WEBTOON Entertainment Inc

Notes to Condensed Consolidated Financial Statements

Note 1. Description of Business and Summary of Significant Accounting Policies

Organization and Description of Business

WEBTOON Entertainment Inc. (the "Parent"), together with its subsidiaries, (the "Company", "we", “us” or “our”), is a majority-owned subsidiary of NAVER Corporation (“NAVER”), who is a leading online and web-comic platform service company. We provide hosting services for compact web-comics through both web and mobile applications and offer thousands of titles with episodes that are updated on a daily basis. We offer extensive and diverse genres of content, including fantasy, romance, and science fiction, on our platform. Platform refers to the various offerings through which we engage with users across diverse geographical markets including Korea, the United States, Japan, Southeast Asia, and Europe.

Wattpad Corporation ("Wattpad"), together with its subsidiaries, is a global multi-platform entertainment company for original stories, content and advertising which became a wholly-owned subsidiary of NAVER and a sister entity of the Parent when it was acquired by NAVER on May 10, 2021. On June 1, 2023, the Parent entered into a stock contribution agreement with NAVER pursuant to which the Parent acquired 100% of the common shares of Wattpad in exchange for 12,413,458 shares of the common stock of the Parent (the "Wattpad Transfer").

The Wattpad Transfer was accounted for as a common control transaction in a manner similar to the pooling-of-interest method. Thus, the financial statements of the commonly controlled entities were combined, retrospectively, as if the transactions had occurred as of January 1, 2022.

Basis of Presentation

For the period prior to June 1, 2023, the accompanying unaudited interim financial statements and footnotes present the combined Parent and Wattpad consolidated financial information. For the period after June 1, 2023, Wattpad is presented as part of the Company consolidated financial information. These financial statements and footnotes are therefore referred to as "Condensed Consolidated Financial Statements" throughout. NAVER’s equity interest in Wattpad during the period preceding the Wattpad Transfer is reflected within "Group Equity" within the Condensed Consolidated Statements of Stockholders' Equity and Group Equity. Upon completion of the Wattpad Transfer, the Company acquired NAVER's equity interest in Wattpad and the Group Equity is no longer applicable.

The unaudited condensed consolidated interim financial information reflects all normal recurring adjustments that are, in the opinion of management, necessary for fair statement of the results of the interim period. Certain information and note disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2023. Interim results are not necessarily indicative of the results for a full year.

The following is provided to update the Company’s significant accounting policies previously described in the Company’s audited consolidated financial statements and notes as of and for the year ended December 31, 2023 included in the final prospectus dated June 26, 2024, as filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (Registration No. 333-279863) (the "IPO Prospectus").

Receivables, net of allowance for credit losses

Receivables, net of allowance for credit losses, are stated at their carrying value, net of allowance for credit losses based on lifetime expected losses. Receivable balances are primarily receivables due from payment gateway providers relating to sales processed for the Company’s online platform service business, as well as receivables from advertising activities, net of estimated allowances for credit losses. The Company estimates the allowance for credit losses based upon historical experience, the age and delinquency rates of receivables and the credit quality of the customers, as well as economic and regulatory conditions combined with reasonable and supportable management forecasts of collectibility and other economic factors over the lifetime of the receivables. The Company writes off accounts against the allowance for credit losses when they are deemed to be uncollectible.

Reclassifications

Certain amounts reported for prior years have been reclassified to conform to the current year's presentation.

Concentrations of Credit Risk

Cash and cash equivalents, receivables and loan receivables are potentially subject to concentration of credit risk. Cash, cash equivalents, and restricted cash are placed with several financial institutions that management believes are of high credit quality. The Company’s receivable include amounts concentrated with three payment gateway companies representing 53.4% and 49.6% of the total receivables balance as of June 30, 2024 and December 31, 2023, respectively.Three borrowers represent 89.0% and 96.6% of the total loan receivables balance as of June 30, 2024 and December 31, 2023, respectively.

Forward Stock Split, Change in Par Value, Initial Public Offering

On June 26, 2024, the Company filed an Amended and Restated Certificate of Incorporation (the “Amended Charter'') which effectuateda 30-for-1 forward stock split of its common stock and adjusted the par value of its common stock from $0.01 to $0.0001 on such date. Accordingly, all share and per share amounts presented in the Condensed Consolidated Financial Statements have been retroactively adjusted to reflect the stock split and change in par value for all periods presented. In lieu of issuing fractional shares, the Company opted to pay the holder thereof an amount in cash equal to the fair market value of such fractional share. The Amended Charter authorized 2,100,000,000 shares of capital stock, consisting of 2,000,000,000 shares of common stock, par value $0.0001 per share, and 100,000,000 shares of undesignated preferred stock, par value $0.0001 per share. No preferred stock was issued and outstanding as of June 30, 2024 and December 31, 2023.

