UNITED
STATESSECURITIES AND EXCHANGE
COMMISSIONWASHINGTON, D.C. 20549FORM 10-K

[ X
      ]
    ANNUAL
      REPORT PURSUANT TO SECTION 13 OR15(d) OF
      THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 27, 2008or[   ]
    TRANSITION
      REPORT PURSUANT TO SECTION 13 OR15(d) OF
      THE SECURITIES EXCHANGE ACT OF 1934For the transition period
      from to


Commission File Number0-23204

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

|Delaware                                       | 58-1972066            
|---------------------------------------------- | ----------------------
|(State or
      Other Jurisdiction of          | (I.R.S.
      Employer
|Incorporation or Organization)                 | Identification No.)   
|                                              
|1221 Page Street, Kewanee, Illinois            | 61443                 
|(Address
      of Principal Executive Offices) | (Zip
      Code)      

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

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

SECURITIES REGISTERED PURSUANT TO
SECTION 12(g) OF THE ACT:Title of ClassCommon 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 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 28, 2008 was approximately $5,535,761.

There were 2,176,047 shares of the Registrants common stock outstanding
as ofMarch 15, 2009.

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DOCUMENTS INCORPORATED BY
REFERENCE

Specified portions of the registrants definitive proxy statement for its
2009 Annual Meeting of Stockholders are incorporated by reference in Part III
hereof.

FORWARD LOOKING STATEMENTS OR
INFORMATION

Certain statements, other than statements of historical fact, included in
this Annual Report, including, without limitation, the statements under Current
Developments, Business and 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 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 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. 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.

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 a Canadian safety products supplier in May, 2007 and
a small balloon supplier for its promotional products segment in November,
2007.

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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 53% of BMC domestic gross product sales
and consists of retailers ranging from convenience stores to mass merchandisers
as well as hardware and grocery stores. The industrial market, which accounts
for the balance of sales in this segment, includes various commercial users of
gloves and protective wear. These end-users include companies in the
agricultural, automotive, energy, lumber, mining and construction industries.

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

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

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

BMC
sells to a broad customer base approximating three thousand active accounts.
Accordingly, BMC has relatively little dependence on any one customer. At the
end of 2008, BMC had an open order backlog of approximately $1,444,000 up about
$310,000 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 cost to import
many of the goods in this segment increased during 2008, particularly leather
products and goods made from oil based fabrics, (such as PVC and nylon), which
fluctuated with oil prices. Latex prices increased during the year causing the
cost of latex gloves and boots to increase. The strengthening of the Chinese
currency against the U.S. dollar and labor shortages in some areas of China have
resulted in cost pressure on all products imported from China. 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 2009.

3

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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 have
steadily increased since their introduction in 2003, with total sales of
$2,940,000 in 2008, representing 7% of domestic sales in the work gloves and
protective wear segment for the year. 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.

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

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

Promotional and Specialty
Products

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

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

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The
promotional products industry is comprised of over 22,000 registered
distributors serving a $19 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 expanded its product line to include Christmas ornaments, candles and
other products that sell well during the fourth quarter.

In
November of 2007, Galaxy acquired certain assets of Dipcraft Manufacturing
Company, a direct competitor operating in the promotional products industry.
Dipcraft, headquartered in Pittsburgh, PA., had been in the manufacturing and
balloon printing business since 1946. Dipcrafts production and printing
equipment have been consolidated into Galaxy Balloons state-of-the-art facility
in Lakewood, OH.

Due
to its broad customer base, Galaxy has little dependence on any one customer. In
2008, Galaxys largest customer accounted for only 4% 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
2008,Galaxy
expanded its sport line of products to include a wider array of foamsport 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 addition, Galaxy is introducing
the revolutionary new Magical Balloon which is an ink-jettable balloon that
will allow consumers to print any image, photograph or message on a balloon by
simply running it through their ink jet printer.

5

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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 the Prestige brand name. In
addition, Boss Pet sells products to discount retailers under various 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 2008 or 2007.

