**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**




Washington,
      D.C. 20549




**FORM
      10-KSB**




x
            Annual
                Report Under Section 13 or 15(d) of the Securities Exchange Act of
                1934




For
      the
      fiscal year ended December 31, 2006




 ̈
            Transition
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934




Commission
      file number: 0-51365




**IRONCLAD
      PERFORMANCE WEAR CORPORATION**




(Exact
      Name of Small Business Issuer as Specified in its Charter)




**Nevada**
            
            **95-4762694**(State
                or Other Jurisdiction of Incorporation or Organization)
            
            (I.R.S.
                Employer Identification No.)





**2201
      Park Place, Suite 101**


**El
      Segundo, California 90245**


(Address
      of Principal Executive Offices)




**(310)
      643-7800**


(Issuer’s
      Telephone Number, Including Area Code)




Securities
      registered under Section 12(b) of the Exchange Act:




**None**




Securities
      registered under Section 12(g) of the Exchange Act:




**Common
      Stock, par value $.001 per share**




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.  Yes x  No  ̈




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB of any
      amendment to this Form 10-KSB. o




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act.)   Yes   ̈  No  x





Issuer’s
      Revenues for the fiscal year ended December 31, 2006 were
      $9,581,211.




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates as of March 9, 2007 was $16,535,233




As
      of
      March 9, 2007, the issuer had 30,064,060 shares of common stock, par value
      $.001
      per share, issued and outstanding.




DOCUMENTS
      INCORPORATED BY REFERENCE




**None**




Transitional
      Small Business Disclosure Format (check one):  Yes  ̈ No x













**IRONCLAD
      PERFORMANCE WEAR CORPORATION**


**INDEX
      TO FORM 10-Ksb**




**PART
                I**
            
            
            **Page**Item
                1.
            Description
                of Business
            
            2Item
                2.
            Description
                of Property
            
            7Item
                3.
            Legal
                Proceedings
            
            7Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            
            8**PART
                II**Item
                5.
            Market
                for Common Equity, Related Stockholder
                Matters
            
            9Item
                6.
            Management’s
                Discussion and Analysis or Plan of
                Operation
            
            11Item
                7.
            Financial
                Statements
            
            34Report
                of Independent Registered Public Accounting
                Firm
            
            35Consolidated
                Balance Sheet
            
            36Consolidated
                Statements of Operations
            
            37Consolidated
                Statements of Cash Flows
            
            38Consolidated
                Statements of Changes in Stockholders’
                Equity
            
            39Notes
                to Consolidated Financial
                Statements
            
            40Item
                8.
            Changes
                in and Disagreements with Accountants on Accounting and
                Financial Disclosure
            
            58Item
                8A.
            Controls
                and Procedures
            
            58Item
                8B
            Other
                Information
            
            58**PART
                III**Item
                9.
            Director,
                Executive Officers, Promoters, Control Persons and
                Corporate Governance; Compliance With Section 16(a) of the Exchange
                Act
            
            59Item
                10.
            Executive
                Compensation
            
            62Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management
                and Related Stockholder Matters
            
            68Item
                12.
            Certain
                Relationships and Related Transactions, and Director
                Independence
            
            71Item
                13.
            Exhibits
            
            73Item
                14.
            Principal
                Accountant Fees and Services
            
            75




*Index*





**PART
      I**




This
      report, including the sections entitled “Cautionary Statements and Risk
      Factors,” “Management’s Discussion and Analysis or Plan of Operation” and
“Description of Business,” contains “forward-looking statements” that include
      information relating to future events, future financial performance, strategies,
      expectations, competitive environment, regulation and availability of resources.
      These forward-looking statements include, without limitation, statements
      regarding: proposed new services; our expectations concerning litigation,
      regulatory developments or other matters; statements concerning projections,
      predictions, expectations, estimates or forecasts for our business, financial
      and operating results and future economic performance; statements of
      management’s goals and objectives; and other similar expressions concerning
      matters that are not historical facts. Words such as “may,” “will,” “should,”
“could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,”
“future,” “intends,” “plans,” “believes” and “estimates,” and similar
      expressions, as well as statements in future tense, identify forward-looking
      statements.




Forward-looking
      statements should not be read as a guarantee of future performance or results,
      and will not necessarily be accurate indications of the times at, or by which,
      that performance or those results will be achieved. Forward-looking statements
      are based on information available at the time they are made and/or management’s
      good faith belief as of that time with respect to future events, and are subject
      to risks and uncertainties that could cause actual performance or results to
      differ materially from those expressed in or suggested by the forward-looking
      statements. Important factors that could cause these differences include, but
      are not limited to:




·
            other
                factors discussed under the headings “Cautionary Statements and Risk
                Factors,” “Management’s Discussion and Analysis of Financial Condition and
                Results of Operations” and “Description of
                Business.”




Forward-looking
      statements speak only as of the date they are made. You should not put undue
      reliance on any forward-looking statements. We assume no obligation to update
      forward-looking statements to reflect actual results, changes in assumptions
      or
      changes in other factors affecting forward-looking information, except to the
      extent required by applicable securities laws. If we do update one or more
      forward-looking statements, no inference should be drawn that we will make
      additional updates with respect to those or other forward-looking
      statements.




1
 *Index*





**Item
                1.**
            **Description
                of
                Business**




With
      respect to this discussion, the terms “we” “us” “our” “Ironclad” and the
“Company” refer to Ironclad Performance Wear Corporation, a Nevada corporation
      and its wholly-owned subsidiary Ironclad Performance Wear Corporation, a
      California corporation (“Ironclad California”). Ironclad is a designer and
      manufacturer of branded performance work wear for a variety of construction,
      do-it-yourself, industrial, sporting goods and general services markets.





**2006
      Merger Transaction**





Founded
      in 1998, and based in El Segundo, CA, Ironclad Performance Wear Corporation,
      a
      California corporation (“Ironclad California”) is a designer and manufacturer of
      branded performance work wear for a variety of construction, do-it-yourself,
      industrial, sporting goods and general services markets.




On
      April
      20, 2006, we entered into an Agreement and Plan of Merger (the “Merger
      Agreement”) with Ironclad California, and Ironclad Merger Corporation, a
      California corporation and our wholly-owned subsidiary (“MergerCo”) pursuant to
      which we would acquire Ironclad California in a merger transaction wherein
      MergerCo would merge with and into Ironclad California, with Ironclad California
      being the surviving corporation (the “Merger”). On May 9, 2006, the Merger
      closed, Ironclad California became our wholly-owned subsidiary, and we changed
      our name to Ironclad Performance Wear Corporation.





**Principal
      Terms of the Merger**





At
      the
      Effective Time of the Merger (as defined in the Merger Agreement), MergerCo
      was
      merged with and into Ironclad California, the separate existence of MergerCo
      ceased, and Ironclad California continued as the surviving corporation at the
      subsidiary level. We issued shares of our common stock to the stockholders
      of
      Ironclad California in exchange for 100% ownership of Ironclad California.
      Additionally, we assumed options to purchase shares of common stock and warrants
      to purchase shares of common stock on the same terms and conditions as
      previously issued by Ironclad California.





Immediately
      prior to the closing of the Merger, we had outstanding 3,489,444 shares of
      common stock. Immediately after the closing of the Merger, and without taking
      into consideration the Private Placement offering described below, we had
      19,858,404 outstanding shares of common stock, options to purchase 2,588,314
      shares of common stock and warrants to purchase 2,817,416 shares of common
      stock.





**The
      Share Cancellation and Purchase Agreements**





Immediately
      prior to the Merger we canceled 2,000,000 shares of our pre-split common stock
      held by our former sole officer and director, Thomas Lamb, and one of our former
      principal stockholders Craig Lamb, pursuant to an Amended and Restated Share
      Cancellation Agreement dated May 8, 2006. Thomas Lamb and Craig Lamb received
      cash remuneration of $ 349,413 from
      third party purchasers for their agreement to cancel such shares.





At
      the
      time of the payment and share cancellation the third party purchasers were
      also
      party to an Amended and Restated Share Purchase and Escrow Agreement, dated
      May
      9, 2006 with holders of approximately 90% of our common stock. The holders
      of
      such shares of our common stock received $765,938 in consideration for the
      transfer of their shares to the third party purchasers. The third party
      purchasers included certain individuals introduced by Gemini Partners, LLC
      (“Gemini”), a consultant to Ironclad California. Gemini and certain of its
      affiliates received approximately 2,000,000 shares of our common stock that
      was
      purchased from our shareholders by the third party purchasers as compensation
      for services provided to the third party purchasers with respect to the Merger.





2
 *Index*





Immediately
      after the consummation of the cancellation and purchase transaction we effected
      a 3.454895-for-1 forward stock split of our common stock and increased the
      number of our shares of authorized common stock to 172,744,750.





**Private
      Placement Transaction**





Immediately
      following the closing of the Merger, we received gross proceeds of approximately
      $7.3 million in a private placement transaction (the “Private Placement”) with
      institutional investors and other high net worth individuals (“Investors”).
      Pursuant to Subscription Agreements entered into with these Investors, we sold
      9,761,558 Investment Units, at $0.75 per Investment Unit. Each “Investment Unit”
consists of one share of our common stock, and a five year non-callable warrant
      to purchase three-quarters of one share of our common stock, at an exercise
      price of $1.00 per share.





**General**





We
      design
      and manufacture branded performance work wear for a variety of construction,
      do-it-yourself, industrial, sporting goods and general services markets. Since
      inception, we have leveraged our proprietary technologies to design job-specific
      gloves and performance apparel designed to improve the wearer’s ability to
      safely, efficiently and comfortably perform specific job functions. Our goal
      is
      to establish a reputation in the construction, do-it-yourself, industrial,
      sporting goods and general services markets as a leader in performance gloves
      and apparel. We are currently expanding our performance apparel product line
      to
      include jackets, pants, shorts, reflective and polo shirts, underwear and
      tights.





We
      manufacture our performance gloves and apparel using 20 functional materials,
      including DuPontTM Kevlar® and Teflon®, Gore-tex® Synthetic Leather, 3M
      Reflective ScotchliteTM, DriRelease® and Duraclad®. We incorporate these
      materials in the manufacturing process to create products that meet the
      functional and protective requirements of our consumers. Since inception, we
      have employed an in-house research and development team responsible for
      identifying and creating new products and applications, and improving and
      enhancing existing products.





We
      currently sell our products in all 50 states and internationally through
      approximately 9,000 retail outlets. Our gloves are priced at retail between
      $15
      and $60 per unit with apparel unit prices ranging from $20 to $80.





**Glove
      Products**





Currently,
      our primary products are our task-specific technical gloves. Glove products
      are
      specially designed for individual user groups. Currently, we produce and sell
      35
      distinct glove types in a variety of sizes and colors which cater to the
      specific demands and requirements of construction, do-it-yourself, industrial
      and sporting goods consumers, including carpenters, machinists, package
      handlers, plumbers, welders, roofers, hunters, gardeners and do-it-yourself
      users. Gloves are available in multiple levels of protection and abrasion that
      allow the wearer to choose a product based on the task demands, weather and
      ease
      of motion. Glove products are currently manufactured by three suppliers
      operating in China, Hong Kong and Indonesia. The manufacturing capabilities
      necessary for the manufacturing of our gloves is not particularly specialized
      and we believe that we would be able to replace our current manufacturers
      without significant disruption in supply if necessary. Raw material suppliers
      and substitute materials are readily available and we believe that our
      manufacturers would be able to replace their current raw material suppliers
      without significant disruption in supply.





3
 *Index*





**Apparel**





We
      launched a line of performance apparel products during the fourth quarter of
      2005. The apparel line currently consists of eight long and short sleeved shirts
      designed to increase the comfort and functionality of the wearer by taking
      into
      account environmental temperatures and workers’ corresponding perspiration
      levels. The apparel is engineered to keep the wearer dry and cool under extreme
      work conditions. Ironclad’s apparel products are comparable to Under ArmourTM
Products, but we have incorporated worker-centric features such as
      anti-microbials, SPF 30 sunscreen protection and self wicking, and have made
      our
      apparel products slightly heavier for durability. In 2006, we hired a Director
      of Apparel who was a designer/developer of performance apparel for Under Armour
      and other apparel companies. We also hired a Vice President of Sales - Apparel,
      who previously worked for Dickies and other apparel companies, to develop a
      sales force to sell the performance apparel line to the work wear and sporting
      goods channels. Our existing sales force will sell the performance apparel
      line
      to our existing customer base. In 2007, we are expanding the apparel line to
      include performance jackets, pants, shorts, reflective and polo shirts,
      underwear and tights. The apparel line will be manufactured by three suppliers
      located in Taiwan, Mexico and the Dominican Republic. Manufacturing capacity
      for
      apparel is readily available and we believe that we would be able to replace
      our
      current manufacturers and add new manufacturers without significant disruption
      in supply.





**Competition**





Ironclad
      competes in the following two principal markets:





**Technical
      Gloves**





Ironclad
      faces competition from other specialty gloves and apparel companies such as
      Custom Leathercraft Manufacturing Company, Big Time, Gorgonz and Mechanix Wear.
      Compared generally, we believe our material selection and construction provides
      for superior protection, durability, quality and repeat customers affording
      a
      substantial, sustainable advantage in the category.





**Performance
      Work Apparel**





We
      are
      one of a limited number of manufacturers of performance work apparel and, in
      the
      opinion of management, currently face relatively little competition from other
      manufacturers in this sector.




**Mainstream
      Product Channels**





To
      date,
      we have established our reputation, customer loyalty and brand by selling our
      products through hardware stores, lumber yards, big box home centers, industrial
      distributors and sporting goods retailers. We intend to expand into work wear
      chains and additional large retailers in 2007.





**International
      Expansion**





We began
      distributing products internationally in 2005 in Australia and Japan. In 2006,
      we entered the Canadian market through a distributor. In 2007, we hired a Vice
      President of International who previously worked for Under Armour and other
      apparel and footwear companies. We plan to expand into Europe and other
      international markets in 2007.





4
 *Index*





**Ironclad
      Branding**





We
      place
      an emphasis on the establishment and maintenance of our brand equity. Since
      the
      inception of our business, our products have carried the “Ironclad” brand. We
      believe that our success in building a dedicated following of users with
      substantial product penetration across a large number of retailers and
      storefronts was instrumental in recently allowing us to gain entry into larger
      retailers and providing the foundation to expand internationally.





**Television
      Relationships**





Ironclad
      is working to develop advertising and marketing opportunities with television
      programs that could provide strong exposure to our target demographic and
      demonstrate to viewers the advantage of utilizing Ironclad products. Our
      products are currently featured on twelve television programs.





**Print
      Media**





We
      expanded our marketing programs in print media throughout 2006, in construction
      industry and occupational health and safety publications, and lifestyle and
      recreational magazines.





**Sponsorship
      Relationships**





We
      maintain a number of sponsorship relationships with sporting and television
      events that appeal to our target demographic. We view these relationships as
      a
      means to further establish and solidify brand recognition with our target
      customers.





**Sales
      and Customer Analysis**





We
      are
      currently distributing our products through approximately 9,000 outlets that
      cater to the professional tradesman, do-it-yourself consumer, industrial user
      and sporting goods consumer including “Big Box” home centers, hardware co-ops,
      lumber yards, industrial distributors and sporting goods retailers. In 2007
      we
      intend to sell our expanded performance apparel line to work wear retailers.





Sales
      through “Big Box” home centers accounted for approximately 28% of our sales
      revenue in 2006. One retailer, Menard, Inc., accounted for approximately 17%
      of
      our sales in 2006. Currently, we estimate that our products are sold in only
      30%
      of the retail and distribution outlets identified by our management as viable
      Ironclad outlets. We intend to continue to emphasize and expand our
      relationships with these retailers and distributors.





**Selected
      Analysis of “Big Box” and International Retailers**





We
      plan
      to continue our expansion by increasing selling efforts through “Big Box” home
      centers and international channels, which we believe creates significant
      opportunities for strengthening our brand.





**Geographic
      Information**





Domestic
      sales accounted for 96% of our revenue in 2005 and 93% in 2006. International
      sales in Australia, Canada, Japan and other countries accounted for our
      remaining revenue in 2006. All of our fixed assets are located in the United
      States, principally in California at our headquarters. Our products are
      currently manufactured in China, Indonesia, Taiwan, Mexico, Hong Kong and the
      Dominican Republic.





5
 *Index*





**Co-Branded
      Products and Relationships**





Although
      we do not sell privately-labeled products, we have opportunistically sought
      to
      co-brand with major partners that represent a value added relationship in terms
      of sales and brand awareness.





**Intellectual
      Property and Proprietary Rights**





We
      currently have five patents or patents pending, which are intended to protect
      the design and technical innovations found in our performance work gloves.
      Following are descriptions of the patents or patents pending.





·
            Advanced
                Touch® Technology is a seamless fingertip design that places a smooth
                layer of material on the touch receptors of the fingers. The result
                is an
                increase in comfort and a high degree of touch sensitivity. It is
                used in
                Ironclad’s Evolution and Ranchworx gloves, and is patent
                pending.





·
            Ironclad’s
                Engineered Grip System consists of a uniquely patterned, molded
                thermoplastic elastomer (or TPE) that is welded to a synthetic leather
                palm. It provides extreme grip and abrasion protection without sacrificing
                hand dexterity. It is found in Ironclad’s Extreme Duty glove, which is
                designed to handle brick, cement block, rebar, and demolition rubble.
                The
                Extreme Duty glove is primarily used by search and rescue professionals,
                including units of the New York and Los Angeles Fire Departments.
                This
                patent issued on September 5, 2006.





·
            Silicone
                rubber is fused to the synthetic leather palm of the Box Handler
                and Cargo
                Bull gloves in a specific pattern. This pattern, designed for optimum
                grip
                on smooth surfaces, is patent
                pending.





·
            Ironclad’s
                signature palm pattern is found on nine popular glove styles, including
                the General Utility, Wrenchworx, and Ranchworx gloves. Management
                believes
                this pattern differentiates Ironclad from other non-branded gloves.
                This
                patent was issued on February 14,
                2006.





·
            Ironclad
                has developed two glove styles that absorb tool impacts with a unique
                design of multiple gel-filled palm pads. This design is found on
                the
                Wrenchworx Impact and Mach 5 Impact gloves. This patent issued on
                February
                13, 2007.





Ironclad
      owns the following intellectual trademark property: 33 registered US trademarks,
      10 registered international trademarks and 20 in-use US trademarks. These
      trademarks significantly strengthen consumer awareness of the Ironclad brand,
      and enable Ironclad to maintain distinction between it and other companies
      trying to copy the Ironclad brand image. The Company also has 7 copyright
      marks.





We
      seek
      to protect our intellectual property through existing laws and regulations
      and
      by contractual restrictions. We rely upon trademark, patent and copyright law,
      trade secret protection and confidentiality or license agreements with our
      employees, customers, partners and others to help us protect our intellectual
      property.





The
      status of any patent involves complex legal and factual questions. The scope
      of
      allowable claims is often uncertain. As a result, we cannot be sure that any
      patent application filed by us will result in a patent being issued, nor that
      any patents issued in the future will afford adequate protection against
      competitors with similar technology; nor can we provide assurance that patents
      issued to us will not be infringed upon or designed around by others.





6
 *Index*





**Employees**




As
      of
      December 31, 2006, Ironclad had 26 full-time employees. Since inception, the
      Company has never had a work stoppage, and its employees are not represented
      by
      a labor union. Ironclad considers its relationships with its employees to be
      positive.




**Item
                2.**
            **Description
                of
                Property**




We
      lease
      all of our facilities. Our headquarters are located at 2201 Park Place, Suite
      101, El Segundo, California 90245. The table below sets forth certain
      information regarding our leaseholds as of March 9, 2007.





**Address**
            
            **Approximate
                Floor****Space
                (Sq. Ft.)**
            
            **Monthly****Rent**
            
            **Use**2201
                Park Place, Suite 101El
                Segundo, CA
            
            
            10,600
            
            $
            13,752
            
            
            Corporate
                offices and distribution center





We
      believe our facilities are adequate to meet our current and near-term needs.







**Item
                3.**
            **Legal
                Proceedings**




On
      September 12, 2006, American Sports Group, Inc. (“ASG”), filed a lawsuit against
      the Company, including Ironclad California, and certain individuals, in the
      Superior Court of the State of California for the County of Los Angeles. ASG
      alleges that in 2002, Ironclad California agreed to issue, and did, in fact,
      issue to ASG a warrant to purchase 1,200,000 shares of Ironclad California
      common stock at $0.05 per share and a warrant to purchase 1,083,333 shares
      of
      Ironclad California common stock at $0.06 per share. ASG is seeking declaratory
      relief in the form of a determination as to validity of the warrants and its
      rights to exchange such warrants for warrants to purchase shares of the
      Company’s common stock pursuant to the terms of the Merger Agreement with
      Ironclad California. In the alternative, ASG is seeking specific performance
      of
      the alleged agreement to issue the warrants, and the issuance of warrants to
      purchase 517,746 shares of the Company’s common stock at $0.1157 per share, and
      476,410 shares of common stock at a price of $0.1388 per share, which represent
      the number of warrants and exercise prices for which these warrants would have
      been exchanged pursuant to the Merger Agreement.





According
      to the Company’s records, the transactions pursuant to which the warrants were
      intended to be issued were never consummated, and the warrants were never
      issued. Any purported warrants that plaintiff possesses were issued without
      authorization, and therefore, are invalid and unenforceable. The Company
      believes ASG’s claims are without merit and the Company intends to vigorously
      defend against these claims.





7
 *Index*





To
      the
      extent the plaintiff is successful in its claim, the Company agreed to cause
      the
      issuance of additional shares of its common stock to each of the investors
      in
      the Private Placement financing, and to each of the holders of its shares issued
      and outstanding immediately prior to the Merger, on a pro rata basis, in such
      a
      manner and in such amounts as would be necessary to adjust their respective
      ownership of the Company’s common stock as of the closing of the Private
      Placement financing and Merger for any dilution caused by the issuance of the
      warrants or any shares thereunder.







**Item
                4.**
            **Submission
                of Matters to a Vote of Securities
                Holders**




On
      January 12, 2007, we held a Special Meeting of the Shareholders. At the Special
      Meeting, there were 30,064,060 shares of common stock entitled to vote. There
      were 20,147,006 shares ( 67.014% of the shares entitled to vote) represented
      at
      the meeting in person or by proxy. The matter submitted to the shareholders
      at
      the Special Meeting was the approval or our 2006 Stock Incentive Plan, which
      authorizes the issuance of up to 4,250,000 shares of our common stock pursuant
      to grants awarded under the Plan.





The
      following summarizes vote results for the matter submitted to our stockholders
      for action at the annual meeting:





For
            Against
            Withheld18,792,774
            1,353,732
            500




8
 *Index*





**PART
      II**




**Item
                5.**
            **Market
                for Common Equity, Related Stockholder Matters**




**Common
      Stock**




Our
      common stock is quoted on the Over-The-Counter Bulletin Board under the symbol
      “ICPW.” Prior to the second quarter of 2006, there was no established trading
      market for our common stock. The following table sets forth, for the periods
      indicated, the high and low bid information for the common stock, as determined
      from sporadic quotations on the Over-the-Counter Bulletin Board, as well as
      the
      total number of shares of common stock traded during the periods indicated.
      The
      information has been adjusted to reflect a 3.454895-for-1 forward stock split
      of
      our common stock which took effect at the close of business on May 9, 2006.
      The
      following quotations reflect inter-dealer prices, without retail mark-up,
      mark-down or commission, and may not represent actual transactions.




**High**
            
            **Low**
            
            **Volume****Year
                Ended December 31, 2006**Second
                Quarter
            
            $
            2.56
            
            $
            1.01
            
            
            328,862Third
                Quarter
            
            $
            1.30
            
            $
            0.86
            
            
            382,974Fourth
                Quarter
            
            $
            0.90
            
            $
            0.55
            
            
            3,123,332







On
      March
      9, 2007, the closing sales price of our common stock as reported on the
      Over-The-Counter Bulletin Board was $0.55 per share. As of March 9, 2007, there
      were approximately 200 shareholders of record of our common stock.




The
      graph
      below matches the cumulative 7-month total return of holders of Ironclad
      Performance Wear Corporation’s common stock with the cumulative total returns of
      the Dow Jones Wilshire MicroCap index and the DJ Wilshire Clothing &
Accessories index. The graph assumes that the value of the investment in our
      common stock and in each of the indexes (including reinvestment of dividends)
      was $100 on May 11, 2006 and tracks it through December 31, 2006.





9
 *Index*








**5/11/06**
            
            **5/06**
            
            **6/06**
            
            **7/06**
            
            **8/06**
            
            **9/06**
            
            **10/06**
            
            **11/06**
            
            **12/06****Ironclad
                Performance Wear Corp.**
            
            
            **100.00**
            
            
            **111.11**
            
            
            **73.61**
            
            
            **79.86**
            
            
            **71.53**
            
            
            **69.44**
            
            
            **51.39**
            
            
            **50.00**
            
            
            **46.53****Dow
                Jones Wilshire MicroCap**
            
            
            **100.00**
            
            
            **94.40**
            
            
            **93.60**
            
            
            **89.94**
            
            
            **91.87**
            
            
            **92.03**
            
            
            **96.91**
            
            
            **99.33**
            
            
            **100.88****DJ
                Wilshire Clothing & Accessories**
            
            
            **100.00**
            
            
            **94.69**
            
            
            **95.03**
            
            
            **90.87**
            
            
            **94.92**
            
            
            **102.65**
            
            
            **111.35**
            
            
            **116.36**
            
            
            **116.89**




*The
      stock price performance included in this graph is not necessarily indicative
      of
      future stock price performance.*





**Dividends**




We
      have
      never paid dividends on our common stock. We intend to retain any future
      earnings for use in our business.





