10QSB

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

FORM 10-QSB

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

For the quarterly period ended November 30, 2005

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

For the transition period from __________ to __________

Commission file number 000-49664

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	(IRS 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)

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

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

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:

25,559,292 common shares outstanding as of January 20, 2006

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

INDEX

PART I – FINANCIAL INFORMATION

ITEM 1	FINANCIAL STATEMENTS	Page
	CONSOLIDATED BALANCE SHEETS (Unaudited)	5
	CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)	6
	CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)	7
	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)	18-17
ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION	18-20
ITEM 3	CONTROLS AND PROCEDURES	21
	PART II – OTHER INFORMATION
ITEM 1	LEGAL PROCEEDINGS	21
ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	21
ITEM 3	DEFAULTS UPON SENIOR SECURITIES	21
ITEM 4	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	21
ITEM 5	OTHER INFORMATION	21
ITEM 6	EXHIBITS AND REPORTS ON FROM 8 K	22
	SIGNATURES	23

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.

Interim Financials

3

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

Consolidated Financial Statements
(Expressed in United States Dollars)

November 30, 2005
(Unaudited)

4

IKONA GEAR INTERNATIONAL, INC.

(A Development Stage Company)

Consolidated Balance Sheet

(Unaudited)

		November 30,
		2005
ASSETS
Current:
Cash	$	287,455
Accounts receivable, net of allowance of $-		39,873
Work in process		18,900
Prepaid expenses		19,688
Deferred taxes, net of valuation allowance of $1,261,154		-
Total current assets		365,916
Property and equipment (Note 5)		166,160
Total assets	$	532,076
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	66,418
Due to related parties (Note 6)		9,159
Total current liabilities		75,577
Commitments (Note 11)
Stockholders' equity
Common stock (Note 7)
Authorized
100,000,000 common shares, each with par value of $0.00001
Issued and outstanding
25,559,292 common shares		255
Additional paid-in capital		4,165,519
Accumulated deficit during the development stage		(3,709,275	)
Total stockholders' equity		456,499
Total liabilities and stockholders' equity	$	532,076

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, 2005			2005			2004
REVENUES
Engineering services	$	241,700		$	28,725		$	1,604
Cost of engineering services		(27,000	)		(27,000	)		-
Gross margin		214,700			1,725			1,604
EXPENSES
Amortization and depreciation		166,063			22,339			18,734
Business development		683,800			62,064			70,750
Corporate finance		288,540			20,484			24,300
Foreign exchange (gain) loss		3,177			1,092			(3,608	)
General and administrative		230,278			26,066			30,802
Investor relations		405,967			15,688			112,950
Listing and filing fees		27,103			2,829			2,920
Professional fees		275,041			14,018			16,912
Rent		125,850			18,175			17,461
Research and development		1,348,527			92,310			133,042
Travel and related		216,942			18,634			22,097
TOTAL EXPENSES		(3,771,288	)		(293,699	)		(446,360	)
OTHER INCOME/(EXPENSES)
Interest income		16,461			2,740			2,486
Impairment of patents and trademark (Note 4)		(183,763	)		-			-
Gain on disposal of assets		14,615			18,546			-
TOTAL OTHER INCOME/(EXPENSES)		(152,687	)		21,286			2,486
Loss before income taxes		(3,709,275	)		(270,688	)		(442,270	)
Income taxes		-			-			-
Net loss for the period	$	(3,709,275	)	$	(270,688	)	$	(442,270	)
Basic and diluted net loss per share				$	(0.01	)	$	(0.02	)
Weighted average number of common shares outstanding -
basic and diluted					25,312,699			24,090,325

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

6

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

		Cumulative
		Amounts
		From Inception
		(August 16, 2001)			Three Months Ended
		to November 30,			November 30,
		2005			2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(3,709,275	)	$	(270,688	)	$	(442,270	)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization and depreciation		166,063			22,339			18,734
Investor relations fees paid by stock options		71,800			-			15,534
Research and development fees paid by stock options		151,094			5,986			45,652
Corporate finance fees paid by common stock (Note 7)		48,880			5,000			-
Gain on disposal of assets		(14,729	)		(18,546	)		-
Impairment of patents and trademark		183,763			-			-
Change in operating assets and liabilities:
Accounts receivable		(39,873	)		(25,261	)		(2,998	)
Work in process inventory		(18,900	)		(18,900	)		-
Prepaid expenses		(19,688	)		(2,550	)		1,952
Accounts payable and accrued liabilities		66,418			(41,210	)		(50,458	)
Due to related party		9,159			2,443			(161	)
Cash used in operating activities		(3,105,288	)		(341,387	)		(414,015	)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances received from the Company
prior to recapitalization		155,000			-			-
Due to related parties		(121,100	)		-			-
Issuance of common stock, net of issuance costs		3,629,000			276,000			-
Cash provided by financing activities		3,662,900			276,000			-
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(290,638	)		(37,318	)		(46,233	)
Proceeds on disposal of assets		20,481			18,546			-
Cash used in investing activities		(270,157	)		(18,772	)		(46,233	)
NET INCREASE (DECREASE) IN CASH		287,455			(84,159	)		(460,248	)
CASH AT BEGINNING OF PERIOD		-			371,614			1,125,799
CASH AT END OF PERIOD	$	287,455		$	287,455		$	665,551
CASH PAID FOR:
Interest	$	-		$	-		$	-
Income taxes	$	-		$	-		$	-

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

7

IKONA GEAR INTERNATIONAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Expressed in United States Dollars)

November 30, 2005

(Unaudited)

Note 1 - The Company and Nature of Operations

Ikona Gear International, 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 development alliances 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. ("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.

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

These consolidated unaudited financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America for interim financial information. The accompanying unaudited 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, 2005, and for all periods presented, have been included. Interim results for the three-month period ended November 30, 2005 are not necessarily indicative of the results that may be expected for the fiscal year as a whole.

Note 2 - Going Concern

These consolidated 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 consolidated 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,
		2005
Accumulated deficit during the development stage	$	(3,709,275	)
Working capital	$	290,339

8

IKONA GEAR INTERNATIONAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Expressed in United States Dollars)

November 30, 2005

(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” (“EITF 96-18”).

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,
		2005			2005			2004
Net loss, as reported	$	(3,709,725	)	$	(270,688	)	$	(442,270	)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects		(1,284,669	)		(5,986	)		(93,795	)
Pro-forma net loss	$	(4,994,394	)	$	(276,674	)	$	(536,065	)
Basic and diluted net loss per share, as reported				$	(0.01	)	$	(0.02	)
Basic and diluted net loss per share, pro-forma				$	(0.01	)	$	(0.02	)
Weighted average number of common shares outstanding					25,312,699			24,090,325

9

IKONA GEAR INTERNATIONAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Expressed in United States Dollars)

November 30, 2005

(Unaudited)

Note 3 - Significant Accounting Policies (continued)

Recent accounting pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 153, “Exchanges of Nonmonetary Assets – an amendment of APB Opinion No. 29” (“SFAS 153”) which amends Accounting Principles Board Opinion No. 29, “Accounting for Nonmonetary Transactions” to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005.

In December 2004, FASB issued Statement of Financial Accounting Standards No. 123R, “Share Based Payment” (“SFAS 123R”). SFAS 123R supersedes APB 25 and its related implementation guidance by requiring entities to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions) and revises SFAS 123 as follows:

i)       Public entities are required to measure liabilities incurred to employees in share-based payment transactions at fair value and nonpublic entities may elect to measure their liabilities to employees incurred in share-based payment transactions at their intrinsic value whereas under SFAS 123, all share-based payment liabilities were measured at their intrinsic value.

ii)      Nonpublic entities are required to calculate fair value using an appropriate industry sector index for the expected volatility of its share price if it is not practicable to estimate the expected volatility of the entity’s share price.

iii)     Entities are required to estimate the number of instruments for which the requisite service is expected to be rendered as opposed to accounting for forfeitures as they occur.

iv)    Incremental compensation cost for a modification of the terms or conditions of an award is measured by comparing the fair value of the modified award with the fair value of the award immediately before the modification whereas SFAS 123 required that the effects of a modification be measured as the difference between the fair value of the modified award at the date it is granted and the award’s value immediately before the modification determined based on the shorter of (1) its remaining initially estimated expected life or (2) the expected life of the modified award.

SFAS 123R also clarifies and expands guidance in several areas, including measuring fair value, classifying an award as equity or as a liability and attributing compensation cost to reporting periods. SFAS 123R does not change the accounting guidance for share-based payment transactions with parties other than employees provided in SFAS 123 as originally issued and EITF 96-18. SFAS 123R also does not address the accounting for employee share ownership plans which are subject to Statement of Position 93-6, “Employers’ Accounting for Employee Stock Ownership Plans”. Public entities (other than those filing as small business issuers) will be required to apply SFAS 123R as of the first annual reporting period that begins after June 15, 2005. Public entities that file as small business issuers will be required to apply SFAS 123R in the first annual reporting period that begins after December 15, 2005. For nonpublic entities, SFAS 123R must be applied as of the beginning of the first annual reporting period beginning after December 15, 2005.

In May 2005, FASB issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections –A Replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”) which is effective for fiscal years ending after December 15, 2005. SFAS 154 requires that changes in accounting policy be accounted for on a retroactive basis.

The adoption of these new pronouncements are not expected to have a material effect on the Company's consolidated financial position or results of operations, with the exception of SFAS 123R which will have a material impact on compensation expense if stock options are issued in subsequent years.

Comparative figures

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

10

IKONA GEAR INTERNATIONAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Expressed in United States Dollars)

November 30, 2005

(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, 2005
				Accumulated		Net
		Cost		Depreciation		Book Value
Computers and Software	$	73,215	$	42,388	$	30,827
Furniture		34,495		8,517		25,978
Research and Development Equipment		93,597		26,357		67,240
Leasehold Improvements		75,298		33,183		42,115
	$	276,605	$	110,445	$	166,160

11

IKONA GEAR INTERNATIONAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Expressed in United States Dollars)

November 30, 2005

(Unaudited)

Note 6 - Related Party Transactions

As of November 30, 2005, amounts due to related parties consisted of the following:

		November 30,
		2005
Due to Director	$	9,159

The Company entered into the following transactions with related parties during the three month period ending November 30, 2005:

a)	Paid or accrued business development fees of $19,559 (2004 - $18,225) to a company controlled by a relative of a director of the Company.
b)	Paid or accrued business development fees of $28,881 (2004 - $27,539) to a company controlled by a director of the Company.
c)	Paid or accrued corporate finance fees of $25,484 (2004 - $24,300) 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.

The Company settled an arms-length corporate finance fee by issuing 10,000 shares at $0.50 per share, and realized a gain on settlement of $5,000. The corporate finance expense stated in the operating statement consists of the related party corporate finance fee net of the gain on settlement of $5,000.

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.

12

IKONA GEAR INTERNATIONAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Expressed in United States Dollars)

November 30, 2005

(Unaudited)

Note 7 – Capital Stock (Continued)

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

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.

In March 2005, the Company issued 1,046,667 units at a price of $0.75 per unit for cash proceeds of $730,050 (gross proceeds of $785,000 net of finders’ fees of $54,950 Each whole warrant entitles the holder to acquire one additional share of common stock at a price of $1.00 per share for a period of one year from the date of issuance, or $1.40 per share for an additional one year period from the date of issuance.

In March 2005, the Company issued 50,000 warrants at a price of $0.75 per warrant in payment of investor relations consulting fees. These warrants were valued at $16,408 and will be recognized over twelve months, being the period of the service contract.

In Apri1 2005, the Company issued 12,300 shares of common stock for services at a price of $0.65 per share in payment of corporate finance consulting fees of $7,995.

In October 2005, the Company issued 400,000 units at a price of $0.75 per share for cash proceeds of $276,000 (gross proceeds of $300,000 net of finders’ fees of $24,000). ). Each unit consists of one share of common stock and one- non-transferable share purchase warrant for a two year period from date of the issuance. Each whole warrant entitles the holder to acquire one additional share of common stock at a price of $1.00 per share for a period of one year from the date of issuance, or $1.40 per share for an additional one year period from the date of issuance.

In October 2005, the Company issued 10,000 common shares for services at a price of $0.50 per share in payment of corporate finance fees.

13

IKONA GEAR INTERNATIONAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Expressed in United States Dollars)

November 30, 2005

(Unaudited)

Note 8 – Stock Options

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.

The Company generally grants stock options with exercise prices equal to, or in excess of, the quoted market price at the date of the stock option grant. The Company calculates non-employee stock-based compensation expense using the Black-Scholes model to estimate the fair value of options granted to non-employees. The Company classifies non-employee expense according to the nature of services provided.

	November 30, 2005
	Number of			Weighted Average
	Options			Exercise Price
Options outstanding, beginning of the period	2,474,000		$	0.93
Issued	450,000			0.45
Exercised	-			-
Expired	(245,000	)		(1.04	)
Options outstanding, end of the period	2,679,000		$	0.83
Options exercisable, end of the period	1,968,133		$	0.89
Weighted average fair value of options granted in the period			$	0.38

A summary of stock options outstanding at November 30, 2005, is as follows:

	Outstanding Options			Exercisable Options
		Weighted
		Average	Weighted		Weighted
		Remaining	Average		Average
		Contractual	Exercise		Exercise
Exercise Price	Number	Life	Price	Number	Price
$0.45	450,000	5.93 years	$ 0.45	6,249	$ 0.45
$0.50	40,000	2.13 years	$ 0.50	24,445	$ 0.50
$0.52	55,000	1.13 years	$ 0.52	55,000	$ 0.52
$0.56	205,000	5.62 years	$ 0.56	205,000	$ 0.56
$0.58	50,000	1.71 years	$ 0.58	50,000	$ 0.58
$0.60	341,000	5.00 years	$ 0.60	341,000	$ 0.60
$0.66	50,000	1.33 years	$ 0.66	50,000	$ 0.66
$0.75	100,000	5.50 years	$ 0.75	100,000	$ 0.75
$1.00	50,000	0.01 years	$ 1.00	50,000	$ 1.00
$1.10	1,338,000	4.58 years	$ 1.10	1,086,439	$ 1.10

14

IKONA GEAR INTERNATIONAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Expressed in United States Dollars)

November 30, 2005

(Unaudited)

Note 8 – Stock Options (Continued)

Stock Options (Continued)

The Company uses 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	114.6 %
Weighted average expected life of options	4.52 years

A summary of stock-based compensation expenses related to non-employee consultants recorded as at November 30, 2005, is as follows:

		Cumulative
		Amounts
		From
		Inception
		(August 16,			Three Months			Three Months
		2001 to			Ended			Ended
		November 30,			November 30,			May 31,
		2005)			2005			2004
Net loss before non-cash
compensation expenses	$	(3,468,386	)	$	(264,702	)	$	(381,084	)
Less:
Non-Cash Compensation Expenses recorded
as:
Corporate finance	$	17,995		$	-		$	-
Research and development		151,094			5,986			45,652
Investor relations		71,800			-			15,534
Total non-cash
compensation expenses	$	240,889		$	5,986		$	61,186
Net loss for the period	$	(3,709,275	)	$	(270,688	)	$	(442,270	)

15

IKONA GEAR INTERNATIONAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Expressed in United States Dollars)

November 30, 2005

(Unaudited)

Note 9 – Warrants Warrants

On February 28, 2005, the board of directors approved an extension and re-pricing of the then outstanding warrants. The effect of the re-pricing and the general practice of the company is to have a two year warrant with the price in the first year $1.00 per share of common stock, followed by a price of $1.40 in the second year since issuance.