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 39% and 20% of sales in
this segment during 2008.

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.

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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 27, 2008, Boss employed 223 full-time associates, down 18 from the
previous year due to the lower employment levels at the Boss Manufacturing
Company distribution center and Galaxy. The Company employed no union employees
at the end of 2008. Approximately 212 associates were located in the United
States with 11 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.

Available
Information

Information concerning the Company and its products can be obtained from
its primary internet website atwww.bossgloves.com. The Companys
public financial reports and insider trading reports 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.comandwww.bosspet.com.

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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, 2009. 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      | $          | 14,300        
|Canada        |            |                                               |            |            |               
|Illinois      | Kewanee    | Distribution                                  | 147,000    | $          | 0             
|Illinois      | Kewanee    | Distribution & Administration                 | 70,000     | $          | 0             
|Illinois      | Kewanee    | Distribution                                  | 19,000     | $          | 0             
|Illinois      | Galesburg  | Distribution                                  | 30,000     | $          | 85,500        
|Ontario,      | Concord    | Distribution & Administration                 | 11,150     | $          | 68,000        
|Canada        |            |                                               |            |            |               
|Ohio          | Lakewood   | Printing, Distribution &
      Administration | 108,000    | $          | 185,000       
|Ohio          | Maple Hts. | Manufacturing, Distribution & Admin          | 50,000     | $          | 151,000       
|              |            | 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.

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

The
Company submitted no matters for security holder voting during the fourth
quarter of 2008.

PART II

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

The
Companys common stock (symbol: BSHI) currently is quoted on the
Over-the-Counter (OTC) Bulletin Board. 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 the National Quotation Bureau
that also report on transactions in non-listed equity securities. OTC Bulletin
Board quotations reflect interdealer prices, without retail mark-up, mark-down
or commission and may not represent actual transactions.

Stockholders of record at December 27, 2008 numbered approximately 1,420.
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.

Quarterly Stock
Prices

|                     | First   | Second  | Third   | Fourth 
|-------------------- | ------- | ------- | ------- | -------
|                     | Quarter | Quarter | Quarter | Quarter
|2008  High bid      | $8.90   | $8.35   | $7.03   | $6.47  
|2008  Low
      bid | $8.00   | $7.10   | $6.10   | $5.00  
|2007 High
      bid | $7.50   | $8.00   | $8.48   | $8.98  
|2007  Low bid       | $6.05   | $7.07   | $7.17   | $7.35  

There were no repurchases of common
stock during the three months ended December 27, 2008.

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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 andResults of
Operations

Contents

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

- Executive Summary  Provides a brief overview
  of the years results and known uncertainties expected to have an effect on
  future results.
- Critical Accounting Policies  Discusses the
  accounting policies which management believes are the most essential to aid in
  understanding the Companys financial results.
- Results of Operations  Analyzes the
  Companys financial results comparing sales, operating margins and expenses to
  prior periods including managements expectation of trends and uncertainties
  on future results.
- Liquidity and Capital Resources  Analyzes
  the Companys cash flow from operating, investing and financing activities and
  further discusses the Companys current and projected
  liquidity.
- Inflation  Reviews the impact of inflation
  on the Companys reported results.

Executive
Summary

Despite the overall worsening of
economic conditions in the U.S., the Companys 2008 total sales increased 1.0%
over 2007. The work gloves and protective wear sales were up 1.6% with increases
in industrial products, CAT® branded products and additional sales from Canada
as a result of the Canadawide acquisition in the second quarter of 2007.
Promotional & specialty products sales continued to improve, up 1.0% over
2007. These improvements offset a 2.5% decline in sales at the pet supplies
segment.

Overall gross profit declined 1.4 percentage points from 2007 to 2008 as
margins were down at all segments. Cost increases from suppliers, the weakness
of the U.S. dollar relative to the Chinese RMB and the inability to pass these
increases along to customers quickly enough all contributed to the decline in
gross margin.