10
 *Index*





**Recent
      Sales of Unregistered Securities**




In
      2006,
      we issued 444,063 shares of our common stock upon the exercise of stock options
      and warrants originally issued by Ironclad California and assumed by us in
      May
      2006, for proceeds to us of $96,217. Each of the investors in these transactions
      represented to us that the investor was an “accredited investor” within the
      meaning of Rule 501 of Regulation D under the Securities Act of 1933, and that
      such investor was receiving the securities for investment and not in connection
      with a distribution thereof. The issuance and sales of these securities was
      exempt from the registration and prospectus delivery requirements of the
      Securities Act pursuant to Section 4(2) of the Securities Act as transactions
      not involving any public offering.




**Equity
      Compensation Plan Information**




See
      discussion of Equity Compensation Plan Information in Item 11.






**Item
                6.**
            **Management’s
                Discussion and Analysis or Plan of
                Operation**




The
      following discussion and analysis should be read together with the Consolidated
      Financial Statements of Ironclad Performance Wear Corporation and the “Notes to
      Consolidated Financial Statements” included elsewhere in this report. This
      discussion summarizes the significant factors affecting the consolidated
      operating results, financial condition and liquidity and cash flows of Ironclad
      Performance Wear Corporation for the fiscal years ended December 31, 2005 and
      2006. Except for historical information, the matters discussed in this
      Management’s Discussion and Analysis or Plan of Operation are forward-looking
      statements that involve risks and uncertainties and are based upon judgments
      concerning various factors that are beyond our control.




**Overview**




We
      are a
      leading designer and manufacturer of branded performance work wear. Founded
      in
      1998, we have grown and leveraged our proprietary technologies to produce
      task-specific gloves and performance apparel that are designed to significantly
      improve the wearer’s ability to safely, efficiently and comfortably perform
      general to highly specific job functions. We have built and continue to augment
      our reputation among professionals in the construction and industrial service
      markets, and do-it-yourself and sporting goods consumers with products
      specifically designed for individual tasks or task types. Utilizing our brand
      equity, we are currently expanding our performance apparel product line (e.g.
      pants, jackets, shorts, reflective and polo shirts, underwear and tights) also
      designed to enhance the wearer’s comfort and performance. We believe that our
      dedication to quality and durability and focus on our client needs has created
      a
      high level of brand loyalty and has solidified substantial brand equity.




We
      plan
      to increase our domestic revenues by leveraging our relationships with existing
      retailers and industrial distributors, including “Big Box” and sporting goods
      retailers, increasing our product offerings in new and existing locations.
      We
      also plan to sell our expanded apparel line to work wear retailers.




We
      believe that our products have international appeal. In 2005, we began selling
      products in Australia and Japan through independent distributors, which
      accounted for approximately 4% of total sales. In 2006, we entered the Canadian
      market through a distributor, and international sales represented approximately
      7% of total sales. We plan to increase sales internationally by expanding our
      distribution into Europe and other international markets during the fiscal
      year
      ending December 31, 2007.





11
 *Index*





Our
      historical operations before May 9, 2006 reflect only the operations of Ironclad
      Performance Wear Corporation, a California corporation (or “Ironclad
      California”). Before May 9, 2006, we existed as a “shell company” with nominal
      assets whose sole business was to identify, evaluate and investigate various
      companies to acquire or with which to merge. On May 9, 2006, we consummated
      a
      merger transaction in which we acquired all of the shares of Ironclad California
      (the “Merger”). Concurrently with the closing of the merger we completed a
      private placement financing and certain other transactions related to the
      merger. Upon completion of the merger and the private placement financing,
      Ironclad California became our wholly-owned subsidiary, and the former
      stockholders of Ironclad California and the investors in the private placement
      financing received in the aggregate 26,130,548 shares of our common stock,
      or
      approximately 88% of our issued and outstanding shares of common stock. Ironclad
      California was formed and commenced its business in 1998. Our merger with
      Ironclad California was accounted for as a reverse merger with Ironclad
      California deemed to be the accounting acquirer, and us the legal acquirer.




**Critical
      Accounting Policies, Judgments and Estimates**




Our
      Management’s Discussion and Analysis of Financial Condition of Plan of
      Operations section discusses our financial statements, which have been prepared
      in accordance with accounting principles generally accepted in the United
      States. To prepare these financial statements, we must make estimates and
      assumptions that affect the reported amounts of assets and liabilities. These
      estimates also affect our reported revenues and expenses. On an ongoing basis,
      Management evaluates its estimates and judgment, including those related to
      revenue recognition, accrued expenses, financing operations and contingencies
      and litigation. Management bases its estimates and judgment on historical
      experience and on various other factors that are believed to be reasonable
      under
      the circumstances, the results of which form the basis for making judgments
      about the carrying value of assets and liabilities that are not readily apparent
      from other sources. Actual results may differ from these estimates under
      different assumptions or conditions. The following represents a summary of
      our
      critical accounting policies, defined as those policies that we believe are
      the
      most important to the portrayal of our financial condition and results of
      operations and that require management’s most difficult, subjective or complex
      judgments, often as a result of the need to make estimates about the effects
      of
      matters that are inherently uncertain.





**Revenue
      Recognition**




Under
      our
      sales model, a customer is obligated to pay us for products sold to it within
      a
      specified number of days from the date that title to the products is transferred
      to the customer. Our standard terms are typically net 30 days from the transfer
      of title to the products to a customer. We typically collect payment from a
      customer within 30 to 45 days from the transfer of title to the products to
      a
      customer. Transfer of title occurs and risk of ownership passes to a customer
      at
      the time of shipment or delivery, depending on the terms of our agreement with
      a
      particular customer. The sale price of our products is substantially fixed
      or
      determinable at the date of sale based on purchase orders generated by a
      customer and accepted by us. A customer’s obligation to pay us for products sold
      to it is not contingent upon the resale of those products. We recognize revenue
      at the time product is delivered to a customer.





12
 *Index*





**Inventory
      Obsolescence Allowance**





We
      review
      the inventory level of all products quarterly. For all items that have been
      in
      the market for one year or greater, we consider inventory levels of greater
      than
      one year’s sales to be excess. Products that are no longer part of the current
      product offering are considered obsolete. The potential for re-sale of
      slow-moving and obsolete inventories is based upon our assumptions about future
      demand and market conditions. The recorded cost of obsolete inventories is
      then
      reduced to zero and a reserve is established for slow moving products. Both
      the
      write down and reserve adjustments are recorded as charges to cost of goods
      sold. For the years ended December 31, 2006 and December 31, 2005 we increased
      our inventory reserve by $88,000 and $10,105, respectively, to a current balance
      of $120,000 and recorded a corresponding increase in cost of goods sold. All
      adjustments for obsolete inventory establish a new cost basis for that inventory
      as we believe such reductions are permanent declines in the market price of
      our
      products. Generally, obsolete inventory is sold to companies that specialize
      in
      the liquidation of these items or contributed to charities, while we continue
      to
      market slow-moving inventories until they are sold or become obsolete. As
      obsolete or slow-moving inventory is sold or disposed of, we reduce the reserve.
      During the years ended December 31, 2006 and December 31, 2005, we sold obsolete
      inventories previously reserved for and accordingly reduced the reserve by
      approximately $200 and $9,000 and recorded corresponding gains for these sales.
      During the same periods we adjusted our estimates for slow moving inventory,
      based on recent sales volumes, upward by $88,200 and $19,105, respectively.
      Although we have no specific statistical data on this matter, we believe that
      our practices are reasonable and consistent with those of our
      industry.




**Allowance
      for Doubtful Accounts**




We
      maintain allowances for doubtful accounts for estimated losses resulting from
      the inability of our customers to make required payments. Our current customers
      consist of large national, regional and smaller independent customers with
      good
      payment histories with us. Since we have not experienced any previous payment
      defaults with any of our current customers, our allowance for doubtful accounts
      is minimal. We perform periodic credit evaluations of our customers and maintain
      allowances for potential credit losses based on management’s evaluation of
      historical experience and current industry trends. If the financial condition
      of
      our customers were to deteriorate, resulting in the impairment of their ability
      to make payments, additional allowances may be required. New customers are
      evaluated for credit worthiness before terms are established. Although we expect
      to collect all amounts due, actual collections may differ.





**Product
      Returns**




We
      have a
      warranty policy that covers defects in workmanship. We allow our customers
      to
      return damaged or defective products to us following a customary return
      merchandise authorization process. We also allow for some stock adjustments
      returns, typically for new customers, whereby the customer is given the
      opportunity to ‘trade out’ of a style of product that does not sell well in
      their territory, usually in exchange for another product, again following the
      customary return merchandise authorization process. For both types of returns
      we
      utilize actual historical return rates to determine our allowance for returns
      in
      each period. Gross sales are reduced by estimated returns. We record a
      corresponding accrual for the estimated liability associated with the estimated
      returns which is based on the historical gross sales of the products
      corresponding to the estimated returns. This accrual is offset each period
      by
      actual product returns.





Our
      current estimated future warranty product return rate is approximately 1.0%
      and
      our current estimated future stock adjustment return rate is approximately
      0.75%. As noted above, our return rate is based upon our past history of actual
      returns and we estimate amounts for product returns for a given period by
      applying this historical return rate and reducing actual gross sales for that
      period by a corresponding amount. We believe that using a trailing 12-month
      return rate provides us with a sufficient period of time to establish recent
      historical trends in product returns for two primary reasons; (1) our products
      useful life is approximately 3-4 months and (2) we are able to quickly correct
      any significant quality issues as we learn about them. If an unusual
      circumstance exists, such as a product that has begun to show materially
      different actual return rates as compared to our average 12-month return rates,
      we will make appropriate adjustments to our estimated return rates. Factors
      that
      could cause materially different actual return rates as compared to the 12-month
      return rates include a new product line, a change in materials or product being
      supplied by a new factory. Although we have no specific statistical data on
      this
      matter, we believe that our practices are reasonable and consistent with those
      of our industry. Our warranty terms under our arrangements with our suppliers
      do
      not provide for individual products returned by retailers or retail customers
      to
      be returned to the vendor.





13
 *Index*





**Reserve
      for Warranty Returns**




Reserve
                balance 12/31/04
            
            $
            15,000Payments
                recorded during the period
            
            
            (86,596
            )(71,596
            )Adjustment
                to reserve for pre-existing liabilities
            
            
            23,000Accrual
                for new liabilities during the reporting period
            
            
            86,596Reserve
                balance 12/31/05
            
            
            38,000Payments
                recorded during the period
            
            
            (186,097
            )(148,097
            )Adjustment
                to reserve for pre-existing liabilities
            
            
            34,000Accrual
                for new liabilities during the reporting period
            
            
            186,097Reserve
                balance 12/31/06
            
            $
            72,000





**Stock
      Based Compensation**





On
      January 1, 2006, we adopted the provisions of Financial Accounting Standards
      Board Statement 123R, *Share-Based
      Payment* (“SFAS
      123R”). This statement establishes standards surrounding the accounting for
      transactions in which an entity exchanges its equity instruments for goods
      and
      services. The statement focuses primarily on accounting for transactions in
      which an entity obtains employee services in share-based payment transactions,
      such as the options issued under the Company’s Stock Option Plans. The statement
      provides for, and we have elected to adopt the standard using the modified
      prospective application under which compensation cost is recognized on or after
      the required effective date for the fair value of all future share based award
      grants and the portion of outstanding awards at the date of adoption of this
      statement for which the requisite service has not been rendered, based on the
      grant-date fair value of those awards calculated under Statement 123R for pro
      forma disclosures.





**Income
      Taxes**




**** Income
      taxes are provided for the tax effects of the transactions reported in the
      financial statements and consist of taxes currently due plus deferred taxes
      related primarily to the difference between the basis of the allowances for
      returns and doubtful accounts and for inventory obsolescence, accrued payroll
      and bonus and net operating loss carry forwards for financial and income tax
      reporting. The deferred tax assets and liabilities represent the future tax
      return consequences of those differences, which will either be taxable or
      deductible when the assets and liabilities are recovered or
      settled.




14
 *Index*





Deferred
      tax assets and liabilities are reflected at income tax rates applicable to
      the
      period in which the deferred tax assets or liabilities are expected to be
      realized or settled. As changes in tax laws or rates are enacted, deferred
      tax
      assets and liabilities are adjusted through the provision for income taxes.
      If
      it is more likely than not that some portion or all of a deferred tax asset
      will
      not be realized, a valuation allowance is recognized. As the Company has
      reported losses for 2003, 2004, 2005 and 2006, we have taken the conservative
      approach, and fully reserved the deferred tax assets.




**Valuation
      of Derivative Instruments**




SFAS
      No.
      133 “Accounting for Derivative Instruments and Hedging Activities” requires that
      embedded derivative instruments be bifurcated and assessed, along with
      free-standing derivative instruments such as warrants, on their issuance date
      in
      accordance with EITF 00-19 “Accounting for Derivative Financial Instruments
      Indexed to, and Potentially Settled in, a Company’s Own Stock” to determine
      whether they should be considered a derivative liability and measured at their
      fair value for accounting purposes. In determining the appropriate fair value,
      the Company uses the Black-Scholes-Merton Option Pricing Formula (the “Black
      Scholes Model”). At each period end, or when circumstances indicate that the
      Company reevaluate the accounting for the derivative liability, derivative
      liabilities are adjusted to reflect changes in fair value, with any increase
      or
      decrease in the fair value being recorded in results of operations as
      Adjustments to Fair Value of Derivatives.





**Recent
      Accounting Pronouncements**




SFAS
      No. 123R




In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS 123
      Revised “Share-Based Payment,” “SFAS 123R.” The statement eliminates the
      alternative to account for stock-based compensation using APB 25 and requires
      such transactions be recognized as compensation expense in the statement of
      operations based on their fair values on the date of the grant, with the
      compensation expense recognized over the period in which a grantee is required
      to provide service in exchange for the stock award. We have adopted this
      statement for the year ended December 31, 2006. We recorded $616,698 of
      compensation expense for employee stock options during the year ended December
      31, 2006.




SFAS
      No. 151




In
      November 2004, the FASB issued SFAS No. 151, “Inventory Costs” SFAS No. 151
      amends the accounting for abnormal amounts of idle facility expense, freight,
      handling costs and wasted material (spoilage) under the guidance in ARB No.
      43,
      Chapter 4, “Inventory Pricing.” Paragraph 5 of ARB No. 43, Chapter 4, previously
      stated that “under some circumstances, items such as idle facility expense,
      excessive spoilage, double freight and rehandling costs may be so abnormal
      as to
      require treatment as current period charges.” This Statement requires that those
      items be recognized as current-period charges regardless of whether they meet
      the criterion of “so abnormal.” In addition, this Statement requires that
      allocation of fixed production overheads to the costs of conversion be based
      on
      the normal capacity of the production facilities. This statement is effective
      for inventory costs incurred during fiscal years beginning after June 15, 2005.
      Management does not expect adoption of SFAS No. 151 to have a material impact
      on
      our financial statements.





SFAS
      No. 152




In
      March
      2004, the FASB issued SFAS No. 152, “Accounting for Real Estate Time-Sharing
      Transactions.” The FASB issued this Statement as a result of the guidance
      provided in AICPA Statement of Position (SOP) 04-2, “Accounting for Real Estate
      Time-Sharing Transactions.” SOP 04-2 applies to all real estate time-sharing
      transactions. Among other items, the SOP provides guidance on the recording
      of
      credit losses and the treatment of selling costs, but does not change the
      revenue recognition guidance in SFAS No 66, “Accounting for Sales of Real
      Estate”, for real estate time-sharing transactions. SFAS No. 152 amends
      Statement No 66 to reference the guidance provided in SOP 04-2. SFAS No. 152
      also amends SFAS No. 67, “Accounting for Costs and Initial Rental Operations of
      Real Estate Projects,” to state that SOP 04-2 provides the relevant guidance on
      accounting for incidental operations and costs related to the sale of real
      estate time-sharing transactions. SFAS No. 152 is effective for years beginning
      after June 15, 2005, with restatements of previously issued financial statements
      prohibited. This statement is not applicable to us.





15
 *Index*





SFAS
      No. 153




In
      March
      2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets,” an
      amendment to Opinion No. 29, “Accounting for Nonmonetary Transactions.”
Statement No. 153 eliminates certain differences in the guidance in Opinion
      No.
      29 as compared to the guidance contained in standards issued by the
      International Accounting Standards Board. The amendment to Opinion No. 29
      eliminates the fair value exception for nonmonetary exchanges of similar
      productive assets and replaces it with a general exception for exchanges of
      nonmonetary assets that do not have commercial substance. Such an exchange
      has
      commercial substance if the future cash flows of the entity are expected to
      change significantly as a result of the exchange. SFAS No. 153 is effective
      for
      nonmonetary asset exchanges occurring in periods beginning after March 16,
      2004.
      Management does not expect adoption of SFAS No. 153 to have a material impact
      on
      our financial statements.





SFAS
      No. 154




In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”
an amendment to Accounting Principles Bulletin (APB) Opinion No. 20, “Accounting
      Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial
      Statements” though SFAS No. 154 carries forward the guidance in APB No. 20 and
      SFAS No.3 with respect to accounting for changes in estimates, changes in
      reporting entity, and the correction of errors. SFAS No. 154 establishes new
      standards on accounting for changes in accounting principles, whereby all such
      changes must be accounted for by retrospective application to the financial
      statements of prior periods unless it is
      impracticable to do
      so. SFAS No. 154 is effective for accounting changes and error corrections
      made
      in fiscal years beginning after December 15, 2005, with early adoption permitted
      for changes and corrections made in years beginning after May 2005.





FIN
      No. 47




In
      March
      2005, the FASB issued FASB Interpretation FIN No. 47, “Accounting for
      Conditional Asset Retirement Obligations”. FIN No. 47 clarifies the meaning of
      the term conditional asset retirement obligation as used in FASB Statement
      No.
      143, “Accounting for Asset Retirement Obligations” and clarifies when an entity
      would have sufficient information to reasonable estimate the fair value of
      an
      asset retirement obligation. This interpretation is effective no later than
      the
      end of fiscal years ending after December 15, 2005 (December 31, 2005 for
      calendar-year companies). Retrospective application of interim financial
      information is permitted but is not required. Management does not expect
      adoption of FIN No. 47 to have a material impact on our financial
      statements.





SFAS
      No. 155




In
      February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments”, which amends SFAS No. 133, “Accounting for Derivatives
      Instruments and Hedging Activities” and SFAS No. 140, “Accounting for Transfers
      and Servicing of Financial Assets and Extinguishment of Liabilities”. SFAS No.
      155 amends SFAS No. 133 to narrow the scope exception for interest-only and
      principal-only strips on debt instruments to include only such strips
      representing rights to receive a specified portion of the contractual interest
      or principle cash flows. SFAS No. 155 also amends SFAS No. 140 to allow
      qualifying special-purpose entities to hold a passive derivative financial
      instrument pertaining to beneficial interests that itself is a derivative
      instrument. Management does not expect adoption of SFAS No. 155 to have a
      material impact on our financial statements.





16
 *Index*





SFAS
      No. 156





In
      March
      2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Assets” (“SFAS NO. 156”), which provides an approach to simplify efforts to
      obtain hedge-like (offset) accounting. This Statement amends FASB Statement
      No.
      140, “Accounting for Transfers and Servicing of Financial Assets and
      Extinguishments of Liabilities”, with respect to the accounting for separately
      recognized servicing assets and servicing liabilities. The Statement (1)
      requires an entity to recognize a servicing asset or servicing liability each
      time it undertakes an obligation to service a financial asset by entering into
      a
      servicing contract in certain situations; (2) requires that a separately
      recognized servicing asset or servicing liability be initially measured at
      fair
      value, if practicable; (3) permits an entity to choose either the
      amortization method or the fair value method for subsequent measurement for
      each
      class of separately recognized servicing assets or servicing liabilities;
      (4) permits at initial adoption a one-time reclassification of
      available-for-sale securities to trading securities by an entity with recognized
      servicing rights, provided the securities reclassified offset the entity’s
      exposure to changes in the fair value of the servicing assets or liabilities;
      and (5) requires separate presentation of servicing assets and servicing
      liabilities subsequently measured at fair value in the balance sheet and
      additional disclosures for all separately recognized servicing assets and
      servicing liabilities. SFAS No. 156 is effective for all separately recognized
      servicing assets and liabilities as of the beginning of an entity’s fiscal year
      that begins after September 15, 2006, with earlier adoption permitted in certain
      circumstances. The Statement also describes the manner in which it should be
      initially applied. Management does not expect adoption of SFAS No. 156 to have
      a
      material impact on our financial statements.





FIN
      No. 48




In
      June 2006, the FASB issued FASB Interpretation No. 48 (FIN 48),
“Accounting for Uncertainty in Income Taxes”, an interpretation of FASB
      Statement No. 109 (FIN 48). This interpretation clarifies the accounting
      and financial statement reporting for uncertainties in income tax recognized
      by
      prescribing a recognition threshold and measurement attribute for a tax position
      taken or expected to be taken in a tax return. The Interpretation is effective
      for fiscal years beginning after December 15, 2006. The Company has not yet
      completed its analysis of the effects of this Interpretation and has not
      determined if the adoption of FIN 48 will have a material effect on its
      financial statements.




SFAS
      No. 157




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      No. 157”), which defines fair value, establishes a framework for measuring fair
      value in generally accepted accounting principles, and expands disclosures
      about
      fair value measurements. This Statement applies under other accounting
      pronouncements that require or permit fair value measurements. SFAS No. 157
      is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years. Management
      will evaluate the effect of this statement, if any, on its financial
      statements.




SFAS
      No. 158





In
      October 2006, the FASB issued SFAS No. 158 ,
      “ Employers’
      Accounting for Defined Benefit Pension and Other Postretirement Plans an
      amendment of FASB Statements No. 87, 88, 106, and 132(R).” This
      Statement requires an employer to recognize the overfunded or underfunded
      status of a
      defined benefit postretirement plan (other than a multiemployer plan) as an
      asset or liability in its statement of financial position and to recognize
      changes in that funded status in the year in which the changes occur through
      comprehensive income of a business entity or changes in unrestricted net assets
      of a not-for-profit organization. This Statement also requires an employer
      to
      measure the funded status of a plan as of the date of its year-end statement
      of
      financial position, with limited exceptions. This Statement amends Statement
      87,
      FASB Statement No. 88,”Employers’ Accounting for Settlements and Curtailments of
      Defined Benefit Pension Plans and for Termination Benefits” *,* Statement
      106, and FASB Statement No. 132 (revised 2003), “Employers’ Disclosures about
      Pensions and Other Postretirement Benefits” *,* and
      other
      related accounting literature. Upon initial application of this Statement and
      subsequently, an employer should continue to apply the provisions in Statements
      87, 88, and 106 in measuring plan assets and benefit obligations as of the
      date
      of its statement of financial position and in determining the amount of net
      periodic benefit cost. An
      employer with publicly traded equity securities is required to initially
      recognize the funded status of a defined benefit postretirement plan and to
      provide the required disclosures as of the end of the fiscal year ending after
      December 15, 2006. An employer without publicly traded equity securities is
      required to recognize the funded status of a defined benefit postretirement
      plan
      and to provide the required disclosures as of the end of the fiscal year ending
      after June 15, 2007. This statement is not applicable to us.





17
 *Index*





**Results
      of Operations**




**Comparison
      of Years Ended December 31, 2006 and December 31, 2005**




*Net
      Sales* increased
      $2,382,187, or 33.1% *,* to ** $9,581,210
      in the year ended December 31, 2006 from $7,199,023 for the corresponding period
      in 2005. This increase was primarily due to increased sales of approximately
      $2,092,000 with new and existing “Big Box” home center customers, approximately
      $338,000 due to a full year of sales of our performance apparel products, and
      approximately $371,000 of increase in international sales. One customer
      accounted for approximately 17% of net sales during the year ended December 31,
      2006 and a different customer accounted for approximately 13% of net sales
      for
      the year ended December 31, 2005. We expect the overall trend of increased
      sales
      to continue through existing and new retail and distribution outlets in the
      United States, planned international expansion, and sales of our expanded
      apparel line in new distribution channels, with continued increased spending
      on
      sales and marketing of our products.




*Gross
      Profit* increased
      $458,360 to $3,613,644 for the year ended December 31, 2006 from $3,155,284
      for
      the year ended December 31, 2005. Gross profit as a percentage of net sales,
      or
      gross margin, decreased to 37.7% in 2006 from 43.8% in 2005. The decrease in
      gross margin was mainly attributable to a shift in product mix, increased sales
      to international distributors, aggressive sales promotion programs with new
      and
      existing customers, the introduction of apparel sales, and an increase in
      in-bound transportation costs, including air freight, between the comparative
      periods. Our product mix changed primarily because sales to “Big Box” home
      centers have increased as a proportion of our sales. Sales to “Big Box” home
      centers generally include an assortment of lower priced products than are sold
      to other retailers and distributors. Sales to international distributors are
      generally at lower gross margin, as the international distributor pays the
      cost
      of selling and distributing the product and servicing the customer. The decrease
      in gross margin was partially offset by reduced product costs due to better
      pricing from our suppliers.





