UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-K

 

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

For the fiscal year ended December 31, 2014

 

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

Commission file number 0-51365

 

IRONCLAD PERFORMANCE WEAR CORPORATION
(Exact Name of Registrant as Specified in its Charter)

 

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

 

1920 Hutton Court, Suite 300
Farmers Branch, Texas 75234
(Address of Principal Executive Offices and Zip Code)

 

(972) 996-5664
(Registrant’s Telephone Number, Including Area Code)

 

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

None

 

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

Common Stock, par value $0.001 per share

(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [_] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [_] No [X]

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [_]

 

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

 

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

 

Large Accelerated Filer [_]	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 Act). Yes [_] No [X]

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, as of the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $17,801,350.

 

At March 13, 2015, the issuer had 80,915,229 shares of common stock, par value $0.001 per share, issued and outstanding.

IRONCLAD PERFORMANCE WEAR CORPORATION

INDEX TO FORM 10-K

 

PART I				1
Item 1.		Business.		1
Item 1A.		Risk Factors.		5
Item 1B.		Unresolved Staff Comments.		14
Item 2.		Properties.		14
Item 3		Legal Proceedings.		15
Item 4.		Mine Safety Disclosures.		15
PART II				16
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.		16
Item 6.		Selected Financial Data.		16
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.		16
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk.		24
Item 8.		Financial Statements and Supplementary Data.		25
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.		45
Item 9A.		Controls and Procedures.		45
Item 9B.		Other Information.		46
PART III				47
Item 10.		Directors, Executive Officers and Corporate Governance.		47
Item 11.		Executive Compensation.		51
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.		58
Item 13.		Certain Relationships and Related Transactions, and Director Independence.		61
Item 14.		Principal Accounting Fees and Services.		61
PART IV				63
Item 15.		Exhibits, Financial Statement Schedules.		63

PART I

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

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

 

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

 

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

 

Item 1.

Business.

 

With respect to this discussion, the terms “we,” “us,” “our,” “Ironclad” and the “Company” refer to Ironclad Performance Wear Corporation, a Nevada corporation and its wholly-owned subsidiary Ironclad Performance Wear Corporation, a California corporation, or “Ironclad California.”

 

General

 

Founded in 1998, we design and manufacture branded performance work wear for a variety of construction, do-it-yourself, industrial, sporting goods and general services markets. Since inception, we have leveraged our proprietary technologies to design task-specific technical gloves and performance apparel designed to improve the wearer’s ability to safely, efficiently and comfortably perform specific job functions. Our goal is to establish and maintain a reputation in the construction, do-it-yourself, industrial, sporting goods and general services markets as a leader in performance gloves and apparel.

 

We manufacture our performance gloves and apparel using functional materials, including DuPont™ Kevlar®, Nomex® and Teflon®, Clarino® Synthetic Leather, CT-5® Cut Resistant Fabric and Duraclad®. We incorporate these materials in the manufacturing process to create products that meet the functional and protective requirements of our consumers. Since inception, we have employed an in-house research and development department responsible for identifying and creating new products and applications, and improving and enhancing existing products.

  

We currently sell our products in all 50 states and internationally through an estimated 16,000 retail outlets. Our gloves are priced at retail between $15 and $65 per unit, with apparel unit prices ranging from $10 to $80.

Glove Products

 

Currently, our primary products are our task-specific technical gloves. Glove products are specially designed for individual user groups. Currently, we produce and sell over 116 distinct glove types in a variety of sizes and colors which cater to the specific demands and requirements of industrial, construction, do-it-yourself, and sporting goods consumers, including carpenters, machinists, package handlers, plumbers, welders, roofers, oil and gas workers, mechanics, hunters, gardeners and do-it-yourself users. Gloves are available in multiple levels of protection and abrasion that allow the wearer to choose a product based on the task demands, weather and ease of motion. Glove products are currently manufactured by multiple suppliers operating in China, Hong Kong, Cambodia, and Indonesia. The manufacturing capabilities necessary for the manufacturing of our gloves is not particularly specialized and we believe that we would be able to replace our current manufacturers without significant disruption in supply, if necessary. Raw material suppliers and substitute materials are readily available and we believe that our manufacturers would be able to replace their current raw material suppliers without significant disruption in supply.

 

Apparel

 

We launched a line of performance apparel products during the fourth quarter of 2005. This apparel line initially consisted of long and short sleeved shirts designed to increase the comfort and functionality of the wearer by taking into account environmental temperatures and workers’ corresponding perspiration levels. The apparel is engineered to keep the wearer dry and cool under extreme work conditions. Ironclad’s apparel products are comparable to Under Armour™ Products, but we have incorporated worker-centric features such as anti-microbials, SPF 30 sunscreen protection and self wicking, and have made our apparel products slightly heavier for durability. Our existing sales force sells the performance apparel line to our existing customer base. In 2007, we expanded the apparel line to include performance jackets, pants, shorts, reflective and polo shirts, underwear and tights. The apparel line is manufactured by four suppliers located in Taiwan, Mexico, Vietnam and the Dominican Republic. Manufacturing capacity for apparel is readily available and we believe that we would be able to replace our current manufacturers and add new manufacturers without significant disruption in supply.

 

In mid-2008, after completing an internal and competitive analysis, we determined that Ironclad should reduce its focus and attention on performance apparel because of the cost involved in launching a new line of business and promoting this new line into the marketplace. As a result, we have decreased the number of performance apparel items produced and sold by the Company. The reduction in performance apparel was guided by our sell-through analysis and a survey of our retail customers’ preferences. Those apparel items remaining in Ironclad’s offerings will continue to be sold through our existing sales channels.

 

Competition

 

Ironclad competes in the following principal markets: industrial, construction and sport.

 

Technical Gloves

 

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

 

Performance Work Apparel

 

We are one of a limited number of manufacturers of performance work apparel and, in the opinion of management, currently face relatively little competition from other manufacturers in this sector. However, as mentioned above, we intend to de-emphasize our work apparel line in favor of focusing on the task-specific technical glove business. As such, our position in the performance work apparel market will decline significantly.

 

Mainstream Product Channels

 

To date, we have established our reputation, customer loyalty and brand by selling our products through hardware stores, lumber yards, big box home centers, industrial distributors, automotive and sporting goods retailers. We intend to continue to expand into additional large retailers and distributors in 2015.

 

International Expansion

 

We began distributing products internationally in 2005 in Australia and Japan. In 2006, we entered the Canadian market through a distributor. We expanded into the United Kingdom in 2007 and into Spain and the Netherlands in 2008. In 2010 we expanded into Sweden through a direct customer. Several of our domestic distributors market our gloves into other international markets through their own networks. In 2013 we established a third party Free Trade Zone (“FTZ”) warehouse in Singapore in order to better service our international customers. We plan to expand further into Europe and additional international markets in the future.

 

Private-Label and Co-Branded Products and Relationships

 

We have selectively teamed up with several existing brands in our marketplace to produce private-label gloves (co-branded with a “Built Tough by Ironclad” tag). In addition, we have also developed co-branded gloves with qualified partners to penetrate alternate marketplaces, such as the oil & gas industry (i.e. the KONG™ glove). We have also licensed several brand names (RealTree and Tuff Chix) whereby we have the right to use their logo or patterns on gloves we produce for sale to our customers.

 

Ironclad Branding

 

We place an emphasis on the establishment and maintenance of our brand equity. Since the inception of our business, our products have carried the “Ironclad” brand. In addition, we have built a significant market presence for our other trademarked brand “Kong”. We believe that our success in building a dedicated following of users with substantial product penetration across a large number of retailers and storefronts was instrumental in allowing us to gain entry into larger retailers, and providing the foundation to expand internationally and into broader industrial distributors.

 

We have been expanding our efforts on Web sales and marketing through a redesigned Ironclad Website and a dedicated KONG™ website and will continue to focus on e-commerce (i.e. offering our complete line of gloves and apparel, in all sizes, directly to the end consumer).

 

Sales and Customer Analysis

 

We are currently distributing our products through an estimated 16,000 outlets that cater to the professional tradesman, do-it-yourself consumer, industrial user and sporting goods consumer, including “Big Box” home centers, hardware co-ops, lumber yards, industrial distributors, national auto retailers and sporting goods retailers. Currently, we estimate that our products are sold in only 25% of the retail and distribution outlets identified by our management as viable Ironclad outlets. We intend to continue to emphasize and expand our relationships with these retailers and distributors.

 

Sales through industrial distributors accounted for approximately 43% and 38% of our sales revenue in 2014 and 2013, respectively. One distributor, Orr Safety Corporation, accounted for approximately 28% of our sales in 2014 and approximately 24% of our sales in 2013.

 

Selected Analysis of “Big Box” and International Retailers

 

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

 

Geographic Information

 

Domestic sales accounted for 79% of our revenue in 2014 and 82% in 2013. International sales in Australia, the United Kingdom, Canada, the Netherlands, Sweden and other countries accounted for our remaining revenue in each year. All of our fixed assets are located in the United States, principally in Texas at our headquarters. Our products are currently manufactured in China, Hong Kong, Indonesia, and Cambodia. Most of our inventory is held in our main, third party warehouse in California, however, we do maintain a small, varying amount in our FTZ warehouse in Singapore.

 

Intellectual Property and Proprietary Rights

 

We currently have six U.S. patents, one international patent and four U.S. patents pending, which are intended to protect the design and technical innovations found in our performance work gloves. Following are descriptions of the patents or patents pending.

•

Advanced Touch® Technology is a seamless fingertip design that places a smooth layer of material on the touch receptors of the fingers. The result is an increase in comfort and a high degree of touch sensitivity. It is used in Ironclad’s Tuff Chix® and Ranchworx® gloves as well as most gloves built for 5.11 Tactical. This patent was issued on October 30, 2007.

•

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

•

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

•

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

•

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

•

Ironclad has designed a new silicone impregnated palm pattern specifically for use in automotive market glove products. This patent was issued on July 6, 2010.

•

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

•

Utilized in the complete line of KONG™ gloves, specific geometry and construction for a glove used in the oil and gas extraction industries provides protection to the entire hand for impacts, glancing blows and pinched fingers. This patent is registered in Singapore and pending elsewhere.

•

Ironclad has created a new glove palm material and design that provides oil resistance, heat resistance and improved grip in the presence of heavy oil saturation. This patent is pending.

•

Ironclad has designed a new glove back of hand design for impact protection rubber pieces. This patent is pending.

Ironclad owns the following trademark intellectual property: 50 registered U.S. trademarks, 7 in-use U.S. trademarks, 9 U.S. trademark pending registration, 22 registered international trademarks and 5 pending international trademark. These trademarks significantly strengthen consumer awareness of the Ironclad brand, and enable Ironclad to maintain distinction between it and other companies trying to copy the Ironclad brand image. We also have 7 copyright marks.

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

 

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

 

Employees

 

As of March 13, 2015, Ironclad had 26 full-time employees. Since inception, we have never had a work stoppage, and our employees are not represented by a labor union. Ironclad considers its relationships with its employees to be positive.

 

Item 1A. Risk Factors.

 

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

 

RISKS RELATING TO OUR BUSINESS

 

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

 

We have funded our operations and capital expenditures with cash flow from operations, our cash on hand, the net proceeds of the private placements and credit agreements. As part of our planned growth, we will be required to make expenditures necessary to expand and improve our operating and management infrastructure.

 

While capital resources have historically been insufficient to support the continued growth of our operations, we believe that the proceeds from our financing transactions, our cash flows from operations and borrowings available to us under our senior secured credit facility, the availability of purchase order financing and our continuing cost containment measures will be adequate to meet our liquidity needs and capital expenditure requirements for at least the next 12 months. In the event that our working capital needs exceed our cash sources, 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 stockholders. If adequate additional funds are not available, we may be required to delay, reduce the scope of, or eliminate material parts of the implementation of our business strategy. This limitation could substantially harm our business, results of operations and financial condition.

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;

•

the level of consumer acceptance of each new product line;

•

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

•

the availability of manufacturing capacity;

•

the seasonality of the markets in which we participate;

•

the timing of trade shows;

•

the product mix of customer orders;

•

the timing of the placement or cancellation of customer orders;

•

the weather;

•

transportation delays;

•

quotas and other regulatory matters; and

•

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

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

 

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

 

We have a history of operating losses and may not sustain profitability. We cannot guarantee that we will remain profitable. Even if we remain profitable, 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, potentially requiring us to raise additional funds to continue operations.

 

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.

 

A high concentration of our revenues has been derived from a few customers, and our future success depends on our ability to expand our customer base and achieve broader market acceptance of our company and our products.

 

To date, our customer base has consisted of several major customers and numerous smaller customers. 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 customers to achieve broader acceptance of our products, but cannot guarantee that we will be able to enter into such relationships. We also may be required to undertake new types of risks or obligations that we may be unable to manage. There can be no assurance that consumers will purchase our products or that retail outlets will stock our products. Though we plan to continue to expend resources on promoting, marketing and advertising to increase product awareness, we cannot guarantee that any expenses we incur in such efforts will generate the desired product awareness or commensurate increase in sales of our products. If we are unable to expand into new market segments, we may be unable to grow and expand our business or implement our business strategy as described in this report. This could materially impair our ability to increase sales and revenue and materially and adversely affect our margins, which could harm our business and cause our stock price to decline.

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

 

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

 

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 our existing hardware and lumber retail channels and industrial distributors into new distribution channels, particularly “Big Box” home centers and work wear and sporting goods retailers. Failure to expand into these mass-market channels could severely limit our growth.

 

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

 

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

 

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

 

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

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

 

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

 

We have entered into an agreement to outsource most of our warehouse and fulfillment functions to a single provider where we will consolidate most of our inventory at one site, which is managed by an independent contractor who will then perform most 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 foreign manufacturers and suppliers, are subject to additional risks that are beyond our control and that could harm our business.

 

Our glove products are manufactured by 6 manufacturers operating in China, Hong Kong, Indonesia and Cambodia. Our performance apparel products were manufactured in Taiwan, Vietnam, Mexico and the Dominican Republic. We use offshore manufacturers for all or some of these products. In addition, approximately 21% of our fiscal 2014 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:

 

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

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

•

dependence on foreign distributors and distribution networks;

•

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

•

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

•

disruptions or delays in shipments;

•

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

•

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

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 patents 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 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 their 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.

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 the OTC Bulletin Board (or OTCBB), and it may suffer a decrease in or absence of liquidity as after the deregistration process is complete, our common stock will only be tradable on the “Pink Sheets.” As a result of such deregistration, non-affiliates will no longer have access to information regarding our results of operations. Without the availability of such information, our lenders may be forced to increase their monitoring of our operations which may result in higher costs to us when borrowing money which could have a negative impact and harm our business.

 

RISKS RELATING TO OUR INDUSTRY

 

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

 

Our future success will depend, in part, on our ability to keep up with changes in consumer tastes and our continued ability to differentiate our products through implementation of new technologies, such as new materials and fabrics. We may not, however, be able to successfully do so, and our competitors may be able to produce designs that are more appealing, implement new technologies or innovations in their designs, 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 designs 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.

