**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**







**FORM
      10-Q**







**x**
            **Quarterly
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
                of 1934****For
                the quarterly period ended September 30, 2008**




**or**




** ̈**
            **Transition
                Report Pursuant Section 13 or 15(d) of the Securities Exchange Act of
                1934****For
                the transition period from****_______****to _______****.**




**Commission
      file number 0-51536**







**IRONCLAD
      PERFORMANCE WEAR CORPORATION**


**(Exact
      name of registrant as specified in its charter)**







**Nevada**
            
            **98-0434104****(State
                or other jurisdiction of**
              **incorporation
                or organization)**
            
            **(I.R.S.
                Employer**
              **Identification
                No.)**





**2201
      Park Place, Suite 101**


**El
      Segundo, CA 90245**


**(Address
      of principal executive offices, zip code)**




**(310)
      643 -7800**


**(Registrant’s
      telephone number, including area code)**









Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the registrant
      was required to file such reports), and (2) has been subject to such filing
      requirements for the past 90 days.    Yes x No  ̈




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




Large
                accelerated filer ̈
            Accelerated
                filer
             ̈Non-accelerated
                filer ̈(Do not check if smaller reporting company)
            Smaller
                reporting company
            x




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




As
      of
      November 13, 2008, the registrant had 42,464,504 shares of common stock issued
      and outstanding.









**TABLE
      OF CONTENTS**





PagePART
                I
            Financial
                Information
            1Item
                1.
            Financial
                Statementsa.
            Consolidated
                Balance Sheets as of September 30, 2008 (Unaudited) and
              December
                31, 2007
            1b.
            Consolidated
                Statements of Operations (Unaudited) for the three months and
              nine
                months ended September 30, 2008 and September 30,
                2007
            2c.
            Consolidated
                Statements of Cash Flows (Unaudited) for the nine months ended September
                30, 2008 and September 30, 2007
            3d.
            Notes
                to Condensed Consolidated Financial Statements
            4
                -
                16Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            17Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            36Item
                4.
            Controls
                and Procedures
            36PART
                II
            Other
                Information
            37Item
                6.
            Exhibits
            37









**PART
      I**





**ITEM
      1.**  **FINANCIAL
      STATEMENTS**





**IRONCLAD
      PERFORMANCE WEAR CORPORATION**


**CONSOLIDATED
      BALANCE SHEETS AS OF SEPTEMBER 30, 2008 (unaudited)**


**AND
      DECEMBER 31, 2007**




**September
                30,**
              **2008**
            
            **December
                31,**
              **2007**(unaudited)**ASSETS****CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            76,837
            
            $
            585,826Accounts
                receivable net of allowance for doubtful accounts of $76,000 and
                $33,000
            
            
            2,708,551
            
            
            4,327,616Inventory,
                net of reserve of $117,000 and $84,000
            
            
            4,258,620
            
            
            3,129,339Deposits
                on inventory
            
            
            56,410
            
            
            10,068Prepaid
                and other
            
            
            231,968
            
            
            184,456**Total
                current assets**
            
            
            7,332,386
            
            
            8,237,305**PROPERTY,
                PLANT AND EQUIPMENT**Computer
                equipment and software
            
            
            200,933
            
            
            253,657Vehicles
            
            
            43,680
            
            
            43,680Office
                equipment and furniture
            
            
            143,477
            
            
            128,465Leasehold
                improvements
            
            
            36,934
            
            
            34,110Less:
                accumulated depreciation
            
            
            (229,187
            )
            
            (219,517
            )**Total
                property, plant and equipment, net**
            
            
            195,837
            
            
            240,395Trademarks,
                net of $12,807 and 9,306 of accumulated
                amortization
            
            
            93,802
            
            
            82,748Deposits
                and other
            
            
            11,354
            
            
            12,366**Total
                Assets**
            
            $
            7,633,379
            
            $
            8,572,814**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****CURRENT
                LIABILITIES**Accounts
                payable and accrued expenses
            
            $
            3,567,357
            
            $
            3,438,054Line
                of credit
            
            
            1,590,831
            
            
            2,309,321Current
                portion of long term debt
            
            
            -
            
            
            1,642**Total
                current liabilities**
            
            
            5,158,188
            
            
            5,749,017**LONG
                TERM LIABILITIES**
            
            
            -**Total
                Liabilities**
            
            
            5,158,188
            
            
            5,749,017**STOCKHOLDERS’
                EQUITY**Common
                stock, $.001 par value; 172,744,750 shares authorized; 42,464,504 and
                35,389,504 shares issued and outstanding at September 30, 2008 and
                December 31, 2007, respectively
            
            
            42,465
            
            
            35,390Additional
                paid-in capital
            
            
            15,789,595
            
            
            13,934,051Accumulated
                deficit
            
            
            (
                13,356,869
            )
            
            (11,145,644
            )**Total
                Stockholders’ Equity**
            
            
            2,475,191
            
            
            2,823,797**Total
                Liabilities and Stockholders’ Equity**
            
            $
            7,633,379
            
            $
            8,572,814




See
      Notes
      to Condensed 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,****2008**
            
            **2007**
            
            **2008**
            
            **2007****REVENUES**Net
                sales
            
            $
            4,072,693
            
            $
            3,588,178
            
            
            7,893,012
            
            
            7,794,427**COST
                OF SALES**Cost
                of sales
            
            
            2,507,250
            
            
            2,316,035
            
            
            4,769,139
            
            
            4,680,530**GROSS
                PROFIT**
            
            
            1,565,443
            
            
            1,272,143
            
            
            3,123,873
            
            
            3,113,897**OPERATING
                EXPENSES**General
                and administrative
            
            
            602,103
            
            
            944,242
            
            
            1,902,620
            
            
            2,817,029Sales
                and marketing
            
            
            619,693
            
            
            1,008,670
            
            
            2,325,230
            
            
            2,798,146Research
                and development
            
            
            88,613
            
            
            119,270
            
            
            297,479
            
            
            374,143Purchasing,
                warehousing and distribution
            
            
            156,899
            
            
            188,029
            
            
            561,674
            
            
            461,463Depreciation
                and amortization
            
            
            24,895
            
            
            17,404
            
            
            73,713
            
            
            50,584**Total
                operating expenses**
            
            
            1,492,203
            
            
            2,277,615
            
            
            5,160,716
            
            
            6,501,365**INCOME
                (LOSS) FROM OPERATIONS**
            
            
            73,240
            
            
            (1,005,472
            )
            
            (2,036,843
            )
            
            (3,387,468
            )**OTHER
                INCOME (EXPENSE)**Interest
                expense
            
