BOSS HOLDINGS INC - FORM 10-Q - November 10, 2009

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EX-32 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER - BOSS HOLDINGS INCexhibit32.htm
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 - BOSS HOLDINGS INCexhibit31-2.htm
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 - BOSS HOLDINGS INCexhibit31-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

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

 For the quarterly period ended                       September 26, 2009
 Commission File No.  0-23204

BOSS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

Delaware  58-1972066 
(State or other jurisdiction of  (IRS Employer 
incorporation or organization)  Identification No.) 

1221 Page Street
Kewanee, Illinois 61443
(Address of principal executive offices)

(309) 852-2131
(Issuer's telephone number)

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 website, if any, every Interactive Data File required to 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).  X  Yes    __ No

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

Large accelerated filer [   ]           Accelerated filer [   ]

Non-accelerated filer [   ]           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 

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date.

Class  Outstanding at October 27, 2009
Common Stock, $.25 par value  2,116,047  

Boss Holdings, Inc. and Subsidiaries

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

September 26, December 27,
2009 2008
Assets (Unaudited)         
Current Assets:
       Cash and cash equivalents $       5,641 $       803
       Accounts receivable, net 7,537 8,256
       Inventories  15,367 18,929
       Deferred tax asset 1,141 1,141
       Prepaid expenses and other 393 523
                     Total current assets 30,079 29,652
 
Property and Equipment, net 3,174 3,340
 
Other assets 194 48
Intangibles, net of amortization 308 457
Goodwill 2,853 2,853
Deferred tax asset 1,732 2,078
  $ 38,340 $ 38,428
 
Liabilities and Stockholders' Equity
Current Liabilities:
       Current portion of long-term obligations $ 1,136   $ 496
       Accounts payable 1,839   1,860
       Accrued payroll and related expenses   871   1,123
       Accrued promotional expenses 898 991
       Other accrued liabilities 540 495
                     Total current liabilities 5,284 4,965
 
Long-Term Obligations, net of current portion 605 1,607
 
Deferred Compensation 202 146
 
Stockholders' Equity:
       Common stock, $.25 par value; authorized 10,000,000 shares; 529 509
              issued and outstanding 2,116,047 and 2,036,047 shares
              in 2009 and 2008, respectively
       Additional paid-in capital 66,645 66,521
       Accumulated (deficit) (34,975 ) (35,271 )
       Accumulated other comprehensive income (loss) 50 (49 )
                     Total stockholders' equity 32,249 31,710
  $ 38,340 $ 38,428

The accompanying notes are an integral part of these statements.

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Boss Holdings, Inc. and Subsidiaries

Consolidated Statements of Operations
(Dollars in Thousands, Except Per Share Data)
(Unaudited)

Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 26, September 27, September 26, September 27,
2009        2008        2009        2008
Net sales $       12,258 $       14,070 $       34,729 $       40,711
 
Cost of sales  8,949 10,391 26,192 30,951
 
              Gross profit   3,309 3,679 8,537 9,760
 
Operating expenses 2,599 2,891 7,685 8,640
 
              Operating income 710 788 852 1,120
 
Other income (expense):      
       Interest income 5 7 14 36
       Interest expense (68 ) (77 )   (201 ) (229 )
       Other 40 1 40 4
  (23 )   (69 ) (147 )   (189 )
 
              Income before income tax 687 719   705 931
 
Income tax expense 26 280 409 378
              Net income $ 661 $ 439 $ 296 $ 553
 
Comprehensive income $ 710 $ 403 $ 395 $ 465
 
Weighted average shares outstanding 2,116,047 2,018,345 2,096,120 2,018,345
 
Basic earnings per common share $ 0.31 $ 0.22 $ 0.14 $ 0.27
 
Diluted earnings per common share $ 0.30 $ 0.20 $ 0.13 $ 0.25  

The accompanying notes are an integral part of these statements.

