UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K




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




For
the fiscal year ended December 31, 2008




o
            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 Registrant as Specified
in its Charter)


Nevada
              98-0434104(State or Other
      Jurisdiction
              (I.R.S.
      Employerof Incorporation or
      Organization)
              Identification
      No.)


2201 Park Place, Suite
101


El Segundo, California
90245


(Address of Principal Executive Offices
and Zip Code)




(310) 643-7800


(Registrant’sTelephoneNumber, 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 $0.001 per
share


(Title of Class)




Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.


Yes  oNo  x




Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the
Act.


Yes  o    
No   x




Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.


x No o




Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  x




Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company.  See definitions of“large accelerated filer,”“accelerated filer”and“smaller reporting company”in Rule 12b-2 of the Exchange
Act.




Large Accelerated
      Filer
                    o
                    
                    Accelerated
      Filer
                    oNon-accelerated
      Filer
                    o
                    (Do
      not check if smaller reporting company)
                    Smaller Reporting
      Company
                    x


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




The aggregate market value of the voting
and non-voting common equity held by non-affiliates computed by reference to the
price at which the common equity was last sold, as of the last business day of
the registrant’s most recently completed second fiscal
quarter, was approximately $6,524,032.




At March23, 2009, the issuer had72,951,183shares ofcommon stock, par value $0.001 per
share, issued and outstanding.












IRONCLAD PERFORMANCE WEAR
CORPORATION




INDEX TO FORM
10-K




PART
      I
                                                            
                                                            1Item
      1.
                                                            Business.
                                                            1Item
      1A.
                                                            Risk
      Factors
                                                            5Item
      1B.
                                                            Unresolved
      Staff Comments
                                                            14Item
      2.
                                                            Properties.
                                                            14Item
      3.
                                                            Legal
      Proceedings.
                                                            14Item
      4.
                                                            Submission
      of Matters to a Vote of Securities Holders.
                                                            14PART
      II
                                                            
                                                            15Item
      5.
                                                            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.
                                                            15Item
      6.
                                                            Selected
      Financial Data.
                                                            15Item
      7.
                                                            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
                                                            16Item
      7A.
                                                            Quantitative
      and Qualitative Disclosures About Market Risk.
                                                            23Item
      8.
                                                            Financial
      Statements and Supplementary Data.
                                                            24Item
      9.
                                                            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure.
                                                            46Item
      9A.
                                                            Controls
      and Procedures.
                                                            46Item
      9B.
                                                            Other
      Information.
                                                            47PART
      III
                                                            
                                                            48Item
      10.
                                                            Directors,
      Executive Officers and Corporate Governance.
                                                            48Item
      11.
                                                            Executive
      Compensation.
                                                            51Item
      12.
                                                            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.
                                                            58Item
      13.
                                                            Certain
      Relationships and Related Transactions, and Director
      Independence.
                                                            61Item
      14.
                                                            Principal
      Accounting Fees and Services.
                                                            61PART
      IV
                                                            
                                                            63Item
      15.
                                                            Exhibits
      and Financial Statement Schedules.
                                                            63





i


PART
I




CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS




This
report, including the sections entitled “Risk Factors,” “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and “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 “Risk Factors,” “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “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-lookingstatements
toreflectactual 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.






Item
      1.
                Business.




Withrespectto 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 Californiacorporation, or “Ironclad
California.”




General




Founded
in 1998, 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 designtask-specifictechnicalgloves
and performance apparel designed to improve the wearer’s ability to safely,
efficiently and comfortably perform specific job functions.  Our goal
is to establishand
maintaina
reputation in the construction, do-it-yourself, industrial, sporting goods and
general services markets as a leader in performance gloves and
apparel.
  We
manufacture our performance gloves and apparel usingfunctional
materials, including DuPontTM Kevlar® and Teflon®, Gore-tex® Waterproof Inserts,
Clarino® Synthetic Leather, 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 developmentdepartmentresponsible
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 arepricedat retail between $15 and $60 per unit,
with apparel unit prices ranging from $20 to $80.




1


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 33
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,
oil and gas workers,
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 bymultiplesuppliers operating in Chinaand
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.


Apparel




We launched a line of performance
apparel products during the fourth quarter of 2005.  This apparel line
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.  Our existing sales forcesellsthe performance apparel line to our
existing customer base.  In 2007, we expanded the apparel line to
include performance jackets, pants, shorts, reflective and polo shirts,
underwear and tights.  The apparel line is now being manufactured by
four suppliers located in Taiwan, Mexico, Vietnam 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.
  In
mid-2008, after completing an internal and competitive analysis, we determined
that Ironclad should reduce its focus and attention on performance apparel
because of the cost involved in launching a new line of business and promoting
this new line into the marketplace.  As a result, we have decreased
the number of performance apparel items produced and sold by the Company and
have recently eliminated the Director of Apparel position.  The
reduction in performance apparel was guided by our sell-through analysis and a
survey of our retail customer’s preferences.  Those apparel items
remaining in Ironclad’s offerings will continue to be sold through our existing
sales channels.


Competition




Ironclad competes inthefollowing two principal markets:
construction and industrial.




Technical Gloves




Ironclad faces competition from other
specialty gloves and apparel companies,such as Custom Leathercraft
Manufacturing Company,Ergodyneand 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.  However, as mentioned above, we intend on de-emphasizing
our work apparel line in favor of focusing on the task-specific technical glove
business.  As such, our position in the performance work apparel
market will decline significantly.




Mainstream Product
Channels




To date, we have establishedourreputation, 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 additional large retailers and
distributors in 2009.




International
Expansion




We began distributing products
internationally in 2005 in Australia and Japan.  In 2006, we entered
the Canadian market through adistributor.  We expanded into the United
Kingdom in 2007and into Spain and the Netherlands in
2008.  Weplan to expand
further into Europe and other international markets in 2009.




2


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
internationallyand into broader industrial distributors.
  We de-emphasized our sports sponsorship,
print and television media advertising programs in 2008 in an effort to control
costs and make better use of our resources.  We will, however, be expanding our efforts on Web sales and
marketing through a redesigned Ironclad Website which will focus on e-commerce
(i.e. selling gloves and apparel directly to the end
consumer).


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.  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.


Sales
through “Big Box” home centers accounted for approximately 23% of our sales
revenue in 2008.  One retailer, Menard, Inc., accounted for
approximately 19% of our sales in 2008.




Selected Analysis of “Big Box” and
International Retailers




We plan to continue our expansion by
increasing selling efforts through “Big Box” home centers,
large industrial distributorsand international channels, which we
believe creates significant opportunities for strengthening our
brandand expanding our product penetration in the various
markets.


Geographic
Information




Domestic
sales accounted for 92% of our revenue in 2008 and 89% in
2007.  International sales in Australia, the United Kingdom, Canada,
the Netherlands and other countries accounted for our remaining revenue in
2008.  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, Vietnam and the
Dominican Republic.




Private-Label and Co-Branded Products
and Relationships




We
have selectively teamed up with several existing brands in our marketplace to
produce private-label gloves (co-branded with a “Made tough by Ironclad”
tag).  In addition, we have also developed co-branded gloves with
qualified partners to penetrate alternate marketplaces, such as the oil &
gas industry (i.e. the KONG glove).
  IntellectualProperty and Proprietary
Rights




We currently have five U.S. patents and
three U.S. patents pending, which are intended to protect the design and
technical innovations foundinour 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 EvolutionTM,
      Tuff Chix® and Ranchworx® gloves.  This patentwasissued on October
      30, 2007.




·
            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 patentwasissued on
      September 5, 2006.




3


·
            Silicone rubber
      is fused to the synthetic leather palm of the Box Handler® and Gripworx®
      gloves in a specific pattern.The patent for
      this pattern, designed for
      optimum grip on smooth surfaces,was issued April
      28, 2008.




·
            Ironclad’s signature palm
      pattern is found on nine popular glove styles, including the General
      UtilityTM, 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 patentwasissued on February 13,
      2007.




·
            Ironclad has developed a heat
      resistant, shrink resistant, oil repellant, high durability synthetic
      fabric used for the palm of high temperature, high dexterity
      gloves.  Exclusive Ironclad Hotshield ®palm technology isfound in the Heatworx®
      line.  This patent is
pending.




·
            A specific geometry, construction
      and chemical composition for the palm of a glove that is heat resistant up
      to 650°F yet
      maintains hand dexterity isfound onIronclad’sHeatworx Heavy Duty
      glove.  This patent is
pending.




·
            Utilized in the KONGTM glove,specific geometry and
      constructionfor a glove used in the oil and
      gas extraction industries provides protection to the entire hand for
      impacts, glancing blows and pinched fingers.  This patent is
      pending.




Ironcladowns the following intellectual
trademark property: 53 registered U.S.trademarks, 10 registered international trademarks,11 in-use U.S.trademarksand 3 in-use international
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.We also have 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 patentbeingissued, 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 orbedesigned around by
others.




Employees




As of March 23, 2009, Ironclad had 24
full-time employees.  Since inception, we have never had a work
stoppage, and our employees are not represented by a labor
union.  Ironclad considers its relationships with its employees to be
positive.


Item
      1A.
                    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.




4


RISKS
RELATING TO OUR BUSINESS




We may need additional funding to support
our operations and capital expenditures.  Our inability to obtain such
funding could adversely affect our business.




We have
funded our operations and capital expenditures from limited cash flow from
operations, our cash on hand, the net proceeds of the private placements
completed on May 9, 2006, September 21, 2007, April 22, 2008 and February 5,
2009, and the factoring agreement entered into on September 15,
2006.  As part of our planned growth, we will be required to make
expenditures necessary to expand and improve our operating and management
infrastructure.




Whilecapital resources have historically
been insufficient to support the continued growth of our operations,
we believe that the proceeds from our February 5, 2009 financing transaction,
our cash flows from operations and borrowings available to us under our senior
secured credit facility, the availability of purchase order financing and our
continuing cost containment measures will be adequate to meet our liquidity
needs and capital expenditure requirements for at least the next 12
months.  In the event that our working capital needs exceed our cash
sourceswe 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, if we are able to raise additional capital through
the sale of equity or convertible debt securities it may result in additional
dilution to our existing shareholders.  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.




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.




5


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.  Any growth in or expansion
of our business is likely to continue to place a strain on our financial,
managerial and other administrative resources, infrastructure and
systems.  We have historically been undercapitalized to effectively
manage and sustain our growth.  As with other growing businesses, we
expect that we will need to continually restructure 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.




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.  We may be
required to enter into new arrangements and relationships with vendors,
suppliers and others to achieve broader acceptance of our products, but cannot
guarantee that we will be able to enter into such relationships.  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 continue to expend resources on
promoting, marketing and advertising to increase product awareness, we cannot
guarantee that any expenses we incur in such efforts will generate the desired
product awareness or commensurate increase in sales of our
products.  If we are unable to expand into new market segments, we may
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
performance task specific glove and apparel industries are highly
competitive.  There are several other companies that provide similar
products, many of which are larger and have greater financial resources than
us.  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 glove
and workwear distribution channels from a number of
competitors.  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.




6


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, Canada and Europe and we are in the process of establishing
additional 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.




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 our 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.




Our
dependence on a single provider for all warehouse and fulfillment functions
reduces our ability to control the warehousing and fulfillment processes, which
could harm our sales, reputation, and overall business.




We have entered into an agreement to
outsourcemost
ofour warehouse and
fulfillment functions to a single provider where we will consolidatemost
ofour inventory at
one site, which is managed by an independent contractor who will then performmostof our warehousing, assembly, packaging
and fulfillment services.  We depend on our independent contractor
fulfiller to properly fulfill customer orders in a timely manner and to properly
protect our inventories.  The contractor’s failure to ship products to
customers in a timely manner, to meet the required quality standards, to
correctly fulfill orders, to maintain appropriate levels of inventory, or to
provide adequate security measures and protections against excess shrinkage
could cause us to miss delivery date requirements of our customers or incur
increased expense to replace or replenish lost or damaged inventory or inventory
shortfall.  The failure to make timely and proper 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.
 7


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.




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, Vietnam, Mexico and the Dominican Republic.  We may in the
future use offshore manufacturers for all or some of these
products.  In addition, approximately 11% of our fiscal 2007 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 U.S.
      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.




8


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.




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 experience managing a publicly traded company may
divert management’s attention from operations and harm our
business.




Our
management team has relatively limited 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.




9


Adverse
conditions in the economy and disruption of financial markets could negatively
impact us and our customers and therefore our results of
operations.




A further
economic downturn in the businesses or geographic areas in which we sell our
products could reduce demand for these products and result in a decrease in
sales volume that could have a negative impact on our results of
operations.  Volatility and disruption of financial markets could
limit our ability, as well as our customers’ ability, to obtain adequate
financing or credit to purchase and pay for our products in a timely manner, or
to maintain operations, and result in a decrease in sales volume that could have
a negative impact on our results of operations.




If
we are unable to adequately fund our operations, we may be forced to voluntarily
file for deregistration of our common stock with the U.S. Securities and
Exchange Commission.




Compliance
with the periodic reporting requirements required by the U.S. Securities and
Exchange Commission (or SEC) consumes a considerable amount of both internal, as
well external, resources and represents a significant cost for us.  If
we are unable to continue to devote adequate funding and the resources needed to
maintain such compliance, while continuing our operations, we may be forced to
deregister with the SEC.  If we file for deregistration, our common
stock will no longer be listed on NASDAQ’s OTC Bulletin Board (or OTCBB), and it
may suffer a decrease in or absence of liquidity as after the deregistration
process is complete, our common stock will only be tradable on the “Pink
Sheets.”  As a result of such deregistration, non-affiliates will no
longer have access to information regarding our results of
operations.  Without the availability of such information, our lenders
may be forced to increase their monitoring of our operations which may result in
higher costs to us when borrowing money which could have a negative impact 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.




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.




Changes
in international treaties or governmental regulatory schemes could adversely
impact our business.




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.




10


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 the OTCBB (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 OTC
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.




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.




11


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




Registration
statements are currently in effect with respect to the sale of 5,250,000 and
7,075,000 shares of our common stock that were sold in connection with private
placements we completed in September 2007 and April 2008 (or April Private
Placement), respectively.  The sale of these shares could further
depress the market price of our common stock.  Sales of a significant
number of shares of our common stock in the open market could cause additional
harm to the market price of our common stock.  Further reduction in
the market price for our shares could make it more difficult to raise funds
through future equity offerings.




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.




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 non-affiliate who has held restricted shares
for a period of six months may sell an unrestricted number of shares of our
common stock into the market.  Further, the shares of our common stock
sold in the April Private Placement are also currently 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 OTCBB 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 OTCBB, 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 therefor.




