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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

(Mark One)

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 29, 2001

or

|o | 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

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

Delaware(State or Other Jurisdiction of
Incorporation or Organization)

58-1972066(I.R.S. Employer
Identification No.)221 West First Street, Kewanee, Illinois(Address of Principal Executive Offices)

61443(Zip Code)


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

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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 ý    No o

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. o

The
aggregate market value of the voting stock held by non-affiliates as of March 1, 2002 was approximately $1.9 million.

There
were 1,934,904 shares of the Registrant's common stock outstanding as of March 1, 2002.

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INCORPORATION BY REFERENCE

Specified portions of the registrant's definitive proxy statement for its 2002 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: availability and pricing of goods purchased from international
suppliers, unusual weather patterns which could affect domestic demand for the registrant's products, pricing policies of competitors, investment results on funds invested in marketable securities by
management, the ability to attract and retain employees in key positions and uncertainties and changes in general economic conditions. 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. In October 1994, under prior management, the
Company completed an initial public offering under the name Vista 2000, Inc. On December 7, 1998, the Company changed its name from Vista 2000, Inc. to Boss Holdings, Inc.
reflecting the tradename of its primary operating subsidiary, Boss Manufacturing Company, a Delaware corporation ("BMC") originally established in 1893.

During
1996 and 1997, the Company undertook a restructuring which included the sale of a substantial portion of the Company's operating assets. As a result of this restructuring, Boss
now operates primarily in the work gloves and protective wear business segment. In addition, the Company conducts operations in the pet supply business segment.

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 slightly more than 60% of BMC sales and consists of retailers ranging from convenience stores to mass merchandisers as well as grocery and hardware 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 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 and industrial consumers. BMC products are sold predominantly to customers in the United States, with certain products also marketed in Canada.

The
work gloves and protective wear market is intensely competitive with a high degree of price competition. BMC competes on the basis of service, quality and selection. Having
participated in this

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segment for over 100 years, BMC and the Boss tradename 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
historically results in slower sales activity. Because of this seasonality, sales tend to be higher in the Company's first and fourth quarters and lower during the second and third quarters.

BMC
sells to a broad customer base approximating two thousand active accounts. Accordingly, BMC has relatively little dependence on any one customer. At the end of 2001, BMC had an open
order backlog of approximately $1,300,000, down about $300,000 from the previous year due in part to unseasonably warm weather during December 2001.

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. In recent years, pricing has declined due to excess foreign production capacity with supply exceeding demand for many of the Company's products. However, the
Company has occasionally experienced limitations in the supply of certain imported products. Availability of imported goods is further subject to interruptions in shipping as well as import/export
documentation and clearing. The Company does not anticipate shortages of purchased goods for resale in 2002.

The
Boss logo is an important trademark of the Company which it vigorously defends in the market. In addition, BMC has various registered names and trademarks for specific products which
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".

Pet Supplies

The Warren Pet ("Warren") division of the Company's Boss Manufacturing Holdings, Inc. subsidiary imports, markets and distributes a line of pet supplies to
various retail outlets. Products in this line include dog and cat toys, collars and leads, chains and rawhide products. Warren markets its product line primarily to hardware retailers utilizing a
network of regional distributors. Essentially all sales are within the United States.

The
pet supplies industry is extremely competitive. A small group of companies including Hartz Mountain Corporation and Sergeant's Pet Products division of ConAgra dominate the industry.
Warren competes primarily in selected market niches by focusing on customer service and favorable pricing.

Warren
generally has multiple sources of supply for substantially all of its product requirements. The finished goods purchased by Warren have generally been readily available in
sufficient quantities. However, Warren is subject to the same potential for product interruptions noted in the work gloves and protective wear segment. Because of the nature and size of Warren's
operations, the open order backlog was not material at the end of 2001 or 2000.

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 29, 2001, Boss employed approximately 120 full-time associates, down from 130 at the end of 2000. Of these, about
20 hourly associates located at the BMC distribution facility in Springfield, Illinois were represented by the UNITE labor organization under a collective bargaining agreement. At
year-end, approximately 112 associates were located in the United States with 8 located in Canada.

The
Company's employment declined slightly in 2001 due to on-going efforts to promote efficiency in each functional area. The Company believes its employee relations are
excellent as evidenced by relatively low turnover rates at most facilities. However, attracting and retaining employees has become more difficult in recent years. The Company's past success in this
area cannot assure attainment of future employment objectives.

Item 2. Properties

The following table shows the location, general character, square footage, annual rent and lease expiration date of the principal operating facilities owned or
leased by the Company as of December 29, 2001. The principal executive offices are located in Kewanee, Illinois.

|Location             |  | City        |  | General Character                   |  | Square
Feet |  | Annual
Rent |        | Lease Expiration
|-------------------- |  | ----------- |  | ----------------------------------- |  | ----------- |  | ----------- | ------ | ----------------
|Br. Columbia, Canada |  | Vancouver   |  | Distribution                        |  | 5,600       |  | $           | 9,000  |                 
|Illinois             |  | Kewanee     |  | Administrative Office               |  | 10,200      |  | $           | 0      |                 
|Illinois             |  | Kewanee     |  | Manufacturing, Distribution & Admin |  | 147,000     |  | $           | 0      |                 
|Illinois             |  | Springfield |  | Distribution                        |  | 80,000      |  | $           | 0      |                 
|Ontario, Canada      |  | Concord     |  | Manufacturing, Distribution & Admin |  | 18,400      |  | $           | 60,000 |                 

The above properties are predominantly used in the work gloves and protective wear segment. The Company believes the above listed facilities
provide adequate distribution capacity to provide for anticipated demand. Utilization of the various facilities fluctuates significantly during the year based on order and inventory levels. The
Company considers its properties to be adequate to carry on the Company's business.

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. Management believes the ultimate disposition of these matters should not materially impair the Company's consolidated financial position or liquidity.

In
July, 1996, the Company sued its former president, Richard Smyth, in a matter styledBoss Holdings, Inc. (formerly Vista 2000, Inc.) v. Richard
Smyth, filed in the Superior Court of Cobb County, Georgia. The Company alleged breach of contract, conversion of company funds, unjust enrichment,

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breach of fiduciary duty and fraud by Mr. Smyth, claiming damages and seeking recovery of funds alleged to be converted by Mr. Smyth. In August, 1999, the Company received a consent
judgment against Mr. Smyth in the principal sum of $997,800. The Company agreed not to pursue collection of the judgment in exchange for a $50,000 initial cash payment received from
Mr. Smyth at the time of settlement and timely receipt of future monthly and lump sum settlement payments from Mr. Smyth. The payment obligations of Mr. Smyth under the settlement
agreement were secured by a mortgage on his home residence. During 2001, Mr. Smyth defaulted in payments under the settlement agreement and filed for bankruptcy. The Company subsequently
obtained a final judgment in foreclosure of its mortgage on Smyth's residence and has foreclosed on the property. The Company will continue to pursue collection through a sale of the foreclosed
property.

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 2001.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

The Company's common stock (symbol: BSHI) is currently listed on the Over-the-Counter (OTC) Bulletin Board. Prior to December 8,
1998, the Company's common stock symbol was VIST.

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 which also report on transactions in non-listed equity securities.

Stockholders
of record at February 28, 2002 numbered approximately 2,350. 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
|------------- |  | ----- | ---- | ------ | - | ----- |  | ------
|2001High bid |  | $     | 1.88 |        | $ | 2.25  |  | $     
|2001Low bid  |  | $     | 1.63 |        | $ | 1.63  |  | $     
|2000High bid |  | $     | 4.50 |        | $ | 3.63  |  | $     
|2000Low bid  |  | $     | 3.50 |        | $ | 2.25  |  | $     

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Item 6. Selected Financial Data

The following table contains selected consolidated financial data for the five year period ended December 29, 2001 as derived from the consolidated
financial statements of the Company. This table should be read in conjunction with "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the Company's audited
Consolidated Financial Statements and Notes thereto appearing elsewhere herein.

|                                          |                           | As of      |       
|----------------------------------------- | ------------------------- | ---------- | ------
|
|
|Working capital                           |                           | $          | 17,486
|Total assets                              |                           |            | 23,164
|Long-term debt, including current portion |                           |            | 2,377 
|Stockholders' equity                      |                           |            | 18,591
|                                          |                           | Year Ended |       
|
|Net sales                                 |                           | $          | 33,737
|Cost of sales                             |                           |            | 21,591
|                                          |                           |            |       
|                                          | Gross profit              |            |       
|Operating expenses                        |                           |            | 11,817
|Gain (Loss) from asset sales/writedowns   |                           |            |      
|                                          |                           |            |       
|                                          | Operating earnings (loss) |            |       
|Interest income                           |                           |            | 77    
|Interest expense                          |                           |            | (298  
|Other income (expense)                    |                           |            | 588   
|                                          |                           |            |       
|Net earnings (loss) before income taxes   |                           |            | 696   
|Income tax benefit (expense)              |                           |            | 89    
|                                          |                           |            |       
|Net earnings (loss)                       |                           | $          | 785   
|                                          |                           |            |       
|Basic earnings (loss) per share           |                           | $          | .41   
|                                          |                           |            |       

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

Results of Operations

Sales

|Sales by Segment $(000)       |  | 2001   |  | 2000   |  | 1999  
|----------------------------- |  | ------ |  | ------ |  | ------
|Work Gloves & Protective Wear |  | 30,546 |  | 32,440 |  | 30,722
|Pet Supplies                  |  | 2,301  |  | 2,634  |  | 3,716 
|Corporate & Other             |  | 890    |  | 1,355  |  | 1,586 
|                              |  |        |  |        |  |       
|Total Sales                   |  | 33,737 |  | 36,429 |  | 36,024
|                              |  |        |  |        |  |       

2001 Compared to 2000

Consolidated sales for 2001 totaled $33,737,000, a decrease of $2,692,000, or 7.4%, from 2000. The Company experienced sales declines in each business segment due
primarily to lower selling prices and unfavorable weather conditions.