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Boss Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)

Nine Months Nine Months
Ended Ended
September 26,        September 27
2009 2008
Cash Flows from Operating Activities:
       Net income $       296 $       553
       Adjustments to reconcile net income to net cash
              provided by (used in) operating activities:
              Depreciation and amortization 454 491
              Stock based compensation 4 6
              Deferred tax expense 339 267
              Changes in assets and liabilities:
                     (Increase) decrease in:
                            Accounts receivable 765   207
                            Inventories   3,663   (2,931 )
                            Prepaid expenses and other current assets 132 173  
                            Other assets (61 ) 115
                     Increase (decrease) in:  
                            Accounts payable (177 ) 65
                            Accrued liabilities (253 ) (117 )
                                   Net cash provided by (used in) operating activities 5,162 (1,171 )
 
Cash Flows from Investing Activities:
       Purchases of property and equipment (200 ) (333 )
                                   Net cash (used in) investing activities (200 ) (333 )
 
Cash Flows from Financing Activities:
       (Repayment) on revolving line of credit (23 ) -
       (Repayment) on long-term obligation (374 ) (368 )
       Proceeds from exercise of stock options 140 -
                                   Net cash (used in) financing activities (257 ) (368 )
 
       Effect of exchange rates on cash and cash equivalents 133 (254 )
 
                                   Increase (decrease) in cash and cash equivalents 4,838 (2,126 )
 
Cash and cash equivalents:
       Beginning of period 803 2,557
       End of period $ 5,641 $ 431  

The accompanying notes are an integral part of these statements.

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Note 1. Basis of Presentation

     The consolidated financial statements included in this report have been prepared by Boss Holdings, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting and include all normal and recurring adjustments which are, in the opinion of management, necessary for a fair presentation. These financial statements have not been audited by an independent accountant. The consolidated financial statements include the accounts of the Company and its subsidiaries.

     Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations for interim reporting. The Company believes that the disclosures are adequate to prevent the information from being misleading. However, these financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K and 10-K/A, for the year ended December 27, 2008. The financial data for the interim periods presented may not necessarily reflect the results to be anticipated for the complete year.

Note 2. Earnings Per Share

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

Three Months Nine Months
Ended (Unaudited) Ended (Unaudited)
($ in Thousands) September 26,        September 27,        September 26,        September 27,
2009 2008 2009 2008
Numerator for basic and diluted net earnings
       per common share, earnings
       attributable to common stockholders $       661 $       439 $       296 $       553
 
Denominator for basic net earnings
       per common share, weighted  
       average shares outstanding 2,116,047   2,018,345 2,096,120 2,018,345
Effect of dilutive securities,            
       employee stock options 91,544 178,547   104,974 193,620
              Denominator for diluted earnings  
              per common share 2,207,591 2,196,892 2,201,094 2,211,965
 
Basic earnings, per common share $ 0.31 $ 0.22 $ 0.14 $ 0.27
 
Diluted earnings, per common share $ 0.30 $ 0.20 $ 0.13 $ 0.25

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Note 3. Comprehensive Income

     Comprehensive income refers to revenues, expenses, gains and losses that are not included in net income but rather are recorded directly in stockholders’ equity, which for the Company is comprised of foreign currency translation adjustments and unrealized gains and losses on interest rate swap agreements. The following table summarizes the components of comprehensive income:

Three Months Nine Months
Ended (Unaudited) Ended (Unaudited)
($ in Thousands) September 26,   September 27, September 26, September 27,
2009        2008        2009        2008
Net income  $       661 $       439   $       296 $       553
Other comprehensive income        
       Foreign currency translation adjustments 45 (36 )   88 (81 )
       Unrealized gain (loss) on interest rate swap    
              agreements net of income taxes 4 - 11   (7 )
Total comprehensive income $ 710 $ 403 $ 395 $ 465  

Note 4. Fair Value Measurements

     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.

