Ikona Gear International (IKGI) 10QSB/A 2005 Q1 Quarterly report (small business) (amended)

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

FORM 10-QSB/A

(Mark One)
  x   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedNovember 30, 2004

  ¨  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from [      ] to [     ]

Commission file number000-49664

IKONA GEAR INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)

Nevada	88-0474903
(State or other jurisdiction of incorporation or	(Employer Identification No.)
organization)

1850 Hartley Avenue, Unit#1
Coquitlam, BC, Canada
V3K 7A1
(Address of principal executive offices)

(604) 523-5500
(Issuer's telephone number)

__________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

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  ¨  

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:

24,090,325 common shares outstanding as of January 10, 2005

Transitional Small Business Disclosure Format (Check one):         Yes  ¨  No  x  

INDEX

		Page
	PART I - FINANCIAL INFORMATION
ITEM 1	FINANCIAL STATEMENTS	3
	CONSOLIDATED BALANCE SHEETS (Unaudited)	5
	CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)	6
	CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY (Unaudited)	7-8
	CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)	9
	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)	10-17
ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OR RESULTS OF OPERATION	18-23
ITEM 3	CONTROLS AND PROCEDURES	19
	PART II – OTHER INFORMATION
ITEM 1	LEGAL PROCEEDINGS	20
ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	20
ITEM 3	DEFAULTS UPON SENIOR SECURITIES	20
ITEM 4	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	20
ITEM 5	OTHER INFORMATION	20
ITEM 6	EXHIBITS	20
	SIGNATURE	21

2

Part I - FINANCIAL INFORMATION

Item 1.            Financial Statements.

Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with generally accepted accounting principles in the United States of America.

3

IKONA GEAR INTERNATIONAL, INC.
(A Development Stage Company)

Consolidated Financial Statements
(Expressed in United States Dollars)

November 30, 2004
(Unaudited)

4

IKONA GEAR INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Balance Sheet
(Unaudited)

		November 30,
		2004
ASSETS
Current:
Cash	$	665,551
Refundable tax credits		17,270
Prepaid expenses		14,870
Deferred taxes, net of valuation allowance of $736,000		-
Total current assets		697,691
Property and equipment (Note 5)		184,203
Total assets	$	881,894
LIABILITIES ANDSTOCKHOLDERS’EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	47,768
Total current liabilities		47,768
Commitments and contingency (Notes 2 and 10)
Stockholders' equity
Common stock (Note 7)
Authorized
100,000,000 common shares, each with par value of $0.00001
Issued and outstanding
24,090,325 common shares		241
Additional paid-in capital		3,023,538
Accumulated deficit during the development stage		(2,189,653	)
Total stockholders' equity		834,126
Total liabilities and stockholders' equity	$	881,894

The accompanying notes are an integral part of these consolidated financial statements

5

IKONA GEAR INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)

		Cumulative
		Amounts
		From Inception
		(August 16, 2001)
		to		Three Months Ended November 30,
		November 30, 2004			2004			2003
REVENUES
Engineering services	$	198,693		$	1,604		$	33,750
EXPENSES
Amortization and depreciation		79,391			18,734			4,127
Business development		414,010			70,750			45,832
Corporate finance		176,741			24,300			11,250
Foreign exchange gain		(11,220	)		(11,220	)		-
General and administrative		126,083			35,928			10,135
General consulting		13,122			-			-
Investor relations		219,135			112,950			-
Listing and filing fees		14,400			2,920			-
Professional fees		163,021			16,912			42,550
Rent		57,294			17,461			4,275
Research and development		806,369			133,042			74,023
Travel and related		146,237			22,097			15,851
Impairment of patents and trademark		183,763			-			-
		(2,388,346	)		(443,874	)		(208,043	)
Loss before income taxes		(2,189,653	)		(442,270	)		(174,293	)
Income taxes		-			-			-
Net loss for the period	$	(2,189,653	)	$	(442,270	)	$	(174,293	)
Basic and diluted net loss per share				$	(0.02	)	$	(0.01	)
Weighted average number of common shares outstanding					24,090,325			17,312,966

The accompanying notes are an integral part of these consolidated financial statements

6

IKONA GEAR INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statement of Stockholders’ Equity (Deficiency)
(Unaudited)