*Operating
      Expenses* increased
      by $2,495,273, or 60.3%, to $6,636,146 in 2006 from $4,140,873 in 2005. As
      a
      percentage of net sales, operating expenses increased to 69.3% in 2006 from
      57.5% in the same period of 2005. The increased spending in 2006 was primarily
      due to increased costs associated with implementing brand development
      initiatives, including a NASCAR sponsorship and increased print and cooperative
      advertising - approximately $108,000 and $436,000, respectively; expenses
      associated with our status as public company costs of approximately $553,000;
      increased commissions of $64,000 increased rents of $67,000; increased travel
      & entertainment expenses of $126,000; increased trade show expenses of
      $61,000; Financial Accounting Standards No. 123R options expense of $617,000;
      and salaries, temporary labor and bonus accrual expenses of approximately
      $302,000. Our number of employees increased to 26 at December 31, 2006 from
      17
      at December 31, 2005. Sales and marketing expenses were increased to build
      brand
      recognition and increase sales. Expenses associated with being a public company
      included public accounting and legal fees and investor relations
      expenses.





18
 *Index*





*Loss
      from Operations* increased
      $2,036,913 or 206.7%, to $3,022,502 in 2006 from $985,589 in 2005. Loss from
      operations as a percentage of net sales increased to 31.5% in 2006 from 13.7%
      in
      2005. The increases in 2006 were primarily the result of a decrease in gross
      profit and an increase in operating expenses, as discussed above.




*Interest
      Expense* increased
      $262,924 to $360,763 in 2006 from $97,839 in 2005. The increase was primarily
      due to the addition of short-term financing with Westrec Capital Partners,
      the
      amortization of the loan acquisition costs associated with this debt, and the
      recognition of $256,188 of imputed warrant interest charges.




*Interest
      Income* increased $70,660 in 2006 from $-0- in 2005. Interest income is a result of
      investment of funds from the private equity funding completed concurrent with
      the merger on May 9, 2006.




*Other
      Income (Expense)* net was
      $2,397 in 2006 as compared with $3,972 in 2005. Change in the fair value of
      warrant liability was ($1,082,944) in 2006 as compared to $-0- for 2005. This
      expense represents the difference in the fair value of warrants recorded as
      liabilities at December 31, 2006 and their issue date on May 9, 2006. The terms
      of the registration statement underlying 98% of the warrants were satisfied
      in
      October, 2006. The remaining warrant liability will be revalued at the end
      of
      each reporting period until the terms of the registration statement for the
      shares underlying the warrants are satisfied.




*Net
      Loss* increased
      $3,282,717 to $4,362,973 in 2006 from $1,080,256 in 2005. This increased loss
      is
      a result of the combination of each of the factors discussed above.




**Seasonality
      and Annual Results**




Our
      glove
      business generally shows an increase in sales during the third and fourth
      quarters due primarily to a consistent increase in the sale of our winter glove
      line during this period. We typically generate 55% - 60% of our glove net sales
      during these months. In addition, with the introduction of our expanded
      performance apparel line and penetration of new international markets in the
      second half of 2007 we expect that our sales in the third and fourth quarter
      will represent 65% to 70% of our total net sales for 2007.




Our
      working capital, at any particular time, reflects the seasonality of our glove
      business and plans to expand product lines and enter new markets. We expect
      inventory, accounts payable and accrued expenses to be higher in the third
      and
      fourth quarters for these reasons.




**Liquidity
      and Capital Resources**




Our
      cash
      requirements are principally for working capital. Our need for working capital
      is seasonal, with the greatest requirements from July through the end of October
      each year as a result of our inventory build-up during this period for our
      fall
      and winter selling seasons. Historically, our main sources of liquidity have
      been borrowings under our existing revolving credit facility, the issuance
      of
      subordinated debt and the sale of equity.




19
 *Index*





*Operating
      Activities* .
      In
      2005, cash used in operating activities was $510,222 and consisted of a net
      loss
      of $1,080,256, decreased by non-cash items of $112,549 and by $457,485 in cash
      provided by operating assets and liabilities. Operating assets and liabilities
      consisted primarily of decreases in inventory of $490,205 and in deposits on
      inventory of $91,548 and increases in accounts payable and accrued expenses
      of
      $795,299, partially offset by an increase in accounts receivable of $845,575,
      prepaid expenses of $35,940, deposits of $22,254 and loan costs of
      $15,798.




In
      2006,
      cash used in operating activities was $4,698,717 and consisted primarily of
      a
      net loss of $4,362,973, reduced by non-cash items of $2,052,979 and increases
      in
      inventory of $1,979,830, and accounts receivable of $618,668 and decreases
      in
      deposits on inventory of $238,722, prepaid and other expenses of $11,292 and
      loan costs of $15,798, offset by a decrease in accounts payable and accrued
      expenses of $56,006.




*Investing
      Activities* .
      In 2005
      and 2006, investing activities were primarily the result of capital
      expenditures, mainly for computer equipment and trademark applications. Cash
      used in investing activities increased $125,059 to $158,057 for 2006 from
      $33,498 in 2005. Expenditures for property and equipment and investment in
      trademarks increased $112,207 and $12,852, respectively.




*Financing
      Activities.* Financing
      activities during 2005 consisted primarily of our net borrowing under our
      existing asset-based credit facility, proceeds from the issuance of convertible
      note payable, proceeds from the issuance of common stock, proceeds from the
      exercise of warrants, financing provided by a capital lease and payments on
      subordinated debt. Cash used in financing activities increased $91,217 to
      $210,591 for Fiscal 2005. The increase in cash provided by financing activities
      was due to increased proceeds from the issuance of convertible note payable
      and
      common stock, the exercise of warrants, increased proceeds from bank lines
      of
      credit, and was partially offset by payments made to extinguish notes payable.




Financing
      activities during 2006 consisted primarily of our net borrowing under our
      existing asset-based credit facility, payoff of an existing note payable,
      proceeds from the issuance of common stock, financing provided by a capital
      lease, proceeds from the exercise of warrants and options, and the completion
      of
      our merger and associated financing on May 9, 2006. Cash provided by financing
      activities was $6,839,867 for 2006. The increase in cash provided by financing
      activities was due to proceeds from the issuance of common stock of $507,500,
      the completion of the merger related equity financing of $6,036,738 (net of
      $1,284,453 in offering costs), proceeds from the exercise of warrants of
      $66,338, proceeds from the exercise of options of $30,000, and by net borrowings
      on our bank lines of credit of $702,066, offset by payments on an outstanding
      note payable of $500,000 and payments on a capital lease of $2,775.




We
      believe that our cash flows from operations and borrowings available to us
      under
      our senior secured credit facility, together with the net proceeds from the
      private placement completed on May 9, 2006, will be adequate to meet our
      liquidity needs and capital expenditure requirements for at least the next
      12
      months.




Our
      ability to access these sources of liquidity may be negatively impacted by
      a
      decrease in demand for our products and the requirement that we meet certain
      borrowing conditions under our senior secured credit facility, as well as the
      other factors described in Risk Factors.




**Credit
      Facilities**




In
      March
      2005, we renewed our existing credit facility with the bank at an interest
      rate
      of prime plus 3%. This facility allowed us to borrow 75% against eligible
      accounts receivable, up to $1,000,000, while maintaining a funded reserve equal
      to 25% of the outstanding accounts receivable. All of our assets secured amounts
      borrowed under the terms of this agreement and were personally guaranteed by
      an
      officer of the company. The renewed credit facility did not contain any
      financial covenants and matured on May 30, 2006. Proceeds from the private
      placement completed on May 9, 2006, were used to repay the balance on the loan
      facility.




20
 *Index*





Through
      May 2005 we also maintained a $250,000 revolving line of credit with our senior
      secured lender. We were eligible to borrow 30% against our eligible inventory,
      up to $250,000. Amounts borrowed under the terms of this agreement were secured
      by all of our assets, and were personally guaranteed by an officer of the
      company. Interest on outstanding loan balances under our revolving line of
      credit accrued at the same interest rates as our senior secured loan facility
      and also matured in May 2006. Proceeds from the private placement completed
      on
      May 9, 2006, were used to repay the balance on the loan facility.




On
      September 15, 2006 we entered into a new factoring agreement with Wells Fargo
      Century, Inc. whereby we assigned certain of our accounts receivables with
      full
      recourse. On November 21, 2006, we entered into an amendment to this factoring
      agreement. This facility allows us to borrow the lesser of (a) $3,000,000 or
      (b)
      the sum of (i) eighty-five percent (85%) of the net amount of our Eligible
      Receivables and (ii) 50% of the value of our Eligible Inventory (which amount
      shall not exceed the lesser of $1,000,000 and the net amount of our Eligible
      Receivables) (as such terms are defined in the factoring agreement. All of
      our
      assets secure amounts borrowed under the terms of this agreement. Interest
      on
      outstanding balances accrues at the prime rate announced from time to time
      by
      Wells Fargo Bank N.A. (or such other bank as Wells Fargo Century, Inc. shall
      select in its discretion) as its “prime” or base rate for commercial loans and
      the agreement has an initial term of twenty-four (24) months.





**Subordinated
      Debt**




In
      October 2005, we issued a promissory note in the principal amount of $500,000
      to
      Westrec Capital Partners, LLC in exchange for $500,000 in order to fund
      inventory purchases for the apparel launch along with the costs associated
      with
      the merger transaction completed on May 9, 2006. The note accrues interest
      at a
      rate equal to (a) the highest prime rate of interest per annum published in
      the
      Money Rate Table of the Western Edition of The Wall Street Journal, as adjusted
      on a daily basis, plus eight and one-quarter percent (8.25%) per annum, or
      (b)
      15.00% per annum, in either case compounded annually. The note
      was set to mature on the earlier to occur of (a) April 21, 2006 or (b) the
      date
      on which Ironclad has received an aggregate of $500,000 from the sale(s) of
      its
      equity securities in one or a series of transactions. The company received
      a 30
      day extension of the April 21, 2006 maturity date. Proceeds from the private
      placement completed on May 9, 2006, were used to retire the note.




**Related** **Party
      Transactions**




See “Certain
      Relationships and Related Party Transactions” included elsewhere in this report
      for a full description of transactions to which we were or will be a party,
      in
      which the amount involved exceeds $60,000, and ** in
      which
      any director, executive officer, shareholder of more than 5% of our common
      stock
      or any member of their immediate family had or will have a direct or indirect
      material interest.




**Off-Balance
      Sheet Arrangements**




At
      December 31, 2006 and December 31, 2005, we did not have any relationships
      with
      unconsolidated entities or financial partnerships, such as entities often
      referred to as structured finance, variable interest or special purpose
      entities, which would have been established for the purpose of facilitating
      off-balance sheet arrangements or other contractually narrow or limited
      purposes. As such, we are not exposed to any financing, liquidity, market or
      credit risk that could arise if we had engaged in such
      relationships.




21
 *Index*





**Contractual
      Obligations**




The
      following summarizes our contractual obligations at December 31, 2006 and the
      effects such obligations are expected to have on liquidity and cash flow in
      future periods:




Payments
                Due by PeriodContractual
                Obligations
            
            Total
            
            Less
                than1
                Year
            
            1-3Years
            
            4-5YearsOperating
                Leases
            
            $
            799,267
            
            
            174,357
            
            
            540,430
            
            
            84,480Advances
                from Factor
            
            
            1,563,678
            
            
            1,563,678
            
            
            -
            
            
            -Total
            
            $
            2,362,945
            
            
            1,738,035
            
            
            540,430
            
            
            84,480




22
 *Index*




**Cautionary
      Statements and Risk Factors**




Several
      of the matters discussed in this document contain forward-looking statements
      that involve risks and uncertainties. Factors associated with the
      forward-looking statements that could cause actual results to differ materially
      from those projected or forecast are included in the statements below. In
      addition to other information contained in this report, readers should carefully
      consider the following cautionary statements *.*




**Risk
      Factors**





*Investing
      in our common stock involves a high degree of risk. You should carefully
      consider the following risk factors and all other information contained in
      this
      report before purchasing our common stock. The risks and uncertainties described
      below are not the only ones facing us. Additional risks and uncertainties that
      we are unaware of, or that we currently deem immaterial, also may become
      important factors that affect us. If any of the following risks occur, our
      business, financial condition or results of operations could be materially
      and
      adversely affected. In that case, the trading price of our common stock could
      decline, and you may lose some or all of the money you paid to purchase our
      common stock.*




**RISKS
      RELATING TO OUR BUSINESS**







**Our
      operating results may fluctuate significantly and our stock price could decline
      or fluctuate if our results do not meet the expectation of analysts or
      investors.**




Management
      expects that we will experience substantial variations in our net sales and
      operating results from quarter to quarter. We believe that the factors which
      influence this variability of quarterly results include:




·
            the
                timing of our introduction of new product lines, particularly our
                specialty apparel;




·
            the
                level of consumer acceptance of each new product line;




·
            general
                economic and industry conditions that affect consumer spending and
                retailer purchasing;




·
            the
                availability of manufacturing capacity;




·
            the
                seasonality of the markets in which we participate;




·
            the
                timing of trade shows;




·
            the
                product mix of customer orders;




·
            the
                timing of the placement or cancellation of customer orders;




·
            the
                weather;




·
            transportation
                delays;




·
            quotas
                and other regulatory matters; and




·
            the
                timing of expenditures in anticipation of increased sales and actions
                of
                competitors.




As
      a
      result of fluctuations in our revenue and operating expenses that may occur,
      management believes that period-to-period comparisons of our results of
      operations are not a good indication of our future performance. It is possible
      that in some future quarter or quarters, our operating results will be below
      the
      expectations of securities analysts or investors. In that case, our common
      stock
      price could fluctuate significantly or decline.




23
 *Index*





**We
      may need additional funding to support our operations and capital expenditures,
      which may not be available to us and which lack of availability could adversely
      affect our business.**





We
      intend
      to fund our operations and capital expenditures from limited cash flow from
      operations, our cash on hand, the net proceeds of the private placement
      completed on May 9, 2006 and the factoring agreement entered into on September
      15, 2006. We believe we will have sufficient funds to finance the cost of our
      operations and planned expansion for the foreseeable future. As part of our
      planned growth and expansion, we will be required to make expenditures necessary
      to expand and improve our operating and management infrastructure. We also
      plan
      to invest more heavily in research and development of new products, designs
      or
      services. In addition, we may need additional funds to pursue business
      opportunities (such as acquisitions of complementary businesses), to react
      to
      unforeseen difficulties or to respond to competitive pressures.





If
      our
      capital resources are insufficient, we will need to raise additional funds.
      There can be no assurance that any financing arrangements will be available
      in
      amounts or on terms acceptable to us, if at all. Furthermore, the sale of
      additional equity or convertible debt securities may result in additional
      dilution to existing stockholders. If adequate additional funds are not
      available, we may be required to delay, reduce the scope of or eliminate
      material parts of the implementation of our business strategy. This limitation
      could substantially harm our business, results of operations and financial
      condition.




**We
      have a history of operating losses and there can be no assurance that we can
      achieve or maintain profitability.**





We
      have a
      history of operating losses and may not achieve or sustain profitability. We
      cannot guarantee that we will become profitable. Even if we achieve
      profitability, given the competitive and evolving nature of the industry in
      which we operate, we may be unable to sustain or increase profitability and
      our
      failure to do so would adversely affect our business, including our ability
      to
      raise additional funds.





**We
      may be unable to effectively manage our growth.**





Our
      strategy envisions growing our business. We plan to expand our technology,
      sales, administrative and marketing organizations. Any growth in or expansion
      of
      our business is likely to continue to place a strain on our management and
      administrative resources, infrastructure and systems. As with other growing
      businesses, we expect that we will need to further refine and expand our
      business development capabilities, our systems and processes and our access
      to
      financing sources. We also will need to hire, train, supervise and manage new
      employees. These processes are time consuming and expensive, will increase
      management responsibilities and will divert management attention. We cannot
      assure you that we will be able to:





·
            expand
                our systems effectively or efficiently or in a timely manner;


·
            allocate
                our human resources optimally;


·
            meet
                our capital needs;


·
            identify
                and hire qualified employees or retain valued employees; or


·
            incorporate
                effectively the components of any business or product line that we
                may
                acquire in our effort to achieve growth.





24
 *Index*





Our
      inability or failure to manage our growth and expansion effectively could harm
      our business and materially and adversely affect our operating results and
      financial condition.





**Substantially
      all of our revenues have been derived from a relatively limited product line
      consisting of task-specific gloves and performance apparel, and our future
      success depends on our ability to expand our product line and achieve broader
      market acceptance of our company and our products.**





To
      date,
      our products have consisted mainly of task-specific gloves and performance
      apparel, targeted primarily to the construction, do-it-yourself, industrial
      and
      sporting goods markets. Our success and the planned growth and expansion of
      our
      business depend on us achieving greater and broader acceptance in our existing
      market segments as well as in new segments. In particular, our success, growth
      and expansion depend largely on new and increasing sales of our recently
      expanded performance apparel. We have little or virtually no experience in
      this
      line of business, which creates substantial uncertainty regarding our ability
      to
      succeed in this sector. We will be required to develop and execute a strategy
      for effectively marketing and distributing our performance apparel. We may
      be
      required to enter into new arrangements and relationships with vendors,
      suppliers and others. We also may be required to undertake new types of risks
      or
      obligations that we may be unable to manage. There can be no assurance that
      consumers will purchase our products or that retail outlets will stock our
      products. Though we plan to spend significant amounts on promotion, marketing
      and advertising to increase product awareness, we cannot guarantee that these
      expenses will generate the desired product awareness or commensurate increase
      in
      sales of our products. If we are unable to effectively market and distribute
      our
      performance apparel or expand into new market segments, we will be unable to
      grow and expand our business or implement our business strategy as described
      in
      this report. This could materially impair our ability to increase sales and
      revenue and materially and adversely affect our margins, which could harm our
      business and cause our stock price to decline.





**We
      may be unable to compete successfully against existing and future competitors,
      which could decrease our revenue and margins and harm our
      business.**





The
      task-specific glove and performance apparel segments of the apparel industry
      are
      highly competitive. Our future growth and financial success depend on our
      ability to further penetrate and expand our existing distribution channels
      and
      to increase the size of our average annual net sales per account in these
      channels, as well as our ability to penetrate and expand other distribution
      channels. For example, we encounter competition in our existing work wear
      distribution channel from Gorgonz, among others. Unknown or unforeseen new
      entrants into our distribution channels, particularly low-cost overseas
      producers, will further increase the level of competition in these channels.
      There can be no assurance that we will be able to maintain our growth rate
      or
      increase our market share in our distribution channels at the expense of
      existing competitors and other apparel manufacturers choosing to enter the
      market segments in which we compete. In addition, there can be no assurance
      that
      we will be able to enter and achieve significant growth in other distribution
      channels.





**Failure
      to expand into new distribution channels and new international markets could
      materially and adversely impact our growth plan and
      profitability.**





Our
      sales
      growth depends in part on our ability to expand from the hardware and lumber
      retail channels and industrial distributors that we have focused on for the
      past
      eight years into new distribution channels, particularly “Big Box” home centers
      and work wear and sporting goods retailers. Failure to expand into these
      mass-market channels could severely limit our growth.





Our
      business plan also depends in part on our ability to expand into international
      markets. We have begun the distribution of our products in Japan, Australia
      and
      Canada and we are in the process of establishing distribution in Europe and
      other international markets. Failure to expand international sales through
      these
      and other markets could limit our growth capability and leave us vulnerable
      solely to United States market conditions.





25
 *Index*





**Our
      dependence on independent manufacturers reduces our ability to control the
      manufacturing process, which could harm our sales, reputation and overall
      profitability.**




We
      depend
      on independent contract manufacturers to maintain sufficient manufacturing
      and
      shipping capacity in an environment characterized by declining prices, labor
      shortages, continuing cost pressure and increased demands for product innovation
      and speed-to-market. This dependence could subject us to difficulty in obtaining
      timely delivery of products of acceptable quality. In addition, a contractor’s
      failure to ship products to us in a timely manner or to meet the required
      quality standards could cause us to miss the delivery date requirements of
      our
      customers. The failure to make timely deliveries may cause our customers to
      cancel orders, refuse to accept deliveries, impose non-compliance charges
      through invoice deductions or other charge-backs, demand reduced prices or
      reduce future orders, any of which could harm our sales, reputation and overall
      profitability.




We
      do not
      have long-term contracts with any of our independent contractors and any of
      these contractors may unilaterally terminate their relationship with us at
      any
      time. While management believes that there exists an adequate supply of
      contractors to provide products and services to us, to the extent we are not
      able to secure or maintain relationships with independent contractors that
      are
      able to fulfill its requirements, our business would be harmed.




We
      have
      initiated standards for our suppliers, and monitor our independent contractors’
compliance with applicable labor laws, but we do not control our contractors
      or
      their labor practices. The violation of federal, state or foreign labor laws
      by
      one of our contractors could result in us being subject to fines and our goods
      that are manufactured in violation of such laws being seized or their sale
      in
      interstate commerce being prohibited. To date, we have not been subject to
      any
      sanctions that, individually or in the aggregate, have had a material adverse
      effect on our business, and we are not aware of any facts on which any such
      sanctions could be based. There can be no assurance, however, that in the future
      we will not be subject to sanctions as a result of violations of applicable
      labor laws by our contractors, or that such sanctions will not have a material
      adverse effect on our business and results of operations.




**Trade
      matters may disrupt our supply chain, which could result in increased expenses
      and decreased sales.**





We
      cannot
      predict whether any of the countries in which our merchandise currently is
      manufactured or may be manufactured in the future will be subject to additional
      trade restrictions imposed by the U.S. and other foreign governments, including
      the likelihood, type or effect of any such restrictions. Trade restrictions,
      including increased tariffs or quotas, embargoes, safeguards and customs
      restrictions, against apparel items, as well as U.S. or foreign labor strikes,
      work stoppages or boycotts, could increase the cost or reduce the supply of
      apparel available to us and adversely affect our business, financial condition
      and results of operations. Although the quota system established by the
      Agreement on Textiles and Clothing was completely phased out for World Trade
      Organization countries effective January 1, 2005, there can be no assurances
      that restrictions will not be reestablished for certain categories in specific
      countries. We are unable to determine the impact of the changes to the quota
      system on our sourcing operations, particularly in China. Our sourcing
      operations may be adversely affected by trade limits or political and financial
      instability resulting in the disruption of trade from exporting countries,
      significant fluctuation in the value of the U.S. dollar against foreign
      currencies, restrictions on the transfer of funds and/or other trade
      disruptions.





26
 *Index*





**Our
      international operations and the operations of our manufacturers and suppliers
      in China are subject to additional risks that are beyond our control and that
      could harm our business.**





Our
      glove
      products are manufactured by 3 manufacturers operating in China, Hong Kong
      and
      Indonesia. Our performance apparel products are currently manufactured in
      Taiwan, Mexico and the Dominican Republic. We may in the future use offshore
      manufacturers for all or some of these products. In addition, approximately
      7%
      of our fiscal 2006 net revenues were generated through international sales
      and
      we plan to increase our sales to international markets in the future. As a
      result of our international manufacturing and sales, we are subject to
      additional risks associated with doing business abroad, including:





·
            political
                unrest, terrorism and economic instability resulting in the disruption
                of
                trade from foreign countries in which our products are
                manufactured;


·
            difficulties
                in managing foreign operations, including difficulties associated
                with
                inventory management and collection on foreign accounts
                receivable;


·
            dependence
                on foreign distributors and distribution networks;


·
            currency
                exchange fluctuations and the ability of our Chinese manufacturers
                to
                change the prices they charge us based on fluctuations in the value
                of the
                US dollar relative to that of the Chinese
                Yuan;


·
            the
                imposition of new laws and regulations, including those relating
                to labor
                conditions, quality and safety standards as well as restrictions
                on the
                transfer of funds;


·
            disruptions
                or delays in shipments;


·
            changes
                in local economic and non-economic conditions and standards in which
                our
                manufacturers, suppliers or customers are located;
                and


·
            reduced
                protection for intellectual property rights in jurisdictions outside
                the
                United States.





These
      and
      other factors beyond our control could interrupt our manufacturers’ production
      in offshore facilities, influence the ability of our manufacturers to export
      our
      products cost-effectively or at all, inhibit our and our unaffiliated
      manufacturer’s ability to produce certain materials and influence our ability to
      sell our products in international markets, any of which could have an adverse
      effect on our business, financial conditions and operations.





**We
      may be unable to adequately protect our intellectual property
      rights.**




We
      rely
      in part on patent, trade secret, trade dress and trademark law to protect our
      rights to certain aspects of our products, including product designs,
      proprietary manufacturing processes and technologies, product research and
      concepts and recognized trademarks, all of which we believe are important to
      the
      success of our products and our competitive position. There can be no assurance
      that any of our pending patent or trademark applications will result in the
      issuance of a registered patent or trademark, or that any patent or trademark
      granted will be effective in thwarting competition or be held valid if
      subsequently challenged. In addition, there can be no assurance that the actions
      taken by us to protect our proprietary rights will be adequate to prevent
      imitation of our products, that our proprietary information will not become
      known to competitors, that we can meaningfully protect our rights to unpatented
      proprietary information or that others will not independently develop
      substantially equivalent or better products that do not infringe on our
      intellectual property rights. We could be required to devote substantial
      resources to enforce our patent and protect our intellectual property, which
      could divert our resources and result in increased expenses. In addition, an
      adverse determination in litigation could subject us to the loss of our rights
      to a particular patent or other intellectual property, could require us to
      grant
      licenses to third parties, could prevent us from manufacturing, selling or
      using
      certain aspects of our products or could subject us to substantial liability,
      any of which could harm our business.





