**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
 
 **FORM
        10-QSB**
 
 QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES
        EXCHANGE ACT OF 1934
 
 **For
        the Quarterly Period Ended: June 30, 2007**
 
 **Commission
        File Number:**  **0-16075**
 
 **IRONCLAD
        PERFORMANCE WEAR CORPORATION**
 (Exact
        name of small business issuer as specified in its charter)
  **Nevada**
              
              **95-4762694**(State
                  or other jurisdiction of
                incorporation
                  or organization)
              
              (IRS
                  Employer Identification No.)
  **2201
        Park Place, Suite 101**
 **El
        Segundo, CA 90245**
 (Address
        of principal executive offices)
 
 **(310)
        643-7800**
 (Issuer’s
        telephone number)
 
 Check
        whether the issuer: (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days. Yes x No o .
  Indicate
        by check mark whether the registrant is an accelerated filer (as defined
        in Rule
        12b-2 of the Exchange Act). Yes o No x
  As
        of
        August 1, 2007, 30,126,560 shares of the registrant's common stock were
        outstanding.
  Transitional
        Small Business Disclosure Format (Check One): Yes o No x .
 
 
  **TABLE
        OF CONTENTS**
 
 PagePART
                  I
              
              Financial
                  InformationItem
                  1.
              
              Financial
                  Statements
              
              1a.
              Consolidated
                  Balance Sheet as of June 30, 2007
              
              1b.
              Consolidated
                  Statements of Operations for the three months ended June 30, 2007
                  and June
                  30, 2006 and six months ended June 30, 2007 and June 30,
                  2006
              
              2c.
              Consolidated
                  Statements of Cash Flows for the six months ended June 30, 2007
                  and June
                  30, 2006
              
              3d.
              Notes
                  to Consolidated Financial Statements
              
              4Item
                  2.
              
              Management’s
                  Discussion and Analysis or Plan of Operation
              
              15Item
                  3.
              
              Controls
                  and Procedures
              
              29PART
                  II
              
              Other
                  InformationItem
                  1.
              
              Legal
                  Proceedings
              
              30Item
                  2.
              
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              
              30Item
                  4.
              
              Submission
                  of Matters to a Vote of Security Holders
              
              30Item
                  6.
              
              Exhibits
              
              31
  
  **PART
        I**
  **ITEM
        1.**  **FINANCIAL
        STATEMENTS**
 
 **IRONCLAD
        PERFORMANCE WEAR CORPORATION**
 **CONSOLIDATED
        BALANCE SHEET**
 **(unaudited)**
 
 **June
                  30,**
                **2007****ASSETS****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              520,456Accounts
                  receivable net of allowance for doubtful accounts of
                  $26,000
              
              
              1,762,334Inventory,
                  net of reserve of $45,000
              
              
              2,741,260Prepaid
                  and other
              
              
              162,993**Total
                  current assets**
              
              
              5,187,043**PROPERTY,
                  PLANT AND EQUIPMENT**Computer
                  equipment and software
              
              
              266,112Vehicles
              
              
              46,280Office
                  equipment and furniture
              
              
              137,101Leasehold
                  improvements
              
              
              34,110Less:
                  accumulated depreciation
              
              
              (286,294
              )**Total
                  property, plant and equipment, net**
              
              
              197,309Trademarks,
                  net of $7,355 of accumulated amortization
              
              
              77,804Deposits
                  and other
              
              
              35,666**Total
                  Assets**
              
              $
              5,497,822**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****CURRENT
                  LIABILITIES**Accounts
                  payable
              
              $
              546,258Accrued
                  expenses
              
              
              1,146,306Line
                  of credit
              
              
              1,746,601Current
                  portion of capital lease
              
              
              3,435**Total
                  current liabilities**
              
              
              3,442,600**LONG
                  TERM LIABILITIES**Long
                  term portion of capital lease obligations
              
              
              0Fair
                  value of warrant liability
              
              
              52,955**Total
                  Liabilities**
              
              
              3,495,555**STOCKHOLDERS’
                  EQUITY**Common
                  stock, $.001 par value; 172,744,750 million shares authorized;30,126,560
                  shares issued and outstanding
              
              
              30,127Additional
                  paid-in capital
              
              
              11,609,595Accumulated
                  deficit
              
              
              (9,637,455
              )**Total
                  Stockholders’ Equity**
              
              
              2,002,267**Total
                  Liabilities and Stockholders’ Equity**
              
              $
              5,497,822
  See
        Notes
        to Condensed Financial Statements.
  1
  **IRONCLAD
        PERFORMANCE WEAR CORPORATION**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **(unaudited)**
  **Three Months**
                **Ended**
                **June 30,**
              
              **Three Months**
                **Ended**
                **June 30,**
              
              **Six Months**
                **Ended**
                **June 30,**
              
              **Six Months**
                **Ended**
                **June 30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****REVENUES**Net
                  sales
              
              $
              2,356,317
              
              $
              1,538,949
              
              
              4,206,249
              
              
              3,329,134**COST
                  OF SALES**Cost
                  of sales
              
              
              1,439,115
              
              
              957,790
              
              
              2,364,495
              
              
              2,040,733**GROSS
                  PROFIT**
              
              
              917,202
              
              
              581,159
              
              
              1,841,754
              
              
              1,288,401**OPERATING
                  EXPENSES**General
                  and administrative
              
              
              927,928
              
              
              599,858
              
              
              1,872,787
              
              
              1,163,658Sales
                  and marketing
              
              
              895,540
              
              
              581,937
              
              
              1,789,476
              
              
              1,104,429Research
                  and development
              
              
              153,193
              
              
              46,218
              
              
              254,873
              
              
              104,782Operations
              
              
              123,559
              
              
              133,774
              
              
              273,434
              
              
              226,011Depreciation
                  and amortization
              
              
              18,233
              
              
              8,101
              
              
              33,180
              
              
              15,370**Total
                  operating expenses**
              
              
              2,118,453
              
              
              1,369,888
              
              
              4,223,750
              
              
              2,614,250**LOSS
                  FROM OPERATIONS**
              
              
              (1,201,251
              )
              
              (788,729
              )
              
              (2,381,996
              )
              
              (1,325,849
              )**OTHER
                  INCOME (EXPENSE)**Interest
                  expense
              
              
              (31,715
              )
              
              (20,057
              )
              
              (70,278
              )
              
              (73,435
              )Interest
                  expense from warrants issued as financing cost
              
              
              0
              
              
              (256,188
              )
              
              0
              
              
              (256,188
              )Interest
                  income
              
              
              6,511
              
              
              16,013
              
              
              28,784
              
              
              16,013Change
                  in fair value of warrant liability
              
              
              (8,251
              )
              
              (2,453,018
              )
              
              12,313
              
              
              (2,453,018
              )Other
                  income (expense), net
              
              
              1,500
              
              
              2,884
              
              
              2,385
              
              
              2,181**Total
                  other income (expense)**
              
              
              (31,955
              )
              
              (2,710,366
              )
              
              (26,796
              )
              
              (2,764,447
              )**NET
                  LOSS BEFORE PROVISION FOR INCOME TAXES**
              
              
              (1,233,206
              )
              
              (3,499,095
              )
              
              (2,408,792
              )
              
              (4,090,296
              )**PROVISION
                  FOR INCOME TAXES**
              
              
              800
              
              
              0
              
              
              800
              
              
              800**NET
                  LOSS**
              
              $
              (1,234,006
              )
              $
              (3,499,095
              )
              
              (2,409,592
              )
              
              (4,091,096
              )**BASIC
                  AND DILUTED NET LOSS PER COMMON SHARE**
              
              $
              (0.04
              )
              $
              (0.15
              )
              
              (0.08
              )
              
              (0.20
              )**WEIGHTED
                  AVERAGE****COMMON
                  SHARES OUTSTANDING**
              
              
              30,103,208
              
              
              24,080,602
              
              
              30,083,742
              
              
              19,973,102
 
 See
        Notes
        to Condensed Financial Statements.
 
 2
 
 **IRONCLAD
        PERFPRMANCE WEAR CORPORATION**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(unaudited)**
  **Six Months**
                **Ended**
                **June 30,**
              
              **Six Months**
                **Ended**
                **June 30,****2007**
              
              **2006****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  loss
              
              $
              (2,409,592
              )
              $
              (4,091,096
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activitiesAllowance
                  for bad debts
              
              
              0
              
              
              24,000Depreciation
              
              
              31,415
              
              
              14,139Amortization
              
              
              1,765
              
              
              1,231Change
                  in fair value of warrant liability
              
              
              (12,313
              )
              
              2,453,018Warrants
                  issued as financing costs
              
              
              0
              
              
              256,188Non-cash
                  compensation:Common
                  stock issued for services
              
              
              41,875
              
              
              51,779Stock
                  option expense
              
              
              377,694
              
              
              245,812Changes
                  in operating assets and liabilities:Receivables
              
              
              261,458
              
              
              660,610Inventory
              
              
              324,288
              
              
              (1,371,554
              )Deposits
                  on inventory
              
              
              (40,124
              )
              
              300,277Loan
                  costs
              
              
              0
              
              
              15,798Prepaid
                  and other
              
              
              (39,378
              )
              
              (8,304
              )Accounts
                  payable and accrued liabilities
              
              
              (132,949
              )
              
              (515,947
              )Net
                  cash flows provided by (used in) operating activities
              
              
              (1,595,861
              )
              
              (1,964,049
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Property,
                  plant and equipment purchased
              
              
              (74,393
              )
              
              (43,337
              )Investment
                  in trademarks
              
              
              (2,760
              )
              
              0Net
                  cash flows used in investing activities
              
              
              (77,153
              )
              
              (43,337
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Proceeds
                  from issuance of common stock
              
              
              0
              
              
              7,828,691Offering
                  costs
              
              
              0
              
              
              (1,284,453
              )Payments
                  on notes payable
              
              
              0
              
              
              (500,000
              )Drawdown
                  on bank line of credit
              
              
              182,923
              
              
              (861,612
              )Payments
                  on capital leases
              
              
              (1,618
              )
              
              (1,316
              )Net
                  cash flows provided by (used in) financing activities
              
              
              181,305
              
              
              5,181,310**NET
                  DECREASE IN CASH**
              
              
              (1,491,709
              )
              
              3,173,924**CASH
                  AND CASH EQUIVALENTS BEGINNING OF PERIOD**
              
              
              2,012,165
              
              
              29,573**CASH
                  AND CASH EQUIVALENTS END OF PERIOD**
              
              $
              520,456
              
              $
              3,203,497**SUPPLEMENTAL
                  DISCLOSURES**Interest
                  paid in cash
              
              $
              70,248
              
              $
              73,435Income
                  taxes
              
              
              800
              
              
              800
  See
        Notes
        to Condensed Financial Statements.
  3
  **IRONCLAD
        PERFORMANCE WEAR CORPORATION**
 **Notes
        to Condensed 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. Our customers are primarily hardware and lumber
        retailers, “Big Box” home centers, industrial distributors and sporting goods
        retailers. The Company has received three patents and has four patents pending
        for design and technological innovations incorporated in its performance
        work
        gloves. The Company has 39 registered US trademarks, 10 registered international
        trademarks and 17 in-use US trademarks. The Company introduced its line of
        specialty work apparel in the fourth quarter of 2005. The apparel is engineered
        to keep the wearer dry and cool under extreme work conditions.
 