 

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

 

Any negative changes to international treaties and regulations such as the North American Free Trade Agreement (or NAFTA), and to the effects of international trade agreements and embargoes imposed by entities such as the World Trade Organization, could result in a rise in trade quotas, duties, taxes and similar impositions, limit the countries from whom we can purchase our fabric or other component materials, or limit the countries where we might market and sell our products, any of which could correspondingly 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 effect 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), there is a limited public trading market for our common stock, and no assurance can be given that a public trading market will be sustained.

 

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

 

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

 

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

•

quarterly variations in our revenues and operating expenses;

•

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

•

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

•

announcements by the government that affect international trade treaties;

•

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

•

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

 

Sales of a significant number of shares of our common stock in the open market could depress 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 options and warrants), the supply of our publicly traded shares will increase, which could decrease its price.

 

Some of our shares may also be offered from time-to-time in the open market pursuant to Rule 144, and these sales may have a depressive effect on the market for our shares. In general, a non-affiliate who has held restricted shares for a period of six months may sell an unrestricted number of shares of our common stock into the market. The resale of these shares under Rule 144 may cause our stock price to decline.

 

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

 

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

 

The trading of our common stock on the OTCBB and the 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, are 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 affects the ability of broker-dealers to sell our securities and also affects 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 constitute “penny stocks” within the meaning of the rules, the rules would apply to us and to our securities.

 

Stockholders 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 40.6% of our outstanding common stock. As a result, these stockholders will be able to affect the outcome of, or exert significant influence over, all matters requiring stockholder approval, including the election and removal of directors and any change in control. In particular, this concentration of ownership of our common stock could have the effect of delaying or preventing a change of control of us or otherwise discouraging or preventing a potential acquirer from attempting to obtain control of us. This, in turn, could have a negative effect on the market price of our common stock. It could also prevent our stockholders from realizing a premium over the market prices for their shares of common stock. Moreover, the interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders, and accordingly, they could cause us to enter into transactions or agreements that we would not otherwise consider.

 

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

 

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

 

Item 1B. Unresolved Staff Comments.

 

Not applicable.

 

Item 2. Properties.

 

We lease all of our facilities. Our headquarters are located at 1920 Hutton Court, Suite 300, Farmers Branch, Texas 75234. The table below sets forth certain information regarding our leaseholds as of December 31, 2014.

 

Address		Approximate Floor Space (Sq. Ft.)				Monthly Rent				Use
2201 Park Place, Suite 101 El Segundo, CA			8,900			$	13,469*			Facility was sublet to a 3rd party, effective 9/1/14, for the remainder of the lease term.

  * In 2012 we received a rent abatement of 50% for six months.

 

In July 2011 we exercised our option to extend our current lease for an additional five years. As part of this renewal process we reduced our square footage by approximately 1,700 square feet of unneeded warehouse space in exchange for six months of rent concessions and approximately $40,000 of tenant improvements.

Address		Approximate Floor Space (Sq. Ft.)				Monthly Rent				Use
1920 Hutton Court, Suite 300, Farmers Branch, TX			13,026			$	11,102**			Corporate offices and warehouse

** For the period of 9/1/14 – 2/28/15 we received a rent abatement of 100%. In addition, we received a $60,000 tenant build-out/improvement credit at the time we executed the lease.

 

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

 

Item 3. Legal Proceedings.

 

We are not party to, nor is our property the subject of, any material pending legal proceedings. We have, from time to time, been involved in disputes and proceedings arising in the ordinary course of our business. In addition, as a public company, we are also potentially susceptible to litigation, such as claims asserting violations of securities laws. Any such claims, with or without merit, if not resolved, could be time-consuming and result in costly litigation. There can be no assurance that an adverse result in any future proceeding would not have a potentially material adverse effect on our business, results of operations or financial condition.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

PART II

 

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

 

Common Stock

 

Our common stock is quoted on the OTC Bulletin Board under the symbol “ICPW.” The following table sets forth, for the periods indicated, the high and low bid information for our common stock, as determined from sporadic quotations on the OTC Bulletin Board. The following quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

 

		High			Low
Year Ended December 31, 2013
First Quarter		$	0.30		$	0.25
Second Quarter		$	0.28		$	0.23
Third Quarter		$	0.25		$	0.15
Fourth Quarter		$	0.18		$	0.13
Year Ended December 31, 2014
First Quarter		$	0.21		$	0.15
Second Quarter		$	0.23		$	0.17
Third Quarter		$	0.37		$	0.21
Fourth Quarter		$	0.27		$	0.19

 

On March 13, 2015, the closing sales price of our common stock as reported on the OTC Bulletin Board was $0.26 per share. As of March 13, 2015, there were approximately 138 stockholders of record of our common stock.

 

Dividends

 

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

 

Item 6. Selected Financial Data.

 

Not applicable.

 

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

 

The following discussion and analysis should be read together with the Consolidated Financial Statements of Ironclad Performance Wear Corporation and the “Notes to Consolidated Financial Statements” included elsewhere in this report. This discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity and cash flows of Ironclad Performance Wear Corporation for the fiscal years ended December 31, 2014 and 2013. 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.

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 clients’ needs has created a high level of brand loyalty and has solidified substantial brand equity.

 

We plan to increase our domestic revenues by leveraging our relationships with existing retailers and industrial distributors, including “Big Box” and sporting goods retailers, increasing our product offerings in new and existing locations, and introducing new products, developed and targeted for specific customers and/or industries.

 

We believe that our products have international appeal. In 2005, we began selling products in Australia and Japan through independent distributors, which accounted for approximately 4% of total sales. From 2006 through 2012 we entered the Canadian and European markets through distributors. International sales represent approximately 21% of total sales in 2014. We plan to continue to increase sales internationally by expanding our distribution into Europe and other international markets during the fiscal year ending December 31, 2015.

 

Critical Accounting Policies, Judgments and Estimates

 

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

 

Revenue Recognition

 

Under our sales model, a customer is obligated to pay us for products sold to it within a specified number of days from the date that title to the products is transferred to the customer. Our standard terms are typically net 30 days from the transfer of title to the products to a customer, however, we have negotiated special terms with certain customers and industries. We typically collect payment from a customer within 30 to 60 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 shipped or delivered to a customer, based on terms of agreement with a customer.

Revenue Disclosures

 

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

 

		Year Ended December 31, 2014												Year Ended December 31, 2013
Net Sales			Gloves				Apparel				Total				Gloves				Apparel				Total
Domestic		$	18,850,152			$	122,507			$	18,972,659			$	19,855,382			$	120,330			$	19,975,712
International			5,310,154				739				5,310,893				4,554,424				717				4,555,141
Total		$	24,160,306			$	123,246			$	24,283,552			$	24,409,806			$	121,047			$	24,530,853

 

Cost of Goods Sold

 

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

 

Inventory Obsolescence Allowance

 

We review the inventory level of all products quarterly. For most glove products that have been in the market for one year or greater, we consider inventory levels of greater than one year’s sales to be excess. Due to limited market penetration for our apparel products we have decided to provide a 40%-50% allowance against this line of products. Products that are no longer part of the current product offering are considered obsolete. The potential for re-sale of slow-moving and obsolete inventories is based upon our assumptions about future demand and market conditions. The recorded cost of obsolete inventories is then reduced to zero and a reserve is established for slow moving products. Both the write down and reserve adjustments are recorded as charges to cost of goods sold. For the years ended December 31, 2014 and December 31, 2013 we adjusted our inventory reserve by $73,200 and $2,000 with the corresponding adjustments in cost of goods sold, respectively, and reported an obsolescence reserve balance of $547,800 as of December 31, 2014 and $621,000 as of December 31, 2013. All adjustments for obsolete inventory establish a new cost basis for that inventory as we believe such reductions are permanent declines in the market price of our products. Generally, obsolete inventory is sold to companies that specialize in the liquidation of these items or contributed to charities, while we continue to market slow-moving inventories until they are sold or become obsolete. As obsolete or slow-moving inventory is sold or disposed of, we reduce the reserve.

 

Allowance for Doubtful Accounts

 

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Our current customers consist of large national, regional and smaller independent customers with good payment histories with us. 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 by us 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 for a period of one year from the date of purchase.

 

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.

 

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

 

For both warranty and saleable product returns we utilize actual historical return rates to determine our allowance for returns in each period, adjusted for unique, one-time events. Gross sales are reduced by estimated returns. We record a corresponding accrual for the estimated liability associated with the estimated returns which is based on the historical gross sales of the products corresponding to the estimated returns. This accrual is offset each period by actual product returns.

 

Our current estimated future sales return rate is approximately 0.9% of the trailing three months net sales. As noted above, our return rate is based upon our past history of actual returns and we estimate amounts for product returns for a given period by applying this historical return rate and reducing actual gross sales for that period by a corresponding amount. We believe that using a trailing 12-month return rate provides us with a sufficient period of time to establish recent historical trends in product returns for two primary reasons: (i) our products’ useful life is approximately 3-4 months and (ii) we are able to quickly correct any significant quality issues as we learn about them. If an unusual circumstance exists, such as a product that has begun to show materially different actual return rates as compared to our average 12-month return rates, we will make appropriate adjustments to our estimated return rates. Factors that could cause materially different actual return rates as compared to the 12-month return rates include a new product line, a change in materials or product being supplied by a new factory. Although we have no specific statistical data on this matter, we believe that our practices are reasonable and consistent with those of our industry. Our warranty terms under our arrangements with our suppliers do not provide for individual products returned by retailers or retail customers to be returned to the vendor.

 

Reserve for Warranty Returns
Reserve Balance 12/31/12		$	65,000
Payments Recorded During the Period			(397,364	)
			(332,364	)
Accrual for New Liabilities During the Reporting Period			407,364
Reserve Balance 12/31/13			75,000
Payments Recorded During the Period			(230,389	)
			(155,389	)
Accrual for New Liabilities During the Reporting Period			230,389
Reserve Balance 12/31/14		$	75,000

Stock Based Compensation

 

The Company accounts for stock based compensation under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718, Share-Based Payment. This statement establishes standards surrounding the accounting for transactions in which an entity exchanges its equity instruments for goods and services. The statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions, such as the options issued under our stock option plans. We follow a fair value approach using an option-pricing model, Black-Scholes option valuation model, at the date of a stock option grant. The deferred compensation calculated under the fair value method would then be amortized over the respective vesting period of the stock option.

 

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. We have reported losses for 2003, 2004, 2005, 2006, 2007, 2008 and 2009, and uncertainty exists as to whether benefits from deferred tax assets will be utilized. In the past we have fully reserved our deferred tax assets, however, at December 31, 2013 we had several years in a row of sustained profits and believed it would be appropriate to start reducing this valuation allowance. Accordingly, we reduced our valuation allowance to approximately 63%. At December 31, 2014 we once again reviewed our current profitability and forecasted future results and concluded that it is more likely than not that we will be able to realize a greater portion of our deferred tax assets. For the current year, we reversed approximately 28% of the valuation allowance for our deferred tax assets and recorded a deferred tax benefit of $760,000. We will continue to evaluate if it is more likely than not that we will realize the future benefits from current and future deferred tax assets. As of December 31, 2014 the Company has a valuation allowance equal to 30% of its’ deferred tax assets.

 

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

Recent Accounting Pronouncements

 

In March 2014, the Financial Accounting Standards Board (“FASB”) issued ASU Update 2014-06, “Technical Corrections and Improvements Related to Glossary Terms” (“ASU 2014-06”).  The amendments in the Update relate to glossary terms and cover a wide range of Topics in the Codification.  These amendments are presented in four sections — Deletion of Master Glossary Terms (Section A), Addition of Master Glossary Term Links (Section B), Duplicate Master Glossary Terms (Section C), and Other Technical Corrections Related to Glossary Terms (Section D).  The amendments in ASU 2014-06 represent changes to clarify the Master Glossary of the Codification, or make improvements to the Master Glossary that are not expected to result in substantive changes to the application of existing guidance or create a significant administrative cost to most entities.  Additionally, the amendments will make the Master Glossary easier to understand, as well as reduce the number of terms that appear in the Master Glossary.  The amendments resulting from ASU 2014-06 do not have transition guidance and will be effective upon issuance for both public and private companies.  The immediate adoption of this standard in March 2014 did not have an impact on our consolidated financial statements, and there was no material impact to our financial statement disclosures.

 

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 14-09”), which creates a comprehensive set of guidelines for the recognition of revenue under the principle: “Recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” The requirements of ASU 14-09 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2016 and will require either retrospective application to each prior period presented or retrospective application with the cumulative effect of initially applying the standard recognized at the date of adoption. We are currently evaluating the impact this ASU will have on our financial position and results of operations.

 

In June 2014, the FASB issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period” (“ASU 2014-12”).  The FASB issued ASU 2014-12 to clarify that a performance target in a share-based compensation award that could be achieved after an employee completes the requisite service period should be treated as a performance condition that affects the vesting of the award.  As such, the performance target should not be reflected in estimating the grant-date fair value of the award.  ASU 2014-12 is effective for the Company for fiscal year 2016. We are currently evaluating the impact this ASU will have on our financial position and results of operations.

 

Results of Operations

 

Comparison of Years Ended December 31, 2014 and December 31, 2013

 

Net Sales decreased $247,301, or 1.0%, to $24,283,552 in the year ended December 31, 2014 from $24,530,853 for the corresponding period in 2013. This decrease was primarily due to decreased sales with our retail customers, notably the retail automotive parts industry, of approximately $3,100,000, offset by increased sales of approximately $1,000,000 with industrial distributors, and $1,800,000 with international customers. Two customers accounted for approximately 50% of net sales during the year ended December 31, 2014 and three customers accounted for approximately 52% of net sales for the year ended December 31, 2013. We continue to focus our sales efforts on those areas where we see continued growth, the industrial and safety channels, international markets and job specific glove styles.

 

Gross Profit increased $53,850 to $8,169,216 for the year ended December 31, 2014 from $8,115,366 for the year ended December 31, 2013. Gross profit, as a percentage of net sales, or gross margin, increased to 33.6% in 2014 from 33.1% in 2013. This increase in gross profit is primarily due to product mix and customer sales mix shifts. Sales to international distributors are generally at lower gross margin, as the international distributor pays the cost of selling and distributing the product and servicing their customers.

Operating Expenses increased by $188,619, or 2.4%, to $8,060,515 in 2014 from $7,871,895 in 2013. As a percentage of net sales, operating expenses increased to 32.2% in 2014 from 32.1% in the same period of 2013. The increased spending in 2014 was primarily due to increased travel and meal expenses of approximately $282,000; increased new business development consultant fees of $220,000; increased legal fees of approximately $94,000; increased relocation costs, of approximately $82,000; increased stock compensation costs of approximately $73,000; increased board fees and expenses of approximately $42,000; offset by decreased shelf space acquisition costs of approximately $328,000, decreased advertising, marketing and trade show expenses of approximately $200,000; decreased sales representative commissions, of approximately $102,000 and decreased depreciation expense of approximately $44,000. Our number of employees decreased to 22 at December 31, 2014 from 27 at December 31, 2013.

