EXHIBIT 32

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

In connection with the Annual
Report of Boss Holdings, Inc. (the "Company") on Form 10-K for the fiscal year
ended December 27, 2008 as filed with the Securities and Exchange Commission on
the date hereof (the "Report"), I, G. Louis Graziadio III, Chairman and Chief
Executive Officer of the Company, and I, Steven G. Pont, Vice President of
Finance and Principal Financial Officer, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
to my knowledge:

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

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

|Dated: | March 27, 2009                                                   
|------ | -----------------------------------------------------------------
|       |                                                                  
|       |                                                                  
|       | /s/ G. Louis Graziadio
      III                                 
|       | G. Louis
      Graziadio III, Chairman of the Board and President
|       | Principal Executive Officer                                      
|       |                                                                  
|       |                                                                  
|       | /s/ Steven G. Pont                                               
|       | Steven G. Pont, Vice President of Finance                        
|       | Principal Financial Officer                                      

E-10

---

Boss Holdings,
Inc.and Subsidiaries

Consolidated Financial
Statements

December 27,
2008













F-1

---



Report of
Independent Registered Public Accounting Firm

To the Board of DirectorsBoss
Holdings, Inc.

We have audited the accompanying
consolidated balance sheets of Boss Holdings, Inc. and subsidiaries as of
December 27, 2008 and December 29, 2007, and the related consolidated statements
of income, stockholders equity and cash flows for each of the three years in
the period ended December 27, 2008. Our audits also included the financial
statement schedule listed in the index at Item 15(a)(2). These financial
statements and schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.

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

In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the financial position of Boss Holdings, Inc. and subsidiaries as of December
27, 2008 and December 29, 2007 and the results of their operations and their
cash flows for each of the three years in the period ended December 27, 2008 in
conformity with U.S. generally accepted accounting principles. Also, in our
opinion, the related financial schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects, the information set forth therein.

We were not engaged to examine
managements assertion about the effectiveness of Boss Holdings, Inc.s internal
control over financial reporting as of Dec. 27, 2008 included in the
accompanying managements annual report on internal control over financial
reporting in Item 9A(T) Controls and Procedures and, accordingly, we do not
express an opinion thereon.

As described in Note 10 to the
consolidated financial statements, effective December 31, 2006, the Company
adopted the provisions of FASB Interpretation No. 48,Accounting for Uncertainty in Income
Taxes.

/s/ McGladrey & Pullen,
LLP

Davenport, IowaMarch 27,
2009





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

F-2

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Boss Holdings, Inc. and
Subsidiaries

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

|                                                                      |  | December 27, |            | December 29,
|--------------------------------------------------------------------- |  | ------------ | ---------- | ------------
|Assets                                                                |  | 2008         |            | 2007        
|Current Assets:                                                       |  |              |            |             
|Cash and cash equivalents                                             |  | **$**        | **803**    |             
|Accounts receivable, net
      of allowance for doubtful accounts and |  |              |            |             
|returns
      2008 $240; 2007 $225                                    |  |              | 8,256      |             
|Inventories                                                           |  |              | 18,929     |             
|Deferred tax asset                                                    |  |              | 1,141      |             
|Prepaid expenses and
      other                                      |  |              | 523        |             
|**Total current assets**                                              |  |              | 29,652     |             
|                                                                      |  |              |            |             
|Property and Equipment, net                                           |  |              | 3,340      |             
|                                                                      |  |              |            |             
|Other Assets                                                          |  |              | 48         |             
|Intangibles, net of accumulated amortization                          |  |              | 457        |             
|Goodwill                                                              |  |              | 2,853      |             
|Deferred tax asset                                                    |  |              | 2,078      |             
|                                                                      |  | $            | 38,428     |             
|                                                                      |  |              |            |             
|Liabilities and
      Stockholders' Equity                            |  |              |            |             
|Current Liabilities:                                                  |  |              |            |             
|Current portion of long-term
      debt                               |  | $            | **496**    |             
|Accounts payable                                                      |  |              | 1,860      |             
|Accrued payroll and related
      expenses                            |  |              | 1,123      |             
|Accrued promotional
      expenses                                    |  |              | 991        |             
|Other accrued
    liabilities                                         |  |              | 495        |             
|**Total current liabilities**                                         |  |              | 4,965      |             
|                                                                      |  |              |            |             
|Long-Term Debt                                                        |  |              | 1,607      |             
|                                                                      |  |              |            |             
|Deferred Compensation                                                 |  |              | 146        |             
|                                                                      |  |              |            |             
|Commitments and Contingencies (Note
    4)                            |  |              |            |             
|                                                                      |  |              |            |             
|Stockholders' Equity:                                                 |  |              |            |             
|Common stock, $.25 par value;
      authorized 10,000,000 shares;     |  |              |            |             
|issued
      and outstanding 2,036,047 and 2,018,345 shares           |  |              |            |             
|in 2008
      and 2007, respectively                                  |  |              | 509        |             
|Additional paid-in
      capital                                      |  |              | 66,521     |             
|Accumulated (deficit)                                                 |  |              | (35,271    | )           
|Accumulated other comprehensive income
      (loss)                   |  |              | (49        | )           
|Total stockholders' equity                                            |  |              | 31,710     |             
|                                                                      |  | $            | **38,428** |             

See Notes to Consolidated
Financial Statements.

F-3

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Boss Holdings, Inc. and
Subsidiaries

Consolidated Statements of
IncomeYears Ended December 27,
2008, December 29, 2007 and December 30, 2006(Dollars in Thousands, Except
Per Share Data)

|                                               |  | 2008  |            | 2007 |  | 2006
|---------------------------------------------- |  | ----- | ---------- | ---- |  | ----
|Net sales                                      |  | **$** | **55,732** |      |  | $   
|                                               |  |       |            |      |  |     
|Cost of sales                                  |  |       | 41,961     |      |  |     
|                                               |  |       |            |      |  |     
|Gross profit                                   |  |       | 13,771     |      |  |     
|                                               |  |       |            |      |  |     
|Operating expenses                             |  |       | 11,659     |      |  |     
|Asset
      impairment losses                  |  |       | 792        |      |  |     
|                                               |  |       |            |      |  |     
|**Operating income**                           |  |       | 1,320      |      |  |     
|                                               |  |       |            |      |  |     
|Other income and (expenses):                   |  |       |            |      |  |     
|****Interest
      income                      |  |       | 40         |      |  |     
|****Interest
      expense                     |  |       | (313       | )    |  |     
|****Other                                      |  |       | 22         |      |  |     
|                                               |  |       | (251       | )    |  |     
|                                               |  |       |            |      |  |     
|**Income before income tax expense (benefit)** |  |       | 1,069      |      |  |     
|                                               |  |       |            |      |  |     
|Income tax expense (benefit)                   |  |       | 531        |      |  |     
|**Net income**                                 |  | $     | 538        |      |  | $   
|                                               |  |       |            |      |  |     
|Basic earnings per common share                |  | $     | 0.27       |      |  | $   
|Diluted
      earnings per common share        |  | $     | 0.24       |      |  | $   

See Notes to Consolidated
Financial Statements.