            
            (72,674
            )
            
            (34,473
            )
            
            (132,402
            )
            
            (104,751
            )Interest
                income
            
            
            49
            
            
            6,209
            
            
            4,590
            
            
            34,993Change
                in fair value of warrant liability
            
            
            -
            
            
            5,935
            
            
            -
            
            
            18,248Other
                income (expense), net
            
            
            (43,814
            )
            
            -
            
            
            (46,520
            )
            
            2,385Unrealized
                gain (loss) on financing activities
            
            
            -
            
            
            -
            
            
            (1,515
            )
            
            -**Total
                other income (expense)**
            
            
            (116,439
            )
            
            (22,329
            )
            
            (175,847
            )
            
            (49,125
            )**NET
                LOSS BEFORE PROVISION FOR INCOME TAXES**
            
            
            (43,199
            )
            
            (1,027,801
            )
            
            (2,212,690
            )
            
            (3,436,593
            )**PROVISION
                FOR (REFUND OF) INCOME TAXES**
            
            
            (2,276
            )
            
            -
            
            
            (1,466
            )
            
            800**NET
                LOSS**
            
            $
            (40,923
            )
            $
            (1,027,801
            )
            
            (2,211,224
            )
            
            (3,437,393
            )**BASIC
                AND DILUTED NET LOSS PER COMMON SHARE**
            
            $
            (0.00
            )
            $
            (0.03
            )
            
            (0.06
            )
            
            (0.11
            )**WEIGHTED
                AVERAGE****COMMON
                SHARES OUTSTANDING**
            
            
            42,464,504
            
            
            30,854,644
            
            
            39,546,712
            
            
            30,343,533





See
      Notes
      to Condensed Consolidated Financial Statements.




2




**IRONCLAD
      PERFPRMANCE WEAR CORPORATION**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(unaudited)**




**Nine Months**
              **Ended**
              **September 30,
                2008**
            
            **Nine Months**
              **Ended**
              **September
                30, 2007****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                loss
            
            $
            (2,211,224
            )
            $
            (3,437,393
            )Adjustments
                to reconcile net loss to net cash used in operating
                activitiesAllowance
                for bad debts
            
            
            43,000
            
            
            -Depreciation
            
            
            70,212
            
            
            48,171Amortization
            
            
            3,501
            
            
            2,729Change
                in fair value of warrant liability
            
            
            -
            
            
            (18,248
            )Non-cash
                compensation:Common
                stock issued for services
            
            
            -
            
            
            41,875Stock
                option expense
            
            
            478,548
            
            
            494,456Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            1,576,065
            
            
            (1,429,364
            )Inventory
            
            
            (1,129,281
            )
            
            (639,586
            )Deposits
                on inventory
            
            
            (46,342
            )
            
            8,155Deposits
            
            
            1,012
            
            
            10,654Prepaid
                and other
            
            
            (47,512
            )
            
            (37,575
            )Accounts
                payable and accrued liabilities
            
            
            129,304
            
            
            1,991,885Net
                cash flows provided by (used in) operating activities
            
            
            (1,132,717
            )
            
            (2,964,241
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES**Property,
                plant and equipment purchased
            
            
            (25,655
            )
            
            (78,453
            )Investment
                in trademarks
            
            
            (14,555
            )
            
            (9,655
            )Net
                cash flows used in investing activities
            
            
            (40,210
            )
            
            (88,108
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Proceeds
                from issuance of common stock
            
            
            1,415,000
            
            
            2,104,500Offering
                costs
            
            
            (30,930
            )
            
            (92,637
            )Drawdown
                (payback) on bank line of credit
            
            
            (718,490
            )
            
            390,168Payments
                on capital leases
            
            
            (1,642
            )
            
            (2,491
            )Net
                cash flows provided by (used in) financing activities
            
            
            663,938
            
            
            2,399,540**NET
                DECREASE IN CASH**
            
            
            (508,989
            )
            
            (652,809
            )**CASH
                AND CASH EQUIVALENTS BEGINNING OF PERIOD**
            
            
            585,826
            
            
            2,012,165**CASH
                AND CASH EQUIVALENTS END OF PERIOD**
            
            $
            76,837
            
            $
            1,359,356**SUPPLEMENTAL
                DISCLOSURES**Interest
                paid in cash
            
            $
            132,402
            
            $
            104,751Income
                taxes
            
            
            1,508
            
            
            800




See
      Notes
      to Condensed Consolidated Financial Statements.




3




**IRONCLAD
      PERFORMANCE WEAR CORPORATION**


**Notes
      to Condensed Consolidated Financial Statements**




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




The
      Company was incorporated in Nevada on May 26, 2004 and engages in the business
      of design and manufacture of branded performance work wear including
      task-specific gloves and performance apparel designed to significantly improve
      the wearer’s ability to safely, efficiently and comfortably perform general to
      highly specific job functions. Its customers are primarily hardware, lumber
      retailers, “Big Box” home centers, industrial distributors and sporting goods
      retailers. The Company has received five patents and three patents pending
      for
      design and technological innovations incorporated in its performance work
      gloves. The Company has 53 registered US trademarks, 10 registered international
      trademarks and 11 in-use US trademarks. The Company introduced its line of
      specialty work apparel in the fourth quarter of 2005. The apparel is engineered
      to keep the wearer dry and cool under extreme work conditions.




**2.**  **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 10-Q and Article 8
      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, 2007 included in the Company’s Annual Report on Form 10-KSB/A filed
      with the SEC on April 1, 2008.




Basis
      of Consolidation




The
      condensed 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 amounts 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.




4




Inventory




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





Property
      and Equipment




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




Trademarks




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




Long-Lived
      Asset Impairment




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




Revenue
      Recognition




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.





Cost
      of Goods Sold





Cost
      of
      goods sold includes all of the costs associated with producing the product
      by
      independent, third party factories (FOB costs), plus the costs of transporting,
      inspecting and delivering the product to our distribution warehouse in
      California (landed costs.) Landed costs consist primarily of ocean/air freight,
      transport insurance, import duties, administrative charges and local trucking
      charges from the port to our warehouse. Cost of goods sold for the three months
      and nine months ended September 30, 2008 were $2,507,250 and $4,769,139,
      respectively.





Purchasing,
      warehousing and distribution costs are reported in operating expenses on the
      line item entitled “Purchasing, warehousing and distribution expenses” and, for
      the three months and nine months ending September 30, 2008 were $156,898 and
      $561,674, respectively. These costs were comprised of salaries and benefits
      of
      approximately $55,000 and $171,000; office expenses of approximately $2,000
      and
      $23,000; travel and lodging of approximately $-0- and $10,000; and warehouse
      operations of approximately $100,000and $358,000, respectively.