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In
the Company's primary segment, work gloves and protective wear, sales declined $1,894,000, or 5.8%, in 2001 compared to the previous year. Despite the addition of certain significant
customers in the Company's consumer market, domestic revenues in this market were down 5.5% on essentially unchanged unit sales during the year. Weather patterns hampered the Company's efforts with
weather much colder than normal in the spring reducing sales of seasonal gardening products. Winter weather at the end of 2001, however, was unusually warm, one of the warmest winters on record,
causing reduced sales of winter products during the fourth quarter which is historically the Company's peak sales season.

Sales
in the industrial market declined approximately 5% despite unit sales growth of over 17%. Though the Company expanded its customer base and increased unit volume, revenue in this
market decreased because of lower selling prices and increased sales of relatively low priced goods. The industry continues to experience declining costs on imported goods due to excess foreign
productive capacity. During 2001, the Company improved market share with respect to disposable gloves and certain other low-priced, commodity gloves.

Management
anticipates the deflationary trend in the work gloves and protective wear segment to continue during 2002. Certain foreign governmental fees associated with importing products
from many of the Company's suppliers are scheduled to be eliminated during the first quarter of the year which may further reduce the cost of selected imported goods. In addition, the
slow-down in economic activity during 2001 has reduced demand for many industrial goods.

Sales
in the Company's pet supplies segment declined to $2,301,000 in 2001, down $333,000, or 12.6%, from the previous year. The primary cause of this reduction in sales was the loss of
two major customers during 2000 which caused a continued sales decline in 2001 as expected. The new management team in this segment has added customers which are expected to make up approximately one
third of the revenue loss associated with the customers lost in 2000 with additional customer additions expected during 2002.

Sales
in the Company's corporate and other segment consist primarily of the Company's Boss Balloon revenues. Management has changed the distribution method in this business in an effort
to improve market coverage while reducing reliance on field sales representation with direct store servicing. This change temporarily disrupted business with certain accounts and has not yet resulted
in improved market share. Management plans to review this operation and evaluate alternatives to improve sales during the year.

2000 Compared to 1999

Consolidated sales for 2000 increased $405,000, or 1.1%, from 1999 to a total of $36,429,000. This increase was attributable to improved sales in the Company's
work gloves and protective wear segment partially offset by lower sales in the pet supplies and corporate and other segments.

Sales
in the Company's work gloves and protective wear segment increased $1,718,000, or 5.6%, in 2000 compared to the prior year. The Company's restructuring of its sales force and more
aggressive sales efforts during the year were successful in broadening the Company's customer base in both the consumer and industrial markets. In addition, glove sales benefited from colder weather
during the fourth quarter of 2000 in comparison to 1999. While the increase in customers and colder weather increased volume during 2000, pricing continued to fall through the year because of excess
foreign productive capacity. Revenues increased 7.6% in the consumer market on unit volume growth of approximately 14%, while industrial market sales increased 2.2% on unit volume growth of roughly
17%.

In
the pet supplies segment, sales totaled $2,634,000 for 2000, a decline of $1,082,000, or 29.1%. During the year, Warren lost its two largest customers which accounted for 50% of 1999
sales. The loss

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of these two accounts significantly reduced 2000 sales. Management completed the installation of a new sales team with industry experience during the third quarter of 2000 to aggressively pursue new
business.

Sales
in the Company's corporate and other segment consist primarily of the Company's Boss Balloon revenues. In this segment, 2000 sales declined by $231,000, or 14.6%. The Company
changed its balloon distribution focus during the year in an effort to improve market coverage. However, this change resulted in a disruption of business to certain accounts during the second half of
the year. The Company also changed its sales management in this segment during the fourth quarter of 2000 to provide a more experienced sales team.

Gross Margin

|                            |  | 2001   |  | 2000 |   | 1999   | 
|--------------------------- |  | ------ |  | ---- | - | ------ | 
|
|
|Work Gloves/Protective Wear |  | 10,755 |  | 35.2 | % | 10,075 | 
|Pet Supplies                |  | 925    |  | 40.2 | % | 1,099  | 
|Corporate & Other           |  | 466    |  | 52.4 | % | 784    | 
|                            |  |        |  |      |   |        | 
|Total Gross Margin          |  | 12,146 |  | 36.0 | % | 11,958 | 
|                            |  |        |  |      |   |        | 

2001 Compared to 2000

As expected, the Company's gross margin during 2001 improved significantly as a percentage of sales compared to the previous year. Consolidated gross margin
increased to $12,146,000, up $188,000 despite lower sales during the year. Total gross margin increased to 36% of sales, an increase of 3.2% for the year. This increase was due primarily to the
elimination of domestic manufacturing in 2000 in the work gloves and protective wear segment. The gross margin in this segment improved 4.1% due to
the elimination of manufacturing operational losses and relatively higher margins on imported goods previously manufactured domestically.

2000 Compared to 1999

On a consolidated basis, the Company's gross margin in 2000 totaled $11,958,000, an increase of $1,701,000 from 1999. As a percentage of sales, consolidated gross
margin increased to 32.8%, up 4.3% from the prior year on improved margins in each segment. In the work gloves and protective wear segment, gross margin percentage increased from 26.9% in 1999 to
31.1% in 2000 due to higher margins on imported goods previously manufactured by the Company at its Greenville, Alabama facility, lower cost on imported finished goods purchased during the year and
reduced operating losses from manufacturing facilities closed in 2000. The favorable impact of these factors was partially offset by inventory write-downs which resulted from declining purchase cost
on finished goods during the year. Because of higher sales and improved gross margin percentage, gross margin increased by $1,824,000 in the work gloves and protective wear segment in 2000 compared to
the previous year.

In
the pet supplies segment, gross margin declined to $1,099,000 during 2000, a reduction of $233,000 from the previous year due to lower sales in this segment. On a percentage basis,
gross margin improved 5.9% during 2000, totaling 41.7% for the year, due to the importation of certain goods previously manufactured by the Company or purchased from domestic suppliers. In the
corporate and other segment, gross margin improved by $110,000 for 2000 compared to 1999 totaling $784,000 for the year despite lower sales. Gross margin percentage improved from 42.5% in 1999 to
57.9% in 2000 as the Company realized improved margins on imported balloons for the full year.

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Operating Expenses

|                            |  | 2001   |  | 2000 |   | 1999   | 
|--------------------------- |  | ------ |  | ---- | - | ------ | 
|
|
|Work Gloves/Protective Wear |  | 9,706  |  | 31.8 | % | 9,667  | 
|Pet Supplies                |  | 987    |  | 42.9 | % | 975    | 
|Corporate & Other           |  | 1,124  |  |     |   | 1,272  | 
|                            |  |        |  |      |   |        | 
|Total Operating Expense     |  | 11,817 |  | 35.0 | % | 11,914 | 
|                            |  |        |  |      |   |        | 

2001 Compared to 2000

During 2001, operating expenses declined $97,000, less than 1%, from the prior year on a consolidated basis. While down in total, operating expenses increased as
a percentage of sales due to the Company's decline in 2001 revenues.

In
the work gloves and protective wear segment, operating expenses increased $39,000. Though certain sales related and administrative expenses, notably commission expense, declined in
2001, these decreases were more than offset by increased warehousing and freight expenses. The increase in unit
volume during 2001 was a significant factor in the escalation of warehousing and freight expense. The weight of products shipped and freight rates increased during the year. In addition, the units
received, processed and shipped increased resulting in higher warehousing expense.

Operating
expenses were essentially unchanged in the pet supplies segment. Declines in commission and administrative expenses were offset by increased bad debt expense attributable
primarily to the bankruptcy of a customer. Corporate and other operating expenses declined $148,000 due to lower commission expenses in the Company's balloon operations as well as reduced corporate
office administrative expenses.

2000 Compared to 1999

Operating expenses totaled $11,914,000 in 2000, down $133,000 from 1999. This reduction coupled with the Company's increased sales resulted in a 0.7% reduction in
operating expenses as a percentage of sales. The decline in operating expense resulted from reduced expenditures in the corporate and other segment attributable to lower franchise taxes, lower
professional fees and reduced expenditures for annual meeting and other shareholder related expenses.

In
the work gloves and protective wear segment, operating expenses increased by $299,000 during 2000, though such expenses declined slightly as a percentage of sales. Certain sales and
volume related expenses such as outbound freight, warehousing expense and commissions increased in comparison to the prior year. In addition, warehousing expenses in the Company's Canadian operations
increased due to the termination of certain manufacturing operations which previously absorbed such costs. These increases were partially offset by reduced selling and administrative payroll expenses
as well as lower system consulting expenses in 2000. Operating expenses increased $62,000 in the pet supplies segment during 2000 due primarily to increased warehousing and handling expenses.

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Operating Earnings Before Asset Sales and Writedowns

|Operating Earnings (Loss) Before
Asset Sales by Segment $(000) |  | 2001  |   | 2000 |   | 1999   |  
|-------------------------------------------------------------- |  | ----- | - | ---- | - | ------ | -
|Work Gloves & Protective Wear                                  |  | 1,049 |   | 410  |   | (1,117 | )
|Pet Supplies                                                   |  | (62   | ) | 123  |   | 419    |  
|Corporate & Other                                              |  | (658  | ) | (489 | ) | (1,092 | )
|                                                               |  |       |   |      |   |        |  
|Total Operating Earnings (Loss)                                |  | 329   |   | 44   |   | (1,790 | )
|                                                               |  |       |   |      |   |        |  

2001 Compared to 2000

Despite lower sales in all business segments, the Company increased operating earnings on a consolidated basis for 2001 to $329,000, up $285,000 from 2000. This
improvement was primarily attributable to improved margins and the elimination of manufacturing operating losses in the Company's work gloves and protective wear segment. Operating earnings in this
segment increased to $1,049,000, up $639,000 from 2000.

Operating
earnings declined $185,000 in the pet supplies segment due to lower sales attributable to the loss of customers in 2000. In the corporate and other segment, operating earnings
declined due primarily to lower balloon sales.