F-4

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BossHoldings,Inc.
andSubsidiaries

ConsolidatedStatementsofStockholders'EquityYears EndedDecember27, 2008,December29, 2007 andDecember30, 2006(InThousands)

|                                     |  |              |   |         |         |         |             |           |               |               |                |        |               |         |       |        | Accumulated |      |   |  |    |   |  |       |      |   |  |  
|------------------------------------ |  | ------------ | - | ------- | ------- | ------- | ----------- | --------- | ------------- | ------------- | -------------- | ------ | ------------- | ------- | ----- | ------ | ----------- | ---- | - |  | -- | - |  | ----- | ---- | - |  | -
|                                     |  |              |   |         |         |         |             |           | Additional    |               |                |        |               |         | Other |        |             |      |   |  |    |   |  | Total
|                                     |  | Common Stock |   |         | Paid-In |         | Accumulated |           | Comprehensive |               | Treasury Stock |        | Stockholders'
|                                     |  | Shares       |   | Dollars |         | Capital |             | (Deficit) |               | Income (Loss) |                | Shares |               | Dollars |       | Equity
|Balance, December 31, 2005           |  | 1,986        |   |         | $       | 496     |             |           | $             | 67,012        |                |        | $             | (41,069 | )     |        | $           | 56   |   |  | (5 | ) |  | $     | (817 | ) |  | $
|Exercise of stock
      options      |  | -            |   |         |         | -       |             |           |               | -             |                |        |               | -       |       |        |             | -    |   |  | -  |   |  |       | -    |   |  |  
|Cancellation of treasury
      stock |  | (5           | ) |         |         | (1      | )           |           |               | (816          | )              |        |               | -       |       |        |             | -    |   |  | 5  |   |  |       | 817  |   |  |  
|Comprehensive income:                |  |              |   |         |         |         |             |           |               |               |                |        |               |         |       |        |             |      |   |  |    |   |  |       |      |   |  |  
|Net income                           |  | -            |   |         |         | -       |             |           |               | -             |                |        |               | 3,894   |       |        |             | -    |   |  | -  |   |  |       | -    |   |  |  
|Other comprehensive income (Note 11) |  | -            |   |         |         | -       |             |           |               | -             |                |        |               | -       |       |        |             | (4   | ) |  | -  |   |  |       | -    |   |  |  
|Comprehensive income                 |  |              |   |         |         |         |             |           |               |               |                |        |               |         |       |        |             |      |   |  |    |   |  |       |      |   |  |  
|Stock based
      compensation       |  | -            |   |         |         |         |             |           |               | 128           |                |        |               | -       |       |        |             | -    |   |  | -  |   |  |       | -    |   |  |  
|Balance, December 30, 2006           |  | 1,981        |   |         |         | 495     |             |           |               | 66,324        |                |        |               | (37,175 | )     |        |             | 52   |   |  | -  |   |  |       | -    |   |  |  
|Exercise of stock
      options      |  | 37           |   |         |         | 10      |             |           |               | 103           |                |        |               | -       |       |        |             | -    |   |  | -  |   |  |       | -    |   |  |  
|Comprehensive
      income:          |  |              |   |         |         |         |             |           |               |               |                |        |               |         |       |        |             |      |   |  |    |   |  |       |      |   |  |  
|Net income                           |  | -            |   |         |         | -       |             |           |               | -             |                |        |               | 1,366   |       |        |             | -    |   |  | -  |   |  |       | -    |   |  |  
|Other comprehensive income (Note 11) |  | -            |   |         |         | -       |             |           |               | -             |                |        |               | -       |       |        |             | 191  |   |  | -  |   |  |       | -    |   |  |  
|**Comprehensive income**             |  |              |   |         |         |         |             |           |               |               |                |        |               |         |       |        |             |      |   |  |    |   |  |       |      |   |  |  
|Stock based
      compensation       |  | -            |   |         |         | -       |             |           |               | 36            |                |        |               | -       |       |        |             | -    |   |  | -  |   |  |       | -    |   |  |  
|Balance, December 29, 2007           |  | 2,018        |   |         |         | 505     |             |           |               | 66,463        |                |        |               | (35,809 | )     |        |             | 243  |   |  | -  |   |  |       | -    |   |  |  
|Exercise of stock
      options      |  | 18           |   |         |         | 4       |             |           |               | 50            |                |        |               | -       |       |        |             | -    |   |  | -  |   |  |       | -    |   |  |  
|Comprehensive
      income:          |  |              |   |         |         |         |             |           |               |               |                |        |               |         |       |        |             |      |   |  |    |   |  |       |      |   |  |  
|Net income                           |  | -            |   |         |         | -       |             |           |               | -             |                |        |               | 538     |       |        |             | -    |   |  | -  |   |  |       | -    |   |  |  
|Other comprehensive (loss) (Note 10) |  | -            |   |         |         | -       |             |           |               | -             |                |        |               | -       |       |        |             | (292 | ) |  | -  |   |  |       | -    |   |  |  
|**Comprehensive income**             |  |              |   |         |         |         |             |           |               |               |                |        |               |         |       |        |             |      |   |  |    |   |  |       |      |   |  |  
|Stock based
      compensation       |  | -            |   |         |         | -       |             |           |               | 8             |                |        |               | -       |       |        |             | -    |   |  | -  |   |  |       | -    |   |  |  
|Balance, December 27, 2008           |  | 2,036        |   |         | $       | 509     |             |           | $             | 66,521        |                |        | $             | (35,271 | )     |        | $           | (49  | ) |  | -  |   |  | $     | -    |   |  | $

See Notes to Consolidated Financial
Statements.