27
 *Index*





**We
      may become subject to litigation for infringing the intellectual property rights
      of others** .





Others
      may initiate claims against us for infringing on their intellectual property
      rights. We may be subject to costly litigation relating to such infringement
      claims and we may be required to pay compensatory and punitive damages or
      license fees if we settle or are found culpable in such litigation, we may
      be
      required to pay damages, including punitive damages. In addition, we may be
      precluded from offering products that rely on intellectual property that is
      found to have been infringed by us. We also may be required to cease offering
      the affected products while a determination as to infringement is considered.
      These developments could cause a decrease in our operating income and reduce
      our
      available cash flow, which could harm our business and cause our stock price
      to
      decline.





**We
      may be unable to attract and retain qualified, experienced, highly skilled
      personnel, which could adversely affect the implementation of our business
      plan.**





Our
      success depends to a significant degree upon our ability to attract, retain
      and
      motivate skilled and qualified personnel. If we fail to attract, train and
      retain sufficient numbers of these qualified people, our prospects, business,
      financial condition and results of operations will be materially and adversely
      affected. In particular, we are heavily dependent on the continued services
      of
      Eduard Jaeger and the other members of our senior management team. We do not
      have long-term employment agreements with any of the members of our senior
      management team, each of whom may voluntarily terminate his employment with
      us
      at any time. Following any termination of employment, these employees would
      not
      be subject to any non-competition covenants. The loss of any key employee,
      including members of our senior management team, and our inability to attract
      highly skilled personnel with sufficient experience in our industries could
      harm
      our business.





**Our
      senior management’s limited recent experience managing a publicly traded company
      may divert management’s attention from operations and harm our
      business.**





Our
      management team has relatively limited recent experience managing a publicly
      traded company and complying with federal securities laws, including compliance
      with recently adopted disclosure requirements on a timely basis. Our management
      will be required to design and implement appropriate programs and policies
      in
      responding to increased legal, regulatory compliance and reporting requirements,
      and any failure to do so could lead to the imposition of fines and penalties
      and
      harm our business.





**RISKS
      RELATING TO OUR INDUSTRY**





**If
      we are unable to respond to the adoption of technological innovation in our
      industry and changes in consumer demand, our products will cease to be
      competitive, which could result in a decrease in revenue and harm our
      business.**





Our
      future success will depend, in part, on our ability to keep up with changes
      in
      consumer tastes and our continued ability to differentiate our products through
      implementation of new technologies, such as new materials and fabrics. We may
      not, however, be able to successfully do so, and our competitors may be able
      to
      produce designs that are more appealing, implement new technologies or
      innovations in their design, or manufacture their products at a much lower
      cost.
      These types of developments could render our products less competitive and
      possibly eliminate any differentiating advantage in design and materials that
      we
      might hold at the present time.





28
 *Index*





**We
      are susceptible to general economic conditions, and a downturn in our industries
      or a reduction in spending by consumers could adversely affect our operating
      results.**





The
      apparel industry in general has historically been characterized by a high degree
      of volatility and subject to substantial cyclical variations. Our operating
      results will be subject to fluctuations based on general economic conditions,
      in
      particular conditions that impact consumer spending and construction and
      industrial activity. A downturn in the construction, industrial or housing
      sectors could be expected to directly and negatively impact sales of protective
      gear to workers in these sectors, which could cause a decrease in revenue and
      harm our sales.





Difficult
      economic conditions could also increase the risk of extending credit to our
      retailers. In the event we enter into a factoring relationship, a customer’s
      financial problems would limit the amount of customer receivables that we could
      assign to such factor on the receivables, and could cause us to assume more
      credit risk relating to those assigned receivables or to curtail business with
      that customer.





**Government
      regulation and supervision**





Any
      negative changes to international treaties and regulations such as the North
      American Free Trade Agreement (or NAFTA) and to the effects of international
      trade agreements and embargoes imposed by such entities such as the World Trade
      Organization which could result in a rise in trade quotas, duties, taxes and
      similar impositions or which could limit the countries from whom we can purchase
      our fabric or other component materials, or which could limit the countries
      where we might market and sell our products, could have an adverse effect on
      our
      business.





Any
      changes in regulation by the Federal Trade Commission (or FTC) with respect
      to
      labeling and advertising of our products could have an adverse affect on our
      business. The FTC requires apparel companies to provide a label clearly stating
      the country of origin of manufacture and the company’s apparel registration
      number and a second label stating washing instructions for the product. A change
      in these requirements could add additional cost to the production of our
      products, though we do not believe that this additional cost would be material,
      especially in relation to the cost of producing our products.





**RISKS
      RELATING TO OUR COMMON STOCK**





**There
      is a limited trading market for our common stock and a market for our stock
      may
      not be sustained, which will adversely affect the liquidity of our common stock
      and could cause our market price to decline.**





Although
      prices for our shares of common stock are quoted on NASDAQ’s Over-the-Counter
      Bulletin Board (under the symbol ICPW.OB), there is a limited public trading
      market for our common stock, and no assurance can be given that a public trading
      market will be sustained.





Active
      trading markets generally result in lower price volatility and more efficient
      execution of buy and sell orders. The absence of an active trading market
      reduces the liquidity of our common stock. As a result of the lack of trading
      activity, the quoted price for our common stock on the Over-the-Counter Bulletin
      Board is not necessarily a reliable indicator of its fair market value. Further,
      if we cease to be quoted, holders of our common stock would find it more
      difficult to dispose of, or to obtain accurate quotations as to the market
      value
      of, our common stock, and the market value of our common stock would likely
      decline.




29
 *Index*





**The
      market price of our common stock is likely to be highly volatile and subject
      to
      wide fluctuations, and you may be unable to resell your shares at or above
      the
      offering price.**





The
      market price of our common stock is likely to be highly volatile and could
      be
      subject to wide fluctuations in response to a number of factors that are beyond
      our control, including announcements of new products or services by our
      competitors. In addition, the market price of our common stock could be subject
      to wide fluctuations in response to a variety of factors, including:





·
            quarterly
                variations in our revenues and operating expenses;


·
            developments
                in the financial markets, apparel industry and the worldwide or regional
                economies;


·
            announcements
                of innovations or new products or services by us or our competitors;


·
            announcements
                by the government that affect international trade
                treaties;


·
            fluctuations
                in interest rates and / or the asset backed securities
                market;


·
            significant
                sales of our common stock or other securities in the open
                market;


·
            variations
                in interest rates; and


·
            changes
                in accounting principles.





In
      the
      past, stockholders have often instituted securities class action litigation
      after periods of volatility in the market price of a company’s securities. If a
      stockholder were to file any such class action suit against us, we would incur
      substantial legal fees and our management’s attention and resources would be
      diverted from operating our business to respond to the litigation, which could
      harm our business.





**Substantial
      future sales of our common stock in the public market could cause our stock
      price to fall.**





On
      October 2, 2006 the registration statement we filed in June 2006 became
      effective, and up to 27,117,720 shares of common stock became eligible for
      sale.
      The sale of these shares could depress the market price of our common stock.
      Sales of a significant number of shares of our common stock in the open market
      could harm the market price of our common stock. A reduced market price for
      our
      shares could make it more difficult to raise funds through future offering
      of
      common stock.




Moreover,
      as additional shares of our common stock become available for resale in the
      open
      market (including shares issued upon the exercise of our outstanding warrants),
      the supply of our publicly traded shares will increase, which could decrease
      its
      price. Gemini Partners, Inc., or Gemini, and other stockholders that funded
      the
      purchase and cancellation of shares from our former stockholders have demand
      registration rights with respect to the resale of 3,489,444 shares they received
      in connection with the purchase and cancellation transaction completed
      immediately before the closing of the merger with Ironclad California. Brean
      Murray, Carret & Co., or Brean Murray, the placement agent in the private
      placement completed on May 9, 2006, also has demand rights with respect to
      the
      resale of its shares of common stock and common stock underlying warrants.
      The
      resale of these shares may be registered subsequently pursuant to these demand
      registration rights.




In
      addition, 8,536,953 of the 27,117,720 shares referenced above are subject to
      restrictions on transfer set forth in lock-up agreements with holders of these
      shares. These include 6,497,509 shares of common stock and common stock
      underlying warrants that were issued in connection with the merger with Ironclad
      California to former holders of preferred stock of Ironclad California and
      warrants to purchase preferred stock of Ironclad California, and 2,039,444
      shares acquired in connection with the purchase and cancellation transaction
      completed immediately before our merger with Ironclad California. Under our
      lock-up agreements with holders of 6,497,509 shares issued in exchange for
      preferred stock and warrants to purchase preferred stock of Ironclad California,
      the shares will only be released from restriction on May 9, 2007. Our lock-up
      agreements with holders of 2,039,444 shares of our common stock acquired in
      connection with the purchase and cancellation transaction restrict the resale
      of
      these shares until the first anniversary of the effective date of the merger,
      but provide for the termination of restrictions with respect to a limited number
      of shares at various times before the one-year anniversary date. We, with the
      consent of the placement agents in the private placement financing completed
      concurrently with the merger, may also elect to waive the lock-up agreement
      restrictions as to certain shares. The release of shares from lock-up agreements
      may have a negative impact on our stock price if such released shares are sold
      by their holders.




30
 *Index*





Some
      of
      our shares may also be offered from time to time in the open market pursuant
      to
      Rule 144, and these sales may have a depressive effect on the market for our
      shares. In general, a person who has held restricted shares for a period of
      one
      year may, upon filing with the Securities and Exchange Commission (or SEC)
      a
      notification on Form 144, sell into the market shares up to an amount equal
      to
      1% of the outstanding shares. The resale of the 3,489,444 shares held by Gemini
      and the stockholders who acquired shares in connection with the purchase and
      cancellation transaction completed immediately before the merger with Ironclad
      California may be registered as discussed above, but these shares also may
      currently be eligible for sale under Rule 144. The resale of these shares under
      Rule 144 may cause our stock price to decline.




**The
      sale of securities by us in any equity or debt financing could result in
      dilution to our existing stockholders and have a material adverse effect on
      our
      earnings.**




Any
      sale
      of common stock by us in a future private placement offering could result in
      dilution to the existing stockholders as a direct result of our issuance of
      additional shares of our capital stock. In addition, our business strategy
      may
      include expansion through internal growth, by acquiring complementary
      businesses, by acquiring or licensing additional brands, or by establishing
      strategic relationships with targeted customers and suppliers. In order to
      do
      so, or to finance the cost of our other activities, we may issue additional
      equity securities that could dilute our stockholders’ stock ownership. We may
      also assume additional debt and incur impairment losses related to goodwill
      and
      other tangible assets if we acquire another company and this could negatively
      impact our earnings and results of operations.




**The
      trading of our common stock on the Over-the-Counter Bulletin Board and the
      potential designation of our common stock as a “penny stock” could impact the
      trading market for our common stock.**




Our
      securities, as traded on the Over-the-Counter Bulletin Board, may be subject
      to
      SEC rules that impose special sales practice requirements on broker-dealers
      who
      sell these securities to persons other than established customers or accredited
      investors. For the purposes of the rule, the phrase “accredited investors”
means, in general terms, institutions with assets in excess of $5,000,000,
      or
      individuals having a net worth in excess of $1,000,000 or having an annual
      income that exceeds $200,000 (or that, when combined with a spouse’s income,
      exceeds $300,000). For transactions covered by the rule, the broker-dealer
      must
      make a special suitability determination for the purchaser and receive the
      purchaser’s written agreement to the transaction before the sale. Consequently,
      the rule may affect the ability of broker-dealers to sell our securities and
      also may affect the ability of purchasers to sell their securities in any market
      that might develop therefore.




In
      addition, the SEC has adopted a number of rules to regulate “penny stock” that
      restrict transactions involving these securities. Such rules include Rules
      3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the
      Securities Exchange Act of 1934, as amended. These rules may have the effect
      of
      reducing the liquidity of penny stocks. “Penny stocks” generally are equity
      securities with a price of less than $5.00 per share (other than securities
      registered on certain national securities exchanges or quoted on the NASDAQ
      Stock Market if current price and volume information with respect to
      transactions in such securities is provided by the exchange or system). Because
      our securities may constitute “penny stock” within the meaning of the rules, the
      rules would apply to us and to our securities.




31
 *Index*





Stockholders
      should be aware that, according to SEC, the market for penny stocks has suffered
      in recent years from patterns of fraud and abuse. Such patterns include (i)
      control of the market for the security by one or a few broker-dealers that
      are
      often related to the promoter or issuer; (ii) manipulation of prices through
      prearranged matching of purchases and sales and false and misleading press
      releases; (iii) “boiler room” practices involving high-pressure sales tactics
      and unrealistic price projections by inexperienced sales persons; (iv) excessive
      and undisclosed bid-ask differentials and markups by selling broker-dealers;
      and
      (v) the wholesale dumping of the same securities by promoters and broker-dealers
      after prices have been manipulated to a desired level, resulting in investor
      losses. Our management is aware of the abuses that have occurred historically
      in
      the penny stock market. Although we do not expect to be in a position to dictate
      the behavior of the market or of broker-dealers who participate in the market,
      management will strive within the confines of practical limitations to prevent
      the described patterns from being established with respect to our
      securities.




**We
      have not paid dividends in the past and do not expect to pay dividends for
      the
      foreseeable future, and any return on investment may be limited to potential
      future appreciation on the value of our common stock.**





We
      currently intend to retain any future earnings to support the development and
      expansion of our business and do not anticipate paying cash dividends in the
      foreseeable future. Our payment of any future dividends will be at the
      discretion of our Board of Directors after taking into account various factors,
      including without limitation, our financial condition, operating results, cash
      needs, growth plans and the terms of any credit agreements that we may be a
      party to at the time. To the extent we do not pay dividends, our stock may
      be
      less valuable because a return on investment will only occur if and to the
      extent our stock price appreciates, which may never occur. In addition,
      investors must rely on sales of their common stock after price appreciation
      as
      the only way to realize their investment, and if the price of our stock does
      not
      appreciate, then there will be no return on investment. Investors seeking cash
      dividends should not purchase our common stock.





**Our
      officers, directors and principal stockholders can exert significant influence
      over us and may make decisions that are not in the best interests of all
      stockholders.**




Our
      officers, directors and principal stockholders (greater than 5% stockholders)
      collectively control approximately 43% of our outstanding common stock. As
      a
      result, these stockholders will be able to affect the outcome of, or exert
      significant influence over, all matters requiring stockholder approval,
      including the election and removal of directors and any change in control.
      In
      particular, this concentration of ownership of our common stock could have
      the
      effect of delaying or preventing a change of control of us or otherwise
      discouraging or preventing a potential acquirer from attempting to obtain
      control of us. This, in turn, could have a negative effect on the market price
      of our common stock. It could also prevent our stockholders from realizing
      a
      premium over the market prices for their shares of common stock. Moreover,
      the
      interests of this concentration of ownership may not always coincide with our
      interests or the interests of other stockholders, and accordingly, they could
      cause us to enter into transactions or agreements that we would not otherwise
      consider.




32
 *Index*





**Anti-** **takeover** **provisions may limit the ability of another party to acquire us, which could
      cause our stock price to decline.**




Our
      Articles of Incorporation, as amended, our by-laws and Nevada law contain
      provisions that could discourage, delay or prevent a third party from acquiring
      us, even if doing so may be beneficial to our stockholders. In addition, these
      provisions could limit the price investors would be willing to pay in the future
      for shares of our common stock.





33
 *Index*





**Item
                7.**
            **Financial
                Statements**




**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Page****Audited
                Financial Statements:**Report
                of Independent Registered Public Accounting Firm
            
            35Consolidated
                Balance Sheet at December 31, 2006
            
            36Consolidated
                Statements of Operations for each of the Twelve Months Ended December
                31,
                2006, and December 31, 2005
            
            37Consolidated
                Statements of Cash Flows for the Twelve Months Ended December 31,
                2006,
                and December 31, 2005
            
            38Consolidated
                Statements of Changes in Stockholders’ Equity fromDecember
                31, 2004 to December 31, 2006
            
            39Notes
                to the Consolidated Financial Statements
            
            40




34
 *Index*





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**




To
        the
        Board of Directors
 Ironclad
        Performance Wear Corporation
 Los
        Angeles, California
 
 
 We
        have
        audited the consolidated balance sheet of Ironclad Performance Wear Corporation
        and its subsidiary (collectively, the “Company”) as of December 31, 2006 and the
        related consolidated statements of operations, changes in stockholders’ equity,
        and cash flows for each of the two years in the period ended December 31,
        2006.
        These financial statements are the responsibility of the Company’s management.
        Our responsibility is to express an opinion on these financial statements
        based
        on our audits.
 
 We
        conducted our audits in accordance with 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 provide 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 Ironclad Performance
        Wear
        Corporation and its subsidiary as of December 31, 2006, and the results of
        their
        operations and their cash flows for each of the two years in the period ended
        December 31, 2006, in conformity with U.S. generally accepted accounting
        principles.
  /s/
        Singer Lewak Greenbaum & Goldstein LLP
 SINGER
        LEWAK GREENBAUM & GOLDSTEIN LLP
 
 Los
        Angeles, California
 February
        26, 2007





35
 *Index*





**IRONCLAD
      PERFORMANCE WEAR CORPORATION**


**CONSOLIDATED
      BALANCE SHEET**


**AT
      DECEMBER 31, 2006**





**ASSETS**December
                31,2006**ASSETS****CURRENT
                ASSETS**Cash
                and equivalents
            
            $
            2,012,166Accounts
                receivable net of allowance for doubtful accounts of
                $26,000
            
            
            2,023,792Inventory
            
            
            2,963,869Deposits
                on inventory
            
            
            61,555Prepaid
                and other
            
            
            136,927**Total
                Current Assets**
            
            
            7,198,309**PROPERTY
                AND EQUIPMENT**Computer
                equipment and software
            
            
            210,053Vehicle
            
            
            46,280Furniture
                and equipment
            
            
            122,003Leasehold
                improvements
            
            
            32,190Less:
                accumulated depreciation
            
            
            (256,196
            )**Total
                property and equipment, net**
            
            
            154,330Trademarks,
                net of accumulated amortization of $5,590
            
            
            76,809Deposits
            
            
            22,354**TOTAL
                ASSETS**
            
            **$**
            **7,451,802****LIABILITIES
                AND STOCKHOLDERS’ EQUITY****CURRENT
                LIABILITIES**Accounts
                payable and accrued expenses
            
            $
            1,825,515Bank
                lines of credit
            
            
            1,563,678Current
                portion of capital lease
            
            
            3,411**Total
                current liabilities**
            
            
            3,392,604Long
                term portion of capital lease obligations
            
            
            1,642Fair
                value of warrant liability
            
            
            65,268**Total
                Liabilities**
            
            
            3,459,514**STOCKHOLDERS’
                EQUITY**Common
                stock, $0.001 par value per share,172,744,750 shares authorized,
                30,064,060 shares issued and outstanding
            
            
            30,008Capital
                in Excess of Par Value
            
            
            11,190,146Accumulated
                deficit
            
            
            (7,227,866
            )**Total
                Stockholders’ Equity**
            
            
            3,992,288**TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY**
            
            **$**
            **7,451,802**




See
      Notes
      to Consolidated Financial Statements .





36
 *Index*




**IRONCLAD
      PERFORMANCE WEAR CORPORATION**




**CONSOLIDATED
      STATEMENTS OF OPERATIONS**




Years
                EndedDecember 31,2006
            
            2005**REVENUES**Net
                sales
            
            $
            9,581,210
            
            $
            7,199,023**COST
                OF SALES**Cost
                of sales
            
            
            5,967,566
            
            
            4,043,739**EXPENSES**General
                and administrative
            
            
            2,967,883
            
            
            1,777,278Sales
                and marketing
            
            
            2,756,222
            
            
            1,782,458Research
                and development
            
            
            340,589
            
            
            210,084Operations
            
            
            531,083
            
            
            315,498Depreciation
                and amortization
            
            
            40,369
            
            
            55,555**Total
                operating expenses**
            
            
            6,636,146
            
            
            4,140,873**LOSS
                FROM OPERATIONS**
            
            
            (3,022,502
            )
            
            (985,589
            )**OTHER
                INCOME/(EXPENSE)**Interest
                expense
            
            
            (104,575
            )
            
            (97,839
            )Interest
                expense from warrants issued as financing cost
            
            
            (256,188
            )
            
            -Interest
                income
            
            
            70,660
            
            
            -Unrealized
                loss on financing activities
            
            
            (1,082,944
            )
            
            -Other
                income (expense), net
            
            
            2,397
            
            
            3,972**Total
                other income (expense)**
            
            
            (1,370,650
            )
            
            (93,867
            )**NET
                LOSS BEFORE PROVISION****FOR
                INCOME TAXES**
            
            
            (4,393,152
            )
            
            (1,079,456
            )Benefit(Expense)
                for income taxes
            
            
            30,179
            
            
            (800
            )**NET
                  LOSS ATTRIBUTABLE TO **COMMON
                  SHAREHOLDERS****
            
            **$**
            (4,362,973
            )
            **$**
            (1,080,256
            )**BASIC
                  AND DILUTED **NET
                  LOSS PER COMMON SHARE****
            
            $
            (0.17
            )
            $
            (0.07
            )**WEIGHTED
                  AVERAGE **COMMON
                  SHARES****
            
            
            24,961,749
            
            
            15,502,475




See
      Notes
      to Consolidated Financial Statements.





37
 *Index*





**IRONCLAD
      PERFORMANCE WEAR CORPORATION**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




**Year
                Ended December 31,**
              **2006**
            
            **Year
                Ended December 31,**
              **2005****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                loss
            
            $
            (4,362,973
            )
            $
            (1,080,256
            )Adjustments
                to reconcile net loss to net cash provided by (used in) operating
                ActivitiesAllowance
                for bad debts
            
            
            5,000
            
            
            3,000Depreciation
            
            
            37,551
            
            
            54,173Amortization
            
            
            2,819
            
            
            1,382Warrants
                issued as financing cost
            
            
            256,188
            
            
            -Loss
                on disposition of equipment
            
            
            -
            
            
            10,244Change
                in fair value of warrant liability
            
            
            1,082,944
            
            
            -Non-cash
                compensation:Common
                stock issued for services
            
            
            51,779
            
            
            43,750Stock
                option expense
            
            
            616,698
            
            
            -Changes
                in operating assets and liabilities:Receivables
            
            
            (618,668
            )
            
            (845,575
            )Inventory
            
            
            (1,979,831
            )
            
            490,205Deposits
                on inventory
            
            
            238,722
            
            
            91,548Prepaid
                and other
            
            
            11,262
            
            
            (58,194
            )Loan
                costs
            
            
            15,798
            
            
            (15,798
            )Bank
                overdraft
            
            
            -
            
            
            -Accounts
                payable and accrued liabilities
            
            
            (56,006
            )
            
            795,299Net
                cash flows provided by (used in) operating activities
            
            
            (4,698,717
            )
            
            (510,222
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES**Property
                and equipment purchased
            
            
            (132,539
            )
            
            (20,332
            )Investment
                in trademarks
            
            
            (26,018
            )
            
            (13,166
            )Net
                cash flows used in investing activities
            
            
            (158,557
            )
            
            (33,498
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Net
                proceeds from bank lines of credit
            
            
            702,066
            
            
            64,173Principal
                payments on convertible note payable to stockholder
            
            
            -
            
            
            (413,210
            )Proceeds
                from (payments on) convertible note payable
            
            
            (500,000
            )
            
            500,000Proceeds
                from issuance of common stock
            
            
            7,828,691
            
            
            50,000Offering
                costs
            
            
            (1,284,453
            )
            
            -Proceeds
                from exercise of warrants
            
            
            66,338
            
            
            2,001Proceeds
                from exercise of options
            
            
            30,000
            
            
            9,000Payments
                on capital leases
            
            
            (2,775
            )
            
            (1,373
            )Net
                cash flows provided by (used in) financing activities
            
            
            6,839,867
            
            
            210,591**NET
                INCREASE (DECREASE) IN CASH**
            
            
            1,982,593
            
            
            (333,129
            )**CASH
                AND CASH EQUIVALENTS BEGINNING OF PERIOD**
            
            
            29,573
            
            
            362,702**CASH
                AND CASH EQUIVALENTS END OF PERIOD**
            
            $
            2,012,166
            
            $
            29,573**SUPPLEMENTAL
                DISCLOSURES**Interest
                paid in cash
            
            $
            88,778
            
            $
            97,839Income
                taxes paid
            
            
            800
            
            
            800Income
                tax refund
            
            
            30,979
            
            
            -




See
      Notes
      to Consolidated Financial Statements.





