**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: September 30, 2007**
 
 **Commission
        File Number:**  **0-51365**
 **IRONCLAD
        PERFORMANCE WEAR CORPORATION**
 (Exact
        name of small business issuer as specified in its charter)
  **Nevada**
              
              **98-0434104**(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
        November 14, 2007, 35,389,504 shares of the registrant's common stock were
        outstanding.
  Transitional
        Small Business Disclosure Format (Check One): Yes o No x .
  
  **TABLE
        OF CONTENTS**
 PART
                    I
                Financial
                  Information
                1Item
                    1.
                Financial
                  Statements (unaudited)
                1a.
                Consolidated
                    Balance Sheet as of September 30, 2007
                1b.
                Consolidated
                    Statements of Operations for the three months ended September
                    30, 2007 and
                    September 30, 2006 and nine months ended September 30, 2007 and
                    September
                    30, 2006
                2c.
                Consolidated
                    Statements of Cash Flows for the nine months ended September
                    30, 2007 and
                    September 30, 2006
                3d.
                Notes
                    to Consolidated Financial Statements
                4Item
                    2.
                Management's
                  Discussion and Analysis or Plan of Operation
                15Item
                    3.
                Controls
                  and Procedures
                27PART
                    II
                Other
                  Information
                28Item
                    1.
                Legal
                  Proceedings
                28Item
                    2.
                Unregistered
                  Sales of Equity Securities and Use of Proceeds.
                28Item
                    6.
                Exhibits
                28
  **PART
        I**
  **ITEM
        1.   FINANCIAL STATEMENTS**
  **IRONCLAD
        PERFORMANCE WEAR CORPORATION**
 **CONSOLIDATED
        BALANCE SHEET**
 **(unaudited)**
 
 **September
                  30,**
                **2007****ASSETS****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              1,359,356Accounts
                  receivable, net of allowance for doubtful accounts of
                  $26,000
              
              
              3,453,156Inventory,
                  net of reserve of $64,000
              
              
              3,656,855Prepaid
                  and other
              
              
              174,295**Total
                  current assets**
              
              
              8,643,662**PROPERTY,
                  PLANT AND EQUIPMENT**Computer
                  equipment and software
              
              
              266,112Vehicles
              
              
              46,280Office
                  equipment and furniture
              
              
              141,160Leasehold
                  improvements
              
              
              34,110Less:
                  accumulated depreciation and amortization
              
              
              (
                  303,050
              )**Total
                  property, plant and equipment, net**
              
              
              184,612Trademarks,
                  net of $8,319 of accumulated amortization
              
              
              83,735Deposits
                  and other
              
              
              11,908**Total
                  Assets**
              
              $
              8,923,917**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****CURRENT
                  LIABILITIES**Accounts
                  payable
              
              $
              1,944,153Accrued
                  expenses
              
              
              1,873,246Line
                  of credit
              
              
              1,953,846Capital
                  lease obligation
              
              
              2,562**Total
                  current liabilities**
              
              
              5,773,807**LONG
                  TERM LIABILITIES**Fair
                  value of warrant liability
              
              
              47,020**Total
                  Liabilities**
              
              
              5,820,827**STOCKHOLDERS’
                  EQUITY**Common
                  stock, $.001 par value; 172,744,750 million shares authorized;
 
                  35,389,504 shares issued and outstanding
              
              
              32,240Additional
                  paid-in capital
              
              
              13,736,108Accumulated
                  deficit
              
              
              (
                  10,665,258
              )**Total
                  Stockholders’ Equity**
              
              
              3,103,090**Total
                  Liabilities and Stockholders’ Equity**
              
              $
              8,923,917
  See
        Notes
        to Consolidated Financial Statements.
 
  1
 
 **IRONCLAD
        PERFORMANCE WEAR CORPORATION**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **(unaudited)**
  **Three Months**
                **Ended**
                **September 30,**
              
              **Three Months**
                **Ended**
                **September 30,**
              
              **Nine Months**
                **Ended**
                **September 30,**
              
              **Nine Months**
                **Ended**
                **September 30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****REVENUES**Net
                  sales
              
              $
              3,588,178
              
              $
              2,373,508
              
              $
              7,794,427
              
              $
              5,702,642**COST
                  OF SALES**Cost
                  of sales
              
              
              2,316,035
              
              
              1,565,689
              
              
              4,680,530
              
              
              3,606,422**GROSS
                  PROFIT**
              
              
              1,272,143
              
              
              807,819
              
              
              3,113,897
              
              
              2,096,220**OPERATING
                  EXPENSES**General
                  and administrative
              
              
              944,242
              
              
              826,335
              
              
              2,817,029
              
              
              1,989,993Sales
                  and marketing
              
              
              1,008,670
              
              
              661,683
              
              
              2,798,146
              
              
              1,766,112Research
                  and development
              
              
              119,270
              
              
              114,661
              
              
              374,143
              
              
              219,443Operations
              
              
              188,029
              
              
              134,537
              
              
              461,463
              
              
              360,548Depreciation
                  and amortization
              
              
              17,404
              
              
              11,406
              
              
              50,584
              
              
              26,776**Total
                  operating expenses**
              
              
              2,277,615
              
              
              1,748,622
              
              
              6,501,365
              
              
              4,362,872**LOSS
                  FROM OPERATIONS**
              
              
              (1,005,472
              )
              
              (940,803
              )
              
              (3,387,468
              )
              
              (2,266,652
              )**OTHER
                  INCOME (EXPENSE)**Interest
                  expense
              
              
              (34,473
              )
              
              (1,978
              )
              
              (104,751
              )
              