The revised summary of warrants outstanding is as follows:

			2006	2007
			Exercise	Exercise	Expiry
Issuances	Issued	Outstanding	Price	Price	Date
February 29, 2004	310,332	310,332	$1.00	$1.40	February 29, 2007
March 29, 2004	677,469	677,469	$1.00	$1.40	March 29, 2007
April 30, 2004	231,215	231,215	$1.00	$1.40	April 30, 2007
July 31, 2004	3,333	3,333	$1.00	$1.40	July 31, 2007
March 31, 2005	1,046,667	1,046,667	$1.00	$1.40	March 31, 2007
March 31, 2005	50,000	50,000	$0.75	$0.75	March 31, 2010
October 25, 2005	400,000	400,000	$1.00	$1.40	October 25, 2007
Total outstanding	2,719,016	2,719,016

Note 10 - 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 and USA. Total revenue in Canada segment includes Other income.

				Three Months
				Ended
				November 30,
				2005
		U.S.A.		Canada	Total
REVENUES	$	1,725	$	29,740 $	31,465
LONG-LIVED ASSETS	$	-	$	166,160 $	166,160

16

IKONA GEAR INTERNATIONAL, INC.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Expressed in United States Dollars)

November 30, 2005

(Unaudited)

Note 11– 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) ( 2004 - $8,600 (C$11,333)). 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 $40,368 (C$49,623) and additional operating costs estimated at $19,951 (C$24,525) 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.

Note 12– Subsequent Events

On December 15, 2005, the Company entered in to Licensing Agreement with MAGNA Drivetrain AG & Co (Magna), an Austrian Corporation. Under the terms of the Agreement, Magna will license the patented Ikona Gear technology platform for incorporation into specified automotive applications throughout North America and Europe. Magna has a right to designate its applications as exclusive on a per application basis, by paying an associated up-front exclusivity fee per designated Magna automotive applications. The Company is also to receive royalties on a per application basis, for exclusive, as well as non-exclusive, Magna automotive applications.

17

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, 2005, and material changes in our results of operations for the three months ended November 30, 2005, as compared to the same period in 2004. 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, 2005, 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 proprietary patented gearing technology (the "Ikona Gearing System"). The Ikona Gearing System utilizes a proprietary, newly designed, patented tooth shape which enables gears to be smaller, lighter, stronger and more energy efficient than conventional planetary gears. The Ikona Gearing Systems allows what we believe to be the highest single stage reduction ratio, zero backlash 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 twofold: engineering and manufacturing our own solutions for industrial applications (our own products) which integrate our patented intellectual property; and to license our core intellectual property into our clients products under their manufacturing capacities. Our business model involves developing and manufacturing prototypes on a fee for services basis, then licensing commercial production for a licensing fee which is either paid directly to us as a royalty for client manufactured products, or incorporated into the profit margin on our own manufactured products. Our plan is to develop revenues from two sources: engineered and manufactured solutions revenue, which carries associated direct costs of production (material and labor); and royalty/licensing revenue which is pure profit with no associated direct costs of production.

Our goals in the current operating year are: (1) to introduce two new products, in addition to the Satellite Base Station Pedestal and Continuous Velocity Transmission currently under development; and (2) in our licensing division, to enter into licensing agreements in three different vertical markets (for illustration: automotive, shipping, alternative energy, or robotics).

We maintain our principal executive offices at 1850 Hartley Avenue, Unit #1, Coquitlam, British Columbia, Canada, V3K 7A1. Our telephone number is (604) 523-5500. Our internet website is located at www.ikonagear.com.

18

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, 2005, and November 30, 2004, should be read in conjunction with our most recent IKONA audited annual financial statements as of August 31, 2005, filed under Form 10-KSB on November 10, 2005, and the related notes that appear elsewhere in this quarterly report.

Three Month Period Ended November 30, 2005 (“First Quarter 2006”) compared to Three Month Period Ended November 30, 2004 (“First Quarter 2005”).

Operating Results

REVENUES. Revenues are generated from the provision of engineering services and from licensing royalties. In the three months ended November 30, 2005, we generated revenues of $28,725 ($27,000 from Andrew Corporation and $1,725 from Aircast Inc. In the three months ended November 30, 2004, we generated revenues of $1,604 from Aircast Inc. The increase in revenue reflects product manufacturing revenues from Andrew Corporation.

COST OF ENGINEERING SERVICES. Our cost of engineering services consists of engineering fees and salaries attributable directly to project revenues. Our cost of engineering services in the three months period ended November 30, 2005 was $27,000. In the comparative period, we recorded no cost of engineering services as we were not in the business of manufacturing in the prior year.

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, 2005, we recorded depreciation of $22,339. In the comparative period, we recorded no depreciation expense and amortization expense of $18,734 for the three months ended November 30, 2004. The increase in depreciation expense reflects depreciation associated with purchases of depreciable equipment in the past twelve months.

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 $62,064 for the three months ended November 30, 2005. In the three months ended November 30, 2004, we recorded business development expense of $70,750.

CORPORATE FINANCE. Corporate finance expense reflects costs associated with fees paid to maintain the corporate finance function within our company. These fees are paid to our CFO and external consultants who oversee accounting, auditing, fund-raising and regulatory reporting functions for our company. Corporate finance expense was $20,484 for the three months ended November 30, 2005. In the comparative period, we recorded corporate finance expense of $24,300 for the three months ended November 30, 2004. The decrease in corporate finance expense is due a gain realized in the settlement of an accrued liability through issuance of common stock in October 2005.

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 $26,066 for the three months ended November 30, 2005. In the comparative period, we recorded general and administrative expenses of $35,928 for the three months ended November 30, 2004. The decrease in general and administrative expense is due to reduced administrative costs during the period.

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 $15,688 for the three months ended November 30, 2005. In the comparative period, there were recorded investor relations expenses of $112,950 for the three months ended November 30, 2004. The decrease in expense is associated with a reduced number of investor relations consultants and associated programs in the current quarter, relative to the prior year.

19

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 fees expenses were $2,829 for the three months ended November 30, 2005. In the comparative period, listing and filing fees were $2,920 for the three months ended November 30, 2004.

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 $14,018 for the three months ended November 30, 2005. In the comparative period, we recorded professional fees expense of $17,461 for the three months ended November 30, 2004.

RENT. Our rent expense consists primarily of an office premises lease and associated variable costs such as property taxes, maintenance, and costs passed on to us regarding our lease agreement. Rent expense was $18,175 for the three months ended November 30, 2005. In the comparative period, we recorded rent expense of $17,461 for the three months ended November 30, 2004.

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 $92,310 for the three months ended November 30, 2005. In the comparative period, we recorded research and development expense of $133,042 for the three months ended November 30, 2004. The decrease in research and development expense is due primarily to a reduction in stock based compensation and the allocation of $15,984 of research and development salaries to the cost of engineering services.

TRAVEL AND RELATED. Travel and related expense includes all of our travel costs associated with travel including travel for business development, research and development, 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 $18,634 for the three months ended November 30, 2005. In the comparative period, we recorded travel and related expense of $22,097. The decrease in expense is associated with reduced travel arrangements during the period ended November 30, 2005.

Liquidity and Capital Resources

As at November 30, 2005, our total cash was $287,455, our working capital was $290,339, and our stockholders’ equity was $456,499. Since inception, we have incurred cumulative losses of $3,709,275. Our current working capital is expected to be sufficient to satisfy our operating requirements for approximately three months. Our ability to satisfy projected working capital requirements is dependent upon our ability to generate revenue and 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. In the three months ended November 30, 2005, our operations consumed $320,699. Our net loss of $270,688 was partially offset by depreciation of $22,339, and by $5,986 of non-cash stock-based compensation and a $5,000 gain on the settlement of a corporate finance fee. Our operating assets and liabilities consumed an additional $85,478 for a net cash loss from operations of $341,387 for the three months ended November 30, 2005.

In the three months ended November 30, 2004, we spent $37,318 on furniture, machinery and equipment, and we had a gain of $18,546 on the insured replacement of stolen office equipment, resulting in a net use of cash of $18,772 in investing activities.

We received a private placement of $300,000 ($276,000 net of associated fees) in October 2005 related to the investment of one non-US investor for investment purposes.

Net cash consumed in the three months ended November 30, 2005 was $84,159, leaving a balance of cash on hand at November 30, 2005 of $287,455.

20

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.

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 within 90 days of the end of the period covered by this Report, 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:

In October 2005, we sold an aggregate of 400,000 units at a price of $0.75 per unit for gross proceeds of $300,000. Proceeds of the sale were used for general working capital purposes. Each unit consisted of one share of common stock and one whole warrant, each whole warrant exercisable to purchase one share of common stock at a price of $1.00 per share, for a period of one year, after which each whole warrant is exercisable to purchase one share of common stock at a price of $1.40 per share, for a further period of one year. The issuance was to one investor that qualified as a non US Person within the meaning of Rule 902, who acquired the securities in an offshore transaction. The securities, which were taken for investment purposes, were subject to appropriate transfer restrictions and restrictive legend, and were issued without registration under the Securities Act in reliance upon the exemptions set forth in Regulation S thereunder.

Item 3 Defaults upon Senior Securities:

None.

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

None.

Item 5 Other Information:

On December 15, 2005, the Company entered in to Licensing Agreement with MAGNA Drivetrain AG & Co (Magna), an Austrian Corporation. Under the terms of the Agreement, Magna will license the patented Ikona Gear technology platform for incorporation into specified automotive applications throughout North America and Europe. Magna has a right to designate its applications as exclusive on a per application basis, by paying an associated up-front exclusivity fee per designated Magna automotive applications. The Company is also to receive royalties on a per application basis, for exclusive, as well as non-exclusive, Magna automotive applications.

21

Item 6 Exhibits

(a)

Exhibit No.	Description
10.1*	License Agreement with MAGNA Drivetrain AG & Co (Magna), an Austrian Corporation dated December 15, 2005.
10.2*	Development Agreement with * dated October 24, 2005
31.1	Certification of Principal Executive Officer
31.2	Certification of Principal Financial Officer
32.0	Certificate pursuant to 18 USC Section 1350

* Portions of this exhibit have been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions.

22

SIGNATURES

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

IKONA GEAR INTERNATIONAL, INC.
Registrant

By: /s/ Laith Nosh	By: /s/ Raymond Polman
Laith Nosh, President & CEO	Raymond L. Polman, CA, CFO
Date: January 20, 2006	(Principal Financial and Accounting Officer)
	Date: January 20, 2006

23

EX-10.1

MAGNA Drivetrain AG & Co KG

AND

IKONA GEAR USA, INC.

AND

IKONA GEAR INTERNATIONAL, INC.

_______________________

LICENSE

AGREEMENT

_______________________

LICENSE AGREEMENT

TABLE OF CONTENTS

1. DEFINITIONS			1
	1.1	Definitions.	1
	1.2	Other Definitions.	5
2. LICENSE GRANT AND RELATED RESTRICTIONS			5
	2.1	Development License.	5
	2.2	Commercialization License.	5
	2.3	Right to Sub-License.	6
	2.4	Designation of Designated Magna Applications	7
3. COMMERCIALIZATION			8
	3.1	Diligence in Commercialization	8
	3.2	Corporation to Control Production Program.	9
4. EXCLUSIVITY FEE			9
	4.1	Exclusivity Fee.	9
5. ROYALTY PAYMENTS			10
	5.1	Royalty for License.	10
6. PAYMENT TERMS			11
	6.1	Invoices and Payments.	11
	6.2	Payment of Royalties	11
	6.3	Taxes	12
	6.4	Late Payments	12
	6.5	Records and Access	12
7. INTELLECTUAL PROPERTY			13
	7.1	Existing Intellectual Property.	13
	7.2	Improvements to Technology	13
	7.3	Use of Trademarks	13
8. FILING OF PATENTS AND TECHNICAL ASSISTANCE			14
	8.1	Technical Assistance.	14
	8.2	Filing of Patents	15
9. REPRESENTATIONS, WARRANTIES AND COVENANTS			15
	9.1	Licensor’s Representations and Warranties.	15
	9.2	Ikona Gear Validation.	16
	9.3	Corporation’s Representations and Warranties.	16
	9.4	Corporation’s Continuing Obligations.	16
	9.5	No Warranty.	16
	9.6	No Consequential Damages	17
10. INDEMNIFICATION			17
	10.1	Licensor’s Obligation to Indemnify.	17
	10.2	The Corporation’s Obligation to Indemnify	17

- ii -

11. INFRINGEMENT			18
	11.1	Infringement by the Corporation.	18
12. ENFORCEMENT			21
	12.1	Infringement by Third Party	21
	12.2	Rights on Infringement	21
	12.3	Cooperation with Other Licensees.	22
13. CONFIDENTIALITY			23
	13.1	Obligation of Confidentiality	23
	13.2	Permitted Disclosure	23
	13.3	Survival of Obligation.	24
14. TERM			24
	14.1	Term of Agreement	24
15. TERMINATION			24
	15.1	Termination for Bankruptcy, Insolvency, etc	24
	15.2	Termination for Default	25
	15.3	Termination by the Corporation.	26
	15.4	Terminating Party	26
	15.5	Rights on Termination	26
	15.6	Obligations on Termination	26
	15.7	Royalty Payments Upon Termination.	27
	15.8	Right to Use Technology upon Termination/Expiration.	27
16. NOTICE			28
	16.1	Notice	28
17. INSURANCE			29
	17.1	Insurance Coverage	29
18. GENERAL			29
	18.1	Force Majeure	29
	18.2	Further Assurances.	29
	18.3	Amendments	29
	18.4	Assignment.	29
	18.5	Severability	30
	18.6	Survival	30
	18.7	No Waiver	30
	18.8	Currency.	30
	18.9	Time of the Essence	30
	18.10	Governing Law	30
	18.11	Arbitration	31
	18.12	Entire Agreement.	31
	18.13	Headings	31
	18.14	Relationship of the Parties	31
	18.15	Public Announcements	31
	18.16	Rights and Remedies	32
	18.17	Execution in Counterparts	32
	18.18	Additional Obligations of Ikona	32

- iii -

SCHEDULE A      LICENSED PATENTS

SCHEDULE B      DESIGNATION ADDENDUM

LICENSE AGREEMENT

This LICENSE AGREEMENT is made as of December 15, 2005 (the “Effective Date”) among MAGNA Drivetrain AG & Co KG , an Austrian corporation (hereinafter referred to as the “Corporation”), IKONA GEAR USA, INC., a Nevada corporation (hereinafter referred to as “Licensor”) and IKONA GEAR INTERNATIONAL, INC., a Nevada corporation (hereinafter referred to as “Ikona”)

WHEREAS:

A. Licensor possesses certain intellectual and industrial property (including confidential and/or proprietary information, trade secrets, patents, inventions, know-how and show-how) relating to the design and manufacture of planetary gear technology owned by Licensor, including the patents listed on Schedule A to this Agreement;

B. Licensor and the Corporation entered into a letter agreement dated April 8, 2003, as extended by a letter agreement dated April 27, 2004 and amended by a letter agreement dated September 3, 2004 (collectively, the “Development Agreement”), to examine and develop automotive applications for planetary gear technology owned by Licensor; and

C. The Corporation is desirous of licensing such technology from Licensor for use by the Corporation, its affiliates and certain sub-licensees and Licensor is willing to license such technology to the Corporation, on the terms and conditions set out in this Agreement.