2000 Compared to 1999

The Company returned to profitability from an operating earnings standpoint in 2000 earning $44,000 for the year, up substantially from the loss of $1,790,000 in
1999. Operating earnings in the Company's primary line of business, work gloves and protective wear, rebounded to $410,000 in 2000, up from a
loss of $1,117,000 in 1999 on improved sales and margins. In addition, the Company realized a substantial improvement in the corporate and other segment due to reduced corporate operating expenses and
improved margins in the Company's balloon operations. Pet supplies operating earnings declined because of lower sales due to the loss of customers during the year.

Asset Sales and Writedowns

In response to declining demand for domestically produced gloves, the Company closed and disposed of its Greenville, Alabama production facility during the third
quarter of 2000 following a disposition plan established by management in the fourth quarter of 1999. The Company recorded a charge of $1,100,000 in the fourth quarter of 1999 to provide for estimated
losses and disposition costs in closing the Greenville operation. Because the Greenville facility was closed approximately two months later than originally planned, certain Greenville operating costs
were charged to expense during 2000.

In
addition to closing the Greenville plant, the Company also ceased manufacturing at its Juarez, Mexico plant during the third quarter of 2000 and sold its facilities in Juarez during
2001. The Company recorded no significant gain or loss on this disposition of facilities.

Other Income (Expense)

The Company's interest income totaled $77,000 in 2001, down $89,000 from 2000. Interest income decreased due in large part to lower interest rates with rates
declining steadily during the year. Lower interest rates also resulted in reduced interest expense. Interest expense declined to $298,000 in 2001, down $53,000 from 2000. Lower interest rates more
than offset increased borrowing during the second and third quarters which resulted from borrowings to support higher inventory levels.

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In
the first quarter of 2001, the Company realized a gain of approximately $120,000 upon collection of a favorable jury verdict in litigation involving the Company's 1996 sale of its
Family Safety Products, Inc. subsidiary's assets. This litigation was concluded at that time.

The
Company recognized a $406,000 gain in the fourth quarter of 2001 in connection with the receipt of Principal Financial Group, Inc ("PFG") stock. As a policyholder, the Company
retains certain contractual interests in PFG. During October 2001, PFG converted from a mutual insurance company into a stock enterprise through a demutualization transaction. To complete the
demutualization, PFG issued consideration in the form of stock to existing participating policyholders in exchange for their mutual membership rights. The Company received approximately 22,000 PFG
shares and recorded a
gain of $18.50 per share based on PFG's Initial Public Offering price. Management may sell this stock at any time based upon its evaluation of market conditions. Until disposition, any changes in the
market value of the PFG stock will be reflected in "Comprehensive Earnings" in the Company's Consolidated Statement of Stockholders' Equity.

During
1999, the Company recorded a net gain of $1,165,000 from a legal settlement with Hugo Boss A.G. Gross proceeds from this settlement were $2,000,000, with this total offset by
various legal and other estimated compliance costs associated with the settlement. During 2000, the Company recorded an additional gain of $150,000 because actual compliance costs were lower than
originally estimated.

Income Tax Expense

During 2001, the Company recorded an income tax benefit of $89,000 due primarily to state income tax refunds expected in connection with certain state filing
method changes. Because of losses in prior years, the Company had minimal federal income tax expense in 2001 and has available substantial net operating loss carryforwards for federal income tax
purposes. These carryforwards have certain limitations due to a change in control experienced in 1996.

Liquidity and Capital Resources

2001 Compared to 2000

The Company generated $2,275,000 in cash flow from operating activities during 2001, an increase of $6,628,000 from 2000. The improved cash flow was largely
attributable to lower accounts receivable, reduced inventory, less cash required in connection with accrued liabilities and improved earnings. Accounts receivable declined in 2001 because of lower
December sales due in large part to warmer weather in comparison to the previous year. Management reduced inventory levels in the fourth quarter of 2001 in anticipation of lower demand in the slowing
economy. Cash required to fund accrued liabilities declined substantially in 2001 due primarily to the completion of facility closings in 2000.

Net
cash used by investing activities totaled $45,000 in 2001. This compares to $698,000 in cash provided by investing activities in 2000 when the Company received cash from the sale of
facilities closed during the year. The Company's purchases of property and equipment were very limited in 2001, totaling only $47,000, and consisted primarily of information technology upgrades and
facility improvements.

The
Company used the bulk of the cash generated by operating activities to pay down its revolving line of credit and long-term obligations. Consequently, financing activities
consumed $2,231,000 of cash. This compares to cash provided by financing activities of $1,725,000 in 2000 when the Company borrowed funds to meet working capital requirements.

The
Company ended 2001 with $2,039,000 in cash and $515,000 in marketable securities. Outstanding borrowings on the Company's $10,000,000 revolving credit facility totaled $762,000 at
the end of 2001, down from $2,780,000 in the previous year. The Company's availability under this facility,

10

---

due to certain collateral limitations, totaled $6,248,000 as of December 29, 2001. The Company ended the year with ample liquidity and expects to have adequate liquidity to provide for
anticipated obligations during 2002 from funds currently available. During 2002, the Company anticipates increased capital expenditure requirements to improve its headquarters facilities and provide
certain system enhancements to upgrade communications, streamline record storage and augment networking capabilities. Such capital expenditures are anticipated to total approximately $250,000 to
$450,000 in 2002.

To
improve its return on funds, the Company may invest a material portion of its cash in marketable securities. These securities may include stocks, bonds and other securities traded on
major U.S. exchanges or NASDAQ. Such investments involve risk and may result in losses which could be significant to the Company in the event of unfavorable market conditions or unanticipated results.

On
a longer term basis, the Company expects to generate sufficient cash from operations to meet the needs of its existing business operations. However, certain potential growth and
expansion plans, if implemented, could require the Company to consider additional funding sources such as increased bank lines of credit, the issuance of additional capital stock, or the issuance of
public or private debt. There can be no assurance that any of these funding sources will be available to the Company when and if required.

Following
is a table summarizing the Company's contractual obligations and commercial commitments:

|                                   |  |       |  | Payments Due by Period
|---------------------------------- |  | ----- |  | ----------------------
|
|Long-Term Debt                     |  | 1,607 |  | 149                   
|Capital Lease Obligations          |  | 8     |  | 5                     
|Operating Leases                   |  | 192   |  | 114                   
|                                   |  |       |  |                       
|Total Contractual Cash Obligations |  | 1,807 |  | 268                   
|                                   |  |       |  |                       

|                             |  |     |  | Amount of Commitment
Expiration Per Period
|---------------------------- |  | --- |  | ------------------------------------------
|
|Lines of Credit              |  | 762 |  |                                          
|                             |  |     |  |                                           
|Total Commercial Commitments |  | 762 |  |                                          
|                             |  |     |  |                                           

2000 Compared to 1999

During 2000, operating activities used cash of $4,353,000, compared to providing cash of $4,158,000 in 1999. The most significant factor impacting this change in
operating cash flows was inventory levels. The Company increased inventory by $1,544,000 in 2000 as compared to reducing inventory by $4,077,000 in the prior year. The reduction in inventory at the
end of 1999 resulted in reduced shipping performance during the first quarter of 2000 causing management to increase inventory levels. In addition, the Company increased inventory quantities of
certain goods in preparation for the closing of its manufacturing facility in Alabama.

Reductions
in accrued liabilities during 2000 consumed $2,169,000 of operating cash flow. The Company completely liquidated its $1,100,000 Greenville, Alabama disposition reserve during
the year. Additional reductions in accrued liabilities were attributable to Hugo Boss settlement compliance costs, closing costs associated with the Juarez, Mexico facility and health claim costs on a
terminated policy. Operating cash flows were also negatively impacted in 2000 by a $1,295,000 increase in accounts receivable attributable to significantly higher December 2000 sales in
comparison to 1999.

11

---



Investing activities provided cash of $698,000 in 2000, up $283,000 from the prior year. The Company received $770,000 in cash proceeds from the disposition of Greenville, Alabama
facilities closed during the year. After completing the installation of year 2000 compliant computer systems in 1999, the Company significantly reduced capital expenditures in 2000. Capital
expenditures during the year totaled $72,000, down from $623,000 in the previous year. Capital expenditures were generally geared toward upgrading and maintaining the distribution center in Kewanee
and obtaining needed material handling equipment.

In
the financing activities area, the Company paid down long-term obligations by $222,000. These payments were primarily on the Springfield, Illinois distribution center
mortgage and the new computer system lease. Because of the cash used by operating activities and cash used to pay down long-term obligations, the Company increased borrowings on its
revolving line of credit by $1,947,000 during 2000.

Inflation

The Company does not believe that the moderate rates of inflation experienced in the United States over the last three years have had a material effect on its net
sales or profitability. The Company obtains finished goods from various foreign countries which have experienced deflationary conditions during the last three years, thereby decreasing the Company's
cost of goods sold for many items, particularly in the work gloves and protective wear segment. The Company believes such price changes have increased price competition in this segment.

Overview and Outlook for 2002

Operating results continued to improve in 2001 with the Company completing a second year of profitability despite a very challenging and competitive environment.
The Company benefited from improved margins during the year, as expected. This improvement was attributable in large part to the recent management initiative to eliminate domestic manufacturing.

Margins
also benefited from lower acquisition cost on imported goods in the work gloves and protective wear segment. Unfortunately, the extremely competitive environment in this segment
coupled with lower acquisition cost has resulted in constantly falling selling prices in recent years. Lower unit
selling prices have made revenue growth extremely difficult to attain. With the elimination of certain export fees in 2002 by one of the world's largest exporting countries, management anticipates
further unit price reductions in the coming year.

In
addition to lower selling prices during 2001 and the overall economic slowdown, the Company struggled with unfavorable weather conditions. The spring of 2001 was relatively cold which
depressed sales of garden products. However, the late fall and early winter season was among the warmest on record, causing lower than normal demand for winter products.

The
unit volume of products shipped by the Company increased significantly during the year reflecting the Company's addition of several significant customers in both the consumer and
industrial markets it serves. This growth in unit volume was overshadowed by lower selling prices. Despite lower revenues, overall profitability increased because of improved margins.