              (75,413
              )Interest
                  expense from warrants issued as financing cost
              
              
              0
              
              
              0
              
              
              0
              
              
              (256,188
              )Interest
                  income
              
              
              6,209
              
              
              26,314
              
              
              34,993
              
              
              42,327Change
                  in fair value of warrant liability
              
              
              5,935
              
              
              392,002
              
              
              18,248
              
              
              (2,061,016
              )Other
                  income (expense), net
              
              
              0
              
              
              216
              
              
              2,385
              
              
              2,397**Total
                  other income (expense)**
              
              
              (22,329
              )
              
              416,554
              
              
              (49,125
              )
              
              (2,347,893
              )**NET
                  LOSS BEFORE PROVISION FOR INCOME TAXES**
              
              
              (1,027,801
              )
              
              (524,249
              )
              
              (3,436,593
              )
              
              (4,614,545
              )**PROVISION
                  FOR INCOME TAXES**
              
              
              0
              
              
              0
              
              
              800
              
              
              800**NET
                  LOSS**
              
              $
              (1,027,801
              )
              $
              (524,249
              )
              $
              (3,437,393
              )
              $
              (4,615,345
              )**BASIC
                  AND DILUTED NET LOSS PER COMMON SHARE**
              
              $
              (0.03
              )
              $
              (0.02
              )
              $
              (0.11
              )
              $
              (0.20
              )**WEIGHTED
                  AVERAGE****COMMON
                  SHARES OUTSTANDING**
              
              
              30,854,644
              
              
              29,717,211
              
              
              30,343,533
              
              
              23,256,831
 
 See
        Notes
        to Consolidated Financial Statements.
  2
  **IRONCLAD
        PERFORMANCE WEAR CORPORATION**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(unaudited)**
  **Nine Months**
                **Ended**
                **September 30,**
              
              **Nine Months**
                **Ended**
                **September 30,****2007**
              
              **2006****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  loss
              
              $
              (3,437,393
              )
              $
              (4,615,345
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activitiesAllowance
                  for bad debts
              
              
              0
              
              
              1,000Depreciation
                  and amortization
              
              
              48,171
              
              
              24,788Amortization
                  of trademarks
              
              
              2,729
              
              
              1,989Change
                  in fair value of warrant liability
              
              
              (18,248
              )
              
              2,061,016Warrants
                  issued as financing costs
              
              
              0
              
              
              256,188Non-cash
                  compensation:Common
                  stock issued for services
              
              
              41,875
              
              
              51,779Stock
                  option expense
              
              
              494,456
              
              
              431,860Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (1,429,364
              )
              
              (316,647
              )Inventory
              
              
              (631,431
              )
              
              (1,655,919
              )Prepaid
                  and other
              
              
              (26,921
              )
              
              (16,110
              )Accounts
                  payable and accrued liabilities
              
              
              1,991,885
              
              
              (1,041
              )Net
                  cash flows provided by (used in) operating activities
              
              
              (2,964,241
              )
              
              (3,776,442
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Property,
                  plant and equipment purchased
              
              
              (78,453
              )
              
              (118,909
              )Investment
                  in trademarks
              
              
              (9,655
              )
              
              (25,512
              )Net
                  cash flows used in investing activities
              
              
              (88,108
              )
              
              (144,421
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Proceeds
                  from issuance of common stock
              
              
              2,104,500
              
              
              7,828,691Offering
                  costs
              
              
              (92,637
              )
              
              (1,284,453
              )Proceeds
                  from exercise of warrants
              
              
              0
              
              
              66,338Payments
                  on notes payable
              
              
              0
              
              
              (500,000
              )Borrowings
                  on bank line of credit
              
              
              390,168
              
              
              (861,612
              )Proceeds
                  from bank loans
              
              
              0
              
              
              821,205Principal
                  payments on capital leases
              
              
              (2,491
              )
              
              (2,027
              )Net
                  cash flows provided by (used in) financing activities
              
              
              2,399,540
              
              
              6,068,142**NET
                  DECREASE IN CASH**
              
              
              (652,809
              )
              
              2,147,279**CASH
                  AND CASH EQUIVALENTS BEGINNING OF PERIOD**
              
              
              2,012,165
              
              
              29,573**CASH
                  AND CASH EQUIVALENTS END OF PERIOD**
              
              $
              1,359,356
              
              $
              2,176,852**SUPPLEMENTAL
                  DISCLOSURES**Interest
                  paid in cash
              
              $
              104,751
              
              $
              75,413Income
                  taxes
              
              
              800
              
              
              800
  See
        Notes
        to Condensed Financial Statements.
 
 3
 
 **IRONCLAD
        PERFORMANCE WEAR CORPORATION**
 **Notes
        to Consolidated Financial Statements**
  **1.**
              **Description
                  of Business**
  Ironclad
        Performance Wear Corporation, formerly Europa Trade Agency Ltd.,  (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 33 registered US trademarks, 10 registered international
        trademarks, 20 in-use US trademarks and 7 copyright marks. 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, 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 a 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 its 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
        the
        Company’s 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.
  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.
  4
  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.
  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.
  5
  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,
        Plant and Equipment
  Property,
        plant and equipment are recorded at cost less accumulated depreciation and
        amortization. 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 amortized 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.
  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
                
                
                (70,155
                )(5,155
                )Accrual
                    for New Liabilities During the Reporting Period
                
                
                70,155Reserve
                    Balance 6/30/07
                
                
                65,000Payments
                    Recorded During the Period
                
                
                (107,701
                )(42,701
                )Accrual
                    for New Liabilities During the Reporting Period
                
