10-Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to

000-32743

(Commission File Number)

DASAN ZHONE SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

Delaware	22-3509099
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
7195 Oakport Street Oakland, California	94621
(Address of principal executive offices)	(Zip code)

(510) 777-7000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	x
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨

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

As of August 6, 2018, there were 16,497,948 shares of the registrant’s common stock outstanding.

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TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Unaudited Condensed Consolidated Balance Sheets	5
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)	6
	Unaudited Condensed Consolidated Statements of Cash Flows	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 6.	Exhibits	39
	Signatures	40

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PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

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DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except par value)

	June 30, 2018			December 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	27,308		$	17,475
Restricted cash	10,426			12,425
Accounts receivable, net
Trade	65,939			48,257
Related parties	1,224			13,498
Other receivables
Others	25,192			12,494
Related parties	65			164
Inventories	38,187			25,344
Prepaid expenses and other current assets	4,137			3,652
Total current assets	172,478			133,309
Property and equipment, net	5,432			5,873
Goodwill	3,977			3,977
Intangible assets, net	6,217			6,785
Non-current deferred taxes	2,925			2,954
Long-term restricted cash	1,136			1,512
Other assets	4,751			4,717
Total assets	$	196,916		$	159,127
Liabilities, Stockholders’ Equity and Non-controlling Interest
Current liabilities:
Accounts payable
Trade	$	49,414		$	31,441
Related parties	1,385			1,351
Short-term debts
Bank and trade facilities	39,874			19,790
Related parties	5,795			—
Other payables
Others	1,426			2,032
Related parties	1,449			1,956
Contract liabilities - current	2,600			3,279
Accrued and other liabilities	9,431			11,174
Total current liabilities	111,374			71,023
Long-term debts
Bank and trade facilities	—			2,987
Related parties	6,800			6,800
Contract liabilities - non-current	1,773			1,883
Other long-term liabilities	2,699			2,667
Total liabilities	122,646			85,360
Commitments and contingencies (Note 11)
Stockholders’ equity and non-controlling interest:
Common stock, authorized 36,000 shares, 16,450 shares and 16,410 shares outstanding as of June 30, 2018 and December 31, 2017 at $0.001 par value	16			16
Additional paid-in capital	91,126			90,198
Accumulated other comprehensive income (loss)	(399		)	1,871
Accumulated deficit	(16,988		)	(18,852		)
Total stockholders’ equity	73,755			73,233
Non-controlling interest	515			534
Total stockholders’ equity and non-controlling interest	74,270			73,767
Total liabilities, stockholders’ equity and non-controlling interest	$	196,916		$	159,127

See accompanying notes to unaudited condensed consolidated financial statements.

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DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands, except per share data)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Net revenue:
Third parties	$	75,187		$	49,080		$	133,093		$	90,321
Related parties	1,070			10,861			2,668			21,732
Total net revenue	76,257			59,941			135,761			112,053
Cost of revenue:
Products and services - third parties	51,844			31,781			87,697			56,802
Products and services - related parties	1,095			8,574			2,858			17,282
Amortization of intangible assets	153			153			306			306
Total cost of revenue	53,092			40,508			90,861			74,390
Gross profit	23,165			19,433			44,900			37,663
Operating expenses:
Research and product development	8,714			9,141			17,691			18,523
Selling, marketing, general and administrative	11,712			10,551			24,106			21,435
Amortization of intangible assets	131			544			262			1,037
Total operating expenses	20,557			20,236			42,059			40,995
Operating income (loss)	2,608			(803		)	2,841			(3,332		)
Interest income	75			20			161			46
Interest expense	(560		)	(256		)	(883		)	(530		)
Other income (loss), net	(427		)	264			(287		)	(17		)
Income (loss) before income taxes	1,696			(775		)	1,832			(3,833		)
Income tax expense	341			99			336			539
Net income (loss)	1,355			(874		)	1,496			(4,372		)
Net income (loss) attributable to non-controlling interest	(61		)	(65		)	(27		)	184
Net income (loss) attributable to DASAN Zhone Solutions, Inc.	$	1,416		$	(809	)	$	1,523		$	(4,556	)
Foreign currency translation adjustments	(2,548		)	(824		)	(2,230		)	2,066
Comprehensive loss	(1,193		)	(1,698		)	(734		)	(2,306		)
Comprehensive loss attributable to non-controlling interest	(83		)	(64		)	(19		)	205
Comprehensive loss attributable to DASAN Zhone Solutions, Inc.	$	(1,110	)	$	(1,634	)	$	(715	)	$	(2,511	)
Net income (loss) per share attributable to DASAN Zhone Solutions, Inc.
Basic	$	0.09		$	(0.05	)	$	0.09		$	(0.28	)
Diluted	$	0.08		$	(0.05	)	$	0.09		$	(0.28	)
Weighted average shares outstanding used to compute basic net income (loss) per share	16,438			16,380			16,425			16,380
Weighted average shares outstanding used to compute diluted net income (loss) per share	16,672			16,380			16,645			16,380

See accompanying notes to unaudited condensed consolidated financial statements.

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DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

	Six Months Ended
	June 30,
	2018			2017
Cash flows from operating activities:
Net income (loss)	$	1,496		$	(4,372	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	1,381			2,353
Stock-based compensation	740			475
Valuation allowance on inventories	411			626
Unrealized (gain) loss on foreign currency transactions	(141		)	240
Deferred taxes	(82		)	—
Changes in operating assets and liabilities:
Accounts receivable	(18,843		)	(8,659		)
Inventories	(14,641		)	(4,346		)
Prepaid expenses and other assets	219			(936		)
Accounts payable	18,498			3,689
Accrued and other liabilities	(4,448		)	4,118
Net cash used in operating activities	(15,410		)	(6,812		)
Cash flows from investing activities:
Proceeds from sale of short-term investments	—			1,463
Purchase of short-term investments	—			(430		)
Proceeds from disposal of property and equipment and other assets	1			6
Purchase of property and equipment	(415		)	(663		)
Purchase of intangible asset	—			(31		)
Net cash (used in) provided by investing activities	(414		)	345
Cash flows from financing activities:
Proceeds from short-term borrowings from bank and trade facilities	44,368			8,679
Proceeds from long-term borrowings from related party	6,064			—
Repayments of borrowings	(26,455		)	(9,581		)
Proceeds from issuance of common stock	188			1
Net cash provided by (used in) financing activities	24,165			(901		)
Effect of exchange rate changes on cash and restricted cash	(883		)	1,067
Net increase (decrease) in cash and cash equivalents	7,458			(6,301		)
Cash, cash equivalents and restricted cash at beginning of period	31,412			24,543
Cash, cash equivalents and restricted cash at end of period	$	38,870		$	18,242
Reconciliation of cash, cash equivalents and restricted cash to statement of financial position
Cash and equivalents	$	27,308		$	9,902
Restricted cash	10,426			8,340
Long-term restricted cash	1,136			—
Cash, cash equivalents and restricted cash in statement of financial position	$	38,870		$	18,242

See accompanying notes to unaudited condensed consolidated financial statements.

7

Notes to Unaudited Condensed Consolidated Financial Statements

(1) Organization and Summary of Significant Accounting Policies

(a) Description of Business

DASAN Zhone Solutions, Inc. (referred to, collectively with its subsidiaries, as "DZS" or the "Company") is a global provider of network access solutions and communications equipment for service provider and enterprise networks. The Company provides a wide array of reliable, cost-effective networking technologies, including broadband access, Ethernet switching, mobile backhaul, Passive Optical LAN and software-defined networks, to a diverse customer base that includes more than 1,000 customers in more than 50 countries worldwide.

DZS was incorporated under the laws of the state of Delaware in June 1999, under the name Zhone Technologies, Inc. On September 9, 2016, the Company acquired Dasan Network Solutions, Inc. ("DNS"), a California corporation through the merger of a wholly owned subsidiary of the Company with and into DNS, with DNS surviving as a wholly owned subsidiary of the Company (the "Merger"). At the effective time of the Merger, all issued and outstanding shares of capital stock of DNS held by DASAN Networks, Inc. ("DNI") were canceled and converted into the right to receive shares of the Company's common stock in an amount equal to 57.7% of the issued and outstanding shares of the Company's common stock immediately following the Merger. In connection with the Merger, the Company changed its name from Zhone Technologies, Inc. to DASAN Zhone Solutions, Inc.

The Company is headquartered in Oakland, California and has flexible in-house production facilities in Seminole, Florida and with contract manufacturers located in China, India, Korea and Vietnam. The Company also maintains offices to provide sales and customer support at various domestic and international locations.

(b) Risks and Uncertainties

Liquidity

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States ("U.S. GAAP"), assuming the Company will continue as a going concern.

The Company had net income of $1.5 million for the six months ended June 30, 2018 and $1.2 million for the year ended December 31, 2017. As of June 30, 2018, the Company had an accumulated deficit of $17.0 million and working capital of $61.1 million. In addition, the Company had a net cash outflow from operations of $15.4 million for the six months ended June 30, 2018. As of June 30, 2018, the Company had $27.3 million in cash and cash equivalents, which included $12.5 million in cash balances held by its Korean subsidiary, and $52.5 million in aggregate principal debt of which $45.7 million was in current liabilities. Also, as of June 30, 2018, the Company had $3.2 million committed as security for letters of credit under its revolving credit facilities, and $8.0 million outstanding indebtedness under those facilities, leaving $5.6 million in aggregate financing availability under the facilities. On July 6, 2018, the Company repaid the $8.0 million borrowings under its Wells Fargo Bank ("WFB") Facility. The Company’s current lack of liquidity could harm it by:

• increasing its vulnerability to adverse economic conditions in its industry or the economy in general;

• requiring substantial amounts of cash to be used for debt servicing, rather than other purposes, including operations;

• limiting its ability to plan for, or react to, changes in its business and industry; and

• influencing investor and customer perceptions about its financial stability and limiting its ability to obtain financing or acquire customers.

These factors indicate that cash flows might not be sufficient for the Company to meet its obligations as they come due in the ordinary course of business for a period of 12 months from the date of this interim report on Form 10-Q.

The Company’s ability to meet its obligations as they become due in the ordinary course of business for the next 12 months will depend on its ability to achieve forecasted results and its ability to access funds approved under existing facilities. Management’s belief that it will achieve these results assumes that, among other things, the Company will continue to be successful in implementing its business strategy and that there will be no material adverse development in its business, liquidity or capital requirements. If one or more of these factors do not occur as expected, it could cause the Company to fail to meet its obligations as they come due.

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The Company plans to focus on cost management, operating efficiency and restrictions on discretionary spending. In addition, if necessary, the Company may sell assets, issue or enter into amendments of its debt or equity securities, or purchase credit insurance. The Company may also reduce the scope of its planned product development, reduce sales and marketing efforts and reduce its operations in low margin regions, including reductions in headcount. In fact, subsequent to the end of the quarter, on July 12, 2018, the Company entered into an Amended and Restated Credit and Security Agreement (the “A&R Domestic Credit Agreement”) and an Amended and Restated Credit and Security Agreement ("Ex-Im Subfacility") (the “A&R Ex-Im Credit Agreement”) with WFB, which amended and replaced the Company’s existing senior secured revolving line of credit and letter of credit facilities with WFB and revised certain reporting and compliance provisions, as described more fully in Note 7 to the unaudited condensed consolidated financial statements.

Based on the Company's current plans and current business conditions, the Company believes that these measures along with its existing cash, cash equivalents and available credit facilities will be sufficient to satisfy its anticipated cash requirements for at least the next 12 months from the date of this Quarterly Report on Form 10-Q.

Other Uncertainties

DNI owned approximately 57.7% of the outstanding shares of the Company's common stock as of June 30, 2018. For so long as DNI and its affiliates hold shares of the Company's common stock representing at least a majority of the votes, DNI will be able to freely nominate and elect all the members of the Company's board of directors, subject to the provisions of the Company's bylaws and applicable requirements under Nasdaq listing rules and applicable laws. The directors elected by DNI will have the authority to make decisions affecting the Company's capital structure, including the issuance of additional capital stock or options, the incurrence of additional indebtedness, the implementation of stock repurchase programs, and the declaration of dividends. The interests of DNI may not coincide with the interests of the Company's other stockholders or with holders of the Company's indebtedness. DNI’s ability to control all matters submitted to the Company's stockholders for approval limits the ability of other stockholders to influence corporate matters and, as a result, the Company may take actions that the Company's other stockholders or holders of the Company's indebtedness do not view as beneficial. See Notes 9 and 11 to the unaudited condensed consolidated financial statements for additional information.

(c) Reclassifications

For the three months ended June 30, 2017, certain prior period statement of comprehensive income (loss) items have been reclassified to correctly reflect research and product development expenses and selling, marketing, general and administrative expenses of $0.1 million and $0.1 million, respectively, which were previously incorrectly classified as cost of revenue-products and services. For the six months ended June 30, 2017 certain prior period statement of comprehensive loss items have been reclassified to correctly reflect research and product development expenses and selling, marketing, general and administrative expenses of $0.3 million and $0.4 million, respectively, which were previously incorrectly classified as cost of revenue-products and services.

(d) Basis of Presentation

For a description of what the Company believes to be the critical accounting policies and estimates used in the preparation of the Company's unaudited condensed consolidated financial statements, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the Company does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

The unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) that, in the opinion of management, are necessary for a fair statement of the results for the interim periods presented. All intercompany transactions and balances have been eliminated in consolidation. The results of operations for the current interim period are not necessarily indicative of results to be expected for the current year or any other period. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission.

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(e) Reverse Stock Split

On February 28, 2017, the Company filed a Certificate of Amendment with the Delaware Secretary of State to amend the Company's Restated Certificate of Incorporation, which amendment effected a one-for-five reverse stock split of the Company's common stock and reduced the authorized shares of the Company's common stock from 180 million to 36 million. As a result of the reverse stock split, the number of shares of the Company’s common stock then issued and outstanding was reduced from approximately 81.9 million to approximately 16.4 million. References to shares of the Company's common stock, stock options (and associated exercise price) and restricted stock units in this Quarterly Report on Form 10-Q are provided on a post-reverse stock split basis.

(f) Concentration of Risk

The Company’s customers include competitive and incumbent local exchange carriers, competitive access providers, internet service providers, wireless carriers and resellers serving these markets. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Allowances are maintained for potential doubtful accounts.

For the three and six months ended June 30, 2018, one customer accounted for 22% and 15% of net revenue, respectively. For the three months ended June 30, 2017, two customers represented 11% and 14% (a related party) of net revenue, respectively. For the six months ended June 30, 2017, one customer represented 12% (a related party) of net revenue.

As of June 30, 2018, two customers represented 23% and 11% of net accounts receivable, respectively. As of December 31, 2017, two customers represented 20% (a related party) and 11% of net accounts receivable, respectively.

As of June 30, 2018 and December 31, 2017, receivables from customers in countries other than the United States represented 80% and 84%, respectively, of net accounts receivable.

(g) Recent Accounting Pronouncements

Recent Accounting Pronouncements Adopted

In May 2014, the FASB issued ASU No. 2014-09 “Revenue from Contracts with Customers” (“Topic 606”), which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Topic 606 replaced most existing revenue recognition standards under U.S. GAAP, including ASC 605, Revenue Recognition ("Topic 605").

On January 1, 2018, the Company adopted Topic 606 and applied this guidance to all open contracts at the date of adoption using the modified retrospective method. The Company recognized the cumulative effect of initially applying Topic 606 as an adjustment to the balance of accumulated deficit at January 1, 2018. The comparative information has not been restated and continues to be reported under Topic 605.

The Company’s adoption of Topic 606 primarily impacted the following:

• Topic 606 requires an allocation of revenue between deliverables (performance obligations) within an arrangement. Topic 605 restricted the allocation of revenue that is contingent on future deliverables to current deliverables, however, Topic 606 removes this restriction, to the extent that the future deliverables represent performance obligations that are distinct. Under Topic 606, the nature of the performance obligations identified within a contract impacts the allocation of the transaction price between deliverables.

• Some of the Company’s contracts include customer acceptance terms, which provides protection to the customer by allowing it to either cancel a contract or force the Company to take corrective actions if products or services do not meet the requirements in the contract. Under Topic 606, customer acceptance that is considered a “formality”, would result in revenue recognized when control of the product or service is transferred to customer, which is typically upon shipment or delivery dependent upon the terms of the underlying contract.

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The following table summarizes the effects of Topic 606 on the Company’s unaudited condensed consolidated balance sheet at January 1, 2018 (in thousands):

	As of January 1, 2018
	Balance after adoption of ASC 606			Adjustments				Balance without adoption of ASC 606
Assets
Accounts receivable, net	$	62,099		$	344		(1)	$	61,755
Inventories	25,239			(105		)	(2)	25,344
Liabilities
Contract liabilities - current	2,866			(413		)	(2)	3,279
Accrued and other liabilities	11,518			344			(1)	11,174
Stockholders’ equity
Accumulated deficit	(18,544		)	308				(18,852		)

⁽¹⁾ Allowance for sales returns was historically presented as a contra-asset within accounts receivable on the Company's consolidated balance sheets. Upon the adoption of Topic 606, the Company presents the allowance for sales returns in Accrued and other liabilities (current).

⁽²⁾ Represents the impact of allocation of transaction price to separate performance obligations in open contracts as of the adoption date on a relative standalone selling price basis and acceleration of revenue (and related costs) for contracts for which acceptance clauses are a formality.

The following table summarizes the effects of Topic 606 on the Company’s unaudited condensed consolidated balance sheet at June 30, 2018 (in thousands): 

	As of June 30, 2018
	As reported			Adjustments				Balance without adoption of ASC 606
Assets
Accounts receivable, net	$	67,163		$	512		(1)	$	66,651
Inventories	38,187			66			(2)	38,121
Liabilities
Contract liabilities - current	2,600			347			(2)	2,253
Accrued and other liabilities	9,431			512			(1)	8,919
Stockholders’ equity
Accumulated deficit	(16,988		)	(281		)		(16,707		)

⁽¹⁾ Allowance for sales returns was historically presented as a contra-asset within accounts receivable on the Company's consolidated balance sheets. Upon the adoption of Topic 606, the Company presents the allowance for sales returns in Accrued and other liabilities (current).

⁽²⁾ Represents the impact of allocation of transaction price to separate performance obligations in open contracts as of June 30, 2018 on a relative standalone selling price basis and acceleration of revenue (and related costs) for contracts for which acceptance clauses are a formality.

The following table summarizes the effects of Topic 606 on the Company’s unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2018 (in thousands):

	Three Months Ended June 30, 2018
	As reported			Adjustments			Balance without adoption of ASC 606
Net revenue	$	76,257		$	(152	)	$	76,409
Cost of revenue - products and services	53,092			(5		)	53,097
Gross profit	23,165			(147		)	23,312
Provision for income taxes	(341		)	—			(341		)
Net income	1,355			(147		)	1,502

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	Six Months Ended June 30, 2018
	As reported			Adjustments			Balance without adoption of ASC 606
Net revenue	$	135,761		$	(347	)	$	136,108
Cost of revenue - products and services	90,861			(66		)	90,927
Gross profit	44,900			(281		)	45,181
Provision for income taxes	(336		)	—			(336		)
Net income	1,496			(281		)	1,777

During the three and six months ended June 30, 2018, $0.3 million and $0.6 million respectively, was recognized as revenue from the opening contract liabilities balance.

There was no impact on net revenue from related parties as a result of Topic 606.

In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows, Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The updated guidance became effective for the Company on January 1, 2018 and was adopted accordingly. The adoption of this standard did not have any effect on the Company's condensed consolidated statement of cash flows for the three and six months ended June 31, 2018 or 2017.

In November 2016, FASB issued ASU 2016-18, Statement of Cash Flows, Restricted Cash, which requires that a statement of cash flows to explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents. The updated guidance became effective for the Company beginning on January 1, 2018 and was adopted accordingly, using the retrospective approach. As a result, the Company no longer presents transfers between cash and cash equivalents and restricted cash in the consolidated cash flow statements. The condensed consolidated statement of cash flows for the six months ended June 30, 2017 was revised to exclude the $1.3 million change in restricted cash from net cash used in investing activities and to include $6.7 million and $8.3 million in cash, cash equivalents and restricted cash, beginning of period and cash, cash equivalents and restricted cash, end of period, respectively.  

Other Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires that lease arrangements longer than 12 months result in an entity recognizing an asset and liability. The updated guidance is effective for the Company on January 1, 2019, and early adoption is permitted. The Company does not plan to early adopt this guidance. The Company expects its assets and liabilities to increase as a result of the adoption of this standard. In July 2018, the FASB issued ASU 2018-18-11, Leases(Topic 842): Targeted Improvements, ASU 2018-11 states that, separating components of a contract affect the amendments in Update 2016-02, which are not yet effective but can be early adopted. All entities, including early adopters, that elect the practical expedient related to separating components of a contract in this Update must apply the expedient, by class of underlying asset, to all existing lease transactions that qualify for the expedient at the date elected. The Company is currently assessing the potential impact of adopting this new guidance on its consolidated financial statements.

In January 2017, FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairment. The updated guidance is effective for the Company on January 1, 2020, and will be adopted accordingly. Early adoption is permitted. The Company is currently assessing the potential impact of adopting this new guidance on its consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Tax Act"). Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Act. Because the amendments only relate to the reclassification of the income rate tax effect of the Tax Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2018 and interim periods in those years. The Company is not able to quantify or cannot reasonably estimate quantitative information related to the impact of the new standard on its consolidated financial statements at this time.

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In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The amendments add various Securities and Exchange Commission (“SEC) paragraphs pursuant to the issuance of SEC Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“Act”) (“SAB 118”). The SEC issued SAB 118 to address concerns about reporting entities’ ability to timely comply with the accounting requirements to recognize all of the effects of the Act in the period of enactment. SAB 118 allows disclosure that timely determination of some or all of the income tax effects from the Act are incomplete by the due date of the financial statements and if possible to provide a reasonable estimate. The Company has provided a reasonable estimate of the tax reform in the notes to the consolidated financial statements.

(2) Fair Value Measurement

The Company utilizes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions. The fair value hierarchy consists of the following three levels:

Level 1 –	Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 –	Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
Level 3 –	Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

The following financial instruments are not measured at fair value on the Company’s condensed consolidated balance sheet as of June 30, 2018 and the consolidated balance sheet as of December 31, 2017, but require disclosure of their fair values: cash and cash equivalents, short-term investments, accounts receivable, accounts payable and debt. The carrying values of financial instruments such as cash and cash equivalents, accounts receivable and accounts payable approximate their fair values based on their short-term nature. The carrying value of the Company's debt approximates their fair values based on the current rates available to the Company for debt of similar terms and maturities

To manage certain exposures to currency fluctuations, the Company started a limited hedging program during the three months ended June 30, 2018 by entering into foreign currency forward contracts with maturities of one month to hedge a portion of its net outstanding foreign currency monetary assets and liabilities. These derivatives are recorded at fair value on the condensed consolidated balance sheet under "Other Current Assets" or "Accounts Payable - Trade" with changes in the fair value being recorded in "Other income (loss), net".

These derivative contracts are entered into with a single counterparty, and are not designated as hedging instruments under applicable accounting guidance. As such, all changes in the fair value of these derivative contracts are recorded in other income (loss), net on the condensed consolidated statements of comprehensive income (loss). These derivative contracts are intended to offset the foreign currency gains or losses associated with the underlying monetary assets and liabilities, and changes in the related derivative assets and liabilities balances are classified outside of operating income (loss), consistent with the related underlying foreign currency gain or loss. 

These derivative contracts expose the Company to credit risk to the extent that the counterparty may be unable to meet the terms of the arrangement. The Company mitigates this credit risk by transacting with reputable financial institutions and entering into master netting arrangements, which permit net settlement of transactions with the same counterparty. While the contract or notional amount is often used to express the volume of foreign currency derivative contracts, the amounts potentially subject to credit risk are generally limited to the amounts, if any, by which the counterparties’ obligations under the agreements exceed the obligations of the Company to the counterparties. The Company is not required to pledge, and is not entitled to receive, cash collateral related to these derivative instruments. The Company does not enter into derivative contracts for trading or speculative purposes. 

As of June 30, 2018, the Company had derivative contracts with total notional values of $20.1 million. The Company's foreign currency contracts are classified within Level 2 because the valuation inputs are based on quoted prices and market observable data of similar instruments in active markets, such as currency spot and forward rates. The fair values of these outstanding derivative contracts as of June 30, 2018 was a $1.0 million liability, included in accounts payable - trade.

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(3) Cash, Cash Equivalents and Restricted Cash

As of June 30, 2018 and December 31, 2017, the Company's cash and cash equivalents comprised financial deposits. Restricted cash consisted primarily of cash restricted for performance bonds, warranty bonds and collateral for borrowings. Current and long-term restricted cash was $11.6 million at June 30, 2018 and $13.9 million at December 31, 2017.

(4) Balance Sheet Detail

Accounts Receivable

Accounts receivable, net as of June 30, 2018 and December 31, 2017 was as follows (in thousands):

	June 30, 2018				December 31, 2017
Gross accounts receivable	$	67,531			$	63,446
Allowance for doubtful accounts	(368		)		(922		)
Allowance for sales returns	—			(1)	(769		)
Total allowances	(368		)		(1,691		)
Accounts receivable, net	$	67,163			$	61,755

⁽¹⁾ Upon adoption of ASC 606, allowances for sales returns were reclassified to accrued and other liabilities as these reserve balances are considered estimated refund liabilities. Refer to footnote 1(g) for additional information about the adoption impact.