								Accumulated
	Common Stock							Deficit
					Additional			During the
	Number of				Paid-in			Development
	Shares		Amount		Capital			Stage			Total
Balance at August 16, 2001 (inception)	-	$	-	$	-		$	-		$	-
Loss for the period	-		-		-			(5	)		(5	)
Balance at August 31, 2001	-	$	-	$	-		$	(5	)	$	(5	)
Issuance of common shares on acquisition of
patents at $0.04 per share, September 2001	2,725,000	$	27	$	108,973		$	-		$	109,000
Issuance of common shares on acquisition of
trademark at $0.45 per share, September 2001	25,000		-		1,000			-			1,000
Issuance of common shares to founders at
$0.00001 per share, October 2001	8,713,416		87		(17	)		-			70
Issuance of common shares for cash at $0.20 per
share, November 2001	263,665		3		52,730			-			52,733
Issuance of common shares for cash at $0.20 per
share, February 2002	1,286,335		13		257,253			-			257,266
Issuance of common shares for cash at $0.20 per
share, May 2002	393,750		4		78,746			-			78,750
Net loss for the year	-		-		-			(361,435	)		(361,435	)
Balance at August 31, 2002	13,407,166	$	134	$	498,685		$	(361,440	)	$	137,379
Issuance of common shares for cash at $0.20 per
share, November 2002	336,250	$	3	$	67,247		$	-		$	67,250
Issuance of common shares for corporate finance
fees at $0.20 per share, November 2002	85,800		1		17,159			-			17,160
Issuance of common shares for cash at $0.20 per
share, January 2003	175,000		2		34,998			-			35,000
Issuance of common shares for cash at $0.20 per
share, May 2003	175,000		2		34,998			-			35,000
Issuance of common shares for corporate finance
fees at $0.20 per share, May 2003	67,625		1		13,524			-			13,525
Issuance of common shares for cash at $0.20 per
share, July 2003	526,792		5		105,353			-			105,358
Issuance of common shares for corporate finance
fees at $0.20 per share, July 2003	7,500		-		1,500			-			1,500
Issuance of common shares for cash at $0.40 per
share, August 2003	251,250		2		100,498			-			100,500
Issuance of common shares for corporate finance
fees at $0.40 per share, August 2003	9,250		1		3,699			-			3,700
Net loss for the year	-		-		-			(369,303	)		(369,303	)
Balance at August 31, 2003	15,041,633	$	151	$	877,661		$	(730,743	)	$	147,069
								- Continued --

The accompanying notes are an integral part of these consolidated financial statements

7

IKONA GEAR INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statement of Stockholders’ Equity (Deficiency)
(Unaudited)
--Continued--

										Accumulated
	Common Stock									Deficit
							Additional			During the
	Number of						Paid-in			Development
	Shares			Amount			Capital			Stage			Total
Recapitalization, October 2003	6,814,000		$	68		$	154,932		$	-		$	155,000
Shares cancelled, January 2004	(500,000	)		(5	)		5			-			-
Issuance of common shares for cash at $0.50 per
share, January 2004	290,000			3			144,997			-			145,000
Issuance of common shares for cash at $0.75 per
share (gross proceeds $465,500, net of issuance
costs of $29,225), February 2004	620,666			6			436,269			-			436,275
Issuance of common shares for cash at $0.75 per
share (gross proceeds $1,016,201, net of
issuance costs of $51,275), March 2004	1,354,933			14			964,912			-			964,926
Issuance of common shares for cash at $0.75 per
share (gross proceeds $346,822, net of issuance
costs of $7,000), March 2004	462,427			4			339,818			-			339,822
Issuance of common shares for cash at $0.75 per
share, July 2004	6,666			-			5,000			-			5,000
Stock based compensation expense	-			-			38,758			-			38,758
Net loss for the year	-			-			-			(1,016,640	)		(1,016,640	)
Balance at August 31, 2004	24,090,325		$	241		$	2,962,352	$		(1,747,383	)	$	1,215,210
Stock based compensation expense	-			-			61,186			-			61,186
Net loss for the period	-			-			-			(442,270	)		(442,270	)
Balance at November 30, 2004	24,090,325		$	241		$	3,023,538	$		(2,189,653	)	$	834,126

The accompanying notes are an integral part of these consolidated financial statements

8

IKONA GEAR INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)