                
                184,701Reserve
                    Balance 9/30/07
                
                $
                142,000
  6
  Advertising
        and Marketing
  Advertising
        and marketing costs are expensed as incurred. Advertising expenses for the
        nine
        months ended September 30, 2007 and 2006 were $771,053 and $555,913,
        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
  Two
        customers accounted for 40% of net sales for the quarter ended September
        30,
        2007 and one customer accounted for 19% for the nine months ended September
        30,
        2007. One customer accounted for approximately 15% of net sales for the quarter
        ended September 30, 2006, and 25% for the nine months ended September 30,
        2006.
  Supplier
        Concentrations
  Two
        suppliers, which are located overseas, accounted for approximately 54% and
        11%
        of total purchases during the quarter ended September 30, 2007, and one supplier
        accounted for approximately 55% for the nine months ended September 30, 2007.
        One supplier, which is located overseas, accounted for 72% of total purchases
        during the quarter ended September 30, 2006 and 74% for the nine months ended
        September 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.
  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 September 30,2007
                
                2006Options
                    outstanding under the Company’s stock option plans
                
                
                4,897,046
                
                
                5,093,134Common
                    Stock Warrants
                
                
                10,454,519
                
                
                10,454,519
 
 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.
  7
  The
        significant components of the provision for income taxes for the quarters
        ended
        September 30, 2007 and 2006 were $-0- and $-0-, 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 change
        in
        fair value of warrant liability.
  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.
  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
        September 30, 2007 the Company had two classes of inventory - raw materials
        and
        finished goods. Inventory is shown net of a provision of $24,000 at September
        30, 2007.
 September 30,
                  2007Raw
                    Materials
                
                $
                45,859Finished
                    Goods
                
                
                3,610,996Total
                
                $
                3,656,855
  **5.**
              **Property,
                  plant and equipment**
  Property,
        plant and equipment consisted of the following:
  September 30,2007Computer
                    equipment and software
                
                $
                266,112Office
                    equipment and furniture
                
                
                141,160Vehicle
                
                
                46,280Leasehold
                    improvements
                
                
                34,110487,662Less
                    accumulated depreciation and amortization
                
                
                (303,050
                )**Property
                    and equipment, net**
                
                **$**
                **184,612**
  8
  Depreciation
        and amortization expense for the nine months ended September 30, 2007 and
        2006
        was $48,171 and $24,788, respectively.
  **6.**
              **Trademarks
                  and Patents**
  Trademarks
        consisted of the following:
 September
                    30,2007Trademarks
                
                $
                76,305Patents
                
                
                15,749Less:
                    Accumulated amortization
                
                
                (8,319
                )**Trademarks,
                    net**
                
                **$**
                **83,735**
  Trademarks
        and patents consist of definite-lived trademarks and patents of $60,452 and
        indefinite-lived trademarks and patents of $31,602 at September 30, 2007.
        All
        trademark and patent costs have been generated by the Company, and consist
        of
        initial legal and filing fees.
  Amortization
        expense was $2,729 and $1,989 for the nine months ended September 30, 2007
        and
        2006, respectively.
  **7.**
              **Accounts
                  payable and accrued
                  expenses**
  Accounts
        payable and accrued expenses consisted of the following at September 30,
        2007:
 September
                    30,
                  2007Accounts
                    payable
                
                $
                1,944,153Accrued
                    inventory
                
                
                830,647Accrued
                    rebates and co-op
                
                
                238,784Accrued
                    bonus
                
                
                264,546Accrued
                    expenses - other
                
                
                539,269**Total
                       accounts payable and accrued expenses**
                
                **$**
                **3,817,399**
  **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 Company 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 warrant to purchase 400,000 shares of common stock 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 warrant to
        purchase 100,000 shares of common stock 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. The Company is obligated to maintain the
        registration of the warrant to purchase 100,000 shares of common stock for
        a
        period of one year from the original registration date of October 2, 2006.
        At
        September 30, 2007 the Company revalued this liability with the following
        assumptions: risk free interest rate of 4.2%, volatility factor of 222.3%,
        3.25
        year life and zero dividends, and adjusted the current value of this warrant
        liability to $47,020.
  9
  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) $2,000,000 or (b) the sum of (i) seventy-five percent (75%) 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 September 30, 2007,
        total
        amount due to Wells Fargo Century was $1,953,846.
  **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
        35,389,504 shares of common stock of the registrant outstanding at September
        30,
        2007.
  On
        August
        7, 2007 the Company issued 12,944 shares of common stock to a consultant
        upon
        the exercise of vested options at an exercise price of $0.35 per
        share.
  In
        September 2007, the Company completed a private placement transaction with
        institutional investors and other high net worth individuals. Pursuant to
        its
        subscription agreements with these investors, the Company sold 5,250,000
        shares
        of common stock, at $0.40 per share. In accordance with the terms of the
        subscription agreements the Company was required to file a registration
        statement for resale of the common stock sold within forty-five (45) days
        of the
        closing date of the offering, use commercially reasonable efforts to cause
        such
        registration statement to become effective within one hundred fifty (150)
        days
        after the closing date and maintain such registration for twenty-four (24)
        months after the closing date. The company has timely filed an SB-2 Registration
        Statement which became effective on November 9, 2007. After commissions and
        expenses, the Company received net proceeds of approximately $2.0 million
        in the
        private placement.
  Warrant
        Activity
  A
        summary
        of warrant activity is as follows **:**
 Number of Shares
                
                Weighted Average
                  Exercise PriceWarrants
                    outstanding at December 31, 2006
                