The
Company ended the year in a substantially improved financial position with debt down significantly and borrowings on the revolving line of credit at an historic low. Management
believes the Company is financially well positioned to deal with potential market instability.

Management
intends to continue its focus on expanding the Company's base of business and increasing unit volume to counter the revenue challenge presented by lower selling prices. In
addition, the Company expects to offer certain new, complementary products to existing customers in an effort to expand revenues. During 2002, management plans to evaluate the Company's subsidiary
operations to determine the best course of action to improve overall profitability. To further broaden the

12

---

Company's base of business, management plans to evaluate potential acquisition opportunities during the year. The Company can provide no assurance as to the success of these growth plans.

Market Risk

The Company's primary market risk exposure consists of changes in short-term prime and LIBOR interest rates on certain borrowings that bear interest at floating
rates. These debt instruments include a $1,337,000 mortgage note payable and the Company's revolving line of credit, on which the Company had borrowed $762,000 at December 29, 2001. The
effective annual interest rates on these facilities as of December 29, 2001 were 4.0% and 4.4% respectively. Based on the principal indebtedness outstanding as of December 29, 2001, an
increase of one percent per annum in the effective interest rate would increase the Company's annual interest expense on such indebtedness by approximately $21,000. The Company's borrowings on its
revolving line of credit fluctuate during the year depending on working capital requirements.

In
addition, the Company is subject to equity market risk exposure with regard to marketable securities that its owns or may own in the future, including its PFG stock which is
classified as an available-for-sale security in the Company's financial statements. All investments in marketable securities are subject to price fluctuations typical for such equity investments until
disposition. At December 29, 2001 the fair market value of the Company's available-for-sale securities totaled $515,000.

The
Company has no investments in derivative financial instruments and generally makes its purchases of imported goods in U.S. dollars to minimize foreign exchange risk.

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 14, of this
Report:



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

Not applicable.

13

---

PART III

Item 10. Directors and Executive Officers of the Registrant

The information appearing in the Company's Definitive Proxy Statement prepared in connection with its 2002 Annual Meeting of Stockholders (the "Proxy Statement")
under the captions "Election of Directors", "Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" 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

The information appearing in the Proxy Statement under the caption "Security Ownership of Certain Beneficial Owners and Management" is incorporated herein by
reference.

Item 13. Certain Relationships and Related Transactions

The information appearing in the Proxy Statement under the caption "Certain Relationships and Related Transactions" is incorporated herein by reference.

PART IV

Item 14. Exhibits, Financial Statements And Reports on Form 8-K

|(a) |  | (1)                                                                                                         |  | Report of Independent Certified Public Accountants dated February 15, 2001 attached as page F-1 to this report.                                           
|--- |  | ----------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | (2)                                                                                                         |  | Financial Statements attached as pages F-2 through F-20 to this report:                                                                                   
|    |  |                                                                                                             |  | Consolidated Balance Sheetsas of December 29, 2001 and December 30, 2000;                                                                                
|    |  |                                                                                                             |  | Consolidated Statements of Operations, Cash Flows and Stockholders' Equity for the years ended December 29, 2001, December 30, 2000 and December 25, 1999;
|    |  |                                                                                                             |  | Notes to the Consolidated Financial Statements.                                                                                                           
|    |  | (3)                                                                                                         |  | Schedule IIValuation and Qualifying Accounts attached as page F-21 to this report.                                                                       
|(b) |  | Reports on Form 8-K:                                                                                       
|    |  | None filed during the 4th Quarter of 2001.                                                                 
|(c) |  | Exhibits:                                                                                                  
|    |  | The exhibits filed with or incorporated into this report are listed in the Index to Exhibits which follows.

14

---



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.

| |  | BOSS HOLDINGS, INC.(Registrant)
| |  | -------------------------------
| |  | By:                            

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.

|    | Signature                                          |  | Title                                             |  | Date          
|--- | -------------------------------------------------- |  | ------------------------------------------------- |  | --------------
|    |                                                    |  |                                                   |  |               
|By: | /s/G. LOUIS GRAZIADIO, IIIG. Louise Graziadio, III |  | Chairman of the Board and Chief Executive Officer |  | March 29, 2002
|By: | /s/PERRY A. LERNERPerry A. Lerner                  |  | Director                                          |  | March 29, 2002
|By: | /s/LEE E. MIKLESLee E. Mikles                      |  | Director                                          |  | March 29, 2002
|By: | /s/PAUL A. NOVELLYPaul A. Novelly                  |  | Director                                          |  | March 29, 2002
|By: | /s/RICHARD D. SQUIRESRichard D. Squires            |  | Director                                          |  | March 29, 2002

15

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INDEX TO EXHIBITS

|(3)(i)  |  | Articles of Incorporation                                                                                                                                                        
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1     |  | Certificate of Incorporation (see note A below)                                                                                                                                  
|3.1.1   |  | Amendment to Certificate of Incorporation, dated December 7, 1998 (see note B below)                                                                                             
|3.1.2   |  | Amendment to Certificate of Incorporation, dated June 30, 2000 (see note C below)                                                                                                
|(3)(ii) |  | By-Laws                                                                                                                                                                          
|3.2     |  | By-Laws (see note A below)                                                                                                                                                       
|(10)    |  | Material Contracts                                                                                                                                                               
|10.1    |  | 1998 Incentive Stock Option Plan, as amended (see note D below)                                                                                                                  
|10.2    |  | 1998 Non-Employee Director Stock Option Plan, as amended (see note D below)                                                                                                      
|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 (see note C below)
|10.4    |  | Executive Severance Agreement by and between Boss Holdings, Inc. and J. Bruce Lancaster dated July 16, 2001                                                                      
|21.1    |  | Subsidiaries of the Registrant                                                                                                                                                   

---

16

---

FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BOSS HOLDINGS, INC. AND SUBSIDIARIES
December 29, 2001 and December 30, 2000

Report of Independent Certified Public Accountants

Board of Directors
Boss Holdings, Inc.

We
have audited the accompanying consolidated balance sheets of Boss Holdings, Inc. and Subsidiaries as of December 29, 2001 and December 30, 2000, and the related
consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 29, 2001. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Boss Holdings, Inc. and Subsidiaries as
of December 29, 2001 and December 30, 2000, and the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 29, 2001 in conformity with accounting principles generally accepted in the United States of America.

We
have also audited Schedule II of Boss Holdings, Inc. and Subsidiaries for each of the three years in the period ended December 29, 2001. In our opinion, this
schedule presents fairly, in all material respects, the information required to be set forth therein.

/s/
GRANT THORNTON LLP
Atlanta, Georgia
February 15, 2002

F-1

---

Boss Holdings, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands except per share data)

|                                     |                                                                                                        | December 29,
2001                    |                            | December 30,
2000 |       
|------------------------------------ | ------------------------------------------------------------------------------------------------------ | ------------------------------------ | -------------------------- | ----------------- | ------
|ASSETS                               |                                                                                                       
|CURRENT ASSETS                       |                                                                                                        |                                      |                            |                   |       
|                                     | Cash and cash equivalents                                                                              |                                      | $                          | 2,039             |       
|                                     | Available-for-sale securities                                                                          |                                      |                            | 515               |       
|                                     | Accounts receivable, net of allowance for doubtful accounts and returns of $413 and $497, respectively |                                      |                            | 6,579             |       
|                                     | Inventories                                                                                            |                                      |                            | 10,105            |       
|                                     | Prepaid expenses                                                                                       |                                      |                            | 462               |       
|                                     | Other                                                                                                  |                                      |                            | 136               |       
|                                     |                                                                                                        |                                      |                            |                   |       
|                                     |                                                                                                        | Total current assets                 |                            |                   | 19,836
|                                     | PROPERTY AND EQUIPMENT, NET                                                                            |                                      |                            | 3,277             |       
|                                     | OTHER ASSETS                                                                                           |                                      |                            | 51                |       
|                                     |                                                                                                        |                                      |                            |                   |       
|                                     |                                                                                                        | $                                    | 23,164                     |                   | $     
|                                     |                                                                                                        |                                      |                            |                   |       
|LIABILITIES AND STOCKHOLDERS' EQUITY |                                                                                                       
|CURRENT LIABILITIES                  |                                                                                                        |                                      |                            |                   |       
|                                     | Current portion of long-term obligations                                                               |                                      | $                          | 154               |       
|                                     | Accounts payable                                                                                       |                                      |                            | 665               |       
|                                     | Accrued payroll and related expenses                                                                   |                                      |                            | 469               |       
|                                     | Accrued liabilities                                                                                    |                                      |                            | 1,062             |       
|                                     |                                                                                                        |                                      |                            |                   |       
|                                     |                                                                                                        |                                      | Total current liabilities  |                   |       
|LONG-TERM OBLIGATIONS                |                                                                                                        |                                      | 2,223                      |                   |       
|STOCKHOLDERS' EQUITY                 |                                                                                                        |                                      |                            |                   |       
|                                     | Common stock, $.25 par value; 10,000,000 shares authorized, 1,934,904 shares issued and outstanding    |                                      |                            | 484               |       
|                                     | Additional paid-in capital                                                                             |                                      |                            | 67,437            |       
|                                     | Accumulated deficit                                                                                    |                                      |                            | (47,572           | )     
|                                     | Accumulated other comprehensive deficit                                                                |                                      |                            | (8                | )     
|                                     |                                                                                                        |                                      |                            |                   |       
|                                     |                                                                                                        |                                      | 20,341                     |                   |       
|                                     |                                                                                                        | Less: 13,654 treasury sharesat cost |                            |                   | (1,750
|                                     |                                                                                                        |                                      |                            |                   |       
|                                     |                                                                                                        |                                      | Total stockholders' equity |                   |       
|                                     |                                                                                                        |                                      |                            |                   |       
|                                     |                                                                                                        | $                                    | 23,164                     |                   | $     
|                                     |                                                                                                        |                                      |                            |                   |       

The
accompanying notes are an integral part of these statements.