5





Product
      Returns, Allowances and Adjustments





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





Warranty
      Returns - the Company has a warranty policy that covers defects in workmanship.
      It allows customers to return damaged or defective products to us following
      a
      customary return merchandise authorization process. Warranty returns for the
      three months and nine months ending September 30, 2008 were approximately
      $32,000 or 0.7% and $104,000 or 1.2%, respectively.





Saleable
      Product Returns - the Company may allow from time to time, depending on the
      customer and existing circumstances, stock adjustment returns, whereby the
      customer is given the opportunity to ‘trade out’ of a style of product that does
      not sell well in their territory, usually in exchange for another product,
      again
      following the customary return merchandise authorization process. In addition
      we
      may allow from time to time other saleable product returns from customers for
      other business reasons, for example, in settlement of an outstanding accounts
      receivable, from a discontinued distributor customer or other customer service
      purpose. Saleable product returns for the three month and nine months ending
      September 30, 2008 were approximately $50,000 or 1.1% and $503,000 or 5.7%,
      respectively. Included in saleable product returns for the nine months ended
      September 30, 2008 were two large, unique and non-recurring returns. In one
      instance the Company “took back” inventory from a customer who had failed to pay
      for their purchase as a means of recovering its value and avoiding a bad debt
      write-off for approximately $140,000. In the second instance a long-time
      hardware distributor customer who had purchased a large order of the new apparel
      line specifically for one of its customers, had that customer cancel the order.
      The Company’s distributor approached the Company seeking relief as it had no
      other viable outlet for the product. The Company agreed to allow it to return
      approximately $90,000 of this apparel product. These two returns account for
      approximately $230,000 or 2.6% of the year to date total.





Accounting
      Adjustments - these adjustments include pricing and shipping corrections and
      periodic adjustments to the product returns reserve. Pricing and shipping
      corrections for the three months and nine months ending September 30, 2008
      were
      approximately $65,000 or 0.2% and $44,000 or 0.5%, respectively. Adjustments
      to
      the product returns reserve for the three months and nine months ending
      September 30, 2008 were approximately $58,000 or 1.3% and ($80,000) or (0.9%),
      respectively.





For
      warranty returns the Company utilizes actual historical return rates to
      determine the allowance for returns in each period. For saleable product returns
      the Company also utilizes actual historical return rates, adjusted for large,
      non-recurring occurrences. The Company does not accrue for pricing and shipping
      corrections as they are unpredictable and generally de minimis. Gross sales
      are
      reduced by estimated returns. We record a corresponding accrual for the
      estimated liability associated with the estimated returns which is based on
      the
      historical gross sales of the products corresponding to the estimated returns.
      This accrual is offset each period by actual product returns.




6




**Reserve
                for Product Returns****,
                Allowances and Adjustments**Reserve
                Balance 12/31/07
            
            $
            200,000Payments
                Recorded During the Period
            
            
            (87,250
            )112,750Accrual
                for New Liabilities During the Reporting
                Period
            
            
            241,250Reserve
                Balance 3/31/08
            
            
            354,000Payments
                Recorded During the Period
            
            
            (397,032
            )(43,032
            )Accrual
                for New Liabilities During the Reporting
                Period
            
            
            105,032Reserve
                Balance 6/30/08
            
            
            62,000Payments
                Recorded During the Period
            
            
            (101,460
            )(39,460
            )Accrual
                for New Liabilities During the Reporting
                Period
            
            
            159,460Reserve
                Balance 9/30/08
            
            $
            120,000




Advertising
      and Marketing




Advertising
      and marketing costs are expensed as incurred. Advertising expenses for the
      nine
      months ended September 30, 2008 and 2007 were $569,751 and $771,053,
      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




Three
      customers accounted for approximately $2,189,000 or 51% of net sales for the
      quarter ended September 30, 2008 and one customer accounted for approximately
      $1,847,000 or 21% for the nine months ended September 30, 2008. Two customers
      accounted for approximately $1,556,000 or 40% of net sales for the quarter
      ended
      September 30, 2007, and one customer accounted for approximately $1,552,000
      or
      19% for the nine months ended September 30, 2007.




Supplier
      Concentrations




Two
      suppliers, who are located overseas, accounted for approximately 66% of total
      purchases during the quarter ended September 30, 2008 and 68% for the nine
      months ended September 30, 2008. One supplier, which is located overseas,
      accounted for 54% of total purchases during the quarter ended September 30,
      2007
      and 58% for the nine months ended September 30, 2007.




Loss
      Per Share




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




7




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





QuarterEnded
                September 30,2008
            
            2007Options
                outstanding under the Company’s stock option plans
            
            
            5,247,407
            
            
            4,897,046Common
                Stock Warrants
            
            
            10,454,522
            
            
            10,454,522





Income
      Taxes





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




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




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




The
      components of the provision for income taxes for the quarters ended
      September 30, 2008 and 2007 were $698 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
      Adjustments to Fair Value of Derivatives.




8




RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS




In
      February, 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standard (“SFAS”) No. 159, “ *The
      Fair Value Option for Financial Assets and 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 has adopted SFAS 159 and
      determined that it has no effect on its condensed consolidated financial
      statements.





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





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





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





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





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




9




**3.**  **Inventory**




At
      September 30, 2008 the Company had one class of inventory - finished goods.
      Inventory is shown net of a provision of $112,000 at September 30,
      2008.





September 30,
              2008Finished
                goods
            
            $
            **4,258,620**




**4.**  **Property
      and equipment**




Property
      and equipment consisted of the following:





September 30,2008Computer
                hardware and software
            
            $
            200,933Furniture
                and equipment
            
            
            143,477Vehicle
            
            
            43,680Leasehold
                improvements
            
            
            36,934425,024Less
                accumulated depreciation
            
            
            (229,187
            )**Property
                and equipment, net**
            
            **$**
            **195,837**




Depreciation
      expense for the nine months ended September 30, 2008 and 2007 was $70,212 and
      $48,171, respectively.




**5.**  **Trademarks
      and Patents**




Trademarks
      consisted of the following:





September
                30,2008Trademarks
            
            $
            86,465Patents
            
            
            20,144Less:
                Accumulated amortization
            
            
            (12,807
            )**Trademarks,
                net**
            
            **$**
            **93,802**




Trademarks
      and patents consist of definite-lived trademarks and patents of $68,157 and
      indefinite-lived trademarks and patents of $35,452 at September 30, 2008. All
      trademark and patent costs have been generated by the Company, and consist
      of
      initial legal and filing fees.




