The following article is courtesy of Whopper Investments, author on Seeking Alpha.

Boss Holdings (PINK:BSHID) is trading for much less than its current assets minus all liabilities. In addition, the company owns several tracts of real estate, is profitable and cash generating, and just completed a going private transaction at a very attractive price that will reduce SGA costs and should increase intrinsic value.

What do they do?

Boss engages in three business lines, work gloves and protective gear, pet supplies, and promotional and specialty products. The work gloves and protective gear dates back to the 1800s and accounts for about 64% of sales. They acquired the pets business in 2002 and it accounts for 16% of sales. The promotional products business was acquired in 2004 and accounts for 20% of sales.

The gloves business sources gloves, boots, and rainwear from overseas and sells them through their own sales force to three thousand accounts.

The promotional and specialty products business started in 2004 with the acquisition of Galaxy Balloons. Galaxy provides custom imprinted balloons and other items in the promotional industry (think things that would be given away by a corporate sponsor of a sporting or charity event). They have sold to 10,000 different distributers in the past two years. Galaxy has recently been making tiny add on acquisitions and expanding into new lines of business.

The pet supplies business sells pet supplies like toys and leashes. There is some revenue concentration here, with the top two customers accounting for 30% and 23% of sales. The business was purchased as a complement to the gloves business, as the pet business peaks in the first two quarters and the gloves business peaks in their last two quarters.

Do they have a moat?

A very small one. They have a long term agreement to Caterpillar (CAT) to sell protective gear with their name on it. This business accounts for about six percent of sales, and the company plans on using the brand for additional sales opportunities.

Operational risks?

The company sells to thousands of customers, with no customer representing a significant portion of sales. The main risk in the gloves business comes from an intensely competitive industry with little to no moat. Recently, retailers have begun to buy gloves directly, cutting out Boss, and this could be cause for concern in the future.

An additional risk, of course, is the loss of the CAT license. Due to the long term license, I doubt they will lose it. If they did, I think the main drawback would be the lack of the growth prospects more than the hit to earnings, because they are planning to use the brand for continued expansion, though earnings and margins would certainly compress.

Most of the risks, however, come from the company’s delisting and will be discussed below.

Valuation

Boss is definitely an asset play. By my calculations, the company has net current assets (current assets minus all liabilities) of $12.24 per share. Of this, they have net cash (cash and short term investments minus all liabilities) of $0.24 per share and most of the rest is accounts receivables and inventory. Best of all, the receivables are spread out over many different accounts, and the inventory are things like gloves and workers products, which should be easy to sell even in the event of a liquidation. Selling currently for $7.20, the stock sells for a significant discount to their asset values. Additionally, the company owns 236,000 square feet of property in Kewanee, Illinois. While it’s probably not the most valuable real estate, the fact that they have real estate in addition to the current assets just increases the margin of safety and asset values. Best of all, the company is profitable and generating cash, so unlike most net stocks, they are not burning through their assets.

Catalysts

Boss recently went “dark” through a reverse stock split. The split retired about 51,000 shares, or about 2% of shares outstanding, at $7.65 per share (about 40% less than net current assets). By doing this, the company brought its number of stockholders down to about 220 and no longer has to follow Sarbox. The company spent $640,000 to do this, and expect to save about $340,000 in compliance costs per year. For a company with a market cap of just over $15 million, that is a serious chunk of change. It equates to about $0.15 per share in earnings before taxes, and around $0.1 per share in earnings after taxes. However, the company has around $22 million in NOL, most of which they have in valuation allowances against them, so the savings in costs might fall directly to the bottom line.

However, the increased earnings come with an increase in risk and decreased liquidity. The company now trades on the pink sheets, and has no requirements to file periodic or annual reports. However, they have committed to filing, at a minimum, annual financial statements. Because this is a pure asset play, the financial statement filings should enable investors to keep checking up on the company and make sure the assets are still in place.

The final risk is concentration of shares. Management and directors own over 67% of shares. Technically, their interests should be aligned with shareholders, but because they effectively control the company they can force through measures that hurt shareholder value at their own benefit. An example can be seen in the reverse split, which I think significantly undervalued the company for shareholders who were bought out, but increased shareholder value for remaining shareholders.

Price Target

I have a price target of $12.50 on BSHID. I think there is significant upside even from those prices, but I am playing this purely as an asset play.

Disclosure: Long BSHID, and looking to purchase more shares