 

Income from Operations decreased $134,770 or 55.4%, to $108,701 in 2014 from $243,471 in 2013. Income from operations as a percentage of net sales decreased to 0.4% in 2014 from 1.0% in 2013. The decrease in income for 2014 was primarily the result higher operating expenses due to the Company’s relocation from California to Texas in 2014.

 

Interest Expense decreased $48,807 to $25,288 in 2014 from $74,095 in 2013. The decrease was primarily due to lower working capital needs which necessitated lower bank borrowings in the current year.

 

Interest Income decreased $78 to $28 in 2014 from $106 in 2013.

Other Income, net was $131 in 2014 as compared with $1 in 2013.

 

Gain on Disposition of Equipment was $1,802 in 2014 as compared to $550 in 2013.

 

Deferred Income Tax Benefit. In prior years, based on our history of losses, we provided a 100% valuation allowance against our deferred tax assets, as it was not more likely than not that any future benefit from deductible temporary differences and net operating loss carryforwards would be realized. For the year ended December 31, 2013 we reassessed the need for a valuation allowance against our deferred tax assets and, based on the positive evidence of the prior three years pre-tax income and forecasted future results, concluded that it is more likely than not that we would be able to realize some of our deferred tax assets. Accordingly, we reversed approximately 7% of our valuation allowance for our current deferred tax assets and recorded a deferred tax benefit of $214,500. During December 2014 the Company once again reviewed the current profitability and forecasted future results and concluded that it is more likely than not that it will be able to realize a greater portion of its deferred tax assets. For the current year, we reversed approximately 28% of the valuation allowance for our deferred tax assets and recorded a deferred tax benefit of $760,000. We will continue to evaluate if it is more likely than not that we will realize the future benefits from current and future deferred tax assets. As of December 31, 2014, the Company has a valuation allowance equal to 30% of its deferred tax assets.

 

Net Income increased $373,590 to $934,319 in 2014 from $560,729 in 2013. This increase in income is a result of two factors, the combination of each of the sales, profit and expense factors discussed above, and the net effect of the year over year recognition of previously reserved valuation allowances against deferred tax assets.

 

Seasonality and Annual Results

 

Our glove business generally shows an increase in sales during the third and fourth quarters due primarily to an increase in the sale of our winter glove line during this period. We typically generate 55% - 65% of our glove net sales during these months. As the overall economy continues to experience pockets of recovery, our results have been positively impacted by the successful introduction of new products designed specifically for the oil and gas, safety, automotive and sporting goods industries.

 

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

Liquidity and Capital Resources

 

Our cash requirements are principally for working capital. Our need for working capital is seasonal, with the greatest requirements from July through the end of October each year as a result of our inventory build-up during this period for 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. In the short term we are monitoring our credit issuances and cash collections to maximize cash flows and investigating opportunities to quickly reduce our current inventories to convert these assets into cash. Over the past year, and continuing in the near and longer term we are focused on controlling our operating costs, increasing margins and improving operating procedures to generate sustained profitability.

 

Operating Activities. In 2014, cash used in operating activities was $923,750 and consisted primarily of net income of $934,319, decreased by non-cash items of $392,308, an increase in inventory of $2,480,052 and a decrease in total accounts receivable of $517,160; offset by an increase in accounts payable and accrued expenses of $459,717; decrease in deposits on inventory of $206,919 and an increase in prepaid expenses and other assets of $169,505.

 

In 2013, cash used in operating activities was $1,008,067 and consisted primarily of net income of $560,729, increased by non-cash items of $433,627, a decrease in inventory of $709,043 and a decrease in total accounts receivable of $556,971; offset by an increase in accounts payable and accrued expenses of $2,802,743, the reversal of our deferred tax valuation allowance of $214,500; increases in deposits on inventory of $152,389 and increases in prepaid expenses and other expenses of $98,805.

 

Investing Activities. In 2014 and 2013, investing activities were primarily the result of capital expenditures, mainly for computer equipment, furniture, leasehold improvements and trademark applications. Cash used in investing activities increased $109,555 to $217,957 for 2014 from $108,402 in 2013. Expenditures for property and equipment in 2014 and 2013 were $217,889 and $94,114, and investment in trademarks and patents were $6,300 and $14,838, respectively.

 

Financing Activities. Financing activities in 2014 consisted of net borrowing under our bank credit facility of $416,623 and cash proceeds from the issuance of common stock due to a private placement and stock option exercises of $752,238. Financing activities during 2013 consisted of net borrowings under our bank credit facility of $685,528 and cash proceeds from the issuance of common stock due to stock option exercises of $23,102.

 

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

 

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

 

Credit Facilities

 

On November 30, 2012 we entered into a Business Loan Agreement with Union Bank, N.A. which provided a revolving loan of up to $6,000,000. The first $3,500,000 of advances under this facility were under an open line-of-credit. Advances in excess of $3,500,000, up to the line limit of $6,000,000, were subject to a Borrowing Base report. The term Borrowing Base means an amount equal to (a) 80% of the net amount of all eligible accounts receivable plus, (b) the lesser of (i) 50% of the value of eligible landed inventory and (ii) $2,750,000, plus (c) 35% of eligible in-transit inventory. In addition, during the months of April to October each calendar year, the outstanding principal amount of all advances against eligible inventory were not to not exceed 150% of the aggregate outstanding principal amount of advances against eligible accounts receivable. All of our assets secure amounts borrowed under the terms of this agreement. Interest on borrowed funds were to accrue at Prime minus 0.25% unless we chose to “fix” a portion of the indebtedness (minimum $150,000) at LIBOR plus 2% for fixed periods of time ranging from 30 days to 360 days. This loan expired on November 30, 2014 and was paid off with the proceeds from the Capital One, N.A. line described below.

On November 28, 2014 we entered into a Revolving Loan and Security Agreement with Capital One, N.A. which provides a revolving loan of up to $6,000,000. All advances, up to the line limit of $6,000,000, are subject to a Borrowing Base report. The term Borrowing Base means an amount equal to (a) 80% of the net amount of all eligible accounts receivable plus, (b) 50% of the value of eligible landed inventory, plus (c) 35% of eligible in-transit inventory. In addition, the outstanding principal amount of all advances against eligible inventory shall not exceed 50% of the total line limit. All of our assets secure amounts borrowed under the terms of this agreement. Interest on borrowed funds will accrue at LIBOR plus 2.80% until such time as the Company’s trailing twelve month EBITDAS exceeds $1,000,000 at which time the rate will decrease to LIBOR plus 2.50%. This agreement contains a Minimum Debt Service Coverage Ratio covenant and a Tangible Net Worth covenant. At December 31, 2014, the Company is in compliance with all covenants. At December 31, 2014, we had unused credit available under our current facility of approximately $3,413,966.

 

Off Balance Sheet Arrangements

 

At December 31, 2014, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, variable interest or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. 

 

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

 

Not applicable.  

Item 8. Financial Statements and Supplementary Data.

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

		Page
Audited Financial Statements:
Reports of Independent Registered Public Accounting Firms		26
Consolidated Balance Sheets at December 31, 2014 and December 31, 2013		28
Consolidated Statements of Operations for each of the Years Ended December 31, 2014, and December 31, 2013		29
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, and December 31, 2013		30
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2014 and December 31, 2013		31
Notes to the Consolidated Financial Statements		32

 

 

 

 

 

 

 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors and Stockholders

Ironclad Performance Wear Corporation

Farmers Branch, Texas

 

We have audited the accompanying consolidated balance sheet of Ironclad Performance Wear Corporation as of December 31, 2014 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ironclad Performance Wear Corporation at December 31, 2014, and the results of its operations and its cash flows for the year ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.

 
/s/ BDO USA, LLP
Dallas, Texas
March 16, 2015

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Ironclad Performance Wear Corporation:

We have audited the accompanying consolidated balance sheet of Ironclad Performance Wear Corporation as of December 31, 2013, and the related consolidated statements of operations, cash flows, and changes in stockholders’ equity for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ironclad Performance Wear Corporation as of December 31, 2013, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

/s/ EFP Rotenberg, LLP

EFP Rotenberg, LLP

Rochester, New York
March 17, 2014

 

IRONCLAD PERFORMANCE WEAR CORPORATION

CONSOLIDATED BALANCE SHEETS

		December 31,				December 31,
		2014				2013
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	340,903			$	313,750
Accounts receivable, net of allowance for doubtful accounts of $30,000 and $48,000			6,283,032				6,782,191
Inventory, net of reserve of $547,800 and $621,000			7,123,654				4,570,402
Deposits on inventory			661,744				868,662
Prepaid and other			566,022				407,619
Deferred tax assets - current			183,000				274,000
Total Current Assets			15,158,355				13,216,624
PROPERTY AND EQUIPMENT
Computer equipment and software			507,640				442,262
Vehicle			—				39,630
Furniture and equipment			255,085				196,744
Leasehold improvements			169,904				90,441
Less: accumulated depreciation and amortization			(641,953	)			(577,759	)
Total Property and Equipment, Net			290,676				191,318
OTHER ASSETS
Trademarks and patents, net of accumulated amortization of $58,560 and $49,064			135,064				138,260
Deposits			21,306				10,204
Deferred tax assets – long term			1,649,000				798,000
Total Other Assets			1,805,370				946,464
TOTAL ASSETS		$	17,254,401			$	14,354,406
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	2,589,623			$	2,129,905
Line of credit			2,586,034				2,169,411
Total Current Liabilities			5,175,657				4,299,316
Commitments and contingencies (Note 10)
STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value,172,744,750 shares authorized, 80,808,629 and 76,704,275 shares issued and outstanding at December 31, 2014 and 2013, respectively			80,808				76,704
Capital in excess of par value			20,293,486				19,208,255
Accumulated deficit			(8,295,550	)			(9,229,869	)
Total Stockholders’ Equity			12,078,744				10,055,090
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	17,254,401			$	14,354,406

 

See accompanying notes to consolidated financial statements.

IRONCLAD PERFORMANCE WEAR CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

		Year Ended December 31,
		2014				2013
REVENUES
Net sales		$	24,283,552			$	24,530,853
COST OF SALES
Cost of sales			16,114,336				16,415,487
GROSS PROFIT			8,169,216				8,115,366
EXPENSES
General and administrative			3,372,235				2,607,317
Sales and marketing			2,717,491				3,148,476
Research and development			543,375				775,670
Purchasing, warehousing and distribution			1,303,818				1,173,564
Depreciation and amortization			123,596				166,868
Total Operating Expenses			8,060,515				7,871,895
INCOME FROM OPERATIONS			108,701				243,471
OTHER INCOME (EXPENSE)
Interest expense			(25,288	)			(74,095	)
Interest income			28				106
Other income, net			131				1
Gain on disposition of equipment			1,802				550
Other Income (Expense), Net			(23,327	)			(73,438	)
NET INCOME BEFORE BENEFITS FROM INCOME TAXES			85,374				170,033
Benefit from income taxes - current			88,945				176,196
Deferred income tax benefit – reversal of valuation allowance			760,000				214,500
NET INCOME		$	934,319			$	560,729
NET INCOME PER COMMON SHARE
Basic		$	0.01			$	0.01
Diluted		$	0.01			$	0.01
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic			78,438,557				76,681,498
Diluted			89,287,402				83,747,638

 

See accompanying notes to consolidated financial statements.

IRONCLAD PERFORMANCE WEAR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2014 and 2013

		Year Ended December 31, 2014				Year Ended December 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	934,319			$	560,729
Adjustments to reconcile net income to net cash used in operating activities
Allowance (recovery of) for bad debts			(18,000	)			—
Inventory (recoveries) reserve			(73,200	)			2,000
Depreciation and amortization			123,596				166,868
(Gain) loss on disposal of equipment			(1,802	)			161
Reversal of deferred income tax valuation allowance			(760,000	)			(214,500	)
Non-cash compensation:
Stock option expense			337,098				264,598
Changes in operating assets and liabilities:
Accounts receivable			517,160				(358,522	)
Due from factor without recourse			—				915,492
Inventory			(2,480,052	)			709,043
Deposits on inventory			206,919				(152,389	)
Prepaid and other			(169,505	)			(98,804	)
Accounts payable and accrued expenses			459,718				(2,802,743	)
Net cash flows used in operating activities			(923,751	)			(1,008,067	)
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment purchased			(217,888	)			(94,114	)
Proceeds from sale of property and equipment			6,232				550
Investment in trademarks and patents			(6,300	)			(14,838	)
Net cash flows used in investing activities			(217,956	)			(108,402	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank lines of credit			9,579,288				13,997,688
Payments to bank lines of credit			(9,162,665	)			(13,312,160	)
Proceeds from issuance of common stock			752,237				23,102
Net cash flows provided by financing activities			1,168,860				708,630
NET INCREASE (DECREASE) IN CASH			27,153				(407,839	)
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR			313,750				721,589
CASH AND CASH EQUIVALENTS END OF YEAR		$	340,903			$	313,750
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid  during the year for:
Interest paid in cash			25,288				74,095
Income taxes refunded (paid)			9,200				(146,000	)

 

See accompanying notes to consolidated financial statements.

 

IRONCLAD PERFORMANCE WEAR CORPORATION

CONSOLIDATED STATEMENTS OF

STOCKHOLDERS’ EQUITY 

 

		Common Stock
		Shares Issued and Outstanding				$0.001 Par Value				Capital in Excess of Par Value				Accumulated Deficit				Total Stockholders’ Equity
Balance at December 31, 2012			76,447,585			$	76,448			$	18,920,811				(9,790,598	)		$	9,206,661
Common stock issued upon exercise of stock options			256,690				256				22,846				—				23,102
Stock option expense			—				—				264,598				—				264,598
Net income			—				—				—				560,729				560,729
Balance at December 31, 2013			76,704,275				76,704				19,208,255				(9,229,869	)			10,055,090
Common stock issued upon exercise of stock options			1,246,330				1,246				140,991				—				142,237
Stock option expense			—				—				240,409				—				240,409
Private placement			2,124,691				2,125				607,875				—				610,000
Board restricted stock issuance			733,333				733				95,956				—				96,689
Net income			—				—				—				934,319				934,319
Balance at December 31, 2014			80,808,629			$	80,808			$	20,293,486			$	(8,295,550	)		$	12,078,744

 

See accompanying notes to consolidated financial statements.

1. Description of Business.

 

Ironclad Performance Wear Corporation (the “Company”, “we”, “us”) 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 automotive and sporting goods retailers. The Company has received six U.S. patents and one international patent and has four patents pending for design and technological innovations incorporated in its performance work gloves. The Company has 50 registered U.S. trademarks, 7 in-use U.S. trademarks, 9 U.S. trademark pending registration, 22 registered international trademarks and 5 pending international trademark. We also have 7 copyright marks.

 

2. Accounting Policies.

 

Basis of Consolidation

 

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

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. The Company places its cash with high credit quality institutions. The Federal Deposit Insurance Company (FDIC) insures cash amounts at each institution for up to $250,000. From time to time, the Company maintains cash in excess of the FDIC limit. The Company has not experienced any losses.