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.




Shareholders should be aware that, according to
the 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.




12


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 44% 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.




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.


Item
      1B.
                      Unresolved
      Staff
Comments.





Not applicable.





13


Item
      2.
                    Properties.




We lease all of our
facilities.  Our headquarters are located at 2201 Park Place, Suite
101, El Segundo, California 90245.  Thetablebelow sets forth certain information
regarding our leaseholds as of March 23, 2009.




Address
              
              Approximate Floor Space (Sq.
      Ft.)
              
              Monthly
Rent
              
              Use2201 Park Place, Suite 101 El
      Segundo, CA
              
              10,600
              
              $14,698
              
              Corporate offices
      and warehouse




We believe our facilities areadequateto meet our
current and near-term needs.


Item
      3.
                      Legal
      Proceedings.




In September 12, 2006, American Sports Group, Inc., or
ASG, filed a lawsuit
against both Ironclad California and Ironclad Nevada in the Superior Court of
the State of California for the County of Los Angeles, allegingcausesof action for
DeclaratoryRelief
and  Breach of Contract.




Wetook the position that ASG’s claims were without merit and
vigorously defended against these claims, denying all of the allegations and
filing a Cross-Complaint for unfair business practices against ASG,YoungstownEquipment Corp., Blackstone Investment
Group, Pacifica Ltd, LLC, Lakeview Canyon, LLC, or Lakeview,and Greg Thomsen, or Thomsen,among others.In December of 2007,wealso filed a Federal Court complaintagainst Youngstown,
Blackstone, Pacifica, Lakeview and Thomsen, alleging certain trademark
violations.




In January of 2008, the parties settled
their claims with respect to both lawsuits with prejudice.The settlement included a general mutual
release covering all existing and potential claims between the parties arising
out of the litigation.




On February 13, 2009, Ansell Protective
Products, Inc. filed a suit against us in the United States District Court in
the District of New Jersey, alleging infringement of a trademark last used by us
over three years ago.  Since we no longer use the subject trademark,
we are engaged in settlement discussions with Ansell Protective Products, Inc.
to quickly resolve this matter.




Item
      3.
                      Submission
      of Matters to a Vote of Securities
  Holders.




None.







14


PART
II


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




Common Stock




Our common stock is quoted on the OTC
Bulletin Board under the symbol “ICPW.”  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 OTC Bulletin Board,
as well as the total number of shares of common stock traded during the periods
indicated.  The following quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions.




High
                
                
                LowYear Ended December 31,
      2007First
    Quarter
                
                $
                0.71
                
                
                $
                0.45Second
    Quarter
                
                $
                0.70
                
                
                $
                0.39Third
    Quarter
                
                $
                0.60
                
                
                $
                0.41Fourth
    Quarter
                
                $
                0.50
                
                
                $
                0.36Year Ended December 31,
      2008First
    Quarter
                
                $
                0.45
                
                
                $
                0.17Second
    Quarter
                
                $
                0.32
                
                
                $
                0.18Third
    Quarter
                
                $
                0.25
                
                
                $
                0.04Fourth
    Quarter
                
                $
                0.15
                
                
                $
                0.02




OnMarch23, 2009, the closing sales price of our
common stock as reported on the Over-The-Counter BulletinBoardwas $0.09 per share.  As of
March 23, 2009, there were approximately123shareholders of record of our common
stock.




Dividends




We haveneverpaid dividends on our common
stock.  We intend to retain any future earnings for use in our
business.


Item
      6.
                              Selected
      Financial
Data.




Not applicable.


15


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


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, 2008 and 2007.Except for historical information, the
matters discussed in this Management’s Discussion and Analysisof Financial Condition and Resultsof Operationsare 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 proprietarytechnologiesto 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.  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 ourdomesticrevenues 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, and introducing new products,
developed and targeted for specific customers and/or
industries.




We believe that our products have
international appeal.  In 2005, we began selling products in Australia
and Japan through independentdistributors, which accounted for approximately 4%
of total sales.  From 2006 through 2008 we entered the Canadian and
European markets through distributors and international sales represented
approximately 7% - 11% of total sales.  We plan to continue to
increase sales internationally by expanding our distribution into Europe and
other international markets during the fiscal year ending December 31,
2009.




Critical Accounting Policies, Judgments
and Estimates




Our Management’s Discussion and Analysis
of Financial Condition and Results 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.




16


Revenue
Disclosures




The
Company’s revenues are derived from the sale of our core line of task specific
work gloves plus our new line of workwear apparel products, available to all of
our customers, both domestically and internationally.  Below is a
table outlining this breakdown for the comparative
periods:


Twelve
      Months Ended December 31, 2008
                
                
                Twelve
      Months Ended December 31, 2007Net
      Sales
                
                Gloves
                
                
                Apparel
                
                
                Total
                
                
                Gloves
                
                
                Apparel
                
                
                TotalDomestic
                
                $
                10,241,917
                
                
                $
                681,613
                
                
                $
                10,923,530
                
                
                $
                10,589,842
                
                
                $
                960,159
                
                
                $
                11,550,001International
                
                
                952,489
                
                
                
                67,108
                
                
                
                1,019,597
                
                
                
                1,461,891
                
                
                
                37,305
                
                
                
                1,499,196Total
                
                $
                11,194,406
                
                
                $
                748,721
                
                
                $
                11,943,127
                
                
                $
                12,051,733
                
                
                $
                997,464
                
                
                $
                13,049,197




Cost of Goods Sold




Our cost
of goods sold includes the FOB cost of the product plus landed
costs.  Landed costs include freight-in, insurance, duties and
administrative costs to deliver the finished goods to our distribution
warehouse.  Cost of goods sold does not include purchasing costs,
warehousing or distribution costs.  These costs are captured as
incurred on a separate line in operating expenses.  Our gross margins
may not be comparable to other entities that may include some or all of these
costs in the calculation of gross margin.




Inventory Obsolescence
Allowance




We review
the inventory level of all products quarterly.  For most glove
products 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.  Since
apparel products are a relatively new line, we are using a two year horizon to
allow for market penetration.  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, 2008
and December 31, 2007 we adjusted our inventory reserve by $28,000 and
($36,000), respectively, to a current balance of $112,000 and recorded a
corresponding adjustment 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.




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 significant payment
defaults with any of our current customers, our allowance fordoubtfulaccounts 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, Allowances and
Adjustments




Product
returns, allowances and adjustments is a broad term that encompasses a number of
offsets to gross sales.  Included herein are warranty returns of
defective products, returns of saleable products and accounting
adjustments.




17


Warranty Returns - We have a
warranty policy that covers defects in workmanship.  It allows
customers to return damaged or defective products to us following a customary
return merchandise authorization process.




Saleable Product
Returns- We may allow from
time-to-time, depending on the customer and
existing circumstances, stock adjustment returns, 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.  In addition we
may allow from time to time other saleable product returns from customers for
other business reasons, for example, in settlement of an outstanding accounts
receivable, from a discontinued distributor customer or other customer service
purpose.
  Accounting Adjustments -
These adjustments include pricing and shipping corrections and periodic
adjustments to the product returns reserve.




For both
warranty and saleable product returns we utilize actual historical return rates
to determine our allowance for returns in each period, adjusted for unique,
one-time events.  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 2.0% and
our current estimated future stock adjustment return rate is approximately
0.5%.  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; (i) our
products’ useful life is approximately 3-4 months and (ii) 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.




Reserve for Warranty
      ReturnsReserve Balance
      12/31/06
                
                $
                72,000Payments Recorded During the
      Period
                
                
                (486,030
                )(414,030
                )Adjustment to Reserve for
      Pre-existing Liabilities
                
                
                128,000Accrual for New Liabilities During
      the Reporting Period
                
                
                486,030Reserve Balance
      12/31/07
                
                
                200,000Payments Recorded During the
      Period
                
                
                (721,357
                )(521,357
                )Adjustment to Reserve for
      Pre-existing Liabilities
                
                
                (63,000
                )Accrual for New Liabilities During
      the Reporting Period
                
                
                721,357Reserve Balance
      12/31/08
                
                $
                137,000







18


Stock Based
Compensation




On January 1, 2006, we adopted the
provisions ofFinancialAccounting Standards Board, or FASB, Statement of Financial Accounting
Standards, or SFAS, 123R, “Share-Based
Payments,”orSFAS 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 our 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 SFAS 123R for pro forma
disclosures.




Income Taxes




Deferred
income taxes are provided using the liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences.  Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax
bases.  Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.  Deferred tax
assets and liabilities are adjusted for the effects of the changes in tax laws
and rates as of the date of enactment.




When tax
returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject
to uncertainty about the merits of the position taken or the amount of the
position that would be effectively sustained.  The benefit of a tax
position is recognized in the financial statements in the period during which,
based on all available evidence, management believes it is more-likely-than-not
that the position will be sustained upon examination, including the resolution
of appeals or litigation, if any.  Tax positions taken are not offset
or aggregated with other positions.  Tax positions that meet the
more-likely-than-not recognition threshold are measured as the largest amount of
tax benefit that is more than 50% likely of being realized upon settlement with
the applicable taxing authority.  The portion of the benefits
associated with tax positions taken that exceeds the amount measured as
described above would be reflected as a liability for unrecognized tax benefits
in the accompanying balance sheet along with any associated interest and
penalties that would be payable to the taxing authorities upon
examination.  Since we have reported losses for 2003, 2004, 2005,
2006, 2007 and 2008, uncertainty exists as to whether benefits from deferred tax
assets may result and hence we have fully reserved the deferred tax
assets.




Interest and penalties associated with
unrecognized tax benefits would be classified as additional income taxes in the
statement of operations.




Recent Accounting
Pronouncements




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 measuringfairvalue in generally accepted accounting
principles, and expands disclosures about fair value
measurements.  SFAS No. 157 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.The
Company has adopted SFAS 157 and determined that it has no effect on its
condensed consolidated financial statements.




In February 2007,the FASBissuedSFASNo. 159,“The Fair Value
Option for Financial Assets and Financial Liabilities, including an amendment of
FASB Statement No. 115.”SFAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value at
specified election dates.  SFASNo.159 is effective as of the beginning of
an entity’s first fiscal year that begins after
November 15, 2007.  As such,we arerequired to adopt these provisions at
the beginning of the fiscal year ended December 31, 2008.The
Company has adopted SFAS 159 and determined that it has no effect on its
condensed consolidated financial statements.




19


In December 2007, theFASBissuedSFASNo. 160,“Noncontrolling
Interests in Consolidated Financial Statements, anAmendment of ARB No.
51.”SFASNo.160 establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary.  SFASNo.160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008.  As such,we arerequired to adopt these provisions at
the beginning of the fiscal year ended December 31,
2009.We arecurrently evaluating the
impact of SFASNo.160 onourconsolidated financial statements butdonot expect it to have a material
effect.




In
December 2007, the SEC issued Staff Accounting Bulletin No. 110 (“SAB
110”).  SAB 110 permits companies to continue to use the simplified
method, under certain circumstances, in estimating the expected term of “plain
vanilla” options beyond December 31, 2007.  SAB 110 updates guidance
provided in SAB 107 that previously stated that the Staff would not expect a
company to use the simplified method for share option grants after December 31,
2007.  The Company will continue to use the simplified method until it
has sufficient historical exercise data to provide a reasonable basis upon which
to estimate the expected term of its options.




In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133” (“SFAS 161”).  SFAS 161 requires enhanced disclosures
about an entity’s derivative and hedging activities.  SFAS 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008 with early application
encouraged.  As such, the Company is required to adopt these
provisions at the beginning of the fiscal year ended December 31,
2009.  The Company is currently evaluating the impact of SFAS 161 on
its condensed consolidated financial statements but does not expect it to have a
material effect.




In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”).  SFAS 162 identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with generally accepted accounting principles (GAAP)
in the United States.  SFAS 162 is effective 60 days following the
SEC’s approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles.  The Company is currently evaluating the impact
of SFAS 162 on its condensed consolidated financial statements but does not
expect it to have a material effect.




In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts—an interpretation of FASB Statement No. 60” (“SFAS
163”).  SFAS 163 interprets Statement 60 and amends existing
accounting pronouncements to clarify their application to the financial
guarantee insurance contracts included within the scope of that
Statement.  SFAS 163 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and all interim periods within
those fiscal years.  As such, the Company is required to adopt these
provisions at the beginning of the fiscal year ended December 31,
2009.  The Company is currently evaluating the impact of SFAS 163 on
its condensed consolidated financial statements but does not expect it to have a
material effect.




Results of
Operations




Comparison of Years Ended December 31,
2008 and December 31, 2007




Net Salesdecreased $1,106,070, or
8.5%,to$11,943,127 in the year ended December
31, 2008 from $13,049,197 for the corresponding period in 2007.  This
decrease was primarily due to decreased sales of approximately $399,000 with
existing “Big Box” home center customers, approximately $249,000 due to a large
initial shipment of our performance apparel products in the prior year and
approximately $480,000 of international sales.  One customer accounted
for approximately 21% of net sales during the year ended December 31, 2008 and
approximately 21% of net sales for the year ended December 31,
2007.We have noticed a softening of demand for our products
in light of the general downturn in the economy, particularly in those sectors
tied to housing and construction, as well as a tightening in the credit markets
making it more difficult for us to finance the production of
inventory.  We continue to focus our sales efforts on those areas
where we see continued growth, the industrial channel, safety markets and job
specific glove styles.  In addition we have secured an ongoing
purchase order financing arrangement to augment our ability to finance the
production of inventory.




20


Gross Profitdecreased $442,124 to
$4,559,619 for the year ended December 31, 2008 from $5,001,743 for the year
ended December 31, 2007.  Gross profit as a percentage of net sales,
or gross margin, decreased to 38.2% in 2008 from 38.3% in 2007.  The
decrease in gross margin, while minimal, reflects the ongoing pressures
of the current economic climate, product mix and customer sales mix that
resulted in lower average selling prices, offset by improved margins on apparel
products generated by moving production overseas.  Product mix and customer sales mix
shifts can affect gross profit in any period.  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
their customers.  These increased costs have been offset by improved
margins on apparel products generated by outsourcing and increased direct
factory-to-customer shipments to international and domestic
customers.