The
Company generated operating earnings of $1,320,000 in 2008 compared to
$2,456,000 in 2007. The major portion of this decline in earnings was the result
of recording a $173,000 non-cash donation of the Companys old corporate office
building in Kewanee, Illinois to a local charity and recording 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 the year would have been $2,285,000 or $171,000 below
last year primarily as a result of reduced gross margin.

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Working capital increased during 2008 as a result of higher inventory
levels. The increase in inventory was a result of additional inventory for new
products and higher costs per item from cost increases. Aggressive inventory
reductions over the last two years left the work gloves and protective wear
segment out-of-stock on some items. This year the Company replenished safety
stocks in an effort to reduce out-of-stock situations. As a result of these
increases, cash on hand at the end of the year decreased $1,754,000 to $803,000.
Long-term debt decreased $462,000 and there were no additional borrowings during
the year.

Due
to the worldwide economic downturn which picked up momentum throughout 2008 and
has continued into 2009, management expects a significant decrease in operating
performance during the coming year and perhaps beyond. Demand for the Companys
work gloves, boots and industrial rainwear products is being significantly
adversely affected by high rates of unemployment and decreased industrial
activity. Furthermore, a combination of decreased commodity prices and a glut of
supply has resulted in renewed price competition for these product lines. Demand
for the Companys promotional and specialty products also has been adversely
affected by the current economic conditions. Historically, three of the top
customer categories for the Companys promotional products have been banks, real
estate brokers and automobile dealers. All three of those industries have been
particularly hard-hit by the economic downturn. Customer feedback indicates that
as companies tighten their belts, advertising and promotion expenses are often
the first to be eliminated. Until these macro-economic conditions improve, it
will be difficult for the Company to match profitability levels experienced
during 2006 through 2008.

In
order to meet these market conditions, the Company already has instituted
cost-cutting initiatives to conserve cash in the face of decreased demand.
Hourly workers at each of the operating divisions have been reduced to 32 hour
work weeks . The Company has also laid off/terminated approximately 36 full-time
employees since January 1, 2009. Travel and trade show expenses are being
curtailed to meet the new market conditions. Inventory management will be a key
component to operating success, as the Company manages its working capital
assets. The above-described work force reductions and other cost-cutting
initiatives are expected to save approximately $1,000,000 during 2009.
Additional cost saving efforts are constantly being analyzed and will be
implemented as conditions justify.

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.

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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 27, 2008, the Companys accrual for customer advertising and
promotional activities totaled $990,700. The Company has received no material
allowances or credits from any vendors in connection with the purchase or
promotion of such vendors products.

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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 27, 2008, the Companys bad debt allowance totaled $240,000.

Inventories

Inventories are stated at the lower of cost or market value. Cost is
principally determined by the first-in, first-out method using a standard cost
system. To facilitate up-to-date costing in the current rapidly changing
environment, standards are updated upon receipt of goods when the cost of the
goods received represents a material change from the current standard. Inventory
gains and losses associated with these standard cost changes are amortized in an
effort to match the impact of such gains and losses with the associated impact
on margin recorded in the statement of income. Management periodically reviews
inventory quantities on hand and records a provision for excess, slow-moving and
obsolete inventory based primarily on forecasted product demand. As of December
27, 2008, the inventory valuation allowance totaled approximately $767,000.
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 the
years 1995 through 1997, the Company has available U.S. Federal NOL
carryforwards of $24,289,000 and Canadian NOL carryforwards of $486,000 as of
December 27, 2008.

13

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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 the Companys profitability trend from traditional operating
segments and projected profitability, management concluded during the third
quarter of 2004 that the Company would likely utilize approximately 25% of its
available NOL carryforwards. Accordingly, the Company reduced its valuation
allowance by $3,127,000 and recognized a commensurate tax benefit in 2004.
During the fourth quarter of 2006, the Company reevaluated its estimates and,
based upon its current and projected profitability and the higher sales volumes
now being realized in the work gloves and protective wear segment, determined
that it was more likely than not that it would be able to utilize an additional
$2,730,000 of its remaining NOL carryforwards. Accordingly, at the end of 2006
the Company reduced its valuation allowance and recognized a $2,730,000 tax
benefit. Management again reevaluated its profitability trends during the fourth
quarter of 2008 and, based upon its current and projected profitability and the
uncertainties surrounding expected future earnings, management did not further
adjust its net deferred tax asset. 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.