Inventories

Inventories as of June 30, 2018 and December 31, 2017 were as follows (in thousands):

	June 30, 2018		December 31, 2017
Raw materials	$	16,730	$	12,671
Work in process	2,030		2,150
Finished goods	19,427		10,523
Total inventories	$	38,187	$	25,344

Inventories provided as collateral for borrowings from Export-Import Bank of Korea amounted to $23.4 million and $11.4 million as of June 30, 2018 and December 31, 2017, respectively.

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(5) Property and Equipment

Property and equipment as of June 30, 2018 and December 31, 2017 were as follows (in thousands):

	June 30, 2018			December 31, 2017
Furniture and fixtures	$	22,066		$	22,988
Machinery and equipment	5,557			5,455
Leasehold improvements	3,613			3,647
Computers and software	682			621
Others	975			1,007
	32,893			33,718
Less: accumulated depreciation and amortization	(27,260		)	(27,584		)
Less: government grants	(201		)	(261		)
Property and equipment, net	$	5,432		$	5,873

Depreciation expense associated with property and equipment for the three and six months endedJune 30, 2018 was $0.4 million and $0.8 million respectively. Depreciation expense for the three and six months ended June 30, 2017 was $0.5 million and $1.0 million, respectively.

The Company receives grants from various government entities, mainly to support capital expenditures. Such grants are deferred and are generally refundable to the extent the Company does not utilize the funds for qualifying expenditures. Once earned, the Company records the grants as a contra amount to the assets and amortizes such amount over the useful lives of the related assets as a reduction to depreciation expense.

(6) Goodwill and Intangible Assets

Goodwill as of June 30, 2018 and December 31, 2017 was as follows (in thousands):

	June 30, 2018		December 31, 2017
Beginning balance	$	3,977	$	3,977
Less: accumulated impairment	—		—
Ending balance	$	3,977	$	3,977

The Company did not recognize impairment loss on goodwill during the six months endedJune 30, 2018 and 2017. Intangible assets as of June 30, 2018 and December 31, 2017 were as follows (in thousands):

	June 30, 2018
	Gross Carrying Amount		Accumulated Amortization			Net
Developed technology	$	3,060	$	(1,122	)	$	1,938
Customer relationships	5,240		(961		)	4,279
Backlog	2,179		(2,179		)	—
Total intangible assets	$	10,479	$	(4,262	)	$	6,217

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	December 31, 2017
	Gross Carrying Amount		Accumulated Amortization			Net
Developed technology	$	3,060	$	(816	)	$	2,244
Customer relationships	5,240		(699		)	4,541
Backlog	2,179		(2,179		)	—
Total intangible assets	$	10,479	$	(3,694	)	$	6,785

Amortization expense associated with intangible assets for the three and six months endedJune 30, 2018 was $0.3 million and $0.6 million, respectively. Amortization expense associated with intangible assets for the three and six months ended June 30, 2017 was $0.7 million and $1.4 million, respectively.

(7) Debts

Wells Fargo Bank Facility

As of June 30, 2018, the Company had a $25.0 million revolving line of credit and letter of credit facility (then and as subsequently amended and replaced) with WFB, (the "WFB Facility"). Under the WFB Facility, the Company has the option of borrowing funds at agreed upon interest rates. The amount that the Company is able to borrow under the WFB Facility varies based on eligible accounts receivable and inventory, as defined in the WFB Facility, as long as the aggregate amount outstanding does not exceed $25.0 million less the amount committed as security for letters of credit. To maintain availability of funds under the WFB Facility, the Company pays a commitment fee on the unused portion. The commitment fee is 0.25% per annum and is recorded as interest expense.

As of June 30, 2018, the Company had $8.0 million in outstanding borrowings under its WFB Facility (included in short-term debts), and $2.1 million was committed as security for letters of credit. Subsequent to the end of the quarter, on July 6, 2018, the Company repaid the $8.0 million borrowings under the WFB Facility. Based on the Company's eligible accounts receivable and inventory, the Company had $2.2 million of financing availability under the WFB Facility as of June 30, 2018. The interest rate on the WFB Facility was 4.59% at June 30, 2018.

Subsequent to the end of the quarter, on July 12, 2018, the Company entered into an Amended and Restated Credit and Security Agreement (the “A&R Domestic Credit Agreement”) and an Amended and Restated Credit and Security Agreement ("Ex-Im Subfacility") (the “A&R Ex-Im Credit Agreement”) with WFB, which amended and replaced the Company’s existing senior secured revolving line of credit and letter of credit facilities with WFB and revised certain reporting and compliance provisions. The A&R Domestic Credit Agreement and the A&R Ex-Im Credit Agreement provide for a revolving line of credit of $25.0 million (including up to $5.0 million of letters of credit), with the amount that the Company is able to borrow based on eligible accounts receivable and inventory, less the amount committed as security for letters of credit. To maintain availability of funds under the A&R Domestic Credit Agreement and the A&R Ex-Im Credit Agreement, the Company will continue to pay a commitment fee of 0.25% per annum on the unused portion. The amounts borrowed under the amended WFB Facility continue to bear interest, payable monthly, at a floating rate equal to the three-month LIBOR plus a margin based on the Company's average excess availability (as calculated under the WFB Facility). The new maturity date under the WFB Facility is also extended from July 15, 2019 to July 12, 2021.

The Company’s obligations under the WFB Facility are secured by substantially all of its assets and those of its subsidiaries that guarantee the WFB Facility, including their intellectual property. The WFB Facility contains certain financial covenants, and customary affirmative and negative covenants. If the Company defaults under the WFB Facility due to a covenant breach or otherwise, WFB may be entitled to, among other things, require the immediate repayment of all outstanding amounts and sell the Company’s assets to satisfy the obligations under the WFB Facility. As of June 30, 2018, the Company was in compliance with the covenants under the WFB Facility.

Bank and Trade Facilities - Foreign Operations

Certain of the Company's foreign subsidiaries have entered into various financing arrangements with foreign banks and other lending institutions consisting primarily of revolving lines of credit, trade facilities, term loans and export development loans. These facilities are renewed as they mature and are generally secured by a security interest in certain assets of the applicable foreign subsidiaries and supported by guarantees given by DNI or third parties. Payments under such facilities are made in accordance with the given lender’s amortization schedules.

As of June 30, 2018 and December 31, 2017, the Company had an aggregate outstanding balance of $31.9 million (included in short-term debts) and $22.8 million ($19.8 million included in short-term debts), respectively, under such financing arrangements, and the interest rates per annum applicable to outstanding borrowings under these financing arrangements were as listed in the tables below (amount in thousands).

		As of June 30, 2018
		Interest rate (%)	Amount
Industrial Bank of Korea	Credit facility	3.48-4.02	$	4,515
Industrial Bank of Korea	Trade finance	4.47-5.25	2,427
Shinhan Bank	General loan	6.06	2,853
Shinhan Bank	Trade finance	4.16	1,200
NongHyup Bank	Credit facility	3.90-4.10	2,569
The Export-Import Bank of Korea	Export development loan	3.20-3.28	7,270
LGUPlus	General loan	0	1,782
JECC Factoring	AR Factoring	1.58	6,362
Shinhan Bank (India)	General loan	8.70-8.90	2,896
			$	31,874

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		As of December 31, 2017
		Interest rate (%)	Amount
Industrial Bank of Korea	Credit facility	2.89 - 3.26	$	2,328
Industrial Bank of Korea	Trade Finance	4.47 - 5.97	2,401
Shinhan Bank	General loan	5.91	2,987
Shinhan Bank	Trade finance	3.90 - 4.14	3,050
NongHyup Bank (Korea)	Credit facility	2.83 - 3.42	860
The Export-Import Bank of Korea	Export development loan	3.20 - 3.28	7,570
Mitsubishi Bank (Japan)	AR factoring	1.58	1,872
Shinhan Bank (India)	General loan	8.70 - 8.90	1,709
			$	22,777

As of June 30, 2018, the Company had $7.1 million in outstanding borrowings and $1.1 million committed as security for letters of credit under the Company's $12.0 million credit facility with certain foreign banks. On June 18, 2018, the Company's Korean subsidiary received a mutual cooperation capital loan of $1.8 million from LGUPlus and provided a letter of guarantee of the same amount from Seoul Guarantee Insurance as collateral.

See Note 9 for a discussion of related-party debt.

(8) Non-Controlling Interests

Non-controlling interests for the six months endedJune 30, 2018 and 2017 were as follows (in thousands):

	Six Months Ended June 30,
	2018			2017
Beginning non-controlling interests	$	534		$	416
Net income (loss) attributable to non-controlling interests	(27		)	184
Foreign currency translation adjustments	8			21
Ending non-controlling interests	$	515		$	621

(9) Related-Party Transactions

Related-Party Acquisitions

On December 31, 2017, DNS acquired 100% and 99.99% of the common stock of D-Mobile Limited (“D-Mobile”) and DASAN India Private Limited ("DASAN India"), respectively, from DNI. D-Mobile and DASAN India are resellers of the Company's products in Taiwan and India, respectively. The consideration payable by the Company to DNI for the common stock of the two subsidiaries is the net book value of D-Mobile and DASAN India at December 31, 2017, subject to final adjustments. The net book value of D-Mobile and DASAN India was an aggregate of $0.8 million. These transactions were accounted for by the Company as common control transactions, with the net assets transferred recorded at historical cost. The transactions did not result in a change in reporting entity and hence were accounted for prospectively.

Related-Party Debt

In connection with the Merger, on September 9, 2016, the Company entered into a loan agreement with DNI for a $5.0 million unsecured subordinated term loan facility. Under the loan agreement, the Company was permitted to request drawdowns of one or more term loans in an aggregate principal amount not to exceed $5.0 million. As of June 30, 2018, $5.0 million in term loans was outstanding under the facility. Such term loans mature in September 2021 and are pre-payable at any time by the Company without premium or penalty. The interest rate as of June 30, 2018 under this facility was 4.6% per annum.

Also, the Company borrowed $1.8 million from DNI for capital investment in February 2016, which amount was outstanding as of June 30, 2018. This loan matures in July 2019 and bears interest at a rate of 4.6% per annum, payable annually.

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On March 21, 2018, DNS borrowed KRW6.5 billion ($5.8 million) from DNI, which remained outstanding at June 30, 2018. The loan bears interest at a rate of 4.6% and matures on June 27, 2019, and is secured by certain accounts receivable of DNS Korea.

Other Related-Party Transactions

Sales and purchases, cost of revenue, research and product development, selling, marketing, general and administrative, interest expense and other expenses to and from related parties for the three and six months ended June 30, 2018 and 2017 were as follows (in thousands):

		Three Months Ended June 30, 2018
Counterparty	DNI ownership Interest	Sales		Cost of revenue		Manufacturing (cost of revenue)		Research and product development		Selling, marketing, general and administrative		Interest expense		Other expenses
DNI (Parent Company)	N/A	$	962	$	750	$	—	$	—	$	1,144	$	69	$	79
Tomato Soft Ltd.	100%	—		—		38		—		—		—		—
Tomato Soft (Xi'an) Ltd.	100%	—		—		—		123		—		—		—
Chasan Networks Co., Ltd.	100%	—		—		268		18		—		—		—
Dasan France	100%	—		—		—		—		—		—		—
Handysoft, Inc.	17.63%	108		39		—		—		2		—		—
		$	1,070	$	789	$	306	$	141	$	1,146	$	69	$	79

		Three Months Ended June 30, 2017
Counterparty	DNI ownership Interest	Sales		Cost of revenue		Manufacturing (cost of revenue)		Research and product development		Selling, marketing, general and administrative		Other expenses
DNI (Parent Company)	N/A	$	8,480	$	7,095	$	—	$	—	$	1,326	$	57
Chasan Networks Co., Ltd.	100%	—		—		187		32		—		—
Dasan France	100%	556		549		—		—		300		—
D-Mobile	100%	1,811		741		—		—		94		—
Fine Solution	100%	—		—		—		—		1		—
HandySoft, Inc.	17.64%	14		2		—		—		—		—
Tomato Soft (Xi'an) Ltd.	100%	—		—		—		133		37		—
Solueta	27.21%	—		—		—		—		—		3
		$	10,861	$	8,387	$	187	$	165	$	1,758	$	60

		Six Months Ended June 30, 2018
Counterparty	DNI ownership Interest	Sales		Cost of revenue		Manufacturing (cost of revenue)		Research and product development		Selling, marketing, general and administrative		Interest expense		Other expenses
DNI (Parent Company)	N/A	$	2,210	$	1,873	$	—	$	—	$	2,166	$	71	$	145
Tomato Soft Ltd.	100%	—		—		57		—		—		—		—
Tomato Soft (Xi'an) Ltd.	100%	—		—		10		2,777		—		—		—
Chasan Networks Co., Ltd.	100%	—		—		592		36		—		—		—
Dasan France	100%	202		177		—		—		—		—		—
HandySoft, Inc.	17.63%	256		149		—		—		2		—		—
		$	2,668	$	2,199	$	659	$	2,813	$	2,168	$	71	$	145

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			Six Months Ended June 30, 2017
Counterparty	DNI ownership Interest		Sales		Cost of revenue		Manufacturing (cost of revenue)		Research and product development		Selling, marketing, general and administrative		Other expenses
DNI (Parent Company)	N/A		$	12,631	$	10,416	$	—	$	—	$	2,200	$	120
Chasan Networks Co., Ltd.	100	%	—		—		382		59		—		—
Dasan France	100	%	950		936		—		—		300		—
Dasan India Private Limited(1)	100	%	6,287		4,783		—		—		—		—
D-Mobile(1)	100	%	1,822		754		—		—		196		—
Fine Solution	100	%	—		—		—		—		4		—
HandySoft, Inc.	17.64	%	34		11		—		—		—		—
J-Mobile Corporation	68.56	%	8		—		—		—		132		—
Tomato Soft (Xi'an) Ltd.	100	%	—		—		—		304		37		—
Solueta	27.21	%	—		—		—		—		—		3
			$	21,732	$	16,900	$	382	$	363	$	2,869	$	123

_{(1) As discussed above, on December 31, 2017 DNS acquired DASAN India and D-Mobile from DNI.}

The Company has entered into sales agreements with DNI and certain of its subsidiaries. Sales and cost of revenue to DNI and DASAN France (and with respect to the first and second quarters of 2017, DASAN India and D-Mobile) represent finished goods produced by the Company that are sold to these related parties who sell the Company's products in Korea, France, India and Taiwan, respectively.

The Company has entered into an agreement with Chasan Networks Co., Ltd. to provide manufacturing and research and development services for the Company. Under the agreement with Chasan Networks., Ltd., the Company is charged a cost plus 7% fee for the manufacturing and development of certain deliverables.

The Company has entered into an agreement with Tomato Soft Ltd., a wholly owned subsidiary of DNI, to provide manufacturing and research and development services for the Company.

The Company has entered into an agreement with Tomato Soft (Xi'an) Ltd. to provide research and development services for the Company. Under the agreement with Tomato Soft (Xi'an) Ltd., the Company is charged an expected annual fee of $0.8 million for the development of certain deliverables.

Prior to the Merger, as DNS was then a wholly owned subsidiary of DNI, DNI had sales agreements with certain customers on DNS' behalf. Since the Merger, due to these prior sales agreements, the Company has entered into an agreement with DNI in which DNI acts as a sales channel to these customers. Sales to DNI necessary for DNI to fulfill agreements with its customers are recorded net of royalty fees in related-party revenue.

The Company shares office space with DNI and certain of DNI's subsidiaries. Prior to the Merger, DNS, then a wholly owned subsidiary of DNI, shared human resources, treasury and other administrative support with DNI. As such, the Company entered into certain service sharing agreements with DNI and certain of its subsidiaries for the office space and administrative services. Expenses related to leases and administrative services are allocated and billed to the Company based on square footage occupied and headcount, respectively.

Other expenses to related parties represent payment to DNI for its guarantees relating to the Company's borrowings. The Company pays DNI a guarantee fee which is calculated as 0.9% of the guaranteed amount.

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 June 30, 2018 and December 31, 2017 were as follows (in thousands):

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		As of June 30, 2018
Counterparty	DNI ownership Interest	Account receivables		Other receivables		Deposits for lease *		Short-term debt		Long-term debt		Accounts payable		Other Payables
DNI (parent company)	N/A	$	565	$	—	$	751	$	5,795	$	6,800	$	1,253	$	1,399
Tomato Soft Ltd.	100%	—		—		—		—		—		—		9
Tomato Soft (Xi'an) Ltd.	100%	—		—		—		—		—		—		41
Dasan France	100%	461		65		—		—		—		—		—
HandySoft, Inc.	17.63%	198		—		—		—		—		28		—
Chasan Networks Co., Ltd.	100%	—		—		—		—		—		104		—
		$	1,224	$	65	$	751	$	5,795	$	6,800	$	1,385	$	1,449

		As of December 31, 2017
Counterparty	DNI Ownership Interest	Account receivables		Other receivables		Deposits for lease *		Long-term debt		Accounts payable		Other Payables		Accrued and other liabilities**
DNI (parent company)	N/A	$	12,576	$	93	$	786	$	6,800	$	1,264	$	1,859	$	59
Tomato Soft Ltd.	100%	—		—		—		—		—		18		—
Tomato Soft (Xi'an) Ltd.	100%	—		—		—		—		—		54		—
Dasan France	100%	870		71		—		—		—		—		—
HandySoft, Inc.	17.63%	52		—		—		—		—		—		—
Chasan Networks Co., Ltd.	100%	—		—		—		—		87		—		—
Solueta	100%	—		—		—		—		—		25		—
		$	13,498	$	164	$	786	$	6,800	$	1,351	$	1,956	$	59

_{* Included in other assets in the condensed consolidated balance sheets as of June 30, 2018 and December 31, 2017.} 

_{**Included in accrued and other liabilities in the condensed consolidated balance sheets as of June 30, 2018 and December 31, 2017.} 

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(10) Net Income (Loss) Per Share Attributable to DASAN Zhone Solutions, Inc.

Basic net income (loss) per share attributable to DASAN Zhone Solutions, Inc. is computed by dividing the net income (loss) attributable to DASAN Zhone Solutions, Inc. for the period by the weighted average number of shares of common stock outstanding during the period. The calculation of diluted net income (loss) per share attributable to DASAN Zhone Solutions, Inc. gives effect to common stock equivalents; however, potential common equivalent shares are excluded if their effect is antidilutive. Potential common equivalent shares are composed of incremental shares of common equivalent shares issuable upon the exercise of stock options and the vesting of restricted stock units.

The following table is a reconciliation of the numerator and denominator in the basic and diluted net income (loss) per share calculation (in thousands, except per share data):

	Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018		2017
Net income (loss) attributable to DASAN Zhone Solutions, Inc.	$	1,416	$	(809	)	$	1,523	$	(4,556	)
Weighted average number of shares outstanding:
Basic	16,438		16,380			16,425		16,380
Effect of dilutive securities:
Stock options, restricted stock units and share awards	234		—			220		—
Diluted	16,672		16,380			16,645		16,380
Net income (loss) per share attributable to DASAN Zhone Solutions, Inc.:
Basic	$	0.09	$	(0.05	)	$	0.09	$	(0.28	)
Diluted	$	0.08	$	(0.05	)	$	0.09	$	(0.28	)

During the three and six months ended June 30, 2018, the Company excluded 285 thousand, and 436 thousand stock options at a weighted average exercise price of $14.02, and $12.35, respectively, from diluted net income per share because their effect would have been antidilutive. 

Basic net income (loss) per share is the same as diluted net income (loss) per share for the three and six months endedJune 30, 2017 because the effects of stock options and restricted stock units would have been anti-dilutive.

(11) Commitments and Contingencies

Operating Leases

The Company has entered into operating leases for certain office space and equipment, some of which contain renewal options and escalation clauses. Estimated future lease payments under all non-cancellable operating leases with terms in excess of one year, including taxes and service fees, are as follows (in thousands):

	Operating Leases
Year ending December 31:
2018 (remainder of the year)	$	2,043
2019	3,993
2020	2,998
2021	2,590
2022	2,664
Thereafter	8,423
Total minimum lease payments	$	22,711

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Warranties

The Company accrues warranty costs based on historical trends for the expected material and labor costs to provide warranty services. Warranty periods are generally one to five years from the date of shipment. The following table reconciles changes in the Company’s accrued warranties and related costs for the six months endedJune 30, 2018 and 2017 (in thousands):

	Six Months Ended June 30,
	2018			2017
Beginning balance	$	931		$	878
Charged to cost of revenue	728			239
Claims and settlements	(421		)	(381		)
Foreign exchange impact	9			15
Ending balance	$	1,247		$	751

Performance Bonds

In the normal course of operations, from time to time, the Company arranges for the issuance of various types of surety bonds, such as bid and performance bonds, which are agreements under which the surety company guarantees that the Company will perform in accordance with contractual or legal obligations. As of June 30, 2018, the Company had $2.9 million of surety bonds guaranteed by third parties.

Purchase Commitments

The Company has agreements with various contract manufacturers which include non-cancellable inventory purchase commitments. The Company’s inventory purchase commitments typically allow for cancellation of orders 30 days in advance of the required inventory availability date as set by the Company at time of order. The amount of non-cancellable purchase commitments outstanding, net of reserve, was $4.3 million as of June 30, 2018.

Payment Guarantees provided by Third Parties and DNI

The following table sets forth payment guarantees of the Company's indebtedness and other obligations as of June 30, 2018 (in thousands) that have been provided by third parties and DNI. DNI owns approximately 57.7% of the outstanding shares of the Company's common stock:

Guarantor	Amount Guaranteed (in thousands)		Description of Obligations Guaranteed
DNI	$	3,423	Borrowings from Shinhan Bank
DNI	1,712		Purchasing card from Shinhan Bank
DNI	12,355		Letter of credit from Industrial Bank of Korea
DNI	2,140		Purchasing Card from Industrial Bank of Korea
DNI	6,000		Letter of credit from NongHyup Bank
DNI	535		Purchasing card from NongHyup Bank
DNI	6,128		Borrowings from Export-Import Bank of Korea
DNI	6,000		Letter of credit from KookMin Bank
Industrial Bank of Korea	8,232		Letter of credit
NongHyup Bank	3,685		Letter of credit
Kookmin Bank	4,999		Letter of credit
Shinhan Bank	242		Purchasing card
Industrial Bank of Korea	1,556		Performance bonds
Industrial Bank of Korea	810		Purchasing Card
State Bank of India	38		Performance bonds
Seoul Guarantee Insurance Co.	3,961		Performance payment guarantee*
	$	61,816

_{*The Company is responsible for the warranty liabilities generally for the period of two years regarding major product sales and has contracted surety insurance over part of the warranty liabilities.} 

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Royalties

The Company has certain royalty commitments associated with the shipment and licensing of certain products. Royalty expense is generally based on a dollar amount per unit shipped or a percentage of the underlying revenue and is recorded in cost of revenue.

Legal Proceedings

The Company is subject to various legal proceedings, claims and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, the Company records an accrual for legal contingencies that it has determined to be probable to the extent the amount of the loss can be reasonably estimated. The Company does not expect that the ultimate costs to resolve these matters will have a material adverse effect on its consolidated financial position or results of operations. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the results of operations of the period in which the ruling occurs, or future periods.

(12) Stock Option and Other Benefit Plans

2018 Employee Stock Purchase Plan

On May 22, 2018, the stockholders of the Company approved the adoption of the DASAN Zhone Solutions, Inc. 2018 Employee Stock Purchase Plan (the “ESPP”). The ESPP became effective upon stockholder approval and replaced the Company’s existing DASAN Zhone Solutions, Inc. 2002 Employee Stock Purchase Plan.

The ESPP authorizes the issuance of up to 250,000 shares of the Company’s common stock. In addition, the ESPP provides for an annual increase on the first day of each calendar year beginning on January 1, 2019 and ending on and including January 1, 2028 equal to the lesser of (1) 1% of the shares outstanding on the last day of the immediately preceding calendar year and (2) such smaller number of shares as may be determined by the Board in its sole discretion. Notwithstanding the foregoing, the number of shares of stock that may be issued or transferred pursuant to awards under the ESPP may not exceed an aggregate of 2,000,000 shares.

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(13) Enterprise-Wide Information

The Company is a global provider of network access solutions and communications equipment for service provider and enterprise networks. There are no segment managers who are held accountable for operations, operating results and plans for levels or components below the Company unit level. Accordingly, the Company is considered to be in a single reporting segment and operating unit structure. The Company’s chief operating decision maker is the Company’s Chief Executive Officer, who reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geographic region for purposes of making operating decisions and assessing financial performance. The Company attributes revenue from customers to individual bill to countries. The following summarizes required disclosures about geographical concentrations and revenue by products and services (in thousands):

	Three Months Ended				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
Revenue by geography:
United States	$	13,630	$	11,961	$	30,179	$	24,108
Canada	1,321		1,422		2,293		2,614
Total North America	14,951		13,383		32,472		26,722
Latin America	7,312		7,075		15,269		11,945
Europe, Middle East, Africa	9,475		6,253		16,963		11,756
Korea	19,111		32,197		31,235		48,513
Other Asia Pacific	25,408		1,033		39,822		13,117
Total International	61,306		46,558		103,289		85,331
Total	$	76,257	$	59,941	$	135,761	$	112,053

	Three Months Ended				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
Revenue by classification:
Products	$	73,317	$	57,278	$	130,043	$	107,003
Services	2,940		2,663		5,718		5,050
Total	$	76,257	$	59,941	$	135,761	$	112,053

The Company's property and equipment, net of accumulated depreciation, were located in the following geographical areas as of June 30, 2018 and December 31, 2017 (in thousands):

	As of June 30, 2018		As of December 31, 2017
United States	$	3,238	$	3,393
Korea	1,382		1,633
Other Asia Pacific	812		847
	$	5,432	$	5,873

(14) Income Taxes

Income tax expense for the three and six months ended June 30, 2018 was $0.3 million for each period, on pre-tax income of $1.7 million and $1.8 million, respectively. For the three and six months ended June 30, 2017, income tax expense was $0.1 million and $0.5 million, respectively, on pre-tax losses of $0.8 million and $3.8 million, respectively.