Operating Expensesdecreased by $2,065,046, or
23.4%, to $6,767,237 in 2008 from $8,832,283 in 2007.  As a percentage
of net sales, operating expenses decreased to 56.7% in 2008 from 67.7% in the
same period of 2007.  The decreased spending in 2008 was primarily due
to decreased labor costs of $841,000; decreased trade show costs, print and
cooperative advertising of approximately $356,000;decreased expenses associated with our
status as public company costs of approximately $275,000; decreased legal costs
of approximately $246,000; decreased travel and entertainment costs of
approximately $178,000; decreased consulting and professional fees of
approximately $106,000; decreased Financial Accounting Standards No. 123R
options expense of $106,000; decreased office operating expenses of
approximately $18,000; offset by increased cost for contracted services,
primarily third party fulfillment warehouse of $61,000.  Our number of
employees decreased to 22 at December 31, 2008 from 28 at December 31,
2007.  Expenses associated with being a public company included public
accounting and investor relations expenses.




Loss from Operationsdecreased $1,622,922 or
42.4%, to $2,207,618 in 2008 from $3,830,540 in 2007.  Loss from
operations as a percentage of net sales decreased to 18.5% in 2008 from 29.4% in
2007.  The decreased loss for 2008 was primarily the result of the
ongoing cost containment measures wehaveimplemented to reduce our operating
expenses, as discussed above.




Interest Expenseincreased $33,308 to
$181,689 in 2008 from $148,381 in 2007.  The increase was primarily
due to additional secondary purchase order financing costs weincurredof approximately
$65,000, offset by reduced bank borrowing.




Interest
Incomedecreased $36,122 to
$6,113 in 2008 from $42,235in 2007.  Interest income is a result of investment of funds from the
private equity funding completed in April, 2008.




Other Income
(Expense)net was
($116,424) in 2008 as compared with $1,526 in 2007.  Change in the
fair value of warrant liability was $(3,612) in 2008 as compared to $18,230 for
2007.  This income (expense) primarily represents the difference in
the fair value of warrants recorded as liabilities.  In 2008 there
were net investment activity losses of $1,515 and a warrant liability of $2,097
which was created in the fourthquarter.  The warrant liabilities
created on May 9, 2006 generated $18,230 in income as they were revalued at the
end of each reporting period until the terms of the registration statement for
the shares underlying the warrants were satisfied in October,
2007.




Net Lossdecreased $1,416,013 to
$2,501,764 in 2008 from $3,917,777 in 2007.  This decreased 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 an
increase in the sale of our winter glove line during this period.  We
typically generate 55% - 65% of our glove net sales during these
months.  Even though the overall economyexperienceda significant slow-down in the second
half of 2008, which also affected the Company, this was mitigated by the
successful introduction of a new product designed specifically for the oil and
gas industries.




21


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 saleofequity.We anticipate
greater difficulty in procuring debt financing in light of the general
tightening of credit, making it more difficult for us to finance the production
of our planned inventory needs.  In the short term we are monitoring
our credit issuances and cash collections to maximize cash flows and
investigating opportunities to quickly reduce our current inventories to convert
these assets into cash.  Over the past year, and continuing in the
near and longer term we are focused on reducing our operating costs, increasing
margins and improving operating procedures to generate sustained
profitability.




Operating
Activities.In 2008, cash used in operating
activities was $1,001,044 and consisted primarily of a net loss of $2,501,764,
reduced by non-cash items of $739,664 and increases in inventory of $3,503 and
deposits on inventory of $261,657, and decreases in accountsreceivableof $2,595,181
and prepaid and other expenses of $70,068, offset by an increase in accounts
payable and accrued expenses of $1,639,033.




In 2007, cash used in operating
activities was $4,012,719 and consisted primarily of a net loss of $3,917,777,
reduced by non-cash items of $754,870 and increases in inventory of $165,470,
accounts receivable of $2,310,824, and prepaid and other expenses of $37,541,
and decreases in deposits on inventory of $51,487, offset by an increase in
accounts payable and accrued expenses of $1,612,536.




Investing
Activities.  In
2008 and 2007, investing activities were primarily the result of capital
expenditures, mainly for computer equipment and trademark
applications.  Cash used in investing activities decreased $125,731 to
$41,985 for 2008 from $167,716 in 2007.Expendituresfor property and equipment decreased
$132,407 andinvestment in trademarks increased
$6,676.




Financing
Activities.Financing activities during 2008
consisted primarily of our net borrowing under our existing asset-based credit
facility, proceeds from the issuance of common stock and financing provided by a
capital lease.  Cash provided by financing activities was $672,406 for
2008.  The increase in cash provided by financing activities was due
to proceeds from the issuance ofcommonstock of $1,415,000 (net of $30,930 in
offering costs), offset by net payments on our bank lines of credit of $710,022
and payments on a capital lease of $1,642.




Financing activities during 2007
consisted primarily of our net borrowing under our existing asset-based credit
facility, proceeds from the issuance of common stock,financingprovided by a capital lease, and
proceeds from the exercise of options.  Cash provided by financing
activities was $2,754,095 for 2007.  The increase in cash provided by
financing activities was due to proceeds from the issuance of common stock of
$2,007,363 (net of $92,637 in offering costs), proceeds from the exercise of
options of $4,500, and by net borrowings on our bank lines of credit of
$745,643, offset by payments on a capital lease of $3,411.




Between October 20, 2008 and January 31,
2009, we entered into Subscription Agreements (the “Subscription Agreements”)
with various high net worth individuals and trusts (collectively, the
“Investors”) pursuant to which we agreed to sell an aggregate of 30,147,698
shares of our common stock, par value $0.001 per share, at $0.05 per share for
aggregate proceeds to us of $1,507,384.90 (the “Financing”).  The
Financing closed on February 5, 2009.  We intend to use the proceeds
received forgeneral
working capital purposesand strategic initiatives.


We believe that our cash flows from
operations and borrowings available to us under our senior secured credit
facility, the availability of purchase order financing and our continuing cost
containment measures will be adequate to meet our liquidity needs and capitalexpenditurerequirements
for at least the next 12 months.




22


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




On September 15, 2006 we entered into a
new factoring agreement with Wells Fargo Century, Inc., dba Wells Fargo Trade
Capital, Inc. (“WFTC”), 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 currently allows
us to borrow the lesser of (a) $2,500,000 or (b) the sum of: (i) seventy-five
percent (75%) of the net amount of our Eligible Receivables and (ii) 40% of
the value of our Eligible Inventory (which amount shall not exceed the lesser of
$750,000 and the net amount of our Eligible Receivables) (as such terms are
defined in the factoring agreement).  This credit facility does not
contain any financial covenants.  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 WFTC shall select in its discretion) as its
“prime” or base rate for commercial loans and the agreement has an initial term
of 24 months.  On November 30, 2008 we entered into another amendment
to this factoring agreement whereby our interest rate was increased to Prime
plus 2%.




In April
2008, we completed a private placement transaction with trusts and other high
net worth individuals.  Pursuant to subscription agreements with these
investors, we sold 7,075,000 shares of common stock, at $0.20 per
share.  After commissions and expenses, we received net proceeds of
approximately $1.38 million in the private placement.




In July
2008 we entered into a Master Agreement with EPK Financial Corporation (“EPK”)
whereby we financed purchase orders for three customers’ special
promotions.




Off
Balance Sheet Arrangements




At
December 31, 2008, 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.


Item
      7A.
                                Quantitative
      and Qualitative Disclosures About Market
      Risk.




Not applicable.




23


Item
      8.
                              Financial
      Statements and Supplementary
      Data.




INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS




PageAudited Financial
      Statements:Report of Independent Registered
      Public Accounting Firm
              
              25Consolidated Balance Sheets at
      December 31, 2008 and December 31, 2007
              
              26Consolidated Statements of
      Operations for each of the Twelve Months Ended December 31, 2008, and
      December 31, 2007
              
              27Consolidated Statements of Cash
      Flows for the Twelve Months Ended December 31, 2008, and December 31,
      2007
              
              28Consolidated Statements of Changes
      in Stockholders’ Equity from December 31, 2006 to December 31,
      2008
              
              29Notes to the Consolidated
      Financial Statements
              
              30







24




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the
Board of Directors and Stockholders of


Ironclad
Performance Wear Corporation




We have
audited the accompanying consolidated balance sheet of Ironclad Performance Wear
Corporation as of December 31, 2008 and 2007, and the related consolidated
statements of operations, cash flows and changes in stockholders’ equity for
each of the years in the two-year period ended December 31,
2008.  Ironclad Performance Wear Corporation’s management is
responsible for these consolidated financial statements.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.




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 consolidated financial statements are free of material
misstatement.  The company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting.  Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting.  Accordingly, we express no such opinion.  An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated 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 as
of December 31, 2008 and 2007, and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 2008, in
conformity with accounting principles generally accepted in the United States of
America.




/s/  ROTENBERG AND
COMPANY,
LLP


ROTENBERG
AND COMPANY, LLP




Rochester,
New York


March 23,
2009







25


IRONCLAD PERFORMANCE WEAR
CORPORATION




CONSOLIDATED BALANCE
SHEET




AT DECEMBER 31, 2008 AND
2007




ASSETSDecember
31,
                  
                  
                  December
31,2008
                  
                  
                  2007CURRENT
    ASSETSCash and
      equivalents
                  
                  $
                  215,203
                  
                  
                  $
                  585,826Accounts receivable net of
      allowance for doubtful accounts of $60,000 and
    $33,000
                  
                  
                  1,705,435
                  
                  
                  
                  4,327,616Inventory, net of reserve for
      obsolete inventory of $112,000 and $84,000
                  
                  
                  3,132,842
                  
                  
                  
                  3,129,339Deposits on
      inventory
                  
                  
                  271,725
                  
                  
                  
                  10,068Prepaid and
      other
                  
                  
                  115,400
                  
                  
                  
                  184,456Total Current
      Assets
                  
                  
                  5,440,605
                  
                  
                  
                  8,237,305PROPERTY AND
      EQUIPMENTComputer equipment and
      software
                  
                  
                  200,932
                  
                  
                  
                  253,657Vehicle
                  
                  
                  43,680
                  
                  
                  
                  43,680Furniture and
      equipment
                  
                  
                  143,478
                  
                  
                  
                  128,465Leasehold
      improvements
                  
                  
                  36,934
                  
                  
                  
                  34,110Less:
      accumulated depreciation
                  
                  
                  (252,650
                  )
                  
                  
                  (219,517
                  )Total Property and equipment,
      net
                  
                  
                  172,374
                  
                  
                  
                  240,395OTHER
ASSETSTrademarks, net of accumulated
      amortization of $14,073 and $9,306
                  
                  
                  94,312
                  
                  
                  
                  82,748Deposits and
      other
                  
                  
                  11,354
                  
                  
                  
                  12,366Total Other
      Assets
                  
                  
                  105,666
                  
                  
                  
                  95,114TOTAL
ASSETS
                  
                  $
                  5,718,645
                  
                  
                  $
                  8,572,814LIABILITIES AND
      STOCKHOLDERS’EQUITYCURRENT
      LIABILITIESAccounts payable and accrued
      expenses
                  
                  $
                  1,799,020
                  
                  
                  $
                  3,438,054Bank lines of
      credit
                  
                  
                  1,599,300
                  
                  
                  
                  2,309,321Current portion of capital
      lease
                  
                  
                  -
                  
                  
                  
                  1,642Total current
      liabilities
                  
                  
                  3,398,320
                  
                  
                  
                  5,749,017Fair value of warrant
      liability
                  
                  
                  2,097
                  
                  
                  
                  -Total
      Liabilities
                  
                  
                  3,400,417
                  
                  
                  
                  5,749,017STOCKHOLDERS’EQUITYCommon stock, $0.001 par value per
      share,172,744,750 shares authorized,
                    42,803,487 and 35,389,504 shares
      issued and outstanding
                  
                  
                  42,804
                  
                  
                  
                  35,390Capital in Excess of Par
      Value
                  
                  
                  15,922,832
                  
                  
                  
                  13,934,051Accumulated
      deficit
                  
                  
                  (13,647,408
                  )
                  
                  
                  (11,145,644
                  )Total Stockholders’Equity
                  
                  
                  2,318,228
                  
                  
                  
                  2,823,797TOTAL LIABILITIES AND
      STOCKHOLDERS’EQUITY
                  
                  $
                  5,718,645
                  
                  
                  $
                  8,572,814







See Notes to Consolidated Financial
Statements.








26




IRONCLAD PERFORMANCE WEAR
CORPORATION




CONSOLIDATED STATEMENTS OF
OPERATIONS




For the Years Ended December 31, 2008
and 2007




2008
                  
                  
                  2007REVENUESNet sales
                  
                  $
                  11,943,127
                  
                  
                  $
                  13,049,197COST OF
    SALESCost of
    sales
                  
                  
                  7,383,508
                  
                  
                  
                  8,047,454GROSS
PROFIT
                  
                  
                  4,559,619
                  
                  
                  
                  5,001,743EXPENSESGeneral and
      administrative
                  
                  
                  2,473,263
                  
                  
                  
                  3,459,952Sales and
      marketing
                  
                  
                  3,045,615
                  
                  
                  
                  4,005,866Research and
      development
                  
                  
                  390,947
                  
                  
                  
                  502,729Purchasing, warehousing and
      distribution
                  
                  
                  758,970
                  
                  
                  
                  788,997Depreciation and
      amortization
                  
                  
                  98,442
                  
                  
                  
                  74,739Total operating
      expenses
                  
                  
                  6,767,237
                  
                  
                  
                  8,832,283LOSS FROM
      OPERATIONS
                  
                  
                  (2,207,618
                  )
                  
                  
                  (3,830,540
                  )OTHER
      INCOME/(EXPENSE)Interest
      expense
                  
                  
                  (181,689
                  )
                  
                  
                  (148,381
                  )Interest
    income
                  
                  
                  6,113
                  
                  
                  
                  42,235Unrealized gain (loss) on
      financing activities
                  
                  
                  (3,612
                  )
                  
                  
                  18,230Loss on disposition of
      equipment
                  
                  
                  -
                  
                  
                  
                  (974
                  )Other income (expense),
      net
                  
                  
                  (116,424
                  )
                  
                  
                  2,500Total other income
      (expense)
                  
                  
                  (295,612
                  )
                  
                  
                  (86,390
                  )NET LOSS BEFORE BENEFIT FROM
      (PROVISIONFOR) INCOME
      TAXES
                  
                  
                  (2,503,230
                  )
                  
                  
                  (3,916,930
                  )Benefit from (provision for)
      income taxes
                  
                  
                  1,466
                  
                  
                  
                  (847
                  )NET LOSS ATTRIBUTABLE TO COMMON
      SHAREHOLDERS
                  
                  $
                  (2,501,764
                  )
                  
                  $
                  (3,917,777
                  )BASIC AND DILUTED NET LOSS PER
      COMMON SHARE
                  
                  $
                  (0.06
                  )
                  
                  $
                  (0.12
                  )WEIGHTED AVERAGE COMMON
      SHARE
                  
                  
                  40,392,214
                  
                  
                  
                  31,615,394




See Notes to Consolidated Financial
Statements.


