Related Party Transactions

3 Months Ended

Mar. 31, 2022

Related Party Transactions [Abstract]

Related Party Transactions

(10) Related Party Transactions

Related Party Debt and Guarantees

The following table sets forth payment guarantees of the Company's obligations as of March 31, 2022 that have been provided by DNI. DNI owns approximately 36.6% of the outstanding shares of the Company's common stock. The amount guaranteed exceeds the principal amounts of outstanding obligations due to collateral requirements by the banks.

Guarantor	Amount Guaranteed (in thousands)		Description of Obligations Guaranteed
Dasan Networks, Inc.	$	4,375	Payment guarantee to Industrial Bank of Korea
Dasan Networks, Inc.		1,486	Payment guarantee to Shinhan Bank
	$	5,861

Other Related Party Transactions

Sales, cost of revenue, research and product development, selling, marketing, general and administrative, interest expense and other expenses to and from related parties were as follows (in thousands) for the three months ended March 31, 2022 and 2021:

	Three Months Ended March 31, 2022
Counterparty	Net revenue		Cost of revenue		Research and product development		Selling, marketing, general and administrative		Interest expense, net		Other expenses
Dasan Networks, Inc.	$	198	$	177	$	90	$	317			$	17
DS Commerce, Inc.		—		11		1		11		—		—
	$	198	$	188	$	91	$	328	$	—	$	17
	Three Months Ended March 31, 2021
Counterparty	Net revenue		Cost of revenue		Research and product development		Selling, marketing, general and administrative		Interest expense, net		Other expenses
Dasan Networks, Inc.	$	1,770	$	1,655	$	261	$	402	$	132	$	85
Dasan Invest Co., Ltd.		—		10		46		18		—		—
	$	1,770	$	1,665	$	307	$	420	$	132	$	85

The Company has entered into sales agreements with DNI to sell certain services and finished goods produced by the Company. The Company also has an agreement with DNI in which DNI acts as a sales channel to third party customers. The above transactions are included in net revenue and cost of revenue on the unaudited condensed consolidated statement of comprehensive loss. Net revenue from DNI is recorded net of royalty fees for a sales channel arrangement.

DNS Korea had two separate lease agreements with DNI related to the lease of office space and warehouse facilities. In the first quarter of 2022, DNI sold the above facilities to the unrelated third party, and the respective leases were reassigned to the new landlord. Operating lease cost related to the DNI leases totaled $0.2 million and $0.5 million for three months ended March 31, 2022 and 2021, respectively. Operating lease expense is allocated between cost of revenue, research and product development, and selling, marketing, general and administrative expenses on the unaudited condensed consolidated statement of comprehensive income (loss). Deposits for the DNI leases were included in other assets on the consolidated balance sheets as of December 31, 2021.

DNS Korea had an agreement with Dasan Invest Co., Ltd. to provide IT services for the Company. The agreement was terminated in the fourth quarter of 2021 and the new agreement was signed with DS Commerce, Inc. Both entities have an affiliation with DZS board members. The expense related to the above IT services is allocated between cost of revenue, research and product development, and selling, marketing, general and administrative expenses on the unaudited condensed consolidated statement of comprehensive income (loss).

Interest expense represents interest paid to DNI for the related party debt. Refer to Note 7 Debt for further information.

Other expenses represent charges from DNI for its payment guarantees relating to the Company's borrowings. The Company pays DNI a guarantee fee which is calculated as 0.9% of the guaranteed amount. Refer to the table above for further information about obligations guaranteed by DNI.

Balances of Receivables and Payables with Related Parties

Balances of receivables and payables arising from sales and purchases of goods and services with related parties as of March 31, 2022 and December 31, 2021 were included in the following balance sheet captions on the unaudited condensed consolidated balance sheets, as follows (in thousands):

	As of March 31, 2022
Counterparty	Account receivables		Other receivables		Other assets		Accounts payable
Dasan Networks, Inc.	$	207	$	368	$	—	$	202
DS Commerce, Inc.		—		—		—		25
	$	207	$	368	$	—	$	227

	As of December 31, 2021
Counterparty	Account receivables		Other receivables		Other assets		Accounts payable
Dasan Networks, Inc.	$	181	$	215	$	691	$	785
DS Commerce, Inc.		—		—		—		46
	$	181	$	215	$	691	$	831