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

Carrying Amount Fair Value Measurements Using
in Consolidated
Balance Sheets Fair Value
September 26, 2009        September 26, 2009        Level 1        Level 2        Level 3
Marketable Securities (included in other assets) $      202   $      202   $      202 $      -   $      -
Interest rate swap liability $ (28 ) $ (28 ) $ - $ (28 ) $ -

     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.

Note 5. Operating Segments and Related Information

     The Company operates in the work gloves and protective wear segment through its Boss Manufacturing Company subsidiary, which imports, markets and distributes gloves, boots and rainwear products and hands-free lighting products. In addition, through Boss Pet 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 also markets custom imprinted balloons, balls and other primarily inflatable products.

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.”

(In Thousands) Work Gloves and Promotional and Corporate
Protective Wear Pet Supplies Specialty Products and Other Total
2009 2008 2009 2008 2009 2008 2009 2008 2009 2008
Quarter:                                             
       Revenue $   7,062 $   9,199 $   2,250 $   1,517 $   2,946 $   3,354 $    - $    -   $   12,258 $   14,070
       Operating income (loss) 292 411 153   125 514 571 (249 ) (319 ) 710 788
       Total assets   24,727 26,019   4,794 2,916   5,968 6,690 2,851 3,310 38,340 38,935
       Intangibles 41 904 - - 3,120 3,211 - - 3,161 4,115
 
Year-to-Date:
       Revenue $ 21,858 $ 27,646 $ 5,982 $ 5,006 $ 6,889 $ 8,059 $  - $  - $ 34,729 $ 40,711
       Operating income (loss) 361 740 583 379 728 780 (820 ) (779 ) 852 1,120

Note 6. Subsequent Events

     The Company has performed an evaluation of subsequent events through November 10, 2009, which is the date the financial statements were issued.

     On November 2, 2009, Galaxy Balloons purchased the balloon customer list, inventory, records, files and certain balloon manufacturing equipment of Ashland Graphic Arts, Inc. of Ashland, Ohio (“AGA”) pursuant to an Asset Purchase and Sale Agreement for a base purchase price of approximately $387,500. AGA manufactures, imprints, personalizes, markets and distributes a line of balloons and other inflatable products for the specialty advertising market.

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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

     Certain statements, other than statements of historical fact, included in this Quarterly Report including, without limitation, the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are, or may be deemed to be, forward-looking statements that involve significant risks and uncertainties, and accordingly, there is no assurance that these expectations will be correct. These expectations are based upon many assumptions that the registrant believes 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 and economic 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 the registrant’s products, pricing policies of competitors, the ability to attract and retain employees in key positions, trends in the advertising and specialties industry and uncertainties and changes in general economic conditions. The words “believe,” “expect”, “anticipate”, “should”, “could” and other expressions that indicate future events and trends identify forward-looking statements. All subsequent forward-looking statements attributable to the registrant or persons acting on its behalf are expressly qualified in their entirety.

Sales
Sales by Segment Quarter Year-to-Date
$(000) 2009 2008 2009 2008
 Work gloves and protective wear 7,062   9,199   21,858   27,646
 Pet supplies 2,250 1,517 5,982 5,006  
 Promotional & specialty products 2,946 3,354 6,889 8,059
 Total sales 12,258 14,070 34,729 40,711

     Total revenues for the three months ended September 26, 2009 decreased $1,812,000 or 12.9% from the comparable quarter in 2008 as the national and worldwide economic recession continued. The Company’s pet supplies segment was the only segment to equal or surpass last year’s third quarter revenues.

     Third quarter sales in the work gloves and protective wear segment were $2,137,000, or 23.2% below the comparable period in 2008. Industrial sales decreased $1,270,000 or 29.9% due to the decline in industrial activity in the United States. Decreased consumer spending has lead to a $661,000 decrease in the Consumer sales portion of this segment. CAT® branded product sales declined $123,000 as the weak economy affected the sales of premium products. Boss Canada sales declined $83,000 and were significantly adversely affected by manufacturing cutbacks in the auto industry in Canada.