As of June 30, 2018, the income tax rate varied from the United States statutory income tax rate primarily due to valuation allowances in the United States, income attributable to foreign jurisdictions taxed at rates different from the United States federal statutory rate, and tax credits.

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The total amount of unrecognized tax benefits, including interest and penalties, at June 30, 2018 was $0.5 million. The amount of tax benefits that would impact the effective income tax rate, if recognized, is $0.1 million. There were no significant changes to unrecognized tax benefits during the quarters ended June 30, 2017 and June 30, 2018. The Company does not anticipate any significant changes with respect to unrecognized tax benefits within the next 12 months.

The Company has recognized the provisional tax impacts related to the Tax Act in the Company’s consolidated financial statements for the year ended December 31, 2017. The ultimate impact may differ from provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Act. The Company has not yet determined its policy election with respect to whether to record deferred taxes for basis differences expected to reverse as a result of the global intangible low-taxed income (“GILTI”) provisions in future periods or use the period cost method. The Company has, however, included an estimate of the current GILTI impact in its tax provision for 2018. The Company continues to evaluate the impact of the tax reform and the accounting is expected to be completed when the Company's 2017 U.S. corporate income tax return is filed in 2018.

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. We use words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” variations of such words, and similar expressions to identify forward-looking statements. In addition, statements that refer to projections of earnings, revenue, costs or other financial items as to future periods; anticipated growth and trends in our business or key markets; cost synergies, growth opportunities and other financial and operating benefits of the Merger; future growth and revenues from our products; our ability to refinance or repay our existing indebtedness prior to the applicable maturity date; future economic conditions and performance; anticipated performance of products or services; plans, objectives and strategies for future operations; and other characterizations of future events or circumstances, are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and that they are subject to risks, uncertainties and assumptions that are difficult to predict, including those identified or referenced under the heading “Risk Factors” in Part II, Item 1A, elsewhere in this report and in our other filings with the Securities and Exchange Commission (the SEC). Actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause such a difference include, but are not limited to, our ability to realize the anticipated cost savings, synergies and other benefits of the Merger and any integration risks relating to the Merger, the ability to generate sufficient revenue to achieve or sustain profitability, the ability to raise additional capital to fund existing and future operations or to refinance or repay our existing indebtedness, defects or other performance problems in our products, any economic slowdown in the telecommunications industry that restricts the ability of our customers to purchase our products, commercial acceptance of our products, intense competition in the communications equipment market from large equipment companies as well as private companies with products that address the same networks needs as our products, higher than anticipated expenses that we may incur, any failure to comply with the periodic filing and other requirements of The Nasdaq Stock Market for continued listing, material weaknesses or other deficiencies in our internal control over financial reporting, the initiation of any civil litigation, regulatory proceedings, government enforcement actions or other adverse effects relating to the Audit Committee investigation or errors in the consolidated financial statements of Zhone Technologies, Inc., and other factors identified elsewhere in this report and in our most recent reports on Forms 10-K, 10-Q and 8-K. We undertake no obligation to revise or update any forward-looking statements for any reason.

OVERVIEW

We are a global provider of network access solutions and communications equipment for service provider and enterprise networks. We research, develop, test, sell, manufacture and support communications equipment in five major areas: broadband access, Ethernet switching, mobile backhaul, passive optical LAN (POLAN) and software defined networks (SDN).

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

With the exception of the policies discussed below, there have been no material changes to our critical accounting policies and estimates from the information provided in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” included in our Annual Report on Form 10-K for the year ended December 31, 2017. The policies discussed below are considered by management to be critical because changes in such estimates can materially affect the amount of our reported net income or loss. For all of these policies, management cautions that actual results may differ materially from these estimates under different assumptions or conditions.

For a description of what we believe to be the critical accounting policies and estimates used in the preparation of our unaudited condensed consolidated financial statements, refer to our Annual Report on Form 10-K for the year ended December 31, 2017.

Revenue Recognition

Revenue from contracts with customers is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. 

We generate revenue primarily from sales of products and services, including extended warranty service and customer support. Revenue from product sales is recognized at a point in time when control of the good is transferred to the customer, generally occurring upon shipment or delivery dependent upon the terms of the underlying contract. Revenue from services is generally recognized over time on a ratable basis over the contract term, using an output measure of progress, as the contracts usually provide the customer equal benefit throughout the contract period. We typically invoice customers for support contracts in advance, for periods ranging from one to five years.

Revenue from all sales types is recognized at transaction price, which is the amount we expect to be entitled to in exchange for transferring goods and/or providing services. Transaction price is calculated as selling price net of variable consideration. Sales to certain distributors are made under arrangements which provide the distributors with volume discounts, price adjustments, and other allowances under certain circumstances. These adjustments and allowances are accounted for as variable consideration. To estimate variable consideration, we analyze historical data, channel inventory levels, current economic trends and changes in customer demand for our products, among other factors. Historically, variable consideration has not been a significant component of our contracts with customers. As of June 30, 2018, the total estimate of variable consideration was not significant.

Contracts with Multiple Performance Obligations

Some of our contracts with customers contain multiple promised goods or services. For these contracts, we account for the promises separately as individual performance obligations if they are distinct. In determining whether performance obligations meet the criteria for being distinct, we consider a number of factors, including the degree of interrelation and interdependence between obligations and whether or not the good or service significantly modifies or transforms another good or service in the contract. 

After identifying the separate performance obligations, the transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices for products are determined using either an adjusted market assessment or expected cost-plus margin. For customer support and extended warranty services, standalone selling price is primarily based on the prices charged to customers. 

Remaining performance obligations represent the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. Unsatisfied and partially unsatisfied performance obligations primarily consist of backlog, which are products and services for which customer purchase orders have been accepted and that are in the process of being delivered.

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Contract Balances

Topic 606 distinguishes between a contract asset and accounts receivable based on whether receipt of the consideration is conditional on something other than passage of time. We record contract assets when we have a right to consideration and records accounts receivable when we have an “unconditional” right to consideration. Contract liabilities consist of cash payments received in advance of performance or where we have a right to consideration that is unconditional, before we transfer a good or service to a customer.

Warranties

Products sold to customers include standard warranties, covering bug fixes, such as minor updates such that the product continues to function according to published technical specifications. These standard warranties are assurance type warranties and do not offer any services in addition to the assurance that the product will continue working as specified. Therefore, standard warranties are not considered separate performance obligations in the arrangement. Instead, the expected cost of warranty is accrued as expense in accordance with applicable guidance. Extended warranties are sold with certain products and include additional support services. The transaction price for extended warranties is accounted for as service revenue and recognized over the life of the contract.

Contract Costs

Applying a practical expedient, we recognize the incremental costs of obtaining contracts, which primarily consist of sales commissions, as an expense when incurred if the amortization period of the assets that otherwise would have been recognized is one year or less. These costs are included in sales and marketing expenses. If the incremental direct costs of obtaining a contract relate to a service recognized over a period longer than one year, such costs are capitalized and amortized in line with the related services over the period of benefit. As of June 30, 2018, such capitalizable costs were not significant.

Financing

Our contracts do not include a significant financing component. We apply the practical expedient not to adjust the promised amount of consideration for the effects of a financing component if we expect, at contract inception, that the period between when we transfer a good or service to the customer and when the customer pays for the good or service will be one year or less.

Shipping and Handling

We have elected to account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment cost rather than as an additional promised service. As a result, we accrue the costs of shipping and handling when the related revenue is recognized.

Unsatisfied performance obligations

We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for the services performed. The majority of our performance obligations in our contracts with customers relate to contracts with a duration of less than one year and therefore transaction price allocated to unsatisfied performance obligations included in contracts with a duration of more than 12 months was not material.

Disaggregation of Revenue

The disaggregation of revenue by geographical regions for the three months and six months ended June 30, 2018 is disclosed in Note 13.

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RESULTS OF OPERATIONS

We list in the table below the historical condensed consolidated statement of comprehensive income (loss) as a percentage of total net revenue for the periods indicated.

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Net revenue:
Third parties	99	%	82	%	98	%	81	%
Related parties	1	%	18	%	2	%	19	%
Total net revenue	100	%	100	%	100	%	100	%
Cost of revenue:
Products and services - third parties	68	%	53	%	65	%	51	%
Products and services - related parties	1	%	14	%	2	%	15	%
Amortization of intangible assets	—	%	—	%	—	%	—	%
Total cost of revenue	69	%	67	%	67	%	66	%
Gross profit	31	%	33	%	33	%	34	%
Operating expenses:
Research and product development	11	%	15	%	13	%	17	%
Selling, marketing, general and administrative	15	%	18	%	18	%	19	%
Amortization of intangible assets	—	%	1	%	—	%	1	%
Total operating expenses	26	%	34	%	31	%	37	%
Operating income (loss)	5	%	(1	)%	2	%	(3	)%
Interest income	—	%	—	%	—	%	—	%
Interest expense	(1	)%	—	%	(1	)%	—	%
Other income, net	(1	)%	—	%	—	%	—	%
Income (loss) before income taxes	3	%	(1	)%	1	%	(3	)%
Income tax provision	—	%	—	%	—	%	—	%
Net income (loss)	3	%	(1	)%	1	%	(3	)%
Net loss attributable to non-controlling interest	—	%	—	%	—	%	—	%
Net income (loss) attributable to DASAN Zhone Solutions, Inc.	3	%	(1	)%	1	%	(3	)%
Foreign currency translation adjustments	(2	)%	(1	)%	(2	)%	2	%
Comprehensive loss	1	%	(2	)%	(1	)%	(1	)%
Comprehensive loss attributable to non-controlling interest	—	%	—	%	—	%	—	%
Comprehensive loss attributable to DASAN Zhone Solutions, Inc.	1	%	(2	)%	(1	)%	(1	)%

Net Revenue

Information about our net revenue for products and services for the six months ended June 30, 2018 and 2017 is summarized below (in millions):

	Three Months Ended June 30,								Six Months Ended June 30,
	2018		2017		Increase		% change		2018		2017		Increase		% change
Products	$	73.4	$	57.3	$	16.1	28	%	$	130.1	$	107.0	$	23.1	22	%
Services	2.9		2.7		0.2		7	%	5.7		5.1		0.6		12	%
Total	$	76.3	$	60.0	$	16.3	27	%	$	135.8	$	112.1	$	23.7	21	%

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Information about our net revenue for North America and international markets for the three and six months ended June 30, 2018 and 2017 is summarized below (in millions):

	Three Months Ended June 30,									Six Months Ended June 30,
	2018		2017		Increase/(decrease)			% change		2018		2017		Increase/(decrease)			% change
Revenue by geography:
United States	$	13.6	$	12.0	$	1.6		13	%	$	30.2	$	24.1	$	6.1		25	%
Canada	1.3		1.4		(0.1		)	(7	)%	2.3		2.6		(0.3		)	(12	)%
Total North America	14.9		13.4		1.5			11	%	32.5		26.7		5.8			22	%
Latin America	7.3		7.1		0.2			3	%	15.3		12.0		3.3			28	%
Europe, Middle East, Africa	9.5		6.3		3.2			51	%	17.0		11.8		5.2			44	%
Korea	19.1		32.2		(13.1		)	(41	)%	31.2		48.5		(17.3		)	(36	)%
Other Asia Pacific	25.5		1.0		24.5			2,450	%	39.8		13.1		26.7			204	%
Total International	61.4		46.6		14.8			32	%	103.3		85.4		17.9			21	%
Total	$	76.3	$	60.0	$	16.3		27	%	$	135.8	$	112.1	$	23.7		21	%

For the three months ended June 30, 2018, net revenue increased 27% or $16.3 million to $76.3 million from $60.0 million for the same period last year. For the six months ended June 30, 2018 net revenue increased 21% or $23.7 million to $135.8 million from $112.1 million for the same period of last year. For the three months ended June 30, 2018, product revenue increased 28% or $16.1 million to $73.4 million from $57.3 million for the same period last year. For the six months ended June 30, 2018 product revenue increased 22% or $23.1 million to $130.1 million from $107.0 million for the same period last year. The increase in net revenue for both the three and six month periods ended June 30, 2018 was primarily due to increased products sales in the United States and Other Asia Pacific, primarily in India, offset by decreased products sales in Korea. We also added customers in late 2017, which contributed to the revenue increase during the first two quarters this year as compared to the same periods last year.

Service revenue represents revenue from maintenance and other services associated with product shipments. For the three months ended June 30, 2018, service revenue increased 7% or $0.2 million to $2.9 million from $2.7 million for the same period last year. For the six months ended June 30, 2018 service revenue increased 12% or $0.6 million to $5.7 million from $5.1 million for the same period last year. The increase in service revenue was primarily related to a greater number of products under contract for maintenance and extended warranty.

International net revenue increased 32% or $14.8 million to $61.4 million for the three months ended June 30, 2018 from $46.6 million for the same period last year, and represented 80% of total net revenue compared with 78% during the same period of 2017. International net revenue increased 21% or $17.9 million to $103.3 million for the six months ended June 30, 2018 from $85.4 million for the same period last year, and represented 76% of total net revenue compared with 76% during the same period last year. The increases in international net revenue were primarily related to increased product sales in Other Asia Pacific, primarily in India.

For the three and six months ended June 30, 2018, one customer accounted for 22% and 15% of net revenue. For the three months ended June 30, 2017, two customers represented 11% and 14% (a related party) of net revenue, respectively. For the six months ended June 30, 2017, one customer represented 12% (a related party) of net revenue.     

We anticipate that our results of operations in any given period may depend to a large extent on sales to a small number of large accounts. As a result, our revenue for any quarter may be subject to significant volatility based upon changes in orders from one or a small number of key customers.

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Cost of Revenue and Gross Profit

Total cost of revenue increased 31% or $12.6 million to $53.1 million for the three months ended June 30, 2018, compared to $40.5 million for the three months ended June 30, 2017. Total cost of revenue was 69% of net revenue for the three months ended June 30, 2018, compared to 67% for the three months ended June 30, 2017. Total cost of revenue increased 22% or $16.5 million to $90.9 million for the six months ended June 30, 2018, from $74.4 million for the six months ended June 30, 2017. Total cost of revenue was 67% of net revenue for the six months ended June 30, 2018 compared to 66% for the six months ended June 30, 2017. The increase in total cost of revenue, as a percentage of sales, were primarily due to an increase in revenues in the United States and certain Other Asia Pacific customers.

We expect that in the future our cost of revenue as a percentage of net revenue will vary depending on the mix and average selling prices of products sold. In addition, continued competitive and economic pressures could cause us to reduce our prices, adjust the carrying values of our inventory, or record inventory expenses relating to discontinued products and excess or obsolete inventory.

Research and Product Development Expenses

Research and product development expenses decreased 5% or $0.4 million to $8.7 million for the three months ended June 30, 2018 compared to $9.1 million for the three months ended June 30, 2017. As a percentage of sales, research and product development expenses were 11% for the three months ended June 30, 2018, compared to 15% for the three months ended June 30, 2017. Research and product development expenses decreased 4% or $0.8 million to $17.7 million for the six months ended June 30, 2018 compared to $18.5 million for the six months ended June 30, 2017. As a percentage of sales, research and product development expenses were 13% for the six months ended June 30, 2018, compared to 17% for the six months ended June 30, 2017. The decrease in research and product development expenses was primarily due to lower personnel-related expenses due to synergies from the Merger. We intend to continue to invest in research and product development to attain our strategic product development objectives, while seeking to manage the associated costs through expense controls.

Selling, Marketing, General and Administrative Expenses

Selling, marketing, general and administrative expenses increased 11% or $1.2 million to $11.7 million for the three months ended June 30, 2018, compared to $10.6 million for the three months ended June 30, 2017. As a percentage of sales, selling, marketing, general and administrative expenses was 15% for the three months ended June 30, 2018, compared to 18% for the three months ended June 30, 2017. Selling, marketing, general and administrative expenses increased 12% or $2.7 million to $24.1 million for the six months ended June 30, 2018, compared to $21.4 million for the six months ended June 30, 2017. As a percentage of sales, selling, marketing, general and administrative expenses was 18% for the six months ended June 30, 2018, compared to 19% for the six months ended June 30, 2018. The increase in selling, marketing, general and administrative expenses was primarily related to higher personnel expenses due to increased headcount, as well as increased legal and outside service fees.

Income Tax Provision

Income tax expense for the three and six months ended June 30, 2018 was $0.3 million for each period, on pre-tax income of $1.7 million and $1.8 million, respectively. For the three and six months ended June 30, 2017, income tax expense was $0.1 million and $0.5 million, respectively, on pre-tax losses of $0.8 million and $3.8 million, respectively. As of June 30, 2018, the income tax rate varied from the United States statutory income tax rate primarily due to valuation allowances in the United States, income attributable to foreign jurisdictions taxed at rates different from the United States federal statutory rate, and tax credits.

OTHER PERFORMANCE MEASURES

In managing our business and assessing our financial performance, we supplement the information provided by our U.S. GAAP results with adjusted earnings before stock-based compensation, interest, taxes, and depreciation, or Adjusted EBITDA, a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss) plus (i) interest expense, net, (ii) provision (benefit) for taxes, (iii) depreciation and amortization, (iv) stock-based compensation expenses, and (v) material non-recurring transactions or events, such as Merger transaction costs or a gain (loss) on sale of assets or impairment of fixed assets. We believe that the presentation of Adjusted EBITDA enhances the usefulness of our financial information by presenting a measure that management uses internally to monitor and evaluate our operating performance and to evaluate the effectiveness of our core operating business strategies. We believe Adjusted EBITDA also assists investors and analysts in comparing our performance across reporting periods on a consistent basis because it excludes the impact of items that we do not believe reflect our core operating performance.

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Adjusted EBITDA has limitations as an analytical tool. Some of these limitations are:

• Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual requirements;

• Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

• Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;

• although depreciation and amortization are non-cash expenses, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

• non-cash compensation is and will remain a key element of our overall long-term incentive compensation programs and packages, although we exclude it as an expense when evaluating our ongoing operating performance for a particular period; and

• other companies in our industry may calculate Adjusted EBITDA and similar measures differently than we do, potentially limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for net income (loss) or any other performance measures calculated in accordance with U.S. GAAP or as a measure of liquidity. Management understands these limitations and compensates for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA only supplementally.

Set forth below is a reconciliation of net income (loss) to Adjusted EBITDA, which we consider to be the most directly comparable U.S. GAAP financial measure to Adjusted EBITDA (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018		2017
Net income (loss)	$	1,355	$	(874	)	$	1,496	$	(4,372	)
Add:
Interest expense, net	485		236			722		484
Income tax expense	341		99			336		539
Depreciation and amortization	682		1,172			1,381		2,353
Stock-based compensation	377		220			740		475
Adjusted EBITDA	$	3,240	$	853		$	4,675	$	(521	)

LIQUIDITY AND CAPITAL RESOURCES

Our operations are financed through a combination of our existing cash, cash equivalents, available credit facilities, and sales of equity and debt instruments, based on our operating requirements and market conditions.

We had a net income of $1.5 million for the six months ended June 30, 2018, and $1.2 million for the year ended December 31, 2017. As of June 30, 2018, we had an accumulated deficit of $17.0 million and working capital of $61.1 million. In addition, the Company had a net cash outflow from operations of $15.4 million for the six months ended June 30, 2018. As of June 30, 2018, we had $27.3 million in cash and cash equivalents, which included $12.5 million in cash balances held by our Korean subsidiary and $52.5 million in aggregate principal debt of which $45.7 million was in current liabilities. In addition, as of June 30, 2018 we had $3.2 million committed as security for letters of credit under our revolving credit facilities, leaving $5.6 million in aggregate financing availability under these facilities. Our current lack of liquidity could harm us by:

• increasing our vulnerability to adverse economic conditions in our industry or the economy in general;

• requiring substantial amounts of cash to be used for debt servicing, rather than other purposes, including operations;

• limiting our ability to plan for, or react to, changes in our business and industry; and

• influencing investor and customer perceptions about our financial stability and limiting our ability to obtain financing or acquire customers.

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These factors indicate that cash flows might not be sufficient for us to meet our obligations as they come due in the ordinary course of business for a period of 12 months from the date of this interim report on Form 10-Q.

Our ability to meet our obligations as they become due in the ordinary course of business for the next 12 months will depend on our ability to achieve forecasted results and our ability to access funds approved under existing facilities. Management’s belief that we will achieve these results assumes that, among other things, we will continue to be successful in implementing our business strategy and that there will be no material adverse development in our business, liquidity or capital requirements. If one or more of these factors do not occur as expected, it could cause us to fail to meet our obligations as they come due.

We plan to focus on cost management, operating efficiency and restrictions on discretionary spending. In addition, if necessary, we may sell assets, issue or enter into amendments of our debt or equity securities, or purchase credit insurance. We may also reduce the scope of our planned product development, reduce sales and marketing efforts and reduce our operations in low margin regions, including reductions in headcount. In fact, subsequent to the end of the quarter, on July 12, 2018, we entered into an Amended and Restated Credit and Security Agreement (the “A&R Domestic Credit Agreement”) and an Amended and Restated Credit and Security Agreement ("Ex-Im Subfacility") (the “A&R Ex-Im Credit Agreement”) with WFB, which amended and replaced our existing senior secured revolving line of credit and letter of credit facilities with WFB and revised certain reporting and compliance provisions, as described more fully in Note 7 to the unaudited condensed consolidated financial statements.

Based on our current plans and current business conditions, we believe that these measures along with our existing cash, cash equivalents and available credit facilities will be sufficient to satisfy our anticipated cash requirements for at least the next 12 months from the date of this Quarterly Report on Form 10-Q.

Operating Activities

Net cash used in operating activities was $15.4 million for the six months ended June 30, 2018, compared with net cash used of $6.8 million for the six months ended June 30, 2017. This increase was primarily due to changes in operating assets and liabilities, resulting in using $19.2 million of cash for the six months ended June 30, 2018, compared to providing $6.1 million of cash for the six months ended June 30, 2017.

Investing Activities

Net cash used in investing activities was $0.4 million for the six months ended June 30, 2018 compared to net cash provided by investing activities of $0.3 million for the six months ended June 30, 2017.

Financing Activities

Net cash provided by financing activities was $24.2 million for the six months ended June 30, 2018 compared to net cash used in financing activities of $0.9 million for the six months ended June 30, 2017. This change was primarily due to the borrowing of $6.3 million under the WFB Facility (as defined below) and KRW6.5 billion ($5.8 million) from DNI for the six months ended June 30, 2018.

Cash Management

Our primary source of liquidity comes from our cash and cash equivalents, which totaled $27.3 million at June 30, 2018, as well as our credit facilities, under which we had aggregate financing availability of $5.6 million as of June 30, 2018, and under which $3.2 million was committed as security for letters of credit as of June 30, 2018. Our cash and cash equivalents as of June 30, 2018 included $12.5 million in cash balances held by our Korean subsidiary.

WFB Facility

Wells Fargo Bank Facility

As of June 30, 2018, we had a $25.0 million revolving line of credit and letter of credit facility (then and as subsequently amended and replaced) with WFB, (the "WFB Facility"). Under the WFB Facility, we had the option of borrowing funds at agreed upon interest rates. The amount that we are able to borrow under the WFB Facility varies based on eligible accounts receivable and inventory, as defined in the WFB Facility, as long as the aggregate amount outstanding does not exceed $25.0 million less the amount committed as security for letters of credit. To maintain availability of funds under the WFB Facility, we pay a commitment fee on the unused portion. The commitment fee is 0.25% per annum and is recorded as interest expense.

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As of June 30, 2018, we had $8.0 million in outstanding borrowings under its WFB Facility, and $2.1 million was committed as security for letters of credit. Subsequent to the end of the quarter, on July 6, 2018, we repaid the $8.0 million borrowings under the WFB Facility. Based on our eligible accounts receivable and inventory, we had $2.2 million of financing availability under the WFB Facility as of June 30, 2018. The interest rate on the WFB Facility was 4.59% at June 30, 2018.

Subsequent to the end of the quarter, on July 12, 2018, we entered into an Amended and Restated Credit and Security Agreement (the “A&R Domestic Credit Agreement”) and an Amended and Restated Credit and Security Agreement ("Ex-Im Subfacility") (the “A&R Ex-Im Credit Agreement”) with WFB, which amended and replaced our existing senior secured revolving line of credit and letter of credit facilities with WFB and revised certain reporting and compliance provisions. The A&R Domestic Credit Agreement and the A&R Ex-Im Credit Agreement provide for a revolving line of credit of $25.0 million (including up to $5.0 million of letters of credit), with the amount that we are able to borrow based on eligible accounts receivable and inventory, less the amount committed as security for letters of credit. To maintain availability of funds under the A&R Domestic Credit Agreement and the A&R Ex-Im Credit Agreement, we will continue to pay commitment fee of 0.25% per annum on the unused portion. The amounts borrowed under the amended WFB Facility continue to bear interest, payable monthly, at a floating rate equal to the three-month LIBOR plus a margin based on our average excess availability (as calculated under the WFB Facility). The new maturity date under the WFB Facility was also extended from July 15, 2019 to July 12, 2021.