14

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Goodwill

In
connection with its purchases of Galaxy during 2004, Head-Lite, LLC., during
2005, and Canadawide during 2007, the Company recorded goodwill of $3,666,000.
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. In accordance with SFAS No. 142, Goodwill and Other
Intangible Assets, 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 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 remains at
year-end related to the Galaxy acquisition. (See Note 9 of the Notes to the
Consolidated Financial Statements).

Pending Accounting
Pronouncements

In
September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 157, Fair Value
Measurements (SFAS No. 157). SFAS No. 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurement. SFAS No. 157 also emphasizes that fair value is a market-based
measurement, not an entity-specific measurement, and sets out a fair value
hierarchy with the highest priority being quoted prices in active markets. Under
SFAS No. 157, fair value measurements are disclosed by level within that
hierarchy. In February 2008, the FASB issued FASB Staff Position No. 157-2,
Effective Date of FASB Statement No. 157, which permits a one-year
deferral for the implementation of SFAS No. 157 with regard to nonfinancial
assets and liabilities that are not recognized or disclosed at fair value in the
financial statements on a recurring basis. The Company adopted SFAS No. 157 for
the fiscal year beginning December 30, 2007, except for nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in the
financial statements on a nonrecurring basis for which delayed application is
permitted until our fiscal year beginning December 28, 2008. The Company does
not expect the adoption of SFAS 157 to have a material impact on the results of
operations, financial position, or cash flows.

15

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In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS No.
141(R)), and SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51 (SFAS No. 160). These new standards
significantly change the accounting for and reporting of business combination
transactions and noncontrolling interests (previously referred to as minority
interests) in consolidated financial statements. Both standards are effective
for fiscal years beginning on or after December 15, 2008, with early adoption
prohibited. The Company is currently evaluating the potential impact, if any, of
the adoption of SFAS No. 141R and SFAS No. 160 on the Companys financial
statements.

In
April 2008, the FASB issued Staff Position (FSP) No. FAS 142-3, Determination of the Useful Life of Intangible
Assets(FSP FAS 142-3). FSP FAS 142-3
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under SFAS No. 142,Goodwill and Other
Intangible Assets. It is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years and should be applied
prospectively to intangible assets acquired after the effective date. Early
adoption is not permitted. FSP FAS 142-3 also requires expanded disclosure
related to the determination of intangible asset useful lives for intangible
assets and should be applied to all intangible assets recognized as of, and
subsequent to the effective date. The impact of FSP FAS 142-3 will depend on the
size and nature of acquisitions on or after December 28, 2008.

Results of
Operations

Net Sales

|Sales by
      Segment$(000)           | 2008    | 2007    | 2006   
|-------------------------------------- | ------- | ------- | -------
|Work Gloves
      & Protective Wear    | $38,283 | $37,689 | $37,257
|Pet
      Supplies                     | 6,525   | 6,693   | 6,414  
|Promotional
      & Specialty Products | 10,924  | 10,815  | 9,992  
|Total
      Sales                      | $55,732 | $55,197 | $53,663

16

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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 sales of pet products were down
2.5%.

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

The
consumer market for work gloves and protective wear remains very competitive.
Consumer sales 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 continued to improve,
increasing 2.9% during 2008. The Company continued to grow this portion of the
work gloves and protective wear segment by broadening its industrial distributor
customer base, offering more specialized products and expanding into the markets
like mining and ethanol production. During 2008, industrial sales increased
$481,000. Management expects that industrial sales of work gloves and
protective wear will decrease significantly during 2009 due to
decreased industrial activity in the United Statesand the Company has
instituted cost-cutting initiatives to conserve cash in the face of this
decreased demand.