27


IRONCLAD PERFORMANCE WEAR
CORPORATION




CONSOLIDATED STATEMENTS OF CASH
FLOWS




For the Years Ended December 31, 2008
and 2007




2008
                    
                    
                    2007CASH FLOWS FROM OPERATING
      ACTIVITIESNet loss attributable to common
      shareholders
                    
                    $
                    (2,501,764
                    )
                    
                    $
                    (3,917,777
                    )Adjustments to reconcile net loss
      to net cash used in operating activitiesAllowance for bad
      debts
                    
                    
                    27,000
                    
                    
                    
                    7,000Depreciation
                    
                    
                    93,675
                    
                    
                    
                    71,023Amortization
                    
                    
                    4,767
                    
                    
                    
                    3,716Warrants issued as financing
      cost
                    
                    
                    3,019
                    
                    
                    
                    -Loss on disposition of
      equipment
                    
                    
                    -
                    
                    
                    
                    974Change in fair value of warrant
      liability
                    
                    
                    (922
                    )
                    
                    
                    (18,230
                    )Non-cash
      compensation:Common stock issued for
      services
                    
                    
                    70,000
                    
                    
                    
                    -Options issued for
      services
                    
                    
                    2,500
                    
                    
                    
                    41,875Stock option
      expense
                    
                    
                    539,625
                    
                    
                    
                    648,512Changes in operating assets and
      liabilities:Receivables
                    
                    
                    2,595,181
                    
                    
                    
                    (2,310,824
                    )Inventory
                    
                    
                    (3,503
                    )
                    
                    
                    (165,470
                    )Deposits on
      inventory
                    
                    
                    (261,657
                    )
                    
                    
                    51,487Prepaid and
      other
                    
                    
                    70,068
                    
                    
                    
                    (37,541
                    )Accounts payable and accrued
      expenses
                    
                    
                    (1,639,034
                    )
                    
                    
                    1,612,536Net cash flows used in operating
      activities
                    
                    
                    (1,001,045
                    )
                    
                    
                    (4,012,719
                    )CASH FLOWS FROM INVESTING
      ACTIVITIESProperty and equipment
      purchased
                    
                    
                    (25,654
                    )
                    
                    
                    (158,061
                    )Investment in
      trademarks
                    
                    
                    (16,331
                    )
                    
                    
                    (9,655
                    )Net cash flows used in investing
      activities
                    
                    
                    (41,985
                    )
                    
                    
                    (167,716
                    )CASH FLOWS FROM FINANCING
      ACTIVITIESNet (payments) proceeds from bank
      lines of credit
                    
                    
                    (710,021
                    )
                    
                    
                    745,643Proceeds from issuance of common
      stock
                    
                    
                    1,415,000
                    
                    
                    
                    2,100,000Offering
    costs
                    
                    
                    (30,930
                    )
                    
                    
                    (92,637
                    )Proceeds from exercise of
      options
                    
                    
                    -
                    
                    
                    
                    4,500Payments on capital
      leases
                    
                    
                    (1,642
                    )
                    
                    
                    (3,411
                    )Net cash flows provided by
      financing activities
                    
                    
                    672,407
                    
                    
                    
                    2,754,095NET INCREASE (DECREASE) IN
      CASH
                    
                    
                    (370,623
                    )
                    
                    
                    (1,426,340
                    )CASH AND CASH EQUIVALENTS
      BEGINNING OF PERIOD
                    
                    
                    585,826
                    
                    
                    
                    2,012,166CASH AND CASH EQUIVALENTS END OF
      PERIOD
                    
                    $
                    215,203
                    
                    
                    $
                    585,826SUPPLEMENTAL SCHEDULE OF CASH FLOW
      INFORMATION:Cash (paid) received during the
      year for:Interest paid in
      cash
                    
                    $
                    (181,689
                    )
                    
                    $
                    (148,381
                    )Income taxes
      paid
                    
                    
                    (1,508
                    )
                    
                    
                    (800
                    )Income tax
      refund
                    
                    
                    2,974
                    
                    
                    
                    -


See Notes to Consolidated Financial
Statements.


28




IRONCLAD PERFORMANCE WEAR
CORPORATION




CONSOLIDATED STATEMENTS OF CHANGES
IN


STOCKHOLDERS’
EQUITY




For the Years Ended December 31, 2008 and
2007




Common
StockShares Issued and
      Outstanding
                                                
                                                
                                                Par Value
                                                
                                                
                                                Capital in Excess of Par
      Value
                                                
                                                
                                                Accumulated
      Deficit
                                                
                                                
                                                Total Stockholders’EquityBalance at December 31,
      2006
                                                
                                                $
                                                30,064,060
                                                
                                                
                                                $
                                                30,064
                                                
                                                
                                                $
                                                11,190,091
                                                
                                                
                                                $
                                                (7,227,867
                                                )
                                                
                                                $
                                                3,992,288Common stock issued for
      cash
                                                
                                                
                                                5,250,000
                                                
                                                
                                                
                                                5,250
                                                
                                                
                                                
                                                2,094,750
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                2,100,000Offering
    costs
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (92,639
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (92,639
                                                )Common stock issued-exercise of
      options
                                                
                                                
                                                12,944
                                                
                                                
                                                
                                                13
                                                
                                                
                                                
                                                4,487
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                4,500Common stock issued for
      services
                                                
                                                
                                                62,500
                                                
                                                
                                                
                                                63
                                                
                                                
                                                
                                                41,812
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                41,875Stock option
      expense
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                648,512
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                648,512Reclassify fair value of warrant
      liability
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                47,038
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                47,038Net loss
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (3,917,777
                                                )
                                                
                                                
                                                (3,917,777
                                                )Balance at December 31,
      2007
                                                
                                                
                                                35,389,504
                                                
                                                
                                                
                                                35,390
                                                
                                                
                                                
                                                13,934,051
                                                
                                                
                                                
                                                (11,145,644
                                                )
                                                
                                                
                                                2,823,797Common stock issued for
      cash
                                                
                                                
                                                7,075,000
                                                
                                                
                                                
                                                7,075
                                                
                                                
                                                
                                                1,407,925
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                1,415,000Offering
    costs
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (30,930
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (30,930
                                                )Common stock issued for
      services
                                                
                                                
                                                338,983
                                                
                                                
                                                
                                                339
                                                
                                                
                                                
                                                69,661
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                70,000Stock option
      expense
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                542,125
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                542,125Net loss
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (2,501,764
                                                )
                                                
                                                
                                                (2,501,764
                                                )Balance at December 31,
      2008
                                                
                                                
                                                42,803,487
                                                
                                                
                                                $
                                                42,804
                                                
                                                
                                                $
                                                15,922,832
                                                
                                                
                                                $
                                                (13,647,408
                                                )
                                                
                                                $
                                                2,318,228




See Notes to Consolidated Financial
Statements


29


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 five patents and has three patents pending for design and technological
innovations incorporated in its performance work gloves.  The Company
has 53 registered US trademarks, 10 registered international trademarks, 11
in-use US trademarks and 3 in-use international 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.           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 $250,000.  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’s 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.




30


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.




Operating
Segment Reporting




As previously discussed, the Company has
two product lines, “gloves” and “apparel,” both of which have similar
characteristics.  They each provide functional protection and comfort
to workers in the form of workwear for various parts of the body; their
production processes are similar; they are both sold to the same type of class
of customers, typically on the same purchase order; and they are warehoused and
distributed from the same warehouse facility.  In addition, the
“apparel” segment currently comprises less than 10% of the Company’s
revenues.  The Company believes that the aggregation criteria of SFAS
131, paragraph 17 applies and will accordingly aggregate these two
segments.




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.




Cost of Goods
Sold




Cost of
goods sold includes all of the costs associated with producing the product by
independent, third party factories (FOB costs), plus the costs of transporting,
inspecting and delivering the product to our distribution warehouse in
California (landed
costs).  Landed costs consist primarily of ocean/air freight,
transport insurance, import duties, administrative charges and local trucking
charges from the port to our warehouse.  Cost of goods sold for the
years ended December 31, 2008 and 2007 were $7,383,508 and $8,047,454,
respectively.




Purchasing,
warehousing and distribution costs are reported in operating expenses on the
line item entitled “Purchasing, warehousing and distribution” and, for the years
ending December 31, 2008 and 2007 were $758,970 and $788,997,
respectively.  These costs were comprised of salaries and benefits of
approximately $226,000 and $397,000; office expenses of approximately $25,000
and $22,000; travel and lodging of approximately $18,000 and $23,000; and
warehouse operations of approximately $490,000 and $347,000,
respectively.




Product Returns, Allowances
and Adjustments




Product
returns, allowances and adjustments is a broad term that encompasses a
number of offsets to gross sales.  Included herein are warranty
returns of defective products, returns of saleable products and accounting
adjustments.




31


IRONCLAD PERFORMANCE WEAR
CORPORATION




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)




Warranty
Returns - the Company has a warranty policy that covers defects in
workmanship.  It allows customers to return damaged or defective
products to us following a customary return merchandise authorization
process.  Warranty returns for the years ending December 31, 2008 and
2007 were approximately $138,000 or 1.0% and $84,000 or 0.6%,
respectively.




Saleable
Product Returns - the Company may allow from time to time, depending on the
customer and existing circumstances, stock adjustment returns, 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.  In addition we
may allow from time to time other saleable product returns from customers for
other business reasons, for example, in settlement of an outstanding accounts
receivable, from a discontinued distributor customer or other customer service
purpose.  Saleable product returns for the years ending December 31,
2008 and 2007 were approximately $583,000 or 4.4 % and $402,000 or 2.8%,
respectively.  Included in saleable product returns for the year ended
December 31, 2008 were two large, unique and non-recurring
returns.  In one instance the Company “took back” inventory from a
customer who had failed to pay for their purchase as a means of recovering its
value and avoiding a bad debt write-off for approximately
$140,000.  In the second instance a long-time hardware distributor
customer who had purchased a large order of the new apparel line specifically
for one of its customers, had that customer cancel the order.  The
Company’s distributor approached the Company seeking relief as it had no other
viable outlet for the product.  The Company agreed to allow it to
return approximately $90,000 of this apparel product.  These two
returns account for approximately $230,000 or 1.8% of the year to date
total.




Accounting
Adjustments - these
adjustments include pricing and shipping corrections and periodic adjustments to
the product returns reserve.  Pricing and shipping corrections for the
years ending December 31, 2008 and 2007 were approximately $78,000 or 0.6% and
$58,000 or 0.4%, respectively.  Adjustments to the product returns
reserve for the years ending December 31, 2008 and 2007 were approximately
($63,000) or (0.5%) and $62,000 or 0.4%, respectively.




For
warranty returns the Company utilizes actual historical return rates to
determine the allowance for returns in each period.  For saleable
product returns the Company also utilizes actual historical return rates,
adjusted for large, non-recurring occurrences.  The Company does not
accrue for pricing and shipping corrections as they are unpredictable and
generally de minimis.  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.




Reserve for Warranty
      ReturnsReserve Balance
      12/31/06
                
                $
                72,000Payments Recorded During the
      Period
                
                
                (486,030
                )(414,030
                )Adjustment to Reserve for
      Pre-existing Liabilities
                
                
                128,000Accrual for New Liabilities During
      the Reporting Period
                
                
                486,030Reserve Balance
      12/31/07
                
                
                200,000Payments Recorded During the
      Period
                
                
                (721,357
                )(521,357
                )Adjustment to Reserve for
      Pre-existing Liabilities
                
                
                (63,000
                )Accrual for New Liabilities During
      the Reporting Period
                
                
                721,357Reserve Balance
      12/31/08
                
                $
                137,000







32


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, 2008 and 2007 were $875,751 and $1,221,590,
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
$2,459,000 or 21% of net sales for year ended December 31, 2008 and the same
customer accounted for approximately $2,751,000 or 21% of net sales for year
ended December 31, 2007.  No other customer accounted for more than
10% of net sales.




Supplier
Concentrations




Two suppliers, which are located
overseas, accounted for approximately 73% of total purchases during the year
ended December 31, 2008 and 71% of total purchases during the year ended
December 31, 2007.




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
      31,2008
                
                2007Options outstanding under the
      Company’s stock option plans
                
                
                5,478,277
                
                6,016,944Common Stock
      Warrants
                
                
                10,115,994
                
                10,454,522




Income
Taxes




The
Company adopted the provisions of FIN 48 effective January 1,
2007.  The implementation of FIN 48 has not caused the Company to recognize any
changes in its identified tax positions. Interest and penalties associated with
unrecognized tax benefits would be classified as additional income taxes in the
statement of operations.




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.




33


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, 2008 and 2007
were $1,508 and $800, respectively, for the current state
provisions.  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 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standard (“SFAS”) No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities, including an amendment of FASB Statement No.
115.”  SFAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value at specified
election dates.  SFAS 159 is effective as of the beginning of an
entity’s first fiscal year that begins after November 15, 2007.  As
such, the Company is required to adopt these provisions at the beginning of the
fiscal year ended December 31, 2008.  The Company is currently
evaluating the impact of SFAS 159 on its consolidated financial
statements.




In
December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (“SFAS”) No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No.
51.”  SFAS 160 establishes accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary.  SFAS 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15,
2008.  As such, the Company is required to adopt these provisions at
the beginning of the fiscal year ended December 31, 2009.  The Company
is currently evaluating the impact of SFAS 160 on its consolidated financial
statements but does not expect it to have a material effect.




34


IRONCLAD PERFORMANCE WEAR
CORPORATION




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)




In
December 2007, the SEC issued Staff Accounting Bulletin No. 110 (“SAB
110”).  SAB 110 permits companies to continue to use the simplified
method, under certain circumstances, in estimating the expected term of “plain
vanilla” options beyond December 31, 2007.  SAB 110 updates guidance
provided in SAB 107 that previously stated that the Staff would not expect a
company to use the simplified method for share option grants after December 31,
2007.  The Company will continue to use the simplified method until it
has sufficient historical exercise data to provide a reasonable basis upon which
to estimate the expected term of its options.




In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133” (“SFAS 161”).  SFAS 161 requires enhanced disclosures
about an entity’s derivative and hedging activities.  SFAS 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008 with early application
encouraged.  As such, the Company is required to adopt these
provisions at the beginning of the fiscal year ended December 31,
2009.  The Company is currently evaluating
the impact of SFAS 161 on its condensed consolidated financial statements but
does not expect it to have a material effect.