 The
        Company’s current working capital position is insufficient to support its
        historical cash outflows for inventory and operations for the continued growth
        of its business. Management is actively pursuing several avenues to increase
        its
        capital resources to augment its current cash reserves and available financing
        arrangements in order to continue its revenue growth and support its ongoing
        operations. There is no guarantee however that management will be able to
        attain
        such financing
  **2.** **Reverse
        Merger and Financing**
  Completion
        of Merger
  On
        April
        20, 2006, Ironclad Performance Wear Corporation (formerly Europa Trade Agency
        Ltd.), a Nevada corporation (the “Company”), along with Ironclad Merger
        Corporation., a Nevada corporation and the Company’s wholly owned subsidiary
        (“Merger Sub”) entered into an Agreement and Plan of Merger (the “Merger
        Agreement”) with Ironclad Performance Wear Corporation, a privately held
        California corporation (“Ironclad California”), pursuant to which Ironclad
        California would be acquired by the Company in a merger transaction wherein
        Merger Sub would merge with and into Ironclad California, with Ironclad
        California being the surviving corporation (the “Merger”). On May 9, 2006, the
        Merger closed and Ironclad California became a wholly-owned subsidiary of
        the
        Company. At the closing, the Company changed its name to Ironclad Performance
        Wear Corporation.
  Accordingly,
        from an historical perspective, Ironclad California was deemed to have been
        the
        acquirer in the reverse merger and Ironclad California is deemed the survivor
        of
        the reorganization. As a result, the financial statements of the Company
        presented reflect the historical results of Ironclad California prior to
        the
        Merger, and of the combined entities following the merger, and do not include
        the historical financial results of the entity formerly known as Europa Trade
        Agency Ltd. Common stock has been retroactively restated to reflect the
        number of shares received by Ironclad California equity holders in the Merger
        after giving effect to the difference in par value, with the offset to
        additional paid-in capital. The equity of the Company survives the
        reorganization. Upon the closing of the reorganization, the Company changed
        its
        fiscal year to December 31, beginning with the quarter ended June 30, 2006.
        All
        costs associated with the Merger were expensed as incurred.
  Principal
        Terms of the Merger
  On
        May 9,
        2006, Merger Sub was merged with and into Ironclad California, the separate
        existence of Merger Sub ceased, and Ironclad California continued as the
        surviving corporation at the subsidiary level. The Company issued shares
        of its
        common stock pursuant to certain exchange ratios set forth in the Merger
        Agreement to the stockholders of Ironclad California in exchange for 100%
        of the
        issued and outstanding shares of common stock of Ironclad California.
        Additionally, the Company assumed options to purchase shares of common stock
        and
        warrants to purchase shares of common stock on the same terms and conditions
        as
        previously issued by Ironclad California.
 
 Immediately
        prior to the Merger the Company canceled 2,000,000 shares of its common stock
        held by our former sole officer and director, Thomas Lamb, and one of its
        former
        principal stockholders Craig Lamb, pursuant to an Amended and Restated Share
        Cancellation Agreement dated May 8, 2006. Thomas Lamb and Craig Lamb received
        cash remuneration of $349,413 from third party purchasers for their agreement
        to
        cancel such shares. At the time of the payment and share cancellation the
        third
        party purchasers were also party to an Amended and Restated Share Purchase
        and
        Escrow Agreement, dated May 9, 2006 with holders of approximately 90% of
        our
        common stock. The holders of such shares of Company common stock received
        $765,938 in consideration for the transfer of their shares to the third party
        purchasers.
  4
  Immediately
        after the consummation of the cancellation and purchase transaction, but
        prior
        to the Merger, the Company effected a 3.454895-for-1 forward stock split
        of its
        common stock and increased the number of shares of authorized common stock
        to
        172,744,750.
  Immediately
        after the closing of the Merger, and without taking into consideration the
        Private Placement offering described below, the Company had outstanding
        19,858,404 shares of common stock, options to purchase 2,588,314 shares of
        common stock and warrants to purchase 2,817,416 shares of common
        stock.
  The
        Private Placement
  Immediately
        following the closing of the Merger, the Company received gross proceeds
        of
        approximately $7.3 million in a private placement transaction (the “Private
        Placement”) with institutional investors and other high net worth individuals
        (“Investors”). Pursuant to Subscription Agreements entered into with these
        Investors, the Company sold 9,761,558 Investment Units, at $0.75 per Investment
        Unit. Each “Investment Unit” consists of one share of Company common stock, and
        a five year non-callable warrant to purchase three-quarters of one share
        of
        Company common stock, at an exercise price of $1.00 per share. The value
        of the
        warrants was determined to be $5,278,388 using the Black-Scholes option pricing
        model with the following assumptions: a volatility rate of 185.5%, risk free
        interest rate of 5.13%, an expected life of five years and zero dividends.
        They
        have been recorded as a warrant liability in accordance with SFAS No. 133
        and
        EITF 00-19. On October 2, 2006, the common shares underlying the warrants
        were
        registered satisfying the warrant liability. The value of the warrant liability
        on October 2, 2006 was determined to be $6,275,422. This amount was reclassified
        to Stockholders’ Equity and a credit to income of $997,034 was recorded on
        October 2, 2006.
  As
        partial consideration for services rendered further to the Private Placement,
        one of the Company’s placement agents was issued warrants to purchase 390,464
        shares of Company common stock at an exercise price of $0.75 per share and
        warrants to purchase 292,848 shares of Company common stock at an exercise
        price
        of $1.00 per share. The value of the warrants was determined to be $494,182
        using the Black-Scholes option pricing model with the following assumptions:
        a
        volatility rate of 185.5%, risk free interest rate of 5.13%, an expected
        life of
        five years and zero dividends. They have been recorded as a warrant liability
        in
        accordance with SFAS No. 133 and EITF 00-19. On October 2, 2006 the common
        shares underlying the warrants were registered satisfying the warrant liability.
        The value of the warrant liability on October 2, 2006 was determined to be
        $586,923. This amount was reclassified to Stockholders’ Equity and a credit to
        income of $92,741 was recorded on October 2, 2006.
  Registration
        Statement
  On
        October 2, 2006 the registration statement we filed in June 2006 became
        effective, and up to 27,117,720 shares of common stock became eligible for
        sale,
        subject to the terms of certain lock-up agreements with certain holders of
        such
        shares.
 
 **3.** **Accounting
        Policies**
  Basis
        of Presentation
  The
        accompanying interim condensed consolidated financial statements are unaudited
        and have been prepared in accordance with accounting principles generally
        accepted in the United States of America (“GAAP”) including those for interim
        financial information and with the instructions for Form 10Q-SB and Article
        10
        of Regulation S-X issued by the Securities and Exchange Commission (“SEC”).
        Accordingly, they do not include all of the information and note disclosures
        required by GAAP for complete financial statements. In the opinion of
        management, all adjustments (consisting of normal recurring adjustments)
        considered necessary for a fair presentation have been reflected in these
        interim financial statements. These financial statements should be read in
        conjunction with the audited financial statements and notes for the year
        ended
        December 31, 2006 included in the Company’s Annual Report on Form 10-KSB filed
        with the SEC on March 9, 2007.
  5
  Basis
        of Consolidation
  The
        consolidated financial statements include the accounts of Ironclad Performance
        Corporation, an inactive parent company, and its wholly owned subsidiary
        Ironclad California. All significant inter-company transactions have been
        eliminated in consolidation.
  Cash
        and Cash Equivalents
  The
        Company considers all highly liquid investments with original maturities
        of
        three months or less when purchased to be cash equivalents. The Company places
        its cash with high credit quality institutions. The Federal Deposit Insurance
        Company (FDIC) insures cash amount at each institution for up to $100,000.
        From
        time to time, the Company maintains cash in excess of the FDIC
        limit.
  Accounts
        Receivable
  Trade
        receivables are carried at the original invoice amount less an estimate made
        for
        doubtful accounts. The allowance for doubtful accounts is based on management’s
        regular evaluation of individual customer receivables and consideration of
        a
        customer’s financial condition and credit history. Trade receivables are written
        off when deemed uncollectible. Recoveries of trade receivables previously
        written off are recorded when received. Interest is not charged on past due
        accounts.
  Inventory
  Inventory
        is stated at the lower of average cost (which approximates first in, first
        out)
        or market and consists primarily of finished goods. The Company regularly
        reviews its inventory quantities on hand and records a provision for excess
        and
        obsolete inventory based primarily on management’s estimated forecast of product
        demand and production requirements.
 
 Property
        and Equipment
  Property
        and equipment are recorded at cost less accumulated depreciation. Depreciation
        is recorded using the straight-line method over the estimated useful lives
        of
        the related assets, which range from three to seven years. Leasehold
        improvements are depreciated over fifteen years or the lease term, whichever
        is
        shorter. Maintenance and repairs are charged to expense as
        incurred.
  Trademarks
  The
        costs
        incurred to acquire trademarks, which are active and relate to products with
        a
        definite life cycle, are amortized over the estimated useful life of fifteen
        years. Trademarks, which are active and relate to corporate identification,
        such
        as logos, are not amortized. Pending trademarks are capitalized and reviewed
        monthly for active status.
  Long-Lived
        Asset Impairment
  The
        Company periodically evaluates whether events and circumstances have occurred
        that indicate the remaining estimated useful life of long-lived assets may
        warrant revision or that the remaining balance may not be recoverable. When
        factors indicate that the asset should be evaluated for possible impairment,
        the
        Company uses an estimate of the undiscounted net cash flows over the remaining
        life of the asset in measuring whether the asset is recoverable. Based upon
        the
        anticipated future income and cash flow from operations and other factors,
        relevant in the opinion of the Company’s management, there has been no
        impairment.
  Revenue
        Recognition
  The
        Company generally recognizes revenue when products are shipped to the customer
        and collection is reasonably assured. Revenue is recorded net of estimated
        returns, rebates and co-op offered to its customers. 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 generally 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.
  6
 
 Returns
        Policy
  The
        Company has a warranty policy that covers defects in workmanship. The Company
        also periodically accepts stock adjustments from certain customers. Stock
        adjustment returns are typically for new customers who are given the opportunity
        to ‘trade out’ of a style of product that does not sell in their territory,
        usually in exchange for another product. Historically, warranty returns have
        averaged 1% a year and stock adjustment returns have averaged approximately
        0.75% of gross sales. The Company records an estimate for these returns at
        the
        time of sale.
 
 **Reserve
                  for Warranty Returns**Reserve
                  Balance 12/31/06
              
              $
              72,000Payments
                  Recorded During the Period
              
              
              (169,110
              )(97,110
              )Accrual
                  for New Liabilities During the Reporting Period
              
              
              162,110Reserve
                  Balance 3/31/07
              
              $
              65,000Payments
                  Recorded During the Period
              
              
              (70,156
              )Accrual
                  for New Liabilities During the Reporting Period
              
              
              70,156Reserve
                  Balance 6/30/07
              
              $
              65,000
  Advertising
        and Marketing
  Advertising
        and marketing costs are expensed as incurred. Advertising expenses for the
        six
        months ended June 30, 2007 and 2006 were $418,232 and $364,987,
        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 21% of net sales for the quarter ended June 30, 2007
        and
        15% for the six months ended June 30, 2007. One customer accounted for
        approximately 12% of net sales for the quarter ended June 30, 2006, and 10%
        for
        the six months ended June 30, 2006.
  Supplier
        Concentrations
  One
        supplier, which is located overseas, accounted for approximately 60% of total
        purchases during the quarter ended June 30, 2007 and 56% for the six months
        ended June 30, 2007. One supplier, which is located overseas, accounted for
        80%
        of total purchases during the quarter ended June 30, 2006 and 76% for the
        six
        months ended June 30, 2006.
  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.
  7
  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:
  QuarterEnded
                  June 30,2007
              