Our obligations under the WFB Facility are secured by substantially all of our assets and those of our subsidiaries that guarantee the WFB Facility, including their intellectual property. The WFB Facility contains certain financial covenants, and customary affirmative and negative covenants. If we default under the WFB Facility due to a covenant breach or otherwise, WFB may be entitled to, among other things, require the immediate repayment of all outstanding amounts and sell our assets to satisfy the obligations under the WFB Facility. As of June 30, 2018, we were in compliance with the covenants under the WFB Facility.

Bank and Trade Facilities - Foreign Operations

Certain of our foreign subsidiaries have entered into various financing arrangements with foreign banks and other lending institutions consisting primarily of revolving lines of credit, trade facilities, term loans and export development loans. These facilities are renewed on an annual basis and are generally secured by a security interest in certain assets of the applicable foreign subsidiaries and supported by guarantees given by DNI or third parties. Payments under such facilities are made in accordance with the given lender’s amortization schedules. As of June 30, 2018 and December 31, 2017, we had an aggregate outstanding balance of $31.9 million and $22.8 million, respectively, under such financing arrangements, and the interest rate per annum applicable to outstanding borrowings under these financing arrangements ranged from 1.58% to 8.90% as of both June 30, 2018 and December 31, 2017.

Related-Party Debt

In connection with the Merger, on September 9, 2016, we entered into a loan agreement with DNI for a $5.0 million unsecured subordinated term loan facility. Under the loan agreement, we were permitted to request drawdowns of one or more term loans in an aggregate principal amount not to exceed $5.0 million. As of June 30, 2018, $5.0 million in term loans was outstanding under the facility. Such term loans mature in September 2021 and are pre-payable at any time by us without premium or penalty. The interest rate as of June 30, 2018 under this facility was 4.6% per annum.

Also, we borrowed $1.8 million from DNI for capital investment in February 2016, which amount was outstanding as of June 30, 2018. This loan matures in July 2019 and bears interest at a rate of 4.6% per annum, payable annually.

On March 21, 2018, DNS borrowed KRW6.5 billion ($5.8 million) from DNI, which remained outstanding at June 30, 2018. The loan bears interest at a rate of 4.6% and matures on June 27, 2019, and is secured by certain accounts receivable of DNS Korea.

Interest expense on these related-party borrowings was $0.1 million in the three and six months ended June 30, 2018 and 2017 respectively.

Future Requirements and Funding Sources

Our fixed commitments for cash expenditures consist primarily of payments under operating leases, inventory purchase commitments, and payments of principal and interest for debt obligations.

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From time to time, we may provide or commit to extend credit or credit support to our customers. This financing may include extending the terms for product payments to customers. Any extension of financing to our customers will limit the capital that we have available for other uses.

Our accounts receivable, while not considered a primary source of liquidity, represent a concentration of credit risk because a significant portion of the accounts receivable balance at any point in time typically consists of a relatively small number of customer account balances. As of June 30, 2018, two customers represented 23% and 11% of net accounts receivable, respectively, and receivables from customers in countries other than the United States represented 80% of net accounts receivable. Additionally, Dasan Networks Japan has factoring arrangements in relation to certain accounts receivable with certain financial institutions as of June 30, 2018. We do not currently have any material commitments for capital expenditures, or any other material commitments aside from operating leases for our facilities, inventory purchase commitments and debt.

Contractual Commitments and Off-Balance Sheet Arrangements

At June 30, 2018, our future contractual commitments by fiscal year were as follows (in thousands):

			Payments due by period
	Total		2018		2019		2020		2021		2022		Thereafter
Operating leases	$	22,711	$	2,043	$	3,993	$	2,998	$	2,590	$	2,664	$	8,423
Purchase commitments	4,272		4,272		—		—		—		—		—
Short-term debt - bank and trade facilities	39,874		39,874		—		—		—		—		—
Short-term debt - related party	5,795		5,795		—		—		—		—		—
Long-term debt -related party	6,800		—		1,800		—		5,000		—		—
Other payable - related party	1,449		1,449		—		—		—		—		—
Royalty obligations	500		500		—		—		—		—		—
Total future contractual commitments	$	81,401	$	53,933	$	5,793	$	2,998	$	7,590	$	2,664	$	8,423

Operating Leases

The operating lease amounts shown above represent primarily off-balance sheet arrangements. For operating lease commitments, a liability is generally not recorded on our balance sheet unless the facility represents an excess facility for which an estimate of the facility exit costs has been recorded on our balance sheet, net of estimated sublease income. For operating leases that include contractual commitments for operating expenses and maintenance, estimates of such amounts are included based on current rates. Payments made under operating leases are treated as rent expense for the facilities currently being utilized.

Purchase Commitments

The purchase commitments shown above represent non-cancellable inventory purchase commitments as of June 30, 2018.

Short-term Debt

Our short-term debt obligations have been recorded as liabilities on our balance sheet, and are comprised of $31.9 million in outstanding borrowings under the credit facilities of our foreign subsidiaries and $8.0 million in outstanding borrowings under the WFB Facility as of June 30, 2018. The amount shown above represents scheduled principal repayments under the facilities, but not the associated interest payments which may vary based on changes in market interest rates. Subsequent to the end of the quarter, on July 6, 2018, we repaid the $8.0 million borrowings under our WFB Facility. At June 30, 2018, the interest rate per annum applicable to outstanding borrowings under the trade facilities of our foreign subsidiaries ranged from 1.58% to 8.90% and was 4.59% under the WFB Facility. See above under "Cash Management" for further information about these facilities.

Related-Party Debt

As of June 30, 2018, we had borrowed an aggregate of $6.8 million from DNI, which consisted of a $5.0 million unsecured subordinated term loan facility which matures in September 2021 and a $1.8 million loan for capital investment which matures in July 2019. In addition, DNS Korea has a secured loan outstanding of KRW 6.5 billion ($5.8 million) which matures in June 2019. All three loans bear interest at a rate of 4.6% per annum.

See above under “Cash Management” for further information about our related-party debt.

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RECENT ACCOUNTING PRONOUNCEMENTS

Please refer to Note 1(g) to the unaudited condensed consolidated financial statements included in part 1, Item 1 of this report.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

Concentration of Credit Risk

Financial instruments which potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, and accounts receivable. Cash and cash equivalents consist principally of financial deposit and money market accounts. Cash and cash equivalents are principally held with various domestic financial institutions with high credit standing. We perform ongoing credit evaluations of our customers and generally do not require collateral. Allowances are maintained for potential doubtful accounts.

We anticipate that our results of operations in any given period may depend to a large extent on sales to a small number of large accounts. As a result, our revenue for any quarter may be subject to significant volatility based upon changes in orders from one or a small number of key customers.

For the three and six months ended June 30, 2018, one customer accounted for 22% and 15% of net revenue. For the three months ended June 30, 2017, two customers represented 11% and 14% of net revenue, respectively. For the six months ended June 30, 2017, one customer represented 11% (a related-party) of net revenue.

As of June 30, 2018, two customers represented 23% and 11% of net accounts receivable, respectively. As of December 31, 2017, two customers represented 20% (a related party) and 11% of net accounts receivable, respectively.

As of June 30, 2018 and December 31, 2017, receivables from customers in countries other than the United States represented 80% and 84%, respectively, of net accounts receivable.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our variable rate outstanding debt. As of June 30, 2018, our outstanding short-term debt balance was $45.7 million, which consisted of principal amount of borrowings under the short-term credit facilities of our foreign subsidiaries, DNI and the WFB Facility (all of which bear interest at a variable rate). Amounts borrowed under our short-term credit facilities bore interest ranging from 1.58% to 8.90% as of June 30, 2018 and amounts borrowed under the WFB Facility bore interest at 4.59%. Assuming the outstanding balance on our variable rate debt remains constant over a year, a 1% increase in the interest rate would decrease pre-tax income and cash flow by approximately $0.3 million. As of June 30, 2018, our outstanding long-term debt balance was $6.8 million and consisted of loans from DNI and its affiliates (which bear interest at fixed rates).

Foreign Currency Risk

We transact business in various foreign countries, and a significant portion of our assets is located in Korea. We have sales operations throughout Asia, Europe the Middle East and Latin America. We are exposed to foreign currency exchange rate risk associated with foreign currency denominated assets and liabilities, primarily intercompany receivables and payables. Accordingly, our operating results are exposed to changes in exchange rates between the U.S. dollar and those currencies.

We have performed a sensitivity analysis as of June 30, 2018 using a modeling technique that measures the impact on the balance sheet arising from a hypothetical 10% adverse movement in the levels of foreign currency exchange rates relative to the U.S. dollar, with all other variables held constant. The sensitivity analysis indicated that a hypothetical 10% adverse movement in foreign currency exchange rates would result in a foreign exchange loss of approximately $2.8 million at June 30, 2018. This sensitivity analysis assumes a parallel adverse shift in foreign currency exchange rates, which do not always move in the same direction. Actual results may differ materially.

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Item 4.    Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance of achieving the objective that information required to be disclosed in our reports filed or submitted pursuant to the Securities Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) under the Exchange Act, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2018, the end of the period covered by this report. The evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, because of the material weaknesses in our internal control over financial reporting that existed as of December 31, 2017 and that have not yet been remediated, as described below, our disclosure controls and procedures were not effective as of June 30, 2018.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis. Based on the results of the independent investigation and due to the incorrect application of generally accepted accounting principles that resulted in material misstatements and a restatement of our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2016, management identified material weaknesses in our internal control over financial reporting as of December 31, 2016 which continued to exist at December 31, 2017. Specifically, we did not maintain an effective control environment as there was an insufficient complement of personnel with appropriate accounting knowledge, experience and competence, resulting in incorrect application of generally accepted accounting principles. This material weakness contributed to the following material weaknesses. We did not maintain effective controls over our financial close process. Also, we did not design and maintain effective controls over the review of supporting information to determine the completeness and accuracy of the accounting for complex transactions, specifically related to the business combination that occurred on September 9, 2016, which resulted in an incorrect application of generally accepted accounting principles that resulted in material misstatements and a restatement of our unaudited condensed consolidated financial statements for the three and nine months period ended September 30, 2016. Additionally, these material weaknesses could result in a misstatement in the financial statements that would result in a material misstatement in the annual or interim consolidated financial statements that would not be prevented or detected.

In light of the material weakness described above, and based on the criteria set forth in Internal Control —Integrated Framework (2013) issued by the Committee Sponsoring Organizations of the Treadway Commission (COSO), our management concluded that our internal control over financial reporting was not effective as of December 31, 2017.

As of the date of this report, we are re-assessing the design of our controls and modifying processes related to the accounting for significant and unusual transactions as well as enhancing monitoring and oversight controls in the application of applicable accounting guidance related to such transactions. In connection therewith, we have hired and we anticipate that we will hire additional accounting personnel with relevant skills, training and experience, and conduct further training of accounting and finance personnel.

Changes in Internal Control over Financial Reporting

Except as described above, there were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Merger-related integration activities may lead us to modify certain internal controls in future periods.

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Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

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PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

We are subject to various legal proceedings, claims and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position or results of operations. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. If an unfavorable ruling were to occur, there exists the possibility of material adverse impact on the results of operations of the period in which the ruling occurs, or future periods.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A, Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 6.    Exhibits

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EXHIBIT INDEX

Exhibit Number	Description
10.1	Amended and Restated Credit and Security Agreement, dated as of July 12, 2018, by and among DASAN Zhone Solutions, Inc., ZTI Merger Subsidiary III, Inc., Premisys Communications, Inc., Zhone Technologies International, Inc., Paradyne Networks, Inc., Paradyne Corporation, DASAN Network Solutions, Inc. and Wells Fargo Bank, National Association
10.2	Amended and Restated Credit and Security Agreement (Ex-Im Subfacility), dated as of July 12, 2018, by and among DASAN Zhone Solutions, Inc., ZTI Merger Subsidiary III, Inc., Premisys Communications, Inc., Zhone Technologies International, Inc., Paradyne Networks, Inc., Paradyne Corporation, DASAN Network Solutions, Inc. and Wells Fargo Bank, National Association
31.1	Certification of Chief Executive Officer Pursuant to Securities Exchange Rules 13a-14(a)/15d-14(a), as Adopted, Pursuant to Section 302 of the Sarbanes Oxley Act of 2002
31.2	Certification of Chief Financial Officer Pursuant to Securities Exchange Rules 13a-14(a)/15d-14(a), as Adopted, Pursuant to Section 302 of the Sarbanes Oxley Act of 2002
32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Labels Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

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SIGNATURES

Pursuant to the retirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DASAN ZHONE SOLUTIONS, INC.
Date: August 10, 2018
	By:	/s/ IL YUNG KIM
	Name:	Il Yung Kim
	Title:	President and Chief Executive Officer
	By:	/s/ MICHAEL GOLOMB
	Name:	Michael Golomb
	Title:	Chief Financial Officer, Corporate Treasurer and Secretary

40

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

RULE 13a-14(a)/15d-14(a)

I, Il Yung Kim, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of DASAN Zhone Solutions, 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 registrant as of, and for, the periods presented in this report;

4. The registrant’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 registrant 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 registrant, 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 registrant’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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’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 registrant’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 registrant’s internal control over financial reporting.

Date: August 10, 2018

/s/    IL YUNG KIM

Il Yung Kim

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

RULE 13a-14(a)/15d-14(a)

I, Michael Golomb, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of DASAN Zhone Solutions, 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 registrant as of, and for, the periods presented in this report;

4. The registrant’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 registrant 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 registrant, 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 registrant’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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’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 registrant’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 registrant’s internal control over financial reporting.

Date: August 10, 2018

/s/   MICHAEL GOLOMB

Michael Golomb

Chief Financial Officer, Corporate Treasurer and Secretary

EX-32.1

Exhibit 32.1

SECTION 1350 CERTIFICATION

Pursuant to 18 U.S.C. Section 1350, Il Yung Kim, President and Chief Executive Officer of DASAN Zhone Solutions, Inc. (the “Company”) and Michael Golomb, Chief Financial Officer, Corporate Treasurer and Secretary, of the Company each hereby certify that, to their knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the quarter June 30, 2018 (the “Report”) 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 the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 10, 2018

/s/    IL YUNG KIM

Il Yung Kim

President and Chief Executive Officer

/s/    MICHAEL GOLOMB

Michael Golomb

Chief Financial Officer, Corporate Treasurer and Secretary

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2018	Aug. 06, 2018
Document and Entity Information [Abstract]
Entity Registrant Name	DASAN ZHONE SOLUTIONS INC
Trading Symbol	DZSI
Entity Central Index Key	0001101680
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Document Type	10-Q
Document Period End Date	Jun. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Common Stock, Shares Outstanding		16,497,948

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Unaudited Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 27,308	$ 17,475
Restricted cash	10,426	12,425
Accounts receivable, net, trade receivables	65,939	48,257
Accounts receivable, net, related parties	1,224	13,498
Other receivables, others	25,192	12,494
Other receivables, related parties	65	164
Inventories	38,187	25,344
Prepaid expenses and other current assets	4,137	3,652
Total current assets	172,478	133,309
Property and equipment, net	5,432	5,873
Goodwill	3,977	3,977
Intangible assets, net	6,217	6,785
Non-current deferred taxes	2,925	2,954
Long-term restricted cash	1,136	1,512
Other assets	4,751	4,717
Total assets	196,916	159,127
Current liabilities:
Accounts payable, trade	49,414	31,441
Accounts payable, related parties	1,385	1,351
Short-term debt, bank and trade facilities	39,874	19,790
Short-term debts, related parties	5,795	0
Other payables, others	1,426	2,032
Other payables, related parties	1,449	1,956
Contract liabilities - current	2,600	3,279
Accrued and other liabilities	9,431	11,174
Total current liabilities	111,374	71,023
Long-term debt, others	0	2,987
Long-term debt, related parties	6,800	6,800
Contract liabilities - non-current	1,773	1,883
Other long-term liabilities	2,699	2,667
Total liabilities	122,646	85,360
Commitments and contingencies (Note 11)
Stockholders’ equity and non-controlling interest:
Common stock, authorized 36,000 shares, 16,431 shares and 16,410 shares outstanding as of March 31, 2018 and December 31, 2017 at $0.001 par value	16	16
Additional paid-in capital	91,126	90,198
Other comprehensive income (loss)	(399)	1,871
Accumulated deficit	(16,988)	(18,852)
Total stockholders’ equity	73,755	73,233
Non-controlling interest	515	534
Total stockholders’ equity and non-controlling interest	74,270	73,767
Total liabilities, stockholders’ equity and non-controlling interest	$ 196,916	$ 159,127

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Unaudited Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2018	Dec. 31, 2017
Statement of Financial Position [Abstract]
Common stock, authorized (in shares)	36,000,000	36,000,000
Common stock, outstanding (in shares)	16,450,000	16,410,000
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001

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Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Income Statement [Abstract]
Third parties	$ 75,187	$ 49,080	$ 133,093	$ 90,321
Related parties	1,070	10,861	2,668	21,732
Total net revenue	76,257	59,941	135,761	112,053
Products and services - third parties	51,844	31,781	87,697	56,802
Products and services - related parties	1,095	8,574	2,858	17,282
Amortization of intangible assets	153	153	306	306
Total cost of revenue	53,092	40,508	90,861	74,390
Gross profit	23,165	19,433	44,900	37,663
Operating expenses:
Research and product development	8,714	9,141	17,691	18,523
Selling, marketing, general and administrative	11,712	10,551	24,106	21,435
Amortization of intangible assets	131	544	262	1,037
Total operating expenses	20,557	20,236	42,059	40,995
Operating income (loss)	2,608	(803)	2,841	(3,332)
Interest income	75	20	161	46
Interest expense	(560)	(256)	(883)	(530)
Other income (loss), net	(427)	264	(287)	(17)
Income (loss) before income taxes	1,696	(775)	1,832	(3,833)
Income tax expense	341	99	336	539
Net income (loss)	1,355	(874)	1,496	(4,372)
Net income (loss) attributable to non-controlling interest	(61)	(65)	(27)	184
Net income (loss) attributable to DASAN Zhone Solutions, Inc.	1,416	(809)	1,523	(4,556)
Foreign currency translation adjustments	(2,548)	(824)	(2,230)	2,066
Comprehensive loss	(1,193)	(1,698)	(734)	(2,306)
Comprehensive loss attributable to non-controlling interest	(83)	(64)	(19)	205
Comprehensive loss attributable to DASAN Zhone Solutions, Inc.	$ (1,110)	$ (1,634)	$ (715)	$ (2,511)
Basic (in dollars per share)	$ 0.09	$ (0.05)	$ 0.09	$ (0.28)
Diluted (in dollars per share)	$ 0.08	$ (0.05)	$ 0.09	$ (0.28)
Weighted average shares outstanding used to compute basic net income (loss) per share (in shares)	16,438	16,380	16,425	16,380
Weighted average shares outstanding used to compute diluted net income (loss) per share (in shares)	16,672	16,380	16,645	16,380

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Unaudited Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Cash flows from operating activities:
Net income (loss)	$ 1,496	$ (4,372)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	1,381	2,353
Stock-based compensation	740	475
Valuation allowance on inventories	411	626
Unrealized (gain) loss on foreign currency transactions	(141)	240
Deferred taxes	(82)	0
Changes in operating assets and liabilities:
Accounts receivable	(18,843)	(8,659)
Inventories	(14,641)	(4,346)
Prepaid expenses and other assets	219	(936)
Accounts payable	18,498	3,689
Accrued and other liabilities	(4,448)	4,118
Net cash used in operating activities	(15,410)	(6,812)
Cash flows from investing activities:
Proceeds from sale of short-term investments	0	1,463
Purchase of short-term investments	0	(430)
Proceeds from disposal of property and equipment and other assets	1	6
Purchase of property and equipment	(415)	(663)
Purchase of intangible asset	0	(31)
Net cash (used in) provided by investing activities	(414)	345
Cash flows from financing activities:
Proceeds from short-term borrowings from bank and trade facilities	44,368	8,679
Proceeds from long-term borrowings from related party	6,064	0
Repayments of borrowings	(26,455)	(9,581)
Proceeds from issuance of common stock	188	1
Net cash provided by (used in) financing activities	24,165	(901)
Effect of exchange rate changes on cash and restricted cash	(883)	1,067
Net increase (decrease) in cash and cash equivalents	7,458	(6,301)
Cash, cash equivalents and restricted cash at beginning of period	31,412	24,543
Cash, cash equivalents and restricted cash at end of period	38,870	18,242
Cash and cash equivalents	27,308	9,902
Restricted cash	10,426	8,340
Long-term restricted cash	$ 1,136	$ 0

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Organization and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Organization and Summary of Significant Accounting Policies

Organization and Summary of Significant Accounting Policies

(a) Description of Business

DASAN Zhone Solutions, Inc. (referred to, collectively with its subsidiaries, as "DZS" or the "Company") is a global provider of network access solutions and communications equipment for service provider and enterprise networks. The Company provides a wide array of reliable, cost-effective networking technologies, including broadband access, Ethernet switching, mobile backhaul, Passive Optical LAN and software-defined networks, to a diverse customer base that includes more than 1,000 customers in more than 50 countries worldwide.

DZS was incorporated under the laws of the state of Delaware in June 1999, under the name Zhone Technologies, Inc. On September 9, 2016, the Company acquired Dasan Network Solutions, Inc. ("DNS"), a California corporation through the merger of a wholly owned subsidiary of the Company with and into DNS, with DNS surviving as a wholly owned subsidiary of the Company (the "Merger"). At the effective time of the Merger, all issued and outstanding shares of capital stock of DNS held by DASAN Networks, Inc. ("DNI") were canceled and converted into the right to receive shares of the Company's common stock in an amount equal to 57.7% of the issued and outstanding shares of the Company's common stock immediately following the Merger. In connection with the Merger, the Company changed its name from Zhone Technologies, Inc. to DASAN Zhone Solutions, Inc.

The Company is headquartered in Oakland, California and has flexible in-house production facilities in Seminole, Florida and with contract manufacturers located in China, India, Korea and Vietnam. The Company also maintains offices to provide sales and customer support at various domestic and international locations.

(b) Risks and Uncertainties

Liquidity

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States ("U.S. GAAP"), assuming the Company will continue as a going concern.

The Company had net income of $1.5 million for the six months ended June 30, 2018 and $1.2 million for the year ended December 31, 2017. As of June 30, 2018, the Company had an accumulated deficit of $17.0 million and working capital of $61.1 million. In addition, the Company had a net cash outflow from operations of $15.4 million for the six months ended June 30, 2018. As of June 30, 2018, the Company had $27.3 million in cash and cash equivalents, which included $12.5 million in cash balances held by its Korean subsidiary, and $52.5 million in aggregate principal debt of which $45.7 million was in current liabilities. Also, as of June 30, 2018, the Company had $3.2 million committed as security for letters of credit under its revolving credit facilities, and $8.0 million outstanding indebtedness under those facilities, leaving $5.6 million in aggregate financing availability under the facilities. On July 6, 2018, the Company repaid the $8.0 million borrowings under its Wells Fargo Bank ("WFB") Facility. The Company’s current lack of liquidity could harm it by:

• increasing its vulnerability to adverse economic conditions in its industry or the economy in general;

• requiring substantial amounts of cash to be used for debt servicing, rather than other purposes, including operations;

• limiting its ability to plan for, or react to, changes in its business and industry; and

• influencing investor and customer perceptions about its financial stability and limiting its ability to obtain financing or acquire customers.

These factors indicate that cash flows might not be sufficient for the Company to meet its obligations as they come due in the ordinary course of business for a period of 12 months from the date of this interim report on Form 10-Q.

The Company’s ability to meet its obligations as they become due in the ordinary course of business for the next 12 months will depend on its ability to achieve forecasted results and its ability to access funds approved under existing facilities. Management’s belief that it will achieve these results assumes that, among other things, the Company will continue to be successful in implementing its business strategy and that there will be no material adverse development in its business, liquidity or capital requirements. If one or more of these factors do not occur as expected, it could cause the Company to fail to meet its obligations as they come due.

The Company plans to focus on cost management, operating efficiency and restrictions on discretionary spending. In addition, if necessary, the Company may sell assets, issue or enter into amendments of its debt or equity securities, or purchase credit insurance. The Company may also reduce the scope of its planned product development, reduce sales and marketing efforts and reduce its operations in low margin regions, including reductions in headcount. In fact, subsequent to the end of the quarter, on July 12, 2018, the Company entered into an Amended and Restated Credit and Security Agreement (the “A&R Domestic Credit Agreement”) and an Amended and Restated Credit and Security Agreement ("Ex-Im Subfacility") (the “A&R Ex-Im Credit Agreement”) with WFB, which amended and replaced the Company’s existing senior secured revolving line of credit and letter of credit facilities with WFB and revised certain reporting and compliance provisions, as described more fully in Note 7 to the unaudited condensed consolidated financial statements.

Based on the Company's current plans and current business conditions, the Company believes that these measures along with its existing cash, cash equivalents and available credit facilities will be sufficient to satisfy its anticipated cash requirements for at least the next 12 months from the date of this Quarterly Report on Form 10-Q.

Other Uncertainties

DNI owned approximately 57.7% of the outstanding shares of the Company's common stock as of June 30, 2018. For so long as DNI and its affiliates hold shares of the Company's common stock representing at least a majority of the votes, DNI will be able to freely nominate and elect all the members of the Company's board of directors, subject to the provisions of the Company's bylaws and applicable requirements under Nasdaq listing rules and applicable laws. The directors elected by DNI will have the authority to make decisions affecting the Company's capital structure, including the issuance of additional capital stock or options, the incurrence of additional indebtedness, the implementation of stock repurchase programs, and the declaration of dividends. The interests of DNI may not coincide with the interests of the Company's other stockholders or with holders of the Company's indebtedness. DNI’s ability to control all matters submitted to the Company's stockholders for approval limits the ability of other stockholders to influence corporate matters and, as a result, the Company may take actions that the Company's other stockholders or holders of the Company's indebtedness do not view as beneficial. See Notes 9 and 11 to the unaudited condensed consolidated financial statements for additional information.