In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”).  SFAS 162 identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with generally accepted accounting principles (GAAP)
in the United States.  SFAS 162 is effective 60 days following the
SEC’s approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles.  The Company is currently
evaluating the impact of SFAS 162 on its condensed consolidated financial
statements but does not expect it to have a material effect.




In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts—an interpretation of FASB Statement No. 60” (“SFAS
163”).  SFAS 163 interprets Statement 60 and amends existing
accounting pronouncements to clarify their application to the financial
guarantee insurance contracts included within the scope of that
Statement.  SFAS 163 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and all interim periods within
those fiscal years.  As such, the Company is required to adopt these
provisions at the beginning of the fiscal year ended December 31,
2009.  The Company is currently evaluating the impact of SFAS 163 on
its condensed consolidated financial statements but does not expect it to have a
material effect.




3.           Inventory




At December 31, 2008 and 2007 the
Company had one class of inventory - finished goods.




December 31,
                  2008
                
                
                December 31,
                  2007Finished
    Goods
                
                $
                3,132,842
                
                
                $
                3,129,339







35


IRONCLAD PERFORMANCE WEAR
CORPORATION




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)




4.           Property and
equipment




Property and equipment consisted of the
following:




December 31,
                  2008
                
                
                December 31,
                  2007Computer hardware and
      software
                
                $
                200,932
                
                
                $
                253,657Vehicle
                
                
                43,680
                
                
                
                43,680Furniture and
      equipment
                
                
                143,478
                
                
                
                128,465Leasehold
      improvements
                
                
                36,934
                
                
                
                34,110425,024
                
                
                
                459,312Less accumulated
      depreciation
                
                
                (252,650
                )
                
                
                (219,517
                )Property and equipment,
      net
                
                $
                172,374
                
                
                $
                240,395




Depreciation expense for the years ended
December 31, 2008 and 2007 was $93,675 and $71,023,
respectively.




5.           Trademarks




Trademarks consisted of the
following:




December 31,
                  2008
                
                
                December 31,
                  2007Trademarks
                
                $
                108,385
                
                
                $
                92,054Less: Accumulated
      amortization
                
                
                (14,073
                )
                
                
                (9,306
                )Trademarks,
    net
                
                $
                94,312
                
                
                $
                82,748




Trademarks consist of definite-lived
trademarks of $71,982 and $60,452 and indefinite-lived trademarks of $36,403 and
$31,602 at December 31, 2008 and 2007, respectively.  All trademark
costs have been generated by the Company, and consist of initial legal and
filing fees.




Amortization expense was $4,767 and
$3,716 for the years ended December 31, 2008 and 2007,
respectively.  The Company expects to amortize $5,124 in each of the
next five years.




36


IRONCLAD PERFORMANCE WEAR
CORPORATION




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)




6.           Accounts payable and
accrued expenses




Accounts payable and
accrued expenses consisted of the following at December 31, 2008 and
2007:




December 31,
      2008
                
                
                December 31,
      2007Accounts
      payable
                
                $
                896,600
                
                
                $
                2,217,758Accrued
      inventory
                
                
                76,224
                
                
                
                110,094Accrued rebates and
      co-op
                
                
                228,376
                
                
                
                339,932Accrued
    bonus
                
                
                -
                
                
                
                86,000Accrued warranty
      reserve
                
                
                137,000
                
                
                
                200,000Accrued expenses –
      other
                
                
                460,820
                
                
                
                484,270Total accounts payable and accrued
      expenses
                
                $
                1,799,020
                
                
                $
                3,438,054




7.           Note Payable and Bank
Lines of Credit




Notes
Payable




In April 2006, Westrec Capital Partners,
LLC agreed to extend its existing $550,000 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.




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.  On October 2, 2007 the Company revalued this liability with
the following assumptions: risk free interest rate of 4.2%, volatility factor of
222.2%, five year life and zero dividends, adjusted the current value of this
warrant liability to $47,038.  On this date the terms and conditions
of the warrant were fully satisfied and the Company converted this warrant
liability to equity in accordance with SFAS No. 133 and EITF
00-19.




Factoring
Agreement




On September 15, 2006 the Company
entered into a factoring agreement with Wells Fargo Century, Inc., dba Wells
Fargo Trade Capital Services, Inc. (“WFTC”), 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) $2,500,000 or (b) the
sum of (i) seventy-five percent (75%) of the net amount of eligible accounts
receivable and (ii) 40% of the value of eligible inventory, which amount shall
not exceed the lesser of $750,000 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 WFTC 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.  On November 30, 2008, the Company entered into an amendment
to this factoring agreement under the same terms except for an increase in the
lending rate to Prime plus 2%.  As of December 31, 2008 and 2007,
total amount due to WFTC was $1,599,300 and $2,309,321,
respectively.




37


IRONCLAD PERFORMANCE WEAR
CORPORATION




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)




On July
25, 2008 the Company entered into a Master Agreement with EPK Financial
Corporation (“EPK”) whereby the Company would finance purchase orders for three
customer’s special promotions.  In conjunction with this agreement an
intercreditor agreement was
executed between the Company, WFTC and EPK whereby WFTC would waive its security
interest in the inventory purchased under the EPK financed purchase orders and,
when the Company presented the sales invoices from these three customers for
this promotional inventory, WFTC would accept these sales as collateral and
remit the eligible funds first to EPK for approved principal, interest and fees,
and then to the Company.  As of December 31, 2008, all of these EPK
financed purchase orders totaling approximately $987,000 have been paid and
cleared.




8.           Equitytransactions




Common
Stock




On August 7, 2007 the Company issued
12,944 shares of common stock upon the exercise of a stock option at an exercise
price of $0.348.




In
September 2007, the Company completed a private placement transaction with
institutional investors and other high net worth
individuals.  Pursuant to its subscription agreements with these
investors, the Company sold 5,250,000 shares of common stock, at $0.40 per
share.  In accordance with the terms of the subscription agreements
the Company was required to file a registration statement for resale of the
common stock sold within forty-five (45) days of the closing date of the
offering, use commercially reasonable efforts to cause such registration
statement to become effective within one hundred fifty (150) days after the
closing date and maintain such registration for twenty-four (24) months after
the closing date.  The Company has timely filed an SB-2 Registration
Statement which became effective on November 9, 2007.  After
commissions and expenses, the Company received net proceeds of approximately
$2.0 million in the private placement.




In April
2008, the Company completed a private placement transaction with institutional
investors and other high net worth individuals.  Pursuant to its
subscription agreements with these investors, the Company sold 7,075,000 shares
of common stock, at $0.20 per share.  After commissions and expenses,
the Company received net proceeds of approximately $1.38 million in the private
placement.




In December 2008, the Company issued
338,983 shares of common stock to an investment banking firm in exchange for
services.  The services were valued at $70,000 and were based on a
current market valuation of $0.2065 per common share.




38


IRONCLAD PERFORMANCE WEAR
CORPORATION




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)




Warrant
Activity




A summary of warrant activity is as
follows:




Number of
      Shares
                          
                          
                          Weighted Average Exercise
      PriceWarrants outstanding at December
      31, 2006
                          
                          
                          10,454,522
                          
                          
                          $
                          0.91Warrants
    issued
                          
                          
                          -
                          
                          
                          $
                          -Warrants
      expired
                          
                          
                          -
                          
                          
                          $
                          -Warrants
      exercised
                          
                          
                          -
                          
                          
                          $
                          -Warrants outstanding at December
      31, 2007
                          
                          
                          10,454,522
                          
                          
                          $
                          0.91Warrants
    issued
                          
                          
                          -
                          
                          
                          $
                          -Warrants
      expired
                          
                          
                          (338,528
                          )
                          
                          $
                          (0.27
                          )Warrants
      exercised
                          
                          
                          -
                          
                          
                          $
                          -Warrants outstanding at December
      31, 2008
                          
                          
                          10,115,994
                          
                          
                          $
                          0.93




Stock Based
Compensation




Effective with the Company’s fiscal year
that began on January 1, 2006, the Company 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.




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 Company’s 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 Company’s board of directors.




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.




39


IRONCLAD PERFORMANCE WEAR
CORPORATION




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)




For stock options issued during the
years ended December 31, 2008 and 2007, 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,
      2008
              
              December 31,
      2007Risk free interest
      rate
              
              1.59% -
    3.95%
              
              4.06% -
    4.83%Dividends
              
              -
              
              -Volatility
      factor
              
              244% - 333%
              
              203% -
  224%Expected
    life
              
              5.5– 6.25
    years
              
              4 – 6.25
    years




A summary of stock option activity is as
follows:




Number of
      Shares
                
                
                Weighted Average Exercise
      PriceOutstanding at December 31,
      2006
                
                
                5,003,343
                
                
                $
                0.65Granted
                
                
                1,808,300
                
                
                $
                0.43Exercised
                
                
                (12,944
                )
                
                $
                0.35Cancelled/Expired
                
                
                (781,755
                )
                
                $
                0.71Outstanding at December 31,
      2007
                
                
                6,016,944
                
                
                $
                0.58Granted
                
                
                480,000
                
                
                $
                0.13Exercised
                
                
                -
                
                
                $Cancelled/Expired
                
                
                1,018,667
                
                
                $
                0.55Outstanding at December 31,
      2008
                
                
                5,478,277
                
                
                $
                0.55Exercisable at December 31,
      2008
                
                
                4,232,312
                
                
                $
                0.54




The following tables summarize
information about stock options outstanding at December 31,
2008:




Range of Exercise
      Price
              
              Number
      Outstanding
              
              Weighted Average Remaining
      Contractual Life (Years)
              
              Weighted Average
                Exercise
    Price
              
              Intrinsic Value
                Outstanding
      Shares$0.06 -
    $0.35
              
              2,841,578
              
              5.92
              
              $0.31
              
              $-0-$0.38 -
    $1.05
              
              2,636,699
              
              7.94
              
              $0.80
              
              $-0-






40


IRONCLAD PERFORMANCE WEAR
CORPORATION




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)




The following tables summarize
information about stock options exercisable at December 31,
2007:




Range of Exercise
      Price
              
              Number
      Exercisable
              
              Weighted Average Remaining
      Contractual Life (Years)
              
              Weighted Average
                Exercise
    Price
              
              Intrinsic Value
                Exercisable
      Shares$0.06 -
    $0.35
              
              2,554,317
              
              5.48
              
              $0.33
              
              $-0-$0.38 -
    $1.05
              
              1,677,994
              
              8.91
              
              $0.86
              
              $-0-




The Company recorded $542,125 of
compensation expense for employee stock options during the year ended December
31, 2008.  These compensation expense charges were recorded in the
following operating expense categories, general and administrative - $317,757;
sales and marketing - $153,478; research and development - $41,909; and
purchasing, warehousing and distribution - $28,981.  There was a total
of $658,972 of unrecognized compensation costs related to non-vested share-based
compensation arrangements under the Plan outstanding at December 31,
2008.  This cost is expected to be recognized over a weighted average
period of 1.8 years.  The total fair value of shares vested during the
year ended December 31, 2008 was $543,689.




9.           Income
Taxes




The provision (benefit) for income taxes
for the years ended December 31, 2008 and 2007 consisted of the
following:




2007
                
                
                2007Current
                
                $
                1,508
                
                
                $
                800Deferred
                
                
                -
                
                
                
                -Refund
                
                
                (2,974
                )
                
                
                -$
                (1,466
                )
                
                $
                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, 2008 and 2007 as follows:




2008
                
                2007Statutory regular federal income
      benefit rate
                
                
                (34.0)%
                
                (34.0)%State income taxes, net of federal
      benefit
                
                
                (5.7)
                
                (5.7)Unrealized loss on financing
      activities
                
                
                -
                
                0.2Return to provision
      adjustment
                
                
                -
                
                -Change in valuation
      allowance
                
                
                39.4
                
                39.2Other
                
                
                0.3
                
                0.3Total
                
                
                0%
                
                0%







41


IRONCLAD PERFORMANCE WEAR
CORPORATION




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)




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,
2008 consisted of the following:




2008Deferred tax
      assetsNet operating loss
      carryforward
                
                $
                4,355,622Stock option
      expense
                
                
                774,262Allowance for doubtful
      accounts
                
                
                25,704Allowance for product
      returns
                
                
                58,691Accrued
      compensation
                
                
                59,041Inventory
                
                
                20,992Other
                
                
                3,406Valuation
      allowance
                
                
                (4,930,427
                )Total deferred tax
      assets
                
                
                367,291Total deferred tax
      liabilities
                
                
                (367,291
                )Net deferred tax
      assets/liabilities
                
                $
                -




As of December 31, 2008, the Company had
unused federal and state contribution carryovers of $6,680 that expire in 2009
through 2011.




As of December 31, 2008, the Company had
unused federal and state net operating loss carryforwards available to offset
future taxable income of $10,205,000 and $10,739,000, respectively, that expire
between 2009 and 2028.


42


IRONCLAD PERFORMANCE WEAR
CORPORATION




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)




10.           Commitments and
Contingencies




The Company entered into a 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.   Rent expense for this
facility for the years ended December 31, 2008 and 2007 for this facility were
$173,526 and $166,926, respectively.




The Company has various non-cancelable
operating leases for office equipment expiring through December 31,
2012.  Equipment lease expense charged to operations under these
leases was $7,279 and $7,619 for the years ended December 31, 2008 and 2007,
respectively.




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




Year
                                            
                                            Facility
                                            
                                            
                                            Equipment
                                            
                                            
                                            Total2009
                                            
                                            
                                            174,720
                                            
                                            
                                            
                                            6,949
                                            
                                            
                                            
                                            181,6692010
                                            
                                            
                                            175,146
                                            
                                            
                                            
                                            5,959
                                            
                                            
                                            
                                            181,1052011
                                            
                                            
                                            82,614
                                            
                                            
                                            
                                            5.959
                                            
                                            
                                            
                                            88,5732012
                                            
                                            
                                            -
                                            
                                            
                                            
                                            5,959
                                            
                                            
                                            
                                            5,9592013
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Thereafter
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -$
                                            432,480
                                            
                                            
                                            $
                                            24,826
                                            
                                            
                                            $
                                            457,306




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 Company’s board of directors, in the sole discretion of the Company’s
board of directors; (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.


43


IRONCLAD PERFORMANCE WEAR
CORPORATION




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)




11.           Legal Proceedings




In September 12, 2006, American Sports
Group, Inc.(“ASG”), filed a lawsuit against both Ironclad
California and Ironclad Nevada in the Superior Court of the State of California
for the County of Los Angeles, alleging causes of action for
DeclaratoryRelief and
Breach of Contract.