10




Amortization
      expense was $3,501 and $2,729 for the nine months ended September 30, 2008
      and
      2007, respectively.





**6.**  **Accounts
      payable and accrued expenses**




Accounts
      payable and accrued expenses consisted of the following at September 30,
      2008:





September
                30,
              2008Accounts
                payable
            
            $
            1,626,795Accrued
                inventory
            
            
            1,278,679Accrued
                rebates and co-op
            
            
            123,966Accrued
                returns reserve
            
            
            120,000Accrued
                expenses - other
            
            
            417,917**Total
                accounts payable and accrued expenses**
            
            **$**
            **3,567,357**




**7.**  **Bank
      Lines of Credit**





Factoring
      Agreement




On
      September 15, 2006 the Company entered into a factoring agreement with Wells
      Fargo Century, Inc., dba Wells Fargo Trade Capital Services, Inc. (“WFTC”),
      whereby it assigned certain of its accounts receivables with full recourse.
      On
      November 21, 2006, the Company entered into an amendment to this factoring
      agreement. This facility allows the Company to borrow the lesser of (a)
      $2,500,000 or (b) the sum of (i) seventy-five percent (75%) of the net amount
      of
      eligible accounts receivable and (ii) 40% of the value of eligible inventory,
      which amount shall not exceed the lesser of $750,000 and the net amount of
      eligible accounts receivable. All of the Company’s assets secure amounts
      borrowed under the terms of this agreement. Interest on outstanding balances
      accrues at the prime rate announced from time to time by Wells Fargo Bank N.A.
      (or such other bank as WFTC shall select in its discretion) as its “prime” or
      base rate for commercial loans and the agreement has an initial term of
      twenty-four (24) months. As of September 30, 2008, this factoring agreement
      continues in full force and the total amount due to WFTC was
      $1,590,831.





On
      July
      25, 2008 the Company entered into a Master Agreement with EPK Financial
      Corporation (“EPK”) whereby the Company would finance purchase orders for three
      customer’s special promotions. In conjunction with this agreement an
      intercreditor agreement was executed between the Company, WFTC and EPK whereby
      WFTC would waive its security interest in the inventory purchased under the
      EPK
      financed purchase orders and, when the Company presented the sales invoices
      from
      these three customers for this promotional inventory, WFTC would accept these
      sales as collateral and remit the eligible funds first to EPK for approved
      principal, interest and fees, and then to the Company. As of September 30,
      2008,
      two of these EPK financed purchase orders totaling $758,581 remained
      outstanding, both of which were shipped and cleared in October
      2008.





**8.****Equity
      transactions**




Common
      Stock




In
      April
      2008, the Company completed a private placement transaction with trusts and
      other high net worth individuals. Pursuant to its subscription agreements with
      these investors, the Company sold 7,075,000 shares of common stock, at $0.20
      per
      share. 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 S-1 Registration Statement which became
      effective on June 20, 2008. After commissions and expenses, the Company received
      net proceeds of approximately $1.38 million in the private placement. There
      were
      42,464,504 shares of common stock of the Company outstanding at September 30,
      2008.




11




Warrant
      Activity




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




Number of Shares
            
            Weighted Average
              Exercise PriceWarrants
                outstanding at December 31, 2007
            
            
            10,454,522
            
            $
            0.91Warrants
                outstanding at September 30, 2008
            
            
            10,454,522
            
            $
            0.91




Stock
      Based Compensation




Ironclad
      California reserved 3,020,187 shares of its common stock for issuance to
      employees, directors and consultants under the 2000 Stock Incentive Plan, which
      the Company assumed in the Merger (the “2000 Plan”). Under the 2000 Plan,
      options may be granted at prices not less than the fair market value of the
      Company’s common stock at the grant date. Options generally have a ten-year term
      and shall be exercisable as determined by the Board of Directors.




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




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




There
      were no stock options issued during the quarter ended September 30,
      2008.




12




A
      summary
      of stock option activity is as follows:





Number of Shares
            
            Weighted
              Average
              Exercise PriceOutstanding
                at January 1, 2008
            
            
            6,016,944
            
            $
            0.58Granted
            
            
            -
            
            $
            -Exercised
            
            
            -
            
            
            -Cancelled/Expired
            
            
            (557,218
            )
            $
            0.43Outstanding
                at March 31, 2008
            
            
            5,459,726
            
            $
            0.60Granted
            
            
            180,000
            
            $
            0.25Exercised
            
            
            -
            
            
            -Cancelled/Expired
            
            
            (302,003
            )
            $
            0.54Outstanding
                at June 30, 2008
            
            
            5,337,723
            
            $
            0.57Granted
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -Cancelled/Expired
            
            
            90,316
            
            $
            0.57Outstanding
                at September 30, 2008
            
            
            5,247,407
            
            $
            0.58Exercisable
                at September 30, 2008
            
            
            3,981,634
            
            $
            0.55




The
      following tables summarize information about stock options outstanding at
      September 30, 2008:





Range of Exercise
              Price
            
            Number
              Outstanding
            
            Weighted
                Average
              Remaining Contractual
              Life
                (Years)
            
            Weighted
                Average
              Exercise
                Price
            
            Intrinsic
                Value
              Outstanding
                Shares$0.19
                - $0.35
            
            
            2,583,239
            
            
            4.94
            
            $
            0.32
            
            $
            -0-$0.
                38 - $1.05
            
            
            2,664,168
            
            
            8.11
            
            $
            0.80
            
            $
            -0-




The
      following tables summarize information about stock options exercisable at
      September 30, 2008:





Range
                of Exercise
              Price
            
            Number
              Exercisable
            
            Weighted
                Average
              Remaining Contractual
              Life (Years)
            
            Weighted
                Average
              Exercise
                Price
            
            Intrinsic
                Value
              Exercisable
                Shares$0.19
                - $0.35
            
            
            2,530,318
            
            
            4.99
            
            $
            0.32
            
            $
            -0-$0.
                38 - $1.05
            
            
            1,451,317
            
            
            7.83
            
            $
            0.90
            
            $
            -0-





The
      Company recorded $466,471 and $494,456 of compensation expense for employee
      stock options during the nine months ended September 30, 2008 and 2007,
      respectively. These compensation expense charges were recorded in the following
      operating expense categories for 2008 and 2007 respectively, general and
      administrative - $284,854 and $335,102; sales and marketing - $128,527 and
      $106,370; research and development - $31,292 and $32,022; and purchasing,
      warehousing and distribution - $21,798 and $20,962. There was a total of
      $730,966 of unrecognized compensation costs related to non-vested share-based
      compensation arrangements under the Plan outstanding at September 30, 2008.
      This
      cost is expected to be recognized over a weighted average period of 2.1 years.
      The total fair value of shares vested during the nine months ended September
      30,
      2008 was $399,173.