		Cumulative
		Amounts
		From Inception
		(August 16, 2001)
		to
		November 30,		Three Months Ended November 30,
		2004			2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,189,653	)	$	(442,270	)	$	(174,293	)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization and depreciation		79,391			18,734			4,127
Investor relations fees paid by stock options		54,292			15,534			-
Consulting fees paid by common stock		81,537			45,652			-
Gain on disposal of assets		(114	)		-			-
Impairment of patents and trademark		183,763			-			-
Change in operating assets and liabilities:
Accounts receivable		(17,270	)		(2,998	)		(12,038	)
Prepaid expenses		(14,870	)		1,952			2,000
Advances to related party		-			-			28,834
Accounts payable		47,768			(50,458	)		52,958
Due to related party		-			(161	)		-
Cash used in operating activities		(1,775,156	)		(414,015	)		(98,412	)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances received from the Company
prior to recapitalization		155,000			-			155,000
Due to related parties		(121,100	)		-			-
Issuance of common stock, net of issuance costs		2,622,950			-			-
Cash provided by financing activities		2,656,850			-			155,000
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment acquired for cash		(218,078	)		(46,233	)		(4,466	)
Proceeds on disposal of assets		1,935			-			-
Cash used in investing activities		(216,143	)		(46,233	)		(4,466	)
NET INCREASE (DECREASE) IN CASH		665,551			(460,248	)		52,122
CASH AT BEGINNING OF PERIOD		-			1,125,799			2,226
CASH AT END OF PERIOD	$	665,551		$	665,551		$	54,348
CASH PAID FOR:
Interest	$	-		$	-		$	-
Income taxes	$	-		$	-		$	-

The accompanying notes are an integral part of these consolidated financial statements

9

IKONA GEAR INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in United States Dollars)
November 30, 2004
(Unaudited)
 

Note 1 – The Company and Nature of Operations

Ikona Gear International, Inc. (previously Oban Mining, Inc.) (the “Company”) was incorporated in the State of Nevada on September 20, 2000. The Company is in business to develop and commercialize a unique, patented gearing technology. The Company is commercializing its patented technology in applications it establishes through developing joint ventures and entering into licensing agreements with strategic partners in vertical industrial markets. The Company is considered to be a development stage company as it has not generated significant revenues from operations.

Effective October 30, 2003, the Company consummated an Agreement and Plan of Reorganization (the “Agreement”) pursuant to which it acquired 100% of the issued and outstanding shares of common stock of Ikona Gear USA, Inc. (formerly Ikona Gear International, Inc.)(“Ikona USA”). Under the terms of the Agreement, the shareholders of Ikona USA received, pro rata, an aggregate of 15,041,633 shares of common stock of the Company in exchange for 100% of the outstanding shares of Ikona USA. A principal shareholder of the Company surrendered for cancellation 14,500,000 shares of common stock, which resulted in the Ikona USA shareholders acquiring shares representing approximately 70% of the total issued and outstanding shares of the Company. As a result, the transaction was accounted for as a recapitalization of Ikona USA.

The consolidated statements of operations, stockholders' equity (deficiency) and cash flows of the Company prior to October 30, 2003, are those of Ikona USA. The Company’s consolidated date of incorporation is considered to be August 16, 2001, the date of inception of Ikona USA. Following the acquisition, the Company changed its name from Oban Mining, Inc. to Ikona Gear International, Inc.

On October 31, 2003, the Company incorporated a wholly-owned subsidiary, Ikona Gear Corp., a British Columbia Corporation.

These financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America for interim financial information. The accompanying consolidated financial statements do not include all information and footnote disclosures required for an annual set of financial statements prepared under United States generally accepted accounting principles. In the opinion of management, all adjustments (consisting solely of normal recurring accruals) considered necessary for a fair presentation of the financial position, results of operations and cash flows as at November 30, 2004, and for all periods presented, have been included. Interim results for the three-month period ended November 30, 2004 are not necessarily indicative of the results that may be expected for the fiscal year as a whole.

Note 2 – Going Concern

These financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America with the on-going assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business rather than through a process of forced liquidation. However, certain conditions noted below currently exist which raise substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.

The operations of the Company have primarily been funded by the issuance of capital stock and advances from related parties. Continued operations of the Company are dependent on the Company's ability to complete additional equity financings or generate profitable operations in the future. Management's plan in this regard is to secure additional funds through future equity financings. Such financings may not be available or may not be available on terms reasonable to the Company.

		November 30,
		2004
Accumulated deficit during the development stage	$	(2,189,653	)
Working capital	$	649,923

10

IKONA GEAR INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in United States Dollars)
November 30, 2004
(Unaudited)
 

Note 3 - Significant Accounting Policies

Stock-Based Compensation

Statements of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to account for stock-based employee compensation using Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount employees are required to pay for the stock.

The Company accounts for stock-based compensation issued to non-employees in accordance with the provisions of SFAS 123 and the consensus in Emerging Issues Task Force No. 96-18, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services”.

The following table illustrates the effect on loss and loss per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation.