On June 28, 2024, the Company completed its initial public offering (the “IPO”) in which it issued and sold 15,000,000 shares of its common stock at a public offering price of $21.00 per share. The Company received proceeds of approximately $281.7 million from the IPO, net of underwriting discounts and commissions of $22.1 million and offering costs of $11.2 million. Additionally, the underwriters have the option, for a period of 30 days, to purchase up to an additional 2,250,000 common shares at the public offering price, less the underwriting discount and commissions to cover over-allotment. On July 26, 2024, the underwriters exercised the over-allotment option to purchase 1,371,549 shares of common stock for proceeds of $26.8 million, net of underwriting discounts and commissions.

Substantially concurrently with the closing of the IPO, the Company issued 2,380,952 shares of common stock to NAVER U.Hub Inc., a wholly-owned subsidiary of NAVER, at the public offering price of $21.00 per share for aggregate proceeds of $50.0 million.

Prior to the IPO, deferred offering costs, which consist of direct incremental legal, accounting, and other fees relating to the IPO, were capitalized in Other non-current assets on the Condensed Consolidated Balance Sheets. Upon completion of the IPO, all deferred offering costs were reclassified into stockholders’ equity as an offset against proceeds from the IPO. In addition, as of June 30, 2024, the Company had accrued a$30.0 million cash bonus that became due to the chief executive officer upon completion of the IPO. The bonus was paid out, less applicable payroll related taxes and expenses, in July 2024.

Stock-Based Awards Issued to Employees of NAVER

The Company issues stock-based awards to employees of NAVER that do not render services to the Company. The Company measures the award based on the grant-date fair value and accounts for the awards as a dividend distribution to NAVER following the attribution principles of Topic 718.

Stock-Based Compensation

Prior to the IPO, the grant-date fair value of stock-based awards was primarily determined using the estimated fair value of the Company's common stock. Common stock fair value estimates were developed by considering numerous objective and subjective factors that required judgment. Subsequent to the IPO, the Company determines the fair value of its common stock using the market closing price on the grant date.

Change in Filer Status

Upon completion of the IPO, the Company ceased to be an "emerging growth company" ("EGC"), as defined in the Jumpstart our Business Startups Act of 2012 ("JOBS Act"), due to exceeding the annual gross revenue threshold. Accordingly, we may no longer take advantage of EGC-related reduced reporting requirements that delay the adoption of new or revised accounting standards that are otherwise applicable to public companies. As the Company has been a public company for less than twelve months and has not yet filed a Form 10-K, the Company complies with non-accelerated public company filer effective dates of adoption. The loss of EGC status did not have a significant impact on our Condensed Consolidated Financial Statements.

Recent Accounting Pronouncements Adopted

In March 2023, the Financial Accounting Standard Board ("FASB") issued Accounting Standard Update ("ASU") 2023-01, Leases (Topic 842), Common Control Arrangements, which clarifies the accounting for leasehold improvements associated with common control leases. This update is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The adoption of ASU 2023-01 did not have a material impact on our Condensed Consolidated Financial Statements.

Recent Accounting Pronouncements Yet to Be Adopted

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures, which amends Topic 280 primarily through enhanced disclosures about significant segment expenses. This update is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. ASU 2023-07 became effective for us on January 1, 2024, for the fiscal year ending December 31, 2024 and will become effective on January 1, 2025 for interim periods on a retrospective basis for all periods presented in the financial statements. We are currently evaluating the impact of the adoption of this accounting pronouncement on our Condensed Consolidated Financial Statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes - Improvements to Income Tax Disclosures, which requires enhancements and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2025 on a prospective basis and retrospective application is permitted. We are currently evaluating the impact of the adoption of this accounting pronouncement on our Condensed Consolidated Financial Statements.

Note 2. Revenue

Disaggregation of Revenue

The following table shows revenues disaggregated by revenue stream for the three months ended June 30, 2024 and June 30, 2023, respectively and for the six months ended June 30, 2024 and June 30, 2023, respectively:

The revenue stream disaggregation above takes into consideration how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Paid content revenue is generated from the provision of platform services that enable users to access content. Paid content revenue also includes$2.5 million and $1.8 million of physical book sales through the platform for the three months ended June 30, 2024 and June 30, 2023, respectively and$5.2 million and $3.8 million for the six months ended June 30, 2024 and June 30, 2023, respectively. Advertising revenue represents amounts earned for the display of advertisements on our offerings or product placement within content. IP Adaptations include the internal development of film, streaming series, or other rich media format adaptations commissioned by third party studios or streaming platforms; the license fees generated from sub-licensing content to third parties are$3.6 million and $2.8 million for the three months ended June 30, 2024 and June 30, 2023, respectively, and$6.8 million and $6.0 million for the for the six months ended June 30, 2024 and June 30, 2023, respectively; as well as$3.4 million and $2.1 million of merchandise sales generated through external platforms, IP royalties, and pop-up stores for the three months ended June 30, 2024 and June 30, 2023, respectively, and$8.8 million and $3.4 million for the six months ended June 30, 2024 and June 30, 2023, respectively.