13




**9.**  **Income
      Taxes**





The
      Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
      Taxes - An Interpretation of FASB Statement No. 109 (FIN 48) as of January
      1,
      2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized
      in an entity’s financial statements in accordance with FASB Statement No. 109,
      Accounting for Income Taxes, and prescribes a recognition threshold and
      measurement attributes for financial statement disclosure of tax position taken
      or expected to be taken on a tax return. Additionally, FIN 48 provides guidance
      on de-recognition, classification, interest and penalties, accounting in interim
      periods, disclosure and transition. No adjustments were required upon adoption
      of FIN 48. The Company has provided a full valuation allowance against its
      deferred tax assets.





The
      Company is currently open to audit under the statute of limitations by the
      Internal Revenue Service for the fiscal years 2005 through 2007. The Company’s
      state tax returns are open to audit under the statute of limitations for the
      fiscal years 2004 through 2007.




The
      provision for income taxes differs from the amount that would result from
      applying the federal statutory rate for the quarter ended September 30, 2008
      as
      follows:





September 30,
              2008Statutory
                regular federal income benefit rate
            
            
            (34.0
            )%State
                income taxes, net of federal benefit
            
            
            (5.3
            )Change
                in valuation allowance
            
            
            39.3Total
            
            
            -
            %




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, 2008 consisted of the following:





2008Deferred
                tax assetsNet
                operating loss carryforward
            
            $
            4,217,198Stock
                option expense
            
            
            741,852Allowance
                for doubtful accounts
            
            
            32,558Allowance
                for product returns
            
            
            51,408Accrued
                compensation
            
            
            83,537Inventory
            
            
            44,768Other
            
            
            3,406Valuation
                allowance
            
            
            (4,816,066
            )Total
                deferred tax assets
            
            
            358,661Total
                deferred tax liabilities
            
            
            (358,661
            )**Net
                deferred tax assets/liabilities**
            
            $
            -




14




As
      of
      September 30, 2008, the Company had unused federal and state contribution
      carryovers of $2,862 that expire in 2009 through 2011.





As
      of
      September 30, 2008, the Company had unused federal and states net operating
      loss
      carryforwards available to offset future taxable income of approximately
      $9,882,000 and $10,403,000, respectively, that expire between 2009 and
      2027.





**10.**  **Commitments
      and Contingencies**





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 $14,698. Rent expense for the nine
      months ended September 30, 2008 for this facility was $132,589.




The
      Company has various non-cancelable operating leases for office equipment
      expiring through December 31, 2012. Equipment lease expense charged to
      operations under these leases was $5,639 and $5,878 for the nine months ended
      September 30, 2008 and 2007, respectively.




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.





**11.**  **Related
      Party Transactions**




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







**12.
      Gain/Loss Contingency**





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




15




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





During
      the period from January to July, 2008, the Company paid duties, calculated
      at
      the lower duty rate, of approximately $36,000. Had those entries been calculated
      at the higher duty rate the Company would have incurred additional duties of
      approximately $134,000.





In
      summary, the outcome of the Company’s challenge to the classification of its
      products for the purpose of determining the appropriate duty rate is still
      in
      question at this time. The Company remains reasonably confident that its
      products do qualify for the reduced duty rate classification, but the ultimate
      outcome may be determined by a technical interpretation of the law. The U.S.
      Customs Department has begun charging the Company back for previously issued
      refunds and for additional duties due for the period January to July 2008.
      Below
      is a chart outlining the current situation:





2007
                Protests
            
            2008
                DutyReductionsProtests
                Filed for Refund
            
            $
            165,000Duty
                Reductions Denied
            
            
            
            
            $
            134,000Refunds
                Received
            
            
            ($24,000
            )Repayments
                Billed and Paid
            
            $
            4,000
            
            
            ($21,000
            )Potential
                Liability
            
            $
            20,000
            
            $
            113,000





Conversely,
      should the Company prevail in its protest the Company could receive refunds
      for
      the $165,000 of previously approved and then denied protests, plus the $134,000
      of repaid 2008 duties, plus any additional excess duties paid for entries
      subsequent to July 2008.




16




**ITEM
      2.****MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION****S**





*This
      discussion summarizes the significant factors affecting the operating results,
      financial condition and liquidity and cash flows of the Company for the three
      and nine months ended September 30, 2008 and 2007. The following discussion
      of
      our results of operations and financial condition should be read together with
      the condensed 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. 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, and increasing our product offerings in new and existing locations.
      We also plan to sell our 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. In 2007 we entered the European market through a distributor
      and international sales represented approximately 11% of total sales. We plan
      to
      continue to increase sales internationally by expanding our distribution in
      Europe and into other international markets during the fiscal year ending
      December 31, 2008.




**General**




Net
      sales
      are comprised of gross sales less returns and 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.





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





Our
      operating expenses consist primarily of payroll and related costs, marketing
      costs, corporate infrastructure costs and our purchasing, warehousing and
      distribution 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.




17




Historically,
      we have funded our working capital needs through a combination of our existing
      asset-based credit facility along with subordinated debt and equity financing
      transactions. On September 15, 2006 we entered into a factoring agreement
      whereby we assigned certain of our accounts receivables with full recourse.
      This
      facility allows us to borrow 75% against eligible accounts receivable and 40%
      against eligible inventory, up to $750,000, with an aggregate limit of up to
      $2,500,000. This facility had an outstanding balance of $1,590,831 at September
      30, 2008. In the third quarter of 2008 we also entered into a Master Agreement
      with EPK Financial Corporation (“EPK”) whereby we would finance purchase orders
      for three customer’s special promotions. As of September 30, 2008, two of these
      EPK financed purchase orders totaling $758,581 remained outstanding, both of
      which were shipped and cleared in October 2008.