		Cumulative
		Amounts
		From
		Inception
		(August 16,			Three Months			Three Months
		2001) to			Ended			Ended
		November 30,			November 30,			November 30,
		2004			2004			2003
Net loss, as reported	$	(2,189,653	)	$	(442,270	)	$	(174,293	)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards, net
of related tax effects		(861,376	)		(93,795	)		-
Pro-forma net loss	$	(3,051,029	)	$	(536,065	)	$	(174,293	)
Basic and diluted net loss per share, as  reported				$	(0.02	)	$	(0.01	)
Basic and diluted net loss per share, pro-forma				$	(0.02	)	$	(0.01	)

Comparative figures

Certain of the prior periods figures were re-classified to conform with the presentation adopted in the current period.

11

IKONA GEAR INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in United States Dollars)
November 30, 2004
(Unaudited)
 

Note 4 – Patents and Trademark Rights

In September 2001, the Company acquired patent and trademark rights (the “Acquired Technology”) from Diversified Sciences Limited (“Diversified”) and Ikona Technologies Inc. (“Technologies”), companies related by virtue of a common director, officer and significant shareholder. The patent rights relate to planetary gearing technology and consist of a United States patent, a Canadian patent and a European patent applicable in France, Germany, Italy, Great Britain and Sweden. The US patent has a term of 17 years from the issue date and expires on November 11, 2015. The Canadian patent has a term of 20 years from the filing date and expires on July 29, 2014. The remaining patents have terms of 20 years from the date of filing the European patent and expire on July 26, 2015. The trademark acquired by the Company provides for the exclusive assignment of rights, title and interest in the “IKONA Gear TM” Canadian Trademark.

The patent acquisition agreement with Diversified required the Company to issue 2,180,000 shares of common stock at a value of $109,000 to Diversified and pay $63,000 (C$100,000) less Diversified’s tax credit recoveries of $18,900 (C$30,000) relating to the patents.

The trademark acquisition agreement with Technologies required the Company to issue 20,000 shares of common stock at a value of $1,000 to Technologies, pay $62,000 to Technologies and repay amounts owing of $15,000 on behalf of Technologies.

The Acquired Technology was recorded by the Company at a cost of $231,100.

There is significant uncertainty regarding future revenue to be generated from intangible assets due to the fact that this is a new business with a developing technology and there are currently no comparable businesses in the intended market segments for which any reliable predictions for future revenue generation can be based.

Due to the uncertainties related to expected future undiscounted cash flows, management has concluded that the carrying value of intangible assets had been materially impaired and has written-down the entire value of intangible assets resulting in a charge of $183,763 to operations in August 2004.

Note 5 – Property and Equipment

				November 30,
				2004
				Accumulated		Net
		Cost		Depreciation		Book Value
Computers and Software	$	58,845	$	18,259	$	40,586
Furniture		26,897		2,325		24,572
Research and Dev. Equipment		56,151		4,566		51,585
Leasehold Improvements		74,182		6,722		67,460
	$	216,075	$	31,872	$	184,203

12

IKONA GEAR INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in United States Dollars)
November 30, 2004
(Unaudited)
 

Note 6 - Related Party Transactions

In September 2001, the Company entered into an agreement with Ikona Gear (Canada) Inc. (“Ikona Canada”), a company controlled by a common director, officer and significant shareholder, whereby Ikona Canada provides certain research and development and related services to the Company. As of November 1, 2003, operations were discontinued and assumed by Ikona Gear Corp.

The Company entered into the following transactions with related parties during the three months period ending November 30, 2004:

a)	Paid or accrued business development fees of $18,225 (2003 - $16,875) to a company controlled by a relative of a director of the Company.
b)	Paid or accrued business development fees of $27,539 (2003 - $16,875) to a company controlled by a director of the Company.
c)	Paid or accrued corporate finance fees of $24,300 (2003 - $3,750) to a company related to a director of the Company.

These transactions are in the normal course of operations and are measured at the exchange amount which is the amount of consideration established and agreed to by the related parties.

Note 7 –Capital Stock

In September 2001, the Company issued 2,725,000 common shares at a value of $0.04 per share for $109,000 as partial consideration on acquisition of patent rights (Note 4).

In September 2001, the Company issued 25,000 common shares at a value of $0.04 per share for $1,000 as partial consideration on acquisition of a trademark (Note 4).

In October 2001, the Company issued 8,713,416 shares to the founders of the Company at a price of $0.00001 per share for cash proceeds of $70.

In November 2001, the Company issued 263,665 common shares at a price of $0.20 per share for cash proceeds of $52,733.

In February 2002, the Company issued 1,286,335 common shares at a price of $0.20 per share for cash proceeds of $257,266.

In May 2002, the Company issued 393,750 common shares at a price of $0.20 per share for cash proceeds of $78,750.

In November 2002, the Company issued 336,250 common shares at a price of $0.20 per share for cash proceeds of $67,250.