F-2

---

Boss Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollar amounts in thousands except per share data)

|                                                        |                                                       | Year ended
December 29,
2001            |        | Year ended
December 30,
2000 |     | Year ended
December 25,
1999 |     
|------------------------------------------------------- | ----------------------------------------------------- | --------------------------------------- | ------ | ---------------------------- | --- | ---------------------------- | ----
|Net sales                                               |                                                       | $                                       | 33,737 |                              | $   | 36,429                       |     
|Cost of sales                                           |                                                       |                                         | 21,591 |                              |     | 24,471                       |     
|                                                        |                                                       |                                         |        |                              |     |                              |     
|Gross profit                                            |                                                       |                                         | 12,146 |                              |     | 11,958                       |     
|Operating expenses                                      |                                                       |                                         | 11,817 |                              |     | 11,914                       |     
|                                                        |                                                       |                                         |        |                              |     |                              |     
|                                                        |                                                       |                                         | 329    |                              |     | 44                           |     
|Write-down of operating assets                          |                                                       |                                         |       |                              |     |                             |     
|                                                        |                                                       |                                         |        |                              |     |                              |     
|Earnings (loss) from operations                         |                                                       |                                         | 329    |                              |     | 44                           |     
|Other income and (expense)                              |                                                       |                                         |        |                              |     |                              |     
|                                                        | Interest income                                       |                                         |        | 77                           |     |                              | 166 
|                                                        | Interest expense                                      |                                         |        | (298                         | )   |                              | (351
|                                                        | Gain on lawsuit settlement net of settlement expenses |                                         |        | 120                          |     |                              | 150 
|                                                        | Gain on receipt of securities                         |                                         |        | 406                          |     |                              |    
|                                                        | Other                                                 |                                         |        | 62                           |     |                              | 67  
|                                                        |                                                       |                                         |        |                              |     |                              |     
|                                                        |                                                       | Net earnings (loss) before income taxes |        |                              | 696 |                              |     
|Income tax benefit (expense)                            |                                                       |                                         | 89     |                              |     | (42                          | )   
|                                                        |                                                       |                                         |        |                              |     |                              |     
|                                                        |                                                       | Net earnings (loss)                     |        | $                            | 785 |                              | $   
|                                                        |                                                       |                                         |        |                              |     |                              |     
|Net earnings (loss) per common share, basic and diluted |                                                       | $                                       | 0.41   |                              | $   | 0.02                         |     

The
accompanying notes are an integral part of these statements.

F-3

---

Boss Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

Years ended December 29, 2001, December 30, 2000 and December 25, 1999

(Dollars and share amounts in thousands)

|                                        |                                                  |       |   |   |     |   |   |        |   | Accumulated
Other
Comprehensive
Earnings
(Deficit) |         |        |   |      |     |     |  
|--------------------------------------- | ------------------------------------------------ | ----- | - | - | --- | - | - | ------ | - | -------------------------------------------------- | ------- | ------ | - | ---- | --- | --- | -
|
|
|
|Balance, December 26, 1998              |                                                  | 1,942 |   | $ | 486 |   | $ | 67,453 |   | $                                                  | (46,235 | )      | $ | (119 | )   |    |  
|Comprehensive earnings (loss):          |                                                  |       |   |   |     |   |   |        |   |                                                    |         |        |   |      |     |     |  
|                                        | Net loss                                         |       |  |   |     |  |   |        |  |                                                    |         | (2,156 | ) |      |    |     | 
|                                        | Foreign currency translation adjustment          |       |  |   |     |  |   |        |  |                                                    |         |       |   |      | 29  |     | 
|                                        |                                                  |       |   |   |     |   |   |        |   |                                                    |         |        |   |      |     |     |  
|Comprehensive loss                      |                                                  |       |   |   |     |   |   |        |   |                                                    |         |        |   |      |     |     |  
|Exercise of stock options               |                                                  | 32    |   |   | 8   |   |   | 16     |   |                                                    |        |        |   |     |     |    |  
|Purchase and retirement of common stock |                                                  | (25   | ) |   | (6  | ) |   | (36    | ) |                                                    |        |        |   |     |     |    |  
|Common stock cancelled                  |                                                  | (14   | ) |   | (4  | ) |   | 4      |   |                                                    |        |        |   |     |     |    |  
|                                        |                                                  |       |   |   |     |   |   |        |   |                                                    |         |        |   |      |     |     |  
|Balance, December 25, 1999              |                                                  | 1,935 |   |   | 484 |   |   | 67,437 |   |                                                    | (48,391 | )      |   | (90  | )   | (14 | )
|Comprehensive earnings (loss):          |                                                  |       |   |   |     |   |   |        |   |                                                    |         |        |   |      |     |     |  
|                                        | Net earnings                                     |       |  |   |     |  |   |        |  |                                                    |         | 34     |   |      |    |     | 
|                                        | Foreign currency translation adjustment          |       |  |   |     |  |   |        |  |                                                    |         |       |   |      | (9  | )   | 
|                                        |                                                  |       |   |   |     |   |   |        |   |                                                    |         |        |   |      |     |     |  
|Comprehensive earnings                  |                                                  |       |   |   |     |   |   |        |   |                                                    |         |        |   |      |     |     |  
|                                        |                                                  |       |   |   |     |   |   |        |   |                                                    |         |        |   |      |     |     |  
|Balance, December 30, 2000              |                                                  | 1,935 |   |   | 484 |   |   | 67,437 |   |                                                    | (48,357 | )      |   | (99  | )   | (14 | )
|Comprehensive earnings (loss):          |                                                  |       |   |   |     |   |   |        |   |                                                    |         |        |   |      |     |     |  
|                                        | Net earnings                                     |       |  |   |     |  |   |        |  |                                                    |         | 785    |   |      |    |     | 
|                                        | Foreign currency translation adjustment          |       |  |   |     |  |   |        |  |                                                    |         |       |   |      | (18 | )   | 
|                                        | Unrealized gain on available-for-sale securities |       |  |   |     |  |   |        |  |                                                    |         |       |   |      | 109 |     | 
|                                        |                                                  |       |   |   |     |   |   |        |   |                                                    |         |        |   |      |     |     |  
|Comprehensive earnings                  |                                                  |       |   |   |     |   |   |        |   |                                                    |         |        |   |      |     |     |  
|                                        |                                                  |       |   |   |     |   |   |        |   |                                                    |         |        |   |      |     |     |  
|Balance, December 29, 2001              |                                                  | 1,935 |   | $ | 484 |   | $ | 67,437 |   | $                                                  | (47,572 | )      | $ | (8   | )   | (14 | )
|                                        |                                                  |       |   |   |     |   |   |        |   |                                                    |         |        |   |      |     |     |  

The accompanying notes are an integral part of this statement.

F-4

---

Boss Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

|                                     |                                                                                      | Year ended
December 29,
2001                  |                                           | Year ended
December 30,
2000 |                                                  | Year ended
December 25,
1999 |    
|------------------------------------ | ------------------------------------------------------------------------------------ | --------------------------------------------- | ----------------------------------------- | ---------------------------- | ------------------------------------------------ | ---------------------------- | ---
|Cash flow from operating activities: |                                                                                      |                                               |                                           |                              |                                                  |                              |    
|                                     | Net earnings (loss)                                                                  |                                               | $                                         | 785                          |                                                  | $                            | 34 
|                                     | Adjustments to reconcile net earnings (loss) to cash flow from operating activities: |                                               |                                           |                              |                                                  |                              |    
|                                     |                                                                                      | Write-down of operating assets                |                                           |                              |                                                 |                              |    
|                                     |                                                                                      | Depreciation                                  |                                           |                              | 382                                              |                              |    
|                                     |                                                                                      | Loss on disposal of operating assets          |                                           |                              | 12                                               |                              |    
|                                     |                                                                                      | Receipt of available-for-sale securities      |                                           |                              | (406                                             | )                            |    
|                                     |                                                                                      | (Increase) decrease in operating assets:      |                                           |                              |                                                  |                              |    
|                                     |                                                                                      |                                               | Accounts receivable                       |                              |                                                  | 1,489                        |    
|                                     |                                                                                      |                                               | Inventories                               |                              |                                                  | 1,139                        |    
|                                     |                                                                                      |                                               | Prepaid expenses and other current assets |                              |                                                  | (183                         | )  
|                                     |                                                                                      |                                               | Other assets                              |                              |                                                  |                             |    
|                                     |                                                                                      | Increase (decrease) in operating liabilities: |                                           |                              |                                                  |                              |    
|                                     |                                                                                      |                                               | Accounts payable                          |                              |                                                  | (450                         | )  
|                                     |                                                                                      |                                               | Accrued liabilities                       |                              |                                                  | (493                         | )  
|                                     |                                                                                      |                                               |                                           |                              |                                                  |                              |    
|                                     |                                                                                      |                                               |                                           |                              | Net cash provided (used) by operating activities |                              |    
|Cash flow from investing activities: |                                                                                      |                                               |                                           |                              |                                                  |                              |    
|                                     | Proceeds from disposition of operating assets                                        |                                               |                                           | 2                            |                                                  |                              | 770
|                                     | Purchases of property and equipment                                                  |                                               |                                           | (47                          | )                                                |                              | (72
|                                     | Proceeds from payments on note receivable                                            |                                               |                                           |                             |                                                  |                              |   
|                                     |                                                                                      |                                               |                                           |                              |                                                  |                              |    
|                                     |                                                                                      |                                               |                                           |                              | Net cash (used) provided by investing activities |                              |    

The
accompanying notes are an integral part of these statements.