 

Accounts Receivable

 

The allowance for doubtful accounts for all probable uncollectible receivables is based on a combination of historical data, cash payment trends, specific customer issues, write-off trends, general economic conditions and other factors. These factors are continuously monitored by management to arrive at the estimate for the amount of accounts receivable that may be ultimately uncollectible. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations, we record a specific allowance for doubtful accounts against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. Management believes the balances for allowance for doubtful accounts at December 31, 2014 and 2013 are reasonably stated. 

 

Accounts Receivable		December 31, 2014				December 31, 2013
Accounts receivable		$	6,313,032			$	6,830,191
Less-Allowance for doubtful accounts			(30,000	)			(48,000	)
Net accounts receivable		$	6,283,032			$	6,782,191

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.

 

Operating Segment Reporting

 

The Company has two product lines, “gloves” and “apparel,” both of which have similar characteristics. They each provide functional protection and comfort to workers in the form of workwear for various parts of the body; their production processes are similar; they are both sold to the same type of class of customers, typically on the same purchase order; and they are warehoused and distributed from the same warehouse facility. In addition, the “apparel” segment currently comprises less than 1% of the Company’s revenues. The Company believes that the aggregation criteria of FASB ASC 280-10 applies and will accordingly aggregate these two product lines into one segment.

 

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, however, we have negotiated special terms with certain customers and industries. The Company typically collects payment from a customer within 30 to 60 days from the transfer of title to the products to a customer. Transfer of title occurs and risk of ownership passes to a customer at the time of shipment or delivery, depending on the terms of the agreement with a particular customer. The sale price of the Company’s products is substantially fixed or determinable at the date of sale based on purchase orders generated by a customer and accepted by the Company. A customer’s obligation to pay the Company for products sold to it is not contingent upon the resale of those products. The Company recognizes revenues when products are shipped or delivered to customers, based on terms of agreement with the customer.

Revenue Disclosures

 

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

 

		Year Ended December 31, 2014												Year Ended December 31, 2013
Net Sales			Gloves				Apparel				Total				Gloves				Apparel				Total
Domestic		$	18,850,152			$	122,507			$	18,972,659			$	19,855,382			$	120,330			$	19,975,712
International			5,310,154				739				5,310,893				4,554,424				717				4,555,141
Total		$	24,160,306			$	123,246			$	24,283,552			$	24,409,806			$	121,047			$	24,530,853

 

Cost of Goods Sold

 

Cost of goods sold includes all of the costs associated with producing the product by independent, third party factories (FOB costs), plus the costs of transporting, inspecting and delivering the product to our distribution warehouse in California (landed costs). Landed costs consist primarily of ocean/air freight, transport insurance, import duties, administrative charges and local trucking charges from the port to our warehouse. Cost of goods sold for the years ended December 31, 2014 and 2013 were $16,114,336 and $16,415,487 respectively.

 

Purchasing, warehousing and distribution costs are reported in operating expenses on the line item entitled “Purchasing, warehousing and distribution” and, for the years ended December 31, 2014 and 2013 were $1,303,818 and $1,173,564, respectively.

 

Product Returns, Allowances and Adjustments

 

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

 

Warranty Returns - the Company has a warranty policy that covers defects in workmanship. It allows customers to return damaged or defective products to us following a customary return merchandise authorization process. Warranty returns for the years ended December 31, 2014 and 2013, were approximately $39,000 or 0.2% and $88,000 or 0.3% of net sales, respectively.

 

Saleable Product Returns - the Company may allow from time to time, depending on the customer and existing circumstances, stock adjustment returns, whereby the customer is given the opportunity to ‘trade out’ of a style of product that does not sell well in their territory, usually in exchange for another product, again following the customary return merchandise authorization process. In addition we may allow from time to time other saleable product returns from customers for other business reasons, for example, in settlement of an outstanding accounts receivable, from a discontinued distributor customer or other customer service purpose. Saleable product returns for the years ended December 31, 2014 and 2013, were approximately $121,000 or 0.5% and $309,000 or 1.2% of net sales, respectively.

 

Sales Adjustments - these adjustments include pricing and shipping corrections and periodic adjustments to the product returns reserve. Pricing and shipping corrections for the years ending December 31, 2014 and 2013 were approximately $70,000 or 0.3% and $54,000 or 0.2%, respectively. Adjustments to the product returns reserve for the years ended December 31, 2014 and 2013 were approximately $30,000 or 0.1% and $10,000 or 0.0%, respectively.

 

For both warranty and saleable product returns we utilize actual historical return rates to determine our allowance for returns in each period, adjusted for unique, one-time events. Gross sales are reduced by estimated returns. We record a corresponding accrual for the estimated liability associated with the estimated returns which is based on the historical gross sales of the products corresponding to the estimated returns. This accrual is offset each period by actual product returns.

Reserve for Returns
Reserve Balance 12/31/12		$	65,000
Payments Recorded During the Period			(397,364	)
			(332,364	)
Accrual for New Liabilities During the Reporting Period			407,364
Reserve Balance 12/31/13			75,000
Payments Recorded During the Period			(230,389	)
			(155,389	)
Accrual for New Liabilities During the Reporting Period			230,389
Reserve Balance 12/31/14		$	75,000

 

Advertising and Marketing

 

Advertising and marketing costs are expensed as incurred. Advertising expenses for the years ended December 31, 2014 and 2013 were $423,962 and $559,921, respectively.

 

Shipping and Handling Costs

 

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

 

Customer Concentrations

 

Two customers accounted for approximately $12,044,000 or 50% of net sales for year ended December 31, 2014 and three customers accounted for approximately $12,661,000 or 52% of net sales for year ended December 31, 2013. No other customer accounted for more than 10% of net sales. All transactions were in United States dollars. There were no transaction gains or losses associated with sales transactions.

 

Supplier Concentrations

 

Three suppliers, which are located overseas, accounted for approximately 75% of total purchases during the year ended December 31, 2014 and three suppliers accounted for approximately 79% of total purchases during the year ended December 31, 2013. All transactions were in United States dollars. There were no transaction gains or losses associated with vendor purchase transactions.

 

Seasonality

 

Our glove business generally shows an increase in sales during the third and fourth quarters due primarily to an increase in the sale of our winter glove line during this period. We typically generate 55% - 65% of our glove net sales during these months. As the overall economy continues to experience pockets of recovery, our results have been positively impacted by the successful introduction of new products designed specifically for the oil and gas, safety, automotive and sporting goods industries.

 

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

Earnings Per Share

 

The Company utilizes FASB ASC 260, “Earnings per Share.” Basic earnings per share is computed by dividing earnings available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Common equivalent shares are excluded from the computation if their effect is anti-dilutive.

 

The following table sets forth the calculation of the numerators and denominators of the basic and diluted per share computations for the years ended December 31:

 

		2014				2013
Numerator: Net Income		$	934,319			$	560,729
Denominator: Basic EPS
Common shares outstanding, beginning of year			76,704,275				76,447,587
Weighted average common shares issued during the year			1,734,282				233,911
Denominator for basic earnings per common share			78,438,557				76,681,498
Denominator: Diluted EPS
Common shares outstanding, beginning of period			76,704,275				76,447,587
Weighted average common shares issued during the year			1,734,282				233,911
Dilutive warrants outstanding at end of the year			—				—
Dilutive stock options outstanding at the end of the year			10,848,845				7,066,140
Denominator for diluted earnings per common share			89,287,402				83,747,638

 

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

 

		Year Ended December 31,
		2014				2013
Common Stock Warrants			43,146				43,146
Common Shares			2,602,625				3,077,625

 

Income Taxes

 

The Company adopted the provisions of FASB ASC 740-10 effective January 1, 2007. The implementation of FASB ASC 740-10 has not caused the Company to recognize any changes in its identified tax positions. Management considers the Company’s tax positions to be routine transactions for which the law is clear and unambiguous and that there are no uncertain tax positions. Interest and penalties associated with unrecognized tax benefits would be classified as additional income taxes in the statement of operations.

 

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

 

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

The significant components of the provision for income taxes for the years ended December 31, 2014 and 2013 were $(88,945) and $(184,196), respectively, for the current state (refund)/provisions and $0 and $8,000 for the federal tax provision, respectively. Based on its history of losses, the Company provided a 100% valuation allowance against its deferred tax assets as of December 31, 2012, as it was not more likely than not that any future benefit from deductible temporary differences and net operating loss carryforwards would be realized. For the year ended December 31, 2013 the Company reassessed the need for a valuation allowance against its deferred tax assets and, based on the positive evidence of the last three year’s pre-tax income and forecasted future results, concluded that it was more likely than not that it would be able to realize some of its deferred tax assets. Accordingly, during the year end, the Company had reversed approximately 7% of its valuation allowance for its current deferred tax assets and recorded a deferred tax benefit of $214,500. At December 31, 2014 we once again reviewed our current profitability and forecasted future results and concluded that it is more likely than not that we will be able to realize a greater portion of our deferred tax assets. For the current year, we reversed approximately 28% of the valuation allowance for our deferred tax assets and recorded a deferred tax benefit of $760,000. We will continue to evaluate if it is more likely than not that we will realize the future benefits from current and future deferred tax assets. As of December 31, 2014 the Company has a valuation equal to 30% of its’ deferred tax assets.

 

By statute, tax years ending in December 31, 2014 through 2009 remain open to examination by the major taxing jurisdictions to which the Company is subject. 

 

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, income taxes and the estimated useful lives of assets and stock-based compensation.

 

Recently Issued Accounting Pronouncements

 

In March 2014, the Financial Accounting Standards Board (“FASB”) issued ASU Update 2014-06, “Technical Corrections and Improvements Related to Glossary Terms” (“ASU 2014-06”).  The amendments in the Update relate to glossary terms and cover a wide range of Topics in the Codification.  These amendments are presented in four sections — Deletion of Master Glossary Terms (Section A), Addition of Master Glossary Term Links (Section B), Duplicate Master Glossary Terms (Section C), and Other Technical Corrections Related to Glossary Terms (Section D).  The amendments in ASU 2014-06 represent changes to clarify the Master Glossary of the Codification, or make improvements to the Master Glossary that are not expected to result in substantive changes to the application of existing guidance or create a significant administrative cost to most entities.  Additionally, the amendments will make the Master Glossary easier to understand, as well as reduce the number of terms that appear in the Master Glossary.  The amendments resulting from ASU 2014-06 do not have transition guidance and will be effective upon issuance for both public and private companies.  The immediate adoption of this standard in March 2014 did not have an impact on our consolidated financial statements, and there was no material impact to our financial statement disclosures.

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No.2014-09, “Revenue from Contracts with Customers” (“ASU 14-09”), which creates a comprehensive set of guidelines for the recognition of revenue under the principle: “Recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” The requirements of ASU 14-09 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2016 and will require either retrospective application to each prior period presented or retrospective application with the cumulative effect of initially applying the standard recognized at the date of adoption. We are currently evaluating the impact this ASU will have on our financial position and results of operations.

In June 2014, the FASB issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period” (“ASU 2014-12”).  The FASB issued ASU 2014-12 to clarify that a performance target in a share-based compensation award that could be achieved after an employee completes the requisite service period should be treated as a performance condition that affects the vesting of the award.  As such, the performance target should not be reflected in estimating the grant-date fair value of the award.  ASU 2014-12 is effective for the Company for fiscal year 2016. We are currently evaluating the impact this ASU will have on our financial position and results of operations.

 

3.

Inventory

 At December 31, 2014 and 2013 the Company had one class of inventory - finished goods.

 

		December 31, 2014				December 31, 2013
Finished Goods		$	7,671,454			$	5,191,402
Reserve for Obsolescence			(547,800	)			(621,000	)
Net Inventory			7,123,654				4,570,402

 

4.

Property and equipment

 Property and equipment consisted of the following:

		December 31, 2014				December 31, 2013
Computer hardware and software		$	507,640			$	442,262
Vehicle			—				39,630
Furniture and equipment			255,085				196,744
Leasehold improvements			169,904				90,441
			932,629				769,077
Less accumulated depreciation			(641,953	)			(577,759	)
Property and equipment, net		$	290,676			$	191,318

 

Depreciation expense for the years ended December 31, 2014 and 2013 was $114,100 and $158,122, respectively.

5.

Trademarks and patents

Trademarks and patents consisted of the following:

 

		December 31, 2014				December 31, 2013
Trademarks and patents		$	193,624			$	187,324
Less: Accumulated amortization			(58,560	)			(49,064	)
Trademarks, net		$	135,064			$	138,260

 

Trademarks consist of definite-lived trademarks of $126,525 and $120,225 and indefinite-lived trademarks of $67,099 and $67,099 at December 31, 2014 and 2013, respectively. All trademark costs have been generated by the Company, and consist of initial legal and filing fees.

 

Amortization expense was $9,496 and $8,746 for the years ended December 31, 2014 and 2013, respectively. The Company expects to amortize approximately $10,000 in each of the next five years.

6.

Accounts payable and accrued expenses

 Accounts payable and accrued expenses consisted of the following: 

 

		December 31, 2014				December 31, 2013
Accounts payable		$	727,223			$	538,001
Accrued inventory			1,043,397				623,984
Accrued rebates and co-op			202,805				224,213
Accrued bonus			—				40,533
Accrued returns reserve			75,000				75,000
Customer deposits			167,410				260,717
Accrued expenses – other			373,788				367,457
Total accounts payable and accrued expenses		$	2,589,623			$	2,129,905

 

7.

Bank Lines of Credit

 Bank Revolving Loan

 

On November 30, 2012 we entered into a Business Loan Agreement with Union Bank, N.A. which provided a revolving loan of up to $6,000,000. The first $3,500,000 of advances under this facility were under an open line-of-credit. Advances in excess of $3,500,000, up to the line limit of $6,000,000, were subject to a Borrowing Base report. The term Borrowing Base means an amount equal to (a) 80% of the net amount of all eligible accounts receivable plus, (b) the lesser of (i) 50% of the value of eligible landed inventory and (ii) $2,750,000, plus (c) 35% of eligible in-transit inventory. In addition, during the months of April to October each calendar year, the outstanding principal amount of all advances against eligible inventory were not to exceed 150% of the aggregate outstanding principal amount of advances against eligible accounts receivable. All of our assets secured amounts borrowed under the terms of this agreement. Interest on borrowed funds accrued interest at Prime minus 0.25% unless we choose to “fix” a portion of the indebtedness (minimum $150,000) at LIBOR plus 2% for fixed periods of time ranging from 30 days to 360 days. This loan expired on November 30, 2014 and was paid off with the proceeds from the Capital One line described below.

