New filing at Sedar. The good, the bad, and the ugly. Couldn't help myself.
Annual info.
sedar.com
On December 22, 1998, the Company and NKC Holdings entered into an agreement (the "Joint
Venture Agreement") with Kaon to form a joint venture to develop a web site (www.newkidgames.com) as
an interactive three-dimensional video game web site and portal for young children. This joint venture has
an exclusive perpetual license to use Kaon's HyperActive, a three dimensional interactive technology which
is intended to allow high quality single and multi-player, three dimensional interactive games to be played
over the Internet using standard browsers and dial-up modems. The continued exclusivity of this license is
conditional upon the joint venture obtaining financing in accordance with the terms of the Joint Venture
Agreement. It is intended that the web site will deliver full-featured innovative interactive video games (with
frequent updates) based on well known characters, as well as offer features such as multi-player contests,
family game play, chat and greetings. The objective of this joint venture is for the web site to become a
preferred Internet portal for young children. The Company anticipates that the web site will be launched in
the latter part of 2000.
In connection with the establishment of this joint venture and pursuant to an agreement dated
December 22, 1999, NKC Holdings purchased an aggregate of 250,000 Series A Convertible Preferred
Shares of Kaon at a price of $1.00 per share. Pursuant to the Joint Venture Agreement, each of Kaon and
NKC Holdings will contribute a minimum of $125,000 to the joint venture. Subject to certain conditions,
Kaon also has the option of requiring NKC Holdings to purchase up to an additional 125,000 Series A
Convertible Preferred Shares of Kaon at a price of $1.00 per share, which option must be exercised by Kaon
on or prior to June 30, 2000. Kaon must use the proceeds it receives from any such purchase of shares by
NKC Holdings for purposes of the joint venture. The Company and Kaon anticipate that the joint venture
will be carried on as a Delaware "C" corporation and will be run by a separate management team to be
assembled during 2000. NKC Holdings currently owns a 50% interest in this joint venture and it is intended
that the joint venture will seek to raise additional capital from third parties over the next two years to finance
the development of the web site. There can be no assurances that this joint venture will be profitable nor that
it will be able to raise sufficient capital to adequately finance the development and/or launch of the website.
Product Development
The only development projects which have been undertaken by the Company relate to the
development of its video game console products. The Company uses external resources to develop all of its
products. Each development project is led by a "Producer", who is typically an employee of the Company.
The Producer co-ordinates the activities of the external studios and acts as a liaison between the hardware
licensor and the licensor of the character on which the game is based. The Company also uses external
resources to test the products before they are manufactured.
The Company believes that by utilizing external resources to develop and test products it can better
control the cost of developing products and minimize its fixed operating costs. The Company seeks
competitive bids for each new development project. The payment structure of product development contracts
usually requires the payment by the Company of advanced royalties upon the achievement of certain
milestones by the developer. The advance royalties are deducted from royalties earned upon commencement
of product shipping. The royalties are usually calculated as a percentage of the Company’s net revenues from
a particular title.
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SoftQuad Inc.
In connection with the Company's decision to focus exclusively on its video game business through
its NewKidCo subsidiary, the Company sold all of the assets of its SoftQuad Inc. subsidiary in September
1998. Pursuant to the sale of such assets, NewKidCo acquired and currently owns 351,850 exchangeable
shares of SoftQuad Acquisition Corp., which shares are exchangeable for common shares of SoftQuad. The
common shares of SoftQuad trade on the Nasdaq bulletin board under the symbol "SXML". The Company
has agreed to certain restrictions on the resale of the exchangeable shares of Softquad Acquisition Corp. and
the common shares of Softquad issuable upon the exchange thereof, which restrictions will be removed on
a staged basis during the period ending May 31, 2001. In addition, such exchangeable shares and common
shares are subject to certain restrictions under United States securities laws prohibiting the resale of such
shares without registration with the SEC or the availability of an exemption therefrom. The Company
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pledged the shares of Softquad Acquisition Corp. as security in connection with the secured credit facility
described under "Recent Developments" and may also use such shares as security for payment due to a
licensor. The shares will revert to the Company upon payment of the obligations. See also the audited
consolidated financial statements of the Company for the fiscal year ended December 31, 1999, for additional
information in respect of the Company’s interest in the exchangeable shares of SoftQuad Acquisition Corp. |