In November 2002, the Company issued 85,800 common shares at a price of $0.20 per share for corporate finance fees of $17,160.

In January 2003, the Company issued 175,000 common shares at a price of $0.20 per share for cash proceeds of $35,000.

In May 2003, the Company issued 175,000 common shares at a price of $0.20 per share for cash proceeds of $35,000.

In May 2003, the Company issued 67,625 common shares at a price of $0.20 per share for corporate finance fees of $13,525.

In July 2003, the Company issued 526,792 common shares at a price of $0.20 per share for cash proceeds of $105,358.

In July 2003, the Company issued 7,500 common shares at a price of $0.20 per share for corporate finance fees of $1,500.

In August 2003, the Company issued 251,250 common shares at a price of $0.40 per share for cash proceeds of $100,500.

13

IKONA GEAR INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in United States Dollars)
November 30, 2004
(Unaudited)
 

Note 7 –Capital Stock (Continued)

In August 2003, the Company issued 9,250 common shares at a price of $0.40 per share for corporate finance fees of $3,700.

In October, 2003, the Company acquired all the issued and outstanding capital stock of Ikona USA, which was accounted for as a recapitalization of the Company (Note 1). The issued number of shares of common stock is that of the Company with adjustments made for differences in par value between the Company and Ikona USA.

In January 2004, the Company cancelled 500,000 common shares at a par value of $0.00001 per share.

In January 2004, the Company issued 290,000 common shares at a price of $0.50 per share for cash proceeds of $145,000.

In February 2004, the Company issued 620,666 units at a price of $0.75 per unit for cash proceeds of $436,275 (gross proceeds of $465,500 net of finders’ fees of $29,225). Each unit consists of one share of common stock and one-half of one non-transferable share purchase warrant whereby each whole warrant entitles the holder to acquire one additional share of common stock at a price of $3.00 per share for a period of one year.

In March 2004, the Company issued 1,354,933 units at a price of $0.75 per unit for cash proceeds of $964,926 (gross proceeds of $1,016,201 net of finders’ fees of $51,275). Each unit consists of one share of common stock and one-half of one non-transferable share purchase warrant whereby each whole warrant entitles the holder to acquire one additional share of common stock at a price of $3.00 per share for a period of one year.

In April 2004, the Company issued 462,427 units at a price of $0.75 per unit for cash proceeds of $334,197 (gross proceeds of $346,822 net of finders’ fees of $7,000). Each unit consists of one share of common stock and one-half of one non-transferable share purchase warrant whereby each whole warrant entitles the holder to acquire one additional share of common stock at a price of $3.00 per share for a period of one year.

In July 2004, the Company issued 3,333 units at a price of $0.75 per unit for cash proceeds of $5,000. Each unit consists of one share of common stock and one-half of one non-transferable share purchase warrant whereby each whole warrant entitles the holder to acquire one additional share of common stock at a price of $3.00 per share for a period of one year.

Note 8 – Stock Options and Warrants

Stock Options

On October 28, 2003, the Company adopted a stock incentive plan (the "2003 Stock Plan") to provide incentives to employees, directors and consultants. On October 28, 2003, the Company's stockholders approved the 2003 Stock Plan which provides for the issuance of up to 4,400,000 options with a maximum term of ten years. The board of directors has the exclusive power over the granting of options and their vesting provisions.

	November 30, 2004
	Number of		Weighted Average
	Options		Exercise Price
Options outstanding, beginning of the year	1,974,000	$	1.01
Issued	100,000		1.20
Exercised	-		-
Expired	50,000		1.00
Options outstanding, end of the period	2,024,000	$	1.02
Options exercisable, end of the period	1,201,688	$	1.02
Weighted average fair value of options granted in the year		$	1.20

14

IKONA GEAR INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in United States Dollars)
November 30, 2004
(Unaudited)
 

Note 8 – Stock Options and Warrants (Continued)

Stock Options (Continued)

The fair value of 100,000 options granted to consultants in September 2004 (50,000 with an exercise price of $1.00 and 50,000 with an exercise price of $1.40), recognized during the current period, was $61,186 (2003 - $nil), of which $45,652 has been recorded as research and development fees (2003 - $nil) and $15,534 as investor relations fees (2003 - $nil).