F-5





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Boss Holdings, Inc. and
Subsidiaries

Consolidated Statements of Cash
FlowsYears Ended December 27,
2008, December 29, 2007 and December 30, 2006(Dollars in
Thousands)

|                                                              |  | 2008  |            | 2007  |  | 2006
|------------------------------------------------------------- |  | ----- | ---------- | ----- |  | ----
|Cash Flows from Operating
    Activities:                     |  |       |            |       |  |     
|Net income                                                    |  | **$** | **538**    |       |  | $   
|Adjustments to reconcile net income to
      net cash         |  |       |            |       |  |     
|provided
      by (used in) operating activities:             |  |       |            |       |  |     
|Depreciation and amortization                                 |  |       | 654        |       |  |     
|Stock
      based compensation                                |  |       | 8          |       |  |     
|Deferred
      tax expense (benefit)                          |  |       | 414        |       |  |     
|Goodwill
      Impairment                                     |  |       | 757        |       |  |     
|Patent
      Impairment                                       |  |       | 35         |       |  |     
|Non-Cash
      Asset Donation                                 |  |       | 173        |       |  |     
|Changes
      in assets and liabilities net of acquisitions:  |  |       |            |       |  |     
|(Increase) decrease in:                                       |  |       |            |       |  |     
|Accounts receivable                                           |  |       | (84        | )     |  |     
|Inventories                                                   |  |       | (3,156     | )     |  |     
|Prepaid expenses and other current assets                     |  |       | 12         |       |  |     
|Other assets                                                  |  |       | 59         |       |  |     
|Increase (decrease) in:                                       |  |       |            |       |  |     
|Accounts payable                                              |  |       | (206       | )     |  |     
|Accrued liabilities                                           |  |       | 116        |       |  |     
|**Net cash provided by (used in) operating
      activities** |  |       | (680       | )     |  |     
|                                                             
|Cash Flows from Investing
    Activities:                     |  |       |            |       |  |     
|Purchases of property and
      equipment                     |  |       | (380       | )     |  |     
|Acquisitions                                                  |  |       | -          |       |  |     
|**Net cash used in investing activities**                     |  |       | (380       | )     |  |     
|                                                             
|Cash Flows from Financing
    Activities:                     |  |       |            |       |  |     
|Net payments on revolving line of
      credit                |  |       | -          |       |  |     
|Borrowing on long-term
      obligations                      |  |       | -          |       |  |     
|Repayment of long-term
      obligations                      |  |       | (477       | )     |  |     
|Proceeds from exercise of stock
      options                 |  |       | 51         |       |  |     
|**Net cash provided by (used in) financing
      activities** |  |       | (426       | )     |  |     
|                                                              |  |       |            |       |  |     
|Effect of exchange rate changes on
      cash                 |  | $     | **(268**   | **)** |  | $   
|**Increase (decrease) in cash and cash
      equivalents**    |  | $     | **(1,754** | **)** |  | $   

(Continued)

F-6

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Boss Holdings, Inc. and
Subsidiaries

Consolidated Statements of Cash
Flows (Continued)Years Ended
December 27, 2008, December 29, 2007 and December 30, 2006(Dollars in
Thousands)

|                                                                             |  | 2008  |         | 2007 |   | 2006 
|---------------------------------------------------------------------------- |  | ----- | ------- | ---- | - | -----
|Cash and cash equivalents:                                                   |  |       |         |      |   |      
|Beginning                                                                    |  |       | 2,557   |      |   | 1,002
|Ending                                                                       |  | **$** | **803** |      | $ | 2,557
|                                                                            
|Supplemental Disclosures of Cash Flows Information,
      cash payments for: |  |       |         |      |   |      
|Interest paid                                                                |  | $     | **210** |      | $ | 213  
|Income taxes paid,
net                                                       |  |       | 75      |      |   | 224  
|                                                                            
|Supplemental Disclosures of Noncash Investing
      and                      |  |       |         |      |   |      
|Financing Activities:                                                        |  |       |         |      |   |      
|Accrued acquisition
      contingency                                        |  |       | **-**   |      |   | -    
|Reduction in net operating loss
      carryover due to excess tax            |  |       | ****    |      |   |      
|benefits
      from the exercise of stock options                            |  |       | 3       |      |   | 27   
|Fixed
      assets acquired by entering into capital lease                   |  |       | 103     |      |   | -    

F-7

---

Boss Holdings, Inc. and
Subsidiaries

|Notes
      to Consolidated Financial Statements   
|---------------------------------------------------
|(Dollars in Thousands, Except
      Per Share Data)

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

Nature of business:

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

Significant accounting
policies:

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

Fiscal year: The Company maintains a 52/53-week year ending on the
last Saturday of the calendar year. Fiscal years 2008, 2007 and 2006 contained
52 weeks.

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

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

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

An account is considered to be
past due if any portion of the receivable balance is past due more than 60 days.
The provision for bad debts charged to expense was $96, $65 and $3 for the years
ended 2008, 2007 and 2006, respectively.

Marketable
securities: The Company classifies
marketable equity securities as trading or 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 operations for
trading securities and in accumulated other comprehensive income (loss) for
available for sale securities.

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

F-8

---

Boss Holdings, Inc. and
Subsidiaries

|Notes
      to Consolidated Financial Statements   
|---------------------------------------------------
|(Dollars in Thousands, Except
      Per Share Data)

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

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

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

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

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

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

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

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

F-9

---

Boss Holdings, Inc. and
Subsidiaries

|Notes
      to Consolidated Financial Statements   
|---------------------------------------------------
|(Dollars in Thousands, Except
      Per Share Data)

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

YearsMachinery and equipment
    
    10Office
      furniture and equipment
    
    3 - 10Buildings and improvements
    
    10 -
  39


Depreciation expense was $491,
$492 and $424 for 2008, 2007 and 2006, respectively.

Goodwill and other
intangibles: Goodwill represents the
excess of purchase price over the fair value of the identifiable net assets
acquired. In accordance with SFAS No. 142,Goodwill and Other Intangible Assets, goodwill is not amortized and, instead, is evaluated for impairment at
least annually. The Company performs its impairment test in December each year.
Other intangible assets are recorded at cost and amortized over their estimated
useful life (see Note 9).

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

F-10

---

|Boss Holdings, Inc. and
      Subsidiaries
      Notes to Consolidated
      Financial Statements(Dollars in Thousands, Except Per Share
      Data)
|----------------------------------------------------------------------------------------------------------------------------------------------------

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

The cost and accumulated amortization of other
intangible assets as of December 27, 2008 and December 29, 2007 is as
follows:

Estimated
    
    
    
    Accumulated
    
    Net BookLife
    
    Cost
    
    Amortization
    
    Value2008Customer ListsCanadawide Safety
    4
      Years
    
    $
    90
    
    $
    37
    
    $
    53Dipcraft
    5 Years
    
    
    343
    
    
    77
    
    
    266Galaxy
    7.5
      Years
    
    
    170
    
    
    100
    
    
    70Trademarks
    5 Years
    
    
    209
    
    
    141
    
    
    68Patents
    10
      Years
    
    
    15
    
    
    15
    
    
    -$
    827
    
    $
    370
    
    $
    4572007Customer ListsCanadawide Safety
    4
      Years
    
    $
    112
    
    $
    18
    
    $
    94Dipcraft
    5 Years
    
    
    343
    
    
    9
    
    
    334Galaxy
    7.5
      Years
    
    
    170
    
    
    77
    
    
    93Trademarks
    5 Years
    
    
    216
    
    
    138
    
    
    78Patents
    10
      Years
    
    
    50
    
    
    10
    
    
    40$
    891
    
    $
    252
    
    $
    639


Amortization of intangible assets
is expected to be approximately $150 in 2009, $136 in 2010, $105 in 2011 and $66
in 2012. The 2008 patent cost has been reduced by $35 of impairment charges.