F-5

---

|                                                         |                                                         | Year ended
December 29,
2001                     |       | Year ended
December 30,
2000 |        | Year ended
December 25,
1999 |      
|-------------------------------------------------------- | ------------------------------------------------------- | ------------------------------------------------ | ----- | ---------------------------- | ------ | ---------------------------- | -----
|Cash flow from financing activities:                     |                                                         |                                                  |       |                              |        |                              |      
|                                                         | Net (repayments) borrowings on revolving line of credit |                                                  |       | (2,019                       | )      |                              | 1,947
|                                                         | Proceeds from long-term debt                            |                                                  |       |                             |        |                              |     
|                                                         | Repayment of long-term obligations                      |                                                  |       | (212                         | )      |                              | (222 
|                                                         | Proceeds from exercise of stock options and warrants    |                                                  |       |                             |        |                              |     
|                                                         | Retirement of common stocklimited tender               |                                                  |       |                             |        |                              |     
|                                                         |                                                         |                                                  |       |                              |        |                              |      
|                                                         |                                                         | Net cash (used) provided by financing activities |       |                              | (2,231 | )                            |      
|Effect of exchange rate changes on cash                  |                                                         |                                                  | (18   | )                            |        | (9                           | )    
|                                                         |                                                         |                                                  |       |                              |        |                              |      
|Net (decrease) increase in cash during period            |                                                         |                                                  | (19   | )                            |        | (1,939                       | )    
|Cash and cash equivalents at the beginning of the period |                                                         |                                                  | 2,058 |                              |        | 3,997                        |      
|                                                         |                                                         |                                                  |       |                              |        |                              |      
|Cash and cash equivalents at the end of the period       |                                                         | $                                                | 2,039 |                              | $      | 2,058                        |      
|                                                         |                                                         |                                                  |       |                              |        |                              |      
|Supplemental disclosure:                                 |                                                         |                                                  |       |                              |        |                              |      
|                                                         | Interest paid                                           |                                                  | $     | 264                          |        | $                            | 334  
|                                                         | Income taxes paid (refunded), net                       |                                                  |       | 55                           |        |                              | 64   
|Noncash investing and financing activities:              |                                                         |                                                  |       |                              |        |                              |      
|                                                         | Assets purchased under capital lease obligation         |                                                  | $     |                             |        | $                            | 13   
|                                                         | Unrealized gain on available-for-sale securities        |                                                  |       | 109                          |        |                              |     

The
accompanying notes are an integral part of these statements.

F-6

---

Boss Holdings, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 29, 2001, and December 30, 2000

(Dollar amounts in thousands except per share data)

(1)    Nature of Business and Summary of Significant Accounting Policies

Nature of Business

Boss Holdings, Inc. and its subsidiaries are engaged primarily in the import, marketing and distribution of gloves, boots, rainwear and pet products.
Customers, located throughout North America, include retailers ranging from convenience stores to mass merchandisers and various commercial users.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Boss Holdings, Inc. ("BHI"), and its wholly owned subsidiary, Boss Manufacturing
Holdings, Inc. and subsidiaries ("BMHI") (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.
Certain prior year amounts have been reclassified to conform to the current year presentation.

Fiscal Year

The Company maintains a 52/53-week year ending on the last Saturday of the calendar year. Fiscal years 2001 and 1999 each contained 52
weeks, while 2000 contained 53 weeks.

Use of Estimates in the Preparation of Financial Statements

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

Cash and Cash Equivalents

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

Marketable Securities

The Company classifies marketable equity securities as available-for-sale securities, as defined by the Statement of Financial Accounting
Standards No. 115,Accounting for Certain Investments in Debt and Equity Securities("SFAS 115"). In accordance with the provisions of
SFAS 115, marketable securities are stated at fair value with net unrealized gains and losses included in accumulated other comprehensive earnings (deficit). See Note 10,
"Available-for-Sale Securities," for further discussion.

Revenue Recognition

The Company recognizes revenue and provides for the estimated cost of returns and allowances in the period goods ship to the customer. Sales in any single foreign
geographic area or to any single customer did not exceed 10% of net sales for 2001, 2000 or 1999.

Shipping and Handling Fees and Costs

The Company adopted Emerging Issues Task Force ("EITF") 00-10,Accounting for Shipping and Handling Fees and
Costs. EITF 00-10 requires significant shipping and handling costs not classified as

F-7

---

cost of sales to be disclosed in both the amount of such costs and the line item that includes them in the consolidated statements of operations. Cost of sales includes shipping and handling costs
associated with inbound freight. Operating expenses include shipping and handling costs associated with outbound freight of $1,793, $1,720 and $1,568 for 2001, 2000 and 1999, respectively.

Inventories

The Company states inventory at the lower of cost or market using the first-in, first-out ("FIFO") method. During the fourth quarter of
2001, the domestic operations of the work gloves and protective wear segment (comprising approximately 80% of total inventories) changed from the last-in, first-out ("LIFO")
method to FIFO. The Company has been experiencing reduced costs in this segment resulting from a combination of buying improvements, increased imports and market conditions. Management believes the
change in accounting principle provides a better measurement of operating results by maintaining an effective matching of revenues and expenses. The net effect of the change in accounting principle
was not material to the financial statements, and accordingly, no retroactive restatement of prior years' financial statements was required.

Warranty Costs and Returns

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

Property, Equipment and Depreciation

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

Machinery and equipment

3 to 10 yearsOffice Furniture and equipment

3 to 8 yearsBuildings

35 years


Depreciation
expense was $382, $456 and $474 for 2001, 2000 and 1999, respectively.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and
liabilities are measured using enacted tax rates applied to taxable income. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance is provided for deferred income tax assets when it is more likely than not that the asset will not be realized.

F-8

---

Fair Value of Financial Instruments

The Company's financial instruments consist of cash equivalents, marketable securities and long-term debt. The carrying value of cash equivalents
approximates fair value due to the relatively short period to maturity of the instruments. The carrying value of marketable securities equals fair value based on the quoted market prices of shares
held by the Company. The carrying value of long-term obligations approximates fair value based upon borrowing rates currently available to the Company for borrowings with comparable
maturities.

Foreign Currency Translation

Financial statements of the Company's Canadian subsidiary are translated into U.S. dollars using fiscal year-end exchange rates for assets and
liabilities, and average exchange rates during the year for the results of operations. Translation adjustments of the Canadian accounts are reported as a separate component of other comprehensive
earnings within stockholders' equity.

Exchange
rate adjustments related to foreign currency transactions are recognized in income as incurred and were not significant in any of the reported periods.

Advertising Costs

The Company generally expenses the cost of advertising the first time advertising takes place. Costs of trade shows and developing advertising materials are
expensed at the time of the trade shows or as the advertising materials are produced and distributed to customers. Advertising expense for 2001, 2000 and 1999 was $968, $924 and $807, respectively.

Systems Development Costs

In 1999, the Company adopted AICPA Statement of Position ("SOP") 98-1,Accounting for the Costs of Computer Systems Developed
or Obtained for Internal Use. Pursuant to SOP 98-1, the Company capitalizes certain systems development costs that meet established criteria and amortizes these
amounts over a three-year period.

The
Company capitalized systems development costs of $0, $0 and $427 for 2001, 2000 and 1999, respectively.

Earnings (Loss) Per Share

Basic net earnings (loss) per common share is based upon the weighted average number of common shares outstanding during the period. Diluted net earnings (loss)
per common share is based upon the weighted average number of common shares outstanding plus dilutive potential common shares, including options and warrants outstanding during the period.

F-9

---

(2)    Inventories

December 29,
2001

December 30,
2000Raw Materials

$
188

$
224Work in Progress


15


64Finished Goods


9,902


10,956$
10,105

$
11,244


(3)    Property and Equipment

December 29,
2001

December 30,
2000Machinery and equipment

$
720

$
726Buildings and improvements


3,061


3,061Office furniture and equipment


1,182


1,151Total property and equipment


4,963


4,938Less accumulated depreciation


(1,789
)

(1,415
)3,174


3,523Land


103


103$
3,277

$
3,626


(4)    Long-Term Obligations

Long-Term Debt

|                                                                                                                                                                                                                                                                                                                                                                                              |                      | December 29,
2001 |       | December 30,
2000
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ----------------- | ----- | -----------------
|BHI revolving line of credit                                                                                                                                                                                                                                                                                                                                                                  |                      | $                 | 762   |                  
|Boss Manufacturing Real Estate, Inc. mortgage note payable to a lender. Requires monthly principal payments of $6. Interest is at LIBOR plus 2.1%, adjusted monthly (effective rate of 4.0% at December 29, 2001). All
remaining principal is due in October 2004. Collateralized by all real and personal property of Boss Manufacturing Real Estate, Inc. located in Springfield, Illinois. |                      |                   | 1,337 |                  
|Boss Manufacturing Company loan agreement with a local governmental agency. Requires monthly payments of $7, including interest at 3%, through June 2005. Collateralized by all real property of Boss Manufacturing
Company's Kewanee, Illinois facilities.                                                                                                                                   |                      |                   | 270   |                  
|                                                                                                                                                                                                                                                                                                                                                                                              |                      |                   |       |                  
|                                                                                                                                                                                                                                                                                                                                                                                              | Total long-term debt |                   |       | 2,369            
|Less current maturities                                                                                                                                                                                                                                                                                                                                                                       |                      |                   | 149   |                  
|                                                                                                                                                                                                                                                                                                                                                                                              |                      |                   |       |                  
|                                                                                                                                                                                                                                                                                                                                                                                              | Long-term debt       |                   | $     | 2,220            
|                                                                                                                                                                                                                                                                                                                                                                                              |                      |                   |       |                  

F-10

---

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

Fiscal year:2002

$
1492003


9142004


1,2662005


40Total

$
2,369


In
June 2000, the Company entered into a loan and security agreement (the "Credit Agreement") with a commercial bank. The Credit Agreement expires in May 2002 and provides
a revolving credit facility up to $10,000 based on a formula that includes eligible accounts receivable and inventories. The Company expects to renew this agreement upon expiration with substantially
equivalent terms. Interest is payable monthly at the bank's prime rate or, at the Company's option, LIBOR plus 2.1% (combined effective rate of 4.4% at December 29, 2001). The Company incurs an
unused line fee of 1/8% per annum on the unused portion of the credit facility. Availability under this credit agreement was $6,248 at December 29, 2001.

The
Credit Agreement includes certain restrictive covenants and requires maintenance of certain financial ratios including current ratio, minimum tangible net worth, debt service
coverage and debt to tangible net worth. As of December 29, 2001, the Company was in compliance with such covenants. The Company's accounts receivable and inventories secure the credit
facility.