NOW THEREFORE in consideration of the premises and the mutual covenants and agreements contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties to this Agreement hereby each agree with the other as follows:

1. DEFINITIONS

1.1 Definitions.

As used in this Agreement, the following terms shall have the meanings set forth below:

(a)

“Affiliate” means, with respect to a specified Person, a Person that, directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the specified Person. For the purposes of this definition, the term “control” shall mean the possession of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise. For greater certainty, the ability to appoint 50% or more of the directors or individuals performing a similar function in respect of any Person shall be deemed to be “control” of that Person;

(b)

“Agreement” means this Agreement as amended from time to time together with all Schedules hereto, and the words “this Agreement”, “hereof”, “herein”,

- 2 -

	“hereunder” and similar expressions shall refer to this Agreement and not to any particular Article, Section, Subsection or Paragraph hereof;
(c)	“Automotive Applications” means the use of the Technology, including use in ** Portions of this exhibit have been omitted and filed separately with the SEC.
	Confidential treatment has been requested with respect to the omitted portions.
(d)	“Business Day” means a day, other than a Saturday or Sunday, on which the principal commercial banks located in the Province of Ontario or the Province of British Columbia or in Austria are open for business during normal business hours;
(e)	“Confidential Information” means any and all confidential and/or all proprietary information and trade secrets disclosed by Licensor or the Corporation to the other party, as the case may be, pertaining to their respective technologies and other business activities and information, including, without limitation, the Ikona Gears, the Technology, any Designated Magna Parts and any Improvements, including, without limitation all scientific knowledge, technology, know-how, designs, inventions, processes, methods, data, specifications, plans, drawings, models, prototypes, techniques, formulae, patterns, computations, software, codes, programs, special devices, products, operational information, financial information (including pricing and costing information), customer information, supplier information, distribution information, computer or other data, business plans, strategic plans or other records and information disclosed pursuant to the terms of this Agreement, whether disclosed visually, orally (if confirmed in writing), in written, graphic or physical form, or in any other manner whatsoever and whether or not such information is specifically described, designated or marked “private” or “confidential” and shall specifically include confidential information disclosed prior to the date hereof pursuant to the Confidentiality Agreement;
(f)	“Confidentiality Agreement” means the confidentiality agreement dated January 21, 2003 by and between the Corporation and Licensor;
(g)	“Contract Year” means each of the one (1) year period commencing on September 1st of each calendar year and ending on August 31st in the following year during the Term;
(h)	“Default Notice” has the meaning set forth in Section 15.2;

- 3 -

(i)	“Designated Magna Application” means an Automotive Application designated by the parties under Section 2.4 from time to time during the Term;
(j)	"Designated Magna Parts" means automotive parts, components or modules that incorporate the Ikona Gear and are covered by a Designated Magna Application;
(k)	“Designation Addendum” has the meaning set out in Section 2.4;

(l)	“Designation Date” means, in respect of a Designated Magna Application, the date on which the parties execute a Designation Addendum therefor;
(m)	“Designation Notice” has the meaning set out in Section 2.4;
(n)	“Development Agreement” has the meaning set forth in the recitals hereto;
(o)	“Effective Date” means the date first set out on page 1 hereof;
(p)	“FTE” means full-time equivalent;
(q)	“Ikona Gear” means a gear set covered by at least one of the Licensed Patents;
(r)	"Improvements" shall mean any and all improvements, enhancements, revisions and derivative works of, to, in or based upon the Technology;
(s)	“Intellectual Property” shall mean all intellectual property (whether registered, applied for or unregistered), including any inventions, inventor’s, rights, discoveries, improvements, Patents, copyrights, copyright applications, moral rights, industrial designs, industrial design applications, mask works, utility models, trademarks, trademark applications, know-how, show-how and trade secrets;
(t)	“Know-How” means techniques, trade secrets, scientific knowledge, know-how, show-how, processes, procedures, methods, formulae, products, blue prints, drawings and specifications for materials, processes and equipment, and all other technical data, documents or information;
(u)	“Licensed Know-How” means all Know-How and Intellectual Property (other than the Licensed Patents) that is or becomes owned, used, developed or possessed by Licensor as at the Effective Date and/or during the Term relating to the design and manufacture of the Ikona Gear;
(v)	“Licensed Patents” means:
	(i)	the Patents identified in Schedule A hereto as the same may be amended or updated from time to time, and
	(ii)	any Patents that claim priority to the Patents identified in Schedule A hereto made by the parties during the Term, whether jointly or solely by a party;

- 4 -

(w)	“Patents” means:
	(i)	any issued patent or patent application (and any patents which may issue hereafter pursuant to any patent application),
	(ii)	all continuations and continuations-in-part applications to the issued patent or patent application set out in Paragraph (i) (solely to the extent such continuations-in-part applications contain subject matter on which claims issuing obtain the benefit of a priority date of any patent or patent application set out in Paragraph (i)),

	(iii)	all divisions, patents of addition, derivatives, substitutions, re- examinations, reissues, renewals and extensions of any of the patent, patent application, continuations and continuations-in-part applications set out in Paragraphs (i) and (ii), and
	(iv)	all foreign counterparts of any of the foregoing;
(x)	“Person” shall, as the context requires, include any individual, body corporate, partnership, joint venture, association, syndicate, trust, government body and any other form of entity or organization;
(y)	“Production-Ready Date” means the first day of the month following the date on which all validation and process qualification is completed to the satisfaction of the Corporation acting reasonably and its customers (in its customers’ sole discretion) and the Corporation is ready and able to manufacture Designated Magna Parts with respect to the Corporation’s applicable OEM production program;
(z)	“Regulatory Approval” means any and all approvals, licenses, registrations or authorizations of any federal, state, provincial or local regulatory agency, department, bureau or other governmental entity, necessary for the commercial manufacture, use, storage, import, transport, marketing, and sale or distribution of Designated Magna Parts for use in Automotive Applications in a country or regulatory jurisdiction;
(aa)	“Sub-Licensee” means a Third Party sub-licensee of the Corporation approved by Licensor under Subsection 2.3(b);
(bb)	“Technical Documentation” means all technical or other information, data, records or documents, whether computerized or otherwise, relating to the Technology and use of the Ikona Gears in Automotive Applications including, without limitation, all blue prints, designs, drawings, text, material, process or other specifications, formulae, patterns, computations, quality control and evaluations tests, techniques, standards and results, process parameters and copies of all Patents, patent searches, objects, investigations and applications and shall also include customer information, supplier information and distribution information relevant to the use of the Ikona Gears in Automotive Applications;

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(cc)	“Technology” means the Licensed Know-How and the Licensed Patents;
(dd)	“Term” has the meaning set forth in Section 14.1;
(ee)	“Termination Notice” has the meaning set forth in Sections 15.1 and 15.2, as the case may be;

	(ff)	“Territory” means the jurisdictions identified in Schedule A hereto, as the same may be amended (or deemed amended) from time to time; and
	(gg)	“Third Party” shall mean any Person other than the Corporation, Licensor or their respective Affiliates.
1.2	Other Definitions.
Any words defined elsewhere in this Agreement shall have the particular meaning assigned to the words thereto.
2.	LICENSE GRANT AND RELATED RESTRICTIONS
2.1	Development License.
Subject to the terms and provisions of this Agreement, Licensor hereby grants to the Corporation a non-exclusive license during the Term in and to the Technology, to research, design, develop, build, test and market Ikona Gears for use in Automotive Applications, with the right to sub- license such rights to its Affiliates and Third Parties on the terms and conditions set forth in Section 2.3.
2.2	Commercialization License.
	(a)	Subject to Subsection 2.2(b) and the other terms and provisions of this Agreement, Licensor hereby grants to the Corporation a non-exclusive, royalty- bearing license during the Term in and to the Technology, to make (including, where necessary, design and develop), have made, assemble, have assembled, use, have used, sell, have sold, offer for sale, import and export Designated Magna Parts in the Territory solely for use in Automotive Applications, with the right to sub-license such rights to its Affiliates and Third Parties on the terms and conditions set forth in Section 2.3.
	(b)	If, under Section 2.4, the parties designate a Designated Magna Application on an exclusive basis, the license granted under Subsection 2.2(a) in respect of the applicable Designated Magna Parts for such Designated Magna Application shall, for a period of three (3) years from the earlier of:
		(i)	the Production Ready Date for the first applicable Designated Magna Part for such Designated Magna Application; and
		(ii)	the second anniversary of the Designation Date for such Designated Magna Application;

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		comprise a sole, exclusive royalty-bearing license during the Term in and to the Technology, to make (including, where necessary, design and develop), have made, assemble, have assembled, use, have used, sell, have sold, offer for sale, import and export such Designated Magna Parts in the Territory solely for use in Automotive Applications, with the right to sub-license such rights to its Affiliates and Third Parties on the terms and conditions set forth in Section 2.3. Upon the expiration of such three (3) year period, the sole and exclusive license granted hereunder in respect of the Designated Magna Application shall convert to a non- exclusive, royalty-bearing license, on the terms and conditions set out in Subsection 2.2(a) without the requirement of any further act or formality.
2.3	Right to Sub-License.
	(a)	The Corporation shall be entitled to sub-license its rights under Sections 2.1 or 2.2 to any Affiliate of the Corporation on prior written notice thereof to Licensor, provided that:
		(i)	each such sublicense shall be by written agreement;
		(ii)	the Corporation will cause the Affiliate so sublicensed to perform the terms of this Agreement as if such Affiliate were the Corporation hereunder; and
		(iii)	the obligations and liabilities of such Affiliates and the Corporation hereunder shall be joint and several and Licensor shall not be obliged to seek recourse against an Affiliate before enforcing its rights against the Corporation. For greater certainty it is hereby confirmed that any default or breach by an Affiliate of the Corporation of any term of this Agreement will also constitute a default by the Corporation under this Agreement.
	(b)	The Corporation shall be entitled to sub-license its rights under Sections 2.1 or 2.2 to Third Parties, provided that:
		(i)	the Corporation shall first identify such sub-licensees to Licensor for prior written approval, such approval not to be unreasonably withheld or delayed;
		(ii)	each such sublicense shall be by written agreement; and
		(iii)	the Corporation shall not include in any sublicense agreement covenants by the Sub-Licensee that are inconsistent with the terms and conditions set out in this Agreement, including, without limitation, those related to obligations of confidentiality. Each sublicense agreement shall provide that, upon termination of this Agreement, at Licensor’s sole option and subject to the Sub-Licensee’s right to terminate the sublicense agreement, such sublicense agreement shall be automatically converted to a direct license from Licensor.

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	(c)	The Corporation shall furnish to Licensor a copy of each sublicense agreement entered into hereunder within 30 days after execution thereof, provided that such copy may be redacted to exclude provisions other than those required to confirm compliance with this Agreement, including the calculation of royalties and the conduct of audits hereunder. All sublicense agreements furnished to Licensor hereunder shall be deemed to be the Confidential Information of the Corporation and shall be subject to Licensor’s obligation of confidentiality under Article 13. For purposes of this Subsection 2.3(c), confidential information of the Sub- Licensee shall be deemed to be Confidential Information of the Corporation.
2.4	Designation of Designated Magna Applications.
	(a)	From time to time during the Term, the Corporation may provide written notice to Licensor (a “Designation Notice”) requesting the designation of one or more automotive applications as Designated Magna Applications on either:
		(i)	a non-exclusive basis licensed under Subsection 2.2(a) of this Agreement; or
		(ii)	an exclusive basis licensed under Subsection 2.2(b) of this Agreement, subject to the payment of the exclusivity fee set out in Section 4.1 for each such Designated Magna Application.
	(b)	Subject to Subsection 2.4(c), the Corporation and Licensor shall execute a written addendum to this Agreement, in the form set out in Schedule B attached hereto (a “Designation Addendum”) within five (5) Business Days of Licensor’s receipt of the Designation Notice. Upon execution of a Designation Addendum by both parties, the Designation Addendum shall be deemed to form an integral part of this Agreement and the Automotive Application described therein shall become a Designated Magna Application, for which the Technology is licensed on a non- exclusive or exclusive basis, as set out therein.
	(c)	If the proposed designation is not available due to the fact that the proposed Designated Magna Application is subject to a license in and to the Technology for use in a specific part, module or component for use in Automotive Applications granted by Licensor to a bona fide Third Party prior to the request for designation hereunder, then:
		(i)	where such Third Party license was granted on an exclusive basis, the parties shall discuss the proposed designation and such revisions as are necessary to avoid conflict with the Third Party license following which, the Corporation may resubmit its designation with such revisions; or
		(ii)	where such Third Party license was granted on a non-exclusive basis, to the extent the Corporation was requesting an exclusive license, the Corporation may resubmit its designation as a request for a non-exclusive license.

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		The unavailability of a license pursuant to this Subsection 2.4(c) shall be reasonably substantiated by Licensor by providing evidence of such Third-Party license to the Corporation with reasonable promptness following receipt of the Designated Notice. Any disputes pursuant to this Subsection 2.4(c) may be referred directly to arbitration under Section 18.11. The decision of the arbitrator shall be final and binding and the parties shall execute a Designation Addendum reflecting such decision.
	(d)	For clarity, the form of license applied (i.e., exclusive or non-exclusive) to the designation of one or more Automotive Applications as a Designated Magna Application shall apply to all parts, components or modules within the applicable Automotive Application as designated in the Designated Notice. By way of illustration, the following is a non-exhaustive list of Automotive Applications to which a license may apply: ** Portions of this exhibit have been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions. The Corporation does not offer any assurance or guarantee that it will develop the Technology for application in any or all of these areas.
	(e)	Following the designation of a Designated Magna Application on an exclusive basis pursuant to Subsection 2.2(b), and for the duration of such exclusivity, Licensor will not enter into any agreement, obligation or commitment that would prevent or impair the exercise of all rights granted to the Corporation pursuant to Subsection 2.2(b), provided that the foregoing shall not prevent Licensor from licensing the Technology for research and development purposes. Following the grant of a license pursuant to Section 2.2. and for the duration of such exclusivity period, Licensor will not seek or solicit any business, contracts or orders incorporating the Technology into any part, component or module for Automotive Applications where such part, component or module would compete with a Designated Magna Part. For clarity, subject to the first sentence of this Subsection 2.4(e), nothing in the foregoing sentence shall prohibit Licensor from accepting business or orders from, or entering into contracts with, Third Parties with respect to competing products where such business or orders were not solicited by Licensor.
	(f)	During the exclusivity periods provided under Subsection 2.2(b), Licensor will not manufacture, have made, use or sell products that compete with Designated Magna Parts covered by the exclusive Designated Magna Application.
3.	COMMERCIALIZATION
3.1	Diligence in Commercialization.
	(a)	The parties acknowledge and agree that, except as otherwise provided in this Agreement, the Corporation (or applicable Affiliate or Sub-Licensee, as the case may be) shall be solely responsible for developing and promoting, marketing,

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		selling and otherwise commercializing the Designated Magna Parts in the Territory, including obtaining any applicable Regulatory Approvals therefor.
	(b)	With respect to Designated Magna Parts that fall within an exclusive Designated Magna Application under Subsection 2.2(b), and for the period of such exclusivity, the Corporation shall, in the Corporation’s sole judgment, at its sole cost and expense, utilize commercially reasonable efforts and sound and reasonable business practice in developing and promoting, marketing, selling and otherwise commercializing the Designated Magna Parts in the Territory to meet or cause to be met the market demand for the Designated Magna Parts. Notwithstanding the foregoing, nothing contained herein shall be construed to require the board of directors or senior management of the Corporation to take or refrain from taking any action that would be inconsistent with its obligation to properly exercise its business judgment or discharge its fiduciary duties under applicable law and nothing herein contained shall be interpreted as imposing any liability on the Corporation for any action or inaction with respect to the commercialization of Designated Magna Parts where the Corporation is acting at the direction of senior management or its board of directors.
	(c)	Licensor acknowledges that securing purchase orders for products, components or modules incorporating the Technology could take several years and there can be no assurance that orders will be obtained during that time or at all.
	(d)	The Corporation shall designate a Designated Magna Application pursuant to Subsection 2.2(b) on or before August 31st, 2006.
3.2	Corporation to Control Production Program.
The Corporation (or applicable Affiliate or Sub-Licensee, as the case may be) may, in its sole discretion, refuse to accept to participate in any particular production program or a purchase order for a Designated Magna Part, including without limitation for any of the following reasons:
	(a)	the proposed selling price of the Designated Magna Part would not enable the Corporation (or applicable Affiliate or Sub-Licensee, as the case may be) to achieve a sufficient rate of return on the Designated Magna Part, after payment of the royalty thereon to Licensor; or
	(b)	any other technical, production or economic reason in the judgment of the Corporation (or applicable Affiliate or Sub-Licensee, as the case may be).
4.	EXCLUSIVITY FEE
4.1	Exclusivity Fee.
For each Designated Magna Application designated on an exclusive basis under Section 2.4, the Corporation shall pay to Licensor, upon execution of the Designation Addendum therefor, the sum of ** Portions of this exhibit have been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions. in cash by bank transfer to Licensor’s bank account, using the co-ordinates

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provided by Licensor to the Corporation. The exclusivity fee paid hereunder shall be guaranteed, non-refundable and non- creditable, and in particular shall not be creditable against royalties payable under this Agreement. For greater clarity, the parties agree that, following the payment of the foregoing exclusivity fee, the royalty under Section 5.1 will not be subject to a minimum royalty and no minimum royalty will be payable thereunder or otherwise with respect to the applicable Designated Magna Application or related Designated Magna Parts. For each Designated Magna Application designated before August 31st, 2006, payment of the exclusivity fee therefor will be deferred until August 31st, 2006, provided that if written notice of termination of this Agreement is delivered at least 90 days prior to August 31st, 2006, the Corporation’s obligation to pay such deferred exclusivity fee shall not survive termination pursuant thereto.

5. ROYALTY PAYMENTS

5.1 Royalty for License.

In consideration of the licenses granted under Sections 2.1 and 2.2, the Corporation shall pay to Licensor during the Term, without duplication, a royalty, depending on volume, as follows:

Volume of Designated Magna Parts per Designated Magna Application (Number of Designated Magna Parts)	Royalty (per Designated Magna Part)
** Portions of this exhibit have been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions.	** Portions of this exhibit have been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions.

per Designated Magna Part manufactured by the Corporation or its Affiliates or Sub-Licensees in the Territory or sold by the Corporation or its Affiliates or Sub-Licensees to any Person in the Territory, in accordance with the payment provisions of Article 6. For the purposes of clarification, the parties acknowledge that:

(a)	in respect of sales between the Corporation and its Affiliates and Sub-Licensees, the royalty payable hereunder shall be paid only in respect of the first sale of such item, and no duplicate royalty shall be payable in respect of the resale of the same item by the Corporation or its Affiliates and Sub-Licensees, as the case may be;
(b)	with respect to a particular Designated Magna Part, to the extent that the royalty payable hereunder shall have been paid with respect to the manufacture of such Designated Magna Part, no duplicate royalty shall be payable in respect of the sale or resale of the same item by the Corporation or its Affiliates or Sub- Licensees; and
(c)	to the extent that the Designated Magna Part is a component or module (as opposed to a single part), the royalty payable hereunder shall be paid once in respect to such component or module and no royalty shall be payable in respect of each part that is incorporated into a component or module (or components that are incorporated into a module).

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For purposes of calculating royalty payments hereunder, the manufacture and/or sale of Designated Magna Parts shall be calculated net of returns or recalls of Designated Magna Parts which are accepted for return and credited by the Corporation or its Affiliates and Sub-Licensees, provided that the royalty payments hereunder shall apply to any Designated Magna Parts repaired or provided in exchange or replacement for any returned or recalled Designated Magna Parts to the extent so credited by the Corporation or its Affiliates and Sub-Licences, as the case may be. To the extent not already accounted for pursuant to the foregoing sentence, no royalties will be payable on Designated Magna Parts manufactured or sold in connection with the return or recall of Designated Magna Parts which are accepted by the Corporation or its Affiliates and Sub-Licensees. For greater clarity, the parties agree that, except for the royalties and fees expressly payable hereunder, no other fee or royalty will be payable to the Licensor under this Agreement, a sublicense agreement or otherwise with respect to sales of Designated Magna Parts. Licensor agrees that any up front or similar fees paid to the Corporation by any Sub-Licensee shall be retained by the Corporation as compensation for its efforts and costs associated with the sublicense to the Sub-Licensee and continued support of such Sub-Licensee.

6. PAYMENT TERMS

6.1 Invoices and Payments.

Licensor shall provide to the Corporation invoices setting out any amounts owed by the Corporation to Licensor in respect of obligations performed by the Licensor under this Agreement. All such amounts shall be due and payable sixty (60) days after receipt of the date of the invoice. Invoices for FTE reimbursement will be invoiced quarterly and be accompanied by a statement detailing the actual hours and costs and expenses incurred during the quarter.

6.2 Payment of Royalties.

(a)	All royalties payable under Section 5.1 shall be payable within sixty (60) days after the last day of each calendar quarter during the Term, commencing for the calendar quarter during which the first sale of a Designated Magna Part by the Corporation or its Affiliates or Sub-Licensees occurs.
(b)	The Corporation will also provide to Licensor within sixty (60) days after the last day of each calendar quarter following the commencement of royalty payments, a written report either electronically or by facsimile signed by an officer of the Corporation certifying such information in sufficient detail to permit verification of the calculation of the royalty payments for the preceding calendar quarter, including:
	(i)	the number of Designated Magna Parts manufactured or sold in the Territory by the Corporation and its Affiliates and Sub-Licensees during the calendar quarter; and
	(ii)	the royalties payable to Licensor for the calendar quarter.

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Licensor acknowledges that such information comprises the Corporation’s Confidential Information, shall be used by Licensor solely for the purpose of verifying amounts owing hereunder, shall be held in confidence in accordance with Article 13 and shall not be disclosed by Licensor to any Third Party without the Corporation’s prior written consent. The foregoing obligation of non- disclosure shall survive the termination of this Agreement.

6.3 Taxes.

(a)	For the purposes of this Section 6.3, “Taxes” shall include all taxes, including, without limitation, all tariffs, customs duties, social services taxes, goods and services tax, value added, excise and other sales taxes.
(b)	Licensor shall collect and remit all Taxes assessed or levied in connection with any activities performed by Licensor and shall pay all applicable Taxes levied on account of payments made to Licensor under this Agreement.
(c)	The Corporation shall collect and remit all Taxes assessed or levied in connection with any activities performed by the Corporation pursuant to this Agreement.
(d)	If any law or regulation in any country requires the withholding by the Corporation of any Taxes due on payments to be remitted to Licensor under this Agreement, such Taxes shall be deducted from the amounts paid to Licensor, provided that the Corporation shall take all reasonable measures, at Licensor’s written request and at Licensor´s sole cost and expenses, to reduce the amount of such Taxes. If the Taxes are deducted from the amounts paid to Licensor, the Corporation shall furnish Licensor the originals of all official receipts for such Taxes and such other evidence of such Taxes and payment thereof as may be reasonably requested by Licensor and shall provide any reasonable assistance or co-operation, at Licensor’s sole cost and expense, which may be requested by Licensor in connection with any efforts by Licensor to obtain a credit for such Taxes, including, if reasonable to do so, the characterization of payments made hereunder so that it may take advantage of any and all benefits under any tax treaty between Canada and any foreign countries.

6.4 Late Payments.

Unless otherwise waived by Licensor, the Corporation shall pay to Licensor upon any and all payments that are at any time overdue and payable for more than 30 days after written notice of such default has been delivered to the Corporation, interest at the rate of one percentage point (1%) above the prime lending rate established by Licensor’s principal bank in Canada as of the date such royalties become due, which rate shall be applied throughout the period commencing on the date when such royalties become due up to the date of payment.

6.5 Records and Access.

(a) The Corporation shall keep and maintain for a period of three (3) years following each Contract Year, full, accurate and complete records and books of account in accordance with GAAP of all transactions relating to the subject matter of this Agreement, including the manufacture and sale of Designated Magna Parts by the Corporation and its Affiliates and Sub-Licensees, for the accurate determination of the yearly royalty payments to be made under this Agreement with respect to such Contract Year.

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(b) Licensor shall have the right, upon reasonable advance notice, once each Contract Year to have a representative attend at the Corporation’s premises to inspect and audit the procedure by which the Corporation has determined the amount of the royalties payable hereunder. The costs and expenses for any inspection and audit shall be borne by Licensor provided that if an error of greater than five percent (5%) in the amount of the royalty paid or payable to Licensor is revealed by the inspection and audit, such costs and expenses shall be borne by the Corporation.

7. INTELLECTUAL PROPERTY

7.1 Existing Intellectual Property.

As between the Corporation and Licensor, title to and ownership or control of all rights in and to all Intellectual Property owned or licensed by Licensor (other than rights licensed to Licensor by the Corporation) shall at all times remain with Licensor and, except as expressly granted under this Agreement, no rights in or to any such Intellectual Property shall vest in the Corporation.

7.2 Improvements to Technology

Any Improvements to the Licensed Patents made by the Corporation and its Affiliates and Sub-Licensees for which patent applications may be filed claiming priority to any Licensed Patents, shall be solely owned by Licensor, and in respect of any such Improvements made by the Corporation or its Affiliates, the Corporation or its Affiliates shall, at Licensor’s sole cost and expense, assign or cause to be assigned to Licensor all right, title and interest in and to such Improvements, and Licensor shall promptly add Patents resulting therefrom to Schedule A and such Patents shall be automatically included in the license granted by Licensor to the Corporation under Sections 2.1 and 2.2 (and, in any event, will be deemed to be added to Schedule A) without the payment of any additional consideration by the Corporation, its Affiliates or Sub-Licensees. The Corporation shall inform Licensor of any such Improvements in a timely manner and, at Licensor’s sole cost and expense, reasonably co-operate with Licensor in seeking Patent coverage for such Improvements.

7.3 Use of Trademarks.

Licensor hereby grants to the Corporation the right to use the trademark “IKONA GEAR” solely to refer to the Ikona Gears and Designated Magna Parts, provided that to the extent permitted by the customer of the Corporation or its Affiliates or Sub-Licensees, as the case may be, the Corporation shall include, or cause to be included, at the Corporation’s sole cost and expense:

(a) on each Designated Magna Part, the trademark, “IKONA GEAR” and the patent markings applicable thereto (including applicable patent numbers); or

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	(b)	on the labeling or packaging of such Ikona Gears and Designated Magna Parts, such wording as may be mutually agreeable to the parties to indicate that the use of Licensor’s trademark is under license;
provided that:
	(c)	the cost of doing so is commercially reasonable giving due regard to the overall cost at the applicable Designated Magna Part and anticipated margins associated therewith;

(d)	the inclusion thereof does not interfere with the manufacturing process for the applicable Designated Magna Part; and
(e)	the inclusion thereof does not interfere with the product interfaces or utility of the applicable Designated Magna Part.

8. FILING OF PATENTS AND TECHNICAL ASSISTANCE

8.1 Technical Assistance.

(a)	The parties acknowledge that Licensor has delivered to the Corporation copies of all Technical Documentation, in written or other tangible form, that the Corporation may reasonably require to enable the Corporation to utilize the licenses granted under Sections 2.1 and 2.2.
(b)	Licensor, at the Corporation’s written request by way of an executed purchase order, agrees to provide to the Corporation, for a period of up to twelve (12) months commencing on the Effective Date, such reasonable technical and engineering assistance of up to one full time equivalent (FTE) as may be required to assist the Corporation in the integration of the Technology into the Ikona Gears and the Designated Magna Parts and for which Licensor will charge to and invoice the Corporation at the rate of Cdn$150 per hour, plus reasonable disbursements and expenses and goods and services tax (“GST”). Disbursements and expenses in excess of Cdn$5,000 per month shall require the prior written approval of the Corporation. Licensor will provide assistance from its Coquitlam facilities during Licensor’s normal business hours on Licensor’s Business Days unless otherwise agreed by the parties. If the Corporation requests assistance at locations other than Licensor’s Coquitlam facilities, the Corporation will promptly reimburse Licensor for its reasonable travelling and other reasonable disbursements and expenses actually and properly incurred in connection with the provision of such services, provided that Licensor keeps proper accounts and provides reasonable substantiation thereof to the Corporation within 30 days after the date the expenses are incurred.
(c)	All such information provided by Licensor shall be held in confidence by the Corporation and its Affiliates, Sub-Licensees and their respective employees in accordance with the terms of Article 13.

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8.2 Filing of Patents.

Licensor shall be responsible for, and shall pay all attorneys’ fees and related costs and out-of-pocket expenses related to, such renewals and maintenance as may be necessary or desirable to maintain and keep the Licensed Patents in good standing and the preparation, prosecution, issuance and/or maintenance and renewal of Patents in respect of Improvements. The Corporation shall have the right to review and comment on each filing made with respect to the Licensed Patents or any Patent for an Improvement to any Licensed Patent to be filed in the United States or any other jurisdiction and consult with Licensor as required prior to such filing to ensure that any Patent protection obtained by Licensor and the applicable claims are appropriate for the Ikona Gears and Designated Magna Parts and the business to be conducted by the Corporation. The Corporation shall have the right to monitor, and Licensor shall provide the Corporation with all relevant documents relating to, the prosecution of any Patents for such Improvements. The Corporation and Licensor shall, acting in good faith, mutually determine the countries foreign to the United States and Canada in which the said patent applications shall be filed. Licensor, its attorneys, agents and representatives, shall exercise all reasonable efforts to obtain allowance and issuance of the patents, as soon as practicable. If Licensor determines that any renewal, extension or other like application with respect to a Licensed Patent or a Patent application for Improvements to a Licensed Patent is not appropriate and will not be filed or prosecuted (or, if filed, will be abandoned), then Licensor shall advise the Corporation accordingly, and shall allow the Corporation a reasonable opportunity, at the Corporation’s sole option, to elect to proceed with such filing or prosecution, for the Corporation’s benefit and at its sole cost and expense (and whether in the Corporation’s own name or for and on behalf of Licensor), and Licensor agrees to fully cooperate with the Corporation in this regard; any right, title or interest in any such renewal, extension or other like application shall be owned or held by the Corporation.

9. REPRESENTATIONS, WARRANTIES AND COVENANTS

9.1 Licensor’s Representations and Warranties.

Licensor hereby represents and warrants to the Corporation that:

(a)	it has full corporate power and authority to enter into this Agreement and to grant the license rights provided for herein;
(b)	Licensor is the sole and exclusive owner of all rights in the Licensed Patents and, to the best of Licensor’s knowledge, the Licensed Know-How;
(c)	Schedule A contains a complete list of all Patents relating to the design and manufacture of gears using Licensor’s planetary gear technology;
(d)	there are no licenses relating to the Technology under which Licensor must pay a fee or royalty to any Third Party;
(e)	as of the date hereof, no Third Party has been granted any rights to use or exploit the Technology and there are no outstanding assignments, grants, licenses, encumbrances, obligations or agreements, either written or oral, express or implied, which are inconsistent with this Agreement or that would prevent or impair the exercise of all rights granted to the Corporation pursuant to the terms of this Agreement; and

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(f) there are no claims, actions, suits or proceedings commenced, pending or, to the best of Licensor’s knowledge, threatened, involving any Third Party alleging ownership of any or all of the Technology or claiming that the Technology infringes any existing Intellectual Property rights of such party, asserting the invalidity or unenforceability of the Licensed Patents or any misappropriation, use or infringement of any of the Technology and Licensor is not aware of any existing grounds under which any such claims, actions, suits or proceedings might be commenced against either it or the Corporation.

9.2 Ikona Gear Validation.

Licensor undertakes to provide reasonable assistance to the Corporation so that the Technology will successfully satisfy the Corporation’s reasonable production purposes and requirements, and will take all steps, as directed by way of an executed purchase order, at the Corporation’s expense, as may be required to assist in resolving any technical issues which may prevent the Corporation from attaining its required production levels for Designated Magna Parts.

9.3 Corporation’s Representations and Warranties.

The Corporation represents and warrants to Licensor that it has full corporate power and authority to enter into this Agreement and to perform all of the obligations required to be performed by the Corporation hereunder.

9.4 Corporation’s Continuing Obligations.

The Corporation hereby covenants to Licensor that: it shall not dispute or contest, directly or indirectly, the validity, ownership or enforceability of any of the Licensed Patents or any of Licensor’s right, title and interest in and to the Technology, nor counsel, procure or assist any other party to do the same.

9.5 No Warranty.

LICENSOR AND THE CORPORATION EACH MAKE NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AND DISCLAIM ALL REPRESENTATIONS AND WARRANTIES, OTHER THAN THOSE EXPRESSLY SET FORTH IN THIS AGREEMENT, WITH RESPECT TO THE IKONA GEAR, THE DESIGNATED MAGNA PARTS, THE LICENSED PATENTS, THE LICENSED KNOW-HOW OR THE LIKELIHOOD OF SUCCESS IN THE DEVELOPMENT AND COMMERCIALIZATION OF ANY PRODUCTS, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND EACH PARTY HEREBY ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY THE OTHER PARTY TO UNDERTAKE ITS OWN DUE DILIGENCE WITH RESPECT TO THE FOREGOING.

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9.6 No Consequential Damages.

EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES, HOWEVER CAUSED, ON ANY THEORY OF LIABILITY.

10. INDEMNIFICATION

10.1 Licensor’s Obligation to Indemnify.

Licensor agrees to indemnify and hold harmless the Corporation and its Affiliates and each of their directors, officers, employees and agents against and from any and all disputes, damages, charges, proceedings (or the defence thereof), suits, actions, costs, judgements, losses, claims, liabilities and demands, including legal and other fees, disbursements and expenses, that any such Person may suffer or incur, or that may be asserted against any such Person, directly or indirectly arising from, as a consequence of, or resulting from:

(a)	any allegation or finding that the Technology or the making, assembly, use, import/export or sale of:
	(i)	the Ikona Gears, or
	(ii)	Designated Magna Parts, by virtue of the inclusion of an Ikona Gear in such Designated Magna Parts,
	infringes any patent, design patent, industrial design registration or copyright or violates any other Intellectual Property or other right of a Third Party;
(b)	any breach of any representation or warranty made by or on behalf of Licensor pursuant to this Agreement; or
(c)	any breach of any covenant made by or on behalf of Licensor pursuant to this Agreement;

except to the proportional extent caused by any of the indemnified parties.

10.2 The Corporation’s Obligation to Indemnify.

The Corporation agrees to indemnify and hold harmless Licensor and its Affiliates and each of their directors, officers, employees and agents against and from any and all disputes, damages, charges, proceedings (or the defence thereof), suits, actions, costs, judgements, losses, claims, liabilities and demands, including legal and other fees, disbursements and expenses, that any such Person may suffer or incur, or that may be asserted against any such Person, directly or indirectly arising from, as a consequence of, or resulting from:

(a) any allegation or finding that any Intellectual Property (other than the Technology) that the Corporation or its Affiliates or Sub-Licensees elect to use in the making, assembly, use, export or sale of the Designated Magna Parts infringes any patent, design patent, industrial design registration or copyright or violates any other Intellectual Property or other right of a Third Party;

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(b) any personal injury, product liability or property damage relating to or arising from any Designated Magna Parts designed, manufactured or sold by the Corporation or its Affiliates or Sub-Licensees;

(c)	any breach of any representation or warranty made by or on behalf of the Corporation pursuant to this Agreement; or
(d)	any breach of any covenant made by or on behalf of the Corporation pursuant to this Agreement.

except to the proportional extent caused by any of the indemnified parties.

11. INFRINGEMENT

11.1 Infringement by the Corporation.

In the event that any Third Party brings a claim, suit, action or proceeding against the Corporation or any of its Affiliates or Sub-Licensees or any customer of any of the foregoing that the manufacture, assembly, use, sale, distribution, marketing or importation/exportation of an Ikona Gear or a Designated Magna Part infringes such Third Party’s rights in Intellectual Property (an “Infringement Suit”), the Corporation shall promptly notify Licensor of the Infringement Suit and, to the extent permitted, deliver copies of the relevant court filings; provided that the failure to provide such notice promptly shall not release Licensor from any of its obligations to indemnify unless (and only to the extent that) such failure shall prevent Licensor from contesting, or materially and adversely affect the ability of Licensor to contest, such Infringement Suit. The following provisions shall apply with respect to an Infringement Suit:

(a)	where the claim, suit, action or proceeding relates only to the Ikona Gear or the inclusion thereof in a Designated Magna Part, Licensor, in its sole discretion, shall have the first right, but not an obligation, to assume and control the defence of the Infringement Suit; provided that:
	(i)	Licensor may only assume and control the defence of the Infringement Suit if Licensor delivers to the Corporation a written confirmation that the Licensor’s obligation to indemnify the Corporation and other indemnified parties in accordance with Subsection 10.1(a) applies in respect of such Infringement Suit; and
	(ii)	nothing herein shall preclude the indemnified party from participating, at it own expense, in the defense of the Infringement Suit.
(b)	Licensor shall not be entitled to assume and control (but may, at its own expense, participate in) the defense of any such Infringement Suit if and to the extent that:

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	(i)	in the reasonable opinion of the Corporation or other indemnified parties acting in good faith, such proceeding involves any risk of impairing the Corporation’s or other indemnified party’s reputation in the industry or the imposition of criminal liability on the Corporation or other indemnified party or the control of such action, suit or proceeding would involve an actual or potential conflict of interest as between the Licensor and the Corporation or other indemnified party, such that it is advisable for the Corporation or other indemnified party to be represented by separate counsel; or
	(ii)	the claim, suit, action or proceeding does not relate only to the Ikona Gear or the inclusion thereof in a Designated Magna Part or otherwise involves claims not fully indemnified by Licensor under Subsection 10.1(a) which Licensor and the Corporation or other indemnified parties have been unable to sever from the Infringement Suit; or
	(iii)	there are one or more defenses available to the Corporation or other indemnified parties that are different from or in addition to those available to Licensor.
(c)	The benefits (including any recovery by way of costs, damages or other amounts) of any defence commenced by Licensor shall accrue to, and the costs of any such proceedings, including the Corporation’s costs related to co-operating with Licensor, shall be borne by, Licensor. Nothing herein shall preclude the Corporation or the other indemnified parties from exercising any rights or remedies available to them at law or in equity including the commencement of appropriate proceedings against the alleged infringer or unauthorized user to recover any damages or losses suffered by the Corporation or any other indemnified party.
(d)	if Licensor does not take steps, in accordance with Subsection 11.1(a), to defend against the Infringement Suit within thirty (30) days after the date that notice thereof was received from or delivered to Licensor or such shorter time as may be required by applicable law, the Corporation shall have the right, but not the obligation, to undertake such defence. The benefits (including any recovery by way of costs, damages or other amounts) of any defence commenced by the Corporation shall accrue to the Corporation, and the unrecovered costs of any such defence, including Licensor’s costs related to co-operating with the Corporation, shall be borne by the Licensor. Licensor will, upon receipt of written request from the Corporation, assist the Corporation by providing any reasonable evidence and technical information available to Licensor;
(e)	the party defending against the Infringement Suit (in this section, the “Litigating Party”) shall have the right to control such litigation; provided that:
	(i)	neither the Corporation nor any other indemnified party under Subsection 10.1(a) shall enter into any settlement or other compromise with respect to an Infringement Claim for which Licensor has in writing under Subsection 11.1(a) agreed to fully indemnify without the prior written consent of Licensor which may be withheld by the Licensor acting reasonably; and

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	(ii)	to the extent Licensor has assumed control of such Infringement Claim in accordance with Subsection 11.1(a), Licensor may enter into any settlement or other compromise with respect to such Infringement Claim without the prior written consent of the Corporation or other indemnified party, except in the case of a settlement involving any finding or admission of liability, fault or violation of law on the part of the Corporation or other indemnified party or in the case of a settlement that has an adverse effect on any other claims that may be made by the indemnified party against the third party bringing the Infringement Claim, in which case the prior written consent of the Corporation or other indemnified party shall be obtained;
(f)	the Litigating Party shall keep the other party fully informed of the status of the Infringement Suit, shall consult with the other party from time to time regarding the Infringement Suit and shall provide the other party with all information with respect to such Infringement Suit as such party shall reasonably request; and
(g)	the royalty payable hereunder on account of the Designated Magna Parts that are the subject of the Infringement Suit, up to a maximum amount equal to the amount claimed by the Third Party in the Infringement Suit, shall be withheld by the Corporation and held in trust in an interest-bearing trust account for Licensor until such Infringement Suit has been settled or resolved by a final and non- appealable order of a court of competent jurisdiction. No Infringement Suit shall prevent the payment of any royalty on account of Designated Magna Parts that are not the subject of the Infringement Suit. In the event such final and non- appealable order of a court of competent jurisdiction determines that the the manufacture, assembly, use, sale, distribution, marketing or importation/exportation of an Ikona Gear or Designated Magna Part by virtue of the inclusion of the Ikona Gear infringes the rights of such Third Party, the Corporation will be entitled to discontinue the payment of all royalties payable in respect of the affected Designated Magna Parts and any royalty payments held in trust shall be released to the Corporation together with the accrued interest thereon and the Corporation shall be entitled to offset any loss or damage covered by the indemnity under Section 10.1 resulting from such infringement claim against any royalties owing to Licensor under this Agreement. The Corporation shall also be entitled to offset any costs and expenses actually and reasonably incurred by the Corporation in defending against the Infringement Suit, including its costs and attorney fees, against any royalties owing to Licensor under this Agreement. If the final and non-appealable order of a court of competent jurisdiction determines that the manufacture, assembly, use, sale, distribution, marketing or importation/exportation of an Ikona Gear or a Designated Magna Part do not by virtue of the inclusion of the Ikona Gear infringe the rights of such Third Party, the Corporation shall pay, from the trust account, the royalties for the whole period in which such royalty payments were withheld plus accrued interest.

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12. ENFORCEMENT

12.1 Infringement by Third Party.

In the event that either party reasonably believes that a Third Party is or may be infringing, encroaching or violating any claim of the Licensed Patents or infringing any Licensed Know-How and whether such unauthorized use or infringement is actual or threatened, such party shall promptly deliver to the other party notice of the facts known to it and upon which it bases its opinion of such actual or threatened, unauthorized use or infringement and outlining any proceedings it considers necessary or appropriate to enforce any or all of Licensor’s rights in the Technology.

12.2 Rights on Infringement.

(a)

Licensor shall use all reasonable measures, whether by action, suit or other proceeding to restrain or enjoin the infringement of the Licensed Patents and/or Licensed Know-How, by such Third Party. Upon receipt of the notice referred to in Section 12.1 hereof, Licensor shall have ninety (90) days to commence appropriate proceedings against the alleged infringer or unauthorized user, as the case may be. The Corporation agrees to cooperate with Licensor in any such proceeding including the voluntary joinder as party plaintiff if reasonably determined to be required by Licensor and to have its employees, representatives and/or agents testify in any legal proceeding, sign all lawful papers, and make all rightful oaths and generally do everything reasonably necessary to aid Licensor to enforce proper protection for the Licensed Patents and/or Licensed Know-How, in Canada, the United States and in any and all other applicable countries. The benefits (including any recovery by way of costs, damages or other amounts) of any proceedings commenced by Licensor shall accrue to, and the costs of any such proceedings, including the Corporation’s costs related to co-operating with Licensor, shall be borne by Licensor, provided that nothing herein shall preclude the Corporation or the other indemnified parties from exercising any rights or remedies available to them at law or in equity including the commencement of appropriate proceedings against the alleged infringer or unauthorized user to recover any damages or losses suffered by the Corporation or any other indemnified party. If, as a result of such claim, a final and non-appealable order of a court of competent jurisdiction determines that a Licensed Patent is invalid, then the Corporation will be entitled to discontinue the payment of all royalties payable hereunder in respect of Designated Magna Parts practising such Licensed Patent and may, at its sole option, in whole or in part, terminate this Agreement by providing written notice of termination to Licensor. The Corporation will be entitled to offset any loss or damage resulting from such claim, including its costs and attorney fees, against any royalties owing to Licensor under this Agreement.

(b)

If, at the end of the said ninety (90) day period, Licensor has not notified the Corporation that it has commenced appropriate proceedings against the alleged infringer or unauthorized user and the alleged infringement or unauthorized use has not ceased, the Corporation shall have the right, but not the obligation, to commence appropriate proceedings against the alleged infringer or unauthorized user.

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	If the Corporation institutes such proceedings, Licensor agrees to cooperate with the Corporation in any such proceeding including the voluntary joinder as party plaintiff if reasonably determined to be required by the Corporation and to have its employees, representatives and/or agents testify in any legal proceeding, sign all lawful papers, and make all rightful oaths and generally do everything reasonably necessary to aid the Corporation to enforce proper protection for the Licensed Patents and/or Licensed Know-How in Canada, the United States and in any and all other countries. The benefits (including any recovery by way of costs, damages or other amounts) of any proceedings commenced by the Corporation shall accrue to, and the costs of any such proceedings, including Licensor’ costs related to co-operating with the Corporation, shall be borne by, the Corporation. Nothing in this Section 12.2 makes it mandatory for the Corporation to commence such proceedings. If, as a result of such claim, a final and non-appealable order of a court of competent jurisdiction determines that a Licensed Patent is invalid, then the Corporation will be entitled to discontinue the payment of all royalties payable hereunder in respect of Designated Magna Parts practising such Licensed Patent and may, at its sole option, in whole or in part, terminate this Agreement by providing written notice of termination to Licensor. The Corporation will be entitled to offset any loss or damage resulting from such claim, including its costs and attorney fees, against any royalties owing to Licensor under this Agreement.
(c)	The party taking action against an alleged infringer shall have the right to control, but it shall have no right to settle any dispute in any manner which would abridge the reserved rights of the other party under this Agreement. By way of example and not by way of limitation, neither party may stipulate or admit to the invalidity or unenforceability of any Licensed Patent. Before any action is taken by either party which could abridge the rights of the other party hereunder, the parties agree to consult, in good faith, with a goal of adopting a mutually satisfactory position.
(d)	The party taking action shall keep the other party fully informed of the enforcement action, shall consult with the other party from time to time regarding the enforcement action and shall provide the other party with all information with respect to such enforcement action as such party shall reasonably request.

12.3 Cooperation with Other Licensees.

The Corporation acknowledges that Licensor may grant licenses to Third Parties under the Licensed Patents both within and outside the field of Automotive Applications and that such licenses may include rights to permit such Third Parties to defend or enforce a claim within the Licensed Patents. To the extend that Licensor grants to a Third Party any license including rights to defend or enforce a claim within Licensed Patents, the Corporation will use commercially reasonable efforts to cooperate with Licensor and such Third Party, at Licensor’s sole cost and expense, in the defense or enforcement of such Licensed Patents and, in connection with such efforts, will use good faith efforts to determine, jointly with Licensor and such Third Party, the course of action, if any, necessary or appropriate to defend or enforce such Licensed Patents, as applicable; provided that Licensor includes provisions in its license with such Third Party no less restrictive and comparable to this Section 12.3.

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13. CONFIDENTIALITY

13.1 Obligation of Confidentiality.

During the Term each party shall hold in trust as confidential and secret and, without the prior written consent of the other party, shall not disclose, distribute or disseminate to any otherPerson (other than to Sub-Licensees provided such disclosure is in accordance with the applicable sub-license agreement or to Affiliates as otherwise permitted pursuant to this Agreement) any Confidential Information furnished to such party by the other party pursuant to this Agreement. Each party shall use the Confidential Information solely for the purposes set forth in this Agreement. Each party agrees to handle Confidential Information belonging to the other party with at least the same degree of care as it handles its own proprietary information and to take all reasonable precautions to prevent its officers and employees from disclosing Confidential Information to others and from utilizing the same for any purpose other than this Agreement. In furtherance of the foregoing, both parties will disclose such Confidential Information only to those of their respective employees and agents having a need to know such Confidential Information for purposes set forth in this Agreement. Both parties agree to have any of their respective employees or agents who may become involved in the exchange of Confidential Information to execute a non-disclosure agreement consistent with the provisions of this agreement or to provide the disclosing party, upon request, with evidence of a written undertaking by such employee or agent to keep Confidential Information received in the course of performing his/her/its duties confidential. Both parties shall enforce such undertaking in respect of any actual or threatened breach of confidentiality provided for in this Agreement by such agent or employee to the extent permissible at law.

13.2 Permitted Disclosure.

Notwithstanding Section 13.1, the Corporation shall be permitted to reveal such of the Confidential Information to its customer(s) as reasonably required by the Corporation to carry out its business activities with such customer(s) as contemplated under this Agreement, provided that the Corporation shall use such efforts to protect the Confidential Information as is the Corporation’s usual practice in disclosing its own confidential information to its customers. Additionally, the foregoing obligations of confidentiality and non-disclosure in respect of the Confidential Information shall not extend to any Confidential Information which:

(a)	was known and existed in documentary or other physical form in the possession of the receiving party at the time of disclosure;
(b)	was part of the public domain at the time of disclosure or thereafter becomes part of the public domain through no act or failure to act of the receiving party;
(c)	was furnished by either party as a matter of right without restriction on its disclosure or which is disclosed with the consent of the disclosing party;
(d)	was disclosed to the receiving party by a Third Party, provided that such Third Party did not acquire the information directly or indirectly from the receiving party or, to the best of the receiving party’s knowledge, was not breaching any agreement or any confidential relationship with the disclosing party;

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(e)

was independently developed by the receiving party or its Affiliates without reference to the disclosing party’s Confidential Information; or

(f)

was required to be disclosed pursuant to any judicial, administrative or regulatory process or in connection with any inquiry, investigation, action, suit, proceeding or claim, provided that, if such disclosure is required, the receiving party will first give notice to the disclosing party so that it will have an opportunity (at its own expense) to seek a protective order or other appropriate remedy;

provided that any combination of the information which comprises part of the Confidential Information shall not be included in the foregoing exceptions merely because individual parts of the information were within the public domain or were within the prior possession of the receiving party or disclosed to it by a Third Party, as applicable, unless the combination itself was in the public domain, prior possession, or was so received, as applicable.

13.3 Survival of Obligation.

The terms of this Article 13 will continue in force for a period of three (3) years after the earlier of the termination or expiration of this Agreement. Upon termination or expiration of this Agreement, Section 15.6 shall apply.

14. TERM

14.1 Term of Agreement

Unless earlier terminated in accordance with the terms of this Agreement, the term of this Agreement shall commence on the Effective Date and shall continue until the expiration of the last remaining Licensed Patent (the “Term”) and the Corporation shall retain the licenses set forth in Sections 2.1 and 2.2 and all benefits thereof for such period.

15. TERMINATION

15.1 Termination for Bankruptcy, Insolvency, etc.

This Agreement may be immediately terminated by Licensor or the Corporation, as the case may be, by providing ten (10) days’ written notice to the other party (the “Termination Notice”) if any of the following circumstances or events is applicable to the other party:

(a)	Dissolution – The Corporation or Licensor is wound up, dissolved or liquidated under any law, or becomes subject to the provisions of the Winding-Up and Restructuring Act (Canada) or similar legislation in the United States, or otherwise has its existence terminated or passes any resolution in connection therewith;
(b)	Insolvency - The Corporation or Licensor makes a general assignment for the benefit of its creditors, acknowledges its insolvency or is declared or becomes bankrupt or insolvent, or otherwise fails in its business;

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(c) Act of Bankruptcy - The Corporation or Licensor commits an act of bankruptcy under any applicable laws including, but not limited to, the Bankruptcy and Insolvency Act (Canada) or similar legislation in the United States;

(d)	Bankruptcy Proposal – Any filing of a proposal or notice of intention to make a proposal is made in respect of the Corporation or Licensor under the Bankruptcy and Insolvency Act (Canada) or similar legislation in the United States;
(e)	Protection from Creditors – Any filing is made or a proceeding is commenced in respect of the Corporation or Licensor seeking any stay of proceeding, protection from creditors, moratorium, reorganization, arrangement, composition, re-adjustment, or any other relief under any present or future law of any jurisdiction relative to bankruptcy, insolvency or other relief for debtors, including, without limitation, the Companies’ Creditors Arrangement Act (Canada) or similar legislation in the United States;
(f)	Appointment of Trustee or Receiver – Any trustee in bankruptcy, interim receiver, receiver, receiver and manager, custodian, sequestrator, administrator, monitor or liquidator or any other person with similar powers shall be appointed in respect of the Corporation or Licensor, the Technology or the Patents, or in respect of all or a substantial portion of the respective property, assets or undertaking of the Corporation or Licensor;
(g)	Enforcement Against Secured Property – Any holder of any security interest, mortgage, lien, charge, claim or encumbrance enforces against, delivers any notices relating to its rights or its intention to enforce against, or becomes entitled to enforce against or otherwise takes possession, management or control of the Technology or the Patents or a material part of the Corporation’s or Licensor’s respective property, assets and undertakings;
(h)	Seizure – A distress, execution, warrant, garnishment, attachment, sequestration, levy, writ, or any similar process is issued or enforced upon or against a material portion of the Corporation’s or Licensor’s property, assets and undertakings, or any Third Party demand is issued or other seizure is made by any governmental agency, administrative body or any taxation authority in respect of a material portion of the Corporation’s or Licensor’s property, assets or undertakings;
(i)	Sale of Assets – The Corporation or Licensor liquidates its assets or sells all or substantially all of its assets (except to an Affiliate); or
(j)	Continuation of Business – The Corporation or Licensor ceases to carry on business in the ordinary course for a period in excess of thirty (30) days.

15.2 Termination for Default.

If either Licensor or the Corporation is in material default of any obligations under this Agreement, the non-defaulting party may, at its option, give the defaulting party written notice specifying the material default in reasonable detail and requesting the material default be cured within thirty (30) days (the “Default Notice”). In the event the defaulting party has not cured the

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material default within the thirty (30) day time period or commenced appropriate actions to cure such material default if such material default may not reasonably be expected to be cured within such period (whereby such actions must be continuously and diligently continued thereafter) the non-defaulting party may, at its option, immediately terminate this Agreement by delivering a written notice of termination to the defaulting party (the “Termination Notice”), provided, however, such Termination Notice must be given within one hundred and eighty (180) days of the Default Notice.

15.3 Termination by the Corporation.

(a)

Notwithstanding any other provision of this Agreement, the Corporation may terminate this Agreement by providing ten (10) days’ prior written notice thereof to Licensor in the event that the Corporation’s legal counsel reasonably determines that the Technology or the making, assembly, use, export, import or sale of Ikona Gears or Designated Magna Parts, by virtue of the inclusion of the Ikona Gear, infringes any patent, design patent, industrial design registration or copyright or violates any other Intellectual Property right of another Person or if any claim of any of the Licensed Patents is determined to be invalid, in which case, without further action on the part of either party, subject to Section 15.8, all rights and licenses granted by Licensor to the Corporation pursuant to this Agreement shall revert to Licensor and the Corporation shall retain no rights therein.

(b)

Notwithstanding any other provision of this Agreement, the Corporation may terminate this Agreement at any time and for any reason (or no reason at all) by providing 90 day’s prior written notice thereof to Licensor, in which case, upon the effective date of such termination and subject to Section 15.8, all rights and licenses granted by Licensor to the Corporation pursuant to this Agreement shall revert to Licensor and the Corporation shall retain no rights therein.

15.4 Terminating Party.

Upon termination of this Agreement pursuant to Sections 15.1, 15.2 or 15.3, the terminating party shall no longer be subject to the terms and conditions of this Agreement other than those obligations accrued to the date of termination and any obligations under Articles 10 and 13 and Section 15.8.

15.5 Rights on Termination.

Any termination under this Article 15 shall be without prejudice to any other rights, remedy or relief vested in or to which a party may otherwise be entitled against the other party.

15.6 Obligations on Termination.

Upon the termination or expiration of this Agreement, each party shall immediately return to the other party all Confidential Information in its possession, custody or control belonging to the other party relating to the Technology, the Ikona Gears and the Designated Magna Parts, except, in the case of the Corporation, for any information which the Corporation must retain to fulfill any purchase orders or warranty or service requirements pursuant to Section 15.8.

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15.7 Royalty Payments Upon Termination.

If this Agreement is terminated in accordance with this Article 15, the Corporation shall, subject to the terms of this Agreement, continue to pay Licensor all amounts earned pursuant to Section 5.1 prior to the effective date of termination and any amounts earned thereafter as a result of sales of residual inventory of Designated Magna Parts.

15.8 Right to Use Technology upon Termination/Expiration.

In the event of any termination under this Agreement or the expiration of the Term pursuant to Article 14:

(a)	In the case of the termination of this Agreement under Section 15.1 or the termination of this Agreement by any receiver, receiver and manager, trustee or any other person with similar powers appointed in the circumstances set forth in such Section 15.1, the Corporation, its Affiliates and its Sub-Licensees shall have the right to maintain any and all rights under this Agreement (subject to the payment of royalties as provided in this Agreement), including, but not limited to, the use and license of the Technology, for a period of twelve (12) months from the date of the termination of this Agreement under Section 15.1 or the termination of this Agreement by such receiver, receiver and manager, trustee or other such person, as the case may be or for such longer period as may be necessary in order to permit the Corporation to fulfill existing orders for Designated Magna Parts.
(b)	In addition to any rights granted to the Corporation, its Affiliates and its Sub- Licensees pursuant to the extension of this Agreement for the additional twelve (12) month period as set forth in Subsection 15.8(a), the Corporation, its Affiliates and its Sub-Licensees shall retain the use of the Technology for such additional period as required to comply with their customary warranty and service requirements.
(c)	In the case of the expiration of the Term pursuant to Article 14 or the termination of this Agreement under any Section other than Section 15.1:
	(i)	the Corporation, its Affiliates and its Sub-Licensees shall maintain any and all rights under this Agreement including, but not limited to, the use of the Technology in order to permit the Corporation, its Affiliates and its Sub-Licensees to fulfill existing orders for Designated Magna Parts, subject to the payment of royalties as provided in this Agreement; provided that, if the Agreement is terminated by the Corporation pursuant to Section 15.2 the Corporation, its Affiliates an its Sub-Licensees shall retain its rights under this Agreement (subject to the payment of royalties as provided in this Agreement) for such additional period as required to fulfill any orders (whether existing or future orders) under any OEM production program awarded to the Corporation, its Affiliates or its Sub- Licensees prior to the date of such termination;

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(ii)	the Corporation shall retain the use of the Technology for such additional period as required to comply with its customary warranty and service requirements; and
(iii)	Licensor may, at its option, assume in writing any existing sub-license agreements granted by the Corporation and upon such assumption, the Corporation shall thereafter be released from any future obligations under such agreements.

16. NOTICE

16.1 Notice.

Any notice required or permitted to be given hereunder shall be in writing and may be delivered in person or by registered mail or transferred by facsimile or other form of recorded communication tested prior to transmission, addressed to the respective party at the address set forth below or such changed address as may be given by a party to the other by such written notice. Any such notice shall be considered to have been made and received on the date when personally delivered or five (5) Business Days after the date of mailing or one (1) Business Day after the date of forwarding if sent by facsimile or other form of recorded communication.

Address of the Corporation:	Address of Licensor:
Magna Drivetrain AG & Co KG .	Ikona Gear USA, Inc.
Industriestraße 35	1507 Pine Street
A-8502 Lannach	Boulder, Colorado
AUSTRIA	80302 U.S.A.
Attention:           Dr. Peter Reif	Attention:           Clifford Neuman, Esq.
Telephone No. +43 (0) 50 444 3737	Telephone No. 303-449-2100
Facsimile No. +43 (0) 50 444 2298	Facsimile No. 303-449-1045
with a copy to:	Address of Ikona:
Magna International Inc.	Ikona Gear International, Inc.
337 Magna Drive	1 – 1850 Hartley Avenue
Aurora, Ontario	Coquitlam, British Columbia
L4G 7K1 CANADA	V3K 7A1 CANADA
Attention:           J. Brian Colburn	Attention:           Laith I. Nosh
Executive Vice-President,	Telephone No. 604-523-5500
Special Projects and Secretary	Facsimile No. 604-520-5965
Telephone No.: 905-726-7022
Facsimile No.: 905-726-7173

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with a copy to:

          Farris, Vaughan, Wills & Murphy LLP

          P.O. Box 10026, Pacific Centre South

          Toronto Dominion Bank Tower

          700 West Georgia Street, 25th Floor

          Vancouver, British Columbia

          V7Y 1B3 CANADA

          Attention: R. Hector MacKay-Dunn, Q.C.

          Telephone No.: 604-684-9151

          Facsimile No.: 604-661-9349

17. INSURANCE

17.1 Insurance Coverage

Corporation and Licensor each represent that they are sufficiently insured against any liability arising under Article 10 for which it has an indemnification obligation.

18. GENERAL

18.1 Force Majeure.

Neither party shall be liable for failure or delay in the performance of its obligations, other than monetary obligations, under this Agreement when the failure is a result of circumstances beyond its reasonable control including, but not limited to, fire, flood, strikes, labour trouble or other industrial disturbances, inevitable accidents, war (declared or undeclared), embargoes, blockades, riots, insurrections or governmental regulations.

18.2 Further Assurances.

Each of the parties to this Agreement agrees to execute such documents and agreements and to do such further things as may be reasonably necessary or desirable to carry out the provisions and purposes of this Agreement.

18.3 Amendments.

This Agreement may not be amended or modified in any respect except by written agreement signed by the parties hereto.

18.4 Assignment.

This Agreement shall not be assigned, in whole or in part, by either party without the prior written consent of the other party. Notwithstanding the foregoing, prior written consent shall not be required for assignments of this Agreement:

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(a)	by the Corporation:
	(i)	to an entity which is an Affiliate of the Corporation; or
	(ii)	to an entity which purchases all or substantially all of the Corporation’s business relating to the design and/or manufacture of Ikona Gears and Designated Magna Parts; and
(b)	by Licensor to an entity (including an Affiliate of Licensor) that purchases all of the Technology, or to which all of the Technology is transferred or assigned;

provided such entity first agrees to be bound by the terms and conditions of this Agreement. Subject to the foregoing, this Agreement shall be binding upon and enure to the benefit of the parties hereto, their successors and permitted assigns.

18.5 Severability.

The invalidity or unenforceability of any provision of this Agreement or any covenant herein contained shall not affect the validity or enforceability of any other provision or covenant hereof or herein contained.

18.6 Survival.

All obligations of the Corporation and Licensor which expressly or by their nature survive termination, expiration or assignment of this Agreement shall continue in full force and effect subsequent to and notwithstanding such termination, expiration or assignment until they are satisfied or by their nature expire.

18.7 No Waiver.

The rights of each party hereunder are cumulative and no exercise or enforcement by a party of any right or remedy hereunder shall preclude the exercise or enforcement by such party of any other right or remedy hereunder or which such party is otherwise entitled by law to enforce. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof.

18.8 Currency.

All dollar values expressed in this Agreement are in Canadian dollars.

18.9 Time of the Essence.

Time shall be of the essence of this Agreement and the transactions contemplated hereby.

18.10 Governing Law.

This Agreement shall be governed and construed in accordance with the laws of Ontario and the parties hereto hereby agree to attorn to the jurisdiction of the courts of Ontario. The parties acknowledge and agree that the International Sale of Goods Act and the United Nations

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Convention on Contracts for the International Sale of Goods have no application to this Agreement.

18.11 Arbitration.

In the event of any dispute or difference arising out of this Agreement or the breach hereof, the Corporation and Licensor agree to use their reasonable efforts to settle the same on an equitable basis through good faith consultation and negotiation between senior officers of each of them. If such dispute or difference is not so satisfactorily resolved within a period of thirty (30) days, then upon notice by either party to the other, the dispute or difference shall be finally settled by binding commercial arbitration conducted in accordance with the provisions of the Arbitrations Act (Ontario), by one arbitrator appointed by mutual agreement of the Corporation and Licensor or, in the event no such agreement is obtained within fifteen (15) days, by a panel of three (3) arbitrators, one of whom will be selected by each party and the third of whom will be selected by the other two arbitrators.

18.12 Entire Agreement.

This Agreement, including the Schedules attached hereto, constitutes the entire agreement between the parties hereto including their Affiliates with respect to the licensing of the Technology for Automotive Applications and other matters described herein and supersedes all prior agreements, undertakings and arrangements in respect thereto including, without limitation, the Development Agreement and the Confidentiality Agreement. There are not and shall not be any verbal statements, representations, warranties, undertakings or agreements between the parties including their Affiliates.

18.13 Headings.

All headings and the division of this Agreement into Articles, Sections, Subsections and Paragraphs are for the convenience of reference only and shall not affect the interpretation hereof.

18.14 Relationship of the Parties.

Each party is and will at all times remain an independent contractor and is not and shall not represent itself to be the agent, joint venturer or partner of the other party. No representations will be made or acts taken by any party which could establish any apparent relationship of agency, joint venture or partnership and neither party will be bound in any manner whatsoever by any agreements, warranties or representations made by the other party to any other person or with respect to any other action of the other party. Nothing in this Agreement shall in any way limit or affect the Corporation’s ability to carry on its business in the ordinary and normal course (including the establishment of the Corporation’s own production facilities, the completion of joint ventures and acquisitions, and the continuation of the Corporation’s own proprietary developments) on a global basis.

18.15 Public Announcements.

Licensor and the Corporation each agree that they and their Affiliates shall not issue any press release or otherwise make any public statement or respond to any media inquiry with respect to

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this Agreement or the transactions contemplated hereby without the prior written approval of the other party, which shall not be unreasonably withheld or delayed, except as may be required by law or by any stock exchanges having jurisdiction over Licensor, the Corporation or their respective Affiliates. Notwithstanding the foregoing, Licensor and the Corporation hereby agree that Licensor will solely issue a press release regarding this Agreement and the relationship of the parties hereunder and on the occurrence of subsequent milestones under this Agreement, which shall be in a form mutually agreed by the parties acting reasonably.

18.16 Rights and Remedies.

The rights and remedies available under this Agreement shall be cumulative and not alternative and shall be in addition to and not a limitation of any rights and remedies otherwise available to the parties at law or in equity.

18.17 Execution in Counterparts.

This Agreement may be executed in one or more counterparts, each of which when so executed shall constitute an original and all of which together shall constitute one and the same agreement.

18.18 Additional Obligations of Ikona

(a)	In consideration of the execution by the Corporation of this Agreement and in consideration of the representations, warranties, covenants, agreements and conditions contained in this Agreement, and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), Ikona does hereby:
	(i)	agree to cause Licensor to fulfill its obligations under this Agreement (including without limitation Licensor’s indemnification obligations under Article 10 hereof) (collectively the “Licensor Obligations”), subject to the terms and conditions hereof; and
	(ii)	agree that, in the event that Licensor shall fail to pay or perform any Licensor Obligations and a written notice (an “Licensor Default Notice”) executed by the Corporation is delivered to Ikona, in the manner provided in Section 16.1 hereof, which Licensor Default Notice describes Ikona’s failure to pay or perform any such Licensor Obligations, Ikona shall cause Licensor to fulfill such Licensor Obligations as are specified in the Licensor Default Notice, in each case in accordance with the terms of, and subject to the limitations set forth herein; notwithstanding the foregoing, the obligations and liabilities of Licensor and Ikona shall be deemed to be joint and several and the Corporation shall not be obliged to seek recourse against Licensor before enforcing its rights against Ikona.
(b)	without limiting the generality of the foregoing, Ikona’s obligations pursuant to this Section 18.18 shall include, without limitation, the obligation to transfer or cause to be transferred to Licensor a sufficient amount of its funds to allow Licensor to meet its obligations under this Agreement. Ikona agrees that its obligations hereunder shall continue and be binding and enforceable against it

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	with respect to the obligations of any of Licensor’s successors and assigns (whether pursuant to contract or otherwise pursuant to law), provided that, for greater certainty, Ikona agrees that in the event that Licensor is dissolved, wound- up or otherwise liquidated, Ikona shall assume and be directly and primarily obligated without respect to the Licensor Obligations.
(c)	Ikona further agrees to pay the reasonable and necessary expenses and costs (including, without limitation, reasonable attorneys’ fees and expenses) incurred by the Corporation in connection with any action, suit or proceeding brought or maintained against Ikona if Licensor would have been obligated to pay such costs pursuant to the provisions hereof had such payment of expenses and costs been sought directly from Licensor.
(d)	Ikona shall have the benefit of all defences, equities and rights of set-off or deduction that Licensor has in respect of Licensor’s Obligations hereunder.
(e)	The Corporation is hereby authorized, without notice or demand and without affecting or impairing the obligations or liability of Ikona hereunder, to, from time to time:
	(i)	extend the time for payment or performance of the Licensor Obligations;
	(ii)	accept partial payment or performance of the Licensor Obligations;
	(iii)	release, partially or completely, any other guarantor of the Licensor Obligations; and
	(iv)	settle, release, compromise, collect or otherwise liquidate the Licensor Obligations, in any manner.

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(f) The obligations pursuant to this Section 18.18 shall continue until all of the Licensor Obligations have been fully performed. The preceding sentence notwithstanding, Ikona agrees that, to the extent Licensor makes a payment or payments on account of the Licensor Obligations, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to Licensor, its estate, trustee(s) or receiver(s) or any other party, including, without limitation, under any bankruptcy law, common law or equitable cause, then to the extent of any such repayments or invalidation, Ikona’s obligations under this Agreement with respect thereto shall be reinstated and continued in full force and effect as of the time immediately preceding such initial payment, reduction or satisfaction.

IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto on this 15th day of December, 2005.
MAGNA Drivetrain AG & Co KG	IKONA GEAR USA, INC.
by its authorized signatories:	by its authorized signatories:
By: /s/ Günther Apfalter	By: /s/ Laith I. Nosh
Name: Günther Apfalter	Name: Laith I. Nosh
Title: President	Title: President, CEO
By: /s/ Andreas Wimler	By: /s/ Raymond L. Polman
Name: Andreas Wimler	Name: Raymond L. Polman, CA
Title: Director Finance	Title: Chief Financial Officer
IKONA GEAR INTERNATIONAL, INC.
by its authorized signatories:
By: /s/ Laith I. Nosh
Name: Laith I. Nosh
Title: President, CFO
By: /s/ Raymond L. Polman
Name: Raymond L. Polman, CA
Title: Chief Financial Officer

SCHEDULE A

LICENSED PATENTS

Jurisdiction	Patent Number	Title
Canada	Canadian Patent No. 2,129,188	Gear System
United States	U.S. Patent No. 5,505,668	Gear System
Germany	German Patent No. 69505983	Gear System
Sweden	European Patent No. 0770192	Gear System
Italy	European Patent No. 0770192	Gear System
United Kingdom	European Patent No. 0770192	Gear System
France	European Patent No. 0770192	Gear System

SCHEDULE B

DESIGNATED MAGNA APPLICATION
DESIGNATION ADDENDUM

This Designation Addendum forms a part of the License Agreement between Magna Drivetrain AG & Co KG, Ikona Gear USA, Inc. and Ikona Gear International, Inc. dated __________, 2005 (the “License Agreement”).

Pursuant to the terms and conditions of the License Agreement, the parties hereby designate the following application or module a “Designated Magna Application”, within the meaning set out in the License Agreement, on a [non-exclusive / exclusive] basis.

[Insert name of Designated Magna Application]

This Designation Addendum is agreed to between the parties as of the ______day of ___________, ______.

Licensor hereby certifies that all of the representations and warranties in Article 9 of the License Agreement are true and correct on the date hereof as if made on and as of the date hereof, except as Licensor has otherwise informed the Corporation in writing.

MAGNA Drivetrain AG & Co KG	IKONA GEAR USA, INC.
by its authorized signatories:	by its authorized signatories:
By: __________________________	By: __________________________
Name:	Name:
Title:	Title:
By: __________________________	By: __________________________
Name:	Name:
Title:	Title:
IKONA GEAR INTERNATIONAL, INC.
by its authorized signatories:
By: __________________________
Name:
Title:
By: __________________________
Name:
Title:

EX-10.2

DEVELOPMENT AGREEMENT

          THIS AGREEMENT is entered into this 24^th day of October, 2005, between **, with offices located at 10500 W. 153rd St, Orland Park, IL 60462-3099 (hereinafter referred to as “BUYER”), and Ikona Gear Corp., with offices located at Unit 1-1850 Hartley Avenue, Coquitlam, B.C., V3K 6A1 (hereinafter referred to as “SELLER”). ** Portions of this exhibit have been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions.

     1. Scope of Work. Seller agrees to develop and produce one (1), ** Antenna Pedestal in accordance with the attached ** specification 216064, Rev. A (herein referred to as the “Product”). The Seller also agrees to provide the Solid Works® model, and will supply drawings in accordance with ** specification 216064, Rev. A upon the Buyer exercising its option to either purchase units or have units manufactured under license. The Buyer has the option of purchasing additional units of the Product per Option 1 in Attachment A. In undertaking such development and testing, Seller shall meet the Buyer’s technical requirements and each party hereto shall use commercially reasonable efforts to perform all of its obligations set forth in the specifications and applicable Statement of Work, if any. The parties may amend specification 216064 at a later date. Except as otherwise specifically provided in Section 2, Seller shall be solely responsible for all of its costs and expenses incurred by Seller and associated with the development and testing of the Product, in accordance with ** specification 216064, Rev. A . ** Portions of this exhibit have been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions.

     2. Agreement Price. The Agreement Price is the total price for all Products and deliverables as detailed in Attachment A, Products, Prices, Options and Milestone Payment Schedule, and includes any Buyer Options exercised by Buyer, except for Buyer Options exercised in accordance with Section 3 hereunder. Prices are in US dollars and payments shall be made in US dollars.

     3. Volume Production. Following successful development of the Product in accordance with this Agreement, the Buyer, or other ** companies or by Buyer appointed third party may, at its sole discretion, enter into a separate manufacturing, supply and support agreement to be mutually negotiated by the Buyer and Seller, for the provision of volume production units at the firm fixed prices set forth under Buyer Options in Attachment A. It is expressly understood and agreed that Buyer shall have no obligation under this Agreement to purchase volume production units or enter into a manufacturing, supply and support agreement with the Seller for purchase of the volume production units. It is also understood that it is the mutual interest of both parties to have the Seller manufacture, supply and support the Product for one year prior to training third parties or the Buyer on appropriate manufacturing and handling procedures for the new technologies incorporated in the Product. In the event that Buyer seeks to appoint a third party manufacturer for the Product, Buyer shall offer Seller the right of first refusal to match the third party’s offer. If the Sell is unable to meet the third party’s offer, and a third party manufacturers the Product, the Buyer agrees to pay a fixed royalty of ** per Product to maintain the exclusivity requirements of Section 13. If the Buyer is unable to meet the volume requirements of Section 13 and exclusivity is lost, the Buyer agrees to pay a royalty of ** per Product manufactured by a third party. ** Portions of this exhibit have been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions.

     4. Ownership of Tooling. Provided the Buyer has accepted the Product as per Attachment A, Item 1 (c), and provided the buyer has exercised an option to order Additional Product, or license Additional Product, any Tooling created specifically for the production of the Product shall be owned by the Buyer. The Seller agrees to deliver such Tooling to the Buyer at the Buyers request. Shipping costs shall be the responsibility of the Buyer.

     5. Payment Terms. Unless otherwise agreed in writing by the parties, the Agreement Price shall be paid in accordance with the milestone payment schedule in Attachment A. Payments shall be due upon receipt of invoice.

     6. Delivery, Risk of Loss and Title Transfer. Delivery schedule for the Products shall be in accordance with the schedule in Attachment A. Risk of loss and title transfer to the Products shall occur upon delivery FCA Buyer’s facility (INCOTERMS 2000).

     7. Force Majeure. Seller shall not be liable for any delivery delays due to acts of God, acts of the public enemy, fires, floods, acts of any government, acts of Buyer or other delays due to causes beyond its reasonable control and without the fault of Seller. In the event of any such contingency, Seller shall be given a reasonable period of time in which to complete the performance of its obligations. If such contingency continues in effect for a period in excess of thirty (30) days, Buyer may cancel the agreement and/or purchase order, or any undelivered portion thereof, without liability to Seller.

Page 1 of 6

     8. Acceptance. Buyer shall inspect the Products within sixty (60) days after delivery and shall notify Seller in writing of any nonconforming Products. Buyer’s failure to notify Seller within this time period or its use of the Products shall constitute final acceptance of the Products and shall waive all claims of non-conformity, except such claims governed by the terms of the Warranty. Any Product rejected as nonconforming by Buyer within the inspection period shall be returned to Seller at Seller’s sole expense. Seller shall replace the rejected Product in a prompt and reasonable time period and shall pay all transportation charges to ship the Product replacement to Buyer.

     9. Warranty. Seller warrants that for a period of the earlier of eighteen (18) months from the date of shipment or twelve (12) months in operation, the Products will be free from defects in material, workmanship and design work which arise under proper and normal use and service. Buyer’s exclusive remedy hereunder is limited to Seller’s repair or replacement such defective Product at no cost to Buyer.

     10. Excessive Failure. In the case of an Excessive Failure (hereinafter defined) of a Product, Seller shall, at no cost to Buyer, promptly assist Buyer in analyzing the cause of the failure and the solution to fix such failure. An “Excessive Failure” shall be defined to have occurred in the event of a failure of the Product due to a defect in material, workmanship and design work, for a period beginning on the date of receipt by Buyer and ending twenty-four (24) months thereafter, where such aggregate failure rate exceeds 2% during a quarterly measurement period with respect to the Product.

     11. Ownership of Existing Rights. Each Party shall continue to own all intellectual property that was owned by such Party prior to this Agreement. All inventions conceived or first actually reduced to practice solely by Seller under this Agreement, and all intellectual property rights resulting therefrom, shall be the exclusive property of Seller. All inventions conceived or first actually reduced to practice solely by Buyer under this Agreement, and all intellectual property rights resulting there from, shall be the exclusive property of the Buyer.

     12. Ownership of Product. The Seller, whether directly or indirectly, agrees to sell the Product only to the Buyer or other ** companies or a Buyer appointed third party. ** Portions of this exhibit have been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions.

     13. Ownership of Intellectual Property. Seller hereby grants to Buyer a five (5) year exclusive, fully paid-up worldwide license, to use, operate or maintain, sell or offer for sale the Product using patents or other intellectual property rights covering the Seller’s Gear Technology that is incorporated in the Product. This license is limited to Government and Military tactical terminals including mobile, transportable, flyaway, and quick deploy antennas. During such period, Seller hereby agrees not to offer or sell its Gear Technology either directly or indirectly to any other party for use in the aforementioned antenna products. Such license shall be subject to the following yearly volume commitments:

     a) Year 1 – total of 5 Products ordered 
     b) Year 2 – total of 25 Products ordered 
     c) Year 3 – total of 50 Products ordered 
     d) Year 4 – total of 100 Products ordered

Products ordered shall include Products made by the Seller and/or Products manufactured by a third party. The Buyer shall pay the Seller a Royalty per Product, as specified in Section 3, for Product manufactured by a third party while the exclusivity clause of this Section 13 is in effect. In the event that any of the individual yearly volume commitments above are not met, Seller agrees to extend Buyer protection on the price of the Product and terminate the exclusivity. If Seller terminates the exclusivity hereunder, Buyer may in its sole discretion terminate this Agreement in whole or part subject to the conditions herein.

The Seller hereby grants the Buyer a five (5) year right of refusal to exclusively license its intellectual property rights for the products in the Government and Military market on terminals in Gateways (3.7m to 20m) operating in C, X, Ku and Ka bands, provided the Seller develops the sub-assemblies for these products, and provided the Seller receives a fixed royalty which is proportional to the royalty of the current Product ** times the price of the new product divided by the price of the current Product. ** Portions of this exhibit have been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions.

Except as expressly set forth herein, no license or other right is granted under this Agreement to Seller or Buyer, either express or implied.

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     14. Termination for Convenience. Buyer may terminate this Agreement, without cause, any time after the completion of Milestone 1, as specified in Attachment A upon written notice to Seller. In such event, Buyer’s sole obligation to Seller shall be to pay for all out of pocket costs incurred by Seller (labor, material and services only), upon submission to Buyer of reasonable backup documentation for work completed through the date of termination; provided Seller complies with any instructions from Buyer in its notice, but in no event shall Buyer be entitled to recovery of any unabsorbed overhead, anticipatory profits or losses for termination except as expressly set forth in this Section 12. Seller’s costs shall be determined in accordance with generally accepted accounting principles and, if requested by Buyer, verified by an independent certified public accounting firm of national reputation mutually acceptable to both Parties; all costs associated therewith shall be paid by Buyer.

     15. Termination for Default. Notwithstanding Section 12, Seller or Buyer may immediately terminate this Agreement: (i) for default, if the other party fails to cure a material breach of this Agreement within thirty (30) days after receipt of written notice describing such breach; (ii) if the other party undergoes a change in ownership or controlling interest; (iii) if the other party becomes insolvent, files a petition in bankruptcy, is placed in control of a receiver or makes an assignment for the benefit of creditors. Upon termination of this Agreement for default, the non-breaching party shall have the right to pursue all rights and remedies available at law or in equity subject to the limitations in this Agreement. The prevailing party shall be entitled to recover reasonable attorneys fees and any other costs incurred in initiating any legal action or proceeding to enforce the provisions of this Agreement.

     16. Indemnity. Seller, at its own expense, shall indemnify and hold Buyer, its directors, officers, employees, agents, subsidiaries, affiliates, customers, designees, and assignees harmless from any loss, damage, liability or expense, on account of , or damage to property and injuries, including death, to all persons, arising from any occurrence caused by any negligent or willful act or omission of Seller or its subcontractors related to the performance of this Agreement. Seller, at its expense, shall defend any suit or dispose of any claim or other proceedings brought against said indemnities on account of such damage or injury, and shall pay all expenses, including attorneys fees, and satisfy all judgments which may be incurred by or rendered against said indemnities.

     17. Patent Infringement Assurance. Seller shall, at its own expense, settle or defend any claim, suit or action which may be brought against Buyer for infringement of United States patents arising out of Buyer’s use of Seller’s products. Seller shall pay any final judgment for damages and costs which may be awarded against Buyer, provided that Buyer promptly notifies Seller of any such claim, suit or action and affords Seller complete control of the conduct of such settlement or defense, and that Buyer provides Seller with all available information regarding such claim, suit or action. Seller may, at its own expense, elect to procure for Buyer the right to continue using the allegedly infringing products, or replace it with non-infringing products, or modify it so that it becomes non-infringing products, or remove it and repay the purchase price applicable thereto, as well as transportation costs. This paragraph shall not apply to any infringement arising out of any feature incorporated in the product at the request of Buyer or from the use of the product for purposes other than as advertised, sold or intended by Seller. In no event shall Seller’s total liability to Buyer under the provisions of this article exceed the aggregate sum paid to Seller by Buyer for the allegedly infringing product. The foregoing states the entire warranty by Seller for patent infringement of the product and any part of it.

     18. Confidentiality. During the Term each party shall hold in trust as confidential and secret and, without the prior written consent of the other party, shall not disclose, distribute or disseminate to any other Person any Confidential Information furnished to such party by the other party pursuant to this Agreement. Each party shall use the Confidential Information solely for the purposes set forth in this Agreement. Each party agrees to handle Confidential Information belonging to the other party with at least the same degree of care as it handles its own proprietary information and to take all reasonable precautions to prevent its officers and employees from disclosing Confidential Information to others and from utilizing the same for any purpose other than this Agreement. Both parties shall enforce such undertaking in respect of any actual or threatened breach of confidentiality provided for in this Agreement by such agent or employee to the extent permissible at law.

     19. Trademarks. Seller shall not use any mark or trade name of Buyer or refer to Buyer in connection with any Product, equipment, promotion, or publication without the prior written approval of Buyer. Buyer must use the mark and tradename of “Ikona Gear” and its relevant patents on the Product to alert customers to existing intellectual property protection extending to the Product under license.

Page 3 of 6

     20. Product Support. The Seller shall support the Products purchased hereunder during the operational life of the Products or for a period of fifteen (15) years from the date of final shipment under this Agreement. Said support includes, but is not limited to, technical services and maintenance of Seller© stock of subassemblies and spare parts as may be required to be ordered to support the operation of the Products. In the event the Seller discontinues manufacture of the aforementioned items and does not provide for another qualified source, the Seller shall make available to Buyer all drawings, specifications, data, manufacturing tools etc., which will enable Buyer or its customers to manufacture or procure said items under a royalty-free license which shall be granted, if and when required under Section 12.1.

     21. Right to Modify Product. Upon the completion of Milestone 5, per Attachment A, as the parties may agree, the Buyer has the right to modify the design of the Product, (defined as a ** Antenna Pedestal) for future requirements. The Buyer shall inform the Seller in writing, of any intent to modify the design. The Buyers waives any liability of the Seller due to changes made by the Buyer. ** Portions of this exhibit have been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions.

     22. Limitation of Liability. Except as otherwise stated in this Agreement, neither party shall be liable to the other party for loss or production, loss of profit, loss of use, loss of contracts or for any other consequential or indirect loss whatsoever.

     23. Notices. Any notice(s) required or permitted to be given or made in this Agreement shall be in writing. Such notice(s) shall be deemed to be duly given or made when it shall have been delivered by hand or registered mail to the Party to which it is required to be given or made at such Party’s address specified on the first page of this Agreement.

     24. Severability. If any provision of this Agreement conflicts with the law under which this Agreement is to be construed or if any such provision is held invalid by an arbitrator or a court with jurisdiction over the Parties, such provision shall be deemed to be restated to reflect as nearly as possible the original intentions of the Parties in accordance with applicable law. The remainder of this Agreement shall remain in full force and effect.

     25. Assignment. This Agreement shall be binding on the Parties hereto and their respective successors and permitted assigns. Neither Party may, or shall have the power to, assign this Agreement or delegate such Party’s obligations hereunder without the prior written consent of the other, such consent shall not be unreasonably withheld.

     26. Waivers. The failure of either party to enforce at any time for any period of time the provisions hereof shall not be construed to be a waiver of such provisions or of the right of such party thereafter to enforce each and every provision.

     27. Relationship of the Parties. Nothing in this Agreement may de deemed to constitute a partnership, joint venture or other legal relationship between Buyer and Seller other than that of Buyer and Seller and nothing contained in this Agreement authorizes either party to waive any obligation for which the other party may be responsible or to incur any liability on behalf of the other party.

     28. Disputes and Applicable Law. This Agreement shall be interpreted and governed by the substantive law of the State of New York.

     28.1 Arbitration. In the event of any dispute or difference arising out of this Agreement or the breach hereof, the Buyer and Seller agree to use their reasonable efforts to settle the same on an equitable basis through good faith consultation and negotiation between senior officers of each of them. If such dispute or difference is not so satisfactorily resolved within a period of thirty (30) days, then upon notice by either party to the other, the dispute or difference shall be finally settled by binding commercial arbitration conducted in accordance with the provisions of the Arbitrations Act (British Columbia), by one arbitrator appointed by mutual agreement of the Buyer and Seller.

     29. Changes. All change orders shall be made in writing and signed by authorized representatives of Buyer and Seller. In the event any change order causes an increase or decrease in the Product price or the time required for the performance of any obligation, Seller shall notify Buyer within twenty (20) business days after receipt of the change order and the parties shall negotiate an equitable adjustment to the Product price and/or delivery schedule.

     30. Survivability. The provisions of this Agreement that by their sense and context are intended to survive the termination of this Agreement shall so survive.

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     31. Entire Agreement. It is understood and agreed that this instrument contains the entire and only Agreement between the parties respecting the subject matter hereof, and any representation, promise or condition in connection therewith not incorporated herein shall not be binding upon either party.

          IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year above written.

**	Ikona Gear Corporation
By: ___________________________________	BY: /s/ Laith Nosh
Name: **	Name: Laith Nosh
Title: **	Title: President
Date: 24 October 2005	Date: 24 October 2005

** Portions of this exhibit have been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions.

Page 5 of 6

ATTACHMENT A
PRODUCTS, PRICES, OPTIONS AND
MILESTONE PAYMENT SCHEDULE

PRODUCTS/DELIVERABLES:

ITEM	DESCRIPTION	QUANTITY	PRICE (US$)	DELIVERY TIME
1.	Development of ** Pedestal in accordance with ** specification 216064, Rev. A consisting of Items 1(a), 1(b), 1(c) Calendar week 4, 2006	1 Lot	1(c )
1(a)	Non-recurring engineering	1 each	**
1 (b)	Qty 1 Product       Qty 2-5 Product(s)	1 each	(Included in Item 1a price)     NTE **/Unit	Calendar week 4, 2006       To be ordered Calendar Year 2006
1 (c)	Solid Works® Solid Model and Drawings in accordance with ** specification 216064, Rev. A	1 each	(Included in Item 1a price)	To be delivered upon Receipt of order of 5 Units

BUYER OPTIONS:

SELLER SHALL PROVIDE BUYER THE BELOW OPTIONS. Buyer may, at its sole discretion, exercise one or more of the options through written notice to Seller at the firm fixed prices shown hereunder.

OPTION	DESCRIPTION	QUANTITY	PRICE (US$)	DELIVERY TIME
1.	Additional Product	2-5	NTE * & **	Calendar year 2006

* Fixed price to be confirmed 1 week after Critical Design Review or approximately week 9-10 of development cycle, subject to any currency fluctuation +/- 5% from the Bloomberg rate as reported on a quarterly basis.

MILESTONE PAYMENT SCHEDULE:

MP #	MILESTONE AMOUNT	INVOICE SCHEDULE
1	25% of the Total Price in Item 1	Due upon signature of the Agreement by both parties.
2	25% of the Total Price in Item 1	Due upon Buyer’s acceptance of Preliminary Design Review per the requirements of ** Specification 216064, Rev. A.
3	25% of the Total Price in Item 1	Due upon Buyer’s acceptance of Critical Design Review per the requirements of ** Specification 216064, Rev. A.
4	25% of the Total Price in Item 1	Due upon receipt and acceptance of Product by the Buyer.

** Portions of this exhibit have been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions.

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Laith Nosh certify that:

1.	I have reviewed this Quarterly Report on Form 10-QSB of Ikona Gear International, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4.	The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5.	The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.

Date: January 20, 2006	/s/ Laith Nosh
	Laith Nosh, CEO, Principal Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Raymond Polman, certify that:

1.	I have reviewed this Quarterly Report on Form 10-QSB of Ikona Gear International, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4.	The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5.	The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.

Date: January 20, 2006	/s/ Raymond L. Polman
	Raymond L. Polman, CA, CFO, Principal Financial Officer

EX-32.0

Exhibit 32.0

CERTIFICATION PURSUANT OF
CHIEF EXECUTIVE OFFICER AND CHIEF FINANACIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     This Certificate is being filed pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002. This Certification is included solely for the purposes of complying with the provisions of Section 906 of the Sarbanes-Oxley Act and is not intended to be used for any other purpose. In connection with the accompanying Quarterly Report on Form 10-QSB of Ikona Gear International, Inc. for the quarter ended November 30, 2005, the undersigned hereby certify in their capacities as Chief Executive Officer and Chief Financial Officer of Ikona Gear International, Inc. that to their knowledge:

1.	such Quarterly Report on Form 10-QSB of Ikona Gear International, Inc. for the quarter ended November 30, 2005, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	the information contained in such Quarterly Report on Form 10-QSB of Ikona Gear International, Inc. for the quarter ended November 30, 2005, fairly presents, in all material respects, the financial condition and results of operations of Ikona Gear International, Inc.

IKONA GEAR INTERNATIONAL, INC.

Dated: January 20, 2006	/s/ Laith Nosh
	Laith Nosh
	Chief Executive Officer
Dated: January 20, 2006	/s/ Raymond L. Polman
	Raymond L. Polman, CA
	Chief Financial Officer