     Boss Pet’s third quarter resulted in an increase in sales of $733,000 over the third quarter of 2008 as the pet supply segment continued 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 propriety 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 $408,000, or 12.2%, compared to the prior year. Promotional items 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.

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     Consolidated revenues for the nine months ended September 26, 2009, decreased $5,982,000 or 14.7% compared to the same period in 2008. The recession has had a major impact on both the work gloves and protective wear and promotional and specialty products segment which have experienced decreases in sales of 20.9% and 14.5% respectively. The pet supplies segment has increased sales 19.5% during the first nine months of 2009 with the addition of several new accounts, expanded sales to existing accounts and new product offerings.

Cost of Sales

Cost of Sales by Segment
$(000)		 Quarter Year-to-Date
2009 2008 2009 2008
$ % $ % $ % $ %
Work gloves and protective wear 5,322 75.4% 7,036 76.5% 16,966 77.6% 21,399 77.4%
Pet supplies 1,689 75.1% 1,184 78.0% 4,471 74.7% 3,957 79.0%
Promotional & specialty products 1,938 65.8% 2,171 64.7% 4,755 69.0% 5,595 69.4%
Total cost of sales 8,949 73.0% 10,391 73.9% 26,192 75.4% 30,951 76.0%

     Cost of sales for the three months ended September 26, 2009 totaled $8,949,000, down $1,442,000 from the corresponding period of 2008, and represents a 13.9% reduction from the prior year. Cost of sales for the period declined with the reduction in sales volume and as a result of cost-cutting initiatives put in place at all three segments. Gross margin for the third quarter of 2009 increased slightly to 27.0% from 26.1% for the third quarter of 2008, but overall gross profit dollars have fallen $370,000 as a result of the volume loss compared to the third quarter of 2008.

     Gross margin dollars in the work glove and protective wear segment decreased $423,000 during the third quarter of 2009 compared to the third quarter of 2008. This decrease was related to the volume decline and was partially offset by cost reduction from reduced labor, freight and warehouse expenses.

     The pet products segment increased its gross margin to $561,000 for the third quarter of 2009. This was $228,000 above the third quarter of 2008 and was caused by the increase in volume and improved pricing from vendors.

     Gross margin for the promotional and specialty products segment declined $175,000 to $1,008,000 for the third quarter of 2009 compared to the third quarter of 2008. Cost savings at the factory/warehouse offset a portion of the margin loss created by the 12.2% reduction in the sales volume during the third quarter of 2009.

     As a result of reduced volume and cost savings, cost of sales for the nine months ended September 26, 2009 decreased $4,759,000 from the same period in 2008. Cost savings from vendors, freight rates and warehouse expenses were enough to increase the gross margin percentage to 24.6% from 24.0%, but not enough to offset the total gross margin dollar loss from volume of $1,223,000.

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Operating Expenses
Operating Expenses
by Segment $(000)		 Quarter Year-to-Date
2009 2008 2009 2008
$ % $ % $ % $ %
Work gloves and protective wear 1,448 20.5% 1,752 19.0% 4,531 20.7% 5,507 19.9%
Pet supplies 408 18.1% 208 13.7% 928 15.5% 670 13.4%
Promotional & specialty products 494 16.8% 612 18.2% 1,406 20.4% 1,684 20.9%
Corporate and other 249 - 319 - 820 - 779 -
Total operating expenses 2,599 21.2% 2,891 20.5% 7,685 22.1% 8,640 21.2%

     Operating expenses during the third quarter of 2009 decreased $292,000 compared to the corresponding period in 2008. Cost reductions in salaries, benefits and commissions, along with expense controls put in place in all areas account for the expense savings at work gloves and protective wear and promotional and specialty products. Pet supplies operating expenses have increased from salaries, commissions, trade shows and travel, all a result of the increase in sales activity.