(c) Reclassifications

For the three months ended June 30, 2017, certain prior period statement of comprehensive income (loss) items have been reclassified to correctly reflect research and product development expenses and selling, marketing, general and administrative expenses of $0.1 million and $0.1 million, respectively, which were previously incorrectly classified as cost of revenue-products and services. For the six months ended June 30, 2017 certain prior period statement of comprehensive loss items have been reclassified to correctly reflect research and product development expenses and selling, marketing, general and administrative expenses of $0.3 million and $0.4 million, respectively, which were previously incorrectly classified as cost of revenue-products and services.

(d) Basis of Presentation

For a description of what the Company believes to be the critical accounting policies and estimates used in the preparation of the Company's unaudited condensed consolidated financial statements, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the Company does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

The unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) that, in the opinion of management, are necessary for a fair statement of the results for the interim periods presented. All intercompany transactions and balances have been eliminated in consolidation. The results of operations for the current interim period are not necessarily indicative of results to be expected for the current year or any other period. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission.

(e) Reverse Stock Split

On February 28, 2017, the Company filed a Certificate of Amendment with the Delaware Secretary of State to amend the Company's Restated Certificate of Incorporation, which amendment effected a one-for-five reverse stock split of the Company's common stock and reduced the authorized shares of the Company's common stock from 180 million to 36 million. As a result of the reverse stock split, the number of shares of the Company’s common stock then issued and outstanding was reduced from approximately 81.9 million to approximately 16.4 million. References to shares of the Company's common stock, stock options (and associated exercise price) and restricted stock units in this Quarterly Report on Form 10-Q are provided on a post-reverse stock split basis.

(f) Concentration of Risk

The Company’s customers include competitive and incumbent local exchange carriers, competitive access providers, internet service providers, wireless carriers and resellers serving these markets. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Allowances are maintained for potential doubtful accounts.

For the three and six months ended June 30, 2018, one customer accounted for 22% and 15% of net revenue, respectively. For the three months ended June 30, 2017, two customers represented 11% and 14% (a related party) of net revenue, respectively. For the six months ended June 30, 2017, one customer represented 12% (a related party) of net revenue.

As of June 30, 2018, two customers represented 23% and 11% of net accounts receivable, respectively. As of December 31, 2017, two customers represented 20% (a related party) and 11% of net accounts receivable, respectively.

As of June 30, 2018 and December 31, 2017, receivables from customers in countries other than the United States represented 80% and 84%, respectively, of net accounts receivable.

(g) Recent Accounting Pronouncements

Recent Accounting Pronouncements Adopted

In May 2014, the FASB issued ASU No. 2014-09 “Revenue from Contracts with Customers” (“Topic 606”), which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Topic 606 replaced most existing revenue recognition standards under U.S. GAAP, including ASC 605, Revenue Recognition ("Topic 605").

On January 1, 2018, the Company adopted Topic 606 and applied this guidance to all open contracts at the date of adoption using the modified retrospective method. The Company recognized the cumulative effect of initially applying Topic 606 as an adjustment to the balance of accumulated deficit at January 1, 2018. The comparative information has not been restated and continues to be reported under Topic 605.

The Company’s adoption of Topic 606 primarily impacted the following:

• Topic 606 requires an allocation of revenue between deliverables (performance obligations) within an arrangement. Topic 605 restricted the allocation of revenue that is contingent on future deliverables to current deliverables, however, Topic 606 removes this restriction, to the extent that the future deliverables represent performance obligations that are distinct. Under Topic 606, the nature of the performance obligations identified within a contract impacts the allocation of the transaction price between deliverables.

• Some of the Company’s contracts include customer acceptance terms, which provides protection to the customer by allowing it to either cancel a contract or force the Company to take corrective actions if products or services do not meet the requirements in the contract. Under Topic 606, customer acceptance that is considered a “formality”, would result in revenue recognized when control of the product or service is transferred to customer, which is typically upon shipment or delivery dependent upon the terms of the underlying contract.

The following table summarizes the effects of Topic 606 on the Company’s unaudited condensed consolidated balance sheet at January 1, 2018 (in thousands):

	As of January 1, 2018
	Balance after adoption of ASC 606			Adjustments				Balance without adoption of ASC 606
Assets
Accounts receivable, net	$	62,099		$	344		(1)	$	61,755
Inventories	25,239			(105		)	(2)	25,344
Liabilities
Contract liabilities - current	2,866			(413		)	(2)	3,279
Accrued and other liabilities	11,518			344			(1)	11,174
Stockholders’ equity
Accumulated deficit	(18,544		)	308				(18,852		)

⁽¹⁾ Allowance for sales returns was historically presented as a contra-asset within accounts receivable on the Company's consolidated balance sheets. Upon the adoption of Topic 606, the Company presents the allowance for sales returns in Accrued and other liabilities (current).

⁽²⁾ Represents the impact of allocation of transaction price to separate performance obligations in open contracts as of the adoption date on a relative standalone selling price basis and acceleration of revenue (and related costs) for contracts for which acceptance clauses are a formality.

The following table summarizes the effects of Topic 606 on the Company’s unaudited condensed consolidated balance sheet at June 30, 2018 (in thousands): 

	As of June 30, 2018
	As reported			Adjustments				Balance without adoption of ASC 606
Assets
Accounts receivable, net	$	67,163		$	512		(1)	$	66,651
Inventories	38,187			66			(2)	38,121
Liabilities
Contract liabilities - current	2,600			347			(2)	2,253
Accrued and other liabilities	9,431			512			(1)	8,919
Stockholders’ equity
Accumulated deficit	(16,988		)	(281		)		(16,707		)

⁽¹⁾ Allowance for sales returns was historically presented as a contra-asset within accounts receivable on the Company's consolidated balance sheets. Upon the adoption of Topic 606, the Company presents the allowance for sales returns in Accrued and other liabilities (current).

⁽²⁾ Represents the impact of allocation of transaction price to separate performance obligations in open contracts as of June 30, 2018 on a relative standalone selling price basis and acceleration of revenue (and related costs) for contracts for which acceptance clauses are a formality.

The following table summarizes the effects of Topic 606 on the Company’s unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2018 (in thousands):

	Three Months Ended June 30, 2018
	As reported			Adjustments			Balance without adoption of ASC 606
Net revenue	$	76,257		$	(152	)	$	76,409
Cost of revenue - products and services	53,092			(5		)	53,097
Gross profit	23,165			(147		)	23,312
Provision for income taxes	(341		)	—			(341		)
Net income	1,355			(147		)	1,502

	Six Months Ended June 30, 2018
	As reported			Adjustments			Balance without adoption of ASC 606
Net revenue	$	135,761		$	(347	)	$	136,108
Cost of revenue - products and services	90,861			(66		)	90,927
Gross profit	44,900			(281		)	45,181
Provision for income taxes	(336		)	—			(336		)
Net income	1,496			(281		)	1,777

During the three and six months ended June 30, 2018, $0.3 million and $0.6 million respectively, was recognized as revenue from the opening contract liabilities balance.

There was no impact on net revenue from related parties as a result of Topic 606.

In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows, Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The updated guidance became effective for the Company on January 1, 2018 and was adopted accordingly. The adoption of this standard did not have any effect on the Company's condensed consolidated statement of cash flows for the three and six months ended June 31, 2018 or 2017.

In November 2016, FASB issued ASU 2016-18, Statement of Cash Flows, Restricted Cash, which requires that a statement of cash flows to explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents. The updated guidance became effective for the Company beginning on January 1, 2018 and was adopted accordingly, using the retrospective approach. As a result, the Company no longer presents transfers between cash and cash equivalents and restricted cash in the consolidated cash flow statements. The condensed consolidated statement of cash flows for the six months ended June 30, 2017 was revised to exclude the $1.3 million change in restricted cash from net cash used in investing activities and to include $6.7 million and $8.3 million in cash, cash equivalents and restricted cash, beginning of period and cash, cash equivalents and restricted cash, end of period, respectively.  

Other Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires that lease arrangements longer than 12 months result in an entity recognizing an asset and liability. The updated guidance is effective for the Company on January 1, 2019, and early adoption is permitted. The Company does not plan to early adopt this guidance. The Company expects its assets and liabilities to increase as a result of the adoption of this standard. In July 2018, the FASB issued ASU 2018-18-11, Leases(Topic 842): Targeted Improvements, ASU 2018-11 states that, separating components of a contract affect the amendments in Update 2016-02, which are not yet effective but can be early adopted. All entities, including early adopters, that elect the practical expedient related to separating components of a contract in this Update must apply the expedient, by class of underlying asset, to all existing lease transactions that qualify for the expedient at the date elected. The Company is currently assessing the potential impact of adopting this new guidance on its consolidated financial statements.

In January 2017, FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairment. The updated guidance is effective for the Company on January 1, 2020, and will be adopted accordingly. Early adoption is permitted. The Company is currently assessing the potential impact of adopting this new guidance on its consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Tax Act"). Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Act. Because the amendments only relate to the reclassification of the income rate tax effect of the Tax Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2018 and interim periods in those years. The Company is not able to quantify or cannot reasonably estimate quantitative information related to the impact of the new standard on its consolidated financial statements at this time.

In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The amendments add various Securities and Exchange Commission (“SEC) paragraphs pursuant to the issuance of SEC Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“Act”) (“SAB 118”). The SEC issued SAB 118 to address concerns about reporting entities’ ability to timely comply with the accounting requirements to recognize all of the effects of the Act in the period of enactment. SAB 118 allows disclosure that timely determination of some or all of the income tax effects from the Act are incomplete by the due date of the financial statements and if possible to provide a reasonable estimate. The Company has provided a reasonable estimate of the tax reform in the notes to the consolidated financial statements.

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Fair Value Measurement

6 Months Ended

Jun. 30, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurement

Fair Value Measurement

The Company utilizes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions. The fair value hierarchy consists of the following three levels:

Level 1 –	Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 –	Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
Level 3 –	Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

The following financial instruments are not measured at fair value on the Company’s condensed consolidated balance sheet as of June 30, 2018 and the consolidated balance sheet as of December 31, 2017, but require disclosure of their fair values: cash and cash equivalents, short-term investments, accounts receivable, accounts payable and debt. The carrying values of financial instruments such as cash and cash equivalents, accounts receivable and accounts payable approximate their fair values based on their short-term nature. The carrying value of the Company's debt approximates their fair values based on the current rates available to the Company for debt of similar terms and maturities

To manage certain exposures to currency fluctuations, the Company started a limited hedging program during the three months ended June 30, 2018 by entering into foreign currency forward contracts with maturities of one month to hedge a portion of its net outstanding foreign currency monetary assets and liabilities. These derivatives are recorded at fair value on the condensed consolidated balance sheet under "Other Current Assets" or "Accounts Payable - Trade" with changes in the fair value being recorded in "Other income (loss), net".

These derivative contracts are entered into with a single counterparty, and are not designated as hedging instruments under applicable accounting guidance. As such, all changes in the fair value of these derivative contracts are recorded in other income (loss), net on the condensed consolidated statements of comprehensive income (loss). These derivative contracts are intended to offset the foreign currency gains or losses associated with the underlying monetary assets and liabilities, and changes in the related derivative assets and liabilities balances are classified outside of operating income (loss), consistent with the related underlying foreign currency gain or loss. 

These derivative contracts expose the Company to credit risk to the extent that the counterparty may be unable to meet the terms of the arrangement. The Company mitigates this credit risk by transacting with reputable financial institutions and entering into master netting arrangements, which permit net settlement of transactions with the same counterparty. While the contract or notional amount is often used to express the volume of foreign currency derivative contracts, the amounts potentially subject to credit risk are generally limited to the amounts, if any, by which the counterparties’ obligations under the agreements exceed the obligations of the Company to the counterparties. The Company is not required to pledge, and is not entitled to receive, cash collateral related to these derivative instruments. The Company does not enter into derivative contracts for trading or speculative purposes. 

As of June 30, 2018, the Company had derivative contracts with total notional values of $20.1 million. The Company's foreign currency contracts are classified within Level 2 because the valuation inputs are based on quoted prices and market observable data of similar instruments in active markets, such as currency spot and forward rates. The fair values of these outstanding derivative contracts as of June 30, 2018 was a $1.0 million liability, included in accounts payable - trade.

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Cash, Cash Equivalents and Restricted Cash

6 Months Ended

Jun. 30, 2018

Cash and Cash Equivalents [Abstract]

Cash, Cash Equivalents and Restricted Cash

Cash, Cash Equivalents and Restricted Cash

As of June 30, 2018 and December 31, 2017, the Company's cash and cash equivalents comprised financial deposits. Restricted cash consisted primarily of cash restricted for performance bonds, warranty bonds and collateral for borrowings. Current and long-term restricted cash was $11.6 million at June 30, 2018 and $13.9 million at December 31, 2017.

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Balance Sheet Detail

6 Months Ended

Jun. 30, 2018

Inventory Disclosure [Abstract]

Balance Sheet Detail

Balance Sheet Detail

Accounts Receivable

Accounts receivable, net as of June 30, 2018 and December 31, 2017 was as follows (in thousands):

	June 30, 2018				December 31, 2017
Gross accounts receivable	$	67,531			$	63,446
Allowance for doubtful accounts	(368		)		(922		)
Allowance for sales returns	—			(1)	(769		)
Total allowances	(368		)		(1,691		)
Accounts receivable, net	$	67,163			$	61,755

⁽¹⁾ Upon adoption of ASC 606, allowances for sales returns were reclassified to accrued and other liabilities as these reserve balances are considered estimated refund liabilities. Refer to footnote 1(g) for additional information about the adoption impact.

Inventories

Inventories as of June 30, 2018 and December 31, 2017 were as follows (in thousands):

	June 30, 2018		December 31, 2017
Raw materials	$	16,730	$	12,671
Work in process	2,030		2,150
Finished goods	19,427		10,523
Total inventories	$	38,187	$	25,344

Inventories provided as collateral for borrowings from Export-Import Bank of Korea amounted to $23.4 million and $11.4 million as of June 30, 2018 and December 31, 2017, respectively.

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Property and Equipment

6 Months Ended

Jun. 30, 2018

Property, Plant and Equipment [Abstract]

Property and Equipment

Property and Equipment

Property and equipment as of June 30, 2018 and December 31, 2017 were as follows (in thousands):

	June 30, 2018			December 31, 2017
Furniture and fixtures	$	22,066		$	22,988
Machinery and equipment	5,557			5,455
Leasehold improvements	3,613			3,647
Computers and software	682			621
Others	975			1,007
	32,893			33,718
Less: accumulated depreciation and amortization	(27,260		)	(27,584		)
Less: government grants	(201		)	(261		)
Property and equipment, net	$	5,432		$	5,873

Depreciation expense associated with property and equipment for the three and six months endedJune 30, 2018 was $0.4 million and $0.8 million respectively. Depreciation expense for the three and six months ended June 30, 2017 was $0.5 million and $1.0 million, respectively.

The Company receives grants from various government entities, mainly to support capital expenditures. Such grants are deferred and are generally refundable to the extent the Company does not utilize the funds for qualifying expenditures. Once earned, the Company records the grants as a contra amount to the assets and amortizes such amount over the useful lives of the related assets as a reduction to depreciation expense.

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Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible Assets

Goodwill as of June 30, 2018 and December 31, 2017 was as follows (in thousands):

	June 30, 2018		December 31, 2017
Beginning balance	$	3,977	$	3,977
Less: accumulated impairment	—		—
Ending balance	$	3,977	$	3,977

The Company did not recognize impairment loss on goodwill during the six months endedJune 30, 2018 and 2017. Intangible assets as of June 30, 2018 and December 31, 2017 were as follows (in thousands):

	June 30, 2018
	Gross Carrying Amount		Accumulated Amortization			Net
Developed technology	$	3,060	$	(1,122	)	$	1,938
Customer relationships	5,240		(961		)	4,279
Backlog	2,179		(2,179		)	—
Total intangible assets	$	10,479	$	(4,262	)	$	6,217

	December 31, 2017
	Gross Carrying Amount		Accumulated Amortization			Net
Developed technology	$	3,060	$	(816	)	$	2,244
Customer relationships	5,240		(699		)	4,541
Backlog	2,179		(2,179		)	—
Total intangible assets	$	10,479	$	(3,694	)	$	6,785

Amortization expense associated with intangible assets for the three and six months endedJune 30, 2018 was $0.3 million and $0.6 million, respectively. Amortization expense associated with intangible assets for the three and six months ended June 30, 2017 was $0.7 million and $1.4 million, respectively.

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Debts

6 Months Ended

Jun. 30, 2018

Debt Disclosure [Abstract]

Debts

Debts

Wells Fargo Bank Facility

As of June 30, 2018, the Company had a $25.0 million revolving line of credit and letter of credit facility (then and as subsequently amended and replaced) with WFB, (the "WFB Facility"). Under the WFB Facility, the Company has the option of borrowing funds at agreed upon interest rates. The amount that the Company is able to borrow under the WFB Facility varies based on eligible accounts receivable and inventory, as defined in the WFB Facility, as long as the aggregate amount outstanding does not exceed $25.0 million less the amount committed as security for letters of credit. To maintain availability of funds under the WFB Facility, the Company pays a commitment fee on the unused portion. The commitment fee is 0.25% per annum and is recorded as interest expense.

As of June 30, 2018, the Company had $8.0 million in outstanding borrowings under its WFB Facility (included in short-term debts), and $2.1 million was committed as security for letters of credit. Subsequent to the end of the quarter, on July 6, 2018, the Company repaid the $8.0 million borrowings under the WFB Facility. Based on the Company's eligible accounts receivable and inventory, the Company had $2.2 million of financing availability under the WFB Facility as of June 30, 2018. The interest rate on the WFB Facility was 4.59% at June 30, 2018.

Subsequent to the end of the quarter, on July 12, 2018, the Company entered into an Amended and Restated Credit and Security Agreement (the “A&R Domestic Credit Agreement”) and an Amended and Restated Credit and Security Agreement ("Ex-Im Subfacility") (the “A&R Ex-Im Credit Agreement”) with WFB, which amended and replaced the Company’s existing senior secured revolving line of credit and letter of credit facilities with WFB and revised certain reporting and compliance provisions. The A&R Domestic Credit Agreement and the A&R Ex-Im Credit Agreement provide for a revolving line of credit of $25.0 million (including up to $5.0 million of letters of credit), with the amount that the Company is able to borrow based on eligible accounts receivable and inventory, less the amount committed as security for letters of credit. To maintain availability of funds under the A&R Domestic Credit Agreement and the A&R Ex-Im Credit Agreement, the Company will continue to pay a commitment fee of 0.25% per annum on the unused portion. The amounts borrowed under the amended WFB Facility continue to bear interest, payable monthly, at a floating rate equal to the three-month LIBOR plus a margin based on the Company's average excess availability (as calculated under the WFB Facility). The new maturity date under the WFB Facility is also extended from July 15, 2019 to July 12, 2021.

The Company’s obligations under the WFB Facility are secured by substantially all of its assets and those of its subsidiaries that guarantee the WFB Facility, including their intellectual property. The WFB Facility contains certain financial covenants, and customary affirmative and negative covenants. If the Company defaults under the WFB Facility due to a covenant breach or otherwise, WFB may be entitled to, among other things, require the immediate repayment of all outstanding amounts and sell the Company’s assets to satisfy the obligations under the WFB Facility. As of June 30, 2018, the Company was in compliance with the covenants under the WFB Facility.

Bank and Trade Facilities - Foreign Operations

Certain of the Company's foreign subsidiaries have entered into various financing arrangements with foreign banks and other lending institutions consisting primarily of revolving lines of credit, trade facilities, term loans and export development loans. These facilities are renewed as they mature and are generally secured by a security interest in certain assets of the applicable foreign subsidiaries and supported by guarantees given by DNI or third parties. Payments under such facilities are made in accordance with the given lender’s amortization schedules.

As of June 30, 2018 and December 31, 2017, the Company had an aggregate outstanding balance of $31.9 million (included in short-term debts) and $22.8 million ($19.8 million included in short-term debts), respectively, under such financing arrangements, and the interest rates per annum applicable to outstanding borrowings under these financing arrangements were as listed in the tables below (amount in thousands).

		As of June 30, 2018
		Interest rate (%)	Amount
Industrial Bank of Korea	Credit facility	3.48-4.02	$	4,515
Industrial Bank of Korea	Trade finance	4.47-5.25	2,427
Shinhan Bank	General loan	6.06	2,853
Shinhan Bank	Trade finance	4.16	1,200
NongHyup Bank	Credit facility	3.90-4.10	2,569
The Export-Import Bank of Korea	Export development loan	3.20-3.28	7,270
LGUPlus	General loan	0	1,782
JECC Factoring	AR Factoring	1.58	6,362
Shinhan Bank (India)	General loan	8.70-8.90	2,896
			$	31,874

		As of December 31, 2017
		Interest rate (%)	Amount
Industrial Bank of Korea	Credit facility	2.89 - 3.26	$	2,328
Industrial Bank of Korea	Trade Finance	4.47 - 5.97	2,401
Shinhan Bank	General loan	5.91	2,987
Shinhan Bank	Trade finance	3.90 - 4.14	3,050
NongHyup Bank (Korea)	Credit facility	2.83 - 3.42	860
The Export-Import Bank of Korea	Export development loan	3.20 - 3.28	7,570
Mitsubishi Bank (Japan)	AR factoring	1.58	1,872
Shinhan Bank (India)	General loan	8.70 - 8.90	1,709
			$	22,777

As of June 30, 2018, the Company had $7.1 million in outstanding borrowings and $1.1 million committed as security for letters of credit under the Company's $12.0 million credit facility with certain foreign banks. On June 18, 2018, the Company's Korean subsidiary received a mutual cooperation capital loan of $1.8 million from LGUPlus and provided a letter of guarantee of the same amount from Seoul Guarantee Insurance as collateral.

See Note 9 for a discussion of related-party debt.

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Non-Controlling Interests

6 Months Ended

Jun. 30, 2018

Noncontrolling Interest [Abstract]

Non-Controlling Interests

Non-Controlling Interests

Non-controlling interests for the six months endedJune 30, 2018 and 2017 were as follows (in thousands):

	Six Months Ended June 30,
	2018			2017
Beginning non-controlling interests	$	534		$	416
Net income (loss) attributable to non-controlling interests	(27		)	184
Foreign currency translation adjustments	8			21
Ending non-controlling interests	$	515		$	621

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Related-Party Transactions

6 Months Ended

Jun. 30, 2018

Related Party Transactions [Abstract]

Related-Party Transactions

Related-Party Transactions

Related-Party Acquisitions

On December 31, 2017, DNS acquired 100% and 99.99% of the common stock of D-Mobile Limited (“D-Mobile”) and DASAN India Private Limited ("DASAN India"), respectively, from DNI. D-Mobile and DASAN India are resellers of the Company's products in Taiwan and India, respectively. The consideration payable by the Company to DNI for the common stock of the two subsidiaries is the net book value of D-Mobile and DASAN India at December 31, 2017, subject to final adjustments. The net book value of D-Mobile and DASAN India was an aggregate of $0.8 million. These transactions were accounted for by the Company as common control transactions, with the net assets transferred recorded at historical cost. The transactions did not result in a change in reporting entity and hence were accounted for prospectively.

Related-Party Debt

In connection with the Merger, on September 9, 2016, the Company entered into a loan agreement with DNI for a $5.0 million unsecured subordinated term loan facility. Under the loan agreement, the Company was permitted to request drawdowns of one or more term loans in an aggregate principal amount not to exceed $5.0 million. As of June 30, 2018, $5.0 million in term loans was outstanding under the facility. Such term loans mature in September 2021 and are pre-payable at any time by the Company without premium or penalty. The interest rate as of June 30, 2018 under this facility was 4.6% per annum.

Also, the Company borrowed $1.8 million from DNI for capital investment in February 2016, which amount was outstanding as of June 30, 2018. This loan matures in July 2019 and bears interest at a rate of 4.6% per annum, payable annually.

On March 21, 2018, DNS borrowed KRW6.5 billion ($5.8 million) from DNI, which remained outstanding at June 30, 2018. The loan bears interest at a rate of 4.6% and matures on June 27, 2019, and is secured by certain accounts receivable of DNS Korea.