Capital Lease Obligations

Long-term obligations include future minimum payments under capital leases as described in the following note, "Commitments and Contingencies."

(5)    Commitments and Contingencies

Leases

The Company leases certain office and operating facilities and certain equipment under operating lease agreements that expire on various dates through 2005 and
require the Company to pay all maintenance costs. Rent expense under these leases was approximately $274, $172 and $137 for 2001, 2000 and 1999, respectively. The following is a schedule by year of
future minimum payments under

F-11

---

capital and operating lease agreements, and the present value of future minimum rental payments under capitalized lease obligations at December 29, 2001:

Capital

Operating

TotalYear ending December 31,2002

$
5

$
114

$
1192003


3


64


672004





13


132005





1


1Total minimum lease payments


8

$
192

$
200Current portion of capital lease obligation


(5
)Present value of long-term capital lease obligation

$
3


Litigation

In August 1999, the Company reached an agreement in settlement of an action against a former officer and director of the Company. During 2001, the former
officer failed to make required installment payments under the settlement agreement and filed for bankruptcy. The Company has obtained a final judgment in foreclosure of its mortgage on the former
officer's residence. The Company will continue to pursue recovery of funds through sale of the foreclosed property, although the amount of any such recovery is uncertain at this time. The related
receivable, net of valuation allowance, was $0 as of December 29, 2001 and December 30, 2000.

The
Company is also a defendant or has been notified of claims in several other actions against it. In the opinion of management, the ultimate outcome of these actions will not have a
material adverse effect on the financial position of the Company.

F-12

---

Boss Holdings, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 29, 2001 and December 30, 2000
(Dollar amounts in thousands except per share data)

(6)    Stockholders' Equity

Stock Options

The Company has adopted two stock option plans providing for the issuance of options covering up to 425,000 shares of common stock to be issued to officers,
directors, employees or consultants to the Company. Various vesting conditions apply to these options, based on either tenure or certain performance criteria. Options granted to nonemployees are
recognized over the related service period based on the estimated fair value of the options. The Company recorded no charges in the periods being presented. Stock option transactions are summarized as
follows:

|                                 |  | Year ended
December 30, 2001 |   | Year ended
December 30, 2000 |      | Year ended
December 25, 1999
|-------------------------------- |  | ---------------------------- | - | ---------------------------- | ---- | ----------------------------
|
|Outstanding, beginning of period |  | 228,590                      |   | $                            | 2.32 |                             
|Granted                          |  |                             |   |                              |     |                             
|Exercised                        |  |                             |   |                              |     |                             
|Cancelled                        |  | (20,010                      | ) |                              | 2.77 |                             
|                                 |  |                              |   |                              |      |                             
|Outstanding, end of period       |  | 208,580                      |   | $                            | 2.28 |                             
|                                 |  |                              |   |                              |      |                             

The
following table summarizes information about stock options outstanding that are exercisable at December 29, 2001:

Options outstanding and exercisableExercise
price

Number
outstanding at
December 29,
2001

Weighted
average
remaining
contractual
life (years)

Weighted
average
exercise price$
98.25

80

3.8

$
98.251.75

127,333

7.2


1.753.63

27,500

8.0


3.63154,913

7.3

$
2.13


The
Company uses the intrinsic value method in accounting for its stock options issued to employees. In applying this method, no compensation cost has been recognized related to the
granting of options to employees. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant dates for awards to employees under those plans, the

F-13

---

Stock Options (continued)

Company's
net earnings (loss) and earnings (loss) per share would have resulted in the pro forma amounts indicated below:

|                                                       |             | 2001 |   | 2000 |  | 1999 |      
|------------------------------------------------------ | ----------- | ---- | - | ---- |  | ---- | -----
|Net earnings (loss)                                    |             |      |   |      |  |      |      
|                                                       | As reported |      | $ | 785  |  | $    | 34   
|                                                       | Pro forma   |      |   | 785  |  |      | (27  
|Basic and diluted net earnings (loss) per common share |             |      |   |      |  |      |      
|                                                       | As reported |      | $ | 0.41 |  | $    | 0.02 
|                                                       | Pro forma   |      |   | 0.41 |  |      | (0.01

The
fair values were estimated using the Black-Scholes options-pricing model with the following weighted-average assumptions for 2000 and 1999, respectively; expected volatility of 50%
and 50%, expected dividend yield of 0.0% and 0.0%, risk-free rate of return of 4.9% and 6.6%; and expected lives of 5 and 5 years. The Company granted no options in 2001.

(7)    Earnings Per Share

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

|                                                                                                                         |  | 2001 |       | 2000 |   | 1999  | 
|------------------------------------------------------------------------------------------------------------------------ |  | ---- | ----- | ---- | - | ----- | 
|Numerator for basic and diluted net earnings
(loss) per common share-earnings (loss)
attributable to common stockholders |  | $    | 785   |      | $ | 34    | 
|                                                                                                                         |  |      |       |      |   |       | 
|Denominator for basic and diluted net earnings
(loss) per common share-weighted average shares outstanding               |  |      | 1,935 |      |   | 1,935 | 
|Net earnings (loss) per common share, basic and diluted                                                                  |  | $    | 0.41  |      | $ | 0.02  | 

(8)    Employee Retirement Savings Plan

The Company contributes to employee retirement plans covering substantially all of its employees. Charges to consolidated operations for these plans were as
follows:

2001

2000

1999Discretionary Contribution Profit Sharing-401(k)

$
24

$


$
90


(9)    Related Party Transactions

During 2001, 2000 and 1999, compensation, fees and expense reimbursements paid to directors or their affiliates totaled $327, $392 and $518, respectively.

F-14

---

(10)    Available-for-Sale Securities

The Company, as a policyholder, has certain contractual interests in Principal Financial Group, Inc. ("PFG"). During October 2001, PFG converted
from a mutual insurance company into a stock enterprise through a demutualization transaction. In order to complete the demutualization, PFG issued consideration in the form of stock to existing
participating policyholders in exchange for their membership interests.

During
2001, the Company received approximately 22,000 shares of PFG stock as a result of its ownership of certain PFG policies prior to the demutualization. The Company's receipt of PFG
stock has no effect on the related policies in force.

The
Company adopted EITF 99-4,Accounting for Stock Received from the Demutualization of a Mutual Insurance Company. Pursuant
to EITF 99-4, the Company accounted for the receipt of stock at fair value with a gain recognized in other income. The receipt of stock, valued at PFG's Initial Public Offering price of
$18.50 per share, produced a realized gain of $406.

The
Company classifies PFG stock as an available-for-sale investment. As of December 29, 2001, the unrealized holding gain totaled $109.

(11)    Income Taxes

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

|                                      |                 | December 29,
2001 |     | December 30,
2000 |   | December 25,
1999
|------------------------------------- | --------------- | ----------------- | --- | ----------------- | - | -----------------
|Current income tax expense (benefit)  |                 |                   |     |                   |   |                  
|                                      | Federal         |                   | $   | 20                |   | $                
|                                      | State and local |                   |     | (109              | ) |                  
|                                      |                 |                   |     |                   |   |                  
|                                      |                 |                   | (89 | )                 |   | 64               
|Deferred income tax expense (benefit) |                 |                   |     |                   |   |                  
|                                      | Federal         |                   | $   |                  |   | $                
|                                      | State and local |                   |     |                  |   |                  
|                                      |                 |                   |     |                   |   |                  
|                                      |                 |                   |    |                   |   | (22              
|                                      |                 |                   |     |                   |   |                  
|Total income tax (benefit) expense    |                 | $                 | (89 | )                 | $ | 42               
|                                      |                 |                   |     |                   |   |                  

F-15

---



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

|                                 |                               | December 29,
2001                      |       | December 30,
2000 |        
|-------------------------------- | ----------------------------- | -------------------------------------- | ----- | ----------------- | -------
|Deferred income tax assets:      |                               |                                        |       |                   |        
|                                 | Operating loss carryforwards  |                                        | $     | 15,303            |        
|                                 | Accounts receivable           |                                        |       | 196               |        
|                                 | Accruals                      |                                        |       | 78                |        
|                                 | Compensation related          |                                        |       | 111               |        
|                                 | Tax credit carryforwards      |                                        |       | 305               |        
|                                 |                               |                                        |       |                   |        
|                                 |                               | Gross deferred tax assets              |       |                   | 15,993 
|                                 |                               | Deferred tax asset valuation allowance |       |                   | (14,715
|                                 |                               |                                        |       |                   |        
|                                 | Net deferred tax asset        |                                        |       | 1,278             |        
|                                 |                               |                                        |       |                   |        
|Deferred income tax liabilities: |                               |                                        |       |                   |        
|                                 | Available-for-sale securities |                                        |       | 158               |        
|                                 | Inventories                   |                                        |       | 904               |        
|                                 | Fixed assets                  |                                        |       | 194               |        
|                                 |                               |                                        |       |                   |        
|                                 |                               |                                        | 1,256 |                   |        
|                                 |                               |                                        |       |                   |        
|Net deferred income tax asset    |                               | $                                      | 22    |                   | $      
|                                 |                               |                                        |       |                   |        

Included
in the tax credit carryforward is approximately $305 of alternative minimum tax credits and general business credits available to reduce future income taxes payable.

Income
tax expense and benefit for 2001, 2000 and 1999 consists primarily of current state taxes attributable to BMHI and its subsidiaries. Other current assets include refundable state
income taxes of $136 and $0 at December 29, 2001 and December 30, 2000, respectively. Accrued liabilities include federal and state income taxes payable of $181 and $337 at
December 29, 2001 and December 30, 2000, respectively. Other assets included the net deferred income tax asset of $22 at December 29, 2001 and December 30, 2000.