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

Book Value
    
    Effect Of
    
    
    
    
    Book ValueAs of
    
    Exchange
    
    
    
    As Of12/29/2007
    
    Rate
    
    Impairment
    
    12/27/2008Headlite
    
    
    527
    
    
    -
    
    
    527
    
    
    -Canadawide
    
    
    286
    
    
    56
    
    
    230
    
    
    -Galaxy
    
    
    2,853
    
    
    -
    
    
    -
    
    
    2,853Total
    
    $
    3,666
    
    $
    56
    
    $
    757
    
    $
    2,853






F-11

---

|Boss Holdings, Inc. and
      Subsidiaries
      Notes to Consolidated
      Financial Statements(Dollars in Thousands, Except Per Share
      Data)
|----------------------------------------------------------------------------------------------------------------------------------------------------

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

Fair value of financial
instruments: Effective December 30,
2007, the Company adopted Statement of Financial Accounting Standard No. 157,
Fair Value Measurements (SFAS 157), as it applies to our financial
instruments, and Statement of Financial Accounting Standard No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities  Including an
amendment of FASB Statement No. 115 (SFAS 159). SFAS 157 defines fair value,
outlines a framework for measuring fair value, and details the required
disclosures about fair value measurements. SFAS 159 permits companies to
irrevocably choose to measure certain financial instruments and other items at
fair value. SFAS 159 also establishes presentation and disclosure requirements
designed to facilitate comparison between entities that choose different
measurement attributes for similar types of assets and liabilities.

Under SFAS 157, fair value is
defined as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the
measurement date in the principal or most advantageous market. SFAS 157
establishes a hierarchy in determining the fair value of an asset or liability.
The fair value hierarchy has three levels of inputs, both observable and
unobservable. SFAS 157 requires the utilization of the lowest possible level of
input to determine fair value. Level 1 inputs include quoted market prices in an
active market for identical assets or liabilities. Level 2 inputs are market
data, other than Level 1, that are observable either directly or indirectly.
Level 2 inputs include quoted market prices for similar assets or liabilities,
quoted market prices in an inactive market, and other observable information
that can be corroborated by market data. Level 3 inputs are unobservable and
corroborated by little or no market data.

Except for those assets and
liabilities which are required by authoritative accounting guidance to be
recorded at fair value in our Consolidated Balance Sheets, the Company has
elected not to record any other assets or liabilities at fair value as permitted
by SFAS 159.

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

|                                                 | Carrying Amount   |     |                   |  |         |     | Fair Value Measurements Using
|------------------------------------------------ | ----------------- | --- | ----------------- |  | ------- | --- | -----------------------------
|                                                 | In Consolidated   |     |                   |  |         |     |                              
|                                                 | Balance Sheets    |     | Fair Value        |  |         |     |                              
|                                                 | December 27, 2008 |     | December 27, 2008 |  | Level 1 |     | Level 2                      
|Money market funds                               | $                 | 1   |                   |  | $       | 1   |                              
|Daily investment
      sweep                     | $                 | 872 |                   |  | $       | 872 |                              
|Marketable Securities (included in other assets) | $                 | 141 |                   |  | $       | 141 |                              
|Interest rate swap
      liability               | $                 | (46 | )                 |  | $       | (46 | )                            

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

F-12

---

|Boss Holdings, Inc. and
      Subsidiaries
      Notes to Consolidated
      Financial Statements(Dollars in Thousands, Except Per Share Data)
|----------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

Advertising
costs: The Company generally expenses
the cost of advertising the first time advertising takes place. Costs of trade
shows and developing advertising materials are expensed at the time of the trade
shows or as the advertising materials are produced and distributed to customers.
Advertising expense for 2008, 2007 and 2006 was $789, $818 and $923,
respectively.

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



F-13

---

|Boss Holdings, Inc. and
      Subsidiaries
      Notes to Consolidated
      Financial Statements(Dollars in Thousands, Except Per Share Data)
|----------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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



F-14

---

|Boss Holdings, Inc. and
      Subsidiaries
      Notes to Consolidated
      Financial Statements(Dollars in Thousands, Except Per Share Data)
|----------------------------------------------------------------------------------------------------------------------------------------------

Note 2. Property and Equipment

Property and equipment as of December 27, 2008
and December 27, 2007 are as follows:

|                                     | 2008 |       | 2007
|------------------------------------ | ---- | ----- | ----
|Land                                 | $    | 410   |     
|Machinery
      and equipment        |      | 1,754 |     
|Buildings and improvements           |      | 2,496 |     
|Office
      furniture and equipment |      | 2,526 |     
|                                     |      | 7,186 |     
|Less
      accumulated depreciation  |      | 3,846 |     
|                                     | $    | 3,340 |     

Note 3. Long-Term Obligations

Long-term debt as of December 27,
2008 and December 29, 2007 is as follows:

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | 2008 |       | 2007
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | ----
|BHI revolving line of credit (A)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | $    | -     |     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |      |       |     
|Boss Canada Inc revolving line of credit (B)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |      | 33    |     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |      |       |     
|Boss Holdings, Inc. term note payable to a lender.Requires monthly principal payments through July
      2011 of $21 plus interest at LIBOR plus 2.1%, adjusted monthly (effective
      rate of 4.00% as of December 27, 2008). The Company has entered into an
      interest rate swap agreement related to this note. The swap effectively
      fixes the interest rate on approximately 57% of the note at 6.32%.
      Collateralized by all assets of Galaxy Balloons, Inc., in addition to
      accounts receivable and inventory of Boss Manufacturing Company and
      subsidiaries. |  |      | 667   |     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |      |       |     
|Boss Manufacturing Company mortgage note payable to a lender.
      Requires monthly principal payments of $4. Interest is at LIBOR plus 2.1%,
      adjusted monthly. The Company has entered into an interest rate swap
      agreement related to this mortgage note. The swap effectively fixes the
      interest rate on the debt at 5.83%. The final payment is a balloon payment
      of $667 due in July 2010. Collateralized by certain real property of Boss
      Manufacturing Company located in Kewanee, Illinois.                                                                |  |      | 745   |     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |      |       |     
|Subtotal Forward                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | $    | 1,445 |     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |      |       |     
|(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F-15

---

|Boss Holdings, Inc. and
      Subsidiaries
      Notes to Consolidated
      Financial Statements(Dollars in Thousands, Except Per Share
      Data)
|----------------------------------------------------------------------------------------------------------------------------------------------------