A summary of stock options outstanding at November 30, 2004, is as follows:

		Outstanding Options				Exercisable Options
			Weighted
			Average		Weighted			Weighted
			Remaining		Average			Average
			Contractual		Exercise			Exercise
	Exercise Price	Number	Life		Price	Number		Price
$	0.60	341,000	6.00 years	$	0.60	220,500	$	0.60
$	1.00	75,000	3.13 years	$	1.00	62,500	$	1.00
$	1.10	1,558,000	5.58 years	$	1.10	868,688	$	1.10
$	1.40	50,000	0.50 years	$	1.40	50,000	$	1.40

The Company used the Black-Scholes option pricing model to compute estimated fair value, based on the following assumptions:

Risk-free interest rate	4.25%
Dividend yield rate	0.00%
Price volatility	106.20%
Weighted average expected life of options	5.23 years

Warrants

			Exercise	Expiry
Issuances	Issued	Outstanding	Price	Date
February 29, 2004	310,332	310,332	$3.00	February 29, 2005
March 29, 2004	677,469	677,469	$3.00	March 29, 2005
April 30, 2004	231,215	231,215	$3.00	April 30, 2005
July 31, 2004	3,333	3,333	$3.00	July 31, 2005
Total outstanding	1,222,349	1,222,349

Note 9 - Segment Information

The Company’s operations were conducted in one reportable segment, being the development and commercialization of a unique patented gearing technology, primarily in Canada.

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IKONA GEAR INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in United States Dollars)
November 30, 2004
(Unaudited)
 

Note 10– Commitments

The Company amended a consulting agreement with a director, officer and significant shareholder of the Company effective April 1, 2004, to pay monthly management fees totalling approximately $8,500 (C$11,333) (2003 $5,370 (C$7,500)). This agreement can be terminated with six months advance notice.

On June 9, 2004, the Company entered into a premises lease for office and workshop facilities for a period of 36 months commencing August 1, 2004. The premises lease commits the Company to a net annual rental expense of $36,969 (C$49,623) and additional operating costs estimated at $14,048 (C$18,857) for a period of three years with an option to extend the period to a further three years. The Company provided a deposit of three months of rent equalling $9,242 (C$12,406) of which two of the three months will be applied to rent in the final two months of the three-year lease term.

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Item2.            Management’s Discussion and Analysis or Plan of Operations

The following discussion and analysis covers material changes in the financial condition of Ikona Gear International, Inc., (the "Company") since August 31, 2004, and material changes in our results of operations for the three months ended November 30, 2004, as compared to the same period in 2003. This discussion and analysis should be read in conjunction with "Management's Discussion and Analysis" included in the Company's Annual Report on Form 10-KSB for the year ended August 31, 2004, including audited financial statements contained therein, as filed with the Securities and Exchange Commission.

Special note regarding forward-looking statements

This report contains forward-looking statements within the meaning of federal securities laws. These statements plan for or anticipate the future. Forward-looking statements include statements about our future business plans and strategies, statements about our need for working capital, future revenues, results of operations and most other statements that are not historical in nature. In this Report, forward-looking statements are generally identified by the words "intend", "plan", "believe", "expect", "estimate", and the like. Investors are cautioned not to put undue reliance on forward-looking statements. Except as otherwise required by applicable securities statues or regulations, the Company disclaims any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise. Because forward-looking statements involve future risks and uncertainties, these are factors that could cause actual results to differ materially from those expressed or implied.

Overview

We are commercializing our patented gearing technology (the “Ikona Gearing System”). The Ikona Gearing System utilizes a newly designed, patented tooth shape which enables gears to be much smaller, lighter, stronger and more energy efficient while allowing the highest single stage reduction ratio, lower backlash than any other gear currently available on the market. In high-ratio applications the Ikona Gearing System can replace multiple stage gearing systems with a single stage reduction ratio and is thus more cost effective to manufacture.

Our business strategy is based on building strategic alliances on the strength of our technology. We are not gear manufacturers, we are gear designers who will manufacture a prototype and then allow our clients to manufacture their own gears based on our design, therefore we have no dependency on any principal suppliers of manufacturing materials or labor. Our business model thus, is to develop joint development alliances and licensing agreements with leading industry partners. These partnerships will allow us to develop royalty and licensing revenue streams and to participate in revenues generated from the sale of products stemming from the joint development alliances .

Our goal is to capture 5% of the multi-billion dollar gear design market within seven to ten years (worldwide gear manufacturing sales are in the order of $87 billion annually). Our goal in the current operating year is to enter licensing agreements in three distinctly different vertical markets (for example: automotive, shipping, alternative energy, or robotics) with distinctly different business partners, where we will prove the virtues of our patented gearing technology in applications that generate revenues for us. We have only one revenue-producing licensing agreement; as a result we have insufficient information to predict how differences in these markets could have a significant effect on our revenues.