Contract Liabilities

Contract liabilities primarily include payments received for virtual currency prior to the Company satisfying its performance obligation to deliver content to the customer.

We recognized revenues of$65.8 million and $50.1 million during the three months ended June 30, 2024 and June 30, 2023, respectively, and$67.8 million and $54.9 million during the six months ended June 30, 2024 and June 30, 2023, respectively, that were included within Contract liabilities on the Condensed Consolidated Balance Sheets as of the beginning of the respective period.

Our remaining performance obligations were$97.5 million and $76.7 million as of June 30, 2024 and December 31, 2023, respectively, and we expect to recognize the entire amounts withinone year of the respective dates.

Note 3. Loss per share

For the three and six months ended June 30, 2023, for the purpose of calculating loss per share and as a result of the common control transaction as described in Note 1. Description of Business and Summary of Significant Accounting Policies, the weighted-average number of shares used in the calculation reflects the outstanding shares of Wattpad as if the equity structure of the Parent (the accounting acquirer) was retroactively stated to reflect the number of shares issued in the Wattpad Transfer.

Basic loss per share is computed using the weighted-average number of outstanding shares of common stock during the period, including vested restricted stock units ("RSUs"). Diluted loss per share is computed using the weighted average number of outstanding shares of common stock and, potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of incremental shares issuable upon the assumed exercise of stock options and vesting of unvested RSUs. For the three and six months ended June 30, 2024 and June 30, 2023, the Company's Korean subsidiaries and equity method investees each had outstanding stock options that will be settled in each respective subsidiary or equity method investee's common shares. The numerator of the Company's loss per share includes the Parent's proportionate share of the diluted earnings or loss per share impact of outstanding subsidiaries and equity method investees' stock options.

The following table sets forth the computation of basic and diluted loss per share, as adjusted on a retrospective basis to reflect the Stock Split as discussed in Note 1. Description of Business and Summary of Significant Accounting Policies, for the three months ended June 30, 2024 and June 30, 2023, respectively, and for the six months ended June 30, 2024 and June 30, 2023, respectively (in thousands of USD, except share and per share amounts):

Represents net loss allocable to Jakga Company Inc. ("Jakga") redeemable convertible preferred stock which is a participating security per ASC 260. Jakga became an equity method investee from a subsidiary when it was deconsolidated on March 28, 2024 (Refer to Note 14. Disposition for additional information for Jakga disposition).

The following potentially dilutive outstanding securities were excluded from the computation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented, or issuance of such shares is contingent upon the satisfaction of certain conditions which were not satisfied by the end of the period:

Note 4. Other Assets, net

Other Current Assets, net

Advance payments are primarily comprised of the payment of minimum guarantees to creators or publishers for their provision of content, such as web-comics, on the Company’s platform. The advance payments are amortized as associated commission expenses payable to creators or publishers are incurred. When the Company determines the estimated future commission expenses payable are less than the carrying amount of such advance payments, the remaining portion of that advance payment is charged to expense in the period in which such determination is made. The Company charged advance payments to expense due to such determination in the amounts of$0.1 million and $1.2 million as of June 30, 2024 and December 31, 2023, respectively.

Term deposits are bank deposits held by Korean and Japanese subsidiaries of the Company maturing between three months and one year as of June 30, 2024 and December 31, 2023. As of June 30, 2024 and December 31, 2023,$6.8 million and $7.1 million of the term deposit balance was pledged to Sumitomo Mitsui Banking Corporation as a compensating balance deposit on contract liabilities of the Company’s subsidiary in accordance with the Payment Services Act in Japan, respectively.

Other Non-Current Assets, net

Long-term advance payments represent the portion of advance payments expected to remain on the balance sheet beyond one year. When the Company determines the estimated future commission expenses payable are less than the carrying amount of the long-term advance payments, the remaining portion of that long-term advance payment is charged to expense in the period in which such determination is made. The Company charged long-term advance payments to expense due to such determination in the amounts of$4.1 million and $4.4 million as of June 30, 2024 and December 31, 2023, respectively.

Note 5. Goodwill, net

The changes in the carrying amount of goodwill for the six months ended June 30, 2024 and June 30, 2023 are as follows:

Accumulated impairment losses as of March 31, 2024 include$31.7 million of impairment charges and$(0.8) million of cumulative translation adjustments (“CTA") charges.