                
                10,454,519
                
                $
                0.91Warrants
                    outstanding at March 31, 2007
                
                
                10,454,519
                
                $
                0.91Warrants
                    outstanding at June 30, 2007
                
                
                10,454,519
                
                $
                0.91Warrants
                    outstanding at September 30, 2007
                
                
                10,454,519
                
                $
                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.
  10
  There
        were options to purchase 399,000 shares of common stock issued during the
        quarter ended September 30, 2007.
  A
        summary
        of stock option activity is as follows:
  Number of Shares
                
                Weighted
                  Average
                  Exercise PriceOutstanding
                    at January 1, 2007
                
                
                5,003,344
                
                $
                0.65Granted
                
                
                268,000
                
                $
                0.67Exercised
                
                
                -
                
                
                -Cancelled/Expired
                
                
                (164,011
                )
                $
                0.54Outstanding
                    at March 31, 2007
                
                
                5,107,333
                
                $
                0.65Granted
                
                
                -
                
                
                -Exercised
                
                
                -
                
                
                -Cancelled/Expired
                
                
                (591,343
                )
                $
                0.75Outstanding
                    at June 30, 2007
                
                
                4,515,990
                
                $
                0.64Granted
                
                
                399,000
                
                $
                0.48Exercised
                
                
                (12,944
                )
                $
                0.35Cancelled/Expired
                
                
                (5,000
                )
                $
                0.35Outstanding
                    at September 30, 2007
                
                
                4,897,046
                
                $
                0.63Exercisable
                    at September 30, 2007
                
                
                3,337,932
                
                $
                0.54
 
 The
        following tables summarize information about stock options outstanding at
        September 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
              
              2,420,755
              
              6.41
              
              $0.35
              
              $374,726$0.
                  67 - $1.05
              
              2,476,291
              
              8.46
              
              $0.90
              
              $7,980
  The
        following tables summarize information about stock options exercisable at
        September 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
              
              2,212,308
              
              6.31
              
              $0.34
              
              $342,972$0.
                  67 - $1.05
              
              1,125,624
              
              7.79
              
              $0.92
              
              $2,000
 
 The
        Company recorded $494,456 and $431,860 of compensation expense for employee
        stock options during the nine months ended September 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 - $335,103 and $356,149; sales and marketing - $106,129 and
        $55,759; research and development - $32,022 and $9,829; and operations -
        $20,962
        and $10,122. There was a total of $1,186,087 of unrecognized compensation
        costs
        related to non-vested share-based compensation arrangements under the Plan
        outstanding at September 30, 2007. This cost is expected to be recognized
        over a
        weighted average period of 2.8 years. The total fair value of shares vested
        during the nine months ended September 30, 2007 was $804,951.
  **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 September 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.
  11
  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 September 30, 2007
        as
        follows:
  September 30,
                2007Statutory
                  regular federal income benefit rate
              
              
              (34.0
              )%State
                  income taxes, net of federal benefit
              
              
              (5.4
              )Change
                  in valuation allowance
              
              
              39.4Total
              
              
              -
              %
 
 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 September 30, 2007 consisted of the following:
 2007Deferred
                    tax assetsNet
                    operating loss carryforward
                
                $
                3,320,544Stock
                    option expense
                
                
                475,780Allowance
                    for doubtful accounts
                
                
                11,138Allowance
                    for product returns
                
                
                60,833Accrued
                    compensation
                
                
                163,585Inventory
                
                
                10,282Other
                
                
                3,134Valuation
                    allowance
                
                
                (3,765,855
                )Total
                    deferred tax assets
                
                
                279,441Deferred
                    tax liabilitiesState
                    tax
                
                
                (279,441
                )Total
                    deferred tax liabilities
                
                
                (279,441
                )**Net
                    deferred tax assets/liabilities**
                
                $
                -
  As
        of
        September 30, 2007, the Company had unused federal and state contribution
        carryovers of $6,680 that expire in 2009 through 2011.
  As
        of
        September 30, 2007, the Company had unused federal and states net operating
        loss
        carryforwards available to offset future taxable income of $7,789,000 and
        $7,607,000, 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.
  12
  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 $14,069. Rent expense for the
        nine
        months ended September 30, 2007 for this facility was $124,719.
  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 $5,878 and $5,362 for the nine months ended September
        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 consolidated its inventory from two separate sites and moved it
        to AMS
        Fulfillment’s facility located in the Los Angeles area. The move took place in
        August 2007. AMS will perform all warehousing, assembly, packaging and
        fulfillment services for the Company.
  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 to
        its
        claims. The cross-complaint, as amended, was filed with the Superior Court
        of
        the State of California for the County of Los Angeles. ASG filed a demurrer
        to
        Ironclad California's cross-complaint which was not heard until 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 is contract claims were time barred.
        Ironclad California filed another amended cross-complaint on April 16, 2007.
        ASG
        responded to that amended complaint on May 16, 2007. Ironclad California
        filed a
        second amended cross complaint on June 4, 2007. ASG responded by filing another
        demurrer and motion to strike. These motions were heard on October 10, 2007.
        ASG's demurrer was granted in part and denied in part and its motion to strike
        was denied in its entirety. The parties attended a mediation on October 31,
        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
  **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 the Company’s 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 nine months ended September 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. The Merger 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
        sales consist 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.
  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 we entered into a factoring
        agreement whereby it assigned certain of its accounts receivables with full
        recourse. This facility allows us to borrow 75% against eligible accounts
        receivable, up to $2,000,000. This facility had an outstanding balance of
        $1,953,846 at September 30, 2007.
  15
  **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
        of America. 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 sales.
        For
        the nine months ended September 30, 2007, we decreased our inventory reserve
        by
        $56,000, to a current balance of $64,000 and recorded a corresponding decrease
        in cost of sales. For the nine months ended September 30, 2006, we increased
        our
        inventory reserve by $33,500, to a balance of $65,500 and recorded a
        corresponding increase in cost of sales. 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.
  **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.
  16
  **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
                