The Company took the position that
ASG’s claims were without merit and
vigorously defended against these claims, denying all of the allegations and
filing a Cross-Complaint for unfair business practices against ASG, Youngstown
Equipment Corp. (“Youngstown”), Blackstone Investment Group
(“Blackstone”), Pacifica Ltd, LLC (“Pacifica”), Lakeview Canyon, LLC (“Lakeview”) and Greg Thomsen (“Thomsen”) among others</fo nt>.In December of 2007, Ironclad also filed
a Federal Court complaint (“Federal Lawsuit”) against Youngstown, Blackstone,
Pacifica, Lakeview and Thomsen, alleging certain trademark
violations.




In January of 2008, the parties settled
their claims with respect to both lawsuits with prejudice.The settlement included a general mutual
release covering all existing and potential claims between the parties arising
out of the litigation.




12.           Related Party
Transactions




Mr. Alderton, an Ironclad board member
since August 2002, is a partner of the law firm, Stubbs, Alderton and Markiles,
LLP, or 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.  The Company has incurred legal fees from SAM of $192,979
and $203,934 in 2008 and 2007, respectively.




13.           Customs and Duties
Protests




Earlier
this year the Company became aware that competitors have been importing gloves
similar to many of its products under a federal legislation classifying them at
a lower duty rate.  This lower duty rate of 2.8% is significantly less
than the 10.4% rate the Company had been paying.  The Company filed
retroactive, formal protests with the U.S. Customs Department for refund of
paid duties for previous entries totaling approximately $165,000.  In
late January, 2008, with the concurrence of the local U.S. Customs Department
office at the Port of Los Angeles, the Company began receiving new entries under
the lower duty rate.  In June, 2008 the Company started receiving
approvals for specific prior entries, along with refund checks totaling
approximately $24,000.




In July,
2008, the Company received a written denial ruling on its formal protest from
the U.S. Customs Department in Washington, DC.  The Company is
continuing to contest this denial ruling, but has nevertheless started receiving
its products under the old
duty rate of 10.4% going forward.




During
the period from January to
July, 2008, the Company paid duties, calculated at the lower duty rate, of
approximately $36,000.  Had those entries been calculated at the
higher duty rate the Company would have incurred additional duties of
approximately $134,000.  The Company has paid the approximately
$134,000 of the additional duties due for the entries received at the lower rate
in the first half of the year.


44


IRONCLAD PERFORMANCE WEAR
CORPORATION




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)




In
summary, the outcome of the Company’s challenge to the classification of its
products for the purpose of determining the appropriate duty rate is still in
question at this time.  We have received successful rulings lowering
duties on specific styles of gloves, and we have modified the wrist closure on
some of our gloves to conform with the current
classification, where feasible.  The Company continues to protest all
entries still in the Customs Department and remains reasonably confident that
its products do qualify for the reduced duty rate classification, but the
ultimate outcome may be determined by a technical interpretation of the
law.




Should
the Company prevail in its protest, the Company could receive refunds for
previously approved and then denied protests, plus any additional excess duties
paid for entries subject to our continuing protests.  That amount
changes with each entry and is indeterminable until this situation is
resolved.




14.           Subsequent Event




Between October 20, 2008 and January 31,
2009, the Company entered into Subscription Agreements (the“Subscription Agreements”) with various high net worth
individuals and trusts (collectively, the“Investors”) pursuant to which it agreed to sell an
aggregate of 30,147,698 shares of common stock, par value $0.001 per share (the“Shares”) of the Company at $0.05 per share for
proceeds to the Company of $1,507,384.90 (the“Financing”).The Financing closed on February 5,
2009.  The Company intends to use the proceeds received for strategic
initiatives and general working capital purposes.Immediately following the closing of the
Financing, the Company had 72,951,183 shares of common stock issued and
outstanding.




On January 6, 2009,theCompanyentered intoanExclusive License and Distributorship
Agreement (the “Agreement”) with Orr Safety Corporation, a company organized and
existing under the laws of the Commonwealth ofKentucky (“Orr”), pursuant to which
the Company granted Orr the
exclusive right to sell and distribute the Company’s “KONG” safety gloves
(intended for the oil & gas industry), together with any inventions andimprovements on such
products(the “Products”),during the term of the Agreement within
any territory in the world where it is legal to do so (the
“Territory”).Orr has agreed that during the term of
the Agreement, it shall not represent, sell or distribute for or on behalf of
any third party, any products specifically designed and/or marketed for the
petrochemical and offshore exploration markets that are substantially similar
to, or competitive with the Products.The initial term of the Agreementisfive yearssubject toautomatic renewalfor three additional successive five year
terms.




Further, Orr has granted the Company a
non-exclusive, royalty-free license to use the “ORR SAFETY” trademark in
connection with the manufacture of the Products, the sale of the Products to
Orr, or materials relating to the Company’s description of its business,
products and business opportunities, including the use in press releases and
other public disclosures.The Company has granted Orr an exclusive
(within the Territory) royalty-free, license to use the trade names, trademarks,
advertising symbols, copyrighted matters and any other tangible or intangible
property rights relating to the Products and owned bythe Companyduring the term of the Agreement solely
in connection with the distribution and sale of the Products.If the Company terminates the Agreement
for any reason, other than as a result of a material breach of any term or
condition of the Agreement by Orr or the Company files for bankruptcy, the
Company shall assign to Orr all rights to the “KONG” trademark, including good
will, and the Company shall cease and desist all use of the “KONG”
trademark.




On February 13, 2009, Ansell Protective
Products, Inc. filed a suit against the Company in the United States District
Court in the District of New Jersey, alleging infringement of a trademark last
used by the Company over three years ago.  Since the Company no longer
uses the subject trademark, the Company is engaged in settlement discussions
with Ansell Protective Products, Inc. to quickly resolve this
matter.




45


Item
      9
                                  Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure.


None.


Item
      9A.
                                  Controls
      and
  Procedures.




Evaluation of Controls and
Procedures




We maintain disclosure controls and
procedures that are designed to ensure that information required to be disclosed
in our reports under the Securities Exchange Act of 1934, as amended, or the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities Exchange Commission’s rules and forms, including to ensure
that information required to be disclosed by us in the reports filed or
submitted by us under the Exchange Act is accumulated and communicated to our
management, including our principal executive and principal financial officers,
or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure as defined in Rules 13a-15(e) and15d-15(e) of the Exchange
Act.




As of December 31, 2008,managementconducted an evaluation, with the
participation of our Chief Executive Officer andInterimChief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures.Based on that evaluation,management hasconcluded that as of December 31,
2008, our disclosure controls andprocedures were
effective.




Changes in Internal
Controls




During the last fiscal quarter, there
have been no changes in our internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.




Management’s Report on Internal Control over
Financial Reporting




Our management is responsible for
establishing and maintaining adequate internal control over financial reporting
as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of
1934.Our internal control over financial
reporting is designed, under the supervision of our chief executive and chief
financial officers, and effected by our board of directors, management and other
personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of
America (GAAP).Our internal control over financial
reporting includes those policies and procedures that:




·
            pertain to the maintenance of
      records that, in reasonable detail, accurately and fairly reflect the
      transactions anddispositions of the our
      assets;




·
            provide reasonable assurance that
      transactions are recorded as necessary to permit preparation of financial
      statements in accordance with GAAP, and that our receipts and expenditures
      are being made only in accordance with authorizations of our management and directors;
      and




·
            provide reasonable assurance
      regarding prevention or timely detection of unauthorized acquisition, use
      or disposition of our assets that could have a material effect on the financial
      statements.




Wecarried outan evaluationunder the supervision, and with the
participation of our management, including our Chief Executive Officer and
Interim Chief Financial Officer,of the effectiveness of our internal
control over financial reporting as of December 31, 2008.This evaluation was based on the
framework in“Internal Control—Integrated
Framework”issued by the Committee of Sponsoring
Organizations of the
Treadway Commission , or COSO.All internal control systems, no matter
how well designed, have inherent limitations.Therefore, even those systems determined
to be effective can provide only reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with
GAAP.




46


Based ontheirevaluationourmanagementconcluded that internal control over
financial reporting was effective as of December 31, 2008.




This annual report does not include an
attestation report of our registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to attestation
by our registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit us to provide only
management’s report in this
annual report.


Item
      9B.
                                  Other
      Information.




None.


47


PART
III


Item
      10.
                                  Directors,
      Executive Officers and Corporate
      Governance.




The following table sets forth the name,
age and position of each of our executive officers and directors as of March 23,
2009.All
directors serve until the next annual meeting ofstockholdersor until their successors are elected
and qualified.  Officers are appointed by our board of directors and
their terms of office are, except to the extent governed by an employment
contract, at the discretion of our board of directors.




Name
                Age
                PositionScott Jarus
                53
                Executive Chairman of the
      Corporation, DirectorR.D. Peter
      Bloomer
                73
                Director ( former Chairman of the
      Board)Eduard
    Jaeger
                48
                Director, President and Chief
      Executive OfficerRhonda
    Hoffarth
                48
                Executive Vice President and Chief
      Operating OfficerKent Pachl
                42
                Executive Vice President of Sales
      & MarketingThomas
Kreig
                61
                Interim Chief Financial Officer,
      Vice President of Finance and SecretaryVane P.
    Clayton
                50
                DirectorScott
    Alderton
                50
                DirectorKenneth
    Frank
                62
                Director




Scott Jarus, Executive Chairman of the
Corporation, Director




Mr. Jarus has served as a member of our
board of directors since May 18, 2006.  In September, 2008 our board
of directors appointed Mr. Jarus to the position of Executive Chairman of the
Corporation.  Mr. Jarus is Chief Executive Officer of Cognition
Technologies, Inc., an early-stage company located in Santa Monica, which is a
developer of revolutionary linguistic meaning-based content Search
technology.  From 2001 to 2005, Mr. Jarus was President and principal
executiveofficerof 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 j2 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 27 years of management experience in the
telecommunications industry and has served in various senior management
positions.  He currently serves on the board of directors of various
other companies, none of which compete with or are in the same industry as
Ironclad.  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).  Mr. Jarus
received his Bachelor of Arts degree in Psychology and a Master of Business
Administration degree from the University of Kansas in 1982.
  R. D. Peter Bloomer,Director
(formerChairman of
the Board)
  Mr. Bloomerserved as Chairman of our board of
directorsfromApril2003
through September 2008.He is the Chairman and Chief
Executive Officer of CVM Management, Inc. and Managing Partner of CVM Equity
Fund V, Ltd., LLP, or CVM, which is our 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 board of directors of multiple private
companies.


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




Mr. Jaeger founded Ironclad in 1998 and
has served as a Director and as President and Chief Executive Officer since that
time.Mr. 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 founding 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. Jaeger is also the inventor of six
U.S. patents and two patents pending, and has held executive positions in
marketing and promotion.




48


Rhonda Hoffarth, Executive Vice
President & Chief Operating Officer




Ms. Hoffarth has served as our Executive
Vice President & Chief Operating Officer since January 2003.Prior to 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 us, Ms. Hoffarth spent
9 years with Bell Sports, Inc. in various roles, including Vice President of
Operations, North American, helping the company grow from $45,000,000 in revenue
to over $200,000,000.Subsequently, Ms. Hoffarth spent 2 years
as the Senior Vice President of Operations for Targus, Inc., a $500,000,000
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 has served as ourExecutiveVice President of Sales and MarketingsinceJanuary 2005.Prior to joining us, Mr.Pachl 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, Mr. Pachl 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, Mr. Pachl 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 from San Diego State University in
1990.




Thomas Kreig, Interim Chief Financial
Officer, Vice President of Finance and Secretary




Mr. Kreig has served as our Interim
Chief Financial Officer sinceDecember2007.From September 2002 toDecember2007, Mr. Kreig served as our Vice
President of Finance and Secretary.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 certified public accountant and
received his Masters of Business Administration from the University of Detroit
in 1975.




Vane P. Clayton,
Director




Mr. Clayton has served on our board of
directors since March 2004and currently serves as the Chair of the Audit
Committee.He
currently serves as thechief executive officer and member of
the board of KPALLC, a
private company providing Environmental, Safety, and Human Resource compliance
software and services.Prior to KPA, Mr. Clayton was President
of ZOLL Data Systems, an Enterprise Software subsidiary of ZOLL Medical
Corporation ($400M in Sales - NASDAQ: ZOLL).Earlier in his career, Mr. Clayton
managed a sales team for Raychem ($1.7B in Sales), a division of Tyco
Electronics.  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.Mr. Clayton holds a B.S. in
Agricultural/Mechanical Engineering from Purdue University and an
MBAfrom Harvard Business
School.




Scott Alderton,
Director




Mr. Alderton has served on our board of
directors sinceAugust
2002.In 2002, Mr. Alderton co-founded the law
firm of Stubbs Alderton & 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 our 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.Mr. Alderton received his Bachelor of
Arts from the University of California at Los Angeles in 1982 and juris doctor
from Loyola Law School in 1985.




49


KennethJ.Frank,M.D.,Director




Dr. Frank joined our board of directors
in February of 2009.  He received his medical degree from NYU School
of Medicine in 1972 and received his BA from Rutgers, the State University in
1968.  He served as a board member of the Isla Vista Medical Clinic
from 1975 to 1977 and The National Association of Urgent Care Clinics from 1992
to1994.  He is an author, lecturer, inventor and formulator of
nutritional supplements.  Besides having belonged to numerous medical
societies, Dr. Frank has been an entrepreneur for over 30 years and has owned
and operated a nutritional supplement research, development and marketing
company and other associated companies for the past 20 years.  In
1973, Dr. Frank founded the Emergency Medical Group of Santa Barbara where he
practiced Emergency Medicine for 9 years.  In 1982, Dr. Frank founded
and served as managing partner, CEO, president and medical director of
Immedicenter Medical Group, Inc.In 1989, he established Advanced
Physicians’ Products,a nutritional supplement research and
development company with over 60 products, many formulated by Dr.
Frank.  This grew into what is today Dr. Frank’s Health Products, LLC
and its four associated companies for which he serves as CEO.  He
co-owns a patented invention using MSM (methylsulfonyl methane) in an oral spray
to stop snoring and is also credited with creating several other proprietary
oral sprays for health.  In 2005, he authored a book called,
“User’s Guide
to Natural and Safe Pain Relief”, which has sold over 100,000
copies.