Other Related-Party Transactions

Sales and purchases, cost of revenue, research and product development, selling, marketing, general and administrative, interest expense and other expenses to and from related parties for the three and six months ended June 30, 2018 and 2017 were as follows (in thousands):

		Three Months Ended June 30, 2018
Counterparty	DNI ownership Interest	Sales		Cost of revenue		Manufacturing (cost of revenue)		Research and product development		Selling, marketing, general and administrative		Interest expense		Other expenses
DNI (Parent Company)	N/A	$	962	$	750	$	—	$	—	$	1,144	$	69	$	79
Tomato Soft Ltd.	100%	—		—		38		—		—		—		—
Tomato Soft (Xi'an) Ltd.	100%	—		—		—		123		—		—		—
Chasan Networks Co., Ltd.	100%	—		—		268		18		—		—		—
Dasan France	100%	—		—		—		—		—		—		—
Handysoft, Inc.	17.63%	108		39		—		—		2		—		—
		$	1,070	$	789	$	306	$	141	$	1,146	$	69	$	79

		Three Months Ended June 30, 2017
Counterparty	DNI ownership Interest	Sales		Cost of revenue		Manufacturing (cost of revenue)		Research and product development		Selling, marketing, general and administrative		Other expenses
DNI (Parent Company)	N/A	$	8,480	$	7,095	$	—	$	—	$	1,326	$	57
Chasan Networks Co., Ltd.	100%	—		—		187		32		—		—
Dasan France	100%	556		549		—		—		300		—
D-Mobile	100%	1,811		741		—		—		94		—
Fine Solution	100%	—		—		—		—		1		—
HandySoft, Inc.	17.64%	14		2		—		—		—		—
Tomato Soft (Xi'an) Ltd.	100%	—		—		—		133		37		—
Solueta	27.21%	—		—		—		—		—		3
		$	10,861	$	8,387	$	187	$	165	$	1,758	$	60

		Six Months Ended June 30, 2018
Counterparty	DNI ownership Interest	Sales		Cost of revenue		Manufacturing (cost of revenue)		Research and product development		Selling, marketing, general and administrative		Interest expense		Other expenses
DNI (Parent Company)	N/A	$	2,210	$	1,873	$	—	$	—	$	2,166	$	71	$	145
Tomato Soft Ltd.	100%	—		—		57		—		—		—		—
Tomato Soft (Xi'an) Ltd.	100%	—		—		10		2,777		—		—		—
Chasan Networks Co., Ltd.	100%	—		—		592		36		—		—		—
Dasan France	100%	202		177		—		—		—		—		—
HandySoft, Inc.	17.63%	256		149		—		—		2		—		—
		$	2,668	$	2,199	$	659	$	2,813	$	2,168	$	71	$	145

			Six Months Ended June 30, 2017
Counterparty	DNI ownership Interest		Sales		Cost of revenue		Manufacturing (cost of revenue)		Research and product development		Selling, marketing, general and administrative		Other expenses
DNI (Parent Company)	N/A		$	12,631	$	10,416	$	—	$	—	$	2,200	$	120
Chasan Networks Co., Ltd.	100	%	—		—		382		59		—		—
Dasan France	100	%	950		936		—		—		300		—
Dasan India Private Limited(1)	100	%	6,287		4,783		—		—		—		—
D-Mobile(1)	100	%	1,822		754		—		—		196		—
Fine Solution	100	%	—		—		—		—		4		—
HandySoft, Inc.	17.64	%	34		11		—		—		—		—
J-Mobile Corporation	68.56	%	8		—		—		—		132		—
Tomato Soft (Xi'an) Ltd.	100	%	—		—		—		304		37		—
Solueta	27.21	%	—		—		—		—		—		3
			$	21,732	$	16,900	$	382	$	363	$	2,869	$	123

_{(1) As discussed above, on December 31, 2017 DNS acquired DASAN India and D-Mobile from DNI.}

The Company has entered into sales agreements with DNI and certain of its subsidiaries. Sales and cost of revenue to DNI and DASAN France (and with respect to the first and second quarters of 2017, DASAN India and D-Mobile) represent finished goods produced by the Company that are sold to these related parties who sell the Company's products in Korea, France, India and Taiwan, respectively.

The Company has entered into an agreement with Chasan Networks Co., Ltd. to provide manufacturing and research and development services for the Company. Under the agreement with Chasan Networks., Ltd., the Company is charged a cost plus 7% fee for the manufacturing and development of certain deliverables.

The Company has entered into an agreement with Tomato Soft Ltd., a wholly owned subsidiary of DNI, to provide manufacturing and research and development services for the Company.

The Company has entered into an agreement with Tomato Soft (Xi'an) Ltd. to provide research and development services for the Company. Under the agreement with Tomato Soft (Xi'an) Ltd., the Company is charged an expected annual fee of $0.8 million for the development of certain deliverables.

Prior to the Merger, as DNS was then a wholly owned subsidiary of DNI, DNI had sales agreements with certain customers on DNS' behalf. Since the Merger, due to these prior sales agreements, the Company has entered into an agreement with DNI in which DNI acts as a sales channel to these customers. Sales to DNI necessary for DNI to fulfill agreements with its customers are recorded net of royalty fees in related-party revenue.

The Company shares office space with DNI and certain of DNI's subsidiaries. Prior to the Merger, DNS, then a wholly owned subsidiary of DNI, shared human resources, treasury and other administrative support with DNI. As such, the Company entered into certain service sharing agreements with DNI and certain of its subsidiaries for the office space and administrative services. Expenses related to leases and administrative services are allocated and billed to the Company based on square footage occupied and headcount, respectively.

Other expenses to related parties represent payment to DNI for its guarantees relating to the Company's borrowings. The Company pays DNI a guarantee fee which is calculated as 0.9% of the guaranteed amount.

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 June 30, 2018 and December 31, 2017 were as follows (in thousands):

		As of June 30, 2018
Counterparty	DNI ownership Interest	Account receivables		Other receivables		Deposits for lease *		Short-term debt		Long-term debt		Accounts payable		Other Payables
DNI (parent company)	N/A	$	565	$	—	$	751	$	5,795	$	6,800	$	1,253	$	1,399
Tomato Soft Ltd.	100%	—		—		—		—		—		—		9
Tomato Soft (Xi'an) Ltd.	100%	—		—		—		—		—		—		41
Dasan France	100%	461		65		—		—		—		—		—
HandySoft, Inc.	17.63%	198		—		—		—		—		28		—
Chasan Networks Co., Ltd.	100%	—		—		—		—		—		104		—
		$	1,224	$	65	$	751	$	5,795	$	6,800	$	1,385	$	1,449

		As of December 31, 2017
Counterparty	DNI Ownership Interest	Account receivables		Other receivables		Deposits for lease *		Long-term debt		Accounts payable		Other Payables		Accrued and other liabilities**
DNI (parent company)	N/A	$	12,576	$	93	$	786	$	6,800	$	1,264	$	1,859	$	59
Tomato Soft Ltd.	100%	—		—		—		—		—		18		—
Tomato Soft (Xi'an) Ltd.	100%	—		—		—		—		—		54		—
Dasan France	100%	870		71		—		—		—		—		—
HandySoft, Inc.	17.63%	52		—		—		—		—		—		—
Chasan Networks Co., Ltd.	100%	—		—		—		—		87		—		—
Solueta	100%	—		—		—		—		—		25		—
		$	13,498	$	164	$	786	$	6,800	$	1,351	$	1,956	$	59

_{* Included in other assets in the condensed consolidated balance sheets as of June 30, 2018 and December 31, 2017.} 

_{**Included in accrued and other liabilities in the condensed consolidated balance sheets as of June 30, 2018 and December 31, 2017.}

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Net Income (Loss) Per Share Attributable to DASAN Zhone Solutions, Inc.

6 Months Ended

Jun. 30, 2018

Earnings Per Share [Abstract]

Net Income (Loss) Per Share Attributable to DASAN Zhone Solutions, Inc.

Net Income (Loss) Per Share Attributable to DASAN Zhone Solutions, Inc.

Basic net income (loss) per share attributable to DASAN Zhone Solutions, Inc. is computed by dividing the net income (loss) attributable to DASAN Zhone Solutions, Inc. for the period by the weighted average number of shares of common stock outstanding during the period. The calculation of diluted net income (loss) per share attributable to DASAN Zhone Solutions, Inc. gives effect to common stock equivalents; however, potential common equivalent shares are excluded if their effect is antidilutive. Potential common equivalent shares are composed of incremental shares of common equivalent shares issuable upon the exercise of stock options and the vesting of restricted stock units.

The following table is a reconciliation of the numerator and denominator in the basic and diluted net income (loss) per share calculation (in thousands, except per share data):

	Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018		2017
Net income (loss) attributable to DASAN Zhone Solutions, Inc.	$	1,416	$	(809	)	$	1,523	$	(4,556	)
Weighted average number of shares outstanding:
Basic	16,438		16,380			16,425		16,380
Effect of dilutive securities:
Stock options, restricted stock units and share awards	234		—			220		—
Diluted	16,672		16,380			16,645		16,380
Net income (loss) per share attributable to DASAN Zhone Solutions, Inc.:
Basic	$	0.09	$	(0.05	)	$	0.09	$	(0.28	)
Diluted	$	0.08	$	(0.05	)	$	0.09	$	(0.28	)

During the three and six months ended June 30, 2018, the Company excluded 285 thousand, and 436 thousand stock options at a weighted average exercise price of $14.02, and $12.35, respectively, from diluted net income per share because their effect would have been antidilutive. 

Basic net income (loss) per share is the same as diluted net income (loss) per share for the three and six months endedJune 30, 2017 because the effects of stock options and restricted stock units would have been anti-dilutive.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2018

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Operating Leases

The Company has entered into operating leases for certain office space and equipment, some of which contain renewal options and escalation clauses. Estimated future lease payments under all non-cancellable operating leases with terms in excess of one year, including taxes and service fees, are as follows (in thousands):

	Operating Leases
Year ending December 31:
2018 (remainder of the year)	$	2,043
2019	3,993
2020	2,998
2021	2,590
2022	2,664
Thereafter	8,423
Total minimum lease payments	$	22,711

Warranties

The Company accrues warranty costs based on historical trends for the expected material and labor costs to provide warranty services. Warranty periods are generally one to five years from the date of shipment. The following table reconciles changes in the Company’s accrued warranties and related costs for the six months endedJune 30, 2018 and 2017 (in thousands):

	Six Months Ended June 30,
	2018			2017
Beginning balance	$	931		$	878
Charged to cost of revenue	728			239
Claims and settlements	(421		)	(381		)
Foreign exchange impact	9			15
Ending balance	$	1,247		$	751

Performance Bonds

In the normal course of operations, from time to time, the Company arranges for the issuance of various types of surety bonds, such as bid and performance bonds, which are agreements under which the surety company guarantees that the Company will perform in accordance with contractual or legal obligations. As of June 30, 2018, the Company had $2.9 million of surety bonds guaranteed by third parties.

Purchase Commitments

The Company has agreements with various contract manufacturers which include non-cancellable inventory purchase commitments. The Company’s inventory purchase commitments typically allow for cancellation of orders 30 days in advance of the required inventory availability date as set by the Company at time of order. The amount of non-cancellable purchase commitments outstanding, net of reserve, was $4.3 million as of June 30, 2018.

Payment Guarantees provided by Third Parties and DNI

The following table sets forth payment guarantees of the Company's indebtedness and other obligations as of June 30, 2018 (in thousands) that have been provided by third parties and DNI. DNI owns approximately 57.7% of the outstanding shares of the Company's common stock:

Guarantor	Amount Guaranteed (in thousands)		Description of Obligations Guaranteed
DNI	$	3,423	Borrowings from Shinhan Bank
DNI	1,712		Purchasing card from Shinhan Bank
DNI	12,355		Letter of credit from Industrial Bank of Korea
DNI	2,140		Purchasing Card from Industrial Bank of Korea
DNI	6,000		Letter of credit from NongHyup Bank
DNI	535		Purchasing card from NongHyup Bank
DNI	6,128		Borrowings from Export-Import Bank of Korea
DNI	6,000		Letter of credit from KookMin Bank
Industrial Bank of Korea	8,232		Letter of credit
NongHyup Bank	3,685		Letter of credit
Kookmin Bank	4,999		Letter of credit
Shinhan Bank	242		Purchasing card
Industrial Bank of Korea	1,556		Performance bonds
Industrial Bank of Korea	810		Purchasing Card
State Bank of India	38		Performance bonds
Seoul Guarantee Insurance Co.	3,961		Performance payment guarantee*
	$	61,816

_{*The Company is responsible for the warranty liabilities generally for the period of two years regarding major product sales and has contracted surety insurance over part of the warranty liabilities.} 

Royalties

The Company has certain royalty commitments associated with the shipment and licensing of certain products. Royalty expense is generally based on a dollar amount per unit shipped or a percentage of the underlying revenue and is recorded in cost of revenue.

Legal Proceedings

The Company is subject to various legal proceedings, claims and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, the Company records an accrual for legal contingencies that it has determined to be probable to the extent the amount of the loss can be reasonably estimated. The Company does not expect that the ultimate costs to resolve these matters will have a material adverse effect on its consolidated financial position or results of operations. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the results of operations of the period in which the ruling occurs, or future periods.

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Stock Option and Other Benefit Plans

6 Months Ended

Jun. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Option and Other Benefit Plans

Stock Option and Other Benefit Plans

2018 Employee Stock Purchase Plan

On May 22, 2018, the stockholders of the Company approved the adoption of the DASAN Zhone Solutions, Inc. 2018 Employee Stock Purchase Plan (the “ESPP”). The ESPP became effective upon stockholder approval and replaced the Company’s existing DASAN Zhone Solutions, Inc. 2002 Employee Stock Purchase Plan.

The ESPP authorizes the issuance of up to 250,000 shares of the Company’s common stock. In addition, the ESPP provides for an annual increase on the first day of each calendar year beginning on January 1, 2019 and ending on and including January 1, 2028 equal to the lesser of (1) 1% of the shares outstanding on the last day of the immediately preceding calendar year and (2) such smaller number of shares as may be determined by the Board in its sole discretion. Notwithstanding the foregoing, the number of shares of stock that may be issued or transferred pursuant to awards under the ESPP may not exceed an aggregate of 2,000,000 shares.

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Enterprise-Wide Information

6 Months Ended

Jun. 30, 2018

Segment Reporting [Abstract]

Enterprise-Wide Information

Enterprise-Wide Information

The Company is a global provider of network access solutions and communications equipment for service provider and enterprise networks. There are no segment managers who are held accountable for operations, operating results and plans for levels or components below the Company unit level. Accordingly, the Company is considered to be in a single reporting segment and operating unit structure. The Company’s chief operating decision maker is the Company’s Chief Executive Officer, who reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geographic region for purposes of making operating decisions and assessing financial performance. The Company attributes revenue from customers to individual bill to countries. The following summarizes required disclosures about geographical concentrations and revenue by products and services (in thousands):

	Three Months Ended				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
Revenue by geography:
United States	$	13,630	$	11,961	$	30,179	$	24,108
Canada	1,321		1,422		2,293		2,614
Total North America	14,951		13,383		32,472		26,722
Latin America	7,312		7,075		15,269		11,945
Europe, Middle East, Africa	9,475		6,253		16,963		11,756
Korea	19,111		32,197		31,235		48,513
Other Asia Pacific	25,408		1,033		39,822		13,117
Total International	61,306		46,558		103,289		85,331
Total	$	76,257	$	59,941	$	135,761	$	112,053

	Three Months Ended				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
Revenue by classification:
Products	$	73,317	$	57,278	$	130,043	$	107,003
Services	2,940		2,663		5,718		5,050
Total	$	76,257	$	59,941	$	135,761	$	112,053

The Company's property and equipment, net of accumulated depreciation, were located in the following geographical areas as of June 30, 2018 and December 31, 2017 (in thousands):

	As of June 30, 2018		As of December 31, 2017
United States	$	3,238	$	3,393
Korea	1,382		1,633
Other Asia Pacific	812		847
	$	5,432	$	5,873

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Income Taxes

6 Months Ended

Jun. 30, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income tax expense for the three and six months ended June 30, 2018 was $0.3 million for each period, on pre-tax income of $1.7 million and $1.8 million, respectively. For the three and six months ended June 30, 2017, income tax expense was $0.1 million and $0.5 million, respectively, on pre-tax losses of $0.8 million and $3.8 million, respectively.

As of June 30, 2018, the income tax rate varied from the United States statutory income tax rate primarily due to valuation allowances in the United States, income attributable to foreign jurisdictions taxed at rates different from the United States federal statutory rate, and tax credits.

The total amount of unrecognized tax benefits, including interest and penalties, at June 30, 2018 was $0.5 million. The amount of tax benefits that would impact the effective income tax rate, if recognized, is $0.1 million. There were no significant changes to unrecognized tax benefits during the quarters ended June 30, 2017 and June 30, 2018. The Company does not anticipate any significant changes with respect to unrecognized tax benefits within the next 12 months.

The Company has recognized the provisional tax impacts related to the Tax Act in the Company’s consolidated financial statements for the year ended December 31, 2017. The ultimate impact may differ from provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Act. The Company has not yet determined its policy election with respect to whether to record deferred taxes for basis differences expected to reverse as a result of the global intangible low-taxed income (“GILTI”) provisions in future periods or use the period cost method. The Company has, however, included an estimate of the current GILTI impact in its tax provision for 2018. The Company continues to evaluate the impact of the tax reform and the accounting is expected to be completed when the Company's 2017 U.S. corporate income tax return is filed in 2018.

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Organization and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Reclassifications

Reclassifications

For the three months ended June 30, 2017, certain prior period statement of comprehensive income (loss) items have been reclassified to correctly reflect research and product development expenses and selling, marketing, general and administrative expenses of $0.1 million and $0.1 million, respectively, which were previously incorrectly classified as cost of revenue-products and services. For the six months ended June 30, 2017 certain prior period statement of comprehensive loss items have been reclassified to correctly reflect research and product development expenses and selling, marketing, general and administrative expenses of $0.3 million and $0.4 million, respectively, which were previously incorrectly classified as cost of revenue-products and services.

Basis of Presentation

Basis of Presentation

For a description of what the Company believes to be the critical accounting policies and estimates used in the preparation of the Company's unaudited condensed consolidated financial statements, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the Company does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

The unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) that, in the opinion of management, are necessary for a fair statement of the results for the interim periods presented. All intercompany transactions and balances have been eliminated in consolidation. The results of operations for the current interim period are not necessarily indicative of results to be expected for the current year or any other period. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission.

Concentration of Risk

basis.

(f) Concentration of Risk

The Company’s customers include competitive and incumbent local exchange carriers, competitive access providers, internet service providers, wireless carriers and resellers serving these markets. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Allowances are maintained for potential doubtful accounts.

For the three and six months ended June 30, 2018, one customer accounted for 22% and 15% of net revenue, respectively. For the three months ended June 30, 2017, two customers represented 11% and 14% (a related party) of net revenue, respectively. For the six months ended June 30, 2017, one customer represented 12% (a related party) of net revenue.

As of June 30, 2018, two customers represented 23% and 11% of net accounts receivable, respectively. As of December 31, 2017, two customers represented 20% (a related party) and 11% of net accounts receivable, respectively.

As of June 30, 2018 and December 31, 2017, receivables from customers in countries other than the United States represented 80% and 84%, respectively, of net accounts receivable.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Recent Accounting Pronouncements Adopted

In May 2014, the FASB issued ASU No. 2014-09 “Revenue from Contracts with Customers” (“Topic 606”), which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Topic 606 replaced most existing revenue recognition standards under U.S. GAAP, including ASC 605, Revenue Recognition ("Topic 605").

On January 1, 2018, the Company adopted Topic 606 and applied this guidance to all open contracts at the date of adoption using the modified retrospective method. The Company recognized the cumulative effect of initially applying Topic 606 as an adjustment to the balance of accumulated deficit at January 1, 2018. The comparative information has not been restated and continues to be reported under Topic 605.

The Company’s adoption of Topic 606 primarily impacted the following:

• Topic 606 requires an allocation of revenue between deliverables (performance obligations) within an arrangement. Topic 605 restricted the allocation of revenue that is contingent on future deliverables to current deliverables, however, Topic 606 removes this restriction, to the extent that the future deliverables represent performance obligations that are distinct. Under Topic 606, the nature of the performance obligations identified within a contract impacts the allocation of the transaction price between deliverables.

• Some of the Company’s contracts include customer acceptance terms, which provides protection to the customer by allowing it to either cancel a contract or force the Company to take corrective actions if products or services do not meet the requirements in the contract. Under Topic 606, customer acceptance that is considered a “formality”, would result in revenue recognized when control of the product or service is transferred to customer, which is typically upon shipment or delivery dependent upon the terms of the underlying contract.

The following table summarizes the effects of Topic 606 on the Company’s unaudited condensed consolidated balance sheet at January 1, 2018 (in thousands):

	As of January 1, 2018
	Balance after adoption of ASC 606			Adjustments				Balance without adoption of ASC 606
Assets
Accounts receivable, net	$	62,099		$	344		(1)	$	61,755
Inventories	25,239			(105		)	(2)	25,344
Liabilities
Contract liabilities - current	2,866			(413		)	(2)	3,279
Accrued and other liabilities	11,518			344			(1)	11,174
Stockholders’ equity
Accumulated deficit	(18,544		)	308				(18,852		)

⁽¹⁾ Allowance for sales returns was historically presented as a contra-asset within accounts receivable on the Company's consolidated balance sheets. Upon the adoption of Topic 606, the Company presents the allowance for sales returns in Accrued and other liabilities (current).

⁽²⁾ Represents the impact of allocation of transaction price to separate performance obligations in open contracts as of the adoption date on a relative standalone selling price basis and acceleration of revenue (and related costs) for contracts for which acceptance clauses are a formality.

The following table summarizes the effects of Topic 606 on the Company’s unaudited condensed consolidated balance sheet at June 30, 2018 (in thousands): 

	As of June 30, 2018
	As reported			Adjustments				Balance without adoption of ASC 606
Assets
Accounts receivable, net	$	67,163		$	512		(1)	$	66,651
Inventories	38,187			66			(2)	38,121
Liabilities
Contract liabilities - current	2,600			347			(2)	2,253
Accrued and other liabilities	9,431			512			(1)	8,919
Stockholders’ equity
Accumulated deficit	(16,988		)	(281		)		(16,707		)

⁽¹⁾ Allowance for sales returns was historically presented as a contra-asset within accounts receivable on the Company's consolidated balance sheets. Upon the adoption of Topic 606, the Company presents the allowance for sales returns in Accrued and other liabilities (current).

⁽²⁾ Represents the impact of allocation of transaction price to separate performance obligations in open contracts as of June 30, 2018 on a relative standalone selling price basis and acceleration of revenue (and related costs) for contracts for which acceptance clauses are a formality.

The following table summarizes the effects of Topic 606 on the Company’s unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2018 (in thousands):

	Three Months Ended June 30, 2018
	As reported			Adjustments			Balance without adoption of ASC 606
Net revenue	$	76,257		$	(152	)	$	76,409
Cost of revenue - products and services	53,092			(5		)	53,097
Gross profit	23,165			(147		)	23,312
Provision for income taxes	(341		)	—			(341		)
Net income	1,355			(147		)	1,502

	Six Months Ended June 30, 2018
	As reported			Adjustments			Balance without adoption of ASC 606
Net revenue	$	135,761		$	(347	)	$	136,108
Cost of revenue - products and services	90,861			(66		)	90,927
Gross profit	44,900			(281		)	45,181
Provision for income taxes	(336		)	—			(336		)
Net income	1,496			(281		)	1,777

During the three and six months ended June 30, 2018, $0.3 million and $0.6 million respectively, was recognized as revenue from the opening contract liabilities balance.

There was no impact on net revenue from related parties as a result of Topic 606.

In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows, Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The updated guidance became effective for the Company on January 1, 2018 and was adopted accordingly. The adoption of this standard did not have any effect on the Company's condensed consolidated statement of cash flows for the three and six months ended June 31, 2018 or 2017.

In November 2016, FASB issued ASU 2016-18, Statement of Cash Flows, Restricted Cash, which requires that a statement of cash flows to explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents. The updated guidance became effective for the Company beginning on January 1, 2018 and was adopted accordingly, using the retrospective approach. As a result, the Company no longer presents transfers between cash and cash equivalents and restricted cash in the consolidated cash flow statements. The condensed consolidated statement of cash flows for the six months ended June 30, 2017 was revised to exclude the $1.3 million change in restricted cash from net cash used in investing activities and to include $6.7 million and $8.3 million in cash, cash equivalents and restricted cash, beginning of period and cash, cash equivalents and restricted cash, end of period, respectively.  

Other Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires that lease arrangements longer than 12 months result in an entity recognizing an asset and liability. The updated guidance is effective for the Company on January 1, 2019, and early adoption is permitted. The Company does not plan to early adopt this guidance. The Company expects its assets and liabilities to increase as a result of the adoption of this standard. In July 2018, the FASB issued ASU 2018-18-11, Leases(Topic 842): Targeted Improvements, ASU 2018-11 states that, separating components of a contract affect the amendments in Update 2016-02, which are not yet effective but can be early adopted. All entities, including early adopters, that elect the practical expedient related to separating components of a contract in this Update must apply the expedient, by class of underlying asset, to all existing lease transactions that qualify for the expedient at the date elected. The Company is currently assessing the potential impact of adopting this new guidance on its consolidated financial statements.

In January 2017, FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairment. The updated guidance is effective for the Company on January 1, 2020, and will be adopted accordingly. Early adoption is permitted. The Company is currently assessing the potential impact of adopting this new guidance on its consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Tax Act"). Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Act. Because the amendments only relate to the reclassification of the income rate tax effect of the Tax Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2018 and interim periods in those years. The Company is not able to quantify or cannot reasonably estimate quantitative information related to the impact of the new standard on its consolidated financial statements at this time.

In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The amendments add various Securities and Exchange Commission (“SEC) paragraphs pursuant to the issuance of SEC Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“Act”) (“SAB 118”). The SEC issued SAB 118 to address concerns about reporting entities’ ability to timely comply with the accounting requirements to recognize all of the effects of the Act in the period of enactment. SAB 118 allows disclosure that timely determination of some or all of the income tax effects from the Act are incomplete by the due date of the financial statements and if possible to provide a reasonable estimate. The Company has provided a reasonable estimate of the tax reform in the notes to the consolidated financial statements.