              2006Options
                  outstanding under the Company’s stock option plans
              
              
              4,515,989
              
              
              5,095,134Common
                  Stock Warrants
              
              
              10,454,519
              
              
              10,812,281
 
 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.
  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 quarters
        ended
        June 30, 2007 and 2006 were $800 and $800, respectively, for the current
        state provision. There was no state deferred and federal tax provision. Due
        to
        its current net loss position, the Company has provided a valuation allowance
        in
        full on its net deferred tax assets in accordance with SFAS 109 and in light
        of
        the uncertainty regarding ultimate realization of the net deferred tax
        assets.
  Use
        of
        Estimates
  The
        preparation of financial statements requires management to make a number
        of
        estimates and assumptions relating to the reporting of assets and liabilities
        and the disclosure of contingent assets and liabilities. Actual results could
        differ from those estimates. Significant estimates and assumptions made by
        management are used for, but not limited to, the allowance for doubtful
        accounts, inventory obsolescence, allowance for returns and the estimated
        useful
        lives of long-lived assets.
  Valuation
        of Derivative Instruments
  SFAS
        No.
        133 “Accounting for Derivative Instruments and Hedging Activities” requires that
        embedded derivative instruments be bifurcated and assessed, along with
        free-standing derivative instruments such as warrants, on their issuance
        date in
        accordance with EITF 00-19 “Accounting for Derivative Financial Instruments
        Indexed to, and Potentially Settled in, a Company’s Own Stock” to determine
        whether they should be considered a derivative liability and measured at
        their
        fair value for accounting purposes. In determining the appropriate fair value,
        the Company uses the Black-Scholes-Merton Option Pricing Formula (the “Black
        Scholes Model”). At each period end, or when circumstances indicate that the
        Company reevaluate the accounting for the derivative liability, derivative
        liabilities are adjusted to reflect changes in fair value, with any increase
        or
        decrease in the fair value being recorded in results of operations as
        Adjustments to Fair Value of Derivatives.
  RECENTLY
        ISSUED ACCOUNTING PRONOUNCEMENTS
  In
        February, 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
        Assets and Liabilities - Including an Amendment of FASB Statement No. 115”
(“SFAS 159”). SFAS 159 permits entities to choose to measure certain financial
        assets and liabilities at fair value. Unrealized gains and losses, arising
        subsequent to adoption, are reported in earnings. SFAS 159 is effective for
        fiscal years beginning after November 15, 2007. The Company is required to
        adopt
        SFAS 159 in the first quarter of 2008. The Company is currently assessing
        the
        impact SFAS 159 on its consolidated financial statements.
  8
  Effective
        January 1, 2007, the Company adopted FSP No, FIN 48-1, “Definition of Settlement
        in FASB Interpretation No. 48”, (“FSP FIN-48-1”), which was issued on May 2,
        2007. FSP FIN 48-1 amends FIN 48 to provide guidance on how an entity should
        determine whether a tax position is effectively settled for the purpose of
        recognizing previously unrecognized tax benefits. The term “effectively settled”
replaces the term “ultimately settled” when used to describe recognition, and
        the terms “settlement” or “settled” replace the terms “ultimate settlement” or
“ultimately settled” when used to describe measurement of a tax position under
        FIN 48. FSP FIN 48-1 clarifies that a tax position can be effectively settled
        upon the completion of an examination by a taxing authority without being
        legally extinguished. For tax positions considered effectively settled, an
        entity would recognize the full amount of tax benefit, even if the tax position
        is not considered more likely than not to be sustained based solely on the
        basis
        of its technical merits and the statute of limitations remains open. The
        adoption of FSP FIN 48-1 did not have an impact on the accompanying financial
        statements.
  **4.** **Inventory**
  At
        June
        30, 2007 the Company had two classes of inventory - raw materials and finished
        goods. Inventory is shown net of a provision of $45,000 at June 30,
        2007.
 
 June 30,
                2007Raw
                  Materials
              
              $
              74,096Finished
                  Goods
              
              
              2,667,164Total
              
              $
              2,741,260
  **5.** **Property
        and equipment**
  Property
        and equipment consisted of the following:
 
 June 30,2007Computer
                  hardware and software
              
              $
              266,112Furniture
                  and equipment
              
              
              137,101Vehicle
              
              
              46,280Leasehold
                  improvements
              
              
              34,110483,603Less
                  accumulated depreciation
              
              
              (286,294
              )**Property
                  and equipment, net**
              
              **$**
              **197,309**
  Depreciation
        expense for the six months ended June 30, 2007 and 2006 was $31,415 and $14,139,
        respectively.
  **6.** **Trademarks
        and Patents**
  Trademarks
        consisted of the following:
 
 June
                  30,2007Trademarks
              
              $
              70,410Patents
              
              
              14,749Less:
                  Accumulated amortization
              
              
              (7,355
              )**Trademarks,
                  net**
              
              **$**
              **77,804**
  9
  Trademarks
        and patents consist of definite-lived trademarks and patents of $50,557 and
        indefinite-lived trademarks and patents of $31,603 at June 30, 2007. All
        trademark and patent costs have been generated by the Company, and consist
        of
        initial legal and filing fees.
  Amortization
        expense was $1,765 and $1,231 for the six months ended June 30, 2007 and
        2006,
        respectively.
  **7.** **Accounts
        payable and accrued expenses**
  Accounts
        payable and accrued expenses consisted of the following at June 30,
        2007:
 
 June
                  30,
                2007Accounts
                  payable
              
              $
              546,258Accrued
                  inventory
              
              
              423,314Accrued
                  rebates and co-op
              
              
              70,931Accrued
                  bonus
              
              
              183,147Accrued
                  expenses - other
              
              
              468,914**Total
                  accounts payable and accrued expenses**
              
              **$**
              **1,692,564**
  **8.** **Note
        Payable and Bank Lines of Credit**
  Notes
        Payable
  In
        October 2005, the Company obtained short term financing from Westrec Capital
        Partners, LLC. The amount of the note was $500,000. It matured at the earlier
        of
        180 days or when the Company received an aggregate of $550,000 from the sale
        of
        equity securities. The Company received a 30-day extension of the maturity
        date
        to May 20, 2006. On May 9, 2006, the Registrant closed on a private placement
        financing of $7,321,191 of common stock. Proceeds from the Private Placement
        were used to retire the Note. The loan agreement also required the issuance
        of a
        warrant to purchase 400,000 shares of common stock at $0.56 per share. Westrec
        Capital Partners, LLC also agreed to extend its bridge financing loan to
        the
        Company for up to thirty (30) days under the same terms and conditions in
        exchange for a warrant for 100,000 shares of the Company’s common stock,
        exercisable at $1.00 per share.
  The
        value
        of the 400,000 warrants was determined to be $291,368 using the Black-Scholes
        Option Pricing Model with the following assumptions: risk-free interest rate
        of
        5.13%, volatility factor of 185.5%, five-year life and zero dividends. They
        have
        been recorded as equity in accordance with SFAS No. 133 and EITF 00-19. The
        value of the 100,000 warrants was determined to be $72,097 using the
        Black-Scholes Option Pricing Model with the following assumptions: risk-free
        interest rate of 5.13%, volatility factor of 185.5%, five-year life and zero
        dividends. They have been recorded as a warrant liability in accordance with
        SFAS No. 133 and EITF 00-19, and due to the fact that the Company is obligated
        to maintain the registration of these warrants for a period of one year from
        the
        original registration date of October 2, 2006. At June 30, 2007 the Company
        revalued this liability with the following assumptions: risk free interest
        rate
        of 4.9%, volatility factor of 216.4%, five year life and zero dividends,
        and
        adjusted the current value of this warrant liability to $52,955.
  Factoring
        Agreement
  On
        September 15, 2006 the Company entered into a factoring agreement with Wells
        Fargo Century, Inc. whereby it assigned certain of its accounts receivables
        with
        full recourse. On November 21, 2006, the Company entered into an amendment
        to
        this factoring agreement. This facility allows the Company to borrow the
        lesser
        of (a) $3,000,000 or (b) the sum of (i) eighty percent (80%) of the net amount
        of eligible accounts receivable and (ii) 50% of the value of eligible inventory,
        which amount shall not exceed the lesser of $1,000,000 and the net amount
        of
        eligible accounts receivable. All of the Company’s assets secure amounts
        borrowed under the terms of this agreement. Interest on outstanding balances
        accrues at the prime rate announced from time to time by Wells Fargo Bank
        N.A.
        (or such other bank as Wells Fargo Century, Inc. shall select in its discretion)
        as its “prime” or base rate for commercial loans and the agreement has an
        initial term of twenty-four (24) months. As of June 30, 2007, total amount
        due
        to Wells Fargo Century was $1,746,601.
  10
 
 **9.** **Equity
        transactions**
  Common
        Stock
  On
        May 4,
        2007 the Company issued 62,500 shares of common stock to a consultant in
        exchange for services. The services were valued at $41,875, and were valued
        at
        $0.67 per share, which was the trading price on the grant date. There were
        30,126,560 shares of common stock of the registrant outstanding at June 30,
        2007.
 
 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
                  outstanding at March 31, 2007
              
              
              10,454,522
              
              $
              0.91Warrants
                  outstanding at June 30, 2007
              
              
              10,454,522
              
              $
              0.91
  Stock
        Based Compensation
  Ironclad
        California reserved 3,020,187 shares of its common stock for issuance to
        employees, directors and consultants under the 2000 Stock Incentive Plan,
        which
        the Company assumed in the Merger (“the 2000 Plan”). Under the 2000 Plan,
        options may be granted at prices not less than the fair market value of the
        Company’s common stock at the grant date. Options generally have a ten-year term
        and shall be exercisable as determined by the Board of Directors.
  Effective
        May 18, 2006, the Company reserved 4,250,000 shares of its common stock for
        issuance to employees, directors and consultants under its 2006 Stock Incentive
        Plan (the “2006 Plan”). Under the 2006 Plan, options may be granted at prices
        not less than the fair market value of the Company’s common stock at the grant
        date. Options generally have a ten-year term and shall be exercisable as
        determined by the Board of Directors.
  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.
  There
        were no stock options issued during the quarter ended June 30, 2007.
  A
        summary
        of stock option activity is as follows:
 
 Number of Shares
              
              Weighted
                Average
                Exercise PriceOutstanding
                  at January 1, 2007
              
              
              5,003,343
              
              $
              0.65Granted
              
              
              268,000
              
              $
              0.67Exercised
              
              
              -
              
              
              -Cancelled/Expired
              
              
              (164,011
              )
              $
              0.54Outstanding
                  at March 31, 2007
              
              
              5,107,332
              
              $
              0.65Exercisable
                  at March 31, 2007
              
              
              2,333,567
              
              $
              0.43Granted
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -Cancelled/Expired
              
              
              (591,343
              )
              $
              0.75Outstanding
                  at June 30, 2007
              
              
              4,515,989
              
              $
              0.64Exercisable
                  at June 30, 2007
              
              
              3,054,382
              
              $
              0.53
  11
  The
        following tables summarize information about stock options outstanding at
        June
        30, 2007:
  Range of Exercise
                Price
              
              Number
                Outstanding
              
              Weighted Average
                Remaining Contractual
                Life (Years)
              
              Weighted Average
                Exercise Price
              
              Intrinsic Value
                Outstanding Shares$0.19
                  - $0.35
              
              
              2,433,698
              
              
              6.66
              
              
              $0.35
              
              
              $498,383$0.
                  67 - $1.05
              
              
              2,082,291
              
              
              7.90
              
              
              $0.98
              
              
              $-0-
  The
        following tables summarize information about stock options exercisable at
        June
        30, 2007:
 
 Range
                  of Exercise
                Price
              
              Number
                Exercisable
              
              Weighted
                  Average Remaining Contractual
                Life (Years)
              
              Weighted
                  Average
                Exercise
                  Price
              
              Intrinsic
                  Value
                Exercisable
                  Shares$0.19
                  - $0.35
              
              
              2,111,185
              
              
              6.48
              
              
              $0.34
              
              
              $433,126$0.
                  67 - $1.05
              
              
              943,197
              
              
              6.59
              
              
              $0.96
              
              
              $-0-
 
 The
        Company recorded $377,694 and $245,812 of compensation expense for employee
        stock options during the six months ended June 30, 2007 and 2006, respectively.
        These compensation expense charges were recorded in the following operating
        expense categories for 2007 and 2006 respectively, general and administrative
        -
        $269,313 and $216,747; sales and marketing - $70,959 and $23,583; research
        and
        development - $23,346 and $2,627; and operations - $14,076 and $2,855. There
        was
        a total of $1,115,085 of unrecognized compensation costs related to non-vested
        share-based compensation arrangements under the Plan outstanding at June
        30,
        2007. This cost is expected to be recognized over a weighted average period
        of
        2.9 years. The total fair value of shares vested during the six months ended
        June 30, 2007 was $650,431.
 
 **10.** **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.
 
 The
        Company has not incurred any interest or penalties related to unrecognized
        tax
        benefits through June 30, 2007.   Interest and penalties associated with
        unrecognized tax benefits would be classified as additional income taxes
        in the
        statement of operations.
 