38
 *Index*




**IRONCLAD
      PERFORMANCE WEAR CORPORATION**


**CONSOLIDATED
      STATEMENTS OF CHANGES IN**


**STOCKHOLDERS’
      EQUITY**




Common
                StockShares
                Issued and Outstanding
            
            Par
                Value
            
            Capital
                in Excess of Par Value
            
            Accumulated
                Deficit
            
            Total
                Stockholders’ EquityBalance
                at December 31,2004
            
            
            15,294,615
            
            $
            15,295
            
            $
            2,517,192
            
            $
            (1,784,638
            )
            $
            747,849Common
                stock issued -exercise of warrants
            
            
            32,036
            
            
            32
            
            
            1,969
            
            
            -
            
            
            2,001Common
                stock issued for cash
            
            
            143,818
            
            
            144
            
            
            49,856
            
            
            -
            
            
            50,000Common
                stock issued -for services
            
            
            125,841
            
            
            126
            
            
            43,624
            
            
            -
            
            
            43,750Common
                stock issued-exercise of options
            
            
            25,887
            
            
            26
            
            
            8,974
            
            
            
            
            
            9,000Net
                loss
            
            
            
            
            
            
            
            
            -
            
            
            (1,080,256
            )
            
            (1,080,256
            )Balance
                at December 31,2005
            
            
            15,622,197
            
            
            15,624
            
            
            2,621,614
            
            
            (2,864,894
            )
            
            (227,656
            )Common
                stock issued for cash
            
            
            13,927,705
            
            
            13,927
            
            
            7,814,764
            
            
            -
            
            
            7,828,691Offering
                costs
            
            
            -
            
            
            -
            
            
            (1,284,453
            )
            
            -
            
            
            (1,284,453
            )Common
                stock issued -for services
            
            
            70,095
            
            
            70
            
            
            51,709
            
            
            -
            
            
            51,779Common
                stock issued -exercise of warrants
            
            
            357,772
            
            
            357
            
            
            65,980
            
            
            -
            
            
            66,338Common
                stock issued-exercise of options
            
            
            86,291
            
            
            30
            
            
            29,970
            
            
            -
            
            
            30,000Stock
                option expense
            
            
            -
            
            
            -
            
            
            616,698
            
            
            -
            
            
            616,698Warrants
                issued as a financing cost
            
            
            -
            
            
            -
            
            
            256,188
            
            
            -
            
            
            256,188Reclassify
                fair value of warrant liability
            
            
            -
            
            
            -
            
            
            1,017,676
            
            
            -
            
            
            1,017,676Netloss
            
            
            
            
            
            
            
            
            -
            
            
            (4,362,973
            )
            
            (4,362,973
            )Balance
                at December 31,2006
            
            
            30,064,060
            
            $
            30,008
            
            $
            11,190,146
            
            $
            (7,227,867
            )
            $
            3,992,288




See
      Notes
      to Consolidated Financial Statements





39
 *Index*




**IRONCLAD
        PERFORMANCE WEAR CORPORATION**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


**1.**
            **Description
                of Business**.




The
      Company was incorporated in Nevada on May 26, 2004 and engages in the business
      of design and manufacture of branded performance work wear including
      task-specific gloves and performance apparel designed to significantly improve
      the wearer’s ability to safely, efficiently and comfortably perform general to
      highly specific job functions. Its customers are primarily hardware, lumber
      retailers, “Big Box” home centers, industrial distributors and sporting goods
      retailers. The Company has received two patents and has three patents pending
      for design and technological innovations incorporated in its performance work
      gloves. The Company has 33 registered US trademarks, 10 registered international
      trademarks and 20 in-use US trademarks. The Company introduced its line of
      specialty work apparel in the fourth quarter of 2005. The apparel is engineered
      to keep the wearer dry and cool under extreme work conditions.




**2.**
            **Reverse
                Merger and Financing**




Completion
      of Merger





On
      April
      20, 2006, Ironclad Performance Wear Corporation (formerly Europa Trade Agency
      Ltd.), a Nevada corporation (the “Company”), along with Ironclad Merger
      Corporation., a Nevada corporation and the Company’s wholly owned subsidiary
      (“Merger Sub”) entered into an Agreement and Plan of Merger (the “Merger
      Agreement”) with Ironclad Performance Wear Corporation, a privately held
      California corporation (“Ironclad California”), pursuant to which Ironclad
      California would be acquired by the Company in a merger transaction wherein
      Merger Sub would merge with and into Ironclad California, with Ironclad
      California being the surviving corporation (the “Merger”). On May 9, 2006, the
      Merger closed and Ironclad California became a wholly-owned subsidiary of the
      Company. At the closing, the Company changed its name to Ironclad Performance
      Wear Corporation.





Accordingly,
      from an historical perspective, Ironclad California was deemed to have been
      the
      acquirer in the reverse merger and Ironclad California is deemed the survivor
      of
      the reorganization. As a result, the financial statements of the Company
      presented reflect the historical results of Ironclad California prior to the
      Merger, and of the combined entities following the merger, and do not include
      the historical financial results of the entity formerly known as Europa Trade
      Agency Ltd. Common stock has been retroactively restated to reflect the
      number of shares received by Ironclad California equity holders in the Merger
      after giving effect to the difference in par value, with the offset to
      additional paid-in capital. The equity of the Company survives the
      reorganization. Upon the closing of the reorganization, the Company changed
      its
      fiscal year to December 31, beginning with the quarter ended June 30, 2006.
      All
      costs associated with the Merger were expensed as incurred.




Principal
      Terms of the Merger




On
      May 9,
      2006, Merger Sub was merged with and into Ironclad California, the separate
      existence of Merger Sub ceased, and Ironclad California continued as the
      surviving corporation at the subsidiary level. The Company issued shares of
      its
      common stock pursuant to certain exchange ratios set forth in the Merger
      Agreement to the stockholders of Ironclad California in exchange for 100% of
      the
      issued and outstanding shares of common stock of Ironclad California.
      Additionally, the Company assumed options to purchase shares of common stock
      and
      warrants to purchase shares of common stock on the same terms and conditions
      as
      previously issued by Ironclad California.





Immediately
      prior to the Merger the Company canceled 2,000,000 shares of its common stock
      held by our former sole officer and director, Thomas Lamb, and one of its former
      principal stockholders Craig Lamb, pursuant to an Amended and Restated Share
      Cancellation Agreement dated May 8, 2006. Thomas Lamb and Craig Lamb received
      cash remuneration of $ 349,413 from
      third party purchasers for their agreement to cancel such shares. At the time
      of
      the payment and share cancellation the third party purchasers were also party
      to
      an Amended and Restated Share Purchase and Escrow Agreement, dated May 9, 2006
      with holders of approximately 90% of our common stock. The holders of such
      shares of Company common stock received $765,938 in consideration for the
      transfer of their shares to the third party purchasers.





40
 *Index*




**IRONCLAD
        PERFORMANCE WEAR CORPORATION**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**




Immediately
      after the consummation of the cancellation and purchase transaction, but prior
      to the Merger, the Company effected a 3.454895-for-1 forward stock split of
      its
      common stock and increased the number of shares of authorized common stock
      to
      172,744,750.





Immediately
      after the closing of the Merger, and without taking into consideration the
      Private Placement offering described below, the Company had outstanding
      19,858,404 shares of common stock, options to purchase 2,588,314 shares of
      common stock and warrants to purchase 2,817,416 shares of common
      stock.





The
      Private Placement





Immediately
      following the closing of the Merger, the Company received gross proceeds of
      approximately $7.3 million in a private placement transaction (the “Private
      Placement”) with institutional investors and other high net worth individuals
      (“Investors”). Pursuant to Subscription Agreements entered into with these
      Investors, the Company sold 9,761,558 Investment Units, at $0.75 per Investment
      Unit. Each “Investment Unit” consists of one share of Company common stock, and
      a five year non-callable warrant to purchase three-quarters of one share of
      Company common stock, at an exercise price of $1.00 per share. The value of
      the
      warrants was determined to be $5,278,388 using the Black-Scholes option pricing
      model with the following assumptions: a volatility rate of 185.5%, risk free
      interest rate of 5.13%, an expected life of five years and zero dividends.
      They
      have been recorded as a warrant liability in accordance with SFAS No. 133 and
      EITF 00-19. On October 2, 2006, the common shares underlying the warrants were
      registered satisfying the warrant liability. The value of the warrant liability
      on October 2, 2006 was determined to be $6,275,422. This amount was reclassified
      to Stockholders’ Equity and a credit to income of $997,034 was recorded on
      October 2, 2006.




As
      partial consideration for services rendered further to the Private Placement,
      one of the Company’s placement agents was issued warrants to purchase 390,464
      shares of Company common stock at an exercise price of $0.75 per share and
      warrants to purchase 292,848 shares of Company common stock at an exercise
      price
      of $1.00 per share. The value of the warrants was determined to be $494,182
      using the Black-Scholes option pricing model with the following assumptions:
      a
      volatility rate of 185.5%, risk free interest rate of 5.13%, an expected life
      of
      five years and zero dividends. They have been recorded as a warrant liability
      in
      accordance with SFAS No. 133 and EITF 00-19. On October 2, 2006 the common
      shares underlying the warrants were registered satisfying the warrant liability.
      The value of the warrant liability on October 2, 2006 was determined to be
      $586,923. This amount was reclassified to Stockholders’ Equity and a credit to
      income of $92,741 was recorded on October 2, 2006.




Registration
      Statement




On
      October 2, 2006 the registration statement we filed in June 2006 became
      effective, and up to 27,117,720 shares of common stock became eligible for
      sale,
      subject to the terms of certain lock-up agreements with certain holders of
      such
      shares.




41
 *Index*




**IRONCLAD
        PERFORMANCE WEAR CORPORATION**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**


**3.**
            **Accounting
                Policies**




Basis
      of Consolidation





The
      consolidated financial statements include the accounts of Ironclad Performance
      Corporation, an inactive parent company, and its wholly owned subsidiary
      Ironclad California. All significant inter-company transactions have been
      eliminated in consolidation.





Cash
      and Cash Equivalents





The
      Company considers all highly liquid investments with original maturities of
      three months or less when purchased to be cash equivalents. The Company places
      its cash with high credit quality institutions. The Federal Deposit Insurance
      Company (FDIC) insures cash amount at each institution for up to $100,000.
      From
      time to time, the Company maintains cash in excess of the FDIC
      limit.





Accounts
      Receivable





Trade
      receivables are carried at the original invoice amount less an estimate made
      for
      doubtful accounts. The allowance for doubtful accounts is based on management’s
      regular evaluation of individual customer receivables and consideration of
      a
      customer’s financial condition and credit history. Trade receivables are written
      off when deemed uncollectible. Recoveries of trade receivables previously
      written off are recorded when received. Interest is not charged on past due
      accounts.





Inventory





Inventory
      is stated at the lower of average cost (which approximates first in, first
      out)
      or market and consists primarily of finished goods. The Company regularly
      reviews its inventory quantities on hand and records a provision for excess
      and
      obsolete inventory based primarily on management’s estimated forecast of product
      demand and production requirements.





Property
      and Equipment





Property
      and equipment are recorded at cost less accumulated depreciation. Depreciation
      is recorded using the straight-line method over the estimated useful lives
      of
      the related assets, which range from three to seven years. Leasehold
      improvements are depreciated over fifteen years or the lease term, whichever
      is
      shorter. Maintenance and repairs are charged to expense as
      incurred.





Trademarks





The
      costs
      incurred to acquire trademarks, which are active and relate to products with
      a
      definite life cycle, are amortized over the estimated useful life of fifteen
      years. Trademarks, which are active and relate to corporate identification,
      such
      as logos, are not amortized. Pending trademarks are capitalized and reviewed
      monthly for active status.





42
 *Index*




**IRONCLAD
        PERFORMANCE WEAR CORPORATION**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**


Long-Lived
      Asset Impairment





The
      Company periodically evaluates whether events and circumstances have occurred
      that indicate the remaining estimated useful life of long-lived assets may
      warrant revision or that the remaining balance may not be recoverable. When
      factors indicate that the asset should be evaluated for possible impairment,
      the
      Company uses an estimate of the undiscounted net cash flows over the remaining
      life of the asset in measuring whether the asset is recoverable. Based upon
      the
      anticipated future income and cash flow from operations and other factors,
      relevant in the opinion of the Company’s management, there has been no
      impairment.





Revenue
      Recognition





A
      customer is obligated to pay for products sold to it within a specified number
      of days from the date that title to the products is transferred to the customer.
      The Company’s standard terms are typically net 30 days from the transfer of
      title to the products to the customer. The Company typically collects payment
      from a customer within 30 to 45 days from the transfer of title to the products
      to a customer. Transfer of title occurs and risk of ownership passes to a
      customer at the time of shipment or delivery, depending on the terms of the
      agreement with a particular customer. The sale price of the Company’s products
      is substantially fixed or determinable at the date of sale based on purchase
      orders generated by a customer and accepted by the Company. A customer’s
      obligation to pay the Company for products sold to it is not contingent upon
      the
      resale of those products. The Company recognizes revenues when products are
      delivered to customers.





Returns
      Policy





The
      Company has a warranty policy that covers defects in workmanship. The Company
      also periodically accepts stock adjustments from certain customers. Stock
      adjustment returns are typically for new customers who are given the opportunity
      to ‘trade out’ of a style of product that does not sell in their territory,
      usually in exchange for another product. Historically, warranty returns have
      averaged 1% a year and stock adjustment returns have averaged approximately
      0.75% of gross sales. The Company records an estimate for these returns at
      the
      time of sale.





**Reserve
                for Warranty Returns**Reserve
                Balance 12/31/04
            
            $
            15,000Payments
                Recorded During the Period
            
            
            (86,596
            )(71,596
            )Adjustment
                to Reserve for Pre-existing Liabilities
            
            
            23,000Accrual
                for New Liabilities During the Reporting Period
            
            
            86,596Reserve
                Balance 12/31/05
            
            
            38,000Payments
                Recorded During the Period
            
            
            (186,097
            )(148,097
            )Adjustment
                to Reserve for Pre-existing Liabilities
            
            
            34,000Accrual
                for New Liabilities During the Reporting Period
            
            
            186,097Reserve
                Balance 12/31/06
            
            $
            72,000




43
 *Index*




**IRONCLAD
        PERFORMANCE WEAR CORPORATION**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**


Advertising
      and Marketing





Advertising
      and marketing costs are expensed as incurred. Advertising expenses for the
      years
      ended December 31, 2006 and 2005 were $844,023 and $367,305,
      respectively.





Shipping
      and Handling Costs





Freight
      billed to customers is recorded as sales revenue and the related freight costs
      as cost of sales.





Customer
      Concentrations





One
      customer accounted for approximately 17% of net sales for year ended December
      31, 2006 and a different customer accounted for approximately 13% of net sales
      for year ended December 31, 2005.




Supplier
      Concentrations





One
      supplier, which is located overseas, accounted for approximately 68% of total
      purchases during the year ended December 31, 2006 and 82% of total purchases
      during the year ended December 31, 2005.




Loss
      Per Share





The
      Company utilizes SFAS No. 128, “Earnings per Share.” Basic loss per share is
      computed by dividing loss available to common shareholders by the
      weighted-average number of common shares outstanding. Diluted loss per share
      is
      computed similar to basic loss per share except that the denominator is
      increased to include the number of additional common shares that would have
      been
      outstanding if the potential common shares had been issued and if the additional
      common shares were dilutive. Common equivalent shares are excluded from the
      computation if their effect is anti-dilutive.





The
      following potential common shares have been excluded from the computation of
      diluted net loss per share for the periods presented because the effect would
      have been anti-dilutive:





Year
              Ended
                December 31,2006
            
            2005Options
                outstanding under the Company’s stock option plans
            
            
            5,003,343
            
            
            2,584,000Common
                Stock Warrants
            
            
            10,454,522
            
            
            749,079





Income
      Taxes





Income
      taxes are provided for the tax effects of the transactions reported in the
      financial statements and consist of taxes currently due plus deferred taxes
      related primarily to the difference between the basis of the allowance for
      doubtful accounts, accumulated depreciation and amortization, accrued payroll
      and net operating loss carryforwards for financial and income tax reporting.
      The
      deferred tax assets and liabilities represent the future tax return consequences
      of those differences, which will either be taxable or deductible when the assets
      and liabilities are recovered or settled.





44
 *Index*




**IRONCLAD
        PERFORMANCE WEAR CORPORATION**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**





Deferred
      tax assets and liabilities are reflected at income tax rates applicable to
      the
      period in which the deferred tax assets or liabilities are expected to be
      realized or settled. As changes in tax laws or rates are enacted, deferred
      tax
      assets and liabilities are adjusted through the provision for income taxes.
      If
      it is more likely than not that some portion or all of a deferred tax asset
      will
      not be realized, a valuation allowance is recognized.





The
      significant components of the provision for income taxes for the years ended
      December 31, 2006 and 2005 were $800 and $800, respectively, for the
      current state provision. There was no state deferred and federal tax provision.
      Due to its current net loss position, the Company has provided a valuation
      allowance in full on its net deferred tax assets in accordance with SFAS 109
      and
      in light of the uncertainty regarding ultimate realization of the net deferred
      tax assets.





Use
      of
      Estimates





The
      preparation of financial statements requires management to make a number of
      estimates and assumptions relating to the reporting of assets and liabilities
      and the disclosure of contingent assets and liabilities. Actual results could
      differ from those estimates. Significant estimates and assumptions made by
      management are used for, but not limited to, the allowance for doubtful
      accounts, inventory obsolescence, allowance for returns and the estimated useful
      lives of long-lived assets.





Valuation
      of Derivative Instruments




SFAS
      No.
      133 “Accounting for Derivative Instruments and Hedging Activities” requires that
      embedded derivative instruments be bifurcated and assessed, along with
      free-standing derivative instruments such as warrants, on their issuance date
      in
      accordance with EITF 00-19 “Accounting for Derivative Financial Instruments
      Indexed to, and Potentially Settled in, a Company’s Own Stock” to determine
      whether they should be considered a derivative liability and measured at their
      fair value for accounting purposes. In determining the appropriate fair value,
      the Company uses the Black-Scholes-Merton Option Pricing Formula (the “Black
      Scholes Model”). At each period end, or when circumstances indicate that the
      Company reevaluate the accounting for the derivative liability, derivative
      liabilities are adjusted to reflect changes in fair value, with any increase
      or
      decrease in the fair value being recorded in results of operations as
      Adjustments to Fair Value of Derivatives.




RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS





In
      February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments”, which amends SFAS No. 133, “Accounting for Derivatives
      Instruments and Hedging Activities” and SFAS No. 140, “Accounting for Transfers
      and Servicing of Financial Assets and Extinguishment of Liabilities”. SFAS No.
      155 amends SFAS No. 133 to narrow the scope exception for interest-only and
      principal-only strips on debt instruments to include only such strips
      representing rights to receive a specified portion of the contractual interest
      or principle cash flows. SFAS No. 155 also amends SFAS No. 140 to allow
      qualifying special-purpose entities to hold a passive derivative financial
      instrument pertaining to beneficial interests that itself is a derivative
      instrument. Management does not expect adoption of SFAS No. 155 to have a
      material impact on our financial statements.





45
 *Index*




**IRONCLAD
        PERFORMANCE WEAR CORPORATION**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**


In
      March
      2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Assets” (“SFAS NO. 156”), which provides an approach to simplify efforts to
      obtain hedge-like (offset) accounting. This Statement amends FASB Statement
      No.
      140, “Accounting for Transfers and Servicing of Financial Assets and
      Extinguishments of Liabilities”, with respect to the accounting for separately
      recognized servicing assets and servicing liabilities. The Statement (1)
      requires an entity to recognize a servicing asset or servicing liability each
      time it undertakes an obligation to service a financial asset by entering into
      a
      servicing contract in certain situations; (2) requires that a separately
      recognized servicing asset or servicing liability be initially measured at
      fair
      value, if practicable; (3) permits an entity to choose either the
      amortization method or the fair value method for subsequent measurement for
      each
      class of separately recognized servicing assets or servicing liabilities;
      (4) permits at initial adoption a one-time reclassification of
      available-for-sale securities to trading securities by an entity with recognized
      servicing rights, provided the securities reclassified offset the entity’s
      exposure to changes in the fair value of the servicing assets or liabilities;
      and (5) requires separate presentation of servicing assets and servicing
      liabilities subsequently measured at fair value in the balance sheet and
      additional disclosures for all separately recognized servicing assets and
      servicing liabilities. SFAS No. 156 is effective for all separately recognized
      servicing assets and liabilities as of the beginning of an entity’s fiscal year
      that begins after September 15, 2006, with earlier adoption permitted in certain
      circumstances. The Statement also describes the manner in which it should be
      initially applied. Management does not expect adoption of SFAS No. 156 to have
      a
      material impact on our financial statements.





In
      July 2006, the FASB released FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes, an interpretation of FASB Statement
      No. 109* (FIN
      48). FIN 48 clarifies the accounting and reporting for uncertainties in income
      tax law. This Interpretation prescribes a comprehensive model for the financial
      statement recognition, measurement, presentation and disclosure of uncertain
      tax
      positions taken or expected to be taken in income tax returns. This statement
      is
      effective for fiscal years beginning after December 15, 2006. We are
      currently in the process of evaluating the expected effect of FIN 48 on our
      results of operations and financial position.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      No. 157”), which defines fair value, establishes a framework for measuring fair
      value in generally accepted accounting principles, and expands disclosures
      about
      fair value measurements. This Statement applies under other accounting
      pronouncements that require or permit fair value measurements. SFAS No. 157
      is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years. Management
      will evaluate the effect of this statement, if any, on its financial
      statements.





In
      October 2006, the FASB issued SFAS No. 158 ,
      “ Employers’
      Accounting for Defined Benefit Pension and Other Postretirement Plans an
      amendment of FASB Statements No. 87, 88, 106, and 132(R).” This
      Statement requires an employer to recognize the overfunded or underfunded status
      of a defined
      benefit postretirement plan (other than a multiemployer plan) as an asset or
      liability in its statement of financial position and to recognize changes in
      that funded status in the year in which the changes occur through comprehensive
      income of a business entity or changes in unrestricted net assets of a
      not-for-profit organization. This Statement also requires an employer to measure
      the funded status of a plan as of the date of its year-end statement of
      financial position, with limited exceptions. This Statement amends Statement
      87 ,
      FASB
      Statement No. 158 ,
      “Employers’ Accounting for Settlements and Curtailments of Defined Benefit
      Pension Plans and for Termination Benefits” *,* Statement
      106, and FASB Statement No. 132(revised 2003), “Employers’ Disclosures about
      Pensions and Other Postretirement Benefits” *,* and
      other
      related accounting literature. Upon initial application of this Statement and
      subsequently, an employer should continue to apply the provisions in Statements
      87, 88, and 106 in measuring plan assets and benefit obligations as of the
      date
      of its statement of financial position and in determining the amount of net
      periodic benefit cost. An
      employer with publicly traded equity securities is required to initially
      recognize the funded status of a defined benefit postretirement plan and to
      provide the required disclosures as of the end of the fiscal year ending after
      December 15, 2006. An employer without publicly traded equity securities is
      required to recognize the funded status of a defined benefit postretirement
      plan
      and to provide the required disclosures as of the end of the fiscal year ending
      after June 15, 2007. This statement is not applicable to us.





46
 *Index*




**IRONCLAD
        PERFORMANCE WEAR CORPORATION**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**


**4.**
            **Inventory**




At
      December 31, 2006 the Company had two classes of inventory - raw materials
      and
      finished goods.




December
                31,
              2006Raw
                Materials
            
            $
            183,940Finished
                Goods
            
            
            2,779,929Total
            
            $
            2,963,869







**5.**
            **Property
                and equipment**




Property
      and equipment consisted of the following:





December
                31,
              2006Computer
                hardware and software
            
            $
            210,053Furniture
                and equipment
            
            
            122,003Vehicle
            
            
            46,280Leasehold
                improvements
            
            
            32,190410,526Less
                accumulated depreciation
            
            
            (256,196
            )**Property
                and equipment, net**
            
            **$**
            **154,330**





Depreciation
      expense for the years ended December 31, 2006 and 2005 was $37,550 and $54,173,
      respectively.




47
 *Index*




**IRONCLAD
        PERFORMANCE WEAR CORPORATION**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**


**6.**
            **Trademarks**




Trademarks
      consisted of the following:





December
                31,
              2006Trademarks
            
            $
            82,399Less:
                Accumulated amortization
            
            
            (5,590
            )**Trademarks,
                net**
            
            **$**
            **76,809**





Trademarks
      consist of definite-lived trademarks of $37,804 and indefinite-lived trademarks
      of $29,606 at December 31, 2006. All trademark costs have been generated by
      the
      Company, and consist of initial legal and filing fees.





Amortization
      expense was $2,819 and $1,382 for the years ended December 31, 2006 and 2005,
      respectively. The Company expects to amortize $3,320 in each of the next five
      years.





**7.**
            **Accounts
                payable and accrued
                expenses**




Accounts
      payable and accrued expenses consisted of the following at December 31,
      2006:




December
                31, 2006Accounts
                payable
            
            $
            607,961Accrued
                inventory
            
            
            246,622Accrued
                rebates and co-op
            
            
            207,522Accrued
                bonus
            
            
            164,000Accrued
                expenses - other
            
            
            599,410**Total
                accounts payable and accrued expenses**
            
            **$**
            **1,825,515**







**8.**
            **Note
                Payable and Bank Lines of
                Credit**




Notes
      Payable





In
      October 2005, the Company obtained short term financing from Westrec Capital
      Partners, LLC. The amount of the note was $500,000. It matured at the earlier
      of
      180 days or when the Company received an aggregate of $550,000 from the sale
      of
      equity securities. The Company received a 30-day extension of the maturity
      date
      to May 20, 2006. On May 9, 2006, the Registrant closed on a private placement
      financing of $7,321,191 of common stock. Proceeds from the Private Placement
      were used to retire the Note. The loan agreement also required the issuance
      of a
      warrant to purchase 400,000 shares of common stock at $0.56 per share. Westrec
      Capital Partners, LLC also agreed to extend its bridge financing loan to the
      Company for up to thirty (30) days under the same terms and conditions in
      exchange for a warrant for 100,000 shares of the Company’s common stock,
      exercisable at $1.00 per share.





48
 *Index*


**IRONCLAD
        PERFORMANCE WEAR CORPORATION**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**


The
      value
      of the 400,000 warrants was determined to be $291,368 using the Black-Scholes
      Option Pricing Model with the following assumptions: risk-free interest rate
      of
      5.13%, volatility factor of 185.5%, five-year life and zero dividends. They
      have
      been recorded as equity in accordance with SFAS No. 133 and EITF 00-19. The
      value of the 100,000 warrants was determined to be $72,097 using the
      Black-Scholes Option Pricing Model with the following assumptions: risk-free
      interest rate of 5.13%, volatility factor of 185.5%, five-year life and zero
      dividends. They have been recorded as a warrant liability in accordance with
      SFAS No. 133 and EITF 00-19. At December 31, 2006 the Company revalued this
      liability with the following assumptions: risk free interest rate of 4.7%,
      volatility factor of 202.2%, five year life and zero dividends, and adjusted
      the
      current value of this warrant liability to $65,267.