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Organization and Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Schedule of the Effects of Topic 606

The following table summarizes the effects of Topic 606 on the Company’s unaudited condensed consolidated balance sheet at January 1, 2018 (in thousands):

	As of January 1, 2018
	Balance after adoption of ASC 606			Adjustments				Balance without adoption of ASC 606
Assets
Accounts receivable, net	$	62,099		$	344		(1)	$	61,755
Inventories	25,239			(105		)	(2)	25,344
Liabilities
Contract liabilities - current	2,866			(413		)	(2)	3,279
Accrued and other liabilities	11,518			344			(1)	11,174
Stockholders’ equity
Accumulated deficit	(18,544		)	308				(18,852		)

⁽¹⁾ Allowance for sales returns was historically presented as a contra-asset within accounts receivable on the Company's consolidated balance sheets. Upon the adoption of Topic 606, the Company presents the allowance for sales returns in Accrued and other liabilities (current).

⁽²⁾ Represents the impact of allocation of transaction price to separate performance obligations in open contracts as of the adoption date on a relative standalone selling price basis and acceleration of revenue (and related costs) for contracts for which acceptance clauses are a formality.

The following table summarizes the effects of Topic 606 on the Company’s unaudited condensed consolidated balance sheet at June 30, 2018 (in thousands): 

	As of June 30, 2018
	As reported			Adjustments				Balance without adoption of ASC 606
Assets
Accounts receivable, net	$	67,163		$	512		(1)	$	66,651
Inventories	38,187			66			(2)	38,121
Liabilities
Contract liabilities - current	2,600			347			(2)	2,253
Accrued and other liabilities	9,431			512			(1)	8,919
Stockholders’ equity
Accumulated deficit	(16,988		)	(281		)		(16,707		)

⁽¹⁾ Allowance for sales returns was historically presented as a contra-asset within accounts receivable on the Company's consolidated balance sheets. Upon the adoption of Topic 606, the Company presents the allowance for sales returns in Accrued and other liabilities (current).

⁽²⁾ Represents the impact of allocation of transaction price to separate performance obligations in open contracts as of June 30, 2018 on a relative standalone selling price basis and acceleration of revenue (and related costs) for contracts for which acceptance clauses are a formality.

The following table summarizes the effects of Topic 606 on the Company’s unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2018 (in thousands):

	Three Months Ended June 30, 2018
	As reported			Adjustments			Balance without adoption of ASC 606
Net revenue	$	76,257		$	(152	)	$	76,409
Cost of revenue - products and services	53,092			(5		)	53,097
Gross profit	23,165			(147		)	23,312
Provision for income taxes	(341		)	—			(341		)
Net income	1,355			(147		)	1,502

	Six Months Ended June 30, 2018
	As reported			Adjustments			Balance without adoption of ASC 606
Net revenue	$	135,761		$	(347	)	$	136,108
Cost of revenue - products and services	90,861			(66		)	90,927
Gross profit	44,900			(281		)	45,181
Provision for income taxes	(336		)	—			(336		)
Net income	1,496			(281		)	1,777

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Balance Sheet Detail (Tables)

6 Months Ended

Jun. 30, 2018

Inventory Disclosure [Abstract]

Accounts receivable, net

Accounts receivable, net as of June 30, 2018 and December 31, 2017 was as follows (in thousands):

	June 30, 2018				December 31, 2017
Gross accounts receivable	$	67,531			$	63,446
Allowance for doubtful accounts	(368		)		(922		)
Allowance for sales returns	—			(1)	(769		)
Total allowances	(368		)		(1,691		)
Accounts receivable, net	$	67,163			$	61,755

⁽¹⁾ Upon adoption of ASC 606, allowances for sales returns were reclassified to accrued and other liabilities as these reserve balances are considered estimated refund liabilities. Refer to footnote 1(g) for additional information about the adoption impact.

Inventories

Inventories as of June 30, 2018 and December 31, 2017 were as follows (in thousands):

	June 30, 2018		December 31, 2017
Raw materials	$	16,730	$	12,671
Work in process	2,030		2,150
Finished goods	19,427		10,523
Total inventories	$	38,187	$	25,344

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Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2018

Property, Plant and Equipment [Abstract]

Property and Equipment, Net

Property and equipment as of June 30, 2018 and December 31, 2017 were as follows (in thousands):

	June 30, 2018			December 31, 2017
Furniture and fixtures	$	22,066		$	22,988
Machinery and equipment	5,557			5,455
Leasehold improvements	3,613			3,647
Computers and software	682			621
Others	975			1,007
	32,893			33,718
Less: accumulated depreciation and amortization	(27,260		)	(27,584		)
Less: government grants	(201		)	(261		)
Property and equipment, net	$	5,432		$	5,873

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Goodwill and Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill

Goodwill as of June 30, 2018 and December 31, 2017 was as follows (in thousands):

	June 30, 2018		December 31, 2017
Beginning balance	$	3,977	$	3,977
Less: accumulated impairment	—		—
Ending balance	$	3,977	$	3,977

Schedule of Intangible Assets

Intangible assets as of June 30, 2018 and December 31, 2017 were as follows (in thousands):

	June 30, 2018
	Gross Carrying Amount		Accumulated Amortization			Net
Developed technology	$	3,060	$	(1,122	)	$	1,938
Customer relationships	5,240		(961		)	4,279
Backlog	2,179		(2,179		)	—
Total intangible assets	$	10,479	$	(4,262	)	$	6,217

	December 31, 2017
	Gross Carrying Amount		Accumulated Amortization			Net
Developed technology	$	3,060	$	(816	)	$	2,244
Customer relationships	5,240		(699		)	4,541
Backlog	2,179		(2,179		)	—
Total intangible assets	$	10,479	$	(3,694	)	$	6,785

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Debts (Tables)

6 Months Ended

Jun. 30, 2018

Debt Disclosure [Abstract]

Schedule of Debt

As of June 30, 2018 and December 31, 2017, the Company had an aggregate outstanding balance of $31.9 million (included in short-term debts) and $22.8 million ($19.8 million included in short-term debts), respectively, under such financing arrangements, and the interest rates per annum applicable to outstanding borrowings under these financing arrangements were as listed in the tables below (amount in thousands).

		As of June 30, 2018
		Interest rate (%)	Amount
Industrial Bank of Korea	Credit facility	3.48-4.02	$	4,515
Industrial Bank of Korea	Trade finance	4.47-5.25	2,427
Shinhan Bank	General loan	6.06	2,853
Shinhan Bank	Trade finance	4.16	1,200
NongHyup Bank	Credit facility	3.90-4.10	2,569
The Export-Import Bank of Korea	Export development loan	3.20-3.28	7,270
LGUPlus	General loan	0	1,782
JECC Factoring	AR Factoring	1.58	6,362
Shinhan Bank (India)	General loan	8.70-8.90	2,896
			$	31,874

		As of December 31, 2017
		Interest rate (%)	Amount
Industrial Bank of Korea	Credit facility	2.89 - 3.26	$	2,328
Industrial Bank of Korea	Trade Finance	4.47 - 5.97	2,401
Shinhan Bank	General loan	5.91	2,987
Shinhan Bank	Trade finance	3.90 - 4.14	3,050
NongHyup Bank (Korea)	Credit facility	2.83 - 3.42	860
The Export-Import Bank of Korea	Export development loan	3.20 - 3.28	7,570
Mitsubishi Bank (Japan)	AR factoring	1.58	1,872
Shinhan Bank (India)	General loan	8.70 - 8.90	1,709
			$	22,777

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Non-Controlling Interests (Tables)

6 Months Ended

Jun. 30, 2018

Noncontrolling Interest [Abstract]

Non-controlling interests

Non-controlling interests for the six months endedJune 30, 2018 and 2017 were as follows (in thousands):

	Six Months Ended June 30,
	2018			2017
Beginning non-controlling interests	$	534		$	416
Net income (loss) attributable to non-controlling interests	(27		)	184
Foreign currency translation adjustments	8			21
Ending non-controlling interests	$	515		$	621

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Related-Party Transactions (Tables)

6 Months Ended

Jun. 30, 2018

Related Party Transactions [Abstract]

Schedule of Related Party Transactions

Balances of receivables and payables arising from sales and purchases of goods and services with related parties as of June 30, 2018 and December 31, 2017 were as follows (in thousands):

		As of June 30, 2018
Counterparty	DNI ownership Interest	Account receivables		Other receivables		Deposits for lease *		Short-term debt		Long-term debt		Accounts payable		Other Payables
DNI (parent company)	N/A	$	565	$	—	$	751	$	5,795	$	6,800	$	1,253	$	1,399
Tomato Soft Ltd.	100%	—		—		—		—		—		—		9
Tomato Soft (Xi'an) Ltd.	100%	—		—		—		—		—		—		41
Dasan France	100%	461		65		—		—		—		—		—
HandySoft, Inc.	17.63%	198		—		—		—		—		28		—
Chasan Networks Co., Ltd.	100%	—		—		—		—		—		104		—
		$	1,224	$	65	$	751	$	5,795	$	6,800	$	1,385	$	1,449

		As of December 31, 2017
Counterparty	DNI Ownership Interest	Account receivables		Other receivables		Deposits for lease *		Long-term debt		Accounts payable		Other Payables		Accrued and other liabilities**
DNI (parent company)	N/A	$	12,576	$	93	$	786	$	6,800	$	1,264	$	1,859	$	59
Tomato Soft Ltd.	100%	—		—		—		—		—		18		—
Tomato Soft (Xi'an) Ltd.	100%	—		—		—		—		—		54		—
Dasan France	100%	870		71		—		—		—		—		—
HandySoft, Inc.	17.63%	52		—		—		—		—		—		—
Chasan Networks Co., Ltd.	100%	—		—		—		—		87		—		—
Solueta	100%	—		—		—		—		—		25		—
		$	13,498	$	164	$	786	$	6,800	$	1,351	$	1,956	$	59

_{* Included in other assets in the condensed consolidated balance sheets as of June 30, 2018 and December 31, 2017.} 

_{**Included in accrued and other liabilities in the condensed consolidated balance sheets as of June 30, 2018 and December 31, 2017.}

Sales and purchases, cost of revenue, research and product development, selling, marketing, general and administrative, interest expense and other expenses to and from related parties for the three and six months ended June 30, 2018 and 2017 were as follows (in thousands):

		Three Months Ended June 30, 2018
Counterparty	DNI ownership Interest	Sales		Cost of revenue		Manufacturing (cost of revenue)		Research and product development		Selling, marketing, general and administrative		Interest expense		Other expenses
DNI (Parent Company)	N/A	$	962	$	750	$	—	$	—	$	1,144	$	69	$	79
Tomato Soft Ltd.	100%	—		—		38		—		—		—		—
Tomato Soft (Xi'an) Ltd.	100%	—		—		—		123		—		—		—
Chasan Networks Co., Ltd.	100%	—		—		268		18		—		—		—
Dasan France	100%	—		—		—		—		—		—		—
Handysoft, Inc.	17.63%	108		39		—		—		2		—		—
		$	1,070	$	789	$	306	$	141	$	1,146	$	69	$	79

		Three Months Ended June 30, 2017
Counterparty	DNI ownership Interest	Sales		Cost of revenue		Manufacturing (cost of revenue)		Research and product development		Selling, marketing, general and administrative		Other expenses
DNI (Parent Company)	N/A	$	8,480	$	7,095	$	—	$	—	$	1,326	$	57
Chasan Networks Co., Ltd.	100%	—		—		187		32		—		—
Dasan France	100%	556		549		—		—		300		—
D-Mobile	100%	1,811		741		—		—		94		—
Fine Solution	100%	—		—		—		—		1		—
HandySoft, Inc.	17.64%	14		2		—		—		—		—
Tomato Soft (Xi'an) Ltd.	100%	—		—		—		133		37		—
Solueta	27.21%	—		—		—		—		—		3
		$	10,861	$	8,387	$	187	$	165	$	1,758	$	60

		Six Months Ended June 30, 2018
Counterparty	DNI ownership Interest	Sales		Cost of revenue		Manufacturing (cost of revenue)		Research and product development		Selling, marketing, general and administrative		Interest expense		Other expenses
DNI (Parent Company)	N/A	$	2,210	$	1,873	$	—	$	—	$	2,166	$	71	$	145
Tomato Soft Ltd.	100%	—		—		57		—		—		—		—
Tomato Soft (Xi'an) Ltd.	100%	—		—		10		2,777		—		—		—
Chasan Networks Co., Ltd.	100%	—		—		592		36		—		—		—
Dasan France	100%	202		177		—		—		—		—		—
HandySoft, Inc.	17.63%	256		149		—		—		2		—		—
		$	2,668	$	2,199	$	659	$	2,813	$	2,168	$	71	$	145

			Six Months Ended June 30, 2017
Counterparty	DNI ownership Interest		Sales		Cost of revenue		Manufacturing (cost of revenue)		Research and product development		Selling, marketing, general and administrative		Other expenses
DNI (Parent Company)	N/A		$	12,631	$	10,416	$	—	$	—	$	2,200	$	120
Chasan Networks Co., Ltd.	100	%	—		—		382		59		—		—
Dasan France	100	%	950		936		—		—		300		—
Dasan India Private Limited(1)	100	%	6,287		4,783		—		—		—		—
D-Mobile(1)	100	%	1,822		754		—		—		196		—
Fine Solution	100	%	—		—		—		—		4		—
HandySoft, Inc.	17.64	%	34		11		—		—		—		—
J-Mobile Corporation	68.56	%	8		—		—		—		132		—
Tomato Soft (Xi'an) Ltd.	100	%	—		—		—		304		37		—
Solueta	27.21	%	—		—		—		—		—		3
			$	21,732	$	16,900	$	382	$	363	$	2,869	$	123

_{(1) As discussed above, on December 31, 2017 DNS acquired DASAN India and D-Mobile from DNI.}

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Net Income (Loss) Per Share Attributable to DASAN Zhone Solutions, Inc. (Tables)

6 Months Ended

Jun. 30, 2018

Earnings Per Share [Abstract]

Schedule of earnings per share, basic and diluted

The following table is a reconciliation of the numerator and denominator in the basic and diluted net income (loss) per share calculation (in thousands, except per share data):

	Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018		2017
Net income (loss) attributable to DASAN Zhone Solutions, Inc.	$	1,416	$	(809	)	$	1,523	$	(4,556	)
Weighted average number of shares outstanding:
Basic	16,438		16,380			16,425		16,380
Effect of dilutive securities:
Stock options, restricted stock units and share awards	234		—			220		—
Diluted	16,672		16,380			16,645		16,380
Net income (loss) per share attributable to DASAN Zhone Solutions, Inc.:
Basic	$	0.09	$	(0.05	)	$	0.09	$	(0.28	)
Diluted	$	0.08	$	(0.05	)	$	0.09	$	(0.28	)

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Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2018

Commitments and Contingencies Disclosure [Abstract]

Estimated Future Lease Payments under All Non Cancelable Operating Leases

The Company has entered into operating leases for certain office space and equipment, some of which contain renewal options and escalation clauses. Estimated future lease payments under all non-cancellable operating leases with terms in excess of one year, including taxes and service fees, are as follows (in thousands):

	Operating Leases
Year ending December 31:
2018 (remainder of the year)	$	2,043
2019	3,993
2020	2,998
2021	2,590
2022	2,664
Thereafter	8,423
Total minimum lease payments	$	22,711

Reconciliation of Changes in Accrued Warranties and Related Costs

The following table reconciles changes in the Company’s accrued warranties and related costs for the six months endedJune 30, 2018 and 2017 (in thousands):

	Six Months Ended June 30,
	2018			2017
Beginning balance	$	931		$	878
Charged to cost of revenue	728			239
Claims and settlements	(421		)	(381		)
Foreign exchange impact	9			15
Ending balance	$	1,247		$	751

Payment Guarantees Provided by Third Parties

The following table sets forth payment guarantees of the Company's indebtedness and other obligations as of June 30, 2018 (in thousands) that have been provided by third parties and DNI. DNI owns approximately 57.7% of the outstanding shares of the Company's common stock:

Guarantor	Amount Guaranteed (in thousands)		Description of Obligations Guaranteed
DNI	$	3,423	Borrowings from Shinhan Bank
DNI	1,712		Purchasing card from Shinhan Bank
DNI	12,355		Letter of credit from Industrial Bank of Korea
DNI	2,140		Purchasing Card from Industrial Bank of Korea
DNI	6,000		Letter of credit from NongHyup Bank
DNI	535		Purchasing card from NongHyup Bank
DNI	6,128		Borrowings from Export-Import Bank of Korea
DNI	6,000		Letter of credit from KookMin Bank
Industrial Bank of Korea	8,232		Letter of credit
NongHyup Bank	3,685		Letter of credit
Kookmin Bank	4,999		Letter of credit
Shinhan Bank	242		Purchasing card
Industrial Bank of Korea	1,556		Performance bonds
Industrial Bank of Korea	810		Purchasing Card
State Bank of India	38		Performance bonds
Seoul Guarantee Insurance Co.	3,961		Performance payment guarantee*
	$	61,816

_{*The Company is responsible for the warranty liabilities generally for the period of two years regarding major product sales and has contracted surety insurance over part of the warranty liabilities.}

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Enterprise-Wide Information (Tables)

6 Months Ended

Jun. 30, 2018

Segment Reporting [Abstract]

Revenue by Geography

The following summarizes required disclosures about geographical concentrations and revenue by products and services (in thousands):

	Three Months Ended				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
Revenue by geography:
United States	$	13,630	$	11,961	$	30,179	$	24,108
Canada	1,321		1,422		2,293		2,614
Total North America	14,951		13,383		32,472		26,722
Latin America	7,312		7,075		15,269		11,945
Europe, Middle East, Africa	9,475		6,253		16,963		11,756
Korea	19,111		32,197		31,235		48,513
Other Asia Pacific	25,408		1,033		39,822		13,117
Total International	61,306		46,558		103,289		85,331
Total	$	76,257	$	59,941	$	135,761	$	112,053

Revenue by Products and Services

	Three Months Ended				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
Revenue by classification:
Products	$	73,317	$	57,278	$	130,043	$	107,003
Services	2,940		2,663		5,718		5,050
Total	$	76,257	$	59,941	$	135,761	$	112,053

Revenue by Geographical Area

The Company's property and equipment, net of accumulated depreciation, were located in the following geographical areas as of June 30, 2018 and December 31, 2017 (in thousands):

	As of June 30, 2018		As of December 31, 2017
United States	$	3,238	$	3,393
Korea	1,382		1,633
Other Asia Pacific	812		847
	$	5,432	$	5,873

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Organization and Summary of Significant Accounting Policies - Additional Information (Detail) $ in Thousands		3 Months Ended		6 Months Ended		12 Months Ended
	Feb. 28, 2017	Jun. 30, 2018 USD ($) customer country shares	Jun. 30, 2017 USD ($) customer	Jun. 30, 2018 USD ($) customer country shares	Jun. 30, 2017 USD ($) customer	Dec. 31, 2017 USD ($) customer shares	Jan. 01, 2018 USD ($)	Feb. 27, 2017 shares
Significant Accounting Policies [Line Items]
Number of customers | customer		1,000		1,000
Number of countries in which entity operates | country		50		50
Net income (loss) attributable to DASAN Zhone Solutions, Inc.		$ 1,416	$ (809)	$ 1,523	$ (4,556)	$ 1,200
Accumulated deficit		16,988		16,988		18,852	$ 18,544
Working Capital		61,100		61,100
Net cash used in operating activities				(15,410)	(6,812)
Cash and cash equivalents		27,308	$ 9,902	27,308	$ 9,902	$ 17,475
Debt		52,500		52,500
Debt, current		45,700		45,700
Credit facility, remaining borrowing capacity		$ 5,600		$ 5,600
Common stock, authorized (in shares) | shares		36,000,000		36,000,000		36,000,000		180,000,000
Common stock, issued (in shares) | shares		16,400,000		16,400,000				81,900,000
Stock split, conversion ratio	0.2
Contract liability, revenue recognized		$ 300		$ 600
Net Revenue | One major customer
Significant Accounting Policies [Line Items]
Number of customers | customer		1		1	1
Net Revenue | Two major customers
Significant Accounting Policies [Line Items]
Number of customers | customer			2
Net Revenue | Customer concentration risk | One major customer
Significant Accounting Policies [Line Items]
Concentration risk, percentage		22.00%		15.00%	12.00%
Net Revenue | Customer concentration risk | Two major customers, customer one
Significant Accounting Policies [Line Items]
Concentration risk, percentage			11.00%
Net Revenue | Customer concentration risk | Two major customers, customer two
Significant Accounting Policies [Line Items]
Concentration risk, percentage			14.00%
Accounts receivable | Two major customers
Significant Accounting Policies [Line Items]
Number of customers | customer				2		2
Accounts receivable | Customer concentration risk | Two major customers, customer one
Significant Accounting Policies [Line Items]
Concentration risk, percentage				23.00%		20.00%
Accounts receivable | Customer concentration risk | Two major customers, customer two
Significant Accounting Policies [Line Items]
Concentration risk, percentage				11.00%		11.00%
Accounts receivable | Geographic concentration risk | Other than the United States
Significant Accounting Policies [Line Items]
Concentration risk, percentage				80.00%		84.00%
WFB Facility
Significant Accounting Policies [Line Items]
Credit facility, remaining borrowing capacity		$ 2,200		$ 2,200
Credit facility, outstanding		$ 8,000		$ 8,000
Merger Agreement with Dragon Acquisition Company
Significant Accounting Policies [Line Items]
Percent of voting interest acquired		57.70%		57.70%
Dasan Network Solutions, Inc (DNS Korea) [Member]
Significant Accounting Policies [Line Items]
Cash and cash equivalents		$ 12,500		$ 12,500
Revolving Credit Facility
Significant Accounting Policies [Line Items]
Credit facility, remaining borrowing capacity		$ 3,200		3,200
Research and product development expense
Significant Accounting Policies [Line Items]
Error correction, amount			$ 100		$ 300
Selling, general and administrative expenses
Significant Accounting Policies [Line Items]
Error correction, amount			$ 100		400
Accounting Standards Update 2016-18
Significant Accounting Policies [Line Items]
Cash, cash equivalents and restricted cash, increase (decrease)				$ 8,300	$ (1,300)	$ 6,700

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Organization and Summary of Significant Accounting Policies - Topic 606 Adoption (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Jan. 01, 2018	Dec. 31, 2017
Consolidated Balance Balance Sheet
Accounts receivable, net	$ 67,163		$ 67,163		$ 62,099	$ 61,755
Inventories	38,187		38,187		25,239	25,344
Contract liabilities - current	2,600		2,600		2,866	3,279
Accrued and other liabilities	9,431		9,431		11,518	11,174
Accumulated deficit	(16,988)		(16,988)		(18,544)	(18,852)
Consolidated Statement of Operations
Net revenue	76,257	$ 59,941	135,761	$ 112,053
Cost of revenue - products and services	53,092	40,508	90,861	74,390
Gross profit	23,165	19,433	44,900	37,663
Income tax expense	(341)	(99)	(336)	(539)
Net income (loss)	1,355	$ (874)	1,496	$ (4,372)
Difference between revenue guidance in effect before and after Topic 606 | Accounting Standards Update 2014-09
Consolidated Balance Balance Sheet
Accounts receivable, net	512		512		344
Inventories	66		66		(105)
Contract liabilities - current	347		347		(413)
Accrued and other liabilities	512		512		344
Accumulated deficit	(281)		(281)		$ 308
Consolidated Statement of Operations
Net revenue	(152)		(347)
Cost of revenue - products and services	(5)		(66)
Gross profit	(147)		(281)
Income tax expense	0		0
Net income (loss)	(147)		(281)
Calculated under revenue guidance in effect before Topic 606
Consolidated Balance Balance Sheet
Accounts receivable, net	66,651		66,651			61,755
Inventories	38,121		38,121			25,344
Contract liabilities - current	2,253		2,253			3,279
Accrued and other liabilities	8,919		8,919			11,174
Accumulated deficit	(16,707)		(16,707)			$ (18,852)
Consolidated Statement of Operations
Net revenue	76,409		136,108
Cost of revenue - products and services	53,097		90,927
Gross profit	23,312		45,181
Income tax expense	(341)		(336)
Net income (loss)	$ 1,502		$ 1,777

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Fair Value Measurement (Details) - Foreign currency contracts $ in Millions	Jun. 30, 2018 USD ($)
Derivative [Line Items]
Derivative, notional amount	$ 20.1
Derivative, fair value	$ (1.0)

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Cash, Cash Equivalents and Restricted Cash (Details) - USD ($) $ in Millions	Jun. 30, 2018	Dec. 31, 2017
Cash and Cash Equivalents [Abstract]
Restricted cash	$ 11.6	$ 13.9

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Balance Sheet Detail - Accounts Receivable (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Jan. 01, 2018	Dec. 31, 2017
Inventory Disclosure [Abstract]
Gross accounts receivable	$ 67,531		$ 63,446
Allowance for doubtful accounts	(368)		(922)
Allowance for sales returns	0		(769)
Total allowances	(368)		(1,691)
Accounts receivable, net	$ 67,163	$ 62,099	$ 61,755

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Balance Sheet Detail - Inventories (Detail) - USD ($) $ in Thousands	Jun. 30, 2018	Jan. 01, 2018	Dec. 31, 2017
Inventory [Line Items]
Raw materials	$ 16,730		$ 12,671
Work in process	2,030		2,150
Finished goods	19,427		10,523
Inventories	38,187	$ 25,239	25,344
Collateral pledged
Inventory [Line Items]
Inventories	$ 23,400		$ 11,400