 The
        Company files income tax returns in the U.S. federal jurisdiction and various
        states. Management believes that its position relative to tax assets and
        liabilities is adequate for all open years based on its assessment of many
        factors including past experience and interpretation of tax law. As such,
        the
        Company has not recorded an adjustment to opening retained earnings related
        to
        uncertain tax positions.
 
 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.
 
 The
        company is no longer subject to U.S. federal or state income tax examinations
        by
        tax authorities for the years before 2002. Although the timing of any audits
        and
        their resolution is highly uncertain, The Company does not believe it is
        reasonably possible that the unrecognized tax benefits would materially change
        in the next twelve months. This assessment relies on estimates and assumptions
        and may involve a series of complex judgments about future events.
  The
        provision for income taxes differs from the amount that would result from
        applying the federal statutory rate for the quarter ended June 30, 2007 as
        follows:
  June 30,
                2007Statutory
                  regular federal income benefit rate
              
              
              (34.0
              )%State
                  income taxes, net of federal benefit
              
              
              (4.8
              )Change
                  in valuation allowance
              
              
              38.8Total
              
              
              -
              %
  12
 
 In
        assessing the realizability 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 June 30, 2007 consisted of the following:
 
 2007Deferred
                  tax assetsNet
                  operating loss carryforward
              
              $
              2,992,125Stock
                  option expense
              
              
              425,997Allowance
                  for doubtful accounts
              
              
              11,138Allowance
                  for product returns
              
              
              27,846Accrued
                  compensation
              
              
              127,320Inventory
              
              
              19,278Other
              
              
              3,003Valuation
                  allowance
              
              
              (3,358,028
              )Total
                  deferred tax assets
              
              
              248,679Deferred
                  tax liabilitiesState
                  tax
              
              
              (248,679
              )Total
                  deferred tax liabilities
              
              
              (248,679
              )**Net
                  deferred tax assets/liabilities**
              
              $
              -
  As
        of
        June 30, 2007, the Company had unused federal and state contribution carryovers
        of $6,680 that expire in 2009 through 2011.
 
 As
        of
        June 30, 2007, the Company had unused federal and states net operating loss
        carryforwards available to offset future taxable income of $7,022,000 and
        $7,024,000, respectively, that expire between 2009 and 2027.
 
 **11.** **Commitments
        and Contingencies**
  The
        Company was located in a temporary facility during the six months ended June
        30,
        2006. Rent expense for this temporary facility was $40,500 and continued
        through
        June 30, 2006.
  The
        Company entered into a new five-year lease with one option to renew for an
        additional five years for a corporate office and warehouse lease commencing
        in
        July 2006. The facility is located in El Segundo, California. Future minimum
        monthly lease payments on this facility are $13,752. Rent expense for the
        six
        months ended June 30, 2007 for this facility was $81,768.
  The
        Company has various non-cancelable operating leases for office equipment
        expiring through April 6, 2010. Equipment lease expense charged to operations
        under these leases was $3,835 and $4,227 for the six months ended June 30,
        2007
        and 2006, respectively.
 
 The
        Company has entered into an agreement to outsource its warehouse and fulfillment
        functions in order to increase operating efficiencies and accommodate future
        growth. The
        Company has chosen AMS Fulfillment, Inc., which offers
        turnkey distribution services for retail, wholesale and web-based client
        programs. Ironclad will be consolidating its inventory from two separate
        sites
        and moving it to AMS Fulfillment’s facility located in the Los Angeles area. The
        move will take place in August 2007. AMS will perform all warehousing, assembly,
        packaging and fulfillment services for the Company.
  13
  Ironclad
        California executed a Separation Agreement with Eduard Jaeger effective in
        April
        2004. Pursuant to the terms of the Separation Agreement, if Ironclad terminates
        Mr. Jaeger’s employment with Ironclad California at any time other than for
        Cause, then Ironclad California must pay Mr. Jaeger (a) all accrued and unpaid
        salary and other compensation payable by the Company for services rendered
        through the termination date, payable in a lump sum payment on the termination
        date; and (b) a cash amount equal to Two Hundred Thousand Dollars ($200,000),
        payable in installments throughout the one (1) year period following the
        termination date in the same manner as Ironclad California pays salaries
        to its
        other executive officers. The Separation Agreement requires Mr. Jaeger to
        sign a
        general release and non-competition agreement in order to receive the lump
        sum
        payment. For the purposes of the Separation Agreement, termination for “Cause”
means termination by reason of: (i) any act or omission knowingly undertaken
        or
        omitted by Executive with the intent of causing damage to Ironclad California,
        its properties, assets or business or its stockholders, officers, directors
        or
        employees; (ii) any improper act of Mr. Jaeger involving a material personal
        profit to him, including, without limitation, any fraud, misappropriation
        or
        embezzlement, involving properties, assets or funds of Ironclad or any of
        its
        subsidiaries; (iii) any consistent failure by Mr. Jaeger to perform his normal
        duties as directed by the Chairman of the Board, in the sole discretion of
        the
        Board; (iv) any conviction of, or pleading nolo contendere to, (A) any crime
        or
        offense involving monies or other property of Ironclad; (B) any felony offense;
        or (C) any crime of moral turpitude; or (v) the chronic or habitual use or
        consumption of drugs or alcoholic beverages.
 
 **12.** **Legal
        Proceedings**
  On
        September 12, 2006, American Sports Group, Inc. (“ASG”) filed a lawsuit against
        the Company, including Ironclad California, and certain individuals, in the
        Superior Court of the State of California for the County of Los Angeles.
        ASG
        alleges that in 2002, Ironclad California agreed to issue, and did in fact
        issue, to ASG, two warrants to purchase shares of Ironclad California. These
        warrants, if issued, would represent rights to purchase 517,746 shares of
        the
        Company’s common stock at $0.1157 per share, and 476,410 shares of the Company’s
        common stock at $0.1388 per share, respectively, based on the number of shares
        of Ironclad California and exercise prices for which the original warrants
        would
        have been exchanged pursuant to the Merger Agreement.
  On
        October 31, 2006, Ironclad California filed a cross-complaint against ASG
        and
        certain other defendants. In January 2007, Ironclad California filed an
        amendment to its cross-complaint and named additional cross-defendants. ASG
        filed a demurrer to Ironclad California's cross-complaint which was heard
        on April 5, 2007.  Following the hearing, the Court ruled
        that Ironclad could proceed with claims based on unfair business practices,
        aiding and abetting unfair business practices and conspiracy but ruled that
        its
        contract claims were time barred.  Ironclad California filed another
        amended cross-complaint on April 16, 2007.  ASG responded to the
        amended cross-complaint on May 16, 2007.
  The
        parties are currently in the process of conducting discovery on both the
        original complaint and the cross-complaint, and several depositions relating
        to
        Ironclad California’s cross-complaint have already occurred and several others
        are being scheduled.
  If
        plaintiff is successful in its claim, the Company agreed to cause the issuance
        of additional shares of its common stock to each of the investors in the
        Private
        Placement financing, and to each of the holders of its shares issued and
        outstanding immediately prior to the Merger, on a pro rata basis, in such
        a
        manner and in such amounts as would be necessary to adjust their respective
        ownership of the Company’s common stock as of the closing of the Private
        Placement financing and Merger for any dilution caused by the issuance of
        the
        warrants or any shares thereunder.
  According
        to the Company’s records, the transactions pursuant to which the warrants were
        intended to be issued were never consummated, and the warrants were never
        formally authorized. The Company’s position in the lawsuit is that any purported
        warrants that ASG possesses are invalid and unenforceable. The Company believes
        ASG’s claims are without merit and the Company is vigorously defending against
        these claims.
  **13.** **Related
        Party Transactions**
  Mr.
        Alderton, an Ironclad Board member since August 2002, is a partner of the
        law
        firm, Stubbs, Alderton and Markiles, LLP (“SAM”) which is Ironclad’s attorney of
        record. SAM rendered services to Ironclad California as its primary legal
        firm
        since 2002, and became our primary legal counsel upon closing of the merger
        with
        Ironclad California on May 9, 2006.
  14
  **ITEM
        2.****MANAGEMENT’S
        DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**
 
 *This
        discussion summarizes the significant factors affecting the operating results,
        financial condition and liquidity and cash flows of the Company for the three
        months and six months ended June 30, 2007 and 2006. The following discussion
        of
        our results of operations and financial condition should be read together
        with
        the consolidated financial statements and the notes to those statements included
        elsewhere in this report. Except for historical information, the matters
        discussed in this Management’s Discussion and Analysis of Financial Condition
        and Results of Operations are forward looking statements that involve risks
        and
        uncertainties and are based upon judgments concerning various factors that
        are
        beyond our control. Our actual results could differ materially from the results
        anticipated in any forward-looking statements as a result of a variety of
        factors, including those discussed in “—Risk Factors.”*
 
 **Overview**
  We
        are a
        leading designer and manufacturer of branded performance work wear. Founded
        in
        1998, we have grown and leveraged our proprietary technologies to produce
        task-specific gloves and performance apparel that are designed to significantly
        improve the wearer’s ability to safely, efficiently and comfortably perform
        general to highly specific job functions. We have built and continue to augment
        our reputation among professionals in the construction and industrial service
        markets, and do-it-yourself and sporting goods consumers with products
        specifically designed for individual tasks or task types. Utilizing our brand
        equity, we are currently expanding our performance apparel product line (e.g.
        pants, jackets, shorts, reflective and polo shirts, underwear and tights)
        also
        designed to enhance the wearer’s comfort and performance. We believe that our
        dedication to quality and durability and focus on our client needs has created
        a
        high level of brand loyalty and has solidified substantial brand
        equity.
  We
        plan
        to increase our domestic revenues by leveraging our relationships with existing
        retailers and industrial distributors, including “Big Box” and sporting goods
        retailers, increasing our product offerings in new and existing locations.
        We
        also plan to sell our expanded apparel line to work wear retailers.
  We
        believe that our products have international appeal. In 2005, we began selling
        products in Australia and Japan through independent distributors, which
        accounted for approximately 4% of total sales. In 2006, we entered the Canadian
        market through a distributor, and international sales represented approximately
        7% of total sales. We plan to increase sales internationally by expanding
        our
        distribution into Europe and other international markets during the fiscal
        year
        ending December 31, 2007.
 
 Our
        historical operations before May 9, 2006 reflect only the operations of Ironclad
        Performance Wear Corporation, a California corporation (or “Ironclad
        California”). Before May 9, 2006, we existed as a “shell company” with nominal
        assets whose sole business was to identify, evaluate and investigate various
        companies to acquire or with which to merge. On May 9, 2006, we consummated
        a
        merger transaction in which we acquired all of the shares of Ironclad California
        (the “Merger”). Concurrently with the closing of the merger we completed a
        private placement financing and certain other transactions related to the
        merger. Upon completion of the merger and the private placement financing,
        Ironclad California became our wholly-owned subsidiary, and the former
        stockholders of Ironclad California and the investors in the private placement
        financing received in the aggregate 26,130,548 shares of our common stock,
        or
        approximately 88% of our issued and outstanding shares of common stock. Ironclad
        California was formed and commenced its business in 1998. Our merger with
        Ironclad California was accounted for as a reverse merger with Ironclad
        California deemed to be the accounting acquirer, and us the legal
        acquirer.
 
 **General**
  Net
        sales
        are comprised of gross sales less returns and cash discounts. Our operating
        results are seasonal, with a greater percentage of net sales being earned
        in the
        third and fourth quarters of our fiscal year due to the fall and winter selling
        seasons.
 
 Cost
        of
        goods sold consists primarily of product costs, inbound freight and duty
        costs,
        handling costs to make products floor-ready to customer specifications and
        a
        reserve for inventory obsolescence.
 
 Our
        operating expenses consist primarily of marketing costs, non-marketing payroll
        and related costs, corporate infrastructure costs and our distribution facility
        costs. We expect that our operating expenses will decrease as a percentage
        of
        net sales if we are able to increase our net sales through expansion and
        growth.
        We expect this reduction in operating expenses to be offset by investment
        in
        sales and marketing to achieve brand growth, the development of new product
        lines, and the increased costs of operating as a public
        company.
  15
 
 Historically,
        we have funded our working capital needs primarily through our existing
        asset-based credit facility along with subordinated debt. In 2005, we completed
        an equity financing, the proceeds of which were used to extinguish certain
        subordinated debt. In 2006 we have completed two equity financing transactions.
        A portion of the proceeds of the second equity financing transaction was
        used to
        extinguish certain debt. On September 15, 2006 the Company entered into a
        factoring agreement whereby it assigned certain of its accounts receivables
        with
        full recourse. This facility allows the Company to borrow 80% against eligible
        accounts receivable, up to $3,000,000. This facility had an outstanding balance
        of $1,746,601 at June 30, 2007.
 