**Note 3. Long-Term Obligations
(Continued)**

|Subtotal Forwarded                                                                                                                                                                                                                                                                                                                                                                                                           |  | $ | 1,445 |  | $ | 1,713
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ----- |  | - | -----
|                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   |       |  |   |      
|Boss Canada Inc. term note payable to a lender. Requires monthly
      payment of $7 Canadian Dollar ($5 US Dollar), using 12/27/08 exchange rate
      of .8213, at 6.3% from June 2008 through May 2014. Interest only monthly
      payments from June 2007 through May 2008. Collateralized by accounts
      receivable and inventory of Boss Canada Inc. located in Canada $367
      Canadian Dollar ($302 US Dollar) |  |   | 302   |  |   | 408  
|                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   |       |  |   |      
|Boss Manufacturing Company loan agreement with a local governmental
      agency. Requires monthly payments of $8, including interest at 3%, through
      April 2010. Collateralized by certain real property of Boss Manufacturing
      Company's Kewanee, Illinois facilities.                                                                                                                                           |  |   | 124   |  |   | 214  
|                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   |       |  |   |      
|Boss Manufacturing Company loan agreement with a local governmental
      agency. Requires monthly payments of $3, including interest at 3%, through
      October 2012. Collateralized by certain real property of Boss
      Manufacturing Company's Kewanee, Illinois facilities.                                                                                                                                         |  |   | 143   |  |   | 178  
|                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   |       |  |   |      
|Non-interest bearing obligations to former owner of Canadawide
      Safety payable May 2008. $50 Canadian Dollar ($52 US Dollar)                                                                                                                                                                                                                                                                                            |  |   | -     |  |   | 52   
|                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   |       |  |   |      
|Capital lease obligations                                                                                                                                                                                                                                                                                                                                                                                                    |  |   | 89    |  |   | -    
|                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   | 2,103 |  |   | 2,565
|Less current maturities                                                                                                                                                                                                                                                                                                                                                                                                      |  |   | 496   |  |   | 511  
|                                                                                                                                                                                                                                                                                                                                                                                                                             |  | $ | 1,607 |  | $ | 2,054

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

Year
      ending:December 26, 2009
    $
    496December 25, 2010
    
    1,115December 31, 2011
    
    278December 29, 2012
    
    109December 28, 2013
    
    67Thereafter
    
    38$
    2,103


|(A) |  | On June 1, 2008, the Company
      modified its loan and security agreement (the Credit Agreement) with a
      commercial bank. The revised Credit Agreement expires in January 2010 and
      provides a revolving credit facility up to $7,000 based on a formula that
      includes eligible accounts receivable and inventories. Interest is payable
      monthly at the banks prime rate less 1.50% or, at the Companys option,
      LIBOR plus 1.0% (effective rate of 1.75% as of December 27, 2008). The
      Company incurs an unused line fee of 1/8% per annum on the unused portion
      of the credit facility. As of December 27, 2008, the Company had no
      borrowings on the revolving credit facility. Availability under this
      credit agreement was $7,000 as of December 27,
2008.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-16

---



|Boss Holdings, Inc. and
      Subsidiaries
      Notes to Consolidated
      Financial Statements(Dollars in Thousands, Except Per Share Data)
|----------------------------------------------------------------------------------------------------------------------------------------------

Note 3. Long-Term Obligations
(Continued)



|    |  | The Credit
      Agreement includes certain restrictive covenants and requires maintenance
      of certain financial ratios including current ratio, minimum tangible net
      worth, debt service coverage, and debt to tangible net worth. The
      Companys accounts receivable and inventories secure the credit
      facility.                                                                                                                                                                                                                                                                                                                                                              
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(B) |  | On June 1, 2008,
      the Company modified its loan and security agreement (the Credit
      Agreement) with a commercial bank for Boss Canada. The revised Credit
      Agreement expires in January 2010 and provides a revolving credit facility
      up to $100 Canadian based on a formula that includes eligible accounts
      receivable and inventories. Interest is payable monthly at the banks
      Canadian prime rate (effective rate of 3.5% as of December 27, 2008). As
      of December 27, 2008, the Company had borrowings of $40 Canadian on the
      revolving credit facility. Availability under this credit agreement was
      $96 Canadian as of December 27, 2008.
|   
|    |  | The Credit
      Agreement includes certain restrictive covenants and requires maintenance
      of certain financial ratios including current ratio, minimum tangible net
      worth, debt service coverage, and debt to tangible net worth. The
      Companys accounts receivable and inventories secure the credit
      facility.                                                                                                                                                                                                                                                                                                                                                              

Deferred compensation plan:

Effective September 1, 2002, the
Company adopted a nonqualified deferred compensation plan that allows executives
to defer any portion of their compensation, and non-employee directors,
consultants and counsel to defer any portion of their fees. The Company provides
no matching contributions to the plan. Each plan participant is fully vested in
all deferred compensation and earnings credited to his or her account, which the
plan holds in an investment trust. The liability under the plan totaled $146 and
$200 as of December 27, 2008 and December 29, 2007, respectively.

Note 4. Commitments and
Contingencies

Leases:

The Company leases certain office
and operating facilities and certain equipment under operating lease agreements
that expire on various dates through 2009 and require the Company to pay all
maintenance costs. Rent expense under these leases was $616, $629 and $588 for
2008, 2007 and 2006, respectively.

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

Year ending:December  26,  2009
    $
    507December  25,  2010
    
    82December  31,  2011
    
    27**Total minimum lease payments**
    $
    616


F-17

---

|Boss Holdings, Inc. and
      Subsidiaries
      Notes to Consolidated
      Financial Statements(Dollars in Thousands, Except Per Share
      Data)
|----------------------------------------------------------------------------------------------------------------------------------------------------

Note 4. Commitments and
Contingencies (Continued)

Licensing:

During 2002, the Company entered
into a license agreement for the use of certain trademarks in its products which
requires the payment of guaranteed or minimum royalties. The Company incurred
royalties of $341, $306 and $249 in 2008, 2007 and 2006, respectively. The
Company has extended the agreement with provisions for the payment of guaranteed
or minimum royalties of $320 in 2009.

Litigation:

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

Note 5. Stock
Options

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

|                           |  | Year Ended       
|-------------------------- |  | -----------------
|                           |  | December 27, 2008
|                           |  |                  
|                           |  |                  
|                           |  |                  
|                           |  | Shares           
|Outstanding, beginning     |  | 336,000          
|Granted                    |  | -                
|Exercised                  |  | (20,000          
|Expired                    |  | -                
|Outstanding, ending        |  | 316,000          
|Options
      exercisable, |  |                  
|end of
      year          |  | 314,540          
|Weighted average fair      |  |                  
|value per option of        |  |                  
|options
      granted      |  |                  

F-18

---

|Boss Holdings, Inc. and
      Subsidiaries
      Notes to Consolidated
      Financial Statements(Dollars in Thousands, Except Per Share
      Data)
|----------------------------------------------------------------------------------------------------------------------------------------------------

**Note 5. Stock Options
(Continued)**

The Companys management estimated
fair values of the 2007 stock options using the Black-Scholes options-pricing
model using the following weighted-average assumptions, expected volatility of
42%; expected dividend yield of 0.0%; weighted average risk-free rate of return
of 4.5%; and expected lives of 5 years. Compensation expense related to stock
options was $8, $36 and $128 for 2008, 2007 and 2006, respectively.

