth quarter of 2008 in the work gloves and protective wear segment, the Company recorded $173 valuation write-off of an office building donated to a local charity, $757 goodwill impairment loss associated with the purchase of Head-Lite and Canadawide Safety and a $35 patent impairment loss associated with Head-Lite. During the fourth quarter of 2009, the Company reduced its valuation allowance on deferred taxes and recognized a $750 tax benefit.

F-26

Boss Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in Thousands, Except Per Share Data)

Boss Holdings, Inc. and Subsidiaries

Schedule II - Valuation and Qualifying Accounts

(Dollars in Thousands)

			Additions
			Charged to			Charged
			Costs and			to Other
	Beginning		Expenses			Accounts		Deductions			Ending
Year ended December 26, 2009:
Accounts receivable	$	240	$	33		$	169	$	162	(a)		280
Inventories		565		125			173		356	(b)		507
Deferred income tax asset		6,500		(750	)		214		214			5,750
Sales allowance		991		2,859			-		2,960	(b)		890
Total allowances deducted
from assets	$	8,296	$	2,267		$	556	$	3,692		$	7,427

Year ended December 27, 2008:
Accounts receivable	$	225	$	96		$	-	$	81	(a)		240
Inventories		736		90			33		294	(b)		565
Deferred income tax asset		6,500		-			163		163			6,500
Sales allowance		556		2,732			-		2,297	(b)		991
Total allowances deducted
from assets	$	8,017	$	2,918		$	196	$	2,835		$	8,296

Year ended December 29, 2007:
Accounts receivable	$	221	$	65		$	-	$	61	(a)		225
Inventories		842		267			-		373	(b)		736
Deferred income tax asset		6,500		-			-		-			6,500
Sales allowance		627		1,620			-		1,691	(b)		556
Total allowances deducted
from assets	$	8,190	$	1,952		$	-	$	2,125		$	8,017

Notes:
(a) Write off of uncollectible accounts.
(b) Payments/credit write-offs, etc.

F-27