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Property and Equipment (Detail) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 32,893	$ 33,718
Less: accumulated depreciation and amortization	(27,260)	(27,584)
Less: government grants	(201)	(261)
Property and equipment, net	5,432	5,873
Furniture and fixtures
Property, Plant and Equipment [Line Items]
Property and equipment, gross	22,066	22,988
Machinery and equipment
Property, Plant and Equipment [Line Items]
Property and equipment, gross	5,557	5,455
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property and equipment, gross	3,613	3,647
Computers and software
Property, Plant and Equipment [Line Items]
Property and equipment, gross	682	621
Others
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 975	$ 1,007

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Property and Equipment - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Property, Plant and Equipment
Property, Plant and Equipment [Line Items]
Depreciation and amortization associated with property and equipment	$ 0.4	$ 0.5	$ 0.8	$ 1.0

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Goodwill and Intangible Assets (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Goodwill [Roll Forward]
Beginning balance, Goodwill			$ 3,977,000	$ 3,977,000
Less: accumulated impairment	$ 0		0		$ 0
Ending balance, Goodwill	3,977,000		3,977,000
Goodwill, impairment loss			0	0
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	10,479,000		10,479,000		10,479,000
Accumulated Amortization	(4,262,000)		(4,262,000)		(3,694,000)
Intangible assets, net	6,217,000		6,217,000		6,785,000
Amortization of intangible assets	300,000	$ 700,000	600,000	$ 1,400,000
Developed Technology
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	3,060,000		3,060,000		3,060,000
Accumulated Amortization	(1,122,000)		(1,122,000)		(816,000)
Intangible assets, net	1,938,000		1,938,000		2,244,000
Customer relationships
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	5,240,000		5,240,000		5,240,000
Accumulated Amortization	(961,000)		(961,000)		(699,000)
Intangible assets, net	4,279,000		4,279,000		4,541,000
Backlog
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	2,179,000		2,179,000		2,179,000
Accumulated Amortization	(2,179,000)		(2,179,000)		(2,179,000)
Intangible assets, net	$ 0		$ 0		$ 0

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Debts - Additional Information (Detail) - USD ($)	6 Months Ended
	Jun. 30, 2018	Jul. 12, 2018	Dec. 31, 2017
Line of Credit Facility [Line Items]
Letters of credit outstanding	$ 7,100,000
Credit facility, remaining borrowing capacity	5,600,000
Debt	31,900,000		$ 22,777,000
Short-term debt			$ 19,800,000
WFB Facility
Line of Credit Facility [Line Items]
Credit facility, maximum borrowing capacity	$ 25,000,000.0
Credit facility, commitment fee on unused capacity, percentage	0.25%
Credit facility, outstanding	$ 8,000,000
Letters of credit outstanding	2,100,000
Credit facility, remaining borrowing capacity	$ 2,200,000
Credit facility, interest rate	459.00%
A&R Domestic Credit Agreement
Line of Credit Facility [Line Items]
Credit facility, commitment fee on unused capacity, percentage	0.25%
LGUPlus, General Loan
Line of Credit Facility [Line Items]
Debt	$ 1,782,000
Revolving Credit Facility
Line of Credit Facility [Line Items]
Credit facility, remaining borrowing capacity	3,200,000
Letter of Credit | Letter of Credit
Line of Credit Facility [Line Items]
Letters of credit outstanding	1,100,000
Foreign Line of Credit | Foreign Line of Credit
Line of Credit Facility [Line Items]
Letters of credit outstanding	$ 12,000,000
Subsequent Event | Revolving Credit Facility | A&R Domestic Credit Agreement
Line of Credit Facility [Line Items]
Credit facility, maximum borrowing capacity		$ 25,000,000
Subsequent Event | Letter of Credit | A&R Domestic Credit Agreement
Line of Credit Facility [Line Items]
Credit facility, maximum borrowing capacity		$ 5,000,000

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Debts - Schedule of Short-Term Debt (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Short-term Debt [Line Items]
Debt	$ 31,900	$ 22,777
Letter of credit from Industrial Bank of Korea
Short-term Debt [Line Items]
Debt	4,515	2,328
Industrial Bank of Korean, Trade Finance
Short-term Debt [Line Items]
Debt	$ 2,427	$ 2,401
Borrowings from Shinhan Bank
Short-term Debt [Line Items]
Stated interest rate	6.06%	5.91%
Debt	$ 2,853	$ 2,987
Shinhan Bank, Trade Finance
Short-term Debt [Line Items]
Stated interest rate	4.16%
Debt	$ 1,200	3,050
Nonghyup Bank, Credit Facility
Short-term Debt [Line Items]
Debt	2,569	860
The Export-Import Bank of Korea, Export Development Loan
Short-term Debt [Line Items]
Debt	$ 7,270	7,570
LGUPlus, General Loan
Short-term Debt [Line Items]
Stated interest rate	0.00%
Debt	$ 1,782
JECC Factoring, AR Factoring
Short-term Debt [Line Items]
Stated interest rate	1.58%
Debt	$ 6,362
Mitsubishi Bank, SoftBank AR Factoring
Short-term Debt [Line Items]
Stated interest rate	1.58%
Debt		1,872
Shinhan Bank (India), General Loan
Short-term Debt [Line Items]
Debt	$ 2,896	$ 1,709
Minimum | Letter of credit from Industrial Bank of Korea
Short-term Debt [Line Items]
Stated interest rate	3.48%	2.89%
Minimum | Industrial Bank of Korean, Trade Finance
Short-term Debt [Line Items]
Stated interest rate	4.47%	4.47%
Minimum | Shinhan Bank, Trade Finance
Short-term Debt [Line Items]
Stated interest rate		3.90%
Minimum | Nonghyup Bank, Credit Facility
Short-term Debt [Line Items]
Stated interest rate	3.90%	2.83%
Minimum | The Export-Import Bank of Korea, Export Development Loan
Short-term Debt [Line Items]
Stated interest rate	3.20%	3.20%
Minimum | Shinhan Bank (India), General Loan
Short-term Debt [Line Items]
Stated interest rate	8.70%	8.70%
Maximum | Letter of credit from Industrial Bank of Korea
Short-term Debt [Line Items]
Stated interest rate	4.02%	3.26%
Maximum | Industrial Bank of Korean, Trade Finance
Short-term Debt [Line Items]
Stated interest rate	5.25%	5.97%
Maximum | Shinhan Bank, Trade Finance
Short-term Debt [Line Items]
Stated interest rate		4.14%
Maximum | Nonghyup Bank, Credit Facility
Short-term Debt [Line Items]
Stated interest rate	4.10%	3.42%
Maximum | The Export-Import Bank of Korea, Export Development Loan
Short-term Debt [Line Items]
Stated interest rate	3.28%	3.28%
Maximum | Shinhan Bank (India), General Loan
Short-term Debt [Line Items]
Stated interest rate	8.90%	8.90%

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Non-Controlling Interests (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Stockholders' Equity Attributable to Noncontrolling Interest [Roll Forward]
Beginning balance, non-controlling interest			$ 534	$ 416
Net income (loss) attributable to non-controlling interests	$ (61)	$ (65)	(27)	184
Foreign currency translation adjustments			8	21
Ending balance, non-controlling interest	$ 515	$ 621	$ 515	$ 621

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Related-Party Transactions (Details) $ in Thousands, ₩ in Billions			3 Months Ended		6 Months Ended		12 Months Ended
	Mar. 21, 2018 KRW (₩)	Mar. 21, 2018 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)	Mar. 27, 2018	Sep. 09, 2016
Related Party Transaction [Line Items]
Research and product development			$ 8,714	$ 9,141	$ 17,691	$ 18,523
D-Mobile
Related Party Transaction [Line Items]
Percent of voting interest acquired							100.00%
DASAN INDIA Private Limited
Related Party Transaction [Line Items]
Percent of voting interest acquired							99.99%
D-Mobile and DASAN India
Related Party Transaction [Line Items]
Purchase consideration							$ 800
DASAN | Loan Agreement | DNS US
Related Party Transaction [Line Items]
Stated interest rate								4.60%
Origination of notes receivable from related parties	₩ 6.5	$ 5,800
DASAN | Majority Shareholder
Related Party Transaction [Line Items]
Guarantee fee, percent					0.90%
Tomato Soft (Xi'an) Ltd.
Related Party Transaction [Line Items]
Research and product development					$ 800
Junior lien | DASAN | Majority Shareholder | Loan Agreement | DNS US
Related Party Transaction [Line Items]
Origination of notes receivable from related parties					$ 1,800
Junior lien | CHASAN Networks Co., Ltd. | Affiliated Entity | Loan Agreement | DNS US
Related Party Transaction [Line Items]
Manufacturing and development fee, percent			7.00%		7.00%
Unsecured debt | Junior lien | DASAN | Term Loan | Majority Shareholder | Loan Agreement
Related Party Transaction [Line Items]
Maximum borrowing amount			$ 5,000		$ 5,000
Stated interest rate			4.60%		4.60%				4.60%

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Related-Party Transactions - Sales and Purchases to and from Related Parties (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Related Party Transaction [Line Items]
Sales	$ 1,070,000	$ 10,861,000	$ 2,668,000	$ 21,732,000
Cost of revenue	1,095,000	8,574,000	2,858,000	17,282,000
Interest expense	69,000		71,000
Sales And Purchases To And From Related Parties
Related Party Transaction [Line Items]
Sales	1,070,000	10,861,000	2,668,000	21,732,000
Cost of revenue	789,000	8,387,000	2,199,000	16,900,000
Manufacturing (cost of revenue)	306,000	187,000	659,000	382,000
Research and product development	141,000	165,000	2,813,000	363,000
Selling, marketing, general and administrative	1,146,000	1,758,000	2,168,000	2,869,000
Other expenses	79,000	60,000	145,000	123,000
DASAN | Majority Shareholder | Sales And Purchases To And From Related Parties
Related Party Transaction [Line Items]
Sales	962,000	8,480,000	2,210,000	12,631,000
Cost of revenue	750,000	7,095,000	1,873,000	10,416,000
Manufacturing (cost of revenue)	0	0	0	0
Research and product development	0	0	0	0
Selling, marketing, general and administrative	1,144,000	1,326,000	2,166,000	2,200,000
Interest expense	69,000		71,000
Other expenses	$ 79,000	$ 57,000	$ 145,000	$ 120,000
Tomato Soft Ltd. | Affiliated Entity | Sales And Purchases To And From Related Parties
Related Party Transaction [Line Items]
Ownership interest	100.00%		100.00%
Sales	$ 0		$ 0
Cost of revenue	0		0
Manufacturing (cost of revenue)	38,000		57,000
Research and product development	0		0
Selling, marketing, general and administrative	0		0
Interest expense	0		0
Other expenses	$ 0		$ 0
Tomato Soft (Xi'an) Ltd. | Affiliated Entity | Sales And Purchases To And From Related Parties
Related Party Transaction [Line Items]
Ownership interest	100.00%	100.00%	100.00%	100.00%
Sales	$ 0	$ 0	$ 0	$ 0
Cost of revenue	0	0	0	0
Manufacturing (cost of revenue)	0	0	10,000	0
Research and product development	123,000	133,000	2,777,000	304,000
Selling, marketing, general and administrative	0	37,000	0	37,000
Interest expense	0		0
Other expenses	$ 0	$ 0	$ 0	$ 0
CHASAN Networks Co., Ltd. | Affiliated Entity | Sales And Purchases To And From Related Parties
Related Party Transaction [Line Items]
Ownership interest	100.00%	100.00%	100.00%	100.00%
Sales	$ 0	$ 0	$ 0	$ 0
Cost of revenue	0	0	0	0
Manufacturing (cost of revenue)	268,000	187,000	592,000	382,000
Research and product development	18,000	32,000	36,000	59,000
Selling, marketing, general and administrative	0	0	0	0
Interest expense	0		0
Other expenses	$ 0	$ 0	$ 0	$ 0
DASAN FRANCE | Affiliated Entity | Sales And Purchases To And From Related Parties
Related Party Transaction [Line Items]
Ownership interest	100.00%	100.00%	100.00%	100.00%
Sales	$ 0	$ 556,000	$ 202,000	$ 950,000
Cost of revenue	0	549,000	177,000	936,000
Manufacturing (cost of revenue)	0	0	0	0
Research and product development	0	0	0	0
Selling, marketing, general and administrative	0	300,000	0	300,000
Interest expense	0		0
Other expenses	$ 0	$ 0	$ 0	$ 0
HANDYSOFT, Inc. | Affiliated Entity | Sales And Purchases To And From Related Parties
Related Party Transaction [Line Items]
Ownership interest	17.63%	17.64%	17.63%	17.64%
Sales	$ 108,000	$ 14,000	$ 256,000	$ 34,000
Cost of revenue	39,000	2,000	149,000	11,000
Manufacturing (cost of revenue)	0	0	0	0
Research and product development	0	0	0	0
Selling, marketing, general and administrative	2,000	0	2,000	0
Interest expense	0		0
Other expenses	$ 0	$ 0	$ 0	$ 0
J-Mobile Corporation | Affiliated Entity | Sales And Purchases To And From Related Parties
Related Party Transaction [Line Items]
Ownership interest		68.56%		68.56%
Sales				$ 8,000
Cost of revenue				0
Manufacturing (cost of revenue)				0
Research and product development				0
Selling, marketing, general and administrative				132,000
Other expenses				$ 0
Fine Solution | Affiliated Entity | Sales And Purchases To And From Related Parties
Related Party Transaction [Line Items]
Ownership interest		100.00%		100.00%
Sales		$ 0		$ 0
Cost of revenue		0		0
Manufacturing (cost of revenue)		0		0
Research and product development		0		0
Selling, marketing, general and administrative		1,000		4,000
Other expenses		$ 0		$ 0
Solueta | Affiliated Entity | Sales And Purchases To And From Related Parties
Related Party Transaction [Line Items]
Ownership interest		27.21%		27.21%
Sales		$ 0		$ 0
Cost of revenue		0		0
Manufacturing (cost of revenue)		0		0
Research and product development		0		0
Selling, marketing, general and administrative		0		0
Other expenses		$ 3,000		$ 3,000
DASAN INDIA Private Limited | Affiliated Entity | Sales And Purchases To And From Related Parties
Related Party Transaction [Line Items]
Ownership interest		100.00%		100.00%
Sales				$ 6,287,000
Cost of revenue				4,783,000
Manufacturing (cost of revenue)				0
Research and product development				0
Selling, marketing, general and administrative				0
Other expenses				$ 0
D-Mobile | Affiliated Entity | Sales And Purchases To And From Related Parties
Related Party Transaction [Line Items]
Ownership interest		100.00%		100.00%
Sales		$ 1,811,000		$ 1,822,000
Cost of revenue		741,000		754,000
Manufacturing (cost of revenue)		0		0
Research and product development		0		0
Selling, marketing, general and administrative		94,000		196,000
Other expenses		$ 0		$ 0

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Related-Party Transactions - Balances of Receivables and Payables with Related Parties (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Related Party Transaction [Line Items]
Long-term debt	$ 52,500
Receivables And Payables With Related Parties
Related Party Transaction [Line Items]
Account receivables	1,224	$ 13,498
Other receivables	65	164
Deposits for lease	751	786
Short-term debt	5,795
Long-term debt	6,800	6,800
Accounts payable	1,385	1,351
Other Payables	1,449	1,956
Accrued and other liabilities		59
DASAN | Majority Shareholder | Receivables And Payables With Related Parties
Related Party Transaction [Line Items]
Account receivables	565	12,576
Other receivables	0	93
Deposits for lease	751	786
Short-term debt	5,795
Long-term debt	6,800	6,800
Accounts payable	1,253	1,264
Other Payables	$ 1,399	1,859
Accrued and other liabilities		$ 59
Tomato Soft Ltd. | Affiliated Entity | Receivables And Payables With Related Parties
Related Party Transaction [Line Items]
Ownership interest	100.00%	100.00%
Account receivables	$ 0	$ 0
Other receivables	0	0
Deposits for lease	0	0
Short-term debt	0
Long-term debt	0	0
Accounts payable	0	0
Other Payables	$ 9	18
Accrued and other liabilities		$ 0
Tomato Soft (Xi'an) Ltd. | Affiliated Entity | Receivables And Payables With Related Parties
Related Party Transaction [Line Items]
Ownership interest	100.00%	100.00%
Account receivables	$ 0	$ 0
Other receivables	0	0
Deposits for lease	0	0
Short-term debt	0
Long-term debt	0	0
Accounts payable	0	0
Other Payables	$ 41	54
Accrued and other liabilities		$ 0
DASAN FRANCE | Affiliated Entity | Receivables And Payables With Related Parties
Related Party Transaction [Line Items]
Ownership interest	100.00%	100.00%
Account receivables	$ 461	$ 870
Other receivables	65	71
Deposits for lease	0	0
Short-term debt	0
Long-term debt	0	0
Accounts payable	0	0
Other Payables	$ 0	0
Accrued and other liabilities		$ 0
HANDYSOFT, Inc. | Affiliated Entity | Receivables And Payables With Related Parties
Related Party Transaction [Line Items]
Ownership interest	17.63%	17.63%
Account receivables	$ 198	$ 52
Other receivables	0	0
Deposits for lease	0	0
Short-term debt	0
Long-term debt	0	0
Accounts payable	28	0
Other Payables	$ 0	0
Accrued and other liabilities		$ 0
CHASAN Networks Co., Ltd. | Affiliated Entity | Receivables And Payables With Related Parties
Related Party Transaction [Line Items]
Ownership interest	100.00%	100.00%
Account receivables	$ 0	$ 0
Other receivables	0	0
Deposits for lease	0	0
Short-term debt	0
Long-term debt	0	0
Accounts payable	104	87
Other Payables	$ 0	0
Accrued and other liabilities		$ 0
Solueta | Affiliated Entity | Receivables And Payables With Related Parties
Related Party Transaction [Line Items]
Ownership interest		100.00%
Account receivables		$ 0
Other receivables		0
Deposits for lease		0
Long-term debt		0
Accounts payable		0
Other Payables		25
Accrued and other liabilities		$ 0

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Net Income (Loss) Per Share Attributable to DASAN Zhone Solutions, Inc. - Reconciliation of Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Earnings Per Share [Abstract]
Net income (loss) attributable to DASAN Zhone Solutions, Inc.	$ 1,416	$ (809)	$ 1,523	$ (4,556)	$ 1,200
Basic, weighted average number of shares outstanding (in shares)	16,438	16,380	16,425	16,380
Dilutive effect of stock options and share awards (in shares)	234	0	220	0
Diluted (in shares)	16,672	16,380	16,645	16,380
Basic (in dollars per share)	$ 0.09	$ (0.05)	$ 0.09	$ (0.28)
Diluted (in dollars per share)	$ 0.08	$ (0.05)	$ 0.09	$ (0.28)

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Net Income (Loss) Per Share Attributable to DASAN Zhone Solutions, Inc. - Antidilutive securities (Details) - Stock options - $ / shares shares in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2018
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share, amount (in shares)	285	436
Weighted average exercise price (in dollars per share)	$ 14.02	$ 12.35

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Commitments and Contingencies - Estimated Future Lease Payments under All Non-Cancelable Operating Leases (Details) $ in Thousands	Jun. 30, 2018 USD ($)
Operating leases
2018 (remainder of the year)	$ 2,043
2019	3,993
2020	2,998
2021	2,590
2022	2,664
Thereafter	8,423
Total minimum lease payments	$ 22,711

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Commitments and Contingencies - Additional Information (Detail) $ in Millions	6 Months Ended
	Jun. 30, 2018 USD ($)
Purchase Commitment
Guarantor Obligations [Line Items]
Number of notice days required to notice in advance for cancellation of orders	30 days
Amount of non-cancellable purchase commitments outstanding	$ 4.3
Performance Bonds
Guarantor Obligations [Line Items]
Guarantor obligations	$ 2.9
Minimum
Guarantor Obligations [Line Items]
Product warranty period from the date of shipment	1 year
Maximum
Guarantor Obligations [Line Items]
Product warranty period from the date of shipment	5 years

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Commitments and Contingencies - Reconciliation of Changes in Accrued Warranties and Related Costs (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Movement in Standard Product Warranty Accrual [Roll Forward]
Beginning balance	$ 931	$ 878
Charged to cost of revenue	728	239
Claims and settlements	(421)	(381)
Foreign exchange impact	9	15
Ending balance	$ 1,247	$ 751

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Commitments and Contingencies - Payment Guarantees to Third Parties (Details)	6 Months Ended
	Jun. 30, 2018 USD ($)
Guarantor Obligations [Line Items]
Product warranty term	2 years
Payment Guarantee
Guarantor Obligations [Line Items]
Guarantor obligations	$ 61,816,000
DNS US | Payment Guarantee
Guarantor Obligations [Line Items]
Ownership interest	57.70%
DNS US | Borrowings from Shinhan Bank | Payment Guarantee
Guarantor Obligations [Line Items]
Guarantor obligations	$ 3,423,000
DNS US | Purchasing card from Shinhan Bank | Payment Guarantee
Guarantor Obligations [Line Items]
Guarantor obligations	1,712,000
DNS US | Letter of credit from Industrial Bank of Korea | Payment Guarantee
Guarantor Obligations [Line Items]
Guarantor obligations	12,355,000
DNS US | Purchasing Card from Industrial Bank of Korea | Payment Guarantee
Guarantor Obligations [Line Items]
Guarantor obligations	2,140,000
DNS US | Letter of credit from NongHyup Bank | Payment Guarantee
Guarantor Obligations [Line Items]
Guarantor obligations	6,000,000
DNS US | Purchasing card from NongHyup Bank | Payment Guarantee
Guarantor Obligations [Line Items]
Guarantor obligations	535,000
DNS US | Borrowings from Export-Import Bank of Korea | Payment Guarantee
Guarantor Obligations [Line Items]
Guarantor obligations	6,128,000
DNS US | Letter of credit from KookMin Bank | Payment Guarantee
Guarantor Obligations [Line Items]
Guarantor obligations	6,000,000
Industrial Bank of Korea | Purchasing Card from Industrial Bank of Korea | Payment Guarantee
Guarantor Obligations [Line Items]
Guarantor obligations	810,000
Industrial Bank of Korea | Letter of credit | Payment Guarantee
Guarantor Obligations [Line Items]
Guarantor obligations	8,232,000
Industrial Bank of Korea | Performance bonds | Payment Guarantee
Guarantor Obligations [Line Items]
Guarantor obligations	1,556,000
NongHyup Bank | Payment Guarantee
Guarantor Obligations [Line Items]
Guarantor obligations	3,685,000
Kookmin Bank | Payment Guarantee
Guarantor Obligations [Line Items]
Guarantor obligations	4,999,000
Shinhan Bank | Payment Guarantee
Guarantor Obligations [Line Items]
Guarantor obligations	242,000
State Bank of India | Payment Guarantee
Guarantor Obligations [Line Items]
Guarantor obligations	38,000
Seoul Guarantee Insurance Co. | Payment Guarantee
Guarantor Obligations [Line Items]
Guarantor obligations	$ 3,961,000

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Stock Option and Other Benefit Plans (Details) - Employee Stock Purchase Plan (ESPP)	May 22, 2018 shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (in shares)	250,000
Percent of shares outstanding maximum	1.00%
Shares that amy be issued or transferred (in shares)	2,000,000

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Enterprise-Wide Information - Revenue by Geography (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Revenue from External Customer [Line Items]
Net revenue	$ 76,257	$ 59,941	$ 135,761	$ 112,053
Total North America
Revenue from External Customer [Line Items]
Net revenue	14,951	13,383	32,472	26,722
United States
Revenue from External Customer [Line Items]
Net revenue	13,630	11,961	30,179	24,108
Canada
Revenue from External Customer [Line Items]
Net revenue	1,321	1,422	2,293	2,614
Total International
Revenue from External Customer [Line Items]
Net revenue	61,306	46,558	103,289	85,331
Latin America
Revenue from External Customer [Line Items]
Net revenue	7,312	7,075	15,269	11,945
Europe, Middle East, Africa
Revenue from External Customer [Line Items]
Net revenue	9,475	6,253	16,963	11,756
Korea
Revenue from External Customer [Line Items]
Net revenue	19,111	32,197	31,235	48,513
Other Asia Pacific
Revenue from External Customer [Line Items]
Net revenue	$ 25,408	$ 1,033	$ 39,822	$ 13,117

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Enterprise-Wide Information - Revenue by Products and Services (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Revenue from External Customer [Line Items]
Net revenue	$ 76,257	$ 59,941	$ 135,761	$ 112,053
Products
Revenue from External Customer [Line Items]
Net revenue	73,317	57,278	130,043	107,003
Services
Revenue from External Customer [Line Items]
Net revenue	$ 2,940	$ 2,663	$ 5,718	$ 5,050

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Enterprise-Wide Information - Property and Equipment, Net of Accumulated Depreciation (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Property, Plant and Equipment [Line Items]
Property and equipment, net	$ 5,432	$ 5,873
United States
Property, Plant and Equipment [Line Items]
Property and equipment, net	3,238	3,393
Korea
Property, Plant and Equipment [Line Items]
Property and equipment, net	1,382	1,633
Other Asia Pacific
Property, Plant and Equipment [Line Items]
Property and equipment, net	$ 812	$ 847

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Income Tax Disclosure [Abstract]
Income tax expense	$ 341	$ 99	$ 336	$ 539
Income (loss) before income taxes	1,696	(775)	1,832	$ (3,833)
Unrecognized tax benefits	500		500
Unrecognized tax benefits that would impact effective tax rate	100		$ 100
Unrecognized tax benefits, period increase (decrease)	$ 0	$ 0