As of December 27, 2008, the total
compensation cost of nonvested awards is approximately $4 which will vest in
2009. The intrinsic value of outstanding and vested options was $765 as of
December 27, 2008. The intrinsic value of options exercised was $39,000 in 2008
and $168,000 in 2007.

Note 6. Earnings Per Share

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

Year EndedDecember 27,
    
    December 29,
    
    December 30,2008
    
    2007
    
    2006Numerator, earnings attributable tocommon stockholders
    
    $
    538
    
    $
    1,366
    
    $
    3,894Denominator:Basic-weighted average commonshares outstanding
    
    
    2,022,758
    
    
    2,010,449
    
    
    1,981,000Dilutive
      effect of employee stock options
    
    
    183,413
    
    
    194,563
    
    
    213,000Diluted outstanding shares
    
    
    2,206,171
    
    
    2,205,012
    
    
    2,194,000Basic earnings, per common share
    
    $
    0.27
    
    $
    0.68
    
    $
    1.97Diluted
      earnings, per common share
    
    $
    0.24
    
    $
    0.62
    
    $
    1.77


Note 7. Related Party
Transactions

During 2008, 2007 and 2006,
compensation, fees, and expense reimbursements paid to directors or their
affiliates totaled $392, $412 and $343, respectively.

F-19

---

|Boss
      Holdings, Inc. and Subsidiaries         
|---------------------------------------------------
|                                                   
|Notes
      to Consolidated Financial Statements   
|(Dollars in Thousands, Except
      Per Share Data)

Note 8.
Acquisitions

Canadawide Safety, Inc:

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

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

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

Acquisition cost:Base purchase price
    $
    364Closing Costs
    
    19**Total**
    $
    383Allocation of purchase
      cost:Current assets
    $
    216Property and equipment
    
    14Customer Lists
    
    100Goodwill
    
    255Accounts payable and accrued expenses
    
    (202
    )383Less Acquisition indebtedness
    
    46$
    337


Dipcraft Balloon Company:

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

During 2007 the Company made the
final $200,000 acquisition contingency payment in conjunction with the purchase
of Galaxy Balloons in 2004.

Had these acquisitions taken place
on December 30, 2006, consolidated sales and income would not have been
significantly different from the amounts reported for 2007 and 2008.

F-20

---

|Boss
      Holdings, Inc. and Subsidiaries         
|---------------------------------------------------
|                                                   
|Notes
      to Consolidated Financial Statements   
|(Dollars in Thousands, Except
      Per Share Data)

**Note 9. Goodwill and
Intangible Assets**

In connection with its purchases
of Galaxy during 2004, Head-Lite, LLC., during 2005, and Canadawide during 2007,
the Company recorded goodwill of $3,666. Goodwill represents the excess of
purchase price and related costs over the value assigned to the net tangible and
identifiable intangible assets of the business acquired. In accordance with SFAS
No. 142, Goodwill and Other Intangible Assets, the Company does not amortize
the goodwill associated with these acquisitions since it has an indefinite life.
Instead, management tests goodwill for impairment in the fourth quarter of each
year, or if certain circumstances indicate the existence of a possible
impairment. Managements impairment test considers the carrying value of the
reporting unit for each acquisition, including goodwill, in relation to its fair
value based upon earnings generated. Expected earnings are calculated based on a
discounted cash flow methodology. The determination of the reporting units is
based on the Companys organizational structure and the financial information
that is provided to and reviewed by management. The reporting units are the
Galaxy, BMC and Boss Canada divisions for the Galaxy, Head-Lite and Canadawide
acquisitions, respectively.

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

The Company determined that an
impairment evaluation was required for Head-Lites patent, based on a sharp
decline in an historical downward trend of sales for the Head-Lite product line.
The impairment analysis performed as of December 27, 2008 indicated that the
patent was fully impaired, resulting in an impairment loss of $35. This expense
was also recorded in the asset impairment loss on the consolidated statements of
income. The Companys evaluations used significant assumptions by division,
including: expected future revenue and expense growth rates, cost of capital,
discount rate and forecasted capital expenditures. The projections assume a
decline in revenue in 2009 followed by a slow recovery based on the general
economic downturn and expectations of the economic recovery. Assumptions and
estimates about future cash flows and discount rates are complex and may be
subjective. They can be affected by a variety of external and internal factors.
Management believes the assumptions and estimates made in these evaluations were
reasonable and appropriate, however, different assumptions and estimates could
materially impact the projected earnings.

F-21

---

|Boss
      Holdings, Inc. and Subsidiaries         
|---------------------------------------------------
|                                                   
|Notes
      to Consolidated Financial Statements   
|(Dollars in Thousands, Except
      Per Share Data)

**Note 10. Income Taxes**

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

Year EndedDecember 27,
    
    December 29,
    
    December 30,2008
    
    2007
    
    2006Current income tax expense:Federal
    $
    25
    
    
    $
    39
    
    $
    19State and local
    
    92
    
    
    
    100
    
    
    51117
    
    
    
    139
    
    
    70Deferred income tax expense (benefit):Federal
    
    435
    
    
    
    759
    
    
    (2,127
    )State and local
    
    (21
    )
    
    
    13
    
    
    (5
    )414
    
    
    
    772
    
    
    (2,132
    )Total income tax expense (benefit)
    $
    531
    
    
    $
    911
    
    $
    (2,062
    )


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

Year EndedDecember 27,
    
    December 29,
    
    December 30,2008
    
    2007
    
    2006Income tax expense computedat the U.S. corporate tax rate of 34%
    $
    364
    
    
    $
    774
    
    $
    623Adjustments
      attributable to:State income taxes, net of the federal benefit
    
    53
    
    
    
    114
    
    
    46Deferred tax asset valuation allowance
    
    -
    
    
    
    -
    
    
    (2,730
    )Effect of foreign operations
    
    86
    
    
    
    -
    
    
    -Other
    
    28
    
    
    
    23
    
    
    (1
    )Total income tax expense (benefit)
    $
    531
    
    
    $
    911
    
    $
    (2,062
    )


F-22

---

|Boss
      Holdings, Inc. and Subsidiaries         
|---------------------------------------------------
|                                                   
|Notes
      to Consolidated Financial Statements   
|(Dollars in Thousands, Except
      Per Share Data)

Note 10. Income Taxes (Continued)

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

|                                       | December 27, |       | December 29,
|-------------------------------------- | ------------ | ----- | ------------
|                                       | 2008         |       | 2007        
|Deferred income tax assets:            |              |       |             
|Operating loss carryforwards           | $            | 8,258 |             
|Accounts receivable                    |              | 111   |             
|Accruals                               |              | 133   |             
|Compensation related                   |              | 388   |             
|Inventories                            |              | 440   |             
|Intangibles                            |              | 152   |             
|Tax credit carryforwards               |              | 467   |             
|Gross deferred tax assets              |              | 9,949 |             
|Deferred tax asset valuation allowance |              | 6,500 |             
|Net deferred tax assets                |              | 3,449 |             
|                                      
|Deferred income tax liabilities:       |              |       |             
|Intangibles                            |              | -     |             
|Property and equipment                 |              | 230   |             
|                                       |              | 230   |             
|Net deferred income tax
      assets   | $            | 3,219 |             

Included in the tax credit
carryforward is approximately $467 of alternative minimum tax credits and
general business credits available to reduce future income taxes
payable.