 **Critical
        Accounting Policies and Estimates**
  Our
        Management’s Discussion and Analysis of Financial Condition of Plan of
        Operations section discusses our financial statements, which have been prepared
        in accordance with accounting principles generally accepted in the United
        States. To prepare these financial statements, we must make estimates and
        assumptions that affect the reported amounts of assets and liabilities. These
        estimates also affect our reported revenues and expenses. On an ongoing basis,
        Management evaluates its estimates and judgment, including those related
        to
        revenue recognition, accrued expenses, financing operations and contingencies
        and litigation. Management bases its estimates and judgment on historical
        experience and on various other factors that are believed to be reasonable
        under
        the circumstances, the results of which form the basis for making judgments
        about the carrying value of assets and liabilities that are not readily apparent
        from other sources. Actual results may differ from these estimates under
        different assumptions or conditions. The following represents a summary of
        our
        critical accounting policies, defined as those policies that we believe are
        the
        most important to the portrayal of our financial condition and results of
        operations and that require management’s most difficult, subjective or complex
        judgments, often as a result of the need to make estimates about the effects
        of
        matters that are inherently uncertain.
  **Revenue
        Recognition**
  Under
        our
        sales model, a customer is obligated to pay us for products sold to it within
        a
        specified number of days from the date that title to the products is transferred
        to the customer. Our standard terms are typically net 30 days from the transfer
        of title to the products to a customer. We typically collect payment from
        a
        customer within 30 to 45 days from the transfer of title to the products
        to a
        customer. Transfer of title occurs and risk of ownership passes to a customer
        at
        the time of shipment or delivery, depending on the terms of our agreement
        with a
        particular customer. The sale price of our products is substantially fixed
        or
        determinable at the date of sale based on purchase orders generated by a
        customer and accepted by us. A customer’s obligation to pay us for products sold
        to it is not contingent upon the resale of those products. We recognize revenue
        at the time product is delivered to a customer.
  
 **Inventory
        Obsolescence Allowance**
  We
        review
        the inventory level of all products quarterly. For all items that have been
        in
        the market for one year or greater, we consider inventory levels of greater
        than
        one year’s sales to be excess. Products that are no longer part of the current
        product offering are considered obsolete. The potential for re-sale of
        slow-moving and obsolete inventories is based upon our assumptions about
        future
        demand and market conditions. The recorded cost of obsolete inventories is
        then
        reduced to zero and a reserve is established for slow moving products. Both
        the
        write down and reserve adjustments are recorded as charges to cost of goods
        sold. For the six months ended June 30, 2007, we decreased our inventory
        reserve
        by $75,000, to a current balance of $45,000 and recorded a corresponding
        decrease in cost of goods sold. For the six months ended June 30, 2006, we
        increased our inventory reserve by $10,000, to a balance of $42,000 and recorded
        a corresponding increase in cost of goods sold. All adjustments for obsolete
        inventory establish a new cost basis for that inventory as we believe such
        reductions are permanent declines in the market price of our products.
        Generally, obsolete inventory is sold to companies that specialize in the
        liquidation of these items or contributed to charities, while we continue
        to
        market slow-moving inventories until they are sold or become obsolete. As
        obsolete or slow-moving inventory is sold or disposed of, we reduce the
        reserve.
 
 **Allowance
        for Doubtful Accounts**
  We
        maintain allowances for doubtful accounts for estimated losses resulting
        from
        the inability of our customers to make required payments. Our current customers
        consist of large national, regional and smaller independent customers with
        good
        payment histories with us. Since we have not experienced any previous payment
        defaults with any of our current customers, our allowance for doubtful accounts
        is minimal. We perform periodic credit evaluations of our customers and maintain
        allowances for potential credit losses based on management’s evaluation of
        historical experience and current industry trends. If the financial condition
        of
        our customers were to deteriorate, resulting in the impairment of their ability
        to make payments, additional allowances may be required. New customers are
        evaluated for credit worthiness before terms are established. Although we
        expect
        to collect all amounts due, actual collections may differ.
  16
  **Product
        Returns**
  We
        have a
        warranty policy that covers defects in workmanship. We allow our customers
        to
        return damaged or defective products to us following a customary return
        merchandise authorization process. We also allow for some stock adjustments
        returns, typically for new customers, whereby the customer is given the
        opportunity to ‘trade out’ of a style of product that does not sell well in
        their territory, usually in exchange for another product, again following
        the
        customary return merchandise authorization process. For both types of returns
        we
        utilize actual historical return rates to determine our allowance for returns
        in
        each period. Gross sales is reduced by estimated returns. We record a
        corresponding accrual for the estimated liability associated with the estimated
        returns which is based on the historical gross sales of the products
        corresponding to the estimated returns. This accrual is offset each period
        by
        actual product returns.
  Our
        current estimated future warranty product return rate is approximately 1.0%
        and
        our current estimated future stock adjustment return rate is approximately
        0.75%. As noted above, our return rate is based upon our past history of
        actual
        returns and we estimate amounts for product returns for a given period by
        applying this historical return rate and reducing actual gross sales for
        that
        period by a corresponding amount. We believe that using a trailing 12-month
        return rate provides us with a sufficient period of time to establish recent
        historical trends in product returns for two primary reasons; (1) our products
        useful life is approximately 3-4 months and (2) we are able to quickly correct
        any significant quality issues as we learn about them. If an unusual
        circumstance exists, such as a product that has begun to show materially
        different actual return rates as compared to our average 12-month return
        rates,
        we will make appropriate adjustments to our estimated return rates. Factors
        that
        could cause materially different actual return rates as compared to the 12-month
        return rates include a new product line, a change in materials or product
        being
        supplied by a new factory. Although we have no specific statistical data
        on this
        matter, we believe that our practices are reasonable and consistent with
        those
        of our industry. Our warranty terms under our arrangements with our suppliers
        do
        not provide for individual products returned by retailers or retail customers
        to
        be returned to the vendor.
 
 **Reserve
        for Warranty Returns**
  Reserve
                  balance January 1, 2007
              
              
              72,000Payments
                  recorded during the period
              
              
              (169,110
              )(97,110
              )Accrual
                  for new liabilities during the reporting period
              
              
              162,110Reserve
                  balance March 31, 2007
              
              $
              65,000Payments
                  recorded during the period
              
              
              (70,155
              )(5,155
              )Accrual
                  for new liabilities during the reporting period
              
              
              70,155Reserve
                  balance June 30, 2007
              
              $
              65,000
 
 **Stock
        Based Compensation**
  On
        January 1, 2006, we adopted the provisions of Financial Accounting Standards
        Board Statement 123R, *Share-Based
        Payment* (“SFAS
        123R”). This statement establishes standards surrounding the accounting for
        transactions in which an entity exchanges its equity instruments for goods
        and
        services. The statement focuses primarily on accounting for transactions
        in
        which an entity obtains employee services in share-based payment transactions,
        such as the options issued under the Company’s Stock Option Plans. The statement
        provides for, and we have elected to adopt the standard using the modified
        prospective application under which compensation cost is recognized on or
        after
        the required effective date for the fair value of all future share based
        award
        grants and the portion of outstanding awards at the date of adoption of this
        statement for which the requisite service has not been rendered, based on
        the
        grant-date fair value of those awards calculated under Statement 123 for
        pro
        forma disclosures.
  17
  **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 the Company has reported losses for 2003,
        2004, 2005 and 2006, we have taken the conservative approach, and 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.
 
 **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.
  **Results
        of Operations**
  **Comparison
        of Three and Six Months Ended June 30, 2007 and June 30,
        2006**
  *Net
        Sales* increased $817,368 or 53.1% *,* to
        $2,356,317 in the quarter ended June 30, 2007 from $1,538,949 for the
        corresponding period in 2006. One customer accounted for 21% of net sales
        during
        the quarter ended June 30, 2007 and one customer accounted for 12% of net
        sales
        for the quarter ended June 30, 2006. Net sales increased $877,115 or
        26.3% *,* to
        $4,206,249 in the six months ended June 30, 2007 from $3,329,134 for the
        corresponding period in 2006. One customer accounted for 15% of net sales
        during
        the six months ended June 30, 2007 and no customer accounted for more than
        10%
        of net sales for the corresponding period in 2006. Included in net sales
        are
        co-op advertising expenses of approximately $30,000 and $21,000 for the three
        months ended June 30, 2007 and 2006, respectively.
  *Gross
        Profit* increased $336,043 to $917,202 for the quarter ended June 30, 2007 from $581,159
        for the quarter ended June 30, 2006. Gross profit, as a percentage of net
        sales,
        or gross margin, increased to 38.9% in the second quarter of 2007 from 37.8%
        in
        the same quarter of 2006. Gross profit increased $553,353 to $1,841,754 for
        the
        six months ended June 30, 2007 from $1,288,401 for the six months ended June
        30,
        2006. Gross profit, as a percentage of net sales, or gross margin, increased
        to
        43.8% for the first six months of 2007 from 38.7% in the corresponding period
        of
        2006. Our product mix in both 2006 and 2007 included a large promotional
        sale to
        a major home center chain at a lower margin than we normally achieve, thereby
        reducing gross profit for the period. Additionally, gross margin has been
        improved by reduced product costs due to better pricing from our manufacturers
        in 2007.
  18
  *Operating
        Expenses* increased by $748,565, or 54.6%, to $2,118,453 in the second quarter of 2007
        from $1,369,888 in the second quarter of 2006. As a percentage of net sales,
        operating expenses increased to 89.9% in the second quarter of 2007 from
        89.0%
        in the same period of 2006. Operating expenses increased by $1,609,500, or
        61.6%, to $4,223,750 in the six months ended June 30, 2007 from $2,614,250
        in
        the corresponding period of 2006. As a percentage of net sales, operating
        expenses increased 21.9% to 100.4% for the first six months of 2007 from
        78.5%
        in the same period of 2006. The increased spending for the second quarter
        of
        2007 was primarily due to increased costs associated with implementing brand
        development initiatives, including print and cooperative advertising -
        approximately $17,000; increased rents of $22,000; increased public company
        costs of $247,000; increased travel & entertainment expenses of $71,000;
        increased office expenses of $12,000; salaries, bonus accrual, and taxes
        and
        benefits expenses of approximately $412,000 and decreased Financial Accounting
        Standards No. 123R options expense of $(34,000). Our number of employees
        increased to 33 at June 30, 2007 from 21 at June 30, 2006. Sales and marketing
        expenses were increased to build brand recognition and increase
        sales.
 