F-16

---

At
December 29, 2001, the Company had operating loss carryforwards for U.S. income tax purposes of $39,238 available to reduce future taxable income, which expire as follows:

Year of
expiration

Net
operating
loss2002

$
2222008


1,6462009


8,1202010


2,0392011


16,5492012


9,1972019


5352021


930$
39,238


The
Company experienced a change in control, as defined under Section 382 of the Internal Revenue Service Code, during 1996. As a result, the utilization of the net operating
losses that originated in or prior to 1996 is limited to a maximum of approximately $3,192 per year.

(12)    Write-down of Operating Assets

During
the fourth quarter of 1999, management decided to dispose of the Company's Greenville, Alabama glove manufacturing facility. This facility incurred significant operating losses
due to reduced demand for domestically produced gloves. The Company ceased manufacturing operations in Greenville and disposed of all assets associated with this operation during the third quarter of
2000.

The
Company recorded a charge of $1,100 in the fourth quarter of 1999 representing management's estimate of the Greenville disposition costs. Disposition costs in excess of the estimate
were charged to expense in 2000. Greenville disposition costs included expenses of selling the facilities, losses on fixed asset sales, employee severance costs, liquidation of unused raw materials
and operating losses incurred during 2000 prior to the facility closing.

(13)    Operating Segments and Related Information

The Company operates primarily in the work gloves and protective wear segment. Through its Boss Manufacturing Company subsidiary, the Company imports, markets and
distributes gloves, boots and rainwear products. In addition, through its Warren Pet Products division of BMHI, the Company imports and markets a line of pet supplies including dog and cat toys,
collars, leads, chains and rawhide products.

F-17

---

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

|                                |  | Work Gloves
and Protective
Wear |        | Pet
Supplies |   | Corporate
and Other |   | Total |       
|------------------------------- |  | ------------------------------- | ------ | ------------ | - | ------------------- | - | ----- | ------
|2001                            |  |                                 |        |              |   |                     |   |       |       
|Revenues                        |  | $                               | 30,546 |              | $ | 2,301               |   | $     | 890   
|Segment (loss) profit           |  |                                 | 1,049  |              |   | (62                 | ) |       | (658  
|Earnings (loss) from operations |  |                                 | 1,049  |              |   | (62                 | ) |       | (658  
|Total assets                    |  |                                 | 17,659 |              |   | 1,241               |   |       | 4,264 
|Capital expenditures            |  |                                 | 47     |              |   |                    |   |       |      
|Depreciation                    |  |                                 | 361    |              |   | 12                  |   |       | 9     
|2000                            |  |                                 |        |              |   |                     |   |       |       
|Revenues                        |  | $                               | 32,440 |              | $ | 2,634               |   | $     | 1,355 
|Segment (loss) profit           |  |                                 | 410    |              |   | 123                 |   |       | (489  
|Earnings (loss) from operations |  |                                 | 410    |              |   | 123                 |   |       | (489  
|Total assets                    |  |                                 | 19,748 |              |   | 1,441               |   |       | 4,273 
|Capital expenditures            |  |                                 | 72     |              |   |                    |   |       |      
|Depreciation                    |  |                                 | 395    |              |   | 38                  |   |       | 23    
|1999                            |  |                                 |        |              |   |                     |   |       |       
|Revenues                        |  | $                               | 30,722 |              | $ | 3,716               |   | $     | 1,586 
|Segment (loss) profit           |  |                                 | (1,117 | )            |   | 419                 |   |       | (1,092
|Asset sales and write-downs     |  |                                 | (1,100 | )            |   |                    |   |       |      
|(Loss) earnings from operations |  |                                 | (2,217 | )            |   | 419                 |   |       | (1,092
|Total assets                    |  |                                 | 18,735 |              |   | 1,306               |   |       | 6,251 
|Capital expenditures            |  |                                 | 623    |              |   |                    |   |       |      
|Depreciation                    |  |                                 | 406    |              |   | 38                  |   |       | 30    

F-18

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Boss Holdings, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 29, 2001 and December 30, 2000

(Dollar amounts in thousands except per share data)

(14)    Quarterly Consolidated Financial Information (Unaudited)

The following is a summary of the unaudited quarterly results for fiscal 2001 and 2000:

|                                            |  | First
Quarter |           | Second
Quarter |   | Third
Quarter |   | Fourth
Quarter |           | Total
|------------------------------------------- |  | ------------- | --------- | -------------- | - | ------------- | - | -------------- | --------- | -----
|2001                                        |  |               |           |                |   |               |   |                |           |      
|Net sales                                   |  | $             | 8,864     |                | $ | 7,174         |   | $              | 8,094     |      
|Gross profit                                |  |               | 3,201     |                |   | 2,537         |   |                | 2,823     |      
|Net earnings (loss)                         |  |               | 110       |                |   | (261          | ) |                | (77       | )    
|Net earnings (loss) per common share        |  |               | 0.06      |                |   | (0.13         | ) |                | (0.04     | )    
|Common shares used in per share calculation |  |               | 1,934,904 |                |   | 1,934,904     |   |                | 1,934,904 |      
|2000                                        |  |               |           |                |   |               |   |                |           |      
|Net sales                                   |  | $             | 10,656    |                | $ | 6,977         |   | $              | 7,987     |      
|Gross profit                                |  |               | 3,543     |                |   | 2,088         |   |                | 2,661     |      
|Net earnings (loss)                         |  |               | 254       |                |   | (706          | ) |                | (150      | )    
|Net earnings (loss) per common share        |  |               | 0.13      |                |   | (0.36         | ) |                | (0.08     | )    
|Common shares used in per share calculation |  |               | 1,934,904 |                |   | 1,934,904     |   |                | 1,934,904 |      

(15)    Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standard No. 141, Business
Combinations("SFAS 141") and Statement of Financial Accounting Standard No. 142,Goodwill and Other
Intangible Assets("SFAS 142").

SFAS 141
establishes accounting and reporting for business combinations by requiring that all business combinations be accounted for under the purchase method. Use of the
pooling-of-interests method is no longer permitted. SFAS 141 also provides guidance on purchase accounting related to the recognition of intangible assets and accounting
for negative goodwill. SFAS 141 requires that the purchase method be used for business combinations initiated after June 30, 2001.

SFAS 142
discontinues the practice of amortizing goodwill and indefinite-lived intangible assets, and initiates an annual review for impairment. Impairment would be examined more
frequently if certain indicators existed. Intangible assets with a determinable useful life will continue to be amortized over the period. The provisions of SFAS 142 are effective for financial
statements issued for fiscal years beginning after December 15, 2001.

In
August 2001, the FASB issued Statement of Financial Accounting Standard No. 143,Accounting for Asset Retirement
Obligations("SFAS 143"). The objective of SFAS 143 is to provide accounting guidance for legal obligations associated with the retirement of
long-lived assets. The retirement obligations included within the scope of this project are those that an entity cannot avoid as a result of the acquisition, construction or normal
operation of a long-lived asset. Components of larger systems also fall under this project, as well as tangible long-lived assets with indeterminable lives. The provisions of
SFAS 143 are effective for financial statements issued for fiscal years beginning after June 15, 2002.

F-19

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In
October 2001, the FASB issued Statement of Financial Accounting Standards No. 144,Accounting for the Impairment or Disposal of
Long-Lived Assets("SFAS 144"). SFAS 144 supersedes SFAS No. 121,Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of("SFAS 121") and the accounting and reporting provisions of Accounting Principles
Board Opinion No. 30,Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the disposal of a segment of a business(as defined in that Opinion).

SFAS 144
retains the fundamental provisions of SFAS 121 concerning the recognition and measurement of the impairment of long-lived assets to be held and used
and the measurement of long-lived assets to be disposed of by sale, but provides additional guidance with regard to discontinued operations and
assets to be disposed of. Furthermore, SFAS 144 excludes goodwill from its scope and, therefore, eliminates the requirement under SFAS 121 to allocate goodwill to long-lived
assets to be tested for impairment. SFAS 144 is effective for fiscal years beginning after December 15, 2001.

Management
believes that the adoptions of the foregoing pronouncements will not have a significant impact on the financial position, results of operations, or cash flows of the Company.

F-20

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Boss Holdings, Inc. and Subsidiaries    SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS  (in thousands)

|Column A                     |                                       | Column B                              |   | Column C |        | Column D |     | Column E
|---------------------------- | ------------------------------------- | ------------------------------------- | - | -------- | ------ | -------- | --- | --------
|
|Year ended December 29, 2001 |                                       |                                       |   |          |        |          |     |         
|                             | Accounts receivable                   |                                       | $ | 497      |        | $        | 298 |         
|                             | Inventories                           |                                       |   | 659      |        |          | 145 |         
|                             | Deferred income tax asset             |                                       |   | 15,012   |        |          |    |         
|                             | Promissory note receivable            |                                       |   | 948      |        |          |    |         
|                             |                                       |                                       |   |          |        |          |     |         
|                             |                                       | Total allowances deducted from assets |   | $        | 17,116 |          | $   | 443     
|                             |                                       |                                       |   |          |        |          |     |         
|Year ended December 30, 2000 |                                       |                                       |   |          |        |          |     |         
|                             | Accounts receivable                   |                                       | $ | 464      |        | $        | 92  |         
|                             | Inventories                           |                                       |   | 723      |        |          | 87  |         
|                             | Deferred income tax asset             |                                       |   | 12,978   |        |          |    |         
|                             | Promissory note receivable            |                                       |   |         |        |          |    |         
|                             |                                       |                                       |   |          |        |          |     |         
|                             | Total allowances deducted from assets |                                       | $ | 14,165   |        | $        | 179 |         
|                             |                                       |                                       |   |          |        |          |     |         
|Year ended December 25, 1999 |                                       |                                       |   |          |        |          |     |         
|                             | Accounts receivable                   |                                       | $ | 455      |        | $        | 81  |         
|                             | Inventories                           |                                       |   | 817      |        |          | 69  |         
|                             | Deferred income tax asset             |                                       |   | 12,474   |        |          |    |         
|                             |                                       |                                       |   |          |        |          |     |         
|                             |                                       | Total allowances deducted from assets |   | $        | 13,746 |          | $   | 150     
|                             |                                       |                                       |   |          |        |          |     |         

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Notes:

F-21

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