Accumulated impairment losses as of June 30, 2024 include$31.7 million of impairment charges and$(1.5) million of CTA charges.

In March 2024, the Company deconsolidated Jakga which resulted in the Company derecognizing goodwill related to the reporting unit of$13.6 million (see Note 14. Disposition). In June 2023, the Company deconsolidated LOCUS Inc. ("LOCUS") which resulted in the Company derecognizing goodwill related to the reporting unit of$30.3 million (see Note 14. Disposition). The Company is required to assess goodwill for impairment annually, or more frequently if circumstances indicate an impairment may have occurred. For the six months ended June 30, 2024 and June 30, 2023, the Company recognizedno goodwill impairment.

Note 6. Leases

Supplemental disclosure of cash flow information related to operating leases is as follows for the three months ended June 30, 2024 and June 30, 2023, respectively and for the six months ended June 30, 2024 and June 30, 2023, respectively:

In April 2024, the Company amended the lease term of an office located in Korea. The expiration date of the lease was amended from April 30, 2027 to October 31, 2024 resulting in a right-of-use assets decrease of$14.1 million and of which$0.9 million is comprised of thereversal of a restoration provision.

The Company subleases a portion of the operating lease right-of-use assets for buildings. Total other income generated from subleases is$0.1 million and $0.2 million for the three months ended June 30, 2024 and June 30, 2023, respectively, and$0.2 million and $0.3 million for the six months ended June 30, 2024 and June 30, 2023, respectively, and is included within Other income (loss), net of the Condensed Consolidated Statements of Operations and Comprehensive Loss.

Note 7. Debt

Short-Term Borrowings

The short-term debt from Industrial Bank of Korea held by Jakga which had a carrying value of $0.4 million as of December 31, 2023 with maturity date in June 2024 was derecognized from the Company's Condensed Consolidated Financial Statements as of June 30, 2024 due to Jakga deconsolidation on March 28, 2024. Consequently, the underlying collateral consisting of the Company's pledged assets, land and building, which were recorded as assets held for sale in the Company's Condensed Consolidated Financial Statements with a carrying value of $6.8 million as of December 31, 2023 were also excluded from the Company's Consolidated Financial Statements as of June 30, 2024. (Refer to Note 14. Disposition for additional information for Jakga disposition).

In April 2024, Studio N Corporation ("Studio N"), a subsidiary of the Company, repaid short-term borrowing of$3.6 million from NW Media Contents, Inc. ("NWMC").

Long-Term Debt

The long-term debt from Korea Small and Medium-sized Enterprises and Startups Agency (KOSME) held by Jakga which had a carrying value of $0.1 million as of December 31, 2023 with the maturity date in February and August 2025 was derecognized from the Company's Condensed Consolidated Financial Statements as of June 30, 2024 as Jakga was deconsolidated on March 28, 2024 (Refer to Note 14. Disposition for additional information for Jakga disposition).

Revolving Credit Facility

In February and April 2022, the Company entered intoone-year revolving credit facility arrangements with Shinhan Bank, KEB Hana Bank and Kookmin Bank. The revolving credit facility arrangements were extended for an additionalone-year term during the three months ended June 30, 2023 and the arrangements with Shinhan Bank and KEB Hana Bank were further extended for an additionalone-year term during the three months ended June 30, 2024. The revolving credit facility arrangements with Kookmin Bank ended in April 2024 and a new revolving credit facility arrangement was entered into for a period ofone-year, with a borrowing capacity of$21.6 million. As of June 30, 2024 and June 30, 2023, the Company hasnot drawn any amounts from these facilities.

Note 8. Commitments and Contingencies

Contingencies

The Company records a loss contingency, consistent with ASC 450, when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company also discloses material contingencies when it believes a loss is not probable but reasonably possible. Accounting for contingencies requires us to use judgment related to both the likelihood of a loss and the estimate of the amount or range of loss.

Legal Proceedings

The Company is involved in a number of claims pending with various courts, or otherwise unresolved as of June 30, 2024. Adverse results in these claims may include awards of damages and may also result in, or even compel a change in the Company’s business practices, which could materially impact the Company’s future financial results. The Company cannot determine the potential loss or a range of possible losses for cases in their initial stages or where there is an unclear and inconsistent interpretation of laws related to the industry-specific grievances across various jurisdictions. Though the outcome of pending lawsuits and claims cannot be anticipated with certainty, the Company does not expect adverse results from its pending lawsuits and claims as of June 30, 2024. The timing and outcome of ongoing legal proceedings are uncertain by nature. Therefore, while management deems the chance of a significant loss for all pending claims, whether asserted or unasserted, to be remote, the resolution of one or more of these legal matters against the Company during the same reporting period in excess of management's projections could negatively impact the Company's Condensed Consolidated Financial Statements for that reporting period.