During
the past five years none of our officers and directors have had a petition under
federal bankruptcy laws or any state insolvency law filed by or against them,
nor has a receiver, fiscal agent or similar officer been appointed by a court
for their business or property, or any partnership in which they were a general
partner at or within two years before the date hereof, or any corporation or
business association of which they were an executive officer at or within two
years of the date hereof; have been convicted in a criminal proceeding or is a
named subject of a pending criminal proceeding, excluding traffic violations and
other minor offenses; have been the subject of any order, judgment, or decree,
not subsequently reversed, suspended or vacated, of any court of competent
jurisdiction or Federal or State authority, permanently or temporarily enjoining
such person from, barring, suspending or otherwise limiting for more than 60
days the right of such person to, or otherwise limiting such person from acting
as a futures commission merchant or as an investment adviser, underwriter,
broker or dealer in securities, or as an affiliated person, director or employee
of any investment company, bank, savings and loan association or insurance
company, or engaging in or continuing any conduct or practice in connection with
such activity, engaging in any type of business practice or engaging in any
activity in connection with the purchase or sale of any security or commodity or
in connection with any violation of federal or state securities laws or federal
commodities laws; or have been found by a court of competent jurisdiction in a
civil action or by the Securities and Exchange Commission or the Commodity
Futures Trading Commission to have violated any federal or state securities law
or federal commodities law, and the judgment in such civil action or finding by
the Securities and Exchange Commission or Commodity Futures Trading Commission
has not been subsequently reversed, suspended, or vacated.




Audit Committee of the Board of
Directors




The Audit Committee ofour board of directorscurrently consists of Messrs. Clayton,
Alderton and Jaeger.  None of our current Audit Committee members is
an audit committee financial expert, as defined in Item 407(d)(5) of Regulation
S-K.Our board
of directors has determined, however,that each member ofour AuditCommittee is able to read and understand
fundamental financial statements and has substantial business experience that
results in such member’s financial sophistication.  Accordingly, our
board of directors believes that each member of our Audit Committee has sufficient knowledge and
experience necessary to fulfill such member’s duties and obligations on ourAudit Committee.  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 our board of
directors.  The Audit Committee was created byour board of directorseffective May 18,
2006.




50


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, 2008, all of our executive officers,
directors and greater-than-ten percent stockholders complied with all Section
16(a) filing requirements.




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.We will providea copy of the Code of Ethicsto any person without
charge, uponrequest by
writing or calling us at:




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 ofour board of directorsor one of our executive officers will
be disclosed in a report on Form 8-K filed with the SEC.




Item
      11.
              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
                ($)
              Bonus
                ($)
              Option
      Awards
                ($)
              All
      Other Compensation
                ($)
              Total
                ($)Eduard
      Jaeger (1)
                Chief
      Executive Officer and Director
              2008
                2007
              204,740
                234,257
              --
                39,947
              111,752
                139,126
              7,200
                7,200
              323,692
                420,530Ronda
      Hoffarth (2)
                Executive
      Vice President and
                Chief
      Operating Officer
              2008
                2007
              165,000
                163,416
              --
                20,000
              37,377
                32,115
              5,538
                --
              207,915
                215,531Kent
      Pachl (3)
                Executive
      Vice President of Sales and Marketing
              2008
                2007
              196,740
                190,477
              --
                30,000
              83,830
                76,825
              7,200
                7,200
              287,770
                304,502







51


(1)
            Mr. Jaeger’s current salary is
      $204,740 and he may also receive a discretionary bonus as determined by
      the Compensation Committee of our board of directors.  The terms
      of Mr. Jaeger’s employment agreement with us are discussed
      below.  The bonus paid to Mr. Jaeger’s during fiscal 2007 was
      related to performance in 2006.  The other compensation
      disclosed for Mr. Jaeger represents an automobile
      allowance.The fair value of options granted to Mr.
      Jaeger was estimated on the date of grant using the Black-Scholes Merton
      option pricing model with the following weighted-average
      assumptions:




Year
                  Risk
      Free Interest Rate
                  Volatility
                  Term
                  Dividends2003
                  3.68%
                  177.0%
                  4
      years
                  None2005
                  4.03%
                  145.7%
                  2
      years
                  None2006
                  5.16%
                  170.5%
                  4
      years
                  None2007
                  4.06%
                  224.0%
                  6.25
      years
                  None







(2)
            Ms. Hoffarth’s current salary is
      $165,000and she may also receive a discretionary bonus as determined by
      the Compensation Committee of our board of directors.  Ms.
      Hoffarth does not have an employment agreement with us.  The
      bonus paid to Ms. Hoffarth’s during fiscal 2007 was related to performance
      in 2006.  The other compensation disclosed for Ms. Hoffarth
      represents an automobile allowance.The fair value of
      options granted to Ms. Hoffarth was estimated on the date of grant using
      the Black-Scholes Merton option pricing model with the following
      weighted-average assumptions:




Year
                  Risk
      Free Interest Rate
                  Volatility
                  Term
                  Dividends2003
                  3.68%
                  176.9%
                  4
      years
                  None2004
                  3.40%
                  177.0%
                  4
      years
                  None2006
                  5.16%
                  170.5%
                  4
      years
                  None2007
                  4.06%
                  224.0%
                  6.25
      years
                  None







(3)
            Mr. Pachl’s current salary is
      $196,740 and he may also receive a discretionary bonus as determined by
      the Compensation Committee of our board of directors.  Mr. Pachl
      does not have an employment agreement with us.  The bonus paid
      to Mr. Pachl’s during fiscal 2007 was related to performance in
      2006.  The other compensation disclosed for Mr. Pachl represents
      an automobile allowance.The fair value of options
      granted to Mr. Pachl was estimated on the date of grant using the
      Black-Scholes Merton option pricing model with the following
      weighted-average assumptions:




Year
                  Risk
      Free Interest Rate
                  Volatility
                  Term
                  Dividends2005
                  4.03%
      - 4.29%
                  145.7%
      - 145.6%
                  2 -
      4 years
                  None2006
                  5.16%
                  170.5%
                  4
      years
                  None2007
                  4.06%
                  224.0%
                  6.25
      years
                  None





52


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, 2008.




Name
              Number
      of Securities Underlying Unexercised Options (#) Exercisable
              
              Number
      of Securities Underlying Unexercised Options (#)
Unexercisable
              
              Option
      Exercise Price ($)
              Option
      Expiration DateEduard
      Jaeger (1)
              43,146
              (2)
              -
              
              0.35
              5/9/11215,728
              (3)
              -
              
              0.35
              6/16/1232,053
              (4)
              -
              
              0.35
              3/4/13431,455
              (5)
              -
              
              0.35
              3/31/14276,131
              (6)
              -
              
              0.35
              9/3/15322,917
              (7)
              177,083
              (7)
              1.05
              5/18/1628,964
              (8)
              74,936
              (8)
              0.38
              11/20/17Rhonda
      Hoffarth
              172,582
              (9)
              -
              
              0.35
              1/13/1321,573
              (10)
              -
              
              0.35
              6/22/1480,729
              (11)
              44,271
              (11)
              1.05
              5/18/1619,932
              (12)
              51,568
              (12)
              0.38
              11/20/17Kent
      Pachl
              366,737
              (13)
              -
              
              0.35
              1/3/1586,291
              (14)
              -
              
              0.35
              9/2/15129,167
              (15)
              70,833
              (15)
              1.05
              5/18/1623,193
              (16)
              60,007
              (16)
              0.38
              11/20/17




(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)
            Mr. Jaeger was granted options to
      purchase 103,900 shares on 11/17/07, 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.




53


(9)
            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.




(10)
            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.




(11)
            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.




(12)
            Ms. Hoffarth was granted options
      to purchase 71.500 shares on 11/17/07, 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.




(13)
            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.




(14)
            Mr. Pachl was
      granted options to purchase 86,291 shares on 9/2/05, 100% vested as of the
      date of grant.




(15)
            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.




(16)
            Mr. Pachl was granted options to
      purchase 83,200 shares on 11/17/07, 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,
2008.




Director
Compensation




The following table presents information
regarding compensation paid to our non-employee directors for our fiscal year
ended December 31, 2008.




Name
                  Fees
      Earned or Paid in Cash
                    ($)
                  Option
      Awards
                    ($)
                  
                  All
      Other Compensation
                    ($)
                  Total
                    ($)R.
      D. Peter Bloomer
                  10,000
                  32,513
                  (2)
                  —
                  42,513Scott
      Alderton (1)
                  10,000
                  628
                  (3)
                  —
                  10,628Vane
      Clayton
                  10,000
                  24,703
                  (4)
                  —
                  34,703Scott
      Jarus
                  10,000
                  24,424
                  (5)
                  50,000
                  84,424




(1)           Fees granted to Mr. Alderton are made to
the law firm, Stubbs Alderton and Markiles, LLP, of which he is a
partner.  Option awards granted to Mr. Alderton prior to 2008 were
also made to the law firm, Stubbs Alderton and Markiles, LLP.  The
aggregate number of common shares reserved under option awards granted to the
law firm Stubbs Alderton & Markiles, LLP, outstanding at fiscal year end
totaled 236,291.The fair value of options granted to Stubbs
Alderton and Markiles, LLP was estimated on the date of grant using the
Black-Scholes Merton option pricing model with the following weighted-average
assumptions:




54







Year
                  Risk
      Free Interest Rate
                  Volatility
                  Term
                  Dividends2005
                  4.03%
                  145.7%
                  3
      years
                  None2006
                  5.16%
                  170.5%
                  4
      years
                  None2007
                  4.50%
                  220.9%
                  5.5
      years
                  None




(2)           The aggregate number of common shares
reserved under option awards outstanding at fiscal year end totaled
440,728.The fair value of options granted to Mr. Bloomer was
estimated on the date of grant using the Black-Scholes Merton option pricing
model with the following weighted-average assumptions:




Year
                  Risk
      Free Interest Rate
                  Volatility
                  Term
                  Dividends2005
                  4.03%
                  145.7%
                  3
      years
                  None2006
                  5.16%
                  170.5%
                  4
      years
                  None2007
                  4.50%
                  220.9%
                  5.5
      years
                  None2008
                  2.51%
                  268.5%
                  5.5
      years
                  None




(3)
            The aggregate number of common
      shares reserved under option awards outstanding at fiscal year end totaled
      75,000.The fair value of options granted to Mr.
      Alderton was estimated on the date of grant using the Black-Scholes Merton
      option pricing model with the following weighted-average
      assumptions:




Year
                  Risk
      Free Interest Rate
                  Volatility
                  Term
                  Dividends2008
                  2.51%
                  268.5%
                  5.5
      years
                  None




(4)
            The aggregate number of common
      shares reserved under option awards outstanding at fiscal year end totaled
      311,291.The fair value of options granted to Mr.
      Clayton was estimated on the date of grant using the Black-Scholes Merton
      option pricing model with the following weighted-average
      assumptions:




Year
                  Risk
      Free Interest Rate
                  Volatility
                  Term
                  Dividends2005
                  4.05%
                  176.0%
                  4
      years
                  None2006
                  5.16%
                  170.5%
                  4
      years
                  None2007
                  4.50%
                  220.9%
                  5.5
      years
                  None2008
                  2.51%
                  268.5%
                  5.5
      years
                  None




(5)
            The aggregate number of common
      shares reserved under option awards outstanding at fiscal year end totaled
      225,000.The fair value of options granted to Mr. Jarus
      was estimated on the date of grant using the Black-Scholes Merton option
      pricing model with the following weighted-average
    assumptions:




55







Year
                  Risk
      Free Interest Rate
                  Volatility
                  Term
                  Dividends2006
                  5.16%
                  170.5%
                  4
      years
                  None2007
                  4.50%
                  220.9%
                  5.5
      years
                  None2008
                  2.51%
                  268.5%
                  5.5
      years
                  None




In 2008, non-employee directors of
Ironclad California received $10,000 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 shares of Ironclad common stock upon their appointment to our board of
directors and annually thereafter.  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.




Employment Contracts




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




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 Mr. Jaeger 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 ofour board of directors; (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.




2006 Stock Incentive
Plan




Our 2006 Stock Incentive Plan, or the
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 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
Plan.




The Plan will terminate after 10 years
from the date on whichour
board of directorsapproved
the plan, unless it is terminated earlier byour board of directors.  The plan authorizes the
award of stock options and stock purchase grants.




The Plan will be administered by our
board of directors or the Compensation Committee of our board of directors as
determined by our board of directors or otherwise permitted under the
Plan.  Our 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.  Our board of directors will
be authorized to interpret the 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, and to make all other
determinations that may be necessary or advisable for the administration of the
Plan.  Our board of directors may at its discretion delegate the
responsibility for administering the plan to any committee or subcommittee of
our board of directors.




56


The exercise price per share of common
stock purchasable under any stock option will be determined by our 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.  Our 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 our 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 our 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 us.  Our board of directors may
require the grantee to pay to us 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, our board of directors may permit the grantee to satisfy these
obligations by the withholding or delivery of shares of common
stock.  We 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.




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, our board of directors will make such substitution or
adjustment in the aggregate number of shares that may be distributed under the
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 us
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 Plan, the occurrence of a
“Change in Control” can affect options and other awards granted under the
plan.  Generally, the Plan defines a “Change in Control” to include
the consummation of a merger or consolidation 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 our shareholders immediately before the
merger, consolidation or other reorganization, except that in making the
determination of ownership by our shareholders, 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 our assets.  A transaction
will not constitute a Change in Control if its sole purpose is to change the
state of our incorporation or to create a holding company that will be owned in
substantially the same proportions by the persons who held the our securities
immediately before such transaction.




57


If a “Change in Control” were to occur,
our 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 us and any other party
to the Change in Control could provide for (i) the continuation of any
outstanding awards, (ii) the assumption of the Plan or any awards by the
surviving corporation or any of its affiliates, (iii) cancellation of awards and
substitution of other awards with substantially the same terms or economic value
as the cancelled awards, or (iv) cancellation of any vested or unvested portion
of awards, subject to providing notice to the option
holder.