Bank
      Lines of Credit





In
      March
      2005 the Company renewed its senior secured loan facility with a third party
      bank. This agreement was scheduled to mature on May 30, 2006. On May 9, 2006,
      the Registrant closed on a private placement financing of $7,321,191 of common
      stock. Proceeds from the Private Placement were used to repay the balance
      outstanding on the loan facility.





Factoring
      Agreement




On
      September 15, 2006 the Company entered into a factoring agreement with Wells
      Fargo Century, Inc. whereby it assigned certain of its accounts receivables
      with
      full recourse. On November 21, 2006, the Company entered into an amendment
      to
      this factoring agreement. This facility allows the Company to borrow the lesser
      of (a) $3,000,000 or (b) the sum of (i) eighty-five percent (85%) of the net
      amount of eligible accounts receivable and (ii) 50% of the value of eligible
      inventory, which amount shall not exceed the lesser of $1,000,000 and the net
      amount of eligible accounts receivable. All of the Company’s assets secure
      amounts borrowed under the terms of this agreement. Interest on outstanding
      balances accrues at the prime rate announced from time to time by Wells Fargo
      Bank N.A. (or such other bank as Wells Fargo Century, Inc. shall select in
      its
      discretion) as its “prime” or base rate for commercial loans and the agreement
      has an initial term of twenty-four (24) months. As of December 31, 2006, total
      amount due to Wells Fargo Century was $1,563,678.





**9.**
            **Equity
                transac****tions**




Common
      Stock





On
      January 13, 2006 the Company issued 46,609 shares of common stock to an
      investment banking firm in exchange for services. The services were valued
      at
      $35,000 and were based on a post-merger valuation of $0.75 per common
      share





During
      the three months ended March 31, 2006 the Company issued investment units
      consisting of 676,667 shares of common stock and rights to receive warrants
      to
      purchase 1,568,337 shares of common stock upon the closing of the Merger for
      an
      aggregate cash price of $507,500 pursuant to a subscription based sale at $0.75
      per unit. The warrants were issued upon the closing of the Merger on May 9,
      2006
      at an aggregate exercise price of $0.75 per share. The value of the 1,568,334
      warrants so issued was determined to be $1,136,883 using the Black-Scholes
      Option Pricing Model with the following assumptions: risk-free interest rate
      of
      5.13%, volatility factor of 185.5%, five-year life and zero dividends. They
      have
      been recorded as equity in accordance with SFAS No. 133 and EITF
      00-19.





49
 *Index*


**IRONCLAD
        PERFORMANCE WEAR CORPORATION**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**


On
      March
      31, 2006 the Company issued 9,140 shares of common stock to a consultant in
      exchange for services. The services were valued at $6,779 and were based on
      a
      post merger valuation of $0.75 per common share. In May 2006 the Company
      employed this consultant as its Chief Financial Officer.





On
      April
      30, 2006 the Company issued 14,346 shares of common stock to a consultant in
      exchange for services. The services were valued at $10,000, and were valued
      at a
      pre-merger expected valuation of $0.32 per common share. In May 2006 the Company
      employed this consultant as its Chief Financial Officer.





Immediately
      after the consummation of the cancellation and purchase transaction in
      connection with the Merger of Ironclad California and the Company, a
      3.455895-for-1 forward stock split of common stock was completed and increased
      the number of authorized shares of common stock to 172,744,750. Immediately
      after the closing of the Merger on May 9, 2006, without taking into account
      the
      private placement completed concurrently with the Merger, there were 19,858,404
      outstanding shares of common stock.





Following
      the closing of the merger with Ironclad California, we received gross proceeds
      of approximately $7.3 million in a private placement transaction with
      institutional investors and other high net worth individuals. Pursuant to our
      subscription agreements with these investors, we sold 9,761,558 investment
      units, at $0.75 per investment unit. Each investment unit consists of one share
      of our common stock, and a five year non-callable warrant to purchase
      three-quarters of one share of our common stock, at an exercise price of $1.00
      per share. After commissions and expenses, we received net proceeds of
      approximately $6.1 million in the private placement.





On
      September 5, 2006 the Company issued 357,772 shares of common stock upon the
      exercise of two warrants at an exercise price of $0.185.





On
      November 15, 2006 the Company issued 86,291 shares of common stock upon the
      exercise of a stock option at an exercise price of $0.348.





On
      completion of the Merger on May 9, 2006, and at December 31, 2006, there were
      outstanding 29,619,992 shares and 30,064,060 shares, respectively, of common
      stock of the Registrant.





Warrant
      Activity





A
      summary
      of warrant activity is as follows **:**


Number
                of Shares
            
            Weighted
                Average Exercise PriceWarrants
                outstanding at December 31, 2004
            
            
            1,111,825
            
            $
            0.21Warrants
                expired
            
            
            (323,518
            )
            $
            0.18Warrants
                exercised
            
            
            (39,228
            )
            $
            0.18Warrants
                outstanding at December 31, 2005
            
            
            749,079
            
            $
            0.23Warrants
                issued
            
            
            10,072,852
            
            $
            0.93Warrants
                expired
            
            
            (9,637
            )
            $
            0.67Warrants
                exercised
            
            
            (357,772
            )
            $
            0.19Warrants
                outstanding at December 31, 2006
            
            
            10,454,522
            
            $
            0.91




50
 *Index*




**IRONCLAD
        PERFORMANCE WEAR CORPORATION**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
  Stock
        Based Compensation




Effective
      with the Company’s current fiscal year that began on January 1, 2006, the
      Company has adopted the accounting and disclosure provisions of Statement of
      Financial Accounting Standards (“SFAS”) No. 123(R), “SHARE-BASED PAYMENTS” using
      the modified prospective application transition method.





For
      fiscal years prior to January 1, 2006, the Company accounted for the Plan under
      the recognition and measurement principles of Accounting Principles Board
      Opinion No. 25, “ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES,” and related
      interpretations. The Company had adopted the disclosure provision of Statement
      of Financial Accounting Standards (“SFAS”) No. 123, “ACCOUNTING FOR STOCK-BASED
      COMPANSATION,” as amended by SFAS No. 148, “ACCOUNTING FOR STOCK-BASED
      COMPENSATION-TRANSITION AND DISCLOSURE,” an amendment of FASB Statement No. 123.
      The following table illustrates the effect on net income (loss) and income
      (loss) per share if the Company had applied the fair value recognition provision
      of SFAS No. 123 to stock-based employee compensation for the year Ended December
      31, 2005:








Twelve
                Months EndedDecember
                31, 2005Net
                loss as reported
            
            $
            (1,080,256
            )Less:
                Total stock-based employee compensation expense determined under
                Black-Scholes option pricing model, net of tax effects
            
            
            142,960**Pro
                Forma Net Loss**
            
            $
            (1,232,216
            )Net
                loss per share - as reported Basic and diluted
            
            $
            (0.07
            )Net
                loss per share - pro forma Basic and diluted
            
            $
            (0.08
            )





Ironclad
      California reserved 7,000,000 shares of its common stock for issuance to
      employees, directors and consultants under the 2000 Stock Incentive Plan, which
      the Company assumed in the Merger (“the 2000 Plan”). Under the 2000 Plan,
      options may be granted at prices not less than the fair market value of the
      Company’s common stock at the grant date. Options generally have a ten-year term
      and shall be exercisable as determined by the Board of Directors.





Effective
      May 18, 2006, the Company reserved 4,250,000 shares of its common stock for
      issuance to employees, directors and consultants under its 2006 Stock Incentive
      Plan (the “2006 Plan”). Under the 2006 Plan, options may be granted at prices
      not less than the fair market value of the Company’s common stock at the grant
      date. Options generally have a ten-year term and shall be exercisable as
      determined by the Board of Directors.





51
 *Index*


**IRONCLAD
        PERFORMANCE WEAR CORPORATION**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**


The
      fair
      value of each stock option granted under either the 2000 or 2006 Plan is
      estimated on the date of the grant using the Black-Scholes option pricing model.
      The Black-Scholes option pricing model has assumptions for risk free interest
      rates, dividends, stock volatility and expected life of an option grant. The
      risk free interest rate is based the U.S. Treasury Bill rate with a maturity
      based on the expected life of the options and on the closest day to an
      individual stock option grant. Dividend rates are based on the Company’s
      dividend history. The stock volatility factor is based on historical market
      prices of the Company’s common stock. The expected life of an option grant is
      based on management’s estimate. The fair value of each option grant is
      recognized as compensation expense over the vesting period of the option on
      a
      straight line basis.




For
      stock
      options issued during the years ended December 31, 2006 and 2005, the fair
      value
      of these options was estimated at the date of the grant using a Black-Scholes
      option pricing model with the following range of assumptions:





December
                31, 2006
            
            December
                31, 2005Risk
                free interest rate
            
            5.12%
                - 5.16%
            
            4.0%
                - 4.3%Dividends
            
            -
            
            -Volatility
                factor
            
            170%
                - 185%
            
            146%Expected
                life
            
            4
                years
            
            2-4
                years








A
      summary
      of stock option activity is as follows:




Number
                ofShares
            
            Weighted
                AverageExercise
                PriceOutstanding,
                December 31, 2004
            
            
            1,768,549
            
            $
            0.35Granted
            
            
            988,033
            
            $
            0.35Exercised
            
            
            (25,887
            )
            $
            0.35Cancelled/Expired
            
            
            (146,695
            )
            $
            0.35Outstanding
                December 31, 2005
            
            
            2,584,000
            
            $
            0.35Granted
            
            
            2,511,134
            
            $
            0.88Exercised
            
            
            (86,291
            )
            $
            0.35Cancelled/Expired
            
            
            (5,500
            )
            $
            1.05Outstanding
                at December 31, 2006
            
            
            5,003,343
            
            $
            0.65Exercisable
                at December 31, 2006
            
            
            2,279,122
            
            $
            0.42




52
 *Index*


**IRONCLAD
        PERFORMANCE WEAR CORPORATION**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**


The
      following tables summarize information about stock options outstanding at
      December 31, 2006:





Range
                of ExercisePrice
            
            NumberOutstanding
            
            Weighted
                Average Remaining ContractualLife
                (Years)
            
            Weighted
                AverageExercise
                Price
            
            Intrinsic
                ValueOutstanding
                Shares$0.19
                - $0.35
            
            2,497,709
            
            7.11
            
            $0.34
            
            $811,970$0.75
                - $1.05
            
            2,505,634
            
            9.38
            
            $0.95
            
            $-0-




The
      following tables summarize information about stock options exercisable at
      December 31, 2006:




Range
                of ExercisePrice
            
            NumberExercisable
            
            Weighted
                Average Remaining ContractualLife
                (Years)
            
            Weighted
                AverageExercise
                Price
            
            Intrinsic
                ValueExercisable
                Shares$0.19
                - $0.35
            
            2,050,190
            
            6.86
            
            $0.34
            
            $667,717$0.75
                - $1.05
            
            228,932
            
            9.39
            
            $1.05
            
            $-0-




The
      Company recorded $616,698 of compensation expense for employee stock options
      during the year ended December 31, 2006. These compensation expense charges
      were
      recorded in the following operating expense categories, general and
      administrative - $495,117; sales and marketing - $87,444; research and
      development - $17,031; and operations - $17,106. There was a total of $1,808,210
      of unrecognized compensation costs related to non-vested share-based
      compensation arrangements under the Plan outstanding at December 31, 2006.
      This
      cost is expected to be recognized over a weighted average period of 3.3 years.
      The total fair value of shares vested during the year ended December 31, 2006
      was $336,040.




**10.**
            **Income
                Taxes**




The
      provision (benefit) for income taxes for the years ended December 31, 2006
      and
      2005 consisted of the following:




2006
            
            2005Current
            
            $
            800
            
            $
            800Deferred
            
            
            -
            
            
            -Refund
            
            
            (30,979
            )
            
            -**$**
            (30,179
            )
            **$**
            800





The
      provision for income taxes differs from the amount that would result from
      applying the federal statutory rate for the years ended December 31, 2006 and
      2005 as follows:





53
 *Index*


**IRONCLAD
        PERFORMANCE WEAR CORPORATION**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**


2006
            
            2005Statutory
                regular federal income benefit rate
            
            
            (34.0)%
            
            
            (34.0)%State
                income taxes, net of federal benefit
            
            
            (4.4)
            
            
            (5.9)Unrealized
              loss on financing activities
            
            
            8.4Return
              to provision adjustment
            
            
            (7.1)Change
                in valuation allowance
            
            
            36.9
            
            
            39.6Other
            
            
            0.2
            
            
            0.3Total
            
            
            -%
            
            
            -%





In
      assessing the reliability of deferred tax assets, management considers whether
      it is more likely than not that some portion or all of the deferred tax assets
      will not be realized. The ultimate realization of deferred tax assets is
      dependent upon the generation of future taxable income during the periods in
      which those temporary differences become deductible. Management considers the
      scheduled reversals of deferred tax liabilities, projected future taxable
      income, and tax planning strategies in making this assessment. Based upon the
      level of historical taxable income and projections for future taxable income
      over the periods which the deferred tax assets are deductible, management
      believes it is more likely than not the Company will realize all of the benefits
      of these deductible, differences, however the Company chooses to provide a
      100%
      valuation allowance against its deferred tax asset.





Significant
      components of the Company’s deferred tax assets and liabilities for federal
      incomes taxes at December 31, 2006 consisted of the following:





2006Deferred
                tax assetsNet
                operating loss carryforward
            
            $
            2,122,888Stock
                option expense
            
            
            264,193Allowance
                for doubtful accounts
            
            
            11,138Allowance
                for product returns
            
            
            30,845Accrued
                compensation
            
            
            105,650Inventory
            
            
            51,408Other
            
            
            2,731Valuation
                allowance
            
            
            (2,411,566
            )Total
                deferred tax assets
            
            
            177,287State
                tax
            
            
            (177,287
            )Total
                deferred tax liabilities
            
            
            (177,287
            )**Net
                deferred tax assets/liabilities**
            
            $
            -




As
      of
      December 31, 2006, the Company had unused federal and state contribution
      carryovers of $6,374 that expire in 2009 through 2011.





As
      of
      December 31, 2006, the Company had unused federal and state net operating loss
      carryforwards available to offset future taxable income of $4,992,000 and
      $4,932,000, respectively, that expire between 2009 and 2026.





54
 *Index*




**IRONCLAD
        PERFORMANCE WEAR CORPORATION**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**




**11.**
            **Commitments
                and Contingencies**




The
      Company leased its corporate office and warehouse under the terms of a
      non-cancelable operating lease, which expired September 30, 2005. Rent expense
      charged to operations under this operating lease was $68,551 for the year ended
      December 31, 2005.





On
      September 30, 2005, the lease for the corporate office and warehouse expired
      and
      the Company incurred a penalty for holdover of the lease of $3,831 through
      November 7, 2005. The Company relocated to a temporary facility for the
      remainder of the year. Rent expense for the balance of 2005 for this temporary
      facility was $13,500. Rent expense through June 30, 2006 for this temporary
      facility was $40,500.





The
      Company entered into a new five-year lease with one option to renew for an
      additional five years for a corporate office and warehouse lease commencing
      in
      July 2006. The facility is located in El Segundo, California. Future minimum
      monthly lease payments on this facility are $13,752. Rent expense for the year
      ended December 31, 2006 for this facility was $82,512.





The
      Company leased an office in Minnesota under the terms of a non-cancelable
      operating lease which expired June 30, 2005. Rent expense charged to operations
      under this lease was $6,880 for the year ended December 31, 2005. The Company
      did not renew the lease after June 30, 2005.





The
      Company has various non-cancelable operating leases for office equipment
      expiring through April 6, 2010. Equipment lease expense charged to operations
      under these leases was $6,290 and $8,355 for the years ended December 31, 2006
      and 2005, respectively.





Future
      minimum rental commitments under these non-cancelable operating leases for
      years
      ending December 31 are as follows:




Year
            
            Facility
            
            Equipment
            
            Total2007
            
            
            166,926
            
            
            7,431
            
            
            174,3572008
            
            
            170,754
            
            
            7,431
            
            
            178,1852009
            
            
            174,738
            
            
            7,101
            
            
            181,8392010
            
            
            178,878
            
            
            1,528
            
            
            180,4062011
            
            
            84,480
            
            
            -
            
            
            84,480Thereafter
            
            
            -
            
            
            -
            
            
            -$
            775,776
            
            $
            23,491
            
            $
            799,267




Ironclad
      California executed a Separation Agreement with Eduard Jaeger effective in
      April
      2004. Pursuant to the terms of the Separation Agreement, if Ironclad terminates
      Mr. Jaeger’s employment with Ironclad California at any time other than for
      Cause, then Ironclad California must pay Mr. Jaeger (a) all accrued and unpaid
      salary and other compensation payable by the Company for services rendered
      through the termination date, payable in a lump sum payment on the termination
      date; and (b) a cash amount equal to Two Hundred Thousand Dollars ($200,000),
      payable in installments throughout the one (1) year period following the
      termination date in the same manner as Ironclad California pays salaries to
      its
      other executive officers. The Separation Agreement requires Mr. Jaeger to sign
      a
      general release and non-competition agreement in order to receive the lump
      sum
      payment. For the purposes of the Separation Agreement, termination for “Cause”
means termination by reason of: (i) any act or omission knowingly undertaken
      or
      omitted by Executive with the intent of causing damage to Ironclad California,
      its properties, assets or business or its stockholders, officers, directors
      or
      employees; (ii) any improper act of Mr. Jaeger involving a material personal
      profit to him, including, without limitation, any fraud, misappropriation or
      embezzlement, involving properties, assets or funds of Ironclad or any of its
      subsidiaries; (iii) any consistent failure by Mr. Jaeger to perform his normal
      duties as directed by the Chairman of the Board, in the sole discretion of
      the
      Board; (iv) any conviction of, or pleading nolo contendere to, (A) any crime
      or
      offense involving monies or other property of Ironclad; (B) any felony offense;
      or (C) any crime of moral turpitude; or (v) the chronic or habitual use or
      consumption of drugs or alcoholic beverages.





55
 *Index*


**IRONCLAD
        PERFORMANCE WEAR CORPORATION**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**


**12.**
            **Legal
                Proceedings**




Claim




On September
      1 2,
      2006, American
      Sports Group, Inc. (“ASG”), filed a lawsuit against the Company ,
      including Ironclad California, and certain individuals, in the Superior
      Court of the State of California
      for the County
      of
      Los Angeles. ASG alleges that in 2002, Ironclad California agreed to
      issue, and did,
      in
      fact, issue to ASG a warrant to purchase
      1,200,000 shares of Ironclad California common stock at $0.05 per share and
      a
      warrant to purchase
      1,083,333 shares of Ironclad
      California common stock at $0.06 per share. ASG is seeking declaratory relief
      in
      the form of a determination as to validity
      of the warrants and its rights to exchange such warrants
      for warrants to purchase shares of the Company’s common stock
      pursuant to the terms
      of
      the Merger Agreement with Ironclad California. In the alternative, ASG is
      seeking specific performance of the alleged agreement to issue the warrants,
      and
      the issuance of warrants
      to purchase
      517,746 shares of the Company’s common stock at $0.1157 per share, and 476,410
      shares of common stock at a price of $0.1388 per share, which represent the
      number of warrants and exercise prices for which these warrants would have
      been
      exchanged pursuant to the Merger Agreement.





According
      to the Company’s records, the transactions pursuant to which the warrants were
      intended to be issued were never consummated, and the warrants were never
      issued. Any purported warrants that plaintiff possesses were issued without
      authorization, and therefore, are invalid and unenforceable. The Company
      believes ASG’s claims are without merit and the Company intends to vigorously
      defend against these claims.





To
      the
      extent ASG is successful in its claim, the Company agreed to cause the issuance
      of additional shares of the Registrant’s common stock to each of the investors
      in the private placement financing that occurred on May 9, 2006, and to each
      of
      the holders of the Registrant’s shares issued and outstanding immediately prior
      to the Merger, on a pro rata basis, in such a manner and in such amounts as
      would be necessary to adjust their respective ownership of the Registrant’s
      common stock as of the closing of the Private Placement financing and Merger
      for
      any dilution caused by the issuance of the warrants or any shares thereunder.




**13.**
            **Related
                Party Transactions**




Colorado
      Venture Management Equity Fund V, Ltd., LLP (or “CVM”) entered into a Revolving
      Loan Agreement with Ironclad California in November 2000. The related Revolving
      Promissory Note was periodically amended and/or replaced until the loan was
      repaid in full on January 4, 2005. At no time did the principal amount borrowed
      from CVM exceed $624,000. On December 31, 2003 accrued interest of $174,452
      was
      used by CVM to exercise 2,282,392 warrants to purchase preferred stock of
      Ironclad California in a cashless transaction. Mr. Bloomer, who is Chairman
      of
      the Board, is also the Chairman and Chief Executive Officer of Colorado Venture
      Management, Inc., which is the Managing Partner of CVM. Before our merger with
      Ironclad California, CVM held 29.83% of the issued and outstanding shares of
      Ironclad California. At August
      22, 2006,
      CVM held approximately 16.8% of Ironclad California’s issued and outstanding
      shares, including warrants to purchase 415,782 shares of its common stock,
      a
      portion of which were issued in connection with the stockholder bridge financing
      transaction completed by Ironclad California in February 2006. These warrants
      are exercisable an exercise price per share of $0.75.





56
 *Index*


**IRONCLAD
        PERFORMANCE WEAR CORPORATION**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**


Mr.
      Alderton, an Ironclad Board member since August 2002, is a partner of the law
      firm, Stubbs, Alderton and Markiles, LLP (“SAM”) which is Ironclad’s attorney of
      record. SAM rendered services to Ironclad California as its primary legal firm
      since 2002, and became our primary legal counsel upon closing of the merger
      with
      Ironclad California on May 9, 2006.





57
 *Index*





**Item
                8.**
            **Changes
                in and Disagreements with Accountants on Accounting and
                Financial Disclosure**




Not
      applicable.




**Item
                8A.**
            **Controls
                and
                Procedures**




**Controls
      and Procedures**




Members
      of the company’s management, including our Chief Executive Officer and
      President, Eduard Jaeger, and Chief Financial Officer, Thomas E. Walsh, have
      evaluated the effectiveness of our disclosure controls and procedures, as
      defined by paragraph (e) of Exchange Act Rules 13a-15 or 15d-15, as of December
      31, 2006, the end of the period covered by this report. Based upon that
      evaluation, Messrs. Jaeger and Walsh concluded that our disclosure controls
      and
      procedures are effective.




**Internal
      Control Over Financial Reporting**




There
      were no changes in our internal control over financial reporting or in other
      factors identified in connection with the evaluation required by paragraph
      (d)
      of Exchange Act Rules 13a-15 or 15d-15 that occurred during the fourth quarter
      ended December 31, 2006 that have materially affected, or are reasonably likely
      to materially affect, our internal control over financial
      reporting.




**Item
                8****B.**
            **Other
                Information**




None.





58
 *Index*





**PART
      III**




**Item
                9.**
            **Directors****,
                Executive Officers, Promoters, Control Persons and Corporate Governance;
                Compliance With Section 16(a) of the Exchange
                Act**




The
      following table sets forth the name, age and position of each of our executive
      officers and directors as of March
      9, 2007.




**Name**
            **Age**
            **Position**R.D.
                Peter Bloomer
            71
            Chairman
                of the BoardEduard
                Jaeger
            46
            Director,
                President and Chief Executive OfficerThomas
                E. Walsh
            58
            Executive
                Vice President and Chief Financial OfficerRhonda
                Hoffarth
            46
            Executive
                Vice President and Chief Operating OfficerKent
                Pachl
            40
            Executive
                Vice President of Sales & MarketingThomas
                Kreig
            59
            Vice
                President of Finance and SecretaryVane
                P. Clayton
            48
            DirectorScott
                Alderton
            48
            DirectorScott
                Jarus
            51
            Director





*R.
      D.
      Peter Bloomer, Chairman of the Board*




Mr.
      Bloomer assumed the role of Chairman of the Board in April 2003. He is the
      Chairman and Chief Executive Officer of Colorado Venture Management, Inc. and
      Managing Partner of CVM Equity Fund V, Ltd., LLP, which is Ironclad’s largest
      stockholder. Prior to the formation of CVM, Mr. Bloomer was Vice President
      of
      Marketing for Head Ski & Tennis, Vice President of Operations for Hanson
      Industries and spent 11 years with IBM Sales and Marketing. Mr. Bloomer has
      served on the Boards of Directors of multiple private companies.





*Eduard
      Jaeger, Director, President, Chief Executive Officer &
Founder*





Mr.
      Eduard Jaeger founded Ironclad in 1998 and has served as a Director, President
      and Chief Executive Officer since that time. Mr. Eduard Jaeger has been Founder,
      co-Founder and President of a number of successful companies in the consumer
      products sector over a 20 year period. Prior to Ironclad, he developed extensive
      experience and expertise in innovative product design and development, overseas
      manufacturing, importing and exporting, sales and marketing, and forming
      worldwide distribution channels. Mr. Eduard Jaeger is the inventor of 6 U.S.
      patents and 2 patents pending, and has held executive positions in marketing
      and
      promotion.