                
                65,000Payments
                    recorded during the period
                
                
                (107,701
                )(42,701
                )Accrual
                    for new liabilities during the reporting period
                
                
                184,701Reserve
                    balance September 30, 2007
                
                $
                142,000
 
 **Stock-Based
        Compensation**
  On
        January 1, 2006, we adopted the provisions of Financial Accounting Standards
        Board Statement No. 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 our stock option plans. The statement provides for, and we have
        elected to adopt the standard using the modified prospective application
        under
        which compensation cost is recognized on or after the required effective
        date
        for the fair value of all future share based award grants and the portion
        of
        outstanding awards at the date of adoption of this statement for which the
        requisite service has not been rendered, based on the grant-date fair value
        of
        those awards calculated under SFAS 123R for pro forma disclosures.
  **Income
        Taxes**
  Deferred
        income taxes are provided using the liability method whereby deferred tax
        assets
        are recognized for deductible temporary differences and operating loss and
        tax
        credit carryforwards and deferred tax liabilities are recognized for taxable
        temporary differences. Temporary differences are the differences between
        the
        reported amounts of assets and liabilities and their tax bases. Deferred
        tax
        assets are reduced by a valuation allowance when, in the opinion of management,
        it is more likely than not that some portion or all of the deferred tax assets
        will not be realized. Deferred tax assets and liabilities are adjusted for
        the
        effects of the changes in tax laws and rates as of the date of
        enactment.
  When
        tax
        returns are filed, it is highly certain that some positions taken would be
        sustained upon examination by the taxing authorities, while others are subject
        to uncertainty about the merits of the position taken or the amount of the
        position that would be effectively sustained. The benefit of a tax position
        is
        recognized in the financial statements in the period during which, based
        on all
        available evidence, management believes it is more-likely-than-not that the
        position will be sustained upon examination, including the resolution of
        appeals
        or litigation, if any. Tax positions taken are not offset or aggregated with
        other positions. Tax positions that meet the more-likely-than-not recognition
        threshold are measured as the largest amount of tax benefit that is more
        than
        50% likely of being realized upon settlement with the applicable taxing
        authority. The portion of the benefits associated with tax positions taken
        that
        exceeds the amount measured as described above would be reflected as a liability
        for unrecognized tax benefits in the accompanying balance sheet along with
        any
        associated interest and penalties that would be payable to the taxing
        authorities upon examination. Since 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.
  17
  **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,
        we use the Black-Scholes-Merton Option Pricing Formula (the “Black Scholes
        Model”). At each period end, or when circumstances indicate that we 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 change in fair value of
        warrant
        liability.
  **Results
        of Operations**
  **Comparison
        of Three and Nine Months Ended September 30, 2007 and September 30,
        2006**
  *Net
        Sales* increased $1,214,670 or 51.1%, to $3,588,178 in the quarter ended September
        30,
        2007 from $2,373,508 for the corresponding period in 2006. Two customers
        accounted for 40% of net sales during the quarter ended September 30, 2007
        and
        one customer accounted for 15% of net sales for the quarter ended September
        30,
        2006. Net sales increased $2,091,785 or 36.7% , to $7,794,427 in the nine
        months
        ended September 30, 2007 from $5,702,642 for the corresponding period in
        2006.
        One customer accounted for 19% of net sales during the nine months ended
        September 30, 2007 and one customer accounted for 25% of net sales for the
        corresponding period in 2006. Included in net sales are customer rebate expenses
        of approximately $102,000 and $48,000 for the three months ended September
        30,
        2007 and 2006, respectively.
  *Gross
        Profit* increased $464,324 to $1,272,143 for the quarter ended September 30, 2007
        from
        $807,819 for the quarter ended September 30, 2006. Gross profit, as a percentage
        of net sales, or gross margin, increased to 35.1% in the third quarter of
        2007
        from 34.0% in the same quarter of 2006. Gross profit increased $1,017,677
        to
        $3,113,897 for the nine months ended September 30, 2007 from $2,096,220 for
        the
        nine months ended September 30, 2006. Gross profit, as a percentage of net
        sales, or gross margin, increased to 39.7% for the first nine months of 2007
        from 36.8% in the corresponding period of 2006. Our product mix in both 2006
        and
        2007 included large promotional sales to two major home center chains at
        a lower
        margin than we normally achieve, thereby reducing overall gross profit for
        the
        period. Additionally, gross margin has been improved by reduced product costs
        due to better pricing from our manufacturers in 2007.
 