 

On November 28, 2014 we entered into a Revolving Loan and Security Agreement with Capital One, N.A. which provides a revolving loan of up to $6,000,000 and which expires on November, 30, 2016. All advances, up to the line limit of $6,000,000, are subject to a Borrowing Base report. The term Borrowing Base means an amount equal to (a) 80% of the net amount of all eligible accounts receivable plus, (b) 50% of the value of eligible landed inventory, plus (c) 35% of eligible in-transit inventory. In addition, the outstanding principal amount of all advances against eligible inventory shall not exceed 50% of the total line limit. All of our assets secure amounts borrowed under the terms of this agreement. Interest on borrowed funds will accrue at LIBOR plus 2.80% until such time as the Company’s trailing twelve month EBITDAS exceeds $1,000,000 at which time the rate will decrease to LIBOR plus 2.50%. This agreement contains a Minimum Debt Service Coverage Ratio covenant and a Tangible Net Worth covenant. At December 31, 2014, the Company is in compliance with all covenants. The Company is required to maintain a lockbox for which all funds deposited into the lockbox account shall be transferred for payment by the close of each business day to reduce the balance of the revolving loan. In addition, upon the occurrence and during the continuance of an event of default, and if requested by Capital One, N.A., the amounts due under the revolving loan commitment shall become immediately due and payable. Therefore, amounts outstanding under this agreement are recorded on the balance sheet as current debt as of December 31, 2014.

 

At December 31, 2014, we had unused credit available under our current facility of approximately $3,413,966.

8.

Equity transactions

Common Stock

 

On January 14, 2013 the Company issued 172,582 shares of common stock upon the exercise of a stock option at an exercise price of $0.09.

 

On February 5, 2013 the Company issued 35,513 shares of common stock upon the exercise of a stock option at an exercise price of $0.09.

 

On February 25, 2013 the Company issued 48,595 shares of common stock upon the exercise of a stock option at an exercise price of $0.09.

 

On May 14, 2014 the Company issued 144,959 shares of common stock upon the exercise of a stock option at an exercise price of $0.095.

 

On June 2, 2014 the Company issued 24,779 shares of common stock upon the exercise of a stock option at exercise prices between $0.09 and $0.095.

 

On June 19, 2014 the Company issued 733,333 shares of restricted common with a fair value of $0.23, vesting evenly on a quarterly basis over a period of one year.

 

On July 1, 2014 the Company issued 33,036 shares of common stock upon the exercise of a stock option at exercise prices between $0.09 and $0.095.

 

On July 1, 2014 the Company issued 171,096 shares of common stock upon the exercise of a stock option at an exercise price of $0.11.

 

On August 7, 2014 the Company issued 160,548 shares of common stock upon the exercise of a stock option at an exercise price of $0.095.

 

On August 11, 2014 the Company issued 255,100 shares of common stock upon the exercise of a stock option at exercise prices between $0.09 and $0.095.

 

On August 12, 2014 the Company issued 126,712 shares of common stock upon the exercise of a stock option at an exercise price of $0.095.

 

On August 22, 2014 the Company sold 2,124,691 shares of common stock at a per share purchase price of $0.2871.

 

On September 10, 2014 the Company issued 177,100 shares of common stock upon the exercise of a stock option at exercise prices between $0.09 and $0.095.

 

On September 16, 2014 the Company issued 153,000 shares of common stock upon the exercise of a stock option at an exercise price of $0.24.

 

There were 80,808,629 shares of common stock of the Company outstanding at December 31, 2014.

 

Warrant Activity

 

A summary of warrant activity is as follows:

				Number of Shares				Weighted Average Exercise Price
	Warrants outstanding at December 31, 2013				43,146			$	0.185
	Warrants outstanding at December 31, 2014				43,146			$	0.185

Stock Based Compensation

 

The Company accounts for stock based compensation under the provisions of FASB ASC 718 “Share-Based Payments”.

 

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

 

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

 

Effective May 9, 2009, the Company reserved an additional 6,750,000 shares of its common stock for issuance to employees, directors and consultants under its 2006 Stock Incentive Plan (the “2006 Plan”). Under the 2006 Plan, options may be granted at prices not less than the fair market value of the Company’s common stock at the grant date. Options generally have a ten-year term and shall be exercisable as determined by the Company’s board of directors.

 

Effective April 11, 2011, the Company reserved an additional 2,000,000 shares of its common stock for issuance to employees, directors and consultants under its 2006 Stock Incentive Plan (the “2006 Plan”). Under the 2006 Plan, options may be granted at prices not less than the fair market value of the Company’s common stock at the grant date. Options generally have a ten-year term and shall be exercisable as determined by the Company’s board of directors.

 

Effective May 21, 2013, the Company reserved an additional 3,000,000 shares of its common stock for issuance to employees, directors and consultants under its 2006 Stock Incentive Plan (the “2006 Plan”). Under the 2006 Plan, options may be granted at prices not less than the fair market value of the Company’s common stock at the grant date. Options generally have a ten-year term and shall be exercisable as determined by the Company’s board of directors.

 

Effective April 7, 2014, the Company reserved an additional 5,000,000 shares of its common stock for issuance to employees, directors and consultants under its 2006 Stock Incentive Plan (the “2006 Plan”). Under the 2006 Plan, options may be granted at prices not less than the fair market value of the Company’s common stock at the grant date. Options generally have a ten-year term and shall be exercisable as determined by the Company’s board of directors.

 

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

 

For stock options issued during the years ended December 31, 2014 and 2013, the fair value of these options was estimated at the date of the grant using a Black-Scholes Model with the following range of assumptions:

 

			December 31, 2014				December 31, 2013
Risk free interest rate			0.05% - 2.66%				0.12% - 1.33%
Dividends			—				—
Volatility factor			80.9% - 194.8%				64.8% - 88.3%
Expected life			5.5 – 6.25 years				5.5 - 6.25 years

A summary of stock option activity is as follows:

 

			Number of Shares				Weighted Average Exercise Price
	Outstanding at December 31, 2012			9,570,455			$	0.113
	Granted			1,888,000			$	0.25
	Exercised			(256,690	)		$	0.09
	Cancelled/Expired			(1,058,000	)		$	0.109
	Outstanding at December 31, 2013			10,143,765			$	0.141
	Granted			5,871,583			$	0.157
	Exercised			(1,246,330	)		$	0.116
	Cancelled/Expired			(1,360,694	)		$	0.168
	Outstanding at December 31, 2014			13,408,324			$	0.148
	Exercisable at December 31, 2014			7,549,789			$	0.13

 

The following tables summarize information about stock options outstanding at December 31, 2014:

 

Range of Exercise Price				Number Outstanding				Weighted Average Remaining Contractual Life (Years)				Weighted Average Exercise Price				Intrinsic Value Outstanding Shares
	$0.09 - $0.27				13,408,324				6.34			$	0.148			$	730,491

 

The following tables summarize information about stock options exercisable at December 31, 2014:

 

Range of Exercise Price				Number Exercisable				Weighted Average Remaining Contractual Life (Years)				Weighted Average Exercise Price				Intrinsic Value Exercisable Shares
	$0.09 - $0.27				7,549,789				4.58			$	0.130			$	579,147

 

The following tables summarize information about non-vested stock options:

 

	Number of Shares				Weighted Average Grant Date Fair Value
Non-Vested at December 31, 2012		2,872,617			$	0.10
Granted		1,888,000			$	0.25
Vested		(2,151,644	)		$	0.18
Forfeited		(275,041	)		$	0.14
Non-Vested at December 31, 2013		2,333,932			$	0.20
Options Granted		5,138,250			$	0.147
Restricted Shares Granted		733,333			$	0.18
Vested		(1,492,240	)		$	0.162
Forfeited		(854,740	)		$	0.12
Non-Vested at December 31, 2014		5,858,535			$	0.146

 

The Company recorded $337,098 of compensation expense for employee stock options during the year ended December 31, 2014. There was a total of $647,699 of unrecognized compensation costs related to non-vested share-based compensation arrangements under the 2000 and 2006 Option Plans outstanding at December 31, 2014. This cost is expected to be recognized over a weighted average period of 2.95 years. The total fair value of shares vested during the year ended December 31, 2014 was $337,098.

9.

Income Taxes

 

The provision (benefit) for income taxes for the years ended December 31, 2014 and 2013 consisted of the following:

 

				2014				2013
	Current				(88,945	)		$	(176,196	)
	Deferred				(760,000	)			(214,500	)
					(848,945	)			(390,696	)

 The provision for income taxes differs from the amount that would result from applying the federal statutory rate for the years ended December 31, 2014 and 2013 as follows:

 

		2014				2013
Statutory regular federal income benefit rate			34	.0%			(34	.0)%
State income taxes, net of federal benefit			(2	.70)			(52	.4)
Change in valuation allowance			(1,220	.1)			149	.1
True-up Federal Income Tax Liability			(106	.8)			—
Other			(297	.4)			(2	.4)
Total			(998	.2%)			(60	.3%)

 

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 some portion or all of the benefits of these deductible differences, and has chosen to reduce its valuation allowance against its deferred tax assets to 30%.

 

Significant components of the Company’s deferred tax assets and liabilities for federal incomes taxes at December 31, 2014 and 2013 consisted of the following:

		2014				2013
Deferred tax assets
Net operating loss carryforward		$	1,909,145			$	2,228,062
Stock option expense			1,419,724				1,382,598
Allowance for doubtful accounts			11,949				20,563
Allowance for product returns			29,873				32,130
Accrued compensation			—				58,940
Inventory reserve			218,189				266,036
Other			141,063				73,419
Valuation allowance			(1,523,234	)			(2,691,622	)
Total deferred tax assets			2,206,709				1,370,126
Fixed Assets/Intangibles			(75,673	)			—
Deferred tax liabilities – state taxes			(299,036	)			(298,126	)
Total deferred tax liabilities			(374,709	)			(298,126	)
Net deferred tax assets		$	1,832,000			$	1,072,000

 

As of December 31, 2014, the Company had unused federal and state net operating loss carryforwards available to offset future taxable income of $4,238,141 and $5,364,801, respectively, that expire between 2015 and 2026.

10.

Commitments and Contingencies

 

The Company entered into a five-year lease with one option to renew for an additional five years for a corporate office and warehouse lease commencing in July 2006. The Company exercised its five year option to renew this lease commencing in July 2011. The facility is located in El Segundo, California. As part of this renewal process we reduced our square footage by approximately 1,700 square feet of unneeded warehouse space in exchange for six months of rent concessions and approximately $40,000 for tenant improvements. Rent expense for this facility for the years ended December 31, 2014 and 2013 was $126,972 and $157,013, respectively. The Company has sublet this facility for the remainder of its lease term as the Company relocated to Texas.

 

On June 11, 2014, the Company entered into a 42 month lease for a new corporate office facility in Farmers Branch, Texas, commencing in the third quarter of 2014. The Company relocated its corporate headquarters to Texas in the third quarter. This new facility is approximately 13,026 square feet and the Company has negotiated six months of rent abatement. The monthly base rent is $7,653 plus $3,449 for common area operating expenses. A security deposit of one month’s rent has been made in the amount of $11,102. As part of this process, we were granted $60,000 for tenant improvements. Rent expense attributable to this facility for the year ended December 31, 2014 was $32,350.

 

The Company has various non-cancelable operating leases for office equipment expiring through August, 2018. Equipment lease expense charged to operations under these leases was $12,962 and $10,126 for the years ended December 31, 2014 and 2013, respectively.

 

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

 

	Year				Facility				Equipment				Total
	2015			$	262,963			$	10,781			$	273,744
	2016				181,609				10,139				191,748
	2017				97,051				9,240				106,291
	2018				16,175				5,775				21,950
				$	557,798			$	35,935			$	593,733

 

Ironclad California executed a Consulting Agreement with Eduard Albert Jaeger, its founder and former CEO, effective in February 18, 2014. Pursuant to the terms of this two year Consulting Agreement, Mr. Jaeger will be paid an initial base fee of $225,000 for the first year of the agreement and a base fee of $150,000 for the second year of the agreement. In addition, the Company will reimburse Mr. Jaeger for 100% of the premiums for COBRA coverage for himself and his family for the first 12 months of the agreement. The Company will also reimburse Mr. Jaeger for any travel and lodging expense incurred while rendering services to the Company. The total expense recognized in the year ended December 31, 2014 for Mr. Jaeger’s fees and COBRA was $209,512.

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

 

None.

 

Item 9A. Controls and Procedures.

 

Evaluation of Controls and Procedures

 

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

 

As of December 31, 2014, management conducted an evaluation, with the participation of our Chief Executive Officer and our Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, management has concluded that as of December 31, 2014, our disclosure controls and procedures were effective.

 

Changes in Internal Controls

 

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

 

Management’s Report on Internal Control over Financial Reporting

 

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

 

•

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

•

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

•

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

We carried out an evaluation under the supervision, and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of our internal control over financial reporting as of December 31, 2014. This evaluation was based on the framework in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission, or 1992 COSO. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Based on their evaluation, our management concluded that internal control over financial reporting was effective as of December 31, 2014.

 

Item 9B. Other Information.

 

None.

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

The following table sets forth the name, age and position of each of our executive officers and directors as of March 13, 2015. All directors serve until the next annual meeting of stockholders or until their successors are elected and qualified. Officers are appointed by our board of directors and their terms of office are, except to the extent governed by an employment contract, at the discretion of our board of directors.

 

Name	Age	Position
Jeffrey Cordes	57	Chief Executive Officer, Director
William Aisenberg	54	Executive Vice President, Chief Financial Officer And Secretary
Kenneth Bryan Griggs	38	Executive Vice President of Sales and Marketing
R.D. Pete Bloomer	79	Director
Vane Clayton	56	Director
David Jacobs	81	Director
Michael A. DiGregorio	60	Director
Charles H. Giffen	57	Director
Patrick O’Brien	68	Director

 

Jeffrey Cordes, Chief Executive Officer, Director

 

Mr. Cordes has served as our Chief Executive Officer and a member of our board of directors since February 2014. He brings more than 30 years of extensive executive experience in global textiles and apparel. Mr. Cordes served as President and Chief Operating Officer of Walls Industries, Inc., a leading global company in safety and work apparel, from 2010 through 2013, and as Chief Operating Officer from 2004 to 2010. Prior to Walls, Mr. Cordes served as the Chief Executive officer of Hometown Wholesale Furniture Clubs, Inc. from 2002 to 2004 and as the Chief Operating Officer and Chief Financial Officer of e2 Communications Inc. from 2000 to 2001. Prior to e2 Communications, Mr. Cordes served as President and Chief Operating Officer and as a Director of Pillowtex Corporation (NYSE PTX), a marketer, manufacturer and importer of home textiles, from 1997 to 1999. Mr. Cordes served as Chief Financial Officer and Director of Pillowtex from 1993 to 1997. Mr. Cordes held additional Vice President positions with Pillowtex from 1984 to 1993. Mr. Cordes holds an MBA from the Cox School of Business at Southern Methodist University and an undergraduate degree in Business Administration from Hope College. Mr. Cordes’ extensive executive and industry experience led to the conclusion that he should serve as a director in light of our business and structure.

 

William Aisenberg, Executive Vice President, Chief Operating Officer & Secretary

 

Mr. Aisenberg has served as our Executive Vice President & Chief Financial Officer since May 2014. Mr. Aisenberg, a Certified Public Accountant, brings more than 30 years of financial executive experience in apparel, consumer products, and the public accounting field. Most recently Mr. Aisenberg served as Executive Vice President and Chief Financial Officer at Walls Industries, a leading company in work, sporting and safety apparel. Prior to Walls, Mr. Aisenberg served as Vice President and Corporate Controller at Strategic Equipment and Supply Corporation. Mr. Aisenberg also has acquired cross functional experience working with other companies, including The Brinkmann Corporation, Pinnacle Trading Card Company, The Foster Grant Group and Arthur Andersen & Co. Mr. Aisenberg holds a Bachelor of Science degree in Accounting from Long Island University.