Note 9. Stock-Based Compensation

2020 Plan

In November 2020, the Company’s Board of Directors approved and adopted the 2020 Equity Incentive Plan which was amended and restated in December 2021, February 2023 and in November 2023("2020 Plan"). The Company granted stock options that vest upon the satisfaction of both service-based and performance-based conditions and stock options that vest upon satisfaction of a service-based condition. In addition, the Company granted RSUs that vest upon the satisfaction of both service-based and performance-based conditions and RSUs that vest upon the satisfaction of either a service-based condition or a performance-based condition.

For the stock options and RSUs with the performance conditions satisfied upon the completion of the Company's IPO, the Company recorded$48.6 million in stock-based compensation expense, consisting primarily of a cumulative catch-up adjustment related to such awards based on the full or partial fulfillment of requisite service periods. Unrecognized stock-based compensation expense related to these awards will be recorded over the remaining requisite service period.

Stock options

The Company’s stock options are granted with exercise prices equal to the estimated fair value of common stock at the date of grant. Options with a service-based condition and performance-based condition vest on the third anniversary of the grant date, subject to the recipient remaining an employee of the Company. The performance-based condition was satisfied upon the completion of the Company's IPO. Options with only a service-based condition vest quarterly over three years from the vesting start date, subject to the recipient remaining an employee of the Company at each vesting date. Stock options issued under the 2020 Plan expire eight years from the grant date. As of June 30, 2024, the total unrecognized compensation expense related to unvested stock options was$16.6 million and is expected to be recognized over the remaining weighted-average service period of 1.77 years using the straight-line method, net of estimated forfeitures.

The table below summarizes the Company’s stock option activity:

Restricted Stock Units

Under the 2020 Plan, the Company granted RSUs with both aservice-based condition and a performance-based condition, RSUs with a service-based condition or a performance-based condition, and RSUs with a service-based condition. RSUs generally vest overone tothree years from the vesting start date, subject to the recipient remaining an employee of the Company at each vesting date. The performance condition was satisfied upon the completion of the Company's IPO. As of June 30, 2024, the total unrecognized compensation expense related to unvested RSUs was$52.0 million and is expected to be recognized over the remaining weighted-average service period of 2.16 years using the straight-line method and graded-vesting methods, as appropriate, net of estimated forfeitures.

The table below summarizes the Company’s RSU activity:

The following table presents the effects of stock-based compensation in the Condensed Consolidated Statements of Operations and Comprehensive Loss:

2024 Omnibus Incentive Plan

In June 2024, the Company's board of directors adopted, and the stockholders approved, the 2024 Omnibus Incentive Plan ("2024 Plan"), which became effective on June 14, 2024. The Company initially reserved 10,950,515 shares of common stock for issuance under the 2024 Plan. Under the 2024 Plan, the number of common shares reserved will be increased by 5% or any such smaller number of shares as determined by the board of directors beginning on January 1, 2025 through January 1, 2034. Shares of common stock subject to an award that expires or is canceled, forfeited or otherwise terminated without delivery of shares, shares tendered in payment of an option, shares covered by a stock-settled stock appreciation right or other award that were not issued upon settlement, and shares delivered or withheld to satisfy any tax withholding obligations will again be available for delivery pursuant to other awards under the 2024 Plan. The 2024 Plan provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, other share-based awards, other cash-based awards, substitute awards, and performance awards to employees, consultants, executives, and directors. As of June 30, 2024, no awards have been granted under the 2024 Plan.

Note 10. Income Taxes

The Company is subject to U.S. federal and various state corporate income taxes as well as taxes in foreign jurisdictions where foreign subsidiaries have been established.

The Company recorded an income tax expense of$1.9 million and$11.2 million in the three months ended June 30, 2024 and 2023, respectively. The Company recorded an income tax expense of$8.6 million and$13.6 million in the six months ended June 30, 2024 and 2023, respectively. The effective tax rate was(13.9)% and(55.5)% for the six months ended June 30, 2024 and 2023. During the six months ended June 30, 2024, the Company recognized a net discrete tax expense of $0.5 million, primarily due to the withholding taxes paid in various countries by its Korean subsidiary. During the six months ended June 30, 2023, the Company recognized a net discrete tax expense of $9.4 million, primarily due to audit payments made by its Korean subsidiary with respect to a tax audit assessment made by the Korean tax authority and withholding taxes paid in various countries by its Korean subsidiary.