 *Operating
        Expenses*increased by $528,993, or 30.3%, to $2,277,615 in the third quarter of 2007
        from
        $1,748,622 in the third quarter of 2006. As a percentage of net sales, operating
        expenses decreased to 63.5% in the third quarter of 2007 from 73.7% in the
        same
        period of 2006. Operating expenses increased by $2,138,493, or 49.0%, to
        $6,501,365 in the nine months ended September 30, 2007 from $4,362,872 in
        the
        corresponding period of 2006. As a percentage of net sales, operating expenses
        increased to 83.4% for the first nine months of 2007 from 76.5% in the same
        period of 2006. The increased spending for the third quarter of 2007 was
        primarily due to increased costs associated with implementing brand development
        initiatives, including print and cooperative advertising - approximately
        $162,000; increased public company costs of $73,000; increased travel &
entertainment expenses of $33,000; increased office operating expenses of
        $116,000; salaries, bonus accrual, commissions and taxes and benefits expenses
        of approximately $215,000 and decreased Financial Accounting Standards No.
        123R
        options expense of $(70,000). Our number of employees increased to 27 at
        September 30, 2007 from 25 at September 30, 2006. Sales and marketing expenses
        were increased to build brand recognition and increase sales.
  *Loss
        from Operations* increased $64,669 or 6.9%, to $1,005,472 in the third quarter of 2007 from
        $940,803 in third quarter of 2006. Loss from operations as a percentage of
        net
        sales decreased to 28.0% in the third quarter of 2007 from 39.6% in the third
        quarter of 2006. Loss from operations increased $1,120,816 or 49.4%, to
        $3,387,468 in the nine months ended September 30, 2007 from $2,266,652 in
        the
        corresponding period of 2006. Loss from operations as a percentage of net
        sales
        increased to 43.5% in the nine months ended September 30, 2007 from 39.7%
        in the
        same period of 2006. The increase in the nine 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* increased $32,495 to $34,473 in the third quarter of 2007 from $1,978 in
        the
        same period of 2006. Interest expense decreased $226,850 to $104,751 in the
        nine
        months ended September 30, 2007 from $331,601 in the same period of 2006.
        The
        first nine 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 $20,105 in the third quarter of 2007 to $6,209 from $26,314 in
        the
        third quarter of 2006. Interest income decreased $7,334 in the nine months
        ended
        September 30, 2007 to $34,993 from $42,327 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
        $-0- in the third quarter of 2007 as compared with $216 in the third quarter
        of
        2006. Change in the fair value of warrant liability was $5,935 in the third
        quarter as compared to $392,002 for the third quarter of 2006. Other income
        (expense) net was $2,385 in the nine months ended September 30, 2007 as compared
        with $2,397 in the same period of 2006. Change in the fair value of warrant
        liability was $18,248 in the nine months ended September 30, 2007 as compared
        to
        $(2,061,016) 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 September
        30,
        2007 there is one warrant which will remain open as a liability until its
        terms
        are satisfied in October, 2007.
  18
  *Net
        Loss* increased $503,552 to $1,027,801 in the third quarter of 2007 from $524,249
        in
        the third quarter of 2006. Net loss decreased $1,177,952to $3,436,593 in
        the
        nine months ended September 30, 2007 from $4,614,545 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.
  **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 75% against eligible accounts receivable, up to $2,000,000.
  *Operating
        Activities* for the
        nine months ended September 30, 2007, cash used in operating activities was
        $2,964,241 and consisted primarily of a net loss of $3,437,393, reduced by
        non-cash items of $568,983, an increase in accounts receivable of $1,429,364,
        an
        increase in inventory of $639,586, a decrease in deposits on inventory of
        $8,155, an increase in prepaid expenses and other assets of $26,921, and
        an
        increase in accounts payable and accrued expenses of $1,991,885. For the
        nine
        months ended September 30, 2006, cash used in operating activities was
        $3,776,442 and consisted primarily of a net loss of $4,615,345, reduced by
        non-cash items of $2,828,620, an increase in accounts receivable of $316,647,
        an
        increase in inventory of $1,956,196, 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 $31,908, and decreases in accounts payable and accrued
        expenses of $1,041.
  *Investing
        Activities*for the
        nine months ended September 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 decreased to $88,108 for
        2007
        from $144,421 in 2006.
  *Financing
        Activities* for the
        nine months ended September 30, 2007 consisted primarily of proceeds from
        the
        issuance of common stock in conjunction with a PIPE offering of $2,011,863
        (net
        of $92,637 in offering costs), net borrowing under our existing factoring
        agreement of $390,168 and payments on capital lease of $2,491. Cash provided
        by
        financing activities increased to $2,399,540 for 2007. Financing activities
        for
        the nine months ended September 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
        the
        proceeds from bank lines of credit of $821,205, 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 $2,027. 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 as we progress into 2008.
  **Off
        Balance Sheet Arrangements**
  We
        have
        no off-balance sheet arrangements or financing activities with special purpose
        entities.
  19
  **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.*
  **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, or our operating results will be
        below
        the expectations of securities analysis 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.
  20
  If
        our
        capital resources are insufficient, we will need to raise additional funds.
        There can be no assurance that any financing arrangements will be available
        in
        amounts or on terms acceptable to us, if at all. Furthermore, the sale of
        additional equity or convertible debt securities may result in additional
        dilution to existing stockholders. If adequate additional funds are not
        available, we may be required to delay, reduce the scope of or eliminate
        material parts of the implementation of our business strategy. This limitation
        could substantially harm our business, results of operations and financial
        condition.
  **We
        have a history of operating losses and there can be no assurance that we
        can
        achieve or maintain profitability.**
  We
        have a
        history of operating losses and may not achieve or sustain profitability.
        We
        cannot guarantee that we will become profitable. Even if we achieve
        profitability, given the competitive and evolving nature of the industry
        in
        which we operate, we may be unable to sustain or increase profitability and
        our
        failure to do so would adversely affect our business, including our ability
        to
        raise additional funds.
  **We
        may be unable to effectively manage our growth.**
  Our
        strategy envisions growing our business. We plan to expand our technology,
        sales, administrative and marketing organizations. Any growth in or expansion
        of
        our business is likely to continue to place a strain on our management and
        administrative resources, infrastructure and systems. As with other growing
        businesses, we expect that we will need to further refine and expand our
        business development capabilities, our systems and processes and our access
        to
        financing sources. We also will need to hire, train, supervise and manage
        new
        employees. These processes are time consuming and expensive, will increase
        management responsibilities and will divert management attention. We cannot
        assure you that we will be able to:
  ·  expand
        our systems effectively or efficiently or in a timely manner;
  ·  allocate
        our human resources optimally;
  ·  meet
        our
        capital needs;
  ·  identify
        and hire qualified employees or retain valued employees; or
  ·  incorporate
        effectively the components of any business or product line that we may acquire
        in our effort to achieve growth.
  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.
  21
  **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.
  **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.
  22
  **Our
        international operations and the operations of our manufacturers and suppliers
        in China are subject to additional risks that are beyond our control and
        that
        could harm our business.**
  Our
        glove
        products are manufactured by 3 manufacturers operating in China, Hong Kong
        and
        Indonesia. Our performance apparel products are currently manufactured in
        Taiwan, Mexico and the Dominican Republic. We may in the future use offshore
        manufacturers for all or some of these products. In addition, approximately