F-23

---

|Boss
      Holdings, Inc. and Subsidiaries         
|---------------------------------------------------
|                                                   
|Notes
      to Consolidated Financial Statements   
|(Dollars in Thousands, Except
      Per Share Data)

**Note 10. Income Taxes
(Continued)**

Prior to the third quarter of 2004
the Company had provided a valuation allowance against its net deferred tax
assets. Historically the profitability of the Company was somewhat volatile and
there was not consistent profitability from the core operating segments. During
the third quarter of 2004, management determined that based on the stabilizing
of the profitability of the core operating segments and anticipated sales
growth, it was more likely than not that a portion of the NOL would be utilized.
Accordingly the Company reduced the valuation allowance by $3,127 and recognized
a commensurate tax benefit in 2004. In the fourth quarter of 2006 the Company
reevaluated its estimates and based on its current and projected profitability
and the higher sales volumes being realized in the work glove and protective
wear segment, determined that it was more likely than not that it would be able
to utilize an additional $2,730 of its remaining NOL carryforwards. Accordingly,
at the end of 2006 the Company reduced its valuation allowance to $6,500 and
recognized a $2,730 tax benefit. Management again reevaluated its profitability
trends during the fourth quarter of 2008 and, based upon its current and
projected profitability and the uncertainties surrounding expected future
earnings, management did not adjust its net deferred tax asset in 2008.

As of December 27, 2008, the
Company had operating loss carryforwards for U.S. income tax purposes of $24,289
available to reduce future taxable income through the following
years:

Year of expiration:2011
    $
    13,6242012
    
    9,1972019
    
    535Thereafter
    
    933$
    24,289


As of December 27, 2008, the
Company had operating loss carryforwards for Canadian income tax purposes of
approximately $486. The operating losses are available to reduce future taxable
income through the following years:

Year of expiration:2009
    $
    2122014
    
    232015
    
    1Thereafter
    
    250$
    486


F-24

---

|Boss
      Holdings, Inc. and Subsidiaries         
|---------------------------------------------------
|                                                   
|Notes
      to Consolidated Financial Statements   
|(Dollars in Thousands, Except
      Per Share Data)

**Note 10. Income Taxes
(Continued)**

On December 31, 2006, the Company
adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes,
an Interpretation of SFAS No. 109 (FIN 48). This statement clarifies the
criteria that an individual tax position must satisfy for some or all of the
benefits of that position to be recognized in a companys financial statements.
FIN 48 prescribes a recognition threshold of more-likely-than-not, and a
measurement attribute for all tax positions taken or expected to be taken on a
tax return, in order for those tax positions to be recognized in the financial
statements. The adoption of FIN 48 had no impact on the Companys consolidated
financial statements.

As of December 27, 2008 the
remaining amount of the FIN 48 reserve was $13. During 2008, approximately $90
was utilized for settlements with state taxing authorities. The Company is
generally no longer subject to U.S. federal, state and local tax examinations by
tax authorities for years prior to 2005, and no longer subject to foreign income
tax examinations for years prior to 2004. The Company recognizes interest and
penalties related to income tax matters in the provision for income taxes. All
unrecognized tax benefits, if recognized, would affect the effective tax rate.
The liability for unrecognized tax benefits includes accrued interest for tax
positions, which either do not meet the more-likely-than-not recognition threshold or where
the tax benefit is measured at an amount less than the tax benefit claimed or
expected to be claimed on an income tax return.

Note 11. Comprehensive Income
(Loss)

SFAS No. 130, Reporting Comprehensive Income,establishes standards for reporting and display of
comprehensive income (loss) and its components in a full set of general-purpose
financial statements. SFAS 130 requires that all items required to be recognized
under accounting standards as components of comprehensive income must be
disclosed in the financial statements.

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

|                                               | Year Ended  
|---------------------------------------------- | ------------
|                                               | December 27,
|                                               | 2008        
|Foreign currency items:                        |             
|Beginning balance                              | $           
|Current period change                          |             
|Ending balance                                 |             
|                                              
|Interest swap agreements, net of income taxes: |             
|Beginning balance                              |             
|Current period change                          |             
|Ending balance                                 |             
|Accumulated other comprehensive income (loss)  | $           

F-25

---

|Boss
      Holdings, Inc. and Subsidiaries         
|---------------------------------------------------
|                                                   
|Notes
      to Consolidated Financial Statements   
|(Dollars in Thousands, Except
      Per Share Data)

**Note 12. Operating
Segments and Related Information**

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

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

|                        | Work       |        |          |   |               |             |           |        |       |   |        |   |  |  
|----------------------- | ---------- | ------ | -------- | - | ------------- | ----------- | --------- | ------ | ----- | - | ------ | - |  | -
|                        | Gloves and |        |          |   |               | Promotional |           |        |       |   |        |   | 
|                        | Protective |        | Pet      |   | and Specialty |             | Corporate |        |      
|                        | Wear       |        | Supplies |   | Products      |             | and Other |        | Total
|2008                    |            |        |          |   |               |             |           |        |       |   |        |   |  |  
|Revenue                 | $          | 38,283 |          | $ | 6,525         |             | $         | 10,924 |       | $ | -      |   |  | $
|Operating income (loss) |            | 610    |          |   | 459           |             |           | 1,148  |       |   | (897   | ) |  |  
|Goodwill                |            | -      |          |   | -             |             |           | 2,853  |       |   | -      |   |  |  
|Impairment charges      |            | 792    |          |   | -             |             |           | -      |       |   | -      |   |  |  
|Total assets            |            | 25,907 |          |   | 3,257         |             |           | 6,108  |       |   | 3,156  |   |  |  
|Capital expenditures    |            | 227    |          |   | 21            |             |           | 132    |       |   | -      |   |  |  
|Depreciation            |            | 305    |          |   | 40            |             |           | 146    |       |   | -      |   |  |  
|                       
|2007                    |            |        |          |   |               |             |           |        |       |   |        |   |  |  
|Revenue                 | $          | 37,689 |          | $ | 6,693         |             | $         | 10,815 |       | $ | -      |   |  | $
|Operating income (loss) |            | 1,598  |          |   | 635           |             |           | 1,228  |       |   | (1,005 | ) |  |  
|Goodwill                |            | 813    |          |   | -             |             |           | 2,853  |       |   | -      |   |  |  
|Total
      assets      |            | 26,203 |          |   | 3,013         |             |           | 6,087  |       |   | 3,684  |   |  |  
|Capital expenditures    |            | 143    |          |   | 118           |             |           | 82     |       |   | -      |   |  |  
|Depreciation            |            | 322    |          |   | 33            |             |           | 137    |       |   | -      |   |  |  
|                       
|2006                    |            |        |          |   |               |             |           |        |       |   |        |   |  |  
|Revenue                 | $          | 37,257 |          | $ | 6,414         |             | $         | 9,992  |       | $ | -      |   |  | $
|Operating income (loss) |            | 1,568  |          |   | 126           |             |           | 1,485  |       |   | (976   | ) |  |  
|Goodwill                |            | 527    |          |   | -             |             |           | 2,853  |       |   | -      |   |  |  
|Total
      assets      |            | 23,601 |          |   | 2,919         |             |           | 5,471  |       |   | 4,588  |   |  |  
|Capital expenditures    |            | 137    |          |   | 41            |             |           | 103    |       |   | -      |   |  |  