K. Bryan Griggs, Executive Vice President of Sales and Marketing

 

Mr. Griggs has served as our Executive Vice President of Sales and Marketing since February 2014. Mr. Griggs brings more than 15 years of sales and operational management experience in the apparel, footwear and outdoor industries. Prior to joining us, Mr. Griggs served as President at Propper International, a leading company in tactical and military apparel for three years. Previous to that, Mr. Griggs served for two years as Vice President of Sales at 511 Tactical, one of our long time business partners. For four years prior to that he served as EVP of Outdoor Products for Otto International, a $23 billion global sourcing and branded company. Earlier Mr. Griggs built his own company, Mud River Dog Products, out of his garage, initially as a hobby, and built the brand to be the recognized leader in the hunting dog product market. He later sold this company. Mr. Griggs attended Colorado Mountain College and the University of Colorado.

 

R. D. Pete Bloomer, Director

 

Mr. Bloomer served as Chairman of our board of directors from April 2003 through September 2008. He is the Chairman and Chief Executive Officer of CVM Management, Inc. and Managing Partner of CVM Equity Fund V, Ltd., LLP, or CVM. He is also the Managing Partner of the Northern Rockies Venture Fund which is one of the original investors of Ironclad. The specific experience, qualifications, attributes and skills that led to the conclusion that Mr. Bloomer should serve on our board of directors, in light of our business and structure, include his service as the managing partner of 7 venture funds dating back to 1983. Those funds have invested in over 90 early stage venture investments. Mr. Bloomer has served as a member of the board of directors of many of the entities in which he has invested. Mr. Bloomer has significant experience in marketing and sales having been Vice President of Sales/Marketing for Head Ski & Tennis, and having spent 11 years with IBM in sales and marketing. Mr. Bloomer is also an experienced operations executive having served as Vice President of Operations for Hanson Industries. Mr. Bloomer has served on the board of directors of several private companies not associated with his venture capital activity.

 

Vane Clayton, Director

 

Mr. Clayton has served on our board of directors since March 2004, and has served as our Chairman of the Board since May 2014. He currently serves as the CEO and board member of KPA, LLC, a software and services company providing environment and safety, human resource management and finance & insurance compliance solutions to 5,100 auto, truck and equipment dealers in the U.S. and Canada. Mr. Clayton created liquidity for KPA investors in 2014 with the sale of KPA to CIVC Partners, a Chicago-based Private Equity firm. Prior to KPA, Mr. Clayton was President of ZOLL Data Systems, an Enterprise Software subsidiary of ZOLL Medical Corporation (purchased by Asahi Kasei for $2.2B in 2012). Earlier in his career, Mr. Clayton managed a sales team for Raychem ($1.7B in Sales), a division of Tyco Electronics. Mr. Clayton has experience in directing public and private companies in high growth sales and marketing strategies; new product and channel development; fund raising; Sarbanes-Oxley Section 404 compliance; strategic positioning; and building successful teams. Mr. Clayton holds a B.S. in Agricultural/Mechanical Engineering from Purdue University and an MBA from Harvard Business School.

 

David Jacobs, Director

 

Mr. Jacobs has served on our board of directors since May 2012. He is the Founder (in 1978), of Spyder Active Sports, Inc., the largest specialty ski wear brand in the world with sales in 54 countries. It was purchased by Apax Partners, in 2004. Prior to Spyder, Mr. Jacobs introduced the Pearl Izumi brand of bicycling wear to the U.S. through a joint venture with the Japanese owners from 1982 to 1989. In 1972, Mr. Jacobs founded the Hot Gear children’s ski wear brand. From 1966 to 1969, he was a joint venture partner with Bob Lange, the founder of the first plastic ski boot, and then served as Vice President in charge of International operations for Lange USA from 1969 to 1972. Mr. Jacobs is the winner of the Ernst & Young Entrepreneur of the Year award for the Rocky Mountain Region in 2004, and was inducted into the Boulder Business Hall of Fame in 2004. As an athlete, Mr. Jacobs was the Canadian National Downhill Champion, Head Coach of Canada’s National Ski Team, and has been named to the Canadian Ski Hall of Fame, the Colorado Ski Hall of fame, and the Laurentian Ski Hall of fame. From 2001 to 2002, before the Company went public, Mr. Jacobs served on the board of directors of Ironclad Performance Wear Corporation, a California corporation and our wholly-owned subsidiary. Mr. Jacobs’ extensive experience managing and growing apparel businesses make him a valuable addition to our Board of Directors in light of our business and structure.

Michael A. DiGregorio, Director

 

Mr. DiGregorio was appointed to our board of directors in January 2013 pursuant to the terms of the previously disclosed Settlement Agreement signed in December 2012. He has spent many years in senior financial and operating capacities in domestic and international markets. A CPA by background, he has been CFO of public and private companies, and also president of two large organizations. Thirteen of those years were spent working with private equity groups, in which he helped transform underperforming companies and helped add significant market value to those enterprises. Since early 2012, he has been developing his board and advisory practice. From mid-2009 to February 2012, he was EVP & CFO for Korn Ferry International, Inc. Previously he had been the CFO at St. John Knits and also at Jafra Cosmetics International, Inc. Mr. DiGregorio also serves as a member of the board of directors of Calavo Growers, Inc. (NASDAQ: CVGW), Vicro Manufacturing Corp. (NASDAQ: VIRC) Matilda Jane Clothing Co. and CAbi LLC. Mr. DiGregorio’s experience in senior financial and operating capacities led to the conclusion that Mr. DiGregorio should serve on our board of directors in light of our business and structure.

 

Charles H. Giffen, Director

 

Mr. Giffen was appointed to our board of directors in January 2013 pursuant to the terms of the Settlement Agreement disclosed above. He is a veteran management consultant and executive coach, specializing in optimizing all aspects of operational and financial performance for small to mid-size businesses. Mr. Giffen holds over 30 years of broad business experience, both managing and advising a wide variety of companies in different industries and sectors (manufacturing, wholesale, service, professional), and he has worked as a management consultant for the last 15 years. His company, Small Biz Wrangler, maximizes execution, efficiency, communication, leadership and profitability for its client companies. Previously, Mr. Giffen served as President and Chief Operating Officer of GTCO Calcomp, Inc., a leading manufacturer of computer input peripherals and pioneer in electromagnetic digitizing technology. He has also developed entertainment ventures in cable television (New Culture Network, Inc.) and motion simulation (RideTime USA, Inc.), and managed operations for publishing and technical education companies. In addition to his other consulting activities, he is currently serving as President of Contractors State License Schools (Van Nuys, CA), which provides license exam preparation and other services at 23 locations throughout California. Mr. Giffen holds a Bachelor of Arts in Economics from the University of Maryland at College Park. Mr. Giffen’s experience in optimizing operational and financial performance led to the conclusion that Mr. Giffen should serve on our board of directors in light of our business and structure.

 

Patrick O’Brien, Director

 

Mr. O’Brien was appointed to our board of directors in March 2014. He brings to our board of directors his seasoned executive and business expertise with diverse international experience in private and public companies with an emphasis on financial analysis and business development. He currently serves as the Managing Director & Principal of Granville Wolcott Advisors, a company he formed in 2009 which provides business consulting, due diligence and asset management services for public and private clients. From 2005 to 2009, Mr. O’Brien was a Vice President - Asset Management for Bental-Kennedy Associates Real Estate Counsel where he represented pension fund ownership interests in hotel real estate investments nationwide. Mr. O’Brien also serves on the board of directors of Livevol, Inc., a private company that is a leader in equity and index options technology, and Merriman Holdings, Inc. (OTCQX: MERR), an institutional broker-dealer with an investment banking, corporate servicing practice and a Digital Capital Platform. Mr. O’Brien previously served as a member of the board of directors of Factory Card & Party Outlet (FCPO, NASDAQ) until its sale to AAH Holdings. Mr. O’Brien is a graduate of the Eli Broad College of Business at Michigan State University with a BA in Hotel Management.

Audit Committee of the Board of Directors

 

The Audit Committee of our board of directors currently consists of Messrs. DiGregorio (Chair), Giffen and O’Brien. Our board of directors has determined that Mr. DiGregorio is an audit committee financial expert, as defined in Item 407(d)(5) of Regulation S-K, and that Messrs. DiGregorio, Giffen and O’Brien are “independent” as that term is defined in the applicable rules for companies traded on the NASDAQ Stock Market. Our board of directors has also determined that each other member of our Audit Committee is able to read and understand fundamental financial statements and has substantial business experience that results in such member’s financial sophistication. Accordingly, our board of directors believes that each member of our Audit Committee has sufficient knowledge and experience necessary to fulfill such member’s duties and obligations on our Audit Committee. The primary purposes of the Audit Committee are (i) to review the scope of the audit and all non-audit services to be performed by our independent auditors and the fees incurred by us in connection therewith, (ii) to review the results of such audit, including the independent accountants’ opinion and letter of comment to management and management’s response thereto, (iii) to review with our independent accountants our internal accounting principles, policies and practices and financial reporting, (iv) to engage our independent auditors and (v) to review our quarterly and annual financial statements prior to public issuance. The role and responsibilities of the Audit Committee are more fully set forth in a written Charter adopted by our board of directors. The Audit Committee was created by our board of directors effective May 18, 2006.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934 requires that our executive officers and directors, and persons who own more than ten percent of a registered class of our equity securities, file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater-than-ten percent stockholders are required by SEC regulations to furnish us with all Section 16(a) forms they file.  Based solely on our review of the copies of the forms received by us and written representations from certain reporting persons that they have complied with the relevant filing requirements, we believe that, during the year ended December 31, 2014, all of our executive officers, directors and greater-than-ten percent stockholders complied with all Section 16(a) filing requirements other than Messrs. Bloomer, Cordes, DiGregorio, Giffen, Jacobs and O’Brien, who each did not timely file one Form 4 reporting one transaction, and Mr. Clayton who did not timely file two Form 4s each reporting one transaction.

 

Code of Ethics

  

We have adopted a Code of Ethics applicable to all of our board members and to all of our employees, including our Chief Executive Officer and Principal Financial Officer. The Code of Ethics constitutes a “code of ethics” as defined by applicable SEC rules and a “code of conduct” as defined by applicable NASDAQ rules. We will provide a copy of the Code of Ethics to any person without charge, upon request by writing or calling us at:

 

Ironclad Performance Wear Corporation

Attn: Investor Relations

1920 Hutton Court, Suite 300

Farmers Branch, TX 75234

(972) 996-5664

 

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

Item 11. Executive Compensation.

 

Summary Compensation Table

 

The following table sets forth, as to each individual serving as our principal executive officer, each of the other two most highly compensated executive officers and two additional individuals for whom disclosure would have been provided but for the fact that the individuals were not serving as executive officers at the end of our last completed fiscal year, whose compensation exceeded $100,000 during our last fiscal year, information concerning all compensation paid for services to us in all capacities for our last two fiscal years.

 

Name and Principal Position		Year			Salary ($)			Option Awards ($)			All Other Compen-sation ($)			Total ($)
Jeffrey Cordes (1) Chief Executive Officer, President, Director		2014 2013			252,692 —			325,103 —			11,129 —			588,924 —
William Aisenberg(2)		2014			144,519			136,819			6,103			287,441
Executive Vice President, Chief		2013			—			—			—			—
Financial Officer, Secretary
Kenneth Bryan Griggs(3)		2014			212,827			65,606			6,065			284,498
Executive Vice President – Sales &		2013			—			—			—			—
Marketing
Lee Turlington (4) Former Interim President		2014 2013			— —			— —			88,963 75,643			88,963 75,643
Rhonda Hoffarth (5) Former Chief Operating Officer, Former Executive Vice President of Operations		2014 2013			134,070 181,762			— —			77,141 17,950			211,211 199,712
Eduard Albert Jaeger (6) Former head of New Business Development		2014 2013			29,619 214,304			— —			214,685 26,073			244,305 240,377

 

(1)

Mr. Cordes commenced employment as our Chief Executive Officer, President and a Director on February 18, 2014. The other compensation disclosed for Mr. Cordes represents 401(k) employer matching funds. Mr. Cordes’ annual base salary is $300,000 and he may also receive a discretionary bonus as determined by the Compensation Committee of our board of directors. Mr. Cordes has an employment agreement with us the terms of which are discussed below. On February 18, 2014, we granted Mr. Cordes options to purchase 2,700,000 shares of our common stock, with 25% vesting on the first anniversary of the date of grant and 1/36th of the remaining amount vesting at the end of each month thereafter. The fair value of those options was estimated on the date of grant using the Black-Scholes Model with the following weighted-average assumptions:

Year

Risk Free Interest Rate

Volatility

Term

Dividends

2014

2.14%

80.9%

6.25 years

None

(2)

Mr. Aisenberg commenced employment as our Executive Vice President, Chief Financial Officer and Secretary on May 5, 2014. The other compensation disclosed for Mr. Aisenberg represents 401(k) employer matching funds. Mr. Aisenberg’s annual base salary is $225,000 and he may also receive a discretionary bonus as determined by the Compensation Committee of our board of directors. Mr. Aisenberg has an employment agreement with us the terms of which are discussed below. On May 8, 2014, we granted Mr. Aisenberg options to purchase 1,000,000 shares of our common stock, with 25% vesting on the first anniversary of the date of grant and 1/36th of the remaining amount vesting at the end of each month thereafter. The fair value of those options was estimated on the date of grant using the Black-Scholes Model with the following weighted-average assumptions:

Year

Risk Free Interest Rate

Volatility

Term

Dividends

2014

2.62%

82.2%

6.25 years

None

 

(3)

Mr. Griggs commenced employment as our Executive Vice President-Sales & Marketing on February 20, 2014. The other compensation disclosed for Mr. Griggs represents 401(k) employer matching funds. Mr. Griggs’ annual base salary is $255,000 and he may also receive a discretionary bonus as determined by the Compensation Committee of our board of directors. Mr. Griggs has an employment agreement with us the terms of which are discussed below. On March 1, 2014, we granted Mr. Griggs options to purchase 500,000 shares of our common stock, with 25% vesting on the first anniversary of the date of grant and 1/36th of the remaining amount vesting at the end of each month thereafter. The fair value of those options was estimated on the date of grant using the Black-Scholes Model with the following weighted-average assumptions:

Year

Risk Free Interest Rate

Volatility

Term

Dividends

2014

2.25%

84.5%

6.25 years

None

 

(4)

Mr. Turlington was appointed as our Interim President on October 18, 2013 and received his compensation pursuant to a Consulting Agreement providing for a consulting fee of $14,000 for services rendered in October 2013 and thereafter, a consulting fee of $30,000 per month for services rendered during the remaining term provided that Mr. Turlington provided consulting services for at least 11 days during such month. In the event that Mr. Turlington provided consulting services for 10 or fewer days in any given month other than October 2013, we were obligated to pay Mr. Turlington a consulting fee of $2,000 per day for such month. Mr. Turlington’s services as our Interim President ceased on February 18, 2014.