We were incorporated in the State of Nevada on September 20, 2000 as "Oban Mining, Inc.". On October 30, 2003, we acquired Ikona Gear International, Inc. ("IKONA"). As a result of the transaction, we changed our name to Ikona Gear International, Inc. and we changed the name of IKONA to Ikona Gear USA, Inc., a wholly-owned subsidiary of Ikona Gear International, Inc., (“the Company”). In connection with the name change, we were assigned a new ticker symbol by the NASD, and our common stock now trades on the Over-the-Counter market under the symbol "IKGI."

Results of Operations

The following discussion of our financial condition, changes in financial condition and results of operations for the three months ended November 30, 2004, and November 30, 2003, should be read in conjunction with our most recent IKONA audited annual financial statements as of August 31, 2004, filed under Form 10-KSB on November 26, 2004, and the related notes that appear elsewhere in this quarterly report.

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Three Month Period Ended November 30, 2004 (“First Quarter 2005”) compared to Three Month Period EndedNovember 30, 2003 (“First Quarter 2004”).

Operating Results

REVENUES. Revenues are generated from the provision of engineering services and from licensing royalties. In the three months ended November 30, 2004, we generated revenues of $1,604 from Aircast Inc. In the three months ended November 30, 2003, we generated engineering services revenues of $33,750. In August 2004, we agreed to waive the mandatory lump sum of C$1 million (US$840,000) royalty in from Magna Advanced Technologies (MAT) and Ikona negotiating financial and royalty details on a sector by sector basis dependent on the relative strengths of the engineering solutions and the strength of commercial demand for them. Also, as Ikona has trained MAT engineers to develop the Ikona Gear, we are shifting our engineers to other non-automotive applications and we have waived the requirement for Magna to pay C$20,0000 (US$16,800) monthly engineering fees as entertained in the original Phase I agreement between Ikona and MAT.

AMORTIZATION AND DEPRECIATION. We record depreciation expense on our property, plant and equipment and amortization expense on our capitalized patents and trademark costs. In the three months ended November 30, 2004, we recorded depreciation of $18,734. As of August 31, 2004, we had fully amortized our Patents and Trademarks. We no longer have any unamortized patents and trademark costs. In the comparative period, we recorded no depreciation expense and amortization expense of $4,127 for the three months ended November 30, 2003. The increase in depreciation expense reflects depreciation associated with purchases of depreciable equipment.

BUSINESS DEVELOPMENT. Business development expense reflects internal and external costs to market our business opportunity to existing clients and potential new clients. Business development expense includes: the salaries and benefits of our President & CEO and our Executive Vice President; and fees paid to external consultants. Business development expense was $70,750 for the three months ended November 30, 2004. In the three months ended November 30, 2003, we recorded business development expense of $45,832. The increase in business development expense pertains to a significant increase in management fees to our directors.

CORPORATE FINANCE. Corporate finance expense reflects costs associated with fees paid to maintain the corporate finance function of our company. These fees are paid to our internal CFO and external consultants who oversee accounting, auditing, fund-raising and regulatory reporting functions for our company. Corporate finance expense was $24,300 for the three months ended November 30, 2004. In the comparative period, we recorded corporate finance expense of $11,250 for the three months ended November 30, 2003. The increase in corporate finance expense pertains to increased CFO fees associated with increased duties in regulatory reporting since Ikona Gear became a public reporting entity in October 2003, and recruited a full time CFO effective December 1, 2003.

GENERAL AND ADMINISTRATIVE. Our general and administrative expenses consist primarily of clerical and administrative salaries and benefits, office rents, office supplies, telephone and telecommunications expenses, courier and other general costs not attributable directly to other Income Statement line items. Our selling, general and administrative expenses were $35,928 for the three months ended November 30, 2004. In the comparative period, we recorded general and administrative expenses of $10,135 ($1,575 of rent was reclassified in the November 30, 2003 comparative period) for the three months ended November 30, 2003. The increase in general and administrative expense pertains to the recruitment of an accountant and an executive assistant to support administrative needs of the company.

INVESTOR RELATIONS. Our investor relations expense consists primarily of external consulting fees and associated communications costs to increase investors’ awareness of our company. Investor relations expenses were $112,950 for the three months ended November 30, 2004. In the comparative period, there were no investor relations expenses for the three months ended November 30, 2003. The increase in expense is associated with our company becoming publicly traded as of October 2003, and an attempt to significantly raise the awareness of our company to investors in the current quarter. Included in the expense for the three months ended November 30, 2004, is an amount of $15,534 of non-cash compensation attributed under the Black-Scholes option pricing model to stock options issued to investor relations consultants.