F-26

---

|Boss
      Holdings, Inc. and Subsidiaries         
|---------------------------------------------------
|                                                   
|Notes
      to Consolidated Financial Statements   
|(Dollars in Thousands, Except
      Per Share Data)

**Note 13. Quarterly Consolidated
Financial Information (Unaudited)**

The following is a summary of the
unaudited quarterly results for fiscal 2008 and 2007:

|                               | First   |           | Second  |  | Third   |           | Fourth  |   |           | 
|------------------------------ | ------- | --------- | ------- |  | ------- | --------- | ------- | - | --------- | 
|                               | Quarter |           | Quarter |  | Quarter |           | Quarter |   | Total    
|2008                           |         |           |         |  |         |           |         |   |           | 
|Net sales                      | $       | 13,355    |         |  | $       | 13,286    |         | $ | 14,070    | 
|Gross profit                   |         | 2,987     |         |  |         | 3,096     |         |   | 3,679     | 
|Net income
      (loss)        |         | (10       | )       |  |         | 125       |         |   | 438       | 
|                              
|Net
      earnings (loss), per |         |           |         |  |         |           |         |   |           | 
|common share:                  |         |           |         |  |         |           |         |   |           | 
|Basic                          | $       | (0.00     | )       |  | $       | 0.06      |         | $ | 0.22      | 
|Diluted                        | $       | (0.00     | )       |  | $       | 0.06      |         | $ | 0.20      | 
|                              
|Denominator for net            |         |           |         |  |         |           |         |   |           | 
|earnings (loss), per           |         |           |         |  |         |           |         |   |           | 
|common share:                  |         |           |         |  |         |           |         |   |           | 
|Basic                          |         | 2,018,345 |         |  |         | 2,018,345 |         |   | 2,018,345 | 
|Diluted                        |         | 2,018,345 |         |  |         | 2,215,559 |         |   | 2,196,892 | 
|                              
|                              
|2007                           |         |           |         |  |         |           |         |   |           | 
|Net
      sales                | $       | 13,369    |         |  | $       | 12,963    |         | $ | 13,504    | 
|Gross profit                   |         | 3,204     |         |  |         | 3,231     |         |   | 3,606     | 
|Net
      income               |         | 126       |         |  |         | 170       |         |   | 404       | 
|                              
|Net
      earnings, per        |         |           |         |  |         |           |         |   |           | 
|common share:                  |         |           |         |  |         |           |         |   |           | 
|Basic                          | $       | 0.06      |         |  | $       | 0.08      |         | $ | 0.20      | 
|Diluted                        | $       | 0.06      |         |  | $       | 0.08      |         | $ | 0.18      | 
|                              
|Denominator for net            |         |           |         |  |         |           |         |   |           | 
|earnings (loss), per           |         |           |         |  |         |           |         |   |           | 
|common share:                  |         |           |         |  |         |           |         |   |           | 
|Basic                          |         | 1,997,404 |         |  |         | 2,007,703 |         |   | 2,018,345 | 
|Diluted                        |         | 2,182,560 |         |  |         | 2,205,085 |         |   | 2,212,023 | 

During the fourth quarter of 2008
the Company recorded $173 valuation write-off of an office building donated to a
local charity, $757 goodwill impairment loss associated with the purchase of
Head-Lite and Canadawide Safety and a $35 patent impairment loss associated with
Head-Lite.

F-27

---

Boss Holdings, Inc. and
Subsidiaries

Schedule II - Valuation and
Qualifying Accounts (Dollars in Thousands)

|                              |           |        |          | Additions  |          |          |            |   |        |    
|----------------------------- | --------- | ------ | -------- | ---------- | -------- | -------- | ---------- | - | ------ | ---
|                              |           |        |          | Charged to |          | Charged  |            |   |        |    
|                              |           |        |          | Costs and  |          | to Other |            |   |        |    
|                              | Beginning |        | Expenses |            | Accounts |          | Deductions |   | Ending
|Year ended December 27, 2008: |           |        |          |            |          |          |            |   |        |    
|Accounts receivable           | $         | 225    |          | $          | 96       |          |            | $ | -      |    
|Inventories                   |           | 736    |          |            | 90       |          |            | $ | 33     |    
|Deferred income tax asset     |           | 6,500  |          |            | -        |          |            |   | 163    |    
|Sales allowance               |           | 556    |          |            | 2,732    |          |            |   | -      |    
|Total allowances deducted     |           |        |          |            |          |          |            |   |        |    
|from assets                   | $         | 8,017  |          | $          | 2,918    |          |            | $ | 196    |    
|                             
|Year ended December 29, 2007: |           |        |          |            |          |          |            |   |        |    
|Accounts receivable           | $         | 221    |          | $          | 65       |          |            | $ | -      |    
|Inventories                   |           | 842    |          |            | 267      |          |            |   | -      |    
|Deferred income tax asset     |           | 6,500  |          |            | -        |          |            |   | -      |    
|Sales allowance               |           | 627    |          |            | 1,620    |          |            |   | -      |    
|Total allowances deducted     |           |        |          |            |          |          |            |   |        |    
|from assets                   | $         | 8,190  |          | $          | 1,952    |          |            | $ | -      |    
|                             
|Year ended December 30, 2006: |           |        |          |            |          |          |            |   |        |    
|Accounts receivable           | $         | 291    |          | $          | 3        |          |            | $ | -      |    
|Inventories                   |           | 821    |          |            | 72       |          |            |   | 28     | (d)
|Deferred income tax asset     |           | 9,230  |          |            | (2,730   | )        |            |   | -      |    
|Sales allowance               |           | 669    |          |            | 2,024    |          |            |   | -      |    
|Total allowances deducted     |           |        |          |            |          |          |            |   |        |    
|from assets                   | $         | 11,011 |          | $          | (631     | )        |            | $ | 28     |    

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

F-28

---