 *Loss
        from Operations*increased $412,522 or 52.3%, to $1,201,251 in the second quarter of 2007
        from
        $788,729 in second quarter of 2006. Loss from operations as a percentage
        of net
        sales decreased to 51.0% in the second quarter of 2007 from 51.3% in the
        second
        quarter of 2006. Loss from operations increased $1,056,147 or 79.7%, to
        $2,381,996 in the six months ended June 30, 2007 from $1,325,849 in the
        corresponding period of 2006. Loss from operations as a percentage of net
        sales
        increased to 56.6% in the six months ended June 30, 2007 from 39.8% in the
        same
        period of 2006. The increase in the six month period was primarily the result
        of
        an increase in operating expenses, as discussed above, offset in part by
        our
        increase in gross profit.
  *Interest
        Expense* decreased $244,530 to $31,715 in the second quarter of 2007 from $276,245
        in the
        same period of 2006. Interest expense decreased $259,342 to $70,278 in the
        six
        months ended June 30, 2007 from $329,620 in the same period of 2006. The
        first
        six months of 2007 did not include the short term financing with Westrec
        Capital
        Partners or the amortization of the loan acquisition costs associated with
        this
        debt, which was in place in 2006.
  *Interest
        Income* decreased $9,502 in the second quarter of 2007 to $6,511 from $16,013 in
        the
        second quarter of 2006. Interest income increased $12,771 in the six months
        ended June 30, 2007 to $28,784 from $16,013 in the same period of 2006. Interest
        income is a result of investment of funds from the private equity funding
        completed concurrent with the merger on May 9, 2006.
  *Other
        Income (Expense)* net was
        $1,500 in the second quarter of 2007 as compared with $2,884 in the second
        quarter of 2006. Change in the fair value of warrant liability was $8,251
        in the
        second quarter as compared to $2,453,018 for the second quarter of 2006.
        Other
        income (expense) net was $2,385 in the six months ended June 30, 2007 as
        compared with $2,181 in the same period of 2006. Change in the fair value
        of
        warrant liability was $(12,313) in the six months ended June 30, 2007 as
        compared to $2,453,018 for the same period of 2006. This change represents
        the
        difference in the fair value of warrants recorded as liabilities at their
        issue
        date on May 9, 2006. These warrants will be revalued at the end of each
        reporting period until the terms of the registration statement for the shares
        and warrants issued, that result in liability accounting, are satisfied.
        At June
        30, 2007 there is one warrant which will remain open as a liability until
        its
        terms are satisfied in October, 2007.
  *Net
        Loss* decreased $2,265,089 to $1,234,006 in the second quarter of 2007 from $3,499,095
        in the second quarter of 2006. Net loss decreased $1,681,504 to $2,409,592
        in
        the six months ended June 30, 2007 from $4,091,096 in the same period of
        2006.
        This decreased loss is the result of the combination of each of the factors
        discussed above, principally the change in the fair value of warrant
        liability.
  **Seasonality
        and Quarterly Results**
  Our
        business generally shows an increase in sales during the third and fourth
        quarters due primarily to a consistent increase in the sale of our winter
        glove
        line during this period. We typically generate 55% - 65% of our net sales
        during
        these months. Management has yet to determine whether our apparel line will
        affect the seasonality of our overall business.
  Our
        working capital, at any particular time, reflects the seasonality of our
        business. We expect inventory, accounts payable and accrued expenses to be
        higher in the third and fourth quarters in preparation for our winter selling
        season.
  19
  **Liquidity
        and Capital Resources**
  Our
        cash
        requirements are principally for working capital. Our need for working capital
        is seasonal, with the greatest requirements from July through the end of
        October
        each year as a result of our inventory build-up during this period for our
        fall
        and winter selling seasons. Historically, our main sources of liquidity have
        been borrowings under our existing revolving credit facility, the issuance
        of
        subordinated debt and the sale of equity. On September 15, 2006 the Company
        entered into a new factoring agreement, whereby it assigned certain of its
        accounts receivable with full recourse. This facility allows the Company
        to
        borrow 80% against eligible accounts receivable, up to $3,000,000.
  *Operating
        Activities* for the
        six months ended June 30, 2007, cash used in operating activities was $1,595,861
        and consisted primarily of a net loss of $2,409,592, reduced by non-cash
        items
        of $440,436, a decrease in accounts receivable of $261,458, a decrease in
        inventory of $324,288, an increase in deposits on inventory of $40,124, an
        increase in prepaid expenses and other assets of $39,378, and a decrease
        in
        accounts payable and accrued expenses of $132,949. For the six months ended
        June
        30, 2006, cash used in operating activities was $1,964,049 and consisted
        primarily of a net loss of $4,091,096, reduced by non-cash items of $3,046,167,
        a decrease in accounts receivable of $660,610, an increase in inventory of
        $1,371,554, a decrease in deposits on inventory of $300,277, a decrease in
        loan
        costs of $15,798, an increase in prepaid expenses and other assets of $8,304,
        and decreases in accounts payable and accrued expenses of $515,947.
 
 *Investing
        Activities*for the
        six months ended June 30, 2007 and 2006 were primarily the result of capital
        expenditures, mainly for computer equipment and software and trademark
        applications. Cash used in investing activities increased to $77,153 for
        2007
        from $43,337 in 2006.
  *Financing
        Activities* for the
        six months ended June 30, 2007 consisted primarily of net borrowing under
        our
        existing factoring agreement of $182,923 and payments on capital lease of
        $1,618. Cash provided by financing activities increased $181,305 for 2007.
        Financing activities for the six months ended June 30, 2006 consisted primarily
        of proceeds from the issuance of common stock of $507,500, the completion
        of the
        merger related equity financing of $6,036,738 (net of $1,284,453 in offering
        costs), and was offset by payments made on our bank lines of credit of $861,612,
        outstanding note payable of $500,000, and payments on a capital lease of
        $1,316.
        We believe that our cash flows from operations together with the net proceeds
        from our offering and our factoring agreement may not be adequate to meet
        our
        liquidity needs and capital expenditure requirements for the immediate
        future.
 
 **Off
        Balance Sheet Arrangements**
 
 At
        June
        30, 2007, 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.
  **Recent
        Accounting Pronouncements**
  SFAS
        No. 159
  In
        February, 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
        Assets and Liabilities - Including an Amendment of FASB Statement No. 115”
(“SFAS 159”). SFAS 159 permits entities to choose to measure certain financial
        assets and liabilities at fair value. Unrealized gains and losses, arising
        subsequent to adoption, are reported in earnings. SFAS 159 is effective for
        fiscal years beginning after November 15, 2007. The Company is required to
        adopt
        SFAS 159 in the first quarter of 2008. The Company is currently assessing
        the
        impact SFAS 159 on its consolidated financial statements.
  **Risk
        Factors**
  *Investing
        in our common stock involves a high degree of risk. You should carefully
        consider the following risk factors and all other information contained in
        this
        report before purchasing our common stock. The risks and uncertainties described
        below are not the only ones facing us. Additional risks and uncertainties
        that
        we are unaware of, or that we currently deem immaterial, also may become
        important factors that affect us. If any of the following risks occur, our
        business, financial condition or results of operations could be materially
        and
        adversely affected. In that case, the trading price of our common stock could
        decline, and you may lose some or all of the money you paid to purchase our
        common stock.*
  20
  **RISKS
        RELATING TO OUR BUSINESS**
  **Our
        operating results may fluctuate significantly and our stock price could decline
        or fluctuate if our results do not meet the expectation of analysts or
        investors.**
  Management
        expects that we will experience substantial variations in our net sales and
        operating results from quarter to quarter. We believe that the factors which
        influence this variability of quarterly results include:
  ·
              the
                  timing of our introduction of new product lines, particularly our
                  specialty apparel;
  ·
              the
                  level of consumer acceptance of each new product
                  line;
  ·
              general
                  economic and industry conditions that affect consumer spending
                  and
                  retailer purchasing;
  ·
              the
                  availability of manufacturing
                  capacity;
  ·
              the
                  seasonality of the markets in which we
                  participate;
  ·
              the
                  timing of trade shows;
  ·
              the
                  product mix of customer orders;
  ·
              the
                  timing of the placement or cancellation of customer
                  orders;
  ·
              the
                  weather;
  ·
              transportation
                  delays;
  ·
              quotas
                  and other regulatory matters; and
  ·
              the
                  timing of expenditures in anticipation of increased sales and actions
                  of
                  competitors.
  As
        a
        result of fluctuations in our revenue and operating expenses that may occur,
        management believes that period-to-period comparisons of our results of
        operations are not a good indication of our future performance. It is possible
        that in some future quarter or quarters, our operating results will be below
        the
        expectations of securities analysts or investors. In that case, our common
        stock
        price could fluctuate significantly or decline.
  
 **We
        may need additional funding to support our operations and capital expenditures,
        which may not be available to us and which lack of availability could adversely
        affect our business.**
  We
        intend
        to fund our operations and capital expenditures from limited cash flow from
        operations, our cash on hand, the net proceeds of the private placement
        completed on May 9, 2006 and the factoring agreement entered into on September
        15, 2006. We believe we will have sufficient funds to finance the cost of
        our
        operations and planned expansion for the foreseeable future. As part of our
        planned growth and expansion, we will be required to make expenditures necessary
        to expand and improve our operating and management infrastructure. We also
        plan
        to invest more heavily in research and development of new products, designs
        or
        services. In addition, we may need additional funds to pursue business
        opportunities (such as acquisitions of complementary businesses), to react
        to
        unforeseen difficulties or to respond to competitive pressures.
  If
        our
        capital resources are insufficient, we will need to raise additional funds.
        There can be no assurance that any financing arrangements will be available
        in
        amounts or on terms acceptable to us, if at all. Furthermore, the sale of
        additional equity or convertible debt securities may result in additional
        dilution to existing stockholders. If adequate additional funds are not
        available, we may be required to delay, reduce the scope of or eliminate
        material parts of the implementation of our business strategy. This limitation
        could substantially harm our business, results of operations and financial
        condition.
  21
  **We
        have a history of operating losses and there can be no assurance that we
        can
        achieve or maintain profitability.**
  We
        have a
        history of operating losses and may not achieve or sustain profitability.
        We
        cannot guarantee that we will become profitable. Even if we achieve
        profitability, given the competitive and evolving nature of the industry
        in
        which we operate, we may be unable to sustain or increase profitability and
        our
        failure to do so would adversely affect our business, including our ability
        to
        raise additional funds.
  **We
        may be unable to effectively manage our growth.**
  Our
        strategy envisions growing our business. We plan to expand our technology,
        sales, administrative and marketing organizations. Any growth in or expansion
        of
        our business is likely to continue to place a strain on our management and
        administrative resources, infrastructure and systems. As with other growing
        businesses, we expect that we will need to further refine and expand our
        business development capabilities, our systems and processes and our access
        to
        financing sources. We also will need to hire, train, supervise and manage
        new
        employees. These processes are time consuming and expensive, will increase
        management responsibilities and will divert management attention. We cannot
        assure you that we will be able to:
  ·
              expand
                  our systems effectively or efficiently or in a timely
                  manner;·
              allocate
                  our human resources optimally;·
              meet
                  our capital needs;·
              identify
                  and hire qualified employees or retain valued employees;
                  or·
              incorporate
                  effectively the components of any business or product line that
                  we may
                  acquire in our effort to achieve
                  growth.
 
 Our
        inability or failure to manage our growth and expansion effectively could
        harm
        our business and materially and adversely affect our operating results and
        financial condition.
 
 **Substantially
        all of our revenues have been derived from a relatively limited product line
        consisting of task-specific gloves and performance apparel, and our future
        success depends on our ability to expand our product line and achieve broader
        market acceptance of our company and our products.**
  To
        date,
        our products have consisted mainly of task-specific gloves and performance
        apparel, targeted primarily to the construction, do-it-yourself, industrial
        and
        sporting goods markets. Our success and the planned growth and expansion
        of our
        business depend on us achieving greater and broader acceptance in our existing
        market segments as well as in new segments. In particular, our success, growth
        and expansion depend largely on new and increasing sales of our recently
        expanded performance apparel. We have little or virtually no experience in
        this
        line of business, which creates substantial uncertainty regarding our ability
        to
        succeed in this sector. We will be required to develop and execute a strategy
        for effectively marketing and distributing our performance apparel. We may
        be
        required to enter into new arrangements and relationships with vendors,
        suppliers and others. We also may be required to undertake new types of risks
        or
        obligations that we may be unable to manage. There can be no assurance that
        consumers will purchase our products or that retail outlets will stock our
        products. Though we plan to spend significant amounts on promotion, marketing
        and advertising to increase product awareness, we cannot guarantee that these
        expenses will generate the desired product awareness or commensurate increase
        in
        sales of our products. If we are unable to effectively market and distribute
        our
        performance apparel or expand into new market segments, we will be unable
        to
        grow and expand our business or implement our business strategy as described
        in
        this report. This could materially impair our ability to increase sales and
        revenue and materially and adversely affect our margins, which could harm
        our
        business and cause our stock price to decline.
  **We
        may be unable to compete successfully against existing and future competitors,
        which could decrease our revenue and margins and harm our
        business.**
  The
        performance task-specific glove and apparel segments of the apparel industry
        are
        highly competitive. Our future growth and financial success depend on our
        ability to further penetrate and expand our existing distribution channels
        and
        to increase the size of our average annual net sales per account in these
        channels, as well as our ability to penetrate and expand other distribution
        channels. For example, we encounter competition in our existing 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.
  22
  **Failure
        to expand into new distribution channels and new international markets could
        materially and adversely impact our growth plan and
        profitability.**
  Our
        sales
        growth depends in part on our ability to expand from the hardware and lumber
        retail channels and industrial distributors that we have focused on for the
        past
        eight years into new distribution channels, particularly “Big Box” home centers
        and work wear and sporting goods retailers. Failure to expand into these
        mass-market channels could severely limit our growth.
  Our
        business plan also depends in part on our ability to expand into international
        markets. We have begun the distribution of our products in Japan, Australia
        and
        Canada and we are in the process of establishing distribution in Europe and
        other international markets. Failure to expand international sales through
        these
        and other markets could limit our growth capability and leave us vulnerable
        solely to United States market conditions.
 