The Company’s income tax provision for the six months ended June 30, 2024, is determined using an estimate of the Company’s annual effective tax rate, adjusted for any discrete items reflected in the relevant period. The effective tax rate for the three months ended March 31, 2024 and the six months ended June 30, 2024, were 50.6% and(13.9)%, respectively. The change in effective tax rate is primarily driven by losses generated from the vesting of stock-based compensation where no tax benefit could be realized. The provision for income taxes differs from the amount of income tax computed by applying the U.S. statutory federal tax rate of 21% to the loss before income taxes due to tax benefits not recognized as a result of a full valuation allowance established by the Company and most of its foreign subsidiaries along with withholding taxes paid in various countries by the Company's Korean subsidiary.

Note 11. Retirement Benefits

Defined severance benefits

The following table provides the components of net periodic benefit costs (income):

Defined severance contribution

During the three months ended June 30, 2024 and June 30, 2023, we recognized expense of$0.6 million and $0.9 million, respectively and for the six months ended June 30, 2024 and June 30, 2023 expense of$1.9 million and $1.5 million, respectively.

Note 12. Fair Value Measurements

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The table below presents the valuation techniques and the nature of significant inputs generally used in determining the fair value of Level 3 Instruments.

The tables below present the ranges of significant unobservable inputs used to value the Company’s Level 3 assets as of June 30, 2024 and December 31, 2023. These ranges do not represent a range of values for any single instrument. For example, the lowest discount rate for a particular redeemable convertible preferred stock investment may be appropriate for valuing that specific debt security but may not be appropriate for valuing any other debt securities in this asset class. Accordingly, the ranges of inputs presented below do not represent uncertainty in, or possible ranges of, fair value measurements of the Company’s Level 3 assets.

As noted above, either the binomial optional pricing model or market approach were used in the determination of fair value of Level 3 assetsas of June 30, 2024 and December 31, 2023. The significant unobservable inputs used in the binomial option pricing modelare the discount rate or market yield used to discount the estimated future cash flows expected to be received from the underlying investment, which include both future principal and interest payments. An increase in the discount rate or market yield would result in a decrease in the fair value. Included in the consideration and selection of discount rates or market yields is risk ofdefault, rating of the investment, call provisions and comparable company investments. The significant unobservable inputs used in the market approach are based on market comparable transactions and market multiples of publicly traded comparable companies. Increases or decreases in market comparable transactions or market multiples would result in an increase or decrease in the fair value.

The below tables present a summary of changes in fair value of Level 1 and Level 3 assets, included within Debt and equity securities in the Condensed Consolidated Financial Balance Sheets, by investment type (in thousands of USD):

The Level 1 equity securities relate to investments in public equity securities that have readily determinable fair values.

The Level 3 equity securities relate to the Company's investments in privately held companies through the purchase of convertible preferred stock, private equity securities, contribution to investment fund and redeemable convertible preferred stock. For these equity securities, the Company does not have the ability to exercise significant influence on the investee, and therefore accounts for them as equity securities under ASC Topic 321, Investments in Equity Securities.

The Level 3 debt securities relate to the Company's investments in privately held companies through the purchase of redeemable convertible preferred stock that meet the definition of a debt security.

For the six months ended June 30, 2024 and June 30, 2023, the Company didnot recognize any realized gain or loss on its Level 3 equity or debt securities.

Note 13. Related Parties and Variable Interest Entity

The Company’s Related Parties

NAVER and LY Corporation ("LY", formerly named Z Holdings Corporation) are the primary shareholders of the Parent. Related parties include NAVER's controlled affiliates, Company's management, Company directors, and stakeholders that hold significant influence over the Company. During the three and six months ended June 30, 2024 and June 30, 2023, the Company provided advertising services to NAVER group companies and LY giving rise to related party receivables as of June 30, 2024 and December 31, 2023. Additionally, during the three and six months ended June 30, 2024 and June 30, 2023, the Company received brand-usage and outsourcing services from NAVER and LY, which resulted in the Company recognizing related party payables as of June 30, 2024 and December 31, 2023.

In March 2022, the Company started leasing office space from NAVER. Operating lease expenses from the lease were$1.5 million and $1.5 million during the three months ended June 30, 2024 and June 30, 2023, respectively, and$3.0 million and $3.1 million during the six months ended June 30, 2024 and June 30, 2023, respectively, with related lease obligations of$1.9 million and $21.3 million as of June 30, 2024 and December 31, 2023, respectively (Refer to Note 6. Leasesfor additional information). The Company also subleases part of its office space to other related parties and the total other income generated from subleases was$0.1 million and $0.2 million for the three months ended June 30, 2024 and June 30, 2023, respectively and$0.2 million and $0.3 million for the six months ended June 30, 2024 and June 30, 2023, respectively.

In April 2022, Studio N, the Company's subsidiary received the NW Media Loan from NAVER, which was transferred to its subsidiary NWMC in June 2022. The NW Media Loan was extended for additional one-year in March 2023. The loan was fully repaid in April 2024 (Refer to Note 7. Debtfor additional information for NW Media Loan).