     For the nine month period ended September 26, 2009, consolidated operating expenses have decreased $955,000 compared to the same nine month period in 2008. Cost savings programs put in place during the first quarter to bring spending in line with sales activity at the work gloves and protective wear and promotional and specialty products segments have generated a reduction for the first nine months of 2009 of $1,254,000. Pet supplies operating expenses have increased as a result of having a full administrative staff and costs related to the increased sales volume. Corporate expenses have increased in legal and consulting costs.

Earnings (Loss) From Operations
Operating Income (Loss)
by Segment $(000)		 Quarter Year-to-Date
2009 2008 2009 2008
$ % $ % $ % $ %
Work gloves and protective wear 292 4.1% 411 4.5% 361 1.7% 740 2.7%
Pet supplies 153 6.8% 125 8.2% 583 9.7% 379 7.6%
Promotional & specialty products 514 17.4% 571 17.0% 728 10.6% 780 9.7%
Corporate and other (249) - (319) - (820) - (779) -
Total operating income 710 5.8% 788 5.6% 852 2.5% 1,120 2.8%

     On a consolidated basis, the Company generated $710,000 in operating income during the third quarter of 2009, compared to $788,000 of operating income for the same period in 2008. Cost reductions and expense savings initiatives help to offset a 12.9% decline in revenue during the third quarter of 2009.

     On a year-to-date basis the Company generated income from operations of $852,000 through September 26, 2009, compared to $1,120,000 for the comparable period in 2008. Earning reductions created by the 14.7% reduction in sales volume has been partially offset by cost savings.

Other Income and (Expense)

     The Company incurred $68,000 in interest expense during the third quarter of 2009, a decrease of $9,000 from the third quarter of 2008. Interest income for the third quarter of 2009 was $5,000, down $2,000 from the third quarter of 2008. Because bank interest rates have fallen, interest earned on overnight investments is down substantially compared to last year. For the nine months ended September 26, 2009 interest expense was $201,000 compared to $229,000 for the same period last year.

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Taxes

     In the third quarter of 2009, the Company recorded an income tax expense of $268,000 based on current federal and estimated state income tax rates. During the third quarter management reevaluated its profitability trends. Based upon its current and projected profitability management determined that it would more likely than not be able to utilize more of the NOL available then previously projected. Based on this conclusion, the Company decreased the valuation allowance and recognized a $242,000 tax benefit.

     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. Shareholders and other users of the Company’s financial statements should carefully consider the effect of non-cash tax entries (such as adjustments to the deferred tax assets) when comparing current results with past or future financial statements of the Company.

Current Trends

     The current ongoing downturn in the national and world economies has caused the Company to consider cost reductions in all aspects of its operations in order to offset lost revenue. Total sales for the nine months of 2009 were down by 14.7% compared with the prior year (20.9% in the work gloves, boots and rainwear segment). Industrial sales of work gloves, boots and rainwear are being especially adversely affected by the ongoing recession, down over 27.4% year-to-date. Based on disruption in the U.S. automobile manufacturing sector and related industrial businesses including the restructuring of the Chrysler Corporation and General Motors, management anticipates that a portion of the Company’s industrial sales base is not likely to regenerate even if the economy rebounds. The Company already has reduced its work force, both in warehousing and office staff. Inventory has been reduced and capital expenditures are being closely evaluated. Management will continue to closely monitor operating costs and attempt to keep them in line with current and projected revenues.

Liquidity and Capital Resources

     Operating activities provided $5,162,000 in cash during the nine months ended September 26, 2009, compared to $1,171,000 used in 2008. This favorable cash performance in 2009 was attributable to reduced inventory in the work gloves, boots and rainwear segment and accounts receivable, which was partially offset by decreases in payables and accrued liabilities. Inventory levels are being reduced to correspond with current sales projections. The reduction in accounts receivable is a result of the 14.7% decline in sales during the nine months.