For
both the consumer and the industrial markets, pricing remains a major issue with
the instability of the cost of products from foreign vendors making it difficult
to establish a reliable pricing format with customers.

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 continues, representing 13% of the total CAT® branded product sales. The Company will continue
to expand product offerings under the CAT®trademark in categories that have
proven to be successful.

Pet
supply segment sales decreased 2.5% or $168,000 compared to 2007. This loss in
sales is primarily 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. Management plans to
continue diversifying its customer base and augment sales with new products,
including the Companys proprietary line of new Fat Hedz plush toys.

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.

17

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In
2009, Galaxy is introducing the new Magical Balloon which is an ink-jettable
balloon that will allow consumers to print any image, photograph or message on a
balloon by simply running it through their ink jet printer.

2007 Compared to
2006

Consolidated sales increased 2.9% in
2007 compared to the prior year. The largest area of sales growth for 2007 was
in the promotional and specialty products segment, up 8.2% over the previous
year. Work gloves and protective wear increased 1.2% in 2007 while sales of pet
products were up 4.3%.

Sales in the work gloves and protective wear segment increased $432,000,
or 1.2% with sales up slightly in industrial products and down in consumer
sales. The main improvement over the prior year came from CAT®branded sales which
were up 22.8% and the addition of Canadawide Safety to Boss Canada, which
provided an additional $626,000 of sales.

Consumer sales of work gloves and protective wear were down 5.4% in 2007
compared to 2006. The warm winter of 2006 / 2007 created an overstock situation
that carried into the 2007 / 2008 winter season. Winter glove orders for 2007
were received later in the year when a colder than normal December arrived. 2007
sales also were affected by managements termination of certain accounts which
did not meet minimum profitability criteria. Consumer sales also struggled late
in the year due to the unavailability of some styles because of delays in
obtaining product from China.

The
Company has made an effort to grow the industrial portion of the work gloves and
protective wear segment by broadening its industrial distributor customer base
and offering more specialized products, participating in industry specific
buying groups and supporting distributor efforts to educate end-users about
application-specific products. In addition, the Company has significantly
expanded its presence in the hardware distributor channel serving the industrial
and safety market. During 2007, industrial sales increased $172,000 or 1.1%.
Pricing and product availability were major issues during the year. The
instability of the cost of products from foreign vendors made it difficult to
establish a reliable pricing format with customers and a leather shortage along
with Chinas production and delivery issues caused availability problems.

Sales of CAT®branded products totaled $2,752,000 in 2007, an increase
over the previous year of 22.8%. Expansion of the CAT®branded products
into Europe, the Middle East and Australia continues, representing 8% of the
total CAT® branded product sales. Additional CAT®branded products, such as tool bags
and tool belts, were added to the product offerings in 2008.

2007
sales in the promotional and specialty products segment increased 8.2% or
$823,000 over 2006. 2007 was a record sales year for promotional and specialty
products with sales reaching $10,815,000. Balloon sales were down 4% but a
continued steady growth in sport balls, holiday items, inflatables and toys more
than made up for the shortfall.

18

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Sales of the pet supplies segment increased 4.3% or $279,000 over 2006.
New store openings and expanded pet sections at major customers caused this
sales growth. One major customers move to a direct import program resulted in
price and margin reductions for the Company.

Gross Margin

|Gross
      Margin by Segment  $(000)  | 2008   | 2007  | 2006  
|-------------------------------------- | ------ | ----- | ------
|                                       | $      | %     | $     
|Work Gloves
      & Protective Wear    | 9,021  | 23.6% | 9,338 
|Pet
      Supplies                     | 1,332  | 20.4% | 1,617 
|Promotional
      & Specialty Products | 3,418  | 31.3% | 3,425 
|Total Gross
      Margin               | 13,771 | 24.7% | 14,380

2008 Compared to
2007

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

Gross margin in the work gloves and protective wear segment declined 1.4
percentage points during 2008.Costs in the work gloves and protective wear segment
remained volatile throughout the year with the Company continuing to experience
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, the increase in discounts and advertising allowances also
contributed to the margin fall. Management attempted to pass cost increases on
to customers to maintain margins, but competitive pressures made this difficult.
Savings were realized in lower freight and warehousing costs.