In February 2023, the Company issued a one-year loan to its related party, NAVER WEBTOON Company Corporation, for $11.6 million with a fixed interest rate of 5.26%. The loan was extended for additional one-year with a fixed interest rate of 4.6% in February 2024.

During the three and six months ended June 30, 2024 and June 30, 2023, transfers of employees between the Company and its non-consolidated affiliates resulted in the transfer of corresponding severance benefit obligations and cash which is reflected in Payment of severance benefits, net of cash transferred in the Condensed Consolidated Statements of Cash Flows.

The Company awarded a non-employee director with 2,832,270 stock options in exchange for non-director services in November 2020. Such options contained a performance-based condition which was satisfied upon the completion of the Company's IPO. The Company recorded the transaction as dividend of $16.6 million on such date as a reduction in additional paid-in capital as such director is employed by NAVER (See Note 1. Description of Business and Summary of Significant Accounting Policies for the treatment of stock-based awards issued to employees of NAVER).

eBOOK Initiative Japan Co., Ltd. ("eBIJ"), a subsidiary of the Company, receives reimbursements from LY for certain costs and expenses under their platform service agreement. The nature of the costs and expenses reimbursed primarily includes platform service fees, marketing related expenses and other outsourcing fees. For the three and six months ended June 30, 2024, eBIJ received a total gross reimbursement of $5.7 million and $12.0 million, respectively, which is deducting $3.7 million and $7.6 million for Cost of revenue, $1.6 million and $3.5 million for Marketing, and $0.5 million and $0.9 million for General and administrative expenses, respectively, in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

Related Party Transactions and Balances

The Company entered into the following significant related party transactions during the periods presented:

The Company had the following significant balances due from and due to related parties as of June 30, 2024 and December 31, 2023:

Common Stock Private Placement

Simultaneously with the closing of the IPO, the Company completed a stock purchase agreement with its related party, NAVER U.Hub Inc. ("U.Hub"), pursuant to which U.Hub agreed to purchase 2,380,952 shares of common stock of the Company for an aggregate purchase price of $50.0 million. The sale of such shares to U.Hub is not registered under the Securities Act and these shares are subject to a 180-day lock-up agreement with the underwriters in connection with this offering. The underwriters did not receive any fees in connection with the sale of such shares.

Variable Interest Entity

In August 2023, WWS, the Company's wholly-owned subsidiary, entered into a Limited Partnership Agreement with NWMC, a wholly-owned subsidiary of NAVER and a sister company of WEBTOON, to establish Bootcamp Limited Partnership ("Bootcamp") pursuant to Limited Partnerships Act of the Province of Ontario, Canada. Bootcamp aims to distribute or to arrange for the distribution of a film produced by GPM Boot Productions Inc. which is a film adaptation of a web-novel titled Boot Camp published on our platform.

WWS is the general partner (“GP”) of Bootcamp and manages as well as makes all operating decisions over Bootcamp and receives a 1.0% variable interest management fee based on contributed capital. NWMC is the sole limited partner (“LP”) and has no unilateral participating or kick-out rights over the GP. Bootcamp is a VIE over which WWS is the primary beneficiary because the LP with the equity at risk is not able to exercise substantive kick-out rights or participating rights and WWS has the obligation to absorb losses and right to receive benefits that could potentially be significant to Bootcamp. Accordingly, we consolidated Bootcamp into the Condensed Consolidated Financial Statements.

Note 14. Disposition

Jakga

On March 28, 2024, the Company entered into a stock transfer agreement with a third party (the “Buyer”), pursuant to which the Buyer agreed to acquire 0.3% of Jakga voting interests from the Company. The Company completed the sale for consideration of $0.1 million in cash. On the same day, Jakga entered into a share investment agreement with another third party, pursuant to which Jakga issued new shares of redeemable convertible preferred stock representing 3.5% of the voting equity interest of Jakga. Following the completion of the stock transfer agreement and the share investment agreement, the Company entered into a shareholder’s agreement to forgo its ability to appoint a member on Jakga’s board of directors to divest Jakga. The stock transfer agreement, share investment agreement, and shareholder’s agreement (collectively, the “Jakga Transactions”) resulted in a dilution of the Company’s ownership to 49.2% and losing controlling financial interest in Jakga. The Company deconsolidated Jakga on March 28, 2024 and accounted for the retained common stock as an equity method investment and the retained redeemable convertible preferred stock as a debt security (see additional details related to the redeemable preferred stock in Note 12. Fair Value Measurements). Jakga became a related party of the Company after the deconsolidation. As of the disposition date, the retained common stock and redeemable convertible preferred stock in Jakga were measured at fair value using a discounted cash flow model applying a discount rate of 15.1% and a terminal growth rate of 1.0% incorporating historical financial information, business plans of Jakga, and market outlook information. The Company recorded a $2.5 million loss on disposition of Jakga in Other income (loss), net in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Loss for the six months ended June 30, 2024. The loss includesthe accounting for assets sold, liabilities transferred upon sale and the loss of $2.1 million relating to the remeasurement of the retained interest in Jakga.