*Thomas
      E. Walsh, Executive Vice President & Chief Financial
      Officer*





Mr.
      Walsh
      joined us effective May 1, 2006. Mr. Walsh has over 23 years of senior executive
      experience in the areas of finance and accounting, including private and public
      financing; investor relations; strategic planning; international business;
      mergers and acquisitions; organizational restructuring; and general management.
      Before joining Ironclad, Mr. Walsh served as Senior Vice President and Chief
      Financial Officer of Global Brand Marketing Inc. an international footwear
      wholesaler. Previously, Mr. Walsh served as Group Senior Vice President of
      the
      Broan NuTone Group of companies, an international manufacturer of residential
      building products. Prior to Broan NuTone, Mr. Walsh served as Chief Financial
      Officer of The Thermos Group of Companies, an international consumer products
      company and President of the North American Division and Chief Financial Officer
      of Tokheim Corporation, an NYSE listed international manufacturer of fluid
      and
      gas dispensing equipment. Mr. Walsh holds a Masters in Business Administration
      in Finance from DePaul University and a BS in Finance from the University of
      Illinois. Mr. Walsh is a Certified Public Accountant in the state of
      Illinois.





59
 *Index*





*Rhonda
      Hoffarth, Executive Vice President & Chief Operating Officer*





Ms.
      Hoffarth was hired as our Executive Vice President & Chief Operating Officer
      in January 2003. Ms. Hoffarth has also previously served as Ironclad’s interim
      Chief Financial Officer. Ms. Hoffarth has over 20 years of experience in
      operations and finance with growing consumer product companies. Prior to joining
      Ironclad, she spent 9 years with Bell Sports, Inc. in various roles, including
      Vice President of Operations, North American, helping the company grow from
      $45
      million in revenue to over $200 million. Subsequently, Ms. Hoffarth spent two
      years as the Senior Vice President of Operations for Targus, Inc., a $500
      million developer of mobile accessories. Both Bell Sports and Targus source
      their finished products from Asia and have multiple sales channels (independent
      shops, regional and national accounts, big box accounts). Ms. Hoffarth received
      her Masters of Business Administration from the University of Southern
      California in 1992.





*Kent
      Pachl, Executive Vice President of Sales & Marketing*





Mr.
      Pachl
      joined us as our Vice President of Sales and Marketing in January 2005. Mr.
      Pachl has spent a total of 15 years in the consumer products and sporting goods
      industries with Dunlop/Maxfli Sports Corporation and more recently with Taylor
      Made-Adidas Golf Company. At Dunlop/Maxfli, he was Vice President of Sales
      and
      helped facilitate the sale of the company by consolidating multiple divisions
      into one group. During his tenure at Taylor Made-Adidas golf, he held various
      senior management roles in International Sales, Taylor Made equipment and the
      Adidas footwear and apparel division. Mr. Pachl possesses a Bachelors of Science
      degree in Business Finance.





*Thomas
      Kreig, Vice President of Finance and Secretary*





Mr.
      Kreig
      joined us as Vice President of Finance and Secretary in September 2002. Before
      joining Ironclad, Mr. Kreig spent 18 years serving as Controller and Vice
      President of Finance at companies in several different industries. Most recently
      he served as Controller for In-Flight Network, LLC, a developer of
      satellite-based broadband communications for airline passengers. Prior to
      In-Flight Network, Mr. Kreig served as Vice President of Finance for Network
      Courier Services, Inc. From 1983 to 1996, Mr. Kreig served as Controller and
      Chief Financial Officer for Triple L Distributing Co., Inc. and Controller
      and
      Treasurer for a medical diagnostic equipment company where he was instrumental
      in helping to successfully execute an initial public offering. He is a CPA
      and
      received his Masters of Business Administration from the University of Detroit
      in Detroit, Michigan.





*Vane
      P. Clayton, Director*




Mr.
      Clayton joined the Ironclad Board of Directors in March 2004. He is the CEO
      of
      KPA, LLC, an environmental and safety compliance service company. He has 19
      years of experience successfully building high growth professional service
      and
      technology companies. Prior to KPA, Mr. Clayton was the President of ZOLL Data
      Systems, a subsidiary of ZOLL Medical (NASDAQ: ZOLL), and has 18 years of
      experience in successfully building high growth technology companies. Prior
      to
      ZOLL Data Systems, he was President of Troy Wireless (formerly listed on NASDAQ
      & now on the Over-the-Counter Bulletin Board TROY.PK), which manufactured
      hardware components in Asia that sold throughout the world. Mr. Clayton brings
      experience in directing public companies in high growth sales and marketing
      strategies; new product and channel development; fund raising; Sarbanes-Oxley
      Act of 2004, Section 404 compliance; strategic positioning; and building
      successful teams.




*Scott
      Alderton, Director*




Mr.
      Alderton joined the Board of Ironclad in August 2002. He is a Founder and
      Partner of the law firm Stubbs Alderton and Markiles, LLP and has over 21 years
      experience working with technology and emerging growth companies at all stages
      along their evolutionary path. He brings to the Board his expertise in
      securities law matters, capital formation, venture capital and financing
      transactions; mergers, acquisitions and divestitures; and the protection of
      copyrights, trademarks and trade secrets.




60
 *Index*





*Scott
      Jarus, Director*




Mr.
      Jarus
      was appointed and elected as a director of our Company on May 18, 2006. Mr.
      Jarus is Chief Executive Officer of Cognition Technologies, Inc., an early-stage
      company located in Santa Monica, which is a developer of content search
      technology. From 2001 to 2005, Mr. Jarus was President and principal executive
      of j2 Global Communications, Inc. (NASDAQ: JCOM), a provider of outsourced,
      value-added messaging and communications services to individuals and companies
      throughout the world. Before joining Global Communications, Inc., from 1998
      to
      2001, Mr. Jarus was President and Chief Operating Officer for OnSite Access,
      a
      provider of building-centric integrated communications services. Mr. Jarus
      has
      24 years of management experience in the telecommunications industry and served
      in various management positions and on the Board of Directors of various
      companies. In 2005, Mr. Jarus was named National Entrepreneur of the Year for
      Media/Entertainment/Communications by Ernst & Young (and Los Angeles
      Entrepreneur of the Year for Technology in 2004). He holds a Bachelor of Arts
      degree in Psychology and a Master of Business Administration degree from the
      University of Kansas.





**Audit
      Committee of the Board of Directors**




The
      Board
      of Directors currently has the following standing committees: Audit Committee
      and Compensation Committee.





The
      Audit
      Committee currently consists of Messrs. Clayton, Alderton and Jaeger. None
      of
      our current Audit Committee members is an audit committee financial expert,
      as
      defined in Item 401(e)(2) of Regulation S-B. Our Board of Directors currently
      has no independent director who qualifies as an audit committee expert. We
      intend to recruit new independent directors such that the independent directors
      on our Board may fulfill committee and independence requirements. The primary
      purposes of the Audit Committee are (i) to review the scope of the audit and
      all
      non-audit services to be performed by our independent auditors and the fees
      incurred by us in connection therewith, (ii) to review the results of such
      audit, including the independent accountants’ opinion and letter of comment to
      management and management’s response thereto, (iii) to review with our
      independent accountants our internal accounting principles, policies and
      practices and financial reporting, (iv) to engage our independent auditors
      and
      (v) to review our quarterly and annual financial statements prior to public
      issuance. The role and responsibilities of the Audit Committee are more fully
      set forth in a written Charter adopted by the Board of Directors. The Audit
      Committee was created by our Board effective May 18, 2006.





**Compliance
      with Section 16(a) of the Exchange Act**




Section
      16(a) of the Securities Exchange Act of 1934 requires that our executive
      officers and directors, and persons who own more than ten percent of a
      registered class of our equity securities, file reports of ownership and changes
      in ownership with the SEC.  Executive officers, directors and
      greater-than-ten percent stockholders are required by SEC regulations to furnish
      us with all Section 16(a) forms they file.  Based solely on our review of
      the copies of the forms received by us and written representations from certain
      reporting persons that they have complied with the relevant filing requirements,
      we believe that, during the year ended December 31, 2006, all of our executive
      officers, directors and greater-than-ten percent stockholders complied with
      all
      Section 16(a) filing requirements, except for the following: Scott Alderton
      reported two late transactions on a Form 5, and Scott Jarus reported one late
      transaction on a Form 5.




**Code
      of Ethics**




We
      have
      adopted a Code of Ethics applicable to all of our Board members and to all
      of
      our employees, including our Chief Executive Officer and Chief Financial
      Officer. The Code of Ethics constitutes a “code
      of
      ethics” as defined by applicable SEC rules and a “code of conduct” as defined by
      applicable NASDAQ rules. The Code of Ethics will be publicly filed with the
      SEC
      as an exhibit to this report. You may also request a copy of the Code of Ethics
      by writing or calling us at:




61
 *Index*





Ironclad
      Performance Wear Corporation


Attn:
      Investor Relations


2201
      Park
      Place, Suite 101


El
      Segundo, CA 90245


(310)
      643-7800




Any
      waiver of the Code of Ethics pertaining to a member of our Board or one of
      our
      executive officers will be disclosed in a report on Form 8-K filed with the
      SEC.




**Item****10.**
            **Executive
                Compensation**




**Summary
      Compensation Table**




The
      following table sets forth, as to the Chief Executive Officer and as to each
      of
      the other two most highly compensated executive officers whose compensation
      exceeded $100,000 during the last fiscal year, information concerning all
      compensation paid for services to us in all capacities for our last two fiscal
      years.




**Name
                and Principal Position**
            ****
            **Year**
            ****
            **Salary**
              **($)**
            ****
            **Bonus**
              **($)**
            ****
            **Stock
                Awards ($)**
            ****
            **Option**
              **Awards
                ($)**
            ****
            **Non-Equity
                Incentive Plan Compensation ($)**
            ****
            **Non-Qualified
                Deferred Compensation Earnings**
              **(S)**
            ****
            **All
                Other Compensation ($)**
            ****
            **Total**
              **($)**Eduard
                Jaeger
            
            
            2006
            
            
            193,424
            
            
            150,000
            (1)
            
            -
            
            
            480,000
            
            
            -
            
            
            -
            
            
            7,200
            (2)
            
            833,624Chief
                Executive Officer and Director
            
            
            2005
            
            
            175,000
            
            
            -
            
            
            -
            
            
            69,033
            
            
            -
            
            
            -
            
            
            7,200
            (2)
            
            251,233Rhonda
                Hoffarth
            
            
            2006
            
            
            146,655
            
            
            30,000
            (1)
            
            -
            
            
            120,750
            
            
            -
            
            
            -
            
            
            -
            
            
            297,405Executive
                Vice President and Chief Operating Officer
            
            
            2005
            
            
            140,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            140,000Kent
                Pachl
            
            
            2006
            
            
            177,298
            
            
            40,000
            
            
            -
            
            
            193,200
            
            
            -
            
            
            -
            
            
            7,200
            (2)
            
            418,328Executive
                Vice President of Sales and Marketing
            
            
            2005
            
            
            175,000
            
            
            -
            
            
            -
            
            
            135,908
            
            
            -
            
            
            -
            
            
            7,200
            (2)
            
            318,108




(1)
            Represents
                payment of bonus for performance in
                2005.




(2)
            Represents
                an automobile allowance.




62
 *Index*





**Outstanding
      Equity Awards at Fiscal Year End**




The
      following table presents information regarding outstanding options held by
      our
      named executive officers as of the end of our fiscal year ended December 31,
      2006.




**Option
                Awards**
            
            **Stock
                Awards****Name**
            
            **Number
                of Securities Underlying Unexercised Options**
              **(#)**
            
            **Number
                of Securities Underlying Unexercised Options**
              **(#)**
            
            **Equity
                Incentive Plan Awards: Number of Securities Underlying Unexercised
                Unearned Options**
              **(#)**
            
            **Option
                Exercise Price**
              **($)**
            
            **Option
                Expiration Date**
            
            **Number of
                Shares or Units of Stock That Have Not Vested**
              **(#)**
            
            **Market
                Value of Shares or Units of Stock That Have Not Vested**
              **($)**
            
            **Equity 
                Incentive Plan Awards: Number of Unearned Shares, Units or Other
                Rights
                That Have Not Vested**
              **(#)**
            
            **Equity
                Incentive Plan Awards: Market or Payout Value of Unearned Shares,
                Units or Other Rights That Have Not Vested**
              **($)****Exercisable**
            ****
            **Unexercisable**Eduard
                Jaeger (1)
            
            
            43,146(2)
            
            
            -
            
            
            -
            
            
            .35
            
            
            5/9/11
            
            
            -
            
            
            -
            
            
            -
            
            
            -215,728(3)
            
            
            -
            
            
            -
            
            
            .35
            
            
            6/16/1230,718(4)
            
            
            2,003(4)
            
            
            -
            
            
            .35
            
            
            3/4/13431,455
                (5)
            
            
            1,335(5)
            
            
            -
            
            
            .35
            
            
            3/31/14211,413
                (6)
            
            
            64,718(6)
            
            
            -
            
            
            .35
            
            
            9/3/15-
            
            
            500,000(7)
            
            
            -
            
            
            1.05
            
            
            5/18/16Rhonda
                Hoffarth
            
            
            168,987
                (8)
            
            
            3,595(8)
            
            
            -
            
            
            .35
            
            
            1/13/13
            
            
            -
            
            
            -
            
            
            -
            
            
            -13,483
                (9)
            
            
            8,090(9)
            
            
            -
            
            
            .35
            
            
            6/22/14-
            
            
            125,000(10)
            
            
            -
            
            
            1.05
            
            
            5/18/16Kent
                Pachl
            
            
            183,368
                (11)
            
            
            183,369(11)
            
            
            -
            
            
            .35
            
            
            1/3/15
            
            
            -
            
            
            -
            
            
            -
            
            
            -86,291
                (12)
            
            
            -
            
            
            -
            
            
            .35
            
            
            9/2/15-
            
            
            200,000(13)
            
            
            -
            
            
            1.05
            
            
            5/18/16


(1)
              Ironclad
                  California executed a Separation Agreement with Eduard Jaeger effective
                  in
                  April 2004, the terms of which are described in Employment Contracts
                  herein.
 (2)
              Mr.
                  Jaeger was granted options to purchase 43,146 shares on 5/10/01,
                  25%
                  vested on the first anniversary of the date of grant, and 1/24thof
                  the remaining amount of shares vest at the end of each month
                  thereafter.
 (3)
              Mr.
                  Jaeger was granted options to purchase 215,728 shares on 1/14/03,
                  33.3%
                  vested on June 15, 2003 and 1/24thof
                  the remaining amount of shares vest at the end of each month
                  thereafter.
 (4)
              Mr.
                  Jaeger was granted options to purchase 32,053 shares on 3/3/03,
                  25% vested
                  on the first anniversary of the effective date of grant and
                  1/36thof
                  the remaining amount of shares vest at the end of each month
                  thereafter.
 (5)
              Mr.
                  Jaeger was granted options to purchase 431,455 shares on 3/30/04,
                  100%
                  vested on the date of grant.
 (6)
              Mr.
                  Jaeger was granted options to purchase 276,131 shares on 9/2/05,
                  146,695
                  shares vested immediately and 50% of the remainder vests on each
                  of the
                  first and second anniversary of the effective date of
                  grant.
 (7)
              Mr.
                  Jaeger was granted options to purchase 500,000 shares on 5/18/06,
                  25%
                  vested on the first anniversary of the effective date of grant
                  and
                  1/36thof
                  the remaining amount of shares vest at the end of each month
                  thereafter.
 (8)
              Ms.
                  Hoffarth was granted options to purchase 172,582 shares on 1/14/03,
                  25%
                  vested on the first anniversary of the effective date of grant
                  and
                  1/36thof
                  the remaining amount of shares vest at the end of each month
                  thereafter.
 (9)
              Ms.
                  Hoffarth was granted options to purchase 21,573 shares on 6/22/04,
                  25%
                  vested on the first anniversary of the effective date of grant
                  and
                  1/36thof
                  the remaining amount of shares vest at the end of each month
                  thereafter.
 (10)
              Ms.
                  Hoffarth was granted options to purchase 125,000 shares on 5/18/06,
                  25%
                  vested on the first anniversary of the effective date of grant
                  and
                  1/36thof
                  the remaining amount of shares vest at the end of each month
                  thereafter.
 (11)
              Mr.
                  Pachl was granted options to purchase 366,737 shares on 1/4/05,
                  25% vested
                  on the first anniversary of the effective date of grant and
                  1/36thof
                  the remaining amount of shares vest at the end of each month
                  thereafter.
 (12)
              Mr.
                  Pachl was granted options to purchase 86,291 shares on 9/2/05,
                  100% vested
                  as of the date of grant.
 (13)
              Mr.
                  Pachl was granted options to purchase 200,000 shares on 5/18/06,
                  25%
                  vested on the first anniversary of the effective date of grant
                  and
                  1/36thof
                  the remaining amount of shares vest at the end of each month
                  thereafter.
 
 None
        of
        the executive officers listed in the above table exercised options during
        the
        fiscal year ended December 31, 2006.




63
 *Index*





**Director
      Compensation**




The
      following table presents information regarding compensation paid to our
      non-employee directors for our fiscal year ended December 31, 2006.




**Name**
            
            **Fees Earned or
                Paid in Cash**
              **($)(2)**
            
            **Stock Awards**
              **($)**
            
            **Option Awards**
              **($)**
            
            **Non-Equity
                Incentive Plan Compensation**
              **($)**
            
            **Change
                in Pension Value and Nonqualified Deferred Compensation Earnings**
              **($)**
            
            **All
                Other Compensation**
              **($)**
            
            **Total**
              **($)**R.D.
                Peter Bloomer
            
            
            8,750
            
            
            -
            
            
            155,807(3
            )
            
            -
            
            
            -
            
            
            -
            
            
            164,557Eduard
                Jaeger
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Scott
                Alderton (1)
            
            
            8,750
            
            
            -
            
            
            30,771(4
            )
            
            
            
            
            -
            
            
            -
            
            
            39,521Vane
                Clayton
            
            
            8,750
            
            
            -
            
            
            30,771(5
            )
            
            -
            
            
            -
            
            
            -
            
            
            39,521Scott
                Jarus
            
            
            5,000
            
            
            -
            
            
            72,450(6
            )
            
            -
            
            
            -
            
            
            -
            
            
            77,450




(1)
      Fees
      and option awards granted to Mr. Alderton are made to the law firm, Stubbs
      Alderton and Markiles, LLP, of which he is a partner.




(2)
      Effective January 1, 2007 fees paid to non-employee directors were increased
      to
      $25,000 annually.




(3)
      The
      aggregate number of common shares reserved under option awards outstanding
      at
      fiscal year end totaled 290,728.




(4)
      The
      aggregate number of common shares reserved under option awards outstanding
      at
      fiscal year end totaled 161,291.




(5)
      The
      aggregate number of common shares reserved under option awards outstanding
      at
      fiscal year end totaled 161,291.




(6)
      The
      aggregate number of common shares reserved under option awards outstanding
      at
      fiscal year end totaled 75,000.




In
      2006,
      non-employee directors of Ironclad California receive $2,500 per quarter for
      attending meetings and serving on Ironclad California’s Board of Directors.
      Since April 2000, non-employee directors of Ironclad California have each
      received options to purchase 300,000 shares of Ironclad California common stock
      upon their appointment to the Board. We expect to continue the practice of
      compensating our directors with options to purchase our common stock going
      forward. Compensation payable to non-employee directors may be adjusted from
      time to time, as approved by our Board of Directors, and was increased to
      $25,000 beginning January 1, 2007.




**Employment
      Contracts**




Except
      as
      described in this section, Ironclad California is not party to any employment
      agreements with any of its executive officers.




64
 *Index*





Ironclad
      California executed a Separation Agreement with Eduard Jaeger effective in
      April
      2004. Pursuant to the terms of the Separation Agreement, if Ironclad terminates
      Mr. Jaeger’s employment with Ironclad California at any time other than for
      Cause, then Ironclad California must pay Mr. Jaeger (a) all accrued and unpaid
      salary and other compensation payable by the Company for services rendered
      through the termination date, payable in a lump sum payment on the termination
      date; and (b) a cash amount equal to Two Hundred Thousand Dollars ($200,000),
      payable in installments throughout the one (1) year period following the
      termination date in the same manner as Ironclad California pays salaries to
      its
      other executive officers. The Separation Agreement requires Mr. Jaeger to sign
      a
      general release and non-competition agreement in order to receive the lump
      sum
      payment. For the purposes of the Separation Agreement, termination for “Cause”
means termination by reason of: (i) any act or omission knowingly undertaken
      or
      omitted by Executive with the intent of causing damage to Ironclad California,
      its properties, assets or business or its stockholders, officers, directors
      or
      employees; (ii) any improper act of Mr. Jaeger involving a material personal
      profit to him, including, without limitation, any fraud, misappropriation or
      embezzlement, involving properties, assets or funds of Ironclad or any of its
      subsidiaries; (iii) any consistent failure by Mr. Jaeger to perform his normal
      duties as directed by the Chairman of the Board, in the sole discretion of
      the
      Board; (iv) any conviction of, or pleading nolo contendere to, (A) any crime
      or
      offense involving monies or other property of Ironclad; (B) any felony offense;
      or (C) any crime of moral turpitude; or (v) the chronic or habitual use or
      consumption of drugs or alcoholic beverages.





**Indemnification
      of Directors and Executive Officers and Limitation of
      Liability**




We
      are a
      Nevada Corporation. The Nevada Revised Statutes and certain provisions of our
      Bylaws under certain circumstances provide for indemnification of our officers,
      directors and controlling persons against liabilities which they may incur
      in
      such capacities. A summary of the circumstances in which such indemnification
      is
      provided for is contained herein, but this description is qualified in its
      entirety by reference to our bylaws and to the statutory provisions.




In
      general, any officer, director, employee or agent may be indemnified against
      expenses, fines, settlements or judgments arising in connection with a legal
      proceeding to which such person is a party, if that person’s actions were in
      good faith, were believed to be in our best interest, and were not unlawful.
      Unless such person is successful upon the merits in such an action,
      indemnification may be awarded only after a determination by independent
      decision of the Board of Directors, by legal counsel, or by a vote of the
      stockholders, that the applicable standard of conduct was met by the person
      to
      be indemnified.




The
      circumstances under which indemnification is granted in connection with an
      action brought on our behalf is generally the same as those set forth above;
      however, with respect to such actions, indemnification is granted only with
      respect to expenses actually incurred in connection with the defense or
      settlement of the action. In such actions, the person to be indemnified must
      have acted in good faith and in a manner believed to have been in our best
      interest, and have not been adjudged liable for negligence or
      misconduct.




Indemnification
      may also be granted pursuant to the terms of agreements which may be entered
      in
      the future or pursuant to a vote of stockholders or directors. The statutory
      provision cited above also grants us the power to purchase and maintain
      insurance which protects our officers and directors against any liabilities
      incurred in connection with their service in such a position, and such a policy
      may be obtained by us.




We
      are
      entering into indemnification agreements with our directors and
      executive officers.




65
 *Index*





A
      stockholder’s investment may be adversely affected to the extent we pay the
      costs of settlement and damage awards against directors and officers as required
      by these indemnification provisions. At present, there is no pending litigation
      or proceeding involving any of our directors, officers or employees regarding
      which indemnification by us is sought, nor are we aware of any threatened
      litigation that may result in claims for indemnification.




Insofar
      as indemnification for liabilities arising under the Securities Act may be
      permitted to directors, officers or persons controlling us pursuant to the
      foregoing provisions, we have been informed that, in the opinion of the SEC,
      this indemnification is against public policy as expressed in the Securities
      Act
      and is therefore unenforceable.




**2006
      Stock Incentive Plan**




Our
      2006
      Stock Incentive Plan was adopted on September 18,, 2006 and became effective
      on
      January 12, 2007. A total of 4,250,000 shares of common stock have been reserved
      for issuance upon exercise of awards granted under the 2006 Stock Incentive
      Plan. Any shares of common stock subject to an award, which for any reason
      expires or terminates unexercised, are again available for issuance under the
      2006 Stock Incentive Plan.




Our
      2006
      Stock Incentive Plan will terminate after 10 years from the date on which our
      board approved the plan, unless it is terminated earlier by our board. The
      plan
      authorizes the award of stock options and stock purchase grants.




Our
      2006
      Stock Incentive Plan will be administered by the Board of Directors of the
      Company or the Compensation Committee as determined by the Board of Directors
      or
      otherwise permitted under the 2006 Stock Incentive Plan. The Board of Directors
      has the authority to select the eligible participants to whom awards will be
      granted, to determine the types of awards and the number of shares covered
      and
      to set the terms, conditions and provisions of such awards, to cancel or suspend
      awards under certain conditions, and to accelerate the exercisability of awards.
      The Board of Directors will be authorized to interpret the 2006 Stock Incentive
      Plan, to establish, amend, and rescind any rules and regulations relating to
      the
      plan, to determine the terms of agreements entered into with recipients under
      the plan, to make all other determinations that may be necessary or advisable
      for the administration of the 2006 Stock Incentive Plan. The Company’s Board of
      Directors may at its discretion delegate the responsibility for administering
      the plan to any committee or subcommittee of the Board of Directors.