        7%
        of our fiscal 2006 net revenues were generated through international sales
        and
        we plan to increase our sales to international markets in the future. As
        a
        result of our international manufacturing and sales, we are subject to
        additional risks associated with doing business abroad, including:
  ·
              political
                  unrest, terrorism and economic instability resulting in the disruption
                  of
                  trade from foreign countries in which our products are
                  manufactured;
  ·
              difficulties
                  in managing foreign operations, including difficulties associated
                  with
                  inventory management and collection on foreign accounts
                  receivable;
  ·
              dependence
                  on foreign distributors and distribution
                  networks;
  ·
              currency
                  exchange fluctuations and the ability of our Chinese manufacturers
                  to
                  change the prices they charge us based on fluctuations in the value
                  of the
                  US dollar relative to that of the Chinese
                  Yuan;
  ·
              the
                  imposition of new laws and regulations, including those relating
                  to labor
                  conditions, quality and safety standards as well as restrictions
                  on the
                  transfer of funds;
  ·
              disruptions
                  or delays in shipments;
  ·
              changes
                  in local economic and non-economic conditions and standards in
                  which our
                  manufacturers, suppliers or customers are located;
                  and
  ·
              reduced
                  protection for intellectual property rights in jurisdictions outside
                  the
                  United States.
  These
        and
        other factors beyond our control could interrupt our manufacturers’ production
        in offshore facilities, influence the ability of our manufacturers to export
        our
        products cost-effectively or at all, inhibit our and our unaffiliated
        manufacturer’s ability to produce certain materials and influence our ability to
        sell our products in international markets, any of which could have an adverse
        effect on our business, financial conditions and operations.
  **We
        may be unable to adequately protect our intellectual property
        rights.**
  We
        rely
        in part on patent, trade secret, trade dress and trademark law to protect
        our
        rights to certain aspects of our products, including product designs,
        proprietary manufacturing processes and technologies, product research and
        concepts and recognized trademarks, all of which we believe are important
        to the
        success of our products and our competitive position. There can be no assurance
        that any of our pending patent or trademark applications will result in the
        issuance of a registered patent or trademark, or that any patent or trademark
        granted will be effective in thwarting competition or be held valid if
        subsequently challenged. In addition, there can be no assurance that the
        actions
        taken by us to protect our proprietary rights will be adequate to prevent
        imitation of our products, that our proprietary information will not become
        known to competitors, that we can meaningfully protect our rights to unpatented
        proprietary information or that others will not independently develop
        substantially equivalent or better products that do not infringe on our
        intellectual property rights. We could be required to devote substantial
        resources to enforce our patent and protect our intellectual property, which
        could divert our resources and result in increased expenses. In addition,
        an
        adverse determination in litigation could subject us to the loss of our rights
        to a particular patent or other intellectual property, could require us to
        grant
        licenses to third parties, could prevent us from manufacturing, selling or
        using
        certain aspects of our products or could subject us to substantial liability,
        any of which could harm our business.
  **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.
  23
  **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.
  **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.
  24
  **The
        market price of our common stock is likely to be highly volatile and subject
        to
        wide fluctuations, and you may be unable to resell your shares at or above
        the
        offering price.**
  The
        market price of our common stock is likely to be highly volatile and could
        be
        subject to wide fluctuations in response to a number of factors that are
        beyond
        our control, including announcements of new products or services by our
        competitors. In addition, the market price of our common stock could be subject
        to wide fluctuations in response to a variety of factors,
        including:
  ·
              quarterly
                  variations in our revenues and operating
                  expenses;
  ·
              developments
                  in the financial markets, apparel industry and the worldwide or
                  regional
                  economies;
  ·
              announcements
                  of innovations or new products or services by us or our
                  competitors;
  ·
              announcements
                  by the government that affect international trade
                  treaties;
  ·
              fluctuations
                  in interest rates and / or the asset backed securities
                  market;
  ·
              significant
                  sales of our common stock or other securities in the open
                  market;
  ·
              variations
                  in interest rates; and
  ·
              changes
                  in accounting principles.
  In
        the
        past, stockholders have often instituted securities class action litigation
        after periods of volatility in the market price of a company’s securities. If a
        stockholder were to file any such class action suit against us, we would
        incur
        substantial legal fees and our management’s attention and resources would be
        diverted from operating our business to respond to the litigation, which
        could
        harm our business.
  **Substantial
        future sales of our common stock in the public market could cause our stock
        price to fall.**
  On
        October 2, 2006 the registration statement we filed in June 2006 became
        effective, and up to 27,117,720 shares of common stock became eligible for
        sale.
        The sale of these shares could depress the market price of our common stock.
        Sales of a significant number of shares of our common stock in the open market
        could harm the market price of our common stock. A reduced market price for
        our
        shares could make it more difficult to raise funds through future offering
        of
        common stock.
  Moreover,
        as additional shares of our common stock become available for resale in the
        open
        market (including shares issued upon the exercise of our outstanding warrants),
        the supply of our publicly traded shares will increase, which could decrease
        its
        price. Gemini Partners, Inc., or Gemini, and other stockholders that funded
        the
        purchase and cancellation of shares from our former stockholders have demand
        registration rights with respect to the resale of 3,489,444 shares they received
        in connection with the purchase and cancellation transaction completed
        immediately before the closing of the merger with Ironclad California. Brean
        Murray, Carret & Co., or Brean Murray, the placement agent in the private
        placement completed on May 9, 2006, also has demand rights with respect to
        the
        resale of its shares of common stock and common stock underlying warrants.
        The
        resale of these shares may be registered subsequently pursuant to these demand
        registration rights.
  In
        addition, 8,536,953 of the 27,117,720 shares referenced above 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.
  25
  **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 31% of our outstanding common stock. As
        a
        result, these stockholders will be able to affect the outcome of, or exert
        significant influence over, all matters requiring stockholder approval,
        including the election and removal of directors and any change in control.
        In
        particular, this concentration of ownership of our common stock could have
        the
        effect of delaying or preventing a change of control of us or otherwise
        discouraging or preventing a potential acquirer from attempting to obtain
        control of us. This, in turn, could have a negative effect on the market
        price
        of our common stock. It could also prevent our stockholders from realizing
        a
        premium over the market prices for their shares of common stock. Moreover,
        the
        interests of this concentration of ownership may not always coincide with
        our
        interests or the interests of other stockholders, and accordingly, they could
        cause us to enter into transactions or agreements that we would not otherwise
        consider.
 