(5)

Ms. Hoffarth ’s employment terminated on August 15, 2014. Her annual base salary was $179,322 and she was eligible to receive a discretionary bonus as determined by the Compensation Committee of our board of directors. The other compensation disclosed for Ms. Hoffarth represents severance pay both paid and accrued, an automobile allowance and 401(k) employer matching funds. Ms. Hoffarth did not have an employment agreement with us.

(6)

Mr. Jaeger served as our President and Chief Executive Officer from our formation through May 4, 2009. Mr. Jaeger’s annual base salary was $217,619 and he was eligible to receive a discretionary bonus as determined by the Compensation Committee of our board of directors. The terms of Mr. Jaeger’s Separation Agreement with us are discussed below. The other compensation disclosed for Mr. Jaeger represents consulting fees, an automobile allowance, 401(k) employer matching funds and amounts paid to cover any employee portion of health benefits offered by the Company.

Outstanding Equity Awards at Fiscal Year End

 

The following table presents information regarding outstanding options held by our named executive officers as of the end of our fiscal year ended December 31, 2014.

 

Name	Number of Securities Underlying Unexercised Options (#) Exercisable						Number of Securities Underlying Unexercised Options (#) Unexercisable			Option Exercise Price ($) (1)				Option Expiration Date
Eduard Albert Jaeger(2)		122,034			(3	)		—			0.09				9	/3/15
		500,000			(4	)		—			0.09				5	/18/16
		103,900			(5	)		—			0.09				2	/18/17
		167,000			(6	)		—			0.095				2	/18/17
		325,000			(7	)		—			0.095				2	/18/17
		81,625			(8	)		—			0.24				2	/18/17
Rhonda Hoffarth		125,000			(9	)		—			0.09				8	/15/15
		71,500			(10	)		—			0.09				8	/15/15
		200,000			(11	)		—			0.095				8	/15/15
		204,555			(12	)		70,445	(12)		0.095				8	/15/15
Lee Turlington		—						—			—				—
Jeffrey Cordes		—			(13	)		2,700,000	(13)		0.17				2	/18/24
William Aisenberg		—			(14	)		1,000,000	(14)		0.19				5	/8/24
Kenneth Griggs		—			(15	)		500,000	(15)		0.18				3	/1/24

 

(1)

On May 4, 2009, the board of directors approved changing the exercise price for all outstanding stock options, outstanding as of that date, which were fixed and re-priced at $0.09 per share, which price represents an amount equal to $0.02 above the average closing stock price of the Company over the prior 30 days.

(2)

Ironclad California executed a Consulting Agreement with Eduard Albert Jaeger effective in February 18, 2014, the terms of which are described in Service Contracts herein.

(3)

Mr. Jaeger was granted options to purchase 276,131 shares on 9/2/05, 146,695 shares vested immediately and 50% of the remainder vests on each of the first and second anniversary of the effective date of grant. On March 20, 2012 Mr. Jaeger exercised 154,097 shares of this option.

(4)

Mr. Jaeger was granted options to purchase 500,000 shares on 5/18/06, 25% vested on the first anniversary of the effective date of grant and 1/36th of the remaining amount of shares vested at the end of each month thereafter.

(5)

Mr. Jaeger was granted options to purchase 103,900 shares on 11/17/07, 25% vested on the first anniversary of the effective date of grant and 1/36th of the remaining amount of shares vested at the end of each month thereafter.

(6)

Mr. Jaeger was granted options to purchase 167,000 shares on 7/16/09, 25% vested on the first anniversary of the effective date of grant and 1/36th of the remaining amount of shares vested at the end of each month thereafter.

(7)

Mr. Jaeger was granted options to purchase 325,000 shares on 8/24/11, 25% vested on the first anniversary of the effective date of grant and the remainder vested at the time of his termination on February 18, 2014.

(8)

Mr. Jaeger was granted options to purchase 81,625 shares on 7/26/12, 1/12th vests on the twenty-third day of each month commencing June 23, 2012.

(9)

Ms. Hoffarth was granted options to purchase 125,000 shares on 5/18/06, 25% vested on the first anniversary of the effective date of grant and 1/36th of the remaining amount of shares vest at the end of each month thereafter.

(10)

Ms. Hoffarth was granted options to purchase 71,500 shares on 11/20/07, 25% vested on the first anniversary of the effective date of grant and 1/36th of the remaining amount of shares vest at the end of each month thereafter.

(11)

Ms. Hoffarth was granted options to purchase 200,000 shares on 7/16/09, 25% vested on the first anniversary of the effective date of grant and 1/36th of the remaining amount of shares vest at the end of each month thereafter.

(12)

Ms. Hoffarth was granted options to purchase 275,000 shares on 8/24/11, 25% vested on the first anniversary of the effective date of grant and 1/36th of the remaining amount of shares vest at the end of each month thereafter.

(13)

Mr. Cordes was granted options to purchase 2,750,000 shares on 2/18/14, 25% vests on the first anniversary of the effective date of grant and 1/36th of the remaining amount of shares vest at the end of each month thereafter.

(14)

Mr. Aisenberg was granted options to purchase 1,000,000 shares on 5/8/14, 25% vests on the first anniversary of the effective date of grant and 1/36th of the remaining amount of shares vest at the end of each month thereafter.

(15)

Mr. Griggs was granted options to purchase 500,000 shares on 3/1/14, 25% vests on the first anniversary of the effective date of grant and 1/36th of the remaining amount of shares vest at the end of each month thereafter.

 The following executive officers listed in the above table exercised options during the fiscal year ended December 31, 2014:

 

Name	# Options Exercised	Exercise Price	Total
None

 

Director Compensation

 

The following table presents information regarding compensation paid to our non-employee directors for our fiscal year ended December 31, 2014.

 

Name		Fees Earned or Paid in Cash ($)				Option Awards ($)				Total ($)
R. D. Pete Bloomer			30,000				18,000				48,000
Vane Clayton			37,348				30,000				67,348
Michael DiGregorio			33,674				24,000				57,674
Charles Giffen			30,000				18,000				48,000
David Jacobs			30,000				18,000				48,000
Scott Jarus			4,083				—				4,083
Patrick O’Brien			27,924				28,671				56,595

 

None of the directors listed in the above table exercised options during the fiscal year ended December 31, 2013. The following former director exercised options during the fiscal year ended December 31, 2014:

 

Name	# Options Exercised	Exercise Price	Total
Scott Jarus	153,000	$0.24	36,720

 

In 2013, non-employee directors of Ironclad received $30,000 for attending meetings and serving on Ironclad’s board of directors. In 2014, non-employee directors of Ironclad received $30,000 for attending meetings and serving on Ironclad’s board of directors. In addition, effective May 20, 2014, the Chairman of the Board is to receive an additional $12,000 per year, payable in four quarterly installments of $3,000 each. Also effective May 20, 2014, committee chairs are to receive an additional $6,000 per year, payable in four quarterly installments of $1,500 each. Since April 2000, non-employee directors of Ironclad California and, after 2006, our company have each received options to purchase shares or restricted shares of Ironclad common stock upon their appointment to our board of directors and periodically thereafter. We expect to continue the practice of compensating our directors with options to purchase our common stock going forward. Compensation payable to non-employee directors may be adjusted from time to time, as approved by our board of directors.

 

Service Contracts

 

Except as described in this section, neither our company nor Ironclad California is party to any employment agreements with any of its executive officers.

 

Ironclad California executed a Consulting Agreement with Eduard Albert Jaeger, its’ founder and former CEO, effective in February 18, 2014. Pursuant to the terms of this two year Consulting Agreement, Mr. Jaeger will be paid an initial base fee of $225,000 for the first year of the agreement and a base fee of $150,000 for the second year of the agreement. In addition, the Company will reimburse Mr. Jaeger for 100% of the premiums for COBRA coverage for himself and his family for the first 12 months of the agreement. The Company will also reimburse Mr. Jaeger for any travel and lodging expense incurred while rendering services to the Company.

 

On February 18, 2014, we entered into an offer letter with Jeffrey Cordes pursuant to which Mr. Cordes will serve as our Chief Executive Officer and a member of our board of directors. Mr. Cordes will receive an annual salary of $300,000 and is eligible to receive an incentive bonus for fiscal 2014 of $125,000 based upon our company achieving revenue and operating income (defined as earnings before interest, taxes, depreciation, amortization and stock compensation expense) targets, and based upon Mr. Cordes and/or our company achieving certain corporate objectives, as determined by our board of directors with input from Mr. Cordes within 30 days following the commencement of Mr. Cordes employment. To the extent earned, 50% of the incentive bonus for fiscal 2014 will be paid in cash and 50% will be paid through the issuance of shares of our common stock with an equivalent value as of the date of issuance, with 50% of such shares (the unvested portion) remaining subject to forfeiture until such time as our board of directors determines that our revenue and operating income for fiscal 2015 will exceed our revenue and operating income for fiscal 2014. In the event that our board of directors does not determine by December 31, 2015 that our revenue and operating income for fiscal 2015 will exceed our revenue and operating income for fiscal 2014, the unvested portion of such shares will be forfeited. In the event that Mr. Cordes’ employment is terminated by the us (other than for cause) (i) within six months of a sale of our company to an unaffiliated third party or any going private transaction or private equity investment or purchase of equity interests in our company that results in a change in the beneficial ownership of our securities of more than 50% of the total combined voting power of all of our outstanding securities, we will continue to pay Mr. Cordes’ then-current base salary for a period of 12 months following the effective date of such termination, and (ii) at any other time, we will continue to pay Mr. Cordes’ then-current base salary for six months following the effective date of such termination.

 

On February 20, 2014, we entered into an offer letter with Bryan Griggs pursuant to which Mr. Griggs will serve as our Executive Vice President Sales and Marketing. Mr. Griggs will receive an annual salary of $255,000 and is eligible to receive an incentive bonus for fiscal 2014 of $100,000 based upon our company achieving revenue and operating income (defined as earnings before interest, taxes, depreciation, amortization and stock compensation expense) targets, and based upon Mr. Griggs and/or our company achieving certain corporate objectives, as determined by our board of directors with input from Mr. Griggs within 30 days following the commencement of Mr. Griggs employment. To the extent earned, 75% of the incentive bonus for fiscal 2014 will be paid in cash and 25% will be paid through the issuance of shares of our common stock with an equivalent value as of the date of issuance, with 50% of such shares (the unvested portion) remaining subject to forfeiture until such time as our board of directors determines that our revenue and operating income for fiscal 2015 will exceed our revenue and operating income for fiscal 2014. In the event that our board of directors does not determine by December 31, 2015 that our revenue and operating income for fiscal 2015 will exceed our revenue and operating income for fiscal 2014, the unvested portion of such shares will be forfeited.

On May 5, 2014, we entered into an offer letter with William Aisenberg pursuant to which Mr. Aisenberg will serve as our Executive Vice President and Chief Financial Officer. Mr. Aisenberg will receive an annual salary of $225,000 and is eligible to receive an incentive bonus for fiscal 2014 of 30% of his annual salary based upon our company achieving revenue and operating income (defined as earnings before interest, taxes, depreciation, amortization and stock compensation expense) targets, and based upon Mr. Aisenberg and/or our company achieving certain corporate objectives, as determined by our board of directors with input from Mr. Aisenberg within 30 days following the commencement of Mr. Aisenberg’s employment. To the extent earned, 50% of the incentive bonus for fiscal 2014 will be paid in cash and 50% will be paid through the issuance of shares of our common stock with an equivalent value as of the date of issuance, with 50% of such shares (the unvested portion) remaining subject to forfeiture until such time as our board of directors determines that our revenue and operating income for fiscal 2015 will exceed our revenue and operating income for fiscal 2014. In the event that our board of directors does not determine by December 31, 2015 that our revenue and operating income for fiscal 2015 will exceed our revenue and operating income for fiscal 2014, the unvested portion of such shares will be forfeited. In the event that Mr. Aisenberg’s employment is terminated by us (other than for cause) (i) within six months of a sale of our company to an unaffiliated third party or any going private transaction or private equity investment or purchase of equity interests in our company that results in a change in the beneficial ownership of our securities of more than 50% of the total combined voting power of all of our outstanding securities, we will continue to pay Mr. Aisenberg’s then-current base salary for a period of 12 months following the effective date of such termination, and (ii) at any other time, we will continue to pay Mr. Aisenberg’s then-current base salary for six months following the effective date of such termination.

 

2006 Stock Incentive Plan

 

Our 2006 Stock Incentive Plan, or the Plan, was adopted on September 18, 2006 and became effective on January 12, 2007. A total of 21,000,000 shares of common stock have been reserved for issuance upon exercise of awards granted under the Plan, as amended. Any shares of common stock subject to an award, which for any reason expires or terminates unexercised, are again available for issuance under the Plan.

 

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

 

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

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

 

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

 

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

 

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

 

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

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

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

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table presents information regarding the beneficial ownership of our common stock as of March 13, 2015 by:

•

each of our executive officers;

•

each of our directors;

•

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

•

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

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Shares of our common stock subject to options or warrants that are currently exercisable or exercisable within 60 days of March 13, 2015 are deemed to be outstanding and to be beneficially owned by the person holding the options or warrants for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

 

The information presented in this table is based on 80,915,229 shares of our common stock outstanding on March 13, 2015. Unless otherwise indicated, the address of each of the executive officers and directors and 5% or more stockholders named below is c/o Ironclad Performance Wear Corporation, 1920 Hutton Court, Suite 300, Farmers Branch, Texas 75234.

Name of Beneficial Owner		Number of Shares Beneficially Owned				Percentage of Shares Outstanding
Executive Officers and Directors:
Jeffrey Cordes (1)			1,407,373				1.7	%
Chief Executive Officer, Director
William Aisenberg (2)			2,089,506				2.6	%
Chief Financial Officer, Executive Vice President, Secretary
K. Bryan Griggs (3)			163,248				*
Executive Vice President of Sales and Marketing
R.D. Pete Bloomer (4)			1,155,041				1.4	%
Director
Vane Clayton (5)			1,543,508				1.9	%
Director
David Jacobs (6)			754,310				*
Director
Michael DiGregorio (7)			834,143				1.0	%
Director
Charles Giffen (8)			419,577				*
Director
Patrick O’Brien (9)			345,738				*
Director
Directors and officers as a group (9 persons) (10)			8,703,444				10.3	%
5% Shareholders:
Ronald Chez			7,376,871				9.1	%
Scott Jarus			7,299,700				9.0	%
Kenneth J. Frank			5,842,951				7.2	%
Eduard Jaeger (11)			4,135,426				5.0	%

* Less than 1%

 

(1)

Includes 843,750 shares of common stock reserved for issuance upon exercise of stock options which currently are exercisable or will become exercisable within 60 days of March 13, 2015.

(2)

Includes 250,000 shares of common stock reserved for issuance upon exercise of stock options which currently are exercisable or will become exercisable within 60 days of March 13, 2015.