Margins at the pet supplies segment decreased 3.8 percentage points 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 as savings received from
alternative suppliers helped offset the increases in freight and labor
costs.

2007 Compared to
2006

In total, margins were up as a
percentage of sales during 2007. Margin increases in the work gloves and
protective wear segment, along with the pet segment combined to offset the
margin decline at the promotional and specialty products segment.

19

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Price increases put in place during
the last quarter of 2006 were realized in 2007 for both work gloves and
protective wear and pet supplies. This along with a reduction in customer
allowances and cooperative adverting programs increased the margins in work
gloves and protective wear. In addition, expense savings were achieved at the
pet segment as a result of the consolidation of the two warehouses.

Margins in the promotional and
specialty products segment declined as a result of the product mix. Balloon
sales which, carry the highest margin, declined 4% during 2007. The sales
shortfall was more than made up by the other products but at a lower margin.

Operating
Expenses

|**Operating Expense by Segment**$(000) | 2008   | 2007  | 2006  
|-------------------------------------- | ------ | ----- | ------
|                                       | $      | %     | $     
|Work Gloves
      & Protective Wear    | 8,410  | 22.0% | 7,740 
|Pet
      Supplies                     | 872    | 13.4% | 982   
|Promotional
      & Specialty Products | 2,271  | 20.8% | 2,197 
|Corporate &
      Other                | 897    | ----  | 1,005 
|Total Operating
      Expense          | 12,451 | 22.3% | 11,924

2008 Compared to
2007

Operating expenses were affected
unfavorably in 2008 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. Due to lack of demand for this older
building, 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. Operating expenses
for 2008 less the non-cash adjustments mentioned above were $11,485,000 or
$439,000 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. The donation of the corporate headquarters building will result in
an annual cost savings of approximately $40,000.

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.

20

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

2007 Compared to
2006

On a consolidated basis, operating
expenses increased by $576,000 in 2007 compared to the prior year. $290,000 of
this increase was associated with the work gloves and protective wear segment.
The major increases came from $90,000 additional display expense associated with
increased volume from one major customer, $96,000 of the increase came from the
addition of Canadawide to the Boss Canada operation and $276,000 came in
additional compensation related to expanding the year-end bonus program to
include all employees. These increases were partially offset with savings in
wages and less commission expense from a reduction in manufacturing sales
representatives.

Operating expenses decreased at the pet supplies segment in 2007 as a
result of the consolidation of the two pet companies into the Boss Pet facility
in Cleveland.

In
the promotional and safety products segment, operating expenses also increased
$289,000. This major area of increase was $145,000 in salaries as a result of an
additional salesman and general salary increases. Also contributing to the
increase were advertising, commissions and year-end bonuses.

In
the corporate and other segment, 2007 operating expenses increased by $29,000
due mostly to an increase in legal and consulting expenses.

Operating Income

|**Operating Income (Loss) by Segment**$(000) | 2008  | 2007  | 2006   
|-------------------------------------------- | ----- | ----- | -------
|                                             | $     | %     | $      
|Work Gloves
      & Protective Wear          | 610   | 1.6%  | 1,598  
|Pet
      Supplies                           | 460   | 7.0%  | 635    
|Promotional
      & Specialty Products       | 1,147 | 10.5% | 1,228  
|Corporate &
      Other                      | (897) | ----  | (1,005)
|Total Operating
      Income                 | 1,320 | 2.4%  | 2,456  

2008 Compared to
2007

The Company generated operating
income of $1,320,000, which is a decline of $1,136,000 from last years earnings
of $2,456,000. This number is unfavorably affected by the
non-cash adjustments in the work gloves and protective wear segment
discussed previously. Without those non-cash adjustments operating income
would have been $2,285,000 or $171,000 below 2007. The residual decline in
earnings is a direct result of the cost increases from suppliers that affected
all segments. Without the non-cash adjustments, the work gloves and protective
wear segment generated operating income of $1,575,000, $23,000 below last year.
Earnings decreased $175,000 in the pet segment due to supplier cost increases.
Promotional and specialty products earnings declined $81,000 from the prior
year, as a result of increased freight and labor costs.