**Critical
      Accounting Policies and Estimates**




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




**Revenue
      Recognition**




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




**Revenue
      Disclosures**









Three
                Months Ended September 30, 2008
            
            
            Nine
                Months Ended September 30, 2008Net
                Sales
            
            
            Gloves
            
            
            Apparel
            
            
            Total
            
            
            Gloves
            
            
            Apparel
            
            
            TotalDomestic
            
            $
            3,706,050
            
            $
            220,302
            
            $
            3,926,352
            
            $
            7,143,159
            
            $
            436,383
            
            $
            7,579,542International
            
            
            142,580
            
            
            3,762
            
            
            146,342
            
            
            264,914
            
            
            48,556
            
            
            313,470Total
            
            $
            3,848,630
            
            $
            224,064
            
            $
            4,072,694
            
            $
            7,408,073
            
            $
            484,939
            
            $
            7,893,012








**Inventory
      Obsolescence Allowance**




We
      review
      the inventory level of all products quarterly. For most glove products that
      have
      been in the market for one year or greater, we consider inventory levels of
      greater than one year’s sales to be excess. Since apparel products are a
      relatively new line, we are using a two year horizon to allow for market
      penetration. Products that are no longer part of the current product offering
      are considered obsolete. The potential for re-sale of slow-moving and obsolete
      inventories is based upon our assumptions about future demand and market
      conditions. The recorded cost of obsolete inventories is then reduced to zero
      and a reserve is established for slow moving products. Both the write down
      and
      reserve adjustments are recorded as charges to cost of goods sold. For the
      nine
      months ended September 30, 2008 we decreased our inventory reserve $5,000 to
      a
      current balance of $112,000 and recorded a corresponding decrease in cost of
      goods sold. For the nine months ended September 30, 2007, we decreased our
      inventory reserve by $56,000, to a balance of $64,000 and recorded a
      corresponding decrease in cost of goods sold. All adjustments for obsolete
      inventory establish a new cost basis for that inventory as we believe such
      reductions are permanent declines in the market price of our products.
      Generally, obsolete inventory is sold to companies that specialize in the
      liquidation of these items or contributed to charities, while we continue to
      market slow-moving inventories until they are sold or become obsolete. As
      obsolete or slow-moving inventory is sold or disposed of, we reduce the reserve.




18




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




**Product
      Returns, Allowances and Adjustments**




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





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





*Saleable
      Product Returns* - We may
      allow from time to time, depending on the customer and existing circumstances,
      stock adjustment returns, whereby the customer is given the opportunity to
      ‘trade out’ of a style of product that does not sell well in their territory,
      usually in exchange for another product, again following the customary return
      merchandise authorization process. In addition we may allow from time to time
      other saleable product returns from customers for other business reasons, for
      example, in settlement of an outstanding accounts receivable, from a
      discontinued distributor customer or other customer service purpose.





*Accounting
      Adjustments* - These
      adjustments include pricing and shipping corrections and periodic adjustments
      to
      the product returns reserve.





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




19




**Reserve
                for Product Returns****,
                Allowances and Adjustments**Reserve
                Balance 12/31/07
            
            $
            200,000Payments
                Recorded During the Period
            
            
            (87,250
            )112,750Accrual
                for New Liabilities During the Reporting
                Period
            
            
            241,250Reserve
                Balance 3/31/08
            
            
            354,000Payments
                Recorded During the Period
            
            
            (397,032
            )(43,032
            )Accrual
                for New Liabilities During the Reporting
                Period
            
            
            105,032Reserve
                Balance 6/30/08
            
            
            62,000Payments
                Recorded During the Period
            
            
            (101,460
            )(39,460
            )Accrual
                for New Liabilities During the Reporting
                Period
            
            
            159,460Reserve
                Balance 9/30/08
            
            $
            120,000





**Stock
      Based Compensation**




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




**Income
      Taxes**





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




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




20




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





**Valuation
      of Derivative Instruments**




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




21




**Results
      of Operations**




**Comparison
      of Three and Nine Months Ended September 30, 2008 and 2007**




*Net
      Sales* increased $484,516 or 13.5% *,* to
      $4,072,694 in the quarter ended September 30, 2008 from $3,588,178 for the
      corresponding period in 2007. Three customers accounted for 51.2% of net sales
      during the quarter ended September 30, 2008 and two customers accounted for
      40.0% of net sales for the quarter ended September 30, 2007. Net
      sales increased $98,585 or 1.3% *,* to
      $7,893,012 in the nine months ended September 30, 2008 from $7,794,427 for
      the
      corresponding period in 2007. One customer accounted for 20.9% of net sales
      during the nine months ended September 30, 2008 and one customer accounted
      for
      18.5% of net sales for the nine months ended September 30, 2007. While net
      sales
      increased for the third quarter and nine months ended September 30, 2008, we
      have noticed a softening of demand for our products in light of the general
      downturn in the economy, particularly in those sectors tied to housing and
      construction, as well as a tightening in the credit markets making it more
      difficult for us to finance the production of inventory. We continue to focus
      our sales efforts on those areas where we see continued growth, the industrial
      channel, international and safety markets and job specific glove styles. In
      addition we have secured an ongoing purchase order financing arrangement to
      augment our ability to finance the production of inventory.




*Gross
      Profit* increased $293,300 to $1,565,443 for the quarter ended September 30, 2008 from
      $1,272,143 for the corresponding period in 2007. Gross profit, as a percentage
      of net sales, or gross margin, increased to 38.4% in the third quarter of 2008
      from 35.5% in the same quarter of 2007. Gross
      profit increased $9,976 to $3,123,873 for the nine months ended September 30, 2008
      from
      $3,113,897 for the corresponding period in 2007. Gross profit, as a percentage
      of net sales, or gross margin, decreased to 39.6% in the first nine months
      of
      2008 from 39.9% in the same period of 2007. The increase in gross profit for
      the
      quarter of 2.9% was principally due to a large, lower margin promotional sale
      that shipped in September 2007, but was repeated this year in October 2008.
      The
      decrease in gross profit for the nine months ended September 30, 2008, while
      minimal, reflects the ongoing pressures of the current economic climate, product
      mix and customer sales mix that resulted in lower average selling prices, offset
      by improved margins on apparel products generated by moving production overseas.
      Also, the first quarter of 2007 was favorably impacted by a one-time special
      purchase that increased margins by approximately 1%.