 **Anti-
        takeover provisions may limit the ability of another party to acquire us,
        which
        could cause our stock price to decline.**
  Our
        Articles of Incorporation, as amended, our by-laws and Nevada law contain
        provisions that could discourage, delay or prevent a third party from acquiring
        us, even if doing so may be beneficial to our stockholders. In addition,
        these
        provisions could limit the price investors would be willing to pay in the
        future
        for shares of our common stock.
   26
  **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 September
        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 third quarter
        ended September 30, 2007 that have materially affected, or are reasonably
        likely
        to materially affect, our internal control over financial
        reporting.
        27
 
 **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
          to its
          claims. The cross-complaint, as amended, was filed with the Superior Court
          of
          the State of California for the County of Los Angeles. ASG filed a demurrer
          to
          Ironclad California's cross-complaint which was not heard until 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 is contract claims were time barred.
          Ironclad California filed another amended cross-complaint on April 16,
          2007. ASG
          responded to that amended complaint on May 16, 2007. Ironclad California
          filed a
          second amended cross complaint on June 4, 2007. ASG responded by filing
          another
          demurrer and motion to strike. These motions were heard on October 10,
          2007.
          ASG's demurrer was granted in part and denied in part and its motion to
          strike
          was denied in its entirety. The parties attended a mediation on October
          31,
          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.**
  Between
          September 12 and September 24, 2007, we entered into Subscription Agreements
          with each of London Family Trust, MCF Navigator Fund, L.P., Primarius Partners
          LP, Primarius Focus LP, Alder Capital Partners I LP, Alder Offshore Master
          Fund
          LP, Orcutt Family Trust, and Stiassni Capital Partners L.P. pursuant to
          which we
          sold an aggregate of 5,250,000 shares of common stock, par value $0.001
          per
          share, at $0.40 per share for gross proceeds of $2.1M. The transactions
          closed
          between September 12 and 24, 2007. We paid total cash commissions equal
          to
          $67,500 to Brean Murray, Carret & Co. in connection with the
          offering.
  Pursuant
          to the terms of the Subscription Agreements, we agreed to provide the investors
          certain registration rights with respect to their purchased shares under
          the
          Securities Act of 1933, as amended. The Subscription Agreements provided
          that we
          would file a registration statement on or before the date that is 45 calendar
          days after the last closing date of the transactions contemplated by the
          Subscription Agreements and that we would use commercially reasonable efforts
          to
          cause that registration statement to become effective within one hundred
          fifty
          (150) days after the last closing date. We subsequently filed a Registration
          Statement on Form SB-2 (File Number 33-146852) pursuant to which we registered
          for resale all of the shares sold in the offering. The registration statement
          was declared effective on November 9, 2007.
  The
          issuance of the shares to the investors pursuant to the Subscription Agreements
          was intended to be exempt from registration under the Securities Act pursuant
          to
          Section 4(2) thereof and Rule 506 of Regulation D as promulgated by the
          United
          States Securities and Exchange Commission under the Securities Act, as
          the
          shares were sold to accredited investors, without a view to distribution
          and
          were not sold through any general solicitation or advertisement.
   **ITEM
        6.****Exhibits**
  **The
        following exhibits are filed as part of this report:**
  Exhibit
                Number
              
              Description10.1
              
              Form
                  of Subscription Agreement (1)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 Form SB-2 Registration Statement filed October
        23, 2007.
  28
 
 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:
                  November 14, 2007
              By:
              /s/
                  Thomas KreigThomas
                  Kreig
                Interim
                  Chief Financial Officer






29


**Exhibit
        Index**
  Exhibit
                Number
              
              Description10.1
              
              Form
                  of Subscription Agreement (1)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 Form SB-2 Registration Statement filed October
        23, 2007
    
 30