21

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2007 Compared to
2006

During 2007 Company generated
operating income of $2,456,000, which was an improvement of $253,000 over the
prior year. Operating income was up slightly in the work gloves and protective
wear segment as the gains from the improved margins were partially offset by an
increase in operating expenses. 2007 earnings increased $509,000 in the pet
segment based on price increases and the consolidation of two facilities into
one. Promotional and specialty products earnings declined, even with additional
volume, as a result of lower margins and increased operating
expenses.

Other Income (Expense)

Interest expense increased $4,000 compared to 2007. Additional investment
in inventory required the use of the Companys primary line of credit for a
brief period during 2008. This brief period of borrowing on the line of credit
and a full years interest expense on the purchase of Canadawide caused the
increase in interest expense over the previous year. Interest earned on excess
cash during 2008 was $40,000.

As a
result of decreased bank borrowings in 2007, interest expense decreased $107,000
compared to 2006. The Companys primary line of credit was not used at all
during 2007 and excess cash generated $110,000 of interest income.

Income Tax
Expense

Because of losses in prior years, the Company has available, for U.S.
income tax purposes, NOL carryforwards of approximately $24,289,000. Prior to
2004, management recorded a 100% valuation allowance offsetting this tax benefit
due to uncertainty regarding the Companys likelihood of realizing a material
portion of the NOL available. Management concluded during the third quarter of
2004 that the Company was more likely than not to utilize approximately 25% of
its available NOL. Based on this conclusion, the Company reduced the valuation
allowance offsetting its deferred tax asset and recognized a tax benefit of
$3,127,000. During the fourth quarter of 2006, the Company reevaluated its
profitability trend from the traditional operating segments and the projected
profitability increase due to higher sales volumes being realized in the work
gloves and protective wear segment. As a result of this reevaluation, management
determined that it was more likely than not that it would be able to utilize an
additional $2,730,000 of the remaining NOL carryforwards. Accordingly, the
Company reduced its valuation allowance and recognized a $2,730,000 tax benefit.
The valuation allowance is approximately 27% of the remaining NOL carryforward.
Management again reevaluated its profitability trends during the fourth quarter
of 2008 and, based upon its current and projected profitability and the
uncertainties surrounding expected future earnings, management did not further
adjust its net deferred tax asset. 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.

22

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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 and 2006) when comparing current results with past or future
financial statements of the Company.

Liquidity and Capital
Resources

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.

Cash Flow - 2007 Compared to
2006

Operating activities generated cash
of $2,533,000 during 2007, which was primarily from operating income.
Inventories increased $1,100,000 but were partially offset by an increase in
accounts payable. Inventory increased by $700,000 in the work gloves and
protective wear segment and by $400,000 in the promotional and specialty
products segment. The additional inventory added in the work gloves and
protective wear segment was to reduce out of stock situations which occurred
in 2006. Inventory increased at promotional and specialty products primarily due
to the 16 new products added during the year. Cash generated from operating
activities in 2006 was $4,606,000. The main difference from year to year was the
increase in inventory in 2007, compared with an inventory decrease in
2006.

23

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Investing activities used $1,230,000
in 2007 consisting of $343,000 for purchases of property and equipment and
$887,000 for the acquisitions of Canadawide Safety and Dipcraft and the final
Galaxy purchase payment. Purchases of property and equipment for the year
included warehouse improvements at the work gloves and protective wear segment,
facility improvements at the pet supplies segment as a result of the
consolidation of the two facilities and information technology enhancements at
the promotional and specialty products segment.

Liquidity

As
of December 27, 2008, the Company had $803,000 in cash and its entire
$7,000,000 revolving line of credit was available for borrowing. The Company
also was in full compliance with its credit facility loan covenants as of
December 27, 2008. Management renegotiated the line of credit in June of 2008,
extending the current agreement until January of 2010. The Company does not have
material commitments for future capital expenditures.