Item
      12.
                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 March 23, 2009
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 or warrants that are currently exercisable or
exercisable within 60 days of March 23, 2009 are deemed to be outstanding and to
be beneficially owned by the person holding the options or warrants 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 72,951,183 shares of our common stock outstanding on March 23,
2009.  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
      OutstandingExecutive Officers and
      Directors:Eduard Jaeger
      (1)
                            
                            
                            5,541,980
                            
                            7.6%Director, Chief Executive
      OfficerRhonda Hoffarth
      (2)
                            
                            
                            346,476
                            
                            *Executive Vice President, Chief
      Operating OfficerKent Pachl
    (3)
                            
                            
                            634,428
                            
                            *Executive Vice President Sales
      & MarketingThomas Kreig
      (4)
                            
                            
                            322,143
                            
                            *Interim Chief Financial Officer,
      Vice President of Finance, SecretaryR.D. Peter Bloomer
      (5)
                            
                            
                            406,002
                            
                            *Director


58





Name of Beneficial
      Owner
            
            Number of Shares
              Beneficially
      Owned
            
            Percentage of
              Shares
      Outstanding


Vane B. Clayton
      (6)
                    
                    
                    327,205
                    
                    *DirectorScott Alderton
      (7)
                    
                    
                    551,640
                    
                    *DirectorScott Jarus
    (8)
                    
                    
                    3,778,747
                    
                    5.2%Executive Chairman,
      DirectorKenneth Frank
      (9)
                    
                    
                    5,282,717
                    
                    7.2%DirectorDirectors and officers as a group
      (9 persons) (10)
                    
                    
                    17,191,338
                    
                    23.6%5%
      Shareholders:Coleman Survivor Trust
      (11)
                    
                    
                    10,000,000
                    
                    13.7%CVM Equity Fund V Ltd., LLP
      (12)
                    
                    
                    4,713,652
                    
                    6.5%Richard Todd
      Miller
                    
                    
                    4,000,000
                    
                    5.5%


*           Less than
1%




(1)
            Consists
      of(i) 1,365,272
      shares of common stock held by Jaeger Family, LLC, of which Eduard Jaeger
      is a member, (ii)
      2,763,984 shares of common stock held by Eduard and Kari Family Trust dtd
      7/19/2006, ofwhich Eduard Jaegeris a
      trustee and as suchhas voting and investment power,
      and (iii) 1,412,724 shares of common stock
      reserved for issuance upon exercise of stock options which currently are
      exercisable or will become exercisable within 60 days of March 23,
      2009.Mr.
      Jaeger disclaims beneficial ownership of the shares of common stock held
      by Jaeger Family, LLC except to the extent of his pecuniary interest
      therein.




(2)
            Includes 314,889
      shares of common stock reserved for issuance upon exercise of stock
      options which currently are exercisable or will become exercisable within
      60 days of March 23, 2009.




(3)
            Consists of
      634,428 shares of common stock reserved for issuance upon exercise of
      stock options which currently are exercisable or will become exercisable
      within 60 days of March 23,
2009.




(4)
            Includes 282,658
      shares of common stock reserved for issuance upon exercise of stock
      options which currently are exercisable or will become exercisable within
      60 days of March 23, 2009.




(5)
            Consists of
      406,002 shares of common stock reserved for issuance upon exercise of
      stock options which currently are exercisable or will become exercisable
      within 60 days of March 23,
2009.




(6)
            Includes 276,565 shares of common
      stock reserved for issuance upon exercise of stock options which currently
      are exercisable or will become exercisable within 60 days of March 23,
      2009.




(7)
            Includes (i) 40,274 shares of
      common stock reserved for issuance upon exercise of stock options which
      currently are exercisable or will become exercisable within 60 days of
      March 23, 2009, and (ii) 77,258 shares of common stock reserved for
      issuance upon exercise of certain warrants to purchase common stock which
      are currently exercisable.




(8)
            Consists
      of (i) 3,526,667 shares of common stock held by the Jarus Family Trust,
      for which Mr. Jarus exercises voting and investment power, (ii) 190,274
      shares of common stock reserved for issuance upon exercise of stock
      options which currently are exercisable or will become exercisable within
      60 days of March 23, 2009, and(iii) 61,806 shares of common stock
      reserved for issuance upon exercise of certain warrants to purchase common
      stock which are currently
exercisable.




(9)
            Consists
      of (i) 4,775,000 shares of common stock held jointly by Dr. and Mrs.
      Frank, (ii) 128,201 shares of common stock held directly by Dr. Frank,
      (iii) 225,000 shares of common stock held by Dr. Frank’s Health Products
      LLC 401k Profit Sharing Plan for which Dr. Frank exercises voting and
      investment power, and (iv)154,516 shares of common stock
      reserved for issuance upon exercise of certain warrants to purchase common
      stock which are currently
exercisable.




(10)
            Consists of (i)
      13,339,944 shares of common stock, (ii) 293,580 shares of common stock
      reserved for issuance upon exercise of certain warrants to purchase common
      stock which are currently exercisable, and (ii) 3,557,814 shares of common
      stock reserved for issuance upon exercise of stock options which currently
      are exercisable or will become exercisable within 60 days of March 23,
      2009.






59




(11)
            William E. Coleman as Trustee of
      the Colman Survivor Trust, exercises voting and investment power over the
      shares of common stock held by Coleman Survivor Trust but disclaims
      beneficial ownership of such shares except to the extent of his pecuniary
      interest therein.




(12)
            Includes 77,258 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,except with respect to his
      pecuniary interest therein.




Equity Compensation Plan
Information




The following table sets forth
information concerning our equity compensation plans as of December 31,
2008.




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 (2000 Stock Incentive Plan)
                          
                          
                          2,361,578
                          
                          
                          (1)
                          
                          $
                          0.35
                          
                          
                          -Equity compensation plans approved
      by security holders (2006 Stock Incentive Plan)
                          
                          
                          3,800,011
                          
                          
                          (2)
                          
                          $
                          0.73
                          
                          
                          1,133,301Equity compensation plans not
      approved by security holders
                          
                          
                          -
                          
                          
                          
                          
                          
                          -
                          
                          
                          -Total
                          
                          
                          6,161,589
                          
                          
                          
                          
                          $
                          0.58
                          
                          
                          1,133,301




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




(2)           This number
represents:  (i) warrants to purchase 683,312 shares of our common
stock which were issued to one of the placement agents in our private placement
in exchange for services and (ii) stock options to purchase 3,116,699 shares of
our common stock under the 2006 Stock Incentive Plan, or the
Plan.




60


Item
      13.
                    Certain
      Relationships and Related Transactions, and Director
      Independence.




Transactions with Officers and
Directors




Other than the employment arrangements
described above in “Executive Compensation” and the transactions described
below, since January 1, 2007, 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.




Mr. Alderton, an Ironclad Board member
since August 2002, is a partner of the law firm, Stubbs, Alderton and Markiles,
LLP, or SAM, which is our attorney of record.  SAM rendered services
to Ironclad California as its primary legal firm since 2002, and became our
primary legal counsel upon the closing of the merger with Ironclad California on
May 9, 2006.  We incurred legal fees from SAM of $192,979 and $203,934
in 2008 and 2007, respectively.




Director
Independence




Our board of directors currently
consists of six members: Messrs.Jarus(ExecutiveChairman), Jaeger (CEO),
Clayton, Alderton,Bloomerand Frank.  We are not a
“listed issuer” under SEC rules.  We believe that Messrs. Bloomer and
Clayton are “independent” as that term is defined in Section 4200 of the
Marketplace Rules as required by the NASDAQ Stock Market.


Item
      14.
                          Principal
      Accounting Fees and
      Services.




Rotenberg & Co. is our principal
independent public accounting firm.  All audit work was performed by
the full time employees of Rotenberg & Co.  Our Audit Committee
approves in advance, all services performed by Rotenberg &
Co.  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.  Prior to the fourth
quarter 2007 we engaged Singer Lewak Greenbaum & Goldstein LLP as our
principal independent accounting firm.




Audit Fees




Fees for audit services totaled
approximately $113,929 and $239,590 for the years ended December 31, 2008 and
2007, respectively, including fees associated with the annual audit, and reviews
of our quarterly reports on Form 10-Q.




Audit-Related Fees




Fees for audit-related services totaled
approximately $10,960 and $21,571 for the years ended December 31, 2008 and
2007, respectively.  Audit-related services principally include due
diligence in connection with acquisitions, financing transactions, and
accounting consultations.




Tax Fees




Fees were incurred totaling
approximately $12,000 and $22,769 during the years ended December 31, 2008 and
2007, respectively for tax services, including for tax compliance, tax advice
and tax planning.




61


All Other Fees




No other fees were incurred during the
years ended December 31, 2008 and 2007 for services provided by Rotenberg &
Co. or Singer Lewak Greenbaum & Goldstein LLP, except as described
above.




62


PART
IV




Item
      15.
                Exhibits
      and Financial Statement
      Schedules.


The financial statements filed as part
of this Annual Report on Form 10-K are listed on page24.




Thefollowingexhibitsarefiled withthis Annual Report on Form
10-K:




Exhibit
                                                Number
                                              
                                              Exhibit
    Title3.1.1
                                              
                                              Articles of Domestication of the
      Registrant.  Incorporated by reference to Exhibit 3.1 to our
      Registration Statement on Form SB-2 (File No. 333-118808), filed September
      3, 2004.3.1.2
                                              
                                              Certificate of Change effecting a
      forward stock split and increasing the number of authorized shares, filed
      May 9, 2006.  Incorporated by reference to Exhibit 3.2 to our
      Current Report on Form 8-K (File No. 000-51365), filed May 12,
      2006.3.1.3
                                              
                                              Articles of Merger effecting a
      name change to the Registrant.  Incorporated by reference to
      Exhibit 3.3 to our Current Report on Form 8-K (File No. 000-51365), filed
      May 12, 2006.3.2
                                              
                                              Bylaws.  Incorporated by
      reference to Exhibit 3.2 to our Registration Statement on Form SB-2 (File
      No. 333-118808), filed September 3, 2004.4.1
                                              
                                              Form of Warrant issued to
      Investors in Private Placement.  Incorporated by reference to
      Exhibit 4.1 to our Current Report on Form 8-K (File No. 000-51365), filed
      May 12, 2006.10.1†
                                              
                                              Form of Indemnification
      Agreement.  Incorporated by reference to Exhibit 10.1 to our
      Registration Statement on Form SB-2 (File No. 333-135288), filed June 26,
      2006.10.2
                                              
                                              Factoring Agreement by and between
      the Registrant and Wells Fargo Century, Inc., effective September 15,
      2006.  Incorporated by reference to Exhibit 10.1 to our Current
      Report on Form 8-K (File No. 000-51365), filed September 21,
      2006.10.3
                                              
                                              Letter of Credit and Security
      Agreement by and between the Registrant and Wells Fargo Century, Inc.,
      effective September 15, 2006.  Incorporated by reference to
      Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-51365), filed
      September 21, 2006.10.4
                                              
                                              Amendment Number One to Factoring
      Agreement by and between the Registrant and Wells Fargo Century, Inc.,
      effective November 21, 2006.  Incorporated by reference to
      Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-51365), filed
      November 28, 2006.10.5†
                                              
                                              Separation Agreement between
      Eduard Jaeger and the Registrant.  Incorporated by reference to
      Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-51365), filed
      May 12, 2006.10.6
                                              Standard Industrial/Commercial
      Multi-Tenant Lease by and between Park/El Segundo Partners, LLC, and the
      Registrant, dated September 12, 2005, as amended.  Incorporated
      by reference to Exhibit 10.2 to our Current Report on Form 8-K (File No.
      000-51365), filed May 12, 2006.10.7
                                              Letter Agreement with Advantage
      Media Systems, Inc., dated June 29, 2007.  Incorporated by
      reference to Exhibit 10.1 to our Current Report on Form 8-K (File No.
      000-51365), filed July 6, 2007.10.8†*
                                              2007 Senior Management Bonus
      Plan.  Incorporated by reference to Exhibit 10.13 to our Annual
      Report on Form 10-KSB (File No. 000-51365), filed March 31,
      2008.10.9
                                              Form
      of Subscription Agreement in connection with private placement consummated
      in April 2008.  Incorporated by reference to Exhibit 10.1 to our
      Quarterly Report on Form 10-Q (File No. 000-51365), filed August 14,
      2008.10.10
                                              Master Agreement dated July 25,
      2008, between the Registrant and EPK Financial
      Corporation.Incorporated by reference to Exhibit 10.1
      to our Quarterly Report on Form 10-Q (File No. 000-51365), filed November
      14, 2008.21.1
                                              Subsidiaries of the
      Registrant.  Incorporated by reference to Exhibit 21.1 to our
      Current Report on Form 8-K (File No. 000-51365), filed May 12,
      2006.23.1
                                              Consent of Rotenberg &
      Co.


63







Exhibit
                              Number
                            Exhibit
    Title24.1
                            Power of Attorney (included on
      signature page).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
      Financial 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 Chief Executive
      Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section
      906 of the Sarbanes-Oxley Act of 2002.32.2
                            Certification of Chief Financial
      Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section
      906 of the Sarbanes-Oxley Act of 2002.




†  Each
a management contract or compensatory plan or arrangement required to be filed
as an exhibit to this report on Form 10-K.




*  Confidential
treatment has been requested with respect to certain portions of this
exhibit.  Omitted portions have been filed separately with the
Securities and Exchange Commission.


64


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
      CORPORATIONDate: March 26,
      2009
            
            /s/ Thomas
      KreigBy:
            Thomas
  KreigIts:
            Interim 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 Kreig, 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 26,
    2009Eduard
    Jaeger
            
            Officer and Director (Principal
      Executive Officer)/s/ Thomas
      Kreig
            
            Interim Chief Financial
      Officer
            
            March 26,
    2009Thomas
Kreig
            
            (Principal Financial
      Officer)/s/ Scott
      Alderton
            
            Director
            
            March 26,
    2009Scott
    AldertonDirector
            
            March 26,
    2009R. D. Peter
      Bloomer/s/ Vane
      Clayton
            
            Director
            
            March 26,
    2009Vane
Clayton   65
   Name
              
              Title
              
              Date
 /s/ Scott
    Jarus
            
            Director (Executive
      Chairman)
            
            March 26,
    2009Scott Jarus/s/ Kenneth
      Frank
            
            Director
            
            March 26,
    2009Kenneth
    Frank






66
     CONSENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
  Ironclad
Performance Wear Corporation
 2201 Park
Place, Suite 101
 El
Segundo, CA 90245
  We
consent to the inclusion of the financial statements of Ironclad Performance
Wear Corporation and our report dated March 23, 2009, with respect to the
consolidated financial statements and schedules of Ironclad Performance Wear
Corporation included in its Annual Report (Form 10-K) for the year ended
December 31, 2008, filed with the Securities and Exchange
Commission.
  We
consent to the incorporation by reference in the Registration Statements (Nos.
333-139210 and 333-145855) on Form S-8 of Ironclad Performance Wear Corporation
of our report dated March 23, 2009 relating to our audit of the consolidated
financial statements, which appears in this Annual Report on Form
10-K of Ironclad Performance Wear Corporation for the year ended December 31,
2008.
  /s/  ROTENBERG AND
COMPANY, LLP
  ROTENBERG
AND COMPANY, LLP
  Rochester,
New York
  March 23,
2009