Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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)
(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
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.
2
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.
3
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.
4
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.
5
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.
6
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.
7
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.
8
- 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.
9
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.
10
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.
11
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.
12
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.
13
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 1st 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.
14
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.
15
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.
16
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.
17
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.
18
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.
19
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.
20
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. | |||||
21
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 | ||
22
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) | |
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| 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. | |
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