     Investing activities used $200,000 during the nine months ended September 26, 2009, compared to $333,000 during the comparable period in 2008. Approximately $163,000 was spent on a new shipping software system at the work gloves and protective wear segment. The remaining amount was spent on material handling equipment at the pet supply segment and technology improvements at the promotional and specialty products segment. There are no additional capital expenditures planned for the rest of the year.

     Financing activities used $257,000 during the nine months ended September 26, 2009. Pay down of long-term debt used $374,000 and Boss Canada used $23,000 for repayment on their revolving line of credit. These amounts were partially offset by proceeds from exercised stock options of $140,000. As of September 26, 2009 there were outstanding options for 231,000 shares of the Company’s common stock. There are currently no borrowings against the Company’s primary line of credit.

     At September 26, 2009 the Company had $5,641,000 in cash with zero borrowings against its $7,000,000 revolving line of credit. The Company was in compliance with its credit facility loan covenants as of September 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.

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Corporate Transactions

     On August 26, 2009, the Company announced that its Board of Directors had approved a plan to deregister the Company’s common stock under the Securities Exchange Act of 1934, as amended, and as a result thereof, terminate its periodic reporting obligations with the Securities and Exchange Commission. The proposed plan is expected to permit the Company to forgo many of the expenses associated with operating as a public company, including the substantial costs associated with the compliance and auditing requirements of the Sarbanes-Oxley Act of 2002.

     The deregistration will be accomplished by a reverse 1:100 stock split of the Company’s common shares. All shareholders owning fewer than 100 shares prior to the reverse stock split would be cashed out by the Company at a price of $7.65 per pre-split share. The reverse split will be followed immediately by a 100:1 forward split of the Company’s common shares, which will return all shareholders owning more than 100 shares to the same number of shares they owned prior to the reverse and forward split transactions. If, after completion of the reverse and forward stock splits, the Company has fewer than 300 shareholders of record, the Company intends to terminate the registration of its common stock under the Securities Exchange Act of 1934, as amended. If that occurs, the Company will be relieved of its requirements to comply with the Sarbanes-Oxley Act of 2002 and to file periodic reports with the SEC, including annual reports on Form 10-K and quarterly reports on Form 10-Q.

     The Company’s Board of Directors received a fairness opinion from an independent financial advisor, TM Capital Corp., which provides that the price of $7.65 per share on a pre-split basis to be received by shareholders owning less than 100 shares is fair to such holders from a financial point of view. All shareholders will have a chance to vote on the proposed transaction pursuant to proxy materials which will be filed by the Company with the SEC. The Company will file a preliminary proxy statement and Schedule 13E-3 with the SEC outlining the plan.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

     The Company has minimal exposure to market risks such as changes in foreign currency exchange rates and interest rates. The value of the Company’s financial instruments is generally not materially impacted by changes in interest rates. The Company has entered into two interest rate swap agreements. The first effectively fixes at 5.83% the interest rate on its mortgage note with a current value of approximately $706,000 related to Kewanee warehouse facilities. The second swap fixes at 6.32% the rate on approximately $479,000 of the Company’s term loan related to the Galaxy acquisition. Fluctuations in interest rates are not expected to have a material impact on the interest expense incurred under the Company’s revolving credit facility.

Item 4T. CONTROLS AND PROCEDURES

     As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. --OTHER INFORMATION

Item 1. Legal Proceedings

     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 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 or liquidity.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

     Not applicable.

Item 3. Defaults Upon Senior Securities

     Not applicable.

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

     Not applicable.

Item 5. Other Information

     Not applicable.

Item 6. Exhibits

     (a) Exhibits

           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.

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SIGNATURES

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

BOSS HOLDINGS, INC. 
 
 
Dated:  November 10, 2009 By: /s/ Steven G. Pont
Steven G. Pont 
  Vice President of Finance 
(Principal financial officer) 

15

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