The
      exercise price per share of common stock purchasable under any stock option
      will
      be determined by the Company’s Board of Directors, but cannot in any event be
      less than 100% of the fair market value of the common stock on the date the
      option is granted. The Board of Directors will determine the term of each stock
      option (subject to a maximum of 10 years) and each option will be exercisable
      pursuant to a vesting schedule determined by the Board of Directors. The grants
      and the terms of ISOs will be restricted to the extent required for
      qualification as ISOs by the U.S. Internal Revenue Code of 1986, as amended,
      or
      the Code. Subject to approval of the Board of Directors, options may be
      exercised by payment of the exercise price in cash, shares of common stock,
      which have been held for at least six months, or pursuant to a “cashless
      exercise” through a broker-dealer under an arrangement approved by the Company.
      The Board of Directors may require the grantee to pay to the Company any
      applicable withholding taxes that the company is required to withhold with
      respect to the grant or exercise of any award. The withholding tax may be paid
      in cash or, subject to applicable law, the Board of Directors may permit the
      grantee to satisfy these obligations by the withholding or delivery of shares
      of
      common stock. The Company may withhold from any shares of common stock that
      may
      be issued pursuant to an option or from any cash amounts otherwise due from
      the
      company to the recipient of the award an amount equal to such
      taxes.





66
 *Index*





Stock
      purchase rights are generally treated similar to stock options with respect
      to
      exercise/purchase price, exercisability and vesting.





In
      the
      event of any change affecting the shares of common stock by reason of any stock
      dividend or split, recapitalization, merger, consolidation, spin-off,
      combination or exchange of shares or other similar corporate change, or any
      distribution to shareholders other than cash dividends, the Board of Directors
      will make such substitution or adjustment in the aggregate number of shares
      that
      may be distributed under the 2006 Stock Incentive Plan and in the number and
      option price (or exercise or purchase price, if applicable) as it deems to
      be
      appropriate in order to maintain the purpose of the original grant.





No
      option
      will be assignable or otherwise transferable by the grantee other than by will
      or the laws of descent and distribution and, during the grantee’s lifetime, an
      option may be exercised only by the grantee.





If
      a
      grantee’s service to the company terminates on account of death, disability or
      retirement, then the grantee’s unexercised options, if exercisable immediately
      before the grantee’s death, disability or retirement, may be exercised in whole
      or in part, not later than one year after this event. If a grantee’s service to
      the company terminates for cause, then the grantee’s unexercised option
      terminates effective immediately upon such termination. If a grantee’s service
      to the Company terminates for any other reason, then the grantee’s unexercised
      options, to the extent exercisable immediately before such termination, will
      remain exercisable, and may be exercised in whole or in part, for a period
      of
      three months after such termination of employment





Under
      the
      2006 Stock Incentive Plan, the occurrence of a “Change in Control” can affect
      options and other awards granted under the plan. Generally, the 2006 Stock
      Incentive Plan defines a “Change in Control” to include the consummation of a
      merger or consolidation of the Company with or into another entity or any other
      corporate reorganization, if more than 80% of the combined voting power of
      the
      continuing or surviving entity’s securities outstanding immediately after the
      merger, consolidation or other reorganization is owned, directly or indirectly,
      by persons who were not shareholders of the Company immediately before the
      merger, consolidation or other reorganization, except that in making the
      determination of ownership by the shareholders of the Company, immediately
      after
      the reorganization, equity securities that persons own immediately before the
      reorganization as shareholders of another party to the transaction will be
      disregarded. For these purposes voting power will be calculated by assuming
      the
      conversion of all equity securities convertible (immediately or at some future
      time) into shares entitled to vote, but not assuming the exercise of any
      warrants or rights to subscribe to or purchase those shares. “Change in Control”
also includes the sale, transfer or other disposition of all or substantially
      all of the Company’s assets. A transaction will not constitute a Change in
      Control if its sole purpose is to change the state of the Company’s
      incorporation or to create a holding company that will be owned in substantially
      the same proportions by the persons who held the Company’s securities
      immediately before such transaction.





If
      a
“Change in Control” were to occur, the Board of Directors would determine, in
      its sole discretion, whether to accelerate any unvested portion of any option
      grant. Additionally, if a Change in Control were to occur, any agreement between
      the Company and any other party to the Change in Control could provide for
      (1)
      the continuation of any outstanding awards, (2) the assumption of the 2006
      Stock
      Incentive Plan or any awards by the surviving corporation or any of its
      affiliates, (3) cancellation of awards and substitution of other awards with
      substantially the same terms or economic value as the cancelled awards, or
      (4)
      cancellation of any vested or unvested portion of awards, subject to providing
      notice to the option holder.





67
 *Index*





**Item
                11.**
            **Security
                Ownership of Certain Beneficial Owners and Management
                and Related Stockholder
                Matters**




The
      following table presents information regarding the beneficial ownership of
      our
      common stock as of February 28, 2007 by:




·
            each
                of the executive officers listed in the summary compensation
                table;




·
            each
                of our directors;




·
            all
                of our directors and executive officers as a group;
                and




·
            each
                shareholder known by us to be the beneficial owner of more than 5%
                of our
                common stock.




Beneficial
      ownership is determined in accordance with the rules of the SEC and generally
      includes voting or investment power with respect to securities. Unless otherwise
      indicated below, to our knowledge, the persons and entities named in the table
      have sole voting and sole investment power with respect to all shares
      beneficially owned, subject to community property laws where applicable. Shares
      of our common stock subject to options from the Company that are currently
      exercisable or exercisable within 60 days of February 28, 2007 are deemed to
      be
      outstanding and to be beneficially owned by the person holding the options
      for
      the purpose of computing the percentage ownership of that person but are not
      treated as outstanding for the purpose of computing the percentage ownership
      of
      any other person.




The
      information presented in this table is based on 30,064,060 shares of our common
      stock outstanding on February 28, 2007. Unless otherwise indicated, the address
      of each of the executive officers and directors and 5% or more shareholders
      named below is c/o Ironclad Performance Wear Corporation, 2201 Park Place,
      Suite
      101, El Segundo, California 90245.






**Name
                of Beneficial Owner**
            
            **Number
                of Shares Beneficially Owned**
            
            **Percentage
                of Shares Outstanding****Executive
                Officers and Directors:**Eduard
                Jaeger (1)
            
            
            4,683,051
            
            
            15.6%Director,
                Chief Executive OfficerThomas
                Walsh(2)
            
            
            513,461
            
            
            1.7%Executive
                Vice President, Chief Financial OfficerRhonda
                Hoffarth (3)
            
            
            219,450Executive
                Vice President, Chief Operating Officer
            
            
            
            
            
            *Kent
                Pachl(4)
            
            
            300,221Executive
                Vice President Sales & Marketing
            
            
            
            
            
            *Thomas
                Kreig (5)
            
            
            131,226Vice
                President of Finance, Secretary
            
            
            
            
            
            *




68
 *Index*




**Name
                  of Beneficial Owner**
              
              **Number
                  of Shares Beneficially Owned**
              
              **Percentage
                  of Shares Outstanding**R.D.
                  Peter Bloomer(6)
              
              
              230,546
              
              
              *DirectorVane
                  B. Clayton (7)
              
              
              209,277
              
              
              *DirectorScott
                  Alderton
              
              
              271,579
              
              
              *DirectorScott
                  Jarus (8)
              
              
              95,417
              
              
              *Directors
                  and officers as a group (9 persons) (9)
              
              
              6,654,228
              
              
              22.1%**5%
                  Stockholders:**CVM
                  Equity Fund V Ltd., LLP (10)
              
              
              5,052,176
              
              
              16.8%Context
                  Capital Management LLC (11)
              
              
              4,119,885
              
              
              13.7%Liberty
                  View Capital Management Inc. (12)
              
              
              3,495,001
              
              
              11.6%





___________________________




*
            Less
                than 1%




(1)
            Includes
                (i) 990,272 shares of common stock held by Jaeger Family, LLC, of
                which
                Eduard Jaeger is a member and over which Eduard Jaeger has voting
                and
                investment power, and (ii) 933,795 shares of common stock reserved
                for
                issuance upon exercise of stock options which currently are exercisable
                or
                will become exercisable within 60 daysof
                February28, 2007.




(2)
            Includes
                154,516 shares of common stock reserved for issuance upon exercise
                of
                warrants currently exercisable, and 268,792 shares of common stock
                reserved for issuance upon exercise of options which currently are
                exercisable or will become exercisable within 60 days of February
                28, 2007




(3)
            Includes
                187,863 shares of common stock reserved for issuance upon exercise
                of
                stock options which currently are exercisable or will become exercisable
                within 60 days of February 28,
                2007.




(4)
            Consists
                of 300,221 shares of common stock reserved for issuance upon exercise
                of
                stock options which currently are exercisable or will become exercisable
                within 60 days of February 28,
                2007.




(5)
            Includes
                91,741 shares of common stock reserved for issuance upon exercise
                of stock
                options which currently are exercisable or will become exercisable
                within
                60 days of February 28, 2007.




(6)
            Consists
                of 230,546 shares of common stock reserved for issuance upon exercise
                of
                stock options which currently are exercisable or will become exercisable
                within 60 days of February 28,
                2007.




(7)
            Includes
                of 158,637 shares of common stock reserved for issuance upon exercise
                of
                stock options which currently are exercisable or will become exercisable
                within 60 days of February 28,
                2007.




(8)
            Includes
                68,750 shares of common stock reserved fro issuance upon exercise
                of stock
                options which currently are exercisable or will become exercisable
                within
                60 days of February 28, 2007.




(9)
            Consists
                of (i) 4,259,367 shares of common stock, (ii) 154,516 shares of common
                stock reserved for issuance upon exercise of certain warrants to
                purchase
                common stock which are currently exercisable, and (ii) 2,240,345
                shares of
                common stock reserved for issuance upon exercise of stock options
                which
                currently are exercisable or will become exercisable within 60 days
                of
                February 28, 2007.




(10)
            Includes
                415,782 shares of common stock reserved for issuance upon exercise
                of
                certain warrants to purchase common stock which currently are exercisable.
                Mr. Bloomer, our Chairman of the Board, is also the Chairman and
                Chief
                Executive Officer of Colorado Venture Management, Inc., which is
                the
                Managing Partner of CVM. Mr. Bloomer disclaims beneficial ownership
                of the
                securities held by this
                stockholder.




(11)
            Consists
                of (i) 204,273 and 1,915,611 shares of common stock held by Context
                Advantage Fund LP and Context Offshore Advantage Fund, Ltd., respectively,
                and (ii) warrants to purchase 208,551 and 1,791,450 shares of common
                stock
                held by Context Advantage Fund LP and Context Offshore Advantage
                Fund,
                Ltd., respectively. Context Capital Management LLC maintains voting
                and
                investment power over these shares.




(12)
            Consists
                of (i) 265,987, 1,063,997, and 665,017 shares of common stock held
                by
                LibertyView Special Opportunities Fund, LP, LibertyView Funds, LP,
                and
                Trust D (for a portion of the assets of Kodak Retirement Income Plan)
                respectively, and (ii) warrants to purchase 200,000 and 800,000 and
                500,000 shares of common stock held by LibertyView Special Opportunities
                Fund, LP, LibertyView Funds, LP, and Trust D (for a portion of the
                assets
                of Kodak Retirement Income Plan) respectively. LibertyView Capital
                Management Inc. maintains voting and investment power over these
                shares.




69
 *Index*





**Equity
      Compensation Plan Information**




The
      following table sets forth information concerning the Company’s equity
      compensation plans as of December 31, 2006.





**Plan
                Category**
            
            **Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights**
              **(a)**
            
            
            
            **Weighted-average
                exercise price of outstanding options, warrants and
                rights**
              **(b)**
            
            **Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a))**
              **(c)**Equity
                compensation plans approved by security holders
            
            
            2,497,709
            
            
            (1)
            
            $
            0.35
            
            
            0Equity
                compensation plans not approved by security holders
            
            
            3,188,946
            
            
            (2)
            
            $
            0.93
            
            
            2,604,501**Total**
            
            
            5,686,655
            
            
            
            
            $
            0.67
            
            
            2,604,501




(1)
            This
                number represents options assumed in connection with the merger with
                Ironclad California.




(2)
            This
                number represents (a) stock options to purchase 860,135 shares of
                Company
                common stock which were granted outside the 2006 Stock Incentive
                Plan to
                an officer of the Company on May 9, 2006, after the closing of the
                merger
                with Ironclad California, (b) warrants to purchase 683,312 shares
                of
                Company common stock which were issued to one of the placement agents
                in
                the Company’s private placement in exchange for services and (c) stock
                options to purchase 1,645,499 shares of Company common stock under
                the
                2006 Stock Incentive Plan.




The
                options issued outside of the 2006 Stock Incentive Plan are exercisable
                at
                an exercise price of $0.75 per share, and will expire on May 8, 2016
                and
                vest over a four year period as follows: 25% of the underlying shares
                will
                vest on January 19, 2007, and 1/36th of the remaining amount of the
                shares
                will vest at the end of each month
                thereafter.




Brean
                Murray Carret & Co. (or Brean Murray) acted as one of the co-placement
                agents in connection with our private placement financing. We issued
                to
                Brean Murray warrants to purchase 390,464 shares of our common stock
                at an
                exercise price of $0.75 per share and warrants to purchase 292,848
                shares
                of our common stock at an exercise price of $1.00 per share. The
                warrants
                are immediately exercisable and have a term of 5
                years.




On
        May
        18, 2006, the Company granted to certain officers, directors and employees
        of
        the Company options to purchase 1,650,999 shares of Company common stock
        under
        the 2006 Stock Incentive Plan at an exercise price of $1.05 per share, including
        options to purchase 299,999 shares of Company common stock that were granted
        to
        non-employee directors of the Company. Of these 5,500 have reverted to the
        Plan
        upon the termination of two grantees. The options granted to non-employee
        directors of the Company expire on May 17, 2016, and vest in equal increments
        on
        a monthly basis over the 12 month period following May 18, 2006, other than
        options to purchase 129,437 shares, which were fully vested on the date grant.
        The remaining options granted to officers, directors and employees expire
        on May
        17, 2016 and vest on the following schedule: 25% of the underlying shares
        will
        vest on the first anniversary of the effective date of the grant, and
        1/36th of the remaining amount of the shares will vest at the end of
        each month thereafter. The 2006 Stock Incentive Plan was approved by the
        Company’s
        stockholders on January 12, 2007.


70
 *Index*





**I****tem
                12.**
            **Certain
                Relationships and Related Transactions, and Director
                Independence**




Other
      than the employment arrangements described above in “Executive Compensation” and
      the transactions described below, since January 1, 2006, there has not been,
      nor
      is there currently proposed, any transaction or series of similar transactions
      to which we were or will be a party:




·
            in
                which the amount involved exceeds the lesser of $120,000 or one percent
                of
                the average of our total assets at year-end for the last three completed
                fiscal years; and




·
            in
                which any director, executive officer, shareholder who beneficially
                owns
                5% or more of our common stock or any member of their immediate family
                had
                or will have a direct or indirect material
                interest.




**Transactions
      with Officers and Directors**




Colorado
      Venture Management Equity Fund V, Ltd., LLP (or “CVM”) entered into a Revolving
      Loan Agreement with Ironclad California in November 2000. The related Revolving
      Promissory Note was periodically amended and/or replaced until the loan was
      repaid in full on January 4, 2005. At no time did the principal amount borrowed
      from CVM exceed $624,000. On December 31, 2003 accrued interest of $174,452
      was
      used by CVM to exercise 2,282,392 warrants to purchase preferred stock of
      Ironclad California in a cashless transaction. Mr. Bloomer, who is Chairman
      of
      the Board, is also the Chairman and Chief Executive Officer of Colorado Venture
      Management, Inc., which is the Managing Partner of CVM. Before our merger with
      Ironclad California, CVM held 29.83% of the issued and outstanding shares of
      Ironclad California. At August
      22, 2006, CVM
      held
      approximately 16.8% of Ironclad California’s issued and outstanding shares,
      including warrants to purchase 415,782 shares of its common stock, a portion
      of
      which were issued in connection with the stockholder bridge financing
      transaction completed by Ironclad California in February 2006. These warrants
      are exercisable an exercise price per share of $0.75.





Mr.
      Alderton, an Ironclad Board member since August 2002, is a partner of the law
      firm, Stubbs, Alderton and Markiles, LLP (“SAM”) which is Ironclad’s attorney of
      record. SAM rendered services to Ironclad California as its primary legal firm
      since 2002, and became the primary legal counsel to us upon closing of the
      merger with Ironclad California on May 9, 2006.





71
 *Index*





**Director
      Independence**




Our
      board
      of directors currently consists of five members: currently consists of Messrs.
      Bloomer (Chairman), Jaeger (CEO), Clayton, Alderton and Jarus. Each director
      serves until our next annual meeting or until his or her successor is duly
      elected and qualified.




The
      Board
      of Directors currently has the following standing committees: Audit Committee
      and Compensation Committee. We do not have a separately designated nominating
      committee of our board of directors and the functions customarily designated
      to
      such committee are performed by our full Board of Directors.





The
      Audit
      Committee currently consists of Messrs. Clayton, Alderton and Jaeger. None
      of
      our current Audit Committee members is an audit committee financial expert,
      as
      defined in Item 401(e)(2) of Regulation S-B. Our Board of Directors currently
      has no independent director who qualifies as an audit committee expert. We
      intend to recruit new independent directors such that the independent directors
      on our Board may fulfill committee and independence requirements.





The
      Compensation Committee currently consists of Messrs. Bloomer, Jarus and Jaeger.





We
      are
      not a “listed issuer” under SEC rules and are therefore not required to have
      separate committees comprised of independent directors. We have, however,
      determined that neither  Messrs.
      Bloomer, Clayton and Jarus are “independent” as that term is defined in Section
      4200 of the Marketplace Rules as required by the NASDAQ Stock Market.





72
 *Index*





**Item
                13.**
            **Exhibits
                and Financial Statement
                Schedules.**




(a)
            The
                following exhibits are filed
                herewith:




**Exhibit**
              **Number**
            
            **Exhibit
                Title**2.1
            
            Agreement
                and Plan of Merger between Ironclad Performance Wear Corporation
                and
                Europa Trade Agency Ltd., dated April 20, 2006 (1)3.1
            
            Articles
                of Incorporation of the Registrant (2)3.2
            
            Certificate
                of Change effecting a forward stock split and increasing the number
                of
                authorized shares, filed May 9, 2006 (3)3.3
            
            Articles
                of Merger effecting a name change to Ironclad Performance Wear Corporation
                (3)3.4
            
            Bylaws
                (2)4.1
            
            Form
                of Warrant issued to Investors in Private Placement (3)10.1
            
            Form
                of Subscription Agreement between the Registrant and certain investors,
                dated May 10, 2006 (3)10.2
            
            Form
                of Subscription Agreement between the Registrant and certain investors,
                dated May 9, 2006 (3)10.3
            
            Form
                of Lock-Up Agreement between the Registrant and certain shareholders,
                dated May 9, 2006 (3)10.4
            
            Form
                of Lock-Up Agreement between the Registrant and certain shareholders,
                dated May 9, 2006 (3)10.5
            
            Form
                of Indemnification Agreement (4)10.6
            
            Factoring
                Agreement by and between Ironclad Performance Wear Corporation and
                Wells
                Fargo Century, Inc., effective September 15, 2006. (5)10.7
            
            Letter
                of Credit and Security Agreement by and between Ironclad Performance
                Wear
                Corporation and Wells Fargo Century, Inc., effective September 15,
                2006.
                (5)10.8
            
            Amendment
                Number One to Factoring Agreement by and between Ironclad Performance
                Wear
                Corporation and Wells Fargo Century, Inc., effective November 21,
                2006.
                (6)10.9
            
            Separation
                Agreement between Eduard Jaeger and Ironclad Performance Wear Corporation,
                a California corporation (3)10.10
            
            Standard
                Industrial/Commercial Single-Tenant Lease by and between Faith Pearlman,
                Trustee of the Jerome M. Pearlman and Faith Pearlman Trust II, and
                Ironclad Performance Wear Corporation, a California corporation,
                dated
                October 12, 2005, as amended (3)




73
 *Index*




**Exhibit**
              **Number**
            **Exhibit
                Title**10.11
            Standard
                Industrial/Commercial Multi-Tenant Lease by and between Park/El Segundo
                Partners, LLC, and Ironclad Performance Wear Corporation, a California
                corporation, dated September 12, 2005, as amended (3)10.12
            Business
                Loan Agreement (Asset Based) in the principal amount of $250,000,
                by and
                between Ironclad Performance Wear Corporation, a California corporation,
                and Alliance Bank, dated March 31, 2005 (3)10.13
            Business
                Loan Agreement (Asset Based) in the principal amount of $1,000,000,
                by and
                between Ironclad Performance Wear Corporation, a California corporation,
                and Alliance Bank, dated March 31, 2005 (3)21.1
            Subsidiaries
                of the Registrant (3)23.2
            Consent
                of Singer Lewak Greenbaum & Goldstein LLP24.1
            Power
                of Attorney (included on signature page)(4)31.1
            Certification
              of Principal Executive Officer pursuant to Securities Exchange Act
              Rules
              13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the
              Sarbanes-Oxley Act of 2002.31.2
            Certification
              of Principal Executive Officer pursuant to Securities Exchange Act
              Rules
              13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the
              Sarbanes-Oxley Act of 2002.32.1
            Certification
              of Principal Executive Officer and Principal Financial Officer pursuant
              to
              18 U.S.C. Section 1350, as adopted pursuant to section 906 of the
              Sarbanes-Oxley Act of 2002







(1)
      Incorporated by reference to our Quarterly Report on Form 10-QSB filed May
      12,
      2006.


(2)
      Incorporated by reference to our Registration Statement on Form SB-2, filed
      September 3, 2006.


(3)
      Incorporated by reference to our Current Report on Form 8-K filed May 12, 2006.


(4)
      Incorporated by reference to the initial Registration Statement on Form SB-2
      dated June 23, 2006 (File No. 333-135288).


(5)
      Incorporated by reference to our Current Report on Form 8-K filed September
      21,
      2006.


(6)
      Incorporated by reference to our Current Report on Form 8-K filed November
      28,
      2006.







(b)
            Financial
                Statement Schedules




Schedules
      not listed above have been omitted because the information required to be set
      forth therein is not applicable or is shown in the consolidated financial
      statements or notes thereto.




74
 *Index*





**Item
                14.**
            **Principal
                Accountant Fees and
                Services**




Singer
      Lewak Greenbaum & Goldstein LLP is our
      principal independent public accounting firm. All audit work was performed
      by
      the full time employees of Singer Lewak Greenbaum & Goldstein LLP. Our Audit
      Committee approves in advance, all services performed by Singer Lewak Greenbaum
      & Goldstein LLP. Our board of directors has considered whether the provision
      of non-audit services is compatible with maintaining the principal accountant’s
      independence, and has approved such services.




*Audit
      Fees*




Fees
      for
      audit services totaled approximately $169,807
      and $228,437 for the years ended December 31, 2006 and 2005, respectively,
      including fees associated with the annual audit, and reviews of our quarterly
      reports on Form 10-QSB.




*Audit-Related
      Fees*




Fees
      for
      audit-related services totaled approximately $64,688
      and $0 for the years ended December 31, 2006 and 2005, respectively.
      Audit-related services principally include due diligence in connection with
      acquisitions, financing transactions, and accounting consultations.




*Tax
      Fees*




F ees
      were
      incurred totaling approximately $10,726 and $3,397 during the years ended
      December 31, 2006 and 2005, respectively for tax services, including for tax
      compliance, tax advice and tax planning.




*All
      Other Fees*




No
      other
      fees were incurred
      during the years ended December 31, 2006 and 2005 for services provided by
      Singer Lewak Greenbaum & Goldstein LLP, except as described above.




75
 *Index*





**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.




**IRONCLAD
              PERFORMANCE WEAR CORPORATION**Date:
                March 16, 2007
            
            /s/
              Thomas E. WalshBy:
            Thomas
                E. WalshIts:
            Executive
                Vice President & Chief Financial Officer(Principal
                Financial and Accounting Officer)







**POWER
      OF ATTORNEY**




The
      undersigned directors and officers of Ironclad Performance Wear Corporation
      do
      hereby constitute and appoint Eduard Jaeger and Thomas E. Walsh, and each of
      them, with full power of substitution and resubstitution, as their true and
      lawful attorneys and agents, to do any and all acts and things in our name
      and
      behalf in our capacities as directors and officers and to execute any and all
      instruments for us and in our names in the capacities indicated below, which
      said attorney and agent, may deem necessary or advisable to enable said
      corporation to comply with the Securities Exchange Act of 1934, as amended
      and
      any rules, regulations and requirements of the Securities and Exchange
      Commission, in connection with this Annual Report on Form 10-KSB, including
      specifically but without limitation, power and authority to sign for us or
      any
      of us in our names in the capacities indicated below, any and all amendments
      (including post-effective amendments) hereto, and we do hereby ratify and
      confirm all that said attorneys and agents, or either of them, shall do or
      cause
      to be done by virtue hereof.




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated.




**Name**
              
              **Title**
              
              **Date**/s/
                  Eduard Jaeger
              
              President
                  and Chief Executive
              
              March
                  16 , 2007Eduard
                  Jaeger
              
              Officer
                  and Director (Principal Executive Officer)/s/
                  Thomas E. Walsh
              
              Executive
                  Vice President
              
              March
                  16, 2007Thomas
                  E. Walsh
              
              &
                  Chief Financial Officer (Principal Financial Officer)/s/
                  Scott Alderton
              
              Director
              
              March
                  16, 2007Scott
                  Alderton/s/
                  R.D. Peter Bloomer
              
              Director
              
              March
                  16, 2007R.D.
                  Peter Bloomer/s/
                  Vane Clayton
              
              Director
              
              March
                  16, 2007Vane
                  Clayton/s/
                  Scott Jarus
              
              Director
              
              March
                  16, 2007Scott
                  Jarus






76