*Operating
      Expenses* decreased by $785,412, or 34.5%, to $1,492,203 in the third quarter of 2008
      from
      $2,277,615 in the third quarter of 2007. As a percentage of net sales, operating
      expenses decreased to 36.6% in the third quarter of 2008 from 63.5% in the
      same
      period of 2007. Operating
      expenses decreased by $1,340,648, or 20.6%, to $5,160,717 in the first nine months of
      2008 from $6,501,365 in the first nine months of 2007. As a percentage of net
      sales, operating expenses decreased to 65.4% in the first nine months of 2008
      from 83.4% in the same period of 2007. The decreased spending for the first
      nine
      months of 2008 was due to a cost reduction program we implemented in response
      to
      the slowing economy, and our previously announced objective to achieve
      profitability. These measures resulted in decreased salaries and benefits
      expenses of $721,000; decreased public company costs of $317,000; decreased
      legal expenses of $186,000; decreased marketing and trade show activity of
      $138,000; decreased travel and entertainment expenses of $104,000 and decreased
      Financial Accounting Standards No. 123R options expense of $16,000; decreased
      office operating expenses of $45,000; offset by increased services, primarily
      warehousing of $187,000. We are continuing our efforts to identify and
      capitalize on cost saving measures and opportunities in these and other areas.
      Our number of employees decreased to 22 at September 30, 2008 from 27 at
      September 30, 2007.





*Income
      from Operations*increased $1,078,712 or 107.3%, to $73,240 in the third quarter of 2008 from
      ($1,005,472) in third quarter of 2007. Income from operations as a percentage
      of
      net sales increased to 1.8% in the third quarter of 2008 from (28.0%) in the
      third quarter of 2007.Loss
      from
      operationsdecreased $1,350,425 or 39.9%, to $2,036,843 in the first nine months of 2008
      from $3,387,468 in first nine months of 2007. Loss from operations as a
      percentage of net sales decreased to 25.8% in the first nine months of 2008
      from
      43.5% in the first nine months of 2007. The decrease in loss from operations
      in
      the three and nine month periods was primarily the result of the cost cutting
      measures and commensurate decrease in operating expenses, as discussed
      above.




*Interest
      Expense* increased $38,201 to $72,674 in the third quarter of 2008 from $34,473 in the
      same period of 2007 due to additional financing charges associated with the
      purchase order financing we employed to accomplish our Fall promotional
      inventory purchases. Interest
      expense increased $27,651 to $132,402 in the first nine months of 2008 from $104,751
      in
      the same period of 2007 due to the purchase order financing discussed
      above.




22




*Interest
      Income* decreased $6,160 in the third quarter of 2008 to $49 from $6,209 in the third
      quarter of 2007 *.* Interest
      Income decreased $30,403 in the first nine months of 2008 to $4,590 from $34,993 in
      the
      first nine months of 2007. Interest income is a result of investment of funds
      from prior private equity funding.




*Other
      Income (Expense)* net was
      ($43,814) in the third quarter of 2008 as compared with $-0- in the third
      quarter of 2007. Other
      Income (Expense) net was
      ($46,520) in the first nine months of 2008 as compared with $2,385 in the first
      nine months of 2007. Other expense in the third quarter of 2008 includes a
      broker’s fee associated with securing purchase order financing of $70,000 offset
      by accounting adjustments to customer accounts of $26,186. Change in the fair
      value of warrant liability was $-0- in the first nine months of 2008 as compared
      to $18,248 for the first nine months of 2007. This change represented the
      difference in the fair value of warrants recorded as liabilities at their issue
      date on May 9, 2006. These warrants were revalued at the end of each reporting
      period until the terms of the registration statement for the shares and warrants
      issued, that resulted in liability accounting, were satisfied in October 2007.




*Net
      Loss* decreased $986,878 to $40,923 in the third quarter of 2008 from $1,027,801
      in
      the third quarter of 2007. Net
      Loss decreased $1,226,169 to $2,211,224 in the first nine months of 2008 from
      $3,437,393 in the first nine months of 2007. This decreased loss is the result
      of the combination of each of the factors discussed above, principally the
      reduction in operating expenses.




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





On
      September 15, 2006 we entered into a new factoring agreement, whereby it
      assigned certain of its accounts receivable with full recourse. This facility
      allows us to borrow the lesser of (a) $2,500,000 or (b) the sum of (i)
      seventy-five percent (75%) of the net amount of eligible accounts receivable
      and
      (ii) 40% of the value of eligible inventory, which amount shall not exceed
      the
      lesser of $750,000 and the net amount of eligible accounts
      receivable.





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




23




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




**Off
      Balance Sheet Arrangements**





At
      September 30, 2008, we did not have any relationships with unconsolidated
      entities or financial partnerships, such as entities often referred to as
      structured finance, variable interest or special purpose entities, which would
      have been established for the purpose of facilitating off-balance sheet
      arrangements or other contractually narrow or limited purposes. As such, we
      are
      not exposed to any financing, liquidity, market or credit risk that could arise
      if we had engaged in such relationships.




**Recent
      Accounting Pronouncements**




In
      February, 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standard (“SFAS”) No. 159, “ *The
      Fair Value Option for Financial Assets and 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 has adopted SFAS 159 and
      determined that it has no effect on its condensed consolidated financial
      statements.





In
      December 2007, the FASB issued SFAS No. 160, *"Noncontrolling
      Interests in Consolidated Financial Statements, an Amendment of ARB No.
      51”* (“SFAS
      160”). SFAS
      160
      establishes accounting and reporting standards for the noncontrolling interest
      in a subsidiary and for the deconsolidation of a ** subsidiary.
      SFAS 160 is effective for fiscal years, and interim periods within those fiscal
      years, beginning on or after December 15, 2008. As such,  we
      are
      required to adopt these provisions at the beginning of the fiscal year ended
      December 31, 2009. We are currently evaluating the impact of SFAS 160 on our
      condensed consolidated financial statements but do not expect it to have a
      material effect.





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





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





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




24




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




25




**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**




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




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





Our
      capital resources have historically been insufficient to support the continued
      growth of our operations and 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, if we are able to raise
      additional capital through the sale of equity or convertible debt securities
      it
      may result in additional dilution to our existing shareholders. If adequate
      additional funds are not available, we may be required to delay, reduce the
      scope of, or eliminate material parts of the implementation of our business
      strategy. This limitation could substantially harm our business, results of
      operations and financial condition.