The Company has accounted for the transaction as follows (in thousands of USD):

LOCUS

On June 2, 2023, the Company entered into stock transfer agreements with two unrelated parties, (the “Buyers”) pursuant to which the Buyers agreed to collectively acquire 14.4% of LOCUS voting interests from the Company. On June 27, 2023, the Company completed the sale for an aggregate consideration of $5.0 million in cash. As a result of the sale, the voting interest of LOCUS held by the Company decreased from 53.6% to 39.2% and the Company no longer held a controlling financial interest in LOCUS, and deconsolidated LOCUS and its subsidiaries on June 27, 2023, and recognized the retained non-controlling interest in LOCUS as an equity method investment. LOCUS and its subsidiaries became related parties of the Company after the deconsolidation.

As of the disposition date, the retained interest in LOCUS was measured at fair value using a discounted cash flow model applying a discount rate of 16.0% and a terminal growth rate of 1.0% incorporating historical financial information, business plans of LOCUS and its subsidiaries, and market outlook information. The Company recorded a $0.8 million loss on sale of the 14.4% of the voting interests of LOCUS in Other income (loss), net in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended and six months ended June 30, 2023. The loss includes the accounting for assets sold, liabilities transferred upon sale and the gain of $0.6 million relating to the remeasurement of the retained interest in LOCUS.

The Company has accounted for the transaction as follows (in thousands of USD):

Note 15. Equity Method Investments

The Company accounts for investments using the equity method when the Company can exercise significant influence over operating and financial policies, but does not hold a controlling interest in the investee.

Due to the Jakga Transactions entered by the Company on March 28, 2024, the Company's voting equity interest in Jakga reduced to 49.2%, and the Company no longer held a controlling financial interest. The Company deconsolidated Jakga and recognized the retained common stock of Jakga as an equity method investment (see additional details in Note 14. Disposition).

In March 2024, the Company began to exercise significant influence over CELSYS, Inc. ("CELSYS") due to its appointment of a director to CELSYS's board of directors. Accordingly, it reclassified its $18.3 million investment in shares of common stock of CELSYS from equity securities to an equity method investment.

In March 2024, the Company acquired 33,593 shares of common stock of Namooactors Entertainment ("Namooactors"), which represents 20.0% voting interest, for $4.6 million in cash. The Company accounted for the investment in Namooactors using the equity method.

In March 2024, the Company invested in STUDIO WHITE Limited Liability Partnership ("STUDIO WHITE"), which represents 40.0% partnership interest, for $0.8 million in cash. The Company accounted for the investment in STUDIO WHITE using the equity method.

In May 2024, the Company sold 15,000 shares of common stock of Studio Dragon Japan CO., LTD. ("SDJ"), which represents the Company's entire voting interest in SDJ, for $5.7 million in cash. As a result of the sale, the Company no longer retained any interest nor had the ability to exercise significant influence over SDJ.

Note 16. Redeemable Non-Controlling Interest in Subsidiary

The following table summarizes the activity related to the redeemable non-controlling interest in the subsidiary for the periods indicated below (in thousands of USD):

Note 17. Non-Controlling Interest in Subsidiaries

The Company has non-controlling interests in several of its subsidiaries. The balances of non-controlling interest as of June 30, 2024 and December 31, 2023 are as follows (in thousands of USD):

The Munpia non-controlling interest balance excludes redeemable non-controlling interest (See Note 16. Redeemable Non-Controlling Interest in Subsidiaryfor detail).

The Jakga non-controlling interest balance is no longer included as Jakga was deconsolidated in March 2024 (See Note 14. Disposition for detail).

The portion of net assets in Bootcamp attributable to the LP represents a non-controlling interest (See Note 13. Related Parties and Variable Interest Entity for detail).

Note 18. Subsequent Events

In July 2024, the underwriters exercised the over-allotment option to purchase 1,371,549 common shares (See Note 1. Description of Business and Summary of Significant Accounting Policies for additional information for the over-allotment option). The Company received$26.8 million, net of underwriting discounts and commissions, from the issuance and sale of the common shares.

In July 2024, the NAVER WEBTOON entered into an agreement with Shinhan Bank, pursuant to which $3.6 million in deposits with the bank has been pledged as collateral for employee stock option related loans for officers and employees of NAVER WEBTOON, to the extent they are not also officers of the Parent.