 **Our
        dependence on independent manufacturers reduces our ability to control the
        manufacturing process, which could harm our sales, reputation and overall
        profitability.**
  We
        depend
        on independent contract manufacturers to maintain sufficient manufacturing
        and
        shipping capacity in an environment characterized by declining prices, labor
        shortages, continuing cost pressure and increased demands for product innovation
        and speed-to-market. This dependence could subject us to difficulty in obtaining
        timely delivery of products of acceptable quality. In addition, a contractor's
        failure to ship products to us in a timely manner or to meet the required
        quality standards could cause us to miss the delivery date requirements of
        our
        customers. The failure to make timely deliveries may cause our customers
        to
        cancel orders, refuse to accept deliveries, impose non-compliance charges
        through invoice deductions or other charge-backs, demand reduced prices or
        reduce future orders, any of which could harm our sales, reputation and overall
        profitability.
  We
        do not
        have long-term contracts with any of our independent contractors and any
        of
        these contractors may unilaterally terminate their relationship with us at
        any
        time. While management believes that there exists an adequate supply of
        contractors to provide products and services to us, to the extent we are
        not
        able to secure or maintain relationships with independent contractors that
        are
        able to fulfill its requirements, our business would be harmed.
  We
        have
        initiated standards for our suppliers, and monitor our independent contractors'
        compliance with applicable labor laws, but we do not control our contractors
        or
        their labor practices. The violation of federal, state or foreign labor laws
        by
        one of our contractors could result in us being subject to fines and our
        goods
        that are manufactured in violation of such laws being seized or their sale
        in
        interstate commerce being prohibited. To date, we have not been subject to
        any
        sanctions that, individually or in the aggregate, have had a material adverse
        effect on our business, and we are not aware of any facts on which any such
        sanctions could be based. There can be no assurance, however, that in the
        future
        we will not be subject to sanctions as a result of violations of applicable
        labor laws by our contractors, or that such sanctions will not have a material
        adverse effect on our business and results of operations.
  **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 outsource our warehouse and fulfillment functions
        to a single
        provider where we will consolidate our inventory at one site, which is managed
        by an independent contractor who will
        then
        perform all of 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.
  23
 
 **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, Mexico and the Dominican Republic. We may in the future use offshore
        manufacturers for all or some of these products. In addition, approximately
        7%
        of our fiscal 2006 net revenues were generated through international sales
        and
        we plan to increase our sales to international markets in the future. As
        a
        result of our international manufacturing and sales, we are subject to
        additional risks associated with doing business abroad, including:
 
 ·
              political
                  unrest, terrorism and economic instability resulting in the disruption
                  of
                  trade from foreign countries in which our products are
                  manufactured;·
              difficulties
                  in managing foreign operations, including difficulties associated
                  with
                  inventory management and collection on foreign accounts
                  receivable;·
              dependence
                  on foreign distributors and distribution networks;·
              currency
                  exchange fluctuations and the ability of our Chinese manufacturers
                  to
                  change the prices they charge us based on fluctuations in the value
                  of the
                  US dollar relative to that of the Chinese Yuan;·
              the
                  imposition of new laws and regulations, including those relating
                  to labor
                  conditions, quality and safety standards as well as restrictions
                  on the
                  transfer of funds;·
              disruptions
                  or delays in shipments;·
              changes
                  in local economic and non-economic conditions and standards in
                  which our
                  manufacturers, suppliers or customers are located; and·
              reduced
                  protection for intellectual property rights in jurisdictions outside
                  the
                  United States.
 
 These
        and
        other factors beyond our control could interrupt our manufacturers’ production
        in offshore facilities, influence the ability of our manufacturers to export
        our
        products cost-effectively or at all, inhibit our and our unaffiliated
        manufacturer’s ability to produce certain materials and influence our ability to
        sell our products in international markets, any of which could have an adverse
        effect on our business, financial conditions and operations.
  24
 
 **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 recent experience managing a publicly traded company
        may divert management’s attention from operations and harm our
        business.**
  Our
        management team has relatively limited recent experience managing a publicly
        traded company and complying with federal securities laws, including compliance
        with recently adopted disclosure requirements on a timely basis. Our management
        will be required to design and implement appropriate programs and policies
        in
        responding to increased legal, regulatory compliance and reporting requirements,
        and any failure to do so could lead to the imposition of fines and penalties
        and
        harm our business.
  **RISKS
        RELATING TO OUR INDUSTRY**
  **If
        we are unable to respond to the adoption of technological innovation in our
        industry and changes in consumer demand, our products will cease to be
        competitive, which could result in a decrease in revenue and harm our
        business.**
  Our
        future success will depend, in part, on our ability to keep up with changes
        in
        consumer tastes and our continued ability to differentiate our products through
        implementation of new technologies, such as new materials and fabrics. We
        may
        not, however, be able to successfully do so, and our competitors may be able
        to
        produce designs that are more appealing, implement new technologies or
        innovations in their design, or manufacture their products at a much lower
        cost.
        These types of developments could render our products less competitive and
        possibly eliminate any differentiating advantage in design and materials
        that we
        might hold at the present time.
  25
  **We
        are susceptible to general economic conditions, and a downturn in our industries
        or a reduction in spending by consumers could adversely affect our operating
        results.**
  The
        apparel industry in general has historically been characterized by a high
        degree
        of volatility and subject to substantial cyclical variations. Our operating
        results will be subject to fluctuations based on general economic conditions,
        in
        particular conditions that impact consumer spending and construction and
        industrial activity. A downturn in the construction, industrial or housing
        sectors could be expected to directly and negatively impact sales of protective
        gear to workers in these sectors, which could cause a decrease in revenue
        and
        harm our sales.
  Difficult
        economic conditions could also increase the risk of extending credit to our
        retailers. In the event we enter into a factoring relationship, a customer’s
        financial problems would limit the amount of customer receivables that we
        could
        assign to such factor on the receivables, and could cause us to assume more
        credit risk relating to those assigned receivables or to curtail business
        with
        that customer.
  **Government
        regulation and supervision**
  Any
        negative changes to international treaties and regulations such as the North
        American Free Trade Agreement (or NAFTA) and to the effects of international
        trade agreements and embargoes imposed by such entities such as the World
        Trade
        Organization which could result in a rise in trade quotas, duties, taxes
        and
        similar impositions or which could limit the countries from whom we can purchase
        our fabric or other component materials, or which could limit the countries
        where we might market and sell our products, could have an adverse effect
        on our
        business.
  Any
        changes in regulation by the Federal Trade Commission (or FTC) with respect
        to
        labeling and advertising of our products could have an adverse affect on
        our
        business. The FTC requires apparel companies to provide a label clearly stating
        the country of origin of manufacture and the company's apparel registration
        number and a second label stating washing instructions for the product. A
        change
        in these requirements could add additional cost to the production of our
        products, though we do not believe that this additional cost would be material,
        especially in relation to the cost of producing our products.
  **RISKS
        RELATING TO OUR COMMON STOCK**
  **There
        is a limited trading market for our common stock and a market for our stock
        may
        not be sustained, which will adversely affect the liquidity of our common
        stock
        and could cause our market price to decline.**
  Although
        prices for our shares of common stock are quoted on NASDAQ’s Over-the-Counter
        Bulletin Board (under the symbol ICPW.OB), there is a limited public trading
        market for our common stock, and no assurance can be given that a public
        trading
        market will be sustained.
  Active
        trading markets generally result in lower price volatility and more efficient
        execution of buy and sell orders. The absence of an active trading market
        reduces the liquidity of our common stock. As a result of the lack of trading
        activity, the quoted price for our common stock on the Over-the-Counter Bulletin
        Board is not necessarily a reliable indicator of its fair market value. Further,
        if we cease to be quoted, holders of our common stock would find it more
        difficult to dispose of, or to obtain accurate quotations as to the market
        value
        of, our common stock, and the market value of our common stock would likely
        decline.
 
 **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;
  26
 
 ·
              announcements
                  by the government that affect international trade
                  treaties;·
              fluctuations
                  in interest rates and / or the asset backed securities
                  market;·
              significant
                  sales of our common stock or other securities in the open
                  market;·
              variations
                  in interest rates; and·
              changes
                  in accounting principles.
 
 In
        the
        past, stockholders have often instituted securities class action litigation
        after periods of volatility in the market price of a company’s securities. If a
        stockholder were to file any such class action suit against us, we would
        incur
        substantial legal fees and our management’s attention and resources would be
        diverted from operating our business to respond to the litigation, which
        could
        harm our business.
  **Substantial
        future sales of our common stock in the public market could cause our stock
        price to fall.**
  On
        October 2, 2006 the registration statement we filed in June 2006 became
        effective, and up to 27,117,720 shares of common stock became eligible for
        sale.
        The sale of these shares could depress the market price of our common stock.
        Sales of a significant number of shares of our common stock in the open market
        could harm the market price of our common stock. A reduced market price for
        our
        shares could make it more difficult to raise funds through future offering
        of
        common stock.
  Moreover,
        as additional shares of our common stock become available for resale in the
        open
        market (including shares issued upon the exercise of our outstanding warrants),
        the supply of our publicly traded shares will increase, which could decrease
        its
        price. Gemini Partners, Inc., or Gemini, and other stockholders that funded
        the
        purchase and cancellation of shares from our former stockholders have demand
        registration rights with respect to the resale of 3,489,444 shares they received
        in connection with the purchase and cancellation transaction completed
        immediately before the closing of the merger with Ironclad California. Brean
        Murray, Carret & Co., or Brean Murray, the placement agent in the private
        placement completed on May 9, 2006, also has demand rights with respect to
        the
        resale of its shares of common stock and common stock underlying warrants.
        The
        resale of these shares may be registered subsequently pursuant to these demand
        registration rights.
  In
        addition, 8,536,953 of the 27,117,720 shares referenced above were subject
        to
        restrictions on transfer set forth in lock-up agreements with holders of
        these
        shares, which were released from such restrictions on the first anniversary
        of
        the merger, May 9, 2007. The release of shares from lock-up agreements may
        have
        a negative impact on our stock price if such released shares are sold by
        their
        holders.
 