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




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





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




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




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




·
            the
                availability of manufacturing
                capacity;




·
            the
                seasonality of the markets in which we
                participate;




·
            the
                timing of trade shows;




·
            the
                product mix of customer orders;




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




·
            the
                weather;




·
            transportation
                delays;




·
            quotas
                and other regulatory matters; and




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




26




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





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




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




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




Our
      strategy envisions growing our business. Any growth in or expansion of our
      business is likely to continue to place a strain on our financial, managerial
      and other administrative resources, infrastructure and systems. We have
      historically been undercapitalized to effectively manage and sustain our growth.
      As with other growing businesses, we expect that we will need to continually
      restructure and expand our business development capabilities, our systems and
      processes and our access to financing sources. We also will need to hire, train,
      supervise and manage new employees. These processes are time consuming and
      expensive, will increase management responsibilities and will divert management
      attention. We cannot assure you that we will be able to:





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




·
            allocate
                our human resources optimally;




·
            meet
                our capital needs;




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




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




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





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




To
      date,
      our products have consisted mainly of task-specific gloves and performance
      apparel, targeted primarily to the construction, do-it-yourself, industrial
      and
      sporting goods markets. Our success and the planned growth and expansion of
      our
      business depend on us achieving greater and broader acceptance in our existing
      market segments as well as in new segments. We may be required to enter
      into new arrangements and relationships with vendors, suppliers and others
      to
      achieve broader acceptance of our products, but cannot guarantee that we will
      be
      able to enter into such relationships. We also may be required to undertake
      new
      types of risks or obligations that we may be unable to manage. There can be
      no
      assurance that consumers will purchase our products or that retail outlets
      will
      stock our products. Though we plan to continue to expend resources on promoting,
      marketing and advertising to increase product awareness, we cannot guarantee
      that any expenses we incur in such efforts will generate the desired product
      awareness or commensurate increase in sales of our products. If we are unable
      to
      expand into new market segments, we may be unable to grow and expand our
      business or implement our business strategy as described in this report. This
      could materially impair our ability to increase sales and revenue and materially
      and adversely affect our margins, which could harm our business and cause our
      stock price to decline.




27




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




The
      performance task specific glove and apparel industries are highly competitive.
      There are several other companies that provide similar products, many of which
      are larger and have greater financial resources than us. Our future growth
      and
      financial success depend on our ability to further penetrate and expand our
      existing distribution channels and to increase the size of our average annual
      net sales per account in these channels, as well as our ability to penetrate
      and
      expand other distribution channels. For example, we encounter competition in
      our
      existing glove and workwear distribution channels from a number of competitors.
      Unknown or unforeseen new entrants into our distribution channels, particularly
      low-cost overseas producers, will further increase the level of competition
      in
      these channels. There can be no assurance that we will be able to maintain
      our
      growth rate or increase our market share in our distribution channels at the
      expense of existing competitors and other apparel manufacturers choosing to
      enter the market segments in which we compete. In addition, there can be no
      assurance that we will be able to enter and achieve significant growth in other
      distribution channels.




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




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




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





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




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




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




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




28




**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.





**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 4 manufacturers operating in China, Hong Kong
      and
      Indonesia. Our performance apparel products are currently manufactured in
      Taiwan, Vietnam, Mexico and the Dominican Republic. We may in the future use
      offshore manufacturers for all or some of these products. In addition,
      approximately 11% of our fiscal 2007 net revenues were generated through
      international sales and we plan to increase our sales to international markets
      in the future. As a result of our international manufacturing and sales, we
      are
      subject to additional risks associated with doing business abroad,
      including:





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




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




·
            dependence
                on foreign distributors and distribution
                networks;




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




29




·
            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.




30




**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.





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





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





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





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





**RISKS
      RELATING TO OUR INDUSTRY**




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




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




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




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




31




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 the OTCBB (under the symbol
      ICPW.OB), there is a limited public trading market for our common stock, and
      no
      assurance can be given that a public trading market will be
      sustained.




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





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




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





·
            quarterly
                variations in our revenues and operating
                expenses;




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




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




·
            announcements
                by the government that affect international trade
                treaties;




32




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





Moreover,
      as additional shares of our common stock become available for resale in the
      open
      market (including shares issued upon the exercise of our outstanding warrants),
      the supply of our publicly traded shares will increase, which could decrease
      its
      price. Gemini Partners, Inc., or Gemini, and other stockholders that funded
      the
      purchase and cancellation of shares from our former stockholders (or Gemini
      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.





Some
      of
      our shares may also be offered from time-to-time in the open market pursuant
      to
      Rule 144, and these sales may have a depressive effect on the market for our
      shares. In general, a non-affiliate who has held restricted shares for a period
      of six months may sell an unrestricted number of shares of our common stock
      into
      the market. The resale of the 3,489,444 shares held by the Gemini Stockholders
      may be registered as discussed above, and these shares are currently eligible
      for sale under Rule 144. Further, the shares of our common stock sold in the
      April Private Placement are also currently eligible for sale under Rule 144.
      The
      resale of these shares under Rule 144 may cause our stock price to
      decline.




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




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




33




**The
      trading of our common stock on the OTCBB and the potential designation of our
      common stock as a “penny stock” could impact the trading market for our common
      stock.**




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




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





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




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




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




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




Our
      officers, directors and principal stockholders (greater than 5% stockholders)
      collectively control approximately 44% of our outstanding common stock. As
      a
      result, these stockholders will be able to affect the outcome of, or exert
      significant influence over, all matters requiring stockholder approval,
      including the election and removal of directors and any change in control.
      In
      particular, this concentration of ownership of our common stock could have
      the
      effect of delaying or preventing a change of control of us or otherwise
      discouraging or preventing a potential acquirer from attempting to obtain
      control of us. This, in turn, could have a negative effect on the market price
      of our common stock. It could also prevent our stockholders from realizing
      a
      premium over the market prices for their shares of common stock. Moreover,
      the
      interests of this concentration of ownership may not always coincide with our
      interests or the interests of other stockholders, and accordingly, they could
      cause us to enter into transactions or agreements that we would not otherwise
      consider.




34




**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.




35




**ITEM
        3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
        RISK**




Not
      applicable.






**ITEM
      4.**  **CONTROLS
      AND PROCEDURES**





**Controls
      and Procedures**




Members
      of the company’s management, including our Chief Executive Officer, President
      and Principal Executive Officer, Eduard Jaeger, and Interim Chief Financial
      Officer and Principal 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, 2008, 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 nine months
      ended September 30, 2008 that have materially affected, or are reasonably likely
      to materially affect, our internal control over financial
      reporting.




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**PART
      II**







**ITEM
      6.**  **E** **XHIBITS**





**Exhibit
      Index**





**Exhibit
                Number**
            
            **Exhibit
                Title**10.1
            
            Master
                Agreement, dated July 25, 2008, by and between the Registrant and
                EPK
                Financial Corporation31.1
            
            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.









37




SIGNATURES




Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.




**IRONCLAD
                PERFORMANCE WEAR CORPORATION**Date:
                November 14, 2008
            By:
            /s/
Thomas
              KreigThomas
                Kreig,
              Interim
                Chief Financial Officer




38