LISTING AND FILING FEES. Our listing and filing fees expense consists primarily of external consulting fees and associated communications costs to convert our regulatory filings into Edgar filing format. Listing and filing

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fees expenses were $2,920 for the three months ended November 30, 2004. In the comparative period, there were no listing and filing fees expenses for the three months ended November 30, 2003. The increase in expense is associated with our company becoming publicly traded as of October 2003, and the absence of regulatory filing expenses recorded in the comparative period.

PROFESSIONAL FEES. Our professional fees expense consists primarily of external consulting fees associated with our auditors and our US corporate and securities counsel. Professional fees expense was $16,912 for the three months ended November 30, 2004. In the comparative period, we recorded professional fees expense of $42,550 for the three months ended November 30, 2003. The higher expense in prior year is associated with the expenses of our company becoming publicly traded as of October 2003.

RENT. Rent expense was $17,461 for the three months ended November 30, 2004. In the comparative period, we recorded rent expense of $4,275 for the three months ended November 30, 2003. The increase in rent expense pertains to expansion of our company over the prior year and rent associated with our new facility.

RESEARCH AND DEVELOPMENT. Research and development expense reflects internal and external costs to develop our technology including the salaries of our engineers, fees paid to external consultants, and materials and supplies consumed by our research and development department in advancing our core intellectual property. Research and development expense was $133,042 for the three months ended November 30, 2004. In the comparative period, we recorded research and development expense of $74,023 for the three months ended November 30, 2003 ($2,700 was reclassified out of research and development and into Rent in the comparative period). The increase in research and development expense pertains to growth in the size of our engineering team over the prior year plus a non-cash compensation expense of $45,652 associated with 50,000 stock options granted at $1.10 per share to a consultant.

TRAVEL AND RELATED. Travel and related expense all of our travel costs associated with travel for reasons of business development, R&D, and Corporate Finance. Included in travel are the costs of flights, trains, automotive rentals, accommodations, meals and other associated travel costs. Travel and related expense was $22,097 for the three months ended November 30, 2004. In the comparative period, we recorded travel and related expense of $15,851. The increase in expense is associated with establishing new investor relations programs in North America and in Europe.

Liquidity and Capital Resources

As at November 30, 2004, our total cash was $665,551, our working capital was $649,923, and our stockholders’ equity was $834,126. Since inception, we have incurred cumulative losses of $2,189,653. Our current working capital is expected to be sufficient to satisfy our operating requirements for approximately six months. Our ability to satisfy projected working capital requirements is dependent upon our ability to secure additional funding through public or private sales of securities, including equity securities. There is no assurance that we will secure the necessary capital on terms acceptable to us. If we are unable to raise additional capital when needed, this could have a material adverse affect on us, including possibly requiring us to curtail or cease our operations.

Our Company is in the development stage and expects to remain in the development stage for the current operating year. We do not expect to generate significant net cash flow from operations in the present year.

In the three months ended November 30, 2004, our operations consumed $443,874. Our net loss of $442,270 was partially offset by depreciation of $18,734, and by $61,186 of non-cash stock-based compensation.

In the three months ended November 30, 2004, we spent $46,233 on furniture and machinery and equipment.

Item 3.            Controls and Procedures

Laith Nosh, President and Chief Executive Officer and Raymond L. Polman, Chief Financial Officer of the Company have established and are currently maintaining disclosure controls and procedures for the Company. The disclosure controls and procedures have been designed to ensure that material information relating to the Company is made known to them as soon as it is known by others within the Company.

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Our Chief Executive Officer and Chief Financial Officer conduct an update and a review and evaluation of the effectiveness of the Company's disclosure controls and procedures and have concluded, based on their evaluation at November 30, 2004 , that our disclosure controls and procedures are effective for gathering, analyzing and disclosing the information we are required to disclose in our reports filed under the Securities Exchange Act of 1934. There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the previously mentioned evaluation.

Part II - OTHER INFORMATION

Item 1.            Legal Proceedings:

None.

Item 2.            Unregistered Sales of Equity Securities and Use of Proceeds:

None.

Item 3.            Defaults upon Senior Securities:

None.

Item 4.            Submission of Matters to a Vote of Security Holders:

None.

Item 5.            Other Information:

None.

Item 6.            Exhibits

(a)

Exhibit No.	Description
31.1	Certification of Principal Executive Officer
31.2	Certification of Principal Financial Officer
32	Certificate pursuant to 18 USC Section 1350

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SIGNATURES

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

IKONA GEAR INTERNATIONAL, INC.

By:	/s/ Laith Nosh	By:	/s/ Raymond L. Polman
Laith Nosh, President & CEO		Raymond L. Polman, CA, CFO
Date:	February 28, 2005	(Principal Financial and Accounting Officer)
		Date:	February 28, 2005

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