 Some
        of
        our shares may also be offered from time to time in the open market pursuant
        to
        Rule 144, and these sales may have a depressive effect on the market for
        our
        shares. In general, a person who has held restricted shares for a period
        of one
        year may, upon filing with the Securities and Exchange Commission (or SEC)
        a
        notification on Form 144, sell into the market shares up to an amount equal
        to
        1% of the outstanding shares. The resale of the 3,489,444 shares held by
        Gemini
        and the stockholders who acquired shares in connection with the purchase
        and
        cancellation transaction completed immediately before the merger with Ironclad
        California may be registered as discussed above, but these shares also may
        currently be eligible for sale under Rule 144. The resale of these shares
        under
        Rule 144 may cause our stock price to decline.
  **The
        sale of securities by us in any equity or debt financing could result in
        dilution to our existing stockholders and have a material adverse effect
        on our
        earnings.**
  Any
        sale
        of common stock by us in a future private placement offering could result
        in
        dilution to the existing stockholders as a direct result of our issuance
        of
        additional shares of our capital stock. In addition, our business strategy
        may
        include expansion through internal growth, by acquiring complementary
        businesses, by acquiring or licensing additional brands, or by establishing
        strategic relationships with targeted customers and suppliers. In order to
        do
        so, or to finance the cost of our other activities, we may issue additional
        equity securities that could dilute our stockholders' stock ownership. We
        may
        also assume additional debt and incur impairment losses related to goodwill
        and
        other tangible assets if we acquire another company and this could negatively
        impact our earnings and results of operations.
  27
  **The
        trading of our common stock on the Over-the-Counter Bulletin Board and the
        potential designation of our common stock as a “penny stock” could impact the
        trading market for our common stock.**
  Our
        securities, as traded on the Over-the-Counter Bulletin Board, may be subject
        to
        SEC rules that impose special sales practice requirements on broker-dealers
        who
        sell these securities to persons other than established customers or accredited
        investors. For the purposes of the rule, the phrase “accredited investors”
means, in general terms, institutions with assets in excess of $5,000,000,
        or
        individuals having a net worth in excess of $1,000,000 or having an annual
        income that exceeds $200,000 (or that, when combined with a spouse’s income,
        exceeds $300,000). For transactions covered by the rule, the broker-dealer
        must
        make a special suitability determination for the purchaser and receive the
        purchaser’s written agreement to the transaction before the sale. Consequently,
        the rule may affect the ability of broker-dealers to sell our securities
        and
        also may affect the ability of purchasers to sell their securities in any
        market
        that might develop therefore.
  In
        addition, the SEC has adopted a number of rules to regulate “penny stock” that
        restrict transactions involving these securities. Such rules include Rules
        3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under
        the
        Securities Exchange Act of 1934, as amended. These rules may have the effect
        of
        reducing the liquidity of penny stocks. “Penny stocks” generally are equity
        securities with a price of less than $5.00 per share (other than securities
        registered on certain national securities exchanges or quoted on the NASDAQ
        Stock Market if current price and volume information with respect to
        transactions in such securities is provided by the exchange or system). Because
        our securities may constitute “penny stock” within the meaning of the rules, the
        rules would apply to us and to our securities.
 
 Stockholders
        should be aware that, according to SEC, the market for penny stocks has suffered
        in recent years from patterns of fraud and abuse. Such patterns include (i)
        control of the market for the security by one or a few broker-dealers that
        are
        often related to the promoter or issuer; (ii) manipulation of prices through
        prearranged matching of purchases and sales and false and misleading press
        releases; (iii) “boiler room” practices involving high-pressure sales tactics
        and unrealistic price projections by inexperienced sales persons; (iv) excessive
        and undisclosed bid-ask differentials and markups by selling broker-dealers;
        and
        (v) the wholesale dumping of the same securities by promoters and broker-dealers
        after prices have been manipulated to a desired level, resulting in investor
        losses. Our management is aware of the abuses that have occurred historically
        in
        the penny stock market. Although we do not expect to be in a position to
        dictate
        the behavior of the market or of broker-dealers who participate in the market,
        management will strive within the confines of practical limitations to prevent
        the described patterns from being established with respect to our
        securities.
  **We
        have not paid dividends in the past and do not expect to pay dividends for
        the
        foreseeable future, and any return on investment may be limited to potential
        future appreciation on the value of our common stock.**
  We
        currently intend to retain any future earnings to support the development
        and
        expansion of our business and do not anticipate paying cash dividends in
        the
        foreseeable future. Our payment of any future dividends will be at the
        discretion of our Board of Directors after taking into account various factors,
        including without limitation, our financial condition, operating results,
        cash
        needs, growth plans and the terms of any credit agreements that we may be
        a
        party to at the time. To the extent we do not pay dividends, our stock may
        be
        less valuable because a return on investment will only occur if and to the
        extent our stock price appreciates, which may never occur. In addition,
        investors must rely on sales of their common stock after price appreciation
        as
        the only way to realize their investment, and if the price of our stock does
        not
        appreciate, then there will be no return on investment. Investors seeking
        cash
        dividends should not purchase our common stock.
  **Our
        officers, directors and principal stockholders can exert significant influence
        over us and may make decisions that are not in the best interests of all
        stockholders.**
  Our
        officers, directors and principal stockholders (greater than 5% stockholders)
        collectively control approximately 43% of our outstanding common stock. As
        a
        result, these stockholders will be able to affect the outcome of, or exert
        significant influence over, all matters requiring stockholder approval,
        including the election and removal of directors and any change in control.
        In
        particular, this concentration of ownership of our common stock could have
        the
        effect of delaying or preventing a change of control of us or otherwise
        discouraging or preventing a potential acquirer from attempting to obtain
        control of us. This, in turn, could have a negative effect on the market
        price
        of our common stock. It could also prevent our stockholders from realizing
        a
        premium over the market prices for their shares of common stock. Moreover,
        the
        interests of this concentration of ownership may not always coincide with
        our
        interests or the interests of other stockholders, and accordingly, they could
        cause us to enter into transactions or agreements that we would not otherwise
        consider.
  28
 
 **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
        3.****CONTROLS
        AND PROCEDURES**
 
 **Controls
        and Procedures**
  Members
        of the company’s management, including our Chief Executive Officer and
        President, Eduard Jaeger, and Interim Chief Financial Officer, Thomas Kreig,
        have evaluated the effectiveness of our disclosure controls and procedures,
        as
        defined by paragraph (e) of Exchange Act Rules 13a-15 or 15d-15, as of June
        30,
        2007, the end of the period covered by this report. Based upon that evaluation,
        Messrs. Jaeger and Kreig concluded that our disclosure controls and procedures
        are effective.
  **Internal
        Control Over Financial Reporting**
  There
        were no changes in our internal control over financial reporting or in other
        factors identified in connection with the evaluation required by paragraph
        (d)
        of Exchange Act Rules 13a-15 or 15d-15 that occurred during the second quarter
        ended June 30, 2007 that have materially affected, or are reasonably likely
        to
        materially affect, our internal control over financial
        reporting.
  29
  **PART
        II**
 **ITEM
        1.**  **Legal
        Proceedings**
 
 On
        September 12, 2006, American Sports Group, Inc. (“ASG”) filed a lawsuit against
        the Company, including Ironclad California, and certain individuals, in the
        Superior Court of the State of California for the County of Los Angeles.
        ASG
        alleges that in 2002, Ironclad California agreed to issue, and did in fact
        issue, to ASG, two warrants to purchase shares of Ironclad California. These
        warrants, if issued, would represent rights to purchase 517,746 shares of
        the
        Company’s common stock at $0.1157 per share, and 476,410 shares of the Company’s
        common stock at $0.1388 per share, respectively, based on the number of shares
        of Ironclad California and exercise prices for which the original warrants
        would
        have been exchanged pursuant to the Merger Agreement.
  On
        October 31, 2006, Ironclad California filed a cross-complaint against ASG
        and
        certain other defendants. In January 2007, Ironclad California filed an
        amendment to its cross-complaint and named additional cross-defendants. ASG
        filed a demurrer to Ironclad California's cross-complaint which was heard
        on April 5, 2007.  Following the hearing, the Court ruled
        that Ironclad could proceed with claims based on unfair business practices,
        aiding and abetting unfair business practices and conspiracy but ruled that
        its
        contract claims were time barred.  Ironclad California filed another
        amended cross-complaint on April 16, 2007.  ASG responded to the
        amended cross-complaint on May 16, 2007.
  The
        parties are currently in the process of conducting discovery on both the
        original complaint and the cross-complaint, and several depositions relating
        to
        Ironclad California’s cross-complaint have already occurred and several others
        are being scheduled.
  If
        plaintiff is successful in its claim, the Company agreed to cause the issuance
        of additional shares of its common stock to each of the investors in the
        Private
        Placement financing, and to each of the holders of its shares issued and
        outstanding immediately prior to the Merger, on a pro rata basis, in such
        a
        manner and in such amounts as would be necessary to adjust their respective
        ownership of the Company’s common stock as of the closing of the Private
        Placement financing and Merger for any dilution caused by the issuance of
        the
        warrants or any shares thereunder.
  According
        to the Company’s records, the transactions pursuant to which the warrants were
        intended to be issued were never consummated, and the warrants were never
        formally authorized. The Company’s position in the lawsuit is that any purported
        warrants that ASG possesses are invalid and unenforceable. The Company believes
        ASG’s claims are without merit and the Company is vigorously defending against
        these claims.
 
 **ITEM
        2. Unregistered Sales of Equity Securities and Use of
        Proceeds.**
 
 There
        were no issuances of unregistered securities during the three months ended
        June
        30, 2007.
 
 **ITEM
        4. Submission of Matters to a Vote of Security Holders**
 
 On
        June
        19, 2007, we held our 2007 annual meeting of stockholders. At the annual
        meeting, there were 30,126,560 shares entitled to vote, and 16,610,745 shares
        (55.14%) were represented at the meeting in person or by proxy. Immediately
        prior to and following the meeting, the Board of Directors was comprised
        of R.D.
        Peter Bloomer, Eduard Jaeger, Vane P. Clayton, Scott Alderton and Scott Jarus. The
        following summarizes vote results for those matters submitted to our
        stockholders for action at the Annual Meeting:
  1.  Proposal
        to elect R.D.
        Peter Bloomer, Eduard Jaeger, Vane P. Clayton, Scott Alderton and Scott
        Jarus as
        directors to hold office until the 2008 annual meeting or until their successors
        are elected and qualified.
  Director
              
              For
              
              WithheldR.D.
                  Peter Bloomer
              
              
              16,102,451
              
              
              508,294Eduard
                  Jaeger
              
              
              15,426,251
              
              
              1,184,494Vane
                  P. Clayton
              
              
              16,102,451
              
              
              508,294Scott
                  Alderton
              
              
              15,426,251
              
              
              1,184,494Scott
                  Jarus
              
              
              16,102,451
              
              
              508,294
  30
  2.  Proposal
        to ratify the appointment of the accounting firm of Singer Lewak Greenbaum
&
Goldstein LLP as independent auditors of the company for the fiscal year
        ending
        December 31, 2007.
  For
              
              Against
              
              Abstain16,561,801
              
              
              12,500
              
              
              36,444
 
 **ITEM
        6.**  **Exhibits**
 
 **The
        following exhibits are filed as part of this report:**
 
 Exhibit
                Number
              
              Description2.1
              
              Agreement
                  and Plan of Merger between Ironclad Performance Wear Corporation
                  and
                  Europa Trade Agency Ltd., dated April 20, 2006 (1)10.1
              
              Letter
                  of Agreement between Ironclad Performance Wear Corporation and
                  Advantage
                  Media Services, Inc., dated as of June 29, 2007 (2)31.1
              
              Certification
                  by Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a)
                  under
                  the Securities Exchange Act of 1934, as amended.31.2
              
              Certification
                  by Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a)
                  under
                  the Securities Exchange Act of 1934, as amended.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.
 
 (1)
        Incorporated by reference to our Quarterly Report on Form 10-QSB filed May
        12,
        2006.
 (2)
        Incorporated by reference to our Current Report on Form 8-K filed July 6,
        2007.
  31
  SIGNATURES
  In
        accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
        this report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
  **IRONCLAD
                  PERFORMANCE WEAR CORPORATION**Date:
                  August 14, 2007
              By:
              /s/
                  Thomas KreigThomas
                  Kreig
                Interim
                  Chief Financial Officer
  32
  **Exhibit
        Index**
  Exhibit
                Number
              
              Description2.1
              
              Agreement
                  and Plan of Merger between Ironclad Performance Wear Corporation
                  and
                  Europa Trade Agency Ltd., dated April 20, 2006 (1)10.1
              
              Letter
                  of Agreement between Ironclad Performance Wear Corporation and
                  Advantage
                  Media Services, Inc., dated as of June 29, 2007 (2)31.1
              
              Certification
                  by Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a)
                  under
                  the Securities Exchange Act of 1934, as amended.31.2
              
              Certification
                  by Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a)
                  under
                  the Securities Exchange Act of 1934, as amended.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.
 
 (1)
        Incorporated by reference to our Quarterly Report on Form 10-QSB filed May
        12,
        2006.
 (2)
        Incorporated by reference to our Current Report on Form 8-K filed July 6,
        2007.