(3)

Includes 145,833 shares of common stock reserved for issuance upon exercise of stock options which currently are exercisable or will become exercisable within 60 days of March 13, 2015.

(4)

Consists of (i) 11,591 shares of common stock held directly, (ii) 46,722 shares of common stock held by CVM Management, Inc., of which Mr. Bloomer is the President and as such has voting and investment power, and (iii) 996,728 shares of common stock reserved for issuance upon exercise of stock options which currently are exercisable or will become exercisable within 60 days of March 13, 2015.

(5)

Includes 867,291 shares of common stock reserved for issuance upon exercise of stock options which currently are exercisable or will become exercisable within 60 days of March 13, 2015.

(6)

Consists of 306,000 shares of common stock reserved for issuance upon exercise of stock options which currently are exercisable or will become exercisable within 60 days of March 13, 2015.

(7)

Includes 232,500 shares of common stock reserved for issuance upon exercise of stock options which currently are exercisable or will become exercisable within 60 days of March 13, 2015.

(8)

Consists of 232,500 shares of common stock reserved for issuance upon exercise of stock options which currently are exercisable or will become exercisable within 60 days of March 13, 2015.

(9)

Consists of 38,250 shares of common stock reserved for issuance upon exercise of stock options which currently are exercisable or will become exercisable within 60 days of March 13, 2015.

(10)

Consists of, (i) 4,790,592 shares of common stock, and (ii) 3,912,852 shares of common stock reserved for issuance upon exercise of stock options which currently are exercisable or will become exercisable within 60 days of March 13, 2015.

(11)

Includes 1,299,559 shares of common stock reserved for issuance upon exercise of stock options which currently are exercisable or will become exercisable within 60 days of March 13, 2015.

Equity Compensation Plan Information

 

The following table sets forth information concerning our equity compensation plans as of December 31, 2014.

Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)				Weighted-average exercise price of outstanding options, warrants and rights (b)				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders (2000 Stock Incentive Plan)			406,795	(1)		$	0.09				—
Equity compensation plans approved by security holders (2006 Stock Incentive Plan)			13,001,529	(2)		$	0.148				3,341,185
Equity compensation plans not approved by security holders (Warrants)			43,146	(3)		$	0.185				—
Total			13,451,470			$	0.146				3,341,185

(1)

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

(2)

This number represents stock options to purchase 13,001,529 shares of our common stock under the 2006 Stock Incentive Plan, or the Plan.

(3)

This number represents warrants issued to purchase 43,146 shares of our common stock in exchange for services. This warrant has no expiration.

 

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

 

Transactions with Officers and Directors

 

Other than the transactions described below, since January 1, 2013, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or will be a party:

 

•

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

•

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

Mr. Jaeger, our former head of Business Development and a board member, resigned as an officer and director of our company and its subsidiaries on February 18, 2014 and agreed to cancel his existing separation agreement. Concurrent with such resignation we engaged Mr. Jaeger as a consultant for a term of two years to act as a brand ambassador and evangelist for our products, attend trade shows and leverage his industry relationships on our behalf.

 

Director Independence

 

Our board of directors currently consists of seven members: Messrs. Bloomer, Clayton, Cordes, DiGregorio, Giffen, O’ Brien and Jacobs. We are not a “listed issuer” under SEC rules. We believe that Messrs. Bloomer, Clayton, DiGregorio, Giffen, O’Brien and Jacobs are “independent” as that term is defined in the applicable rules for companies traded on the NASDAQ Stock Market.

 

Item 14. Principal Accounting Fees and Services.

 

Aggregate fees for professional services rendered by BDO USA, LLP for the year ended December 31, 2014, and EFP Rotenberg, LLP for the year ended December 31, 2013, are set forth below.

 

	2014	2013
Audit Fees – BDO USA, LLP	$ 92,500	-
Audit Fees – EFP Rotenberg, LLP	$ 18,200	$ 101,250
Audit-Related Fees	-	-
Total Auditor Fees	$110,700	$101,250

 

Audit Fees

 

The audit fees for the year ended December 31, 2014 were for professional services rendered by BDO USA, LLP in connection with the audit of the Company’s consolidated annual financial statements and quarterly review of the Company’s 3^rd quarter Form 10-Q. The audit fees for the year ended December 31, 2014 also includes the professional services rendered by EFP Rotenberg, LLP for the quarterly reviews of the Company’s 1^st and 2^nd quarter Form 10-Q. The audit fees for the year ended December 31, 2013 were for professional services rendered by EFP Rotenberg, LLP. Audit fees relate to professional services rendered in connection with the audit of the Company's consolidated annual financial statements, quarterly review of consolidated financial statements included in the Company's Quarterly Reports on Form 10-Q and audit services provided in connection with other statutory and regulatory filings.

 

Audit-Related Fees

 

There were no fees for audit-related services for the years ended December 31, 2014 and 2013. Audit-related services principally include accounting consultations.

Tax Fees

 

Fees were incurred totaling approximately $18,200 and $10,850 during the years ended December 31, 2014 and 2013, respectively for tax services, including for tax compliance, tax advice and tax planning. The tax services were provided by Huselton, Morgan & Maultsby and EFP Rotenberg, LLP during the year ended December 31, 2014 and by EFP Rotenberg, LLP for the year ended December 31, 2013.

All Other Fees

 

No other fees were incurred during the years ended December 31, 2014 and 2013 for services provided by BDO USA, LLP or EFP Rotenberg, LLP, except as described above.

 

Audit Committee Pre-Approval Policy

 

The Audit Committee is responsible for appointing, setting the compensation for and overseeing the work of our independent auditor. In recognition of this responsibility, the Audit Committee is required to approve all audit and non-audit services performed by our independent registered public accounting firm in order to assure that the provision of these services does not impair the independent auditor's independence; except that the Chairman of the Audit Committee has discretion to unilaterally engage accounting professionals previously approved by the Audit Committee to perform additional services, provided that the cost of such services does not exceed certain predetermined amounts.

 

The Audit Committee specifically approved all audit and non-audit services performed by our independent accountants in 2014.

PART IV

 

Item 15. Exhibits, Financial Statement Schedules.

 

The financial statements filed as part of this Annual Report on Form 10-K are listed on page 25.

 

The following exhibits are filed with this Annual Report on Form 10-K:

 

Exhibit Number	Exhibit Title
3.1.1	Articles of Domestication of the Registrant.  Incorporated by reference to Exhibit 3.1 to our Registration Statement on Form SB-2 (File No. 333-118808), filed September 3, 2004.
3.1.2	Certificate of Change effecting a forward stock split and increasing the number of authorized shares, filed May 9, 2006.  Incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K (File No. 000-51365), filed May 12, 2006.
3.1.3	Articles of Merger effecting a name change to the Registrant.  Incorporated by reference to Exhibit 3.3 to our Current Report on Form 8-K (File No. 000-51365), filed May 12, 2006.
3.2	Amended and Restated Bylaws.  Incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K (File No. 000-51365), filed March 7, 2014.
4.1.1	Articles of Domestication of the Registrant.  Incorporated by reference to Exhibit 3.1 to our Registration Statement on Form SB-2 (File No. 333-118808), filed September 3, 2004.
4.1.2	Certificate of Change effecting a forward stock split and increasing the number of authorized shares, filed May 9, 2006.  Incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K (File No. 000-51365), filed May 12, 2006.
4.1.3	Articles of Merger effecting a name change to the Registrant.  Incorporated by reference to Exhibit 3.3 to our Current Report on Form 8-K (File No. 000-51365), filed May 12, 2006.
4.2	Amended and Restated Bylaws.  Incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K (File No. 000-51365), filed March 15, 2012.
4.3	Ironclad Performance Wear Corporation 2000 Stock Incentive Plan.  Incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-8 (File No. 333-139210), filed December 8, 2006.
4.4	First Amendment to Ironclad Performance Wear Corporation 2000 Stock Incentive Plan.  Incorporated by reference to Exhibit 4.2 to our Registration Statement on Form S-8 (File No. 333-139210), filed December 8, 2006.
4.5	2006 Stock Incentive Plan.  Incorporated by reference to Exhibit 99.1 to our Registration Statement on Form S-8 (File No. 333-145855), filed September 4, 2007.
4.6	Amendment No. 1 to Ironclad Performance Wear Corporation’s 2006 Stock Incentive Plan.  Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-51365), filed May 11, 2009.

4.7	Amendment No. 2 to Ironclad Performance Wear Corporation’s 2006 Stock Incentive Plan.  Incorporated by reference to Appendix A to our Definitive Proxy Statement on Schedule 14A (File No. 000-51365), filed April 18, 2011.
4.8	Amendment No. 3 to Ironclad Performance Wear Corporation’s 2006 Stock Incentive Plan.  Incorporated by reference to Appendix A to our Definitive Proxy Statement on Schedule 14A (File No. 000-51365), filed April 5, 2013.
4.9	Amendment No. 4 to Ironclad Performance Wear Corporation’s 2006 Stock Incentive Plan.  Incorporated by reference to Appendix A to our Definitive Proxy Statement on Schedule 14A (File No. 000-51365), filed April 9, 2014.
10.1†	Form of Indemnification Agreement.  Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-51365), filed December 21, 2012.
10.2†	Separation Agreement between Eduard Albert Jaeger and the Registrant.  Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-51365), filed May 12, 2006.
10.3	Standard Industrial/Commercial Multi-Tenant Lease by and between Park/El Segundo Partners, LLC, and the Registrant, dated September 12, 2005, as amended.  Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K (File No. 000-51365), filed May 12, 2006.
10.4	Letter Agreement with Advantage Media Systems, Inc., dated June 29, 2007.  Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-51365), filed July 6, 2007.
10.5*	Exclusive License and Distributorship Agreement dated January 6, 2009, between the Registrant and Orr Safety Corporation.  Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q (File No. 000-51365), filed May 15, 2009.
10.6*	Factoring and Inventory Advances and Security Agreement dated December 7, 2009, between the Registrant and FCC, LLC d/b/a First Capital Western Region, LLC.  Incorporated by reference to Exhibit 10.13 to our Annual Report on Form 10-K (File No. 000-51365), filed March 11, 2010.
10.7	Patent and Trademark Security Agreement dated December 7, 2009, between the Registrant and FCC, LLC d/b/a First Capital Western Region, LLC.  Incorporated by reference to Exhibit 10.14 to our Annual Report on Form 10-K (File No. 000-51365), filed March 11, 2010.
10.8†*	Ironclad Performance Wear Annual Incentive Plan – 2012.  Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-51365), filed March 2, 2012.
10.9	Business Loan Agreement dated November 30, 2012, between Ironclad Performance Wear Corporation and Union Bank, N.A.  Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-51365), filed December 11, 2012.
10.10	Security Agreement dated November 30, 2012, between Ironclad Performance Wear Corporation and Union Bank, N.A.  Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K (File No. 000-51365), filed December 11, 2012.
10.11	Commercial Promissory Note issued on November 30, 2012 by Ironclad Performance Wear Corporation in favor of Union Bank, N.A.  Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K (File No. 000-51365), filed December 11, 2012.

10.12*	Settlement Agreement and Mutual General Release dated December 14, 2012, by and among Ironclad Performance Wear Corporation, Scott Jarus, Scott Alderton, Eduard A. Jaeger, R.D. Pete Bloomer, Vane Clayton, David Jacobs, Kenneth J. Frank, Richard B. Kronman, Michael A. DiGregorio, Charles H. Giffen, Charles W. Hunter and Marcel Sassola. Incorporated by reference to Exhibit 10.13 to our Annual Report on Form 10-K (File No. 000-51365), filed March 14, 2013.
10.13	Voting Agreement dated December 14, 2012, by and among Ironclad Performance Wear Corporation, Kenneth J. Frank, Michael A. DiGregorio, Charles H. Giffen, Charles W. Hunter, Marcel Sassola, Eduard A. Jaeger, Richard B. Kronman and Scott Jarus. Incorporated by reference to Exhibit 10.14 to our Annual Report on Form 10-K (File No. 000-51365), filed March 14, 2013.
10.14†	Offer Letter dated February 3, 2014 issued by Ironclad Performance Wear Corporation to Jeffrey Cordes.  Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q (File No. 000-51365), filed May 13, 2014.
10.15†	Offer Letter dated February 18, 2014 issued by Ironclad Performance Wear Corporation to K. Bryan Griggs.
10.16†	Offer Letter dated April 22, 2014 issued by Ironclad Performance Wear Corporation to William Aisenberg.  Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q (File No. 000-51365), filed August 13, 2014.
10.17	Industrial Multi-Tenant Lease dated June 11, 2014, between Ironclad Performance Wear Corporation and 6400 Broadway L.L.L.P.  Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-51365) filed June 17, 2014.
10.18	Form of Subscription Agreement.  Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-51365), filed August 25, 2014.
10.19	Form of Lock-Up Agreement.  Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K (File No. 000-51365), filed August 25, 2014.
10.20*	Revolving Loan and Security Agreement dated November 28, 2014, among Ironclad Performance Wear Corporation, a California corporation, Ironclad Performance Wear Corporation, a Nevada corporation and Capital One, N.A.

 

10.21	Revolving Line of Credit Note issued by Ironclad Performance Wear Corporation, a California corporation, and Ironclad Performance Wear Corporation, a Nevada corporation, to Capital One, N.A.
21.1	Subsidiaries of the Registrant.  Incorporated by reference to Exhibit 21.1 to our Current Report on Form 8-K (File No. 000-51365), filed May 12, 2006.
23.1	Consent of BDO USA, LLP
23.2	Consent of EFP Rotenberg, LLP
24.1	Power of Attorney (included on signature page).
31.1	Certification of Principal Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Principal 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 Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**	XBRL Instance.
101.SCH**	XBRL Taxonomy Extension Schema.
101.CAL**	XBRL Taxonomy Extension Calculation.
101.DEF**	XBRL Taxonomy Extension Definition.
101.LAB**	XBRL Taxonomy Extension Labels.
101.PRE**	XBRL Taxonomy Extension Presentation.

  

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

 

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

 

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES

 

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

 

	IRONCLAD PERFORMANCE WEAR CORPORATION
Date: March 16, 2015		/s/ William Aisenberg
	By:	William Aisenberg
	Its:	Executive Vice President and
		Chief Financial Officer

 

POWER OF ATTORNEY

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

 

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

 

Name		Title		Date
/s/ Jeffrey Cordes		Chief Executive Officer and Director		March 16, 2015
Jeffrey Cordes		(Principal Executive Officer)
/s/ William Aisenberg		Executive Vice President and		March 16, 2015
William Aisenberg		Chief Financial Officer (Principal Financial and Accounting Officer)
/s/ David Jacobs		Director		March 16, 2015
David Jacobs
/s/ R.D. Pete Bloomer		Director		March 16, 2015
R. D. Pete Bloomer
/s/ Vane Clayton		Director		March 16, 2015
Vane Clayton
/s/ Michael DiGregorio		Director		March 16, 2015
Michael DiGregorio
/s Charles Giffen		Director		March 16, 2015
Charles Giffen
/s/ Patrick O’Brien		Director		March 16, 2015
Patrick O’Brien