As
of December 27, 2008, the Company held in trust approximately $141,000 in
marketable securities representing deferred compensation benefits for certain
Company executives, directors and consultants. Such benefits are payable upon
termination of employment or services.

On a
longer-term basis, the Company expects to generate cash from operations which in
combination with the revolving credit facility should be sufficient to meet the
needs of its existing business operations.

Inflation

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

Off Balance-Sheet
Arrangements

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

Item 7A. Quantitative and
Qualitative Disclosures about Market Risk

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

24

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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 27, 2008 and December 29, 2007.                                                                                
| |      
| | (iii) |  | Consolidated Statements of
      Income, Cash Flows and Stockholders Equity for the years ended December
      27, 2008, December 29, 2007 and December 30, 2006.
| |      
| | (iv)  |  | Notes to the Consolidated
      Financial Statements.                                                                                                             
| |      
| | (v)   |  | Schedule II  Valuation and
      Qualifying Accounts.                                                                                                            

Item 9. Changes in And
Disagreements With Auditors on Accounting AndFinancial
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.

25

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

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

Our
management assessed the effectiveness of the Companys internal control over
financial reporting as of December 27, 2008. 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 27, 2008,
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
27, 2008 has not been audited by our auditors, McGladrey & Pullen, LLP or
any other independent registered public accounting firm.

26

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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 2009 Annual Meeting of Stockholders (the Proxy Statement)
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 Proxy Statement 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 Proxy Statement 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 Proxy Statement 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
Proxy Statement under the captions Certain Relationships and Related
Transactions and Director Independence is incorporated herein by
reference.

Item 14. Principal
Accountant Fees and Services

The
information appearing in the Proxy Statement under the caption Principal
Accountant Fees and Services is incorporated herein by reference.

27

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PART IV

Item 15. Exhibits and
Financial Statement Schedules

| | (a) |  | List
      the following documents filed as a part of the report:                                                      
| | --- |  | -----------------------------------------------------------------------------------------------------------------------
| |    
| |     |  | (1)                                                                                                                    
| |    
| |     |  |                                                                                                                        
| |     |  |                                                                                                                        
| |     |  |                                                                                                                        
| |     |  |                                                                                                                        
| |     |  |                                                                                                                        
| |     |  |                                                                                                                        
| |     |  |                                                                                                                        
| |     |  |                                                                                                                        
| |     |  |                                                                                                                        
| |     |  |                                                                                                                        
| |     |  | (2)                                                                                                                    
| |     |  |                                                                                                                        
| | (b) |  | Exhibits:                                                                                                              
| |     |  |                                                                                                                        
| |     |  | The exhibits
      filed with or incorporated into this report are listed in the Index to
      Exhibits which follows.

28

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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
      27, 2009                                     | 

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
      27, 2009                 | 
|                               |                                            | 
|By (Signature
      and Title) | /s/Perry A. Lerner                         | 
|                               | Perry A. Lerner,
      Director            | 
|                               | Date: March
      27, 2009                 | 
|                               |                                            | 
|By (Signature
      and Title) | /s/Lee E. Mikles                           | 
|                               | Lee E. Mikles,
      Director              | 
|                               | Date: March
      27, 2009                 | 
|                               |                                            | 
|By (Signature
      and Title) | /s/Paul A. Novelly                         | 
|                               | Paul A. Novelly,
      Director            | 
|                               | Date: March
      27, 2009                 | 
|                               |                                            | 
|By (Signature
      and Title) | /s/William R. Lang                         | 
|                               | William R. Lang,
      Director            | 
|                               | Date: March
      27, 2009                 | 

29

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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)                                                 

30

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|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                                                                                                           
|      
|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                                                                                                                                                                                                                               
|      
|23.1   | Consent of
      McGladrey & Pullen, LLP                                                                                                                                                                                                                           
|      
|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.                                                                   

31

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