Note 11 — Joint Ventures

The Company owns a fifty percent interest in a joint venture (“Pacific Animation Partners”) with the U.S. entertainment subsidiary of a leading Japanese advertising and animation production company. The joint venture was created to develop and produce a boys’ animated television show, which it licenses worldwide for television broadcast as well as consumer products. The Company produces and markets toys based upon the television program under a license from the joint venture, which has also licensed certain other merchandising rights to third parties. The Company is responsible for fifty percent of the operating expenses of the joint venture and thirty-one percent of the production costs of the television show. The joint venture completed and delivered 65 episodes of the show, which began airing in February 2012, and has since ceased production of the television show. The Company’s investment is being accounted for using the equity method. For the three months ended September 30, 2014 and 2015, the Company recognized income of nil and $0.1 million from the joint venture, respectively, including producer fees and royalty income from the joint venture in the amount of nil for both periods. For the nine months ended September 30, 2014 and 2015, the Company recognized income of $0.3 million and $0.1 million from the joint venture, respectively, including producer fees and royalty income from the joint venture in the amount of nil for both periods.

As of December 31, 2014 and September 30, 2015, the balance of the investment in the Pacific Animation Partners joint venture includes the following components (in thousands):

	December 31,			September 30,
	2014			2015
Capital contributions	$	3,856		$	3,856
Equity in cumulative net loss		(3,856	)		(3,856	)
Investment in joint venture	$	—		$	—

In September 2012, the Company entered into a joint venture (“DreamPlay Toys”) with NantWorks LLC (“NantWorks”) in which it owns a fifty percent interest. Pursuant to the operating agreement of DreamPlay Toys, the Company paid to NantWorks cash in the amount of $8.0 million and issued NantWorks a warrant to purchase 1.5 million shares of the Company’s common stock at a value of $7.0 million in exchange for the exclusive right to arrange for the provision of the NantWorks recognition technology platform for toy products. The Company has classified these rights as an intangible asset and is amortizing the asset over the anticipated revenue stream from the exploitation of these rights. The joint venture entered into a Toy Services Agreement (the “TSA”) with NantWorks with an initial term of three years expiring on October 1, 2015 and a renewal period at the option of the Company expiring October 1, 2018, subject to the achievement of certain financial targets, to develop and produce toys utilizing recognition technologies owned by NantWorks. Under the terms of the TSA, NantWorks is entitled to receive a preferred return based upon net sales of DreamPlay Toys product sales and third-party license fees. Pursuant to an amendment, the TSA was renewed to September 30, 2018 in exchange for $1.2 million payable to NantWorks over a two-year period, subject to the achievement of certain financial targets. The accrued preferred return for NantWorks was approximately $530,789 and $295,457 for the three months ended September 30, 2014 and 2015, respectively, and $614,753 and $359,452 for the nine months ended September 30, 2014 and 2015, respectively. The Company retains the financial risk of the joint venture and is responsible for the day-to-day operations, including development, sales and distribution, for which it is entitled to receive any remaining profit or is responsible for any losses, and the results of operations of the joint venture are consolidated with the Company’s results.

In addition, the Company purchased for $7.0 million in cash a five percent economic interest in a related entity, DreamPlay, LLC, that will exploit the proprietary recognition technologies in non-toy consumer product categories. NantWorks has the right to repurchase the Company’s interest for $7.0 million. The Company has classified this investment as a long term asset on its balance sheet and is accounting for it using the cost method. As of September 30, 2015 the Company determined that the value of this investment will be realized and that no impairment has occurred.

In November 2014, the Company entered into a joint venture with Meisheng Culture & Creative Corp., for the purpose of providing certain JAKKS licensed and non-licensed toys and consumer products to agreed-upon territories of the People’s Republic of China. The joint venture includes a subsidiary in the Shanghai Free Trade Zone that is expected to sell, distribute and market these products, which can include dolls, plush, role play products, action figures, costumes, seasonal items, technology and app-enhanced toys among others. The Company owns fifty-one percent of the joint venture.

In May 2015, the Company recognized $1.7 million of income for funds received in 2015 related to a former video game joint venture in partial settlement of amounts owed to the Company when the joint venture partner was liquidated pursuant to their 2012 bankruptcy filing. It is